1108 Fifth Avenue • San Rafael, CA 94901 • Westamerica.com
Westamerica
2 0 1 5 A n n u a l R e p o r t • 2 0 1 6 P r o x y S t a t e m e n t • N o t i c e o f A n n u a l M e e t i n g
1108 Fifth Avenue
San Rafael, California 94901
March 14, 2016
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 28, 2016, 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 the independent auditor;
(iv) consider and vote upon a shareholder proposal regarding an independent board chairman; and (v) 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 28, 2016, at the Hilton Garden Inn in
Fairfield, California.
Sincerely,
David L. Payne
Chairman of the Board, President
and Chief Executive Officer
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WESTAMERICA BANCORPORATION
1108 Fifth Avenue
San Rafael, California 94901
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Date: Thursday, April 28, 2016
Time: 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 2017 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;
4. To consider and vote upon shareholder proposal; and
5. To conduct other business that may properly come before the Annual Meeting and any adjournments or
postponements.
Who Can Vote?
Shareholders of Record at the close of business on February 29, 2016 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 (“registered 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 29, 2016, evidencing your ownership on February 29, 2016, the 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, 2015 is enclosed or is available for viewing as indicated on the Shareholder Meeting Notice
and on the Company’s website at: 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
March 14, 2016
Kris Irvine
VP/Corporate Secretary
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER
MEETING BEING HELD ON THURSDAY, APRIL 28, 2016. THE PROXY STATEMENT AND ANNUAL REPORT
ON FORM 10-K TO SHAREHOLDERS ARE AVAILABLE AT: www.westamerica.com.
YOUR VOTE IS IMPORTANT
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN YOUR PROXY, OR VOTE BY
TELEPHONE OR ONLINE USING THE PROCEDURES DESCRIBED IN THE PROXY STATEMENT.
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TABLE OF CONTENTS
GENERAL
Voting Information ...........................................................................................................................................................1
Additional Information .....................................................................................................................................................3
Stock Ownership ...............................................................................................................................................................4
Section 16(a) Beneficial Ownership Reporting Compliance ............................................................................................6
BOARD OF DIRECTORS
PROPOSAL 1: ELECTION OF DIRECTORS .............................................................................................................. 6
Nominees .........................................................................................................................................................................6
Name of Nominees, Principal Occupations, and Qualifications .....................................................................................6
Board of Directors and Committees .................................................................................................................................9
Director Compensation .................................................................................................................................................. 13
Director Compensation Table for Fiscal Year 2015 ...................................................................................................... 13
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis ........................................................................................................................ 13
Employee Benefits Compensation Committee Report .................................................................................................. 23
Compensation Committee Interlocks and Insider Participation .................................................................................... 24
Summary Compensation ................................................................................................................................................ 24
Summary Compensation Table for Fiscal Year 2015 ................................................................................................... 24
Grants of Plan-Based Awards Table for Fiscal Year 2015 ............................................................................................ 25
Outstanding Equity Awards Table at Fiscal Year End 2015 ......................................................................................... 26
Option Exercises and Stock Vested Table for Fiscal Year 2015 ................................................................................... 27
Pension Benefits for Fiscal Year 2015 ........................................................................................................................... 27
Nonqualified Deferred Compensation Table for Fiscal Year 2015 ............................................................................... 27
Potential Payments Upon Termination or Change in Control ....................................................................................... 28
Certain Relationships and Related Party Transactions ................................................................................................. 29
PROPOSAL 2: APPROVE A NON-BINDING ADVISORY VOTE ON THE
COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS ......................................................................... 29
PROPOSAL 3: RATIFY SELECTION OF INDEPENDENT AUDITOR ............................................................. 30
AUDIT COMMITTEE REPORT ................................................................................................................................... 32
PROPOSAL 4: REQUIRE INDEPENDENT BOARD CHAIRMAN ....................................................................... 33
SHAREHOLDER PROPOSAL GUIDELINES ............................................................................................................ 35
SHAREHOLDER COMMUNICATION TO BOARD OF DIRECTORS ................................................................. 36
OTHER MATTERS .......................................................................................................................................................... 36
EXHIBIT A - AUDIT COMMITTEE CHARTER ..................................................................................................... A-1
EXHIBIT B - NOMINATING COMMITTEE CHARTER ....................................................................................... B-1
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WESTAMERICA BANCORPORATION
1108 Fifth Avenue
San Rafael, California 94901
___________
PROXY STATEMENT
March 14, 2016
___________
GENERAL
The Westamerica Board of Directors is soliciting proxies to be used at the 2016 Annual Meeting of Shareholders of
Westamerica Bancorporation (the “Company”), which will be held at 11:00 a.m. Pacific Time, Thursday, April 28,
2016, 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 14, 2016, 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 29, 2016, the record date, or hold a
valid proxy for the meeting. In order to be admitted to the Annual Meeting, the Company reserves the right to request
proof of ownership of Westamerica Bancorporation common stock on the record date. This can be:
A brokerage statement or letter from a bank or broker indicating ownership on February 29, 2016;
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 Company 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, FOR ratifying the selection of independent auditor, and AGAINST the shareholder proposal regarding an
independent board chairman. The Proxies will also have discretionary authority to vote in accordance with their
judgment on any other matter that may properly come before the Annual Meeting that we did not have notice of by
January 22, 2016.
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Quorum and Shares Outstanding. A quorum, which is a majority of the total shares outstanding as of the record
date, must be present to hold the Annual Meeting. A quorum is calculated based on the number of shares represented
by shareholders attending in person or by proxy. On February 29, 2016, 25,400,207 shares of Westamerica
Bancorporation 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.
Abstentions
Uninstructed Shares
Management Vote
Recommendation
Proposal
Number
Proposals
1
2
3
4
Election of directors
Advisory vote on executive
compensation "Say on Pay"
Ratification of independent
auditor
Shareholder proposal -
independent board chairman
Votes Required
for Approval
Nine nominees
receiving the
most votes
Majority of
shares voted
Majority of
shares voted
Majority of
shares voted
Not voted
Not voted
Not voted
Not voted
Not voted
Broker
discretionary vote
FOR
FOR
FOR
Not voted
Not voted
AGAINST
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.
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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 by email.
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.
We have been advised by counsel that these telephone and internet voting procedures comply with California law.
Beneficial Shareholders. If your shares are held in a brokerage account in the name of your bank, broker, or other
holder of record (“beneficial holder” or “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 legal proxy, executed in your favor, from the holder of
record to be able to vote in person at the Annual Meeting.
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 25, 2016. All other shareholders voting by telephone or
internet must vote by 12:01 a.m. Central Time, on April 28, 2016 to ensure that their vote is counted.
Revocation of Proxy. Registered 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 12:01 a.m. Central Time, on April 28, 2016 (prior to 11:59 p.m. Central Time, on April 25, 2016 for ESOP
participants); or (c) attending the annual Meeting in person and casting a ballot. If you are a beneficial holder, 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
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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 2015 Annual Report are
available on the Company’s website at: www.westamerica.com. If you hold your Westamerica Bancorporation 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 Bancorporation common stock outstanding as of December 31, 2015, in addition to
those disclosed in the Security Ownership of Directors and Management section below, were:
Name and Address of Beneficial Owner
T. Rowe Price Associates, Inc
100 East Pratt Street, Baltimore, MD 21202-1009
BlackRock, Inc.
55 East 52nd Street, New York, NY 10055
American Century Investment Management, Inc.
4500 Main Street, Kansas City, MO 64111
The Vanguard Group, Inc.
100 Vanguard Boulevard, Malvern, PA 19355
_________________________
Title of Class
Number of Shares
Beneficially Owned
Percent of Class
Common
Common
Common
Common
2,600,278
2,414,734
2,391,015
1,934,241
(1)
(2)
(3)
(4)
10.10%
9.50%
9.37%
7.57%
(1) The Schedule 13G was filed with the SEC on February 9, 2016. 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.
(2) The Schedule 13G filed with the SEC on January 27, 2016 disclosed that the reporting entity, BlackRock, Inc., held sole voting power over
2,339,807 shares and sole dispositive power over 2,414,734 shares.
(3) The Schedule 13G filed with the SEC on February 11, 2016 disclosed that the reporting entity, American Century Investment Management, Inc.,
held sole voting power over 2,343,275 shares and shared dispositive power over 2,391,015 shares.
(4) The Schedule 13G filed with the SEC on February 11, 2016 disclosed that the reporting entity, The Vanguard Group, Inc., held sole voting power
over 33,967 shares and sole dispositive power over 1,899,574 shares, and shared dispositive power over 33,667 shares.
In addition, on February 24, 2016, Eaton Vance Management, an institutional investor, through a representative, advised
the Company that since December 31, 2015, its affiliates had collectively increased their ownership of the Company's
common stock to approximately 9.5% of the outstanding shares. The Company has no additional information on the
subject at this time.
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 Company as a group as of February 29, 2016. As of February
29, 2016, there were 25,400,207 outstanding shares of Westamerica Bancorporation’s common stock. For the purpose
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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, 2015.
Amount And Nature Of Beneficial Ownership
Shared Voting
and Investment
Power
Right to Acquire
Within 60 days of
December 31, 2015
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
Dennis R. Hansen
Russell W. Rizzardi
Sole Voting
and
Investment
Power
10,867
(3)
1,800
-
3,460
1,000
8,600
44,000
(5)
(6)
-
-
25,887
(4)
-
-
-
-
1,453
(7)
885,570
(8)
73,750
(9)
415
36
30
-
(10)
-
8,926
1,767
28,038
-
Total(1)
10,867
1,800
25,887
3,460
1,000
8,600
44,000
887,023
73,750
101,984
170,634
206,257
-
Percent of
Class(2)
*
*
0.1%
*
*
*
0.2%
3.5%
0.3%
0.4%
0.7%
0.8%
-
-
-
-
-
-
-
-
-
-
92,643
168,831
178,189
(11)
(11)
-
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All 14 Directors and Executives
Officers as a Group
145,851
950,478
490,597
1,586,926
6.1%
____________________
* Indicates beneficial ownership of less than one-tenth of one percent (0.1%) of the Company’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) 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 415 shares held in trusts under the California Uniform Gift to Minors Act as to which Mr. Thorson is custodian.
(10) Includes 7,152 shares held in a trust as to which Mr. Thorson is co-trustee with shared voting and investment power.
(11) During 1996, the Company 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: Messrs. Hansen - 14,780 shares; and Robinson - 19,140 shares.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act requires the Company’s directors and executive officers and persons
who own more than ten percent (10%) of a registered class of the Company’s equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission. Our employees generally prepare
these reports on the basis of information received from each director and officer. Based on the review of copies of the
forms filed, the Company believes that, during the last fiscal year, all filing requirements under Section 16(a) applicable
to its directors, officers, and 10% stockholders were timely, except for a report by Mr. Rizzardi with respect to the sale of
66 shares, for a voluntary distribution from his retirement account. With the Company’s assistance, the report was filed
in the month following the distribution.
PROPOSAL 1 – ELECTION OF DIRECTORS
Board 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 Company 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 Company by the respective nominees. All of the nominees have engaged in their indicated
principal occupation for more than five years, unless otherwise indicated and no nominee has served on the Board of
Directors of another public company during the past five years.
Name of Nominees, Principal Occupations, and Qualifications
Etta Allen – Director since 1988
Etta Allen (86) is President and CEO of Allen Heating and Sheet Metal and President and CEO of Sunny Slope
Vineyard in Sonoma County, California. She is a member of the Employee Benefits and Compensation Committee and
the Loan and Investment Committee. Mrs. Allen is also a Director of Westamerica Bank.
In 1972, she became the second woman in the state of California to become a licensed contractor in heating, ventilation,
air conditioning and sheet metal, and in 1974 she became President and CEO of Allen Heating and Sheet Metal. Under
her leadership the company became recognized throughout California. She was the first woman president of Marin
Builders Exchange and during her time on the executive committee she also served as a trustee and later as chairman of
their successful insurance trust. She was the first woman contractor on the Executive Committee of the California
Association of Builders Exchanges.
Etta Allen is one of the pioneers for women in non-traditional careers. As an entrepreneur, businesswoman and an involved
community leader, she brings independence, operations management and executive experience to the Board.
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Louis E. Bartolini – Director since 1991
Louis E. Bartolini (83) 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 34 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 36 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 (79) retired as Senior Vice President and Treasurer of the Company 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, Jr. (86) retired from Pacific Telesis Group (now Pacific Bell Telephone Company) as an Executive
Vice President. He currently serves on the Company’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 Company has a significant presence. Mr. Latno is also a former U.S. Ambassador and Chairman
of the U.S. Delegation Treaty Conference (rank accorded by President Reagan) in Melbourne, Australia, and a
former Chairman of the Board of Trustees and Past President of Board of Regents of St. Mary’s College in
California. He was a recipient of the Anti-Defamation League’s Americanism Award and the Friends of the Human
Rights Commission’s Human Rights Award.
Mr. Latno’s most important contributions to the Board are his executive leadership, strategic planning skills, and
regulatory and public relations experience.
Patrick D. Lynch – Director since 1986
Patrick D. Lynch (82) 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, is a member of
the Executive Committee and the Nominating Committee, and is also a Director of Westamerica Bank. Mr. Lynch
has held executive positions at Nicolet Instrument Company 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.
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Catherine Cope MacMillan – Director since 1985
Catherine Cope MacMillan (68) 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 (73) 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 (60) is Chairman, President & CEO of Westamerica Bancorporation. He was appointed Chairman in
1988 and Chief Executive Officer in 1989 and is Chairman of the Executive Committee. Mr. Payne is also Chairman,
President & CEO of Westamerica Bank. He brings to the Board strong leadership and a vision for the future. He has a
thorough knowledge of the banking industry, manages regulatory and business development issues, and has extensive
financial and accounting expertise. Mr. Payne possesses excellent management, strategic development and business
skills.
Since Mr. Payne’s appointment to the Board, Westamerica’s dividends per share have risen eleven-fold and capital
levels have increased eight-fold. Total assets have quadrupled during his tenure and net income has risen by a multiple of
12. Return on equity was 11.32% for the year ended December 31, 2015.
Mr. Payne has successfully negotiated and led the Company 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 (79) 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, Chairman of the Loan and Investment Committee, and serves as
Lead Independent Director of Westamerica Bancorporation. 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 and serves as Vice Chairman of the Nevada County Business Association. He is Vice
Chairman of the Board of Sierra Nevada Memorial Hospital where he is a member of their Finance Committee, chairs the
hospital’s Citizen Outreach Committee and is Chairman of the Strategy 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
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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 RECOMMEND 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 has carefully considered the critical issue of Board leadership. In the context of risk management, the
leadership of each Board committee primarily responsible for risk management is vested in an independent
committee chair. With regard to the leadership of the meetings of the full Board, our Board of Directors has
carefully evaluated whether the positions of chairman and CEO should be separate or combined. Our Board believes
that the most effective leadership structure for the Company 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 Company, 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 Company is particularly well suited to combine the
Chairman and CEO functions. Furthermore, our management team has an average tenure of 23 years and does not
require the substantial oversight needed by a less experienced team, which has allowed our Chairman and CEO to
lead the Company 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. The Board completes an annual board evaluation that is
discussed by the Nominating Committee and presented to the full Board.
Although the Board believes that it is more effective to have one person serve as the chairman and CEO at this time,
it also recognizes the importance of strong independent leadership on the Board, accordingly, the Board has
established a strong, independent Lead Director, Mr. Sylvester, who must serve at least one year and has the
following clearly delineated and comprehensive duties:
Presides at all meetings of the Board at which the Chairman is not present, including executive sessions of
the independent Directors;
Serves as liaison between the Chairman and the independent Directors;
Approves information sent to the Board;
Approves meeting agendas for the Board;
Approves meeting schedules to assure that there is sufficient time for discussion of all agenda items;
Has the authority to call meetings of the independent Directors; and
If requested by major shareholders, ensures that he or she is available for consultation and direct
communication.
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The Board does not believe that the fact an independent lead director does not preside over the normal Board
meeting business sessions limits the ability of the Board to have open exchanges of views, or to address any issues
the Board chooses, independently of the chairman.
The Board of Directors of the Company also serve as the Board of Directors of Westamerica Bank, and as such are
well informed of Bank operations through regular reports and discussions on the operations of the Bank. The
Directors’ longevity with the Company has exposed them to a wide range of business cycles, which plays a critical
role in managing the risk profile and profitability of the Company 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 Company, 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, to the Board’s Audit
Committee.
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, to the Board’s Loan and Investment Committee.
Meetings
The Company 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 2015. Every Director
attended at least 75%, with the exception of Mr. Latno who attended 60% due to health reasons, 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 Company on the date of the 2015
Annual Meeting of Shareholders attended the meeting, except for Mr. Latno.
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 2015
Executive Committee
Executive
Committee
Audit
Committee
Employee
Benefits and
Compensation
Committee
Loan and
Investment
Committee
Nominating
Committee
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Functions: The Board delegates to the Executive Committee all powers and authority of the Board in the
management of the business affairs of the Company between board meetings, which the Board is allowed to
delegate under California law.
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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 Company’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 Company’s
financial statements, the Company’s compliance with legal and regulatory requirements, the independence and
performance of the Company’s independent auditor as it performs audit, review or attest services, and the Company’s
internal audit and control function. It selects and retains the independent registered public accounting firm, and reviews
the plan and the results of the auditing engagement. It acts pursuant to a written charter that was reaffirmed by the Board
of Directors in April 2015 and is attached as Exhibit A to the Proxy Statement for this 2016 Annual Meeting of
Shareholders.
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 Company’s
compensation programs and reviews and reports to the Board the compensation level for executive officers,
including the CEO, of the Company and its subsidiaries and determines that compensation plans are balanced
between financial results and prudent 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 was adopted
April 24, 2013 and attached as Exhibit B to the Proxy Statement for the 2014 Annual Meeting of Shareholders. The
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Compensation Committee has the authority to seek assistance from officers and employees of the Company 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 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 Company’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. The Nominating Committee is governed by a written charter, which was reaffirmed
January 27, 2016 and attached as Exhibit B to the Proxy Statement for this 2016 Annual Meeting of Shareholders.
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 Company. In addition
to the qualifications and characteristics described below, it considers whether the potential Director assists in
achieving a mix of Board members that represents a diversity of background, perspective, and experience. Our
Board includes Directors with experience in public corporations and non-profit organizations, as well as
entrepreneurial individuals who have successfully run their own private enterprise. Our Board also has a broad set of
skills necessary for providing oversight to a financial institution, which includes proven leadership, and expertise in
capital management, finance, accounting, regulatory affairs, and investment management.
Nominating Directors. The Nominating Committee will consider shareholder nominations submitted in accordance
with Section 2.14 of the Bylaws of the Company. 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 Company 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 Company must receive notice with a reasonable amount of time before the Company 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 Company 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 Company 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 Company’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;
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Willingness to respect the confidences of the Board and the Company;
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 Company’s business environment; and
Significant business experience relevant to the operations of the Company.
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 Company’s non-
employee members of the Board of Directors in the fiscal year 2015. Directors who are employees of the Company
receive no compensation for their services as Directors.
Director Compensation Table For Fiscal Year 2015
Name(1)
Etta Allen
Louis E. Bartolini
E. Joseph Bowler
Arthur C. Latno, Jr.
Patrick D. Lynch
Catherine Cope MacMillan
Ronald A. Nelson
Fees Earned
Paid in Cash ($)
Change in Pension Value and
Nonqualified Deferred
Compensation Earnings(2)($)
$38,400
33,000
33,000
35,650
40,250
38,400
37,250
$62,061
624
-
-
-
-
-
Total ($)
$100,461
33,624
33,000
35,650
40,250
38,400
37,250
Edward B. Sylvester
_________________________
(1) Non-employee Directors did not receive options or stock awards. During 2015, non-employee Directors of the Company 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.
54,611
43,650
10,961
(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 2015 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 Company 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-four years. At
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each Annual Meeting of Shareholders since 2010, a majority of our shareholders approved an advisory proposal on
the Company’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;
– 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 Company’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 Company 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.
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Management policies and practices the Board considers in establishing corporate performance objectives include, but
are not limited to, management of the Company’s balance sheet and product pricing in a manner which will benefit the
long-term financial interests of shareholders, the type and variety of financial products offered by the Company, adherence
to internal controls, management of the credit risk of the Company’s loan and investment portfolios, the results of internal,
regulatory and external audits, service quality delivered to the Company’s customers, service quality of “back office”
support departments provided to those offices and departments directly delivering products and services to the Company’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 Bancorporation’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 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 Company’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 Bancorporation
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 Company does
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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 Bancorporation 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 Company
receives a corporate tax deduction in the same amount.
Stock Appreciation Rights (“SAR”) provide the holder a cash payment equal to the difference between the fair market value
of the Westamerica Bancorporation’s common stock on the date the SAR is surrendered and the fair market value of the
Company’s common stock on the date the SAR was granted. The optionee incurs taxable income at the time the SAR is
settled and the Company receives a corporate tax deduction in the same amount.
Restricted Performance Share Grants, as noted above, are awards of the Westamerica Bancorporation’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 Company 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 Company. As of February 29, 2016, the Company 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 Company’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 Company’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 Company has broadly disseminated its financial condition and current operating results to the public. The
Company’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
(1) Due to merger and acquisition activity, the Corporation converts stock option grants outstanding for acquired companies based on the terms and
conditions of related merger agreements. The dating of such converted stock options generally remains as originally dated by the acquired company. As
a result, the Corporation at times has options outstanding related to acquisitions with grant dates different from its routine stock option granting practices.
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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 Company
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 Company does not pay dividends on RPS shares until vesting occurs and shares
awarded become outstanding on a dividend record date.
Compensation for the Chairman, President & CEO
Mr. Payne performs two functions for the Company. These two functions tend to be compensated separately at similarly
sized banking institutions. Mr. Payne serves as Chairman of the Board and Chief Executive Officer with responsibilities
including oversight of the organization and external strategic initiatives. Mr. Payne also serves as President and Chief
Operating Officer with responsibilities including daily management of internal operations. Mr. Payne’s total
compensation reflects these broad responsibilities. Consistent with the overall compensation philosophy for senior
executives, Mr. Payne’s compensation has a greater amount of pay at risk through incentives than through base
salary. Since Mr. Payne is compensated as an executive, he is not eligible to receive compensation as a Director.
As noted on page 27 of the Proxy under the Pension Benefits Table, during 1997 the Company 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 Westamerica Bancorporation common stock, which was
more than adequate to continue to provide motivation for Mr. Payne to continue managing the Company in
the best interests of shareholders.
In 1997, the Company 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 Company’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.
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 Company. As such, senior management level positions have high relative
weighting on corporate objectives, and divisional leadership positions also have significant weighting on divisional
(2) The value of the surrendered RPS shares and the Pension Agreement were considered equivalent based on actuarial assumptions.
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objectives. The “target” cash incentive and the weighting of goals for the named executive officers for 2015 performance
were as follows:
“Target”
Cash
Incentive
$371,000
100,000
73,900
82,500
60,500
Corporate
80%
55%
55%
50%
55%
Goal Weighting
Divisional
–
25%
25%
40%
35%
Individual
20%
20%
20%
10%
10%
Mr. Payne
Mr. Thorson
Mr. Hansen
Mr. Robinson
Mr. Rizzardi
The Compensation Committee establishes corporate goals with the intent to balance current profitability with long-term
stability of the Company and its future earnings potential. The 2015 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 Company 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 2015, the Compensation Committee expected nominal economic growth within the markets the Corporation operates
given the slow pace of 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 2015 operating environment was generally characterized as follows:
Growth in the United States’ gross domestic product was positive, but generally below potential;
Inflation remained below targets established by the Federal Open Market Committee in spite of continuing high
levels of monetary policy accommodation;
Interest rates remained low;
Employment trends continued to improve;
Interest rates on loans and investment securities remain relatively low compared to interest rates which would
exist with moderated economic conditions. Market interest rates remained below the yields on the Company’s
overall loan portfolio throughout 2015;
Competitive pricing of loans was aggressive;
Regulations imposed on financial institutions continued to pressure compliance costs, revenue opportunities,
and operational risks; and
Credit risk in the banking industry continued to improve.
The Compensation Committee considered Management’s response to the current operating environment including:
Management avoided long-duration, low-yielding loans that would constrain revenue in a rising interest rate
environment;
Management increased the volume of interest-sensitive investment securities and shortened the duration of the securities
portfolio to prepare for rising interest rates on a forward basis;
Management consistently maintained conservative loan underwriting practices to appropriately manage the
Company’s exposure to credit risk;
Management focused its marketing efforts on loan products that would provide improved revenue opportunities
in a rising interest rate environment;
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Management controlled operating costs to offset the effect of environmental pressures on revenues;
Management continued to lower the cost of funding the loan and investment securities portfolios; and
Adequate capital levels were maintained to position the Company for future growth.
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
11.2%
1.14%
$2.26
11.3%
1.14%
$2.28
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
Control Goals:
Non-interest expense to revenues (efficiency ratio)
Non-interest expenses
Below satisfactory internal audits
$56 million
$48 million
$11.0 million
0.25%
Improving
$13.2 million
0.11%
Improving
54.3%
$107.1 million
none
53.7%
$105.3 million
none
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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 110.8%
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:
Maintaining prudent credit underwriting and pricing practices within the current operating environment;
Avoiding duration extension in the loan and investment portfolios to position the Company for a rising interest
rate environment;
Credit quality improvement;
Satisfactory regulatory examination results;
Achievement of financial goals;
Managing operating expenses to lower levels;
Maintaining appropriate internal controls and risk management practices;
Effective leadership and management through divisional managers and other points of control;
Pursuing mergers and acquisitions;
Completing routine visits to branches and credit underwriting offices;
Conducting quality shareholder relations activities; and
Maintaining quality customer relations activities.
Based on individual performance against these goals, the Committee exercised its discretion and assigned Mr. Payne
a composite corporate and individual performance level of 61%.
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In addition to routine on-going divisional responsibilities, Mr. Thorson managed the Finance Division toward functional
goals, which included:
Manage the investment securities portfolio to maximize economic value, generate revenue without taking
undue risk, and maintain high credit quality;
Manage the balance sheet to maintain an appropriate asset-sensitive condition to position the Bank for a rising
interest rate environment.
Manage the Bank’s liquidity position through enhanced monitoring and reporting.
Manage the Trust Department toward achieving fee growth goals and maintaining satisfactory audit results;
Advancing documentation of the internal control structure to adopt the COSO 2013 framework;
Management of the regulatory compliance function; and
Capital management, including new regulatory capital standards.
Based on the Finance Division’s results, the Committee determined divisional performance to be 118%.
In addition to daily management responsibilities, Mr. Thorson’s individual goals included:
Assume responsibility for managing the Treasury function, including the investment securities portfolios,
funding, liquidity, and balance sheet management;
Assume responsibility for managing the Trust Department;
Manage the process of changing the independent auditor relationship; and
Manage cross-divisional projects.
Based on individual performance against these goals, the Committee determined Mr. Thorson’s individual
performance to be 138%. In considering all elements of performance, the Committee exercised its discretion and
assigned Mr. Thorson a composite corporate, divisional and individual performance level of 142%.
In addition to routine on-going divisional responsibilities, Mr. Robinson managed the Banking Division toward
functional goals, which included:
Achievement of loan and deposit goals;
Meeting divisional staff development objectives;
Manage improvement in non-interest income generated through the branch system;
Manage non-interest expenses to levels at or below budgeted amounts; and
Meeting community development lending and services objectives.
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:
Personnel training, development, and succession planning;
Regional sales management responsibilities; and
Hiring sales personnel to meet consumer sales 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%. In
considering all elements of performance, the Committee exercised its discretion and assigned Mr. Robinson a composite
corporate, divisional and individual performance level of 133%.
In addition to routine on-going divisional responsibilities, Mr. Hansen managed the Operations and Systems Division
toward functional goals, which included:
Maintaining and improving customer service quality;
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Meeting or exceeding non-interest expense goals;
Implementation of staff development plans;
Management and satisfactory completion of information technology and compliance projects; and
Satisfactory risk management as measured by the results of internal, third-party and regulatory examinations.
Based on the Operations and Systems Division’s results, the Committee determined divisional performance to be
118%.
In addition to daily management responsibilities, Mr. Hansen’s individual goals included:
Assume responsibility for managing merchant processing services;
Development of staff development plans; and
Management of the information technology environment.
Based on individual performance against these goals, the Committee determined Mr. Hansen’s individual performance
to be 125%. As a result, Mr. Hansen’s composite corporate, divisional and individual performance level was 115%.
In addition to routine on-going divisional responsibilities, Mr. Rizzardi managed the Credit Division toward functional
goals, which included:
Maintain high quality loan underwriting standards;
Maintain credit quality as measured by classified loan, non-performing loan and other real estate owned
volumes;
Updating loan policies and procedures; and
Maintaining appropriate credit monitoring practices.
Based on the Credit Division’s results, the Committee determined divisional performance to be 114%.
In addition to daily management responsibilities, Mr. Rizzardi’s individual goals included:
Management of staff toward completion of assigned projects; and
Staff development and succession planning.
Based on individual performance against these goals, the Committee determined Mr. Rizzardi’s individual performance to be
100%. As a result, Mr. Rizzardi’s composite corporate, divisional and individual performance level was 111%.
Based on the above described performance against objectives, the Committee determined cash incentive awards as follows:
“Target”
Cash
Incentive
$371,000
100,000
82,500
73,900
60,500
Mr. Payne
Mr. Thorson
Mr. Robinson
Mr. Hansen
Mr. Rizzardi
X
Composite Corporate
Divisional and Individual
Performance Level
=
61%
142%
133%
115%
111%
Cash
Incentive
Award
$225,000
141,600
110,000
85,200
67,000
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
Westamerica Bancorporation common stock. For achievement of corporate performance in 2015, the following stock
grants were awarded in January 2016:
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“Target”
Nonqualified
Stock Option
Grant
–
24,800
24,900
22,300
20,100
“Target”
RPS
Grant
–
2,640
2,650
2,380
2,140
X
X
Corporate
Performance
Level
110.8%
110.8%
110.8%
110.8%
110.8%
Corporate
Performance
Level
110.8%
110.8%
110.8%
110.8%
110.8%
=
Nonqualified
Stock
Option
Award
–
27,500
27,600
24,700
22,300
=
RPS
Award
–
2,930
2,940
2,640
2,370
Mr. Payne
Mr. Thorson
Mr. Robinson
Mr. Hansen
Mr. Rizzardi
Mr. Payne
Mr. Thorson
Mr. Robinson
Mr. Hansen
Mr. Rizzardi
RPS awards vest three years following the grant date, only if certain corporate performance objectives are achieved over
the three-year period. In January 2016, the Compensation Committee evaluated whether the three year corporate
performance objectives were met for RPS awards granted in January 2013. The performance objectives for the RPS
granted in January 2013 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:
EPS
ROA
ROE differential
NPA
Efficiency Ratio
Threshold
$7.85
1.35%
2.50%
0.65%
50.00%
Target
$8.07
1.45%
3.00%
0.55%
48.00%
Outstanding
$8.15
1.50%
3.50%
0.50%
47.00%
Result
Below Threshold
Below Threshold
Outstanding
Outstanding
Below Threshold
With two of the five goals achieved at the “outstanding” performance level, the Compensation Committee determined
the RPS shares awarded in 2013 vested upon achievement of three year goals.
Nonqualified Deferred Compensation Programs
The Company 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 Company’s “401(k)” plan. The Company
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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 Company credits the balance of these accounts with interest using an interest rate that
approximates the crediting rate on corporate-owned life insurance policies, under which Directors and
executives are the named insured. Deferrals and interest credits represent general obligations of the Company.
The common stock the Company 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 Company’s
common stock, the Company 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 Company’s creditors.
Employment Contracts
None of the executives named in the accompanying tables have employment contracts with the Company.
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 Company after any “change in control” was announced through its ultimate consummation. Since none of
the named executive officers have entered employment contracts with the Company, 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 Company 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 Company in any year with respect to certain of the Company’s highest-paid executives. Certain “performance-
based compensation” is not counted toward this limit. The Company 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 Company, 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
Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
Submitted by the Employee Benefits and Compensation Committee
Patrick D. Lynch, Chairman
Etta Allen
Arthur C. Latno, Jr.
Ronald A. Nelson
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Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is a current or former officer or employee of the Company or any of its
subsidiaries, or entered into (or agreed to enter into) any transaction or series of transactions with the Company or any
of its subsidiaries with a value in excess of $120,000. None of the executive officers of the Company 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 Company.
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,
2015, 2014, and 2013. These persons are referred to as named executive officers elsewhere in this Proxy Statement.
Summary Compensation Table For Fiscal Year 2015
Name / Position
Year
Salary
Awards(1)
Stock
Option
Awards(2)
Non-Stock
Incentive Plan
Compensation(3)
David L. Payne
2015
$371,000
Chairman,
President & CEO
John "Robert" A. Thorson
SVP & Chief
Financial Officer
David L. Robinson
SVP/Banking Division
Manager
Dennis R. Hansen
SVP/Operations & Systems
Division Manager
Russell W. Rizzardi(6)
SVP/Credit Administrator
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
___________________
371,000
371,000
$-
-
-
$-
-
-
149,000
124,669
144,144
149,000
122,705
128,838
149,000
122,825
112,945
150,000
125,523
145,236
150,000
123,772
130,611
150,000
123,699
114,328
130,008
112,288
129,948
130,008
110,968
116,427
130,008
110,586
101,881
120,960
101,187
116,844
120,960
99,765
105,198
120,960
99,659
61,465
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings(4)
$-
-
-
38,786
25,287
38,953
33,782
21,734
32,100
26,485
17,018
25,226
-
-
All Other
Compensation(5)
TOTAL
$19,557
$615,557
15,471
611,471
15,437
636,437
27,788
625,987
25,117
583,047
17,471
562,894
16,027
580,568
18,587
535,004
18,579
528,406
33,140
517,069
30,028
490,849
35,054
486,755
7,466
6,817
413,457
398,940
1,150
16,428
366,062
$225,000
225,000
250,000
141,600
132,100
121,700
110,000
90,300
89,700
85,200
86,400
84,000
67,000
66,200
66,400
(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.
(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 Company has no defined benefit pension plan. Mr. Payne has a pension agreement, which is discussed under “Pension Benefits for
Fiscal Year 2015.”
(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 Company 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 Company 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.
(6) Mr. Rizzardi's compensation is subject to garnishments and liens pursuant to certain domestic relations orders.
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Based on the compensation disclosed in the Summary Compensation Table, approximately 35% of total compensation
comes from base salaries. See Compensation Discussion and Analysis for more details.
Grants of Plan-Based Awards Table For Fiscal Year 2015
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
Target
Threshold
Maximum
$-
$371,000
$556,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100,000
150,000
-
-
-
-
82,500
123,750
-
-
-
-
73,900
110,850
-
-
-
-
60,500
90,750
-
-
-
-
All Other Stock
Awards: Number of
Shares of Stock
or Units(1)
All Other Stock
Awards: Number
of Securities
Underlying
Options(2)
Exercise or
Base Price of
Option Awards
($/Share)(2)
Grant Date
Fair Value(3)
-
-
-
-
2,920
-
-
2,940
-
-
2,630
-
-
2,370
-
-
-
-
-
-
$-
-
42.70
-
-
26,400
42.70
-
-
-
-
26,600
42.70
-
-
-
-
23,800
42.70
-
-
-
-
21,400
42.70
$-
-
-
-
124,669
144,144
-
125,523
145,236
-
112,288
129,948
-
101,187
116,844
Name
David L. Payne
John "Robert" A. Thorson
David L. Robinson
Dennis R. Hansen
Russell W. Rizzardi(4)
Grant Date
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
1/22/15
_____________________
(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 a “change in control” as defined in the 2012 Amended Plan as described on page 23 of this Proxy statement;
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 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 23 of this Proxy statement.
(3) The amounts shown for NQSOs and RPS awards represent the aggregate grant date fair market value.
(4) Mr. Rizzardi's compensation is subject to garnishments and liens pursuant to certain domestic relations orders.
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Outstanding Equity Awards Table at Fiscal Year End 2015
Option Awards
Stock Awards
Number of
Securities Underlying
Unexercised Options
(#) Exercisable(1)
Number of
Securities Underlying
Unexercised Options
(#) Unexercisable(1)
-
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
12/31/15(2)
-
$-
Option
Exercise
Price ($)(1)
$-
Option
Expiration
Date(1)
-
-
-
-
8,167
14,533
26,400
-
-
-
-
-
-
8,267
14,733
26,600
-
-
-
-
-
-
-
7,367
13,133
23,800
-
-
6,667
11,866
21,400
52.560
56.625
50.760
43.710
53.350
42.695
52.560
48.390
47.130
56.625
50.760
45.930
43.710
53.350
42.695
52.560
48.390
47.130
43.015
56.625
50.760
45.930
43.710
53.350
42.695
56.625
50.760
43.710
53.350
42.695
1/26/2016
1/28/2020
1/27/2021
1/24/2023
1/23/2024
1/22/2025
1/26/2016
1/25/2017
1/24/2018
1/28/2020
1/27/2021
1/26/2022
1/24/2023
1/23/2024
1/22/2025
1/26/2016
1/25/2017
1/24/2018
1/21/2019
1/28/2020
1/27/2021
1/26/2022
1/24/2023
1/23/2024
1/22/2025
1/28/2020
1/27/2021
1/24/2023
1/23/2024
1/22/2025
8,030
$375,403
8,090
$378,208
7,240
$338,470
6,520
$304,810
Name
David L. Payne
John "Robert" A. Thorson
David L. Robinson
Dennis R. Hansen
Russell W. Rizzardi(3)
_____________________
-
18,437
20,800
21,200
16,333
7,267
-
11,449
11,175
23,286
20,900
21,300
21,800
16,533
7,367
-
11,449
19,882
20,930
19,600
18,700
19,200
19,400
14,733
6,567
-
17,000
17,100
-
5,934
-
(1) Option Awards vest ratably over three years beginning one year from date of grant. Options expiring in 2023 fully vested in January 2016. Options
expiring in 2024 fully vest in January 2017. Options expiring in 2025 fully vest in January 2018.
(2) RPS shares fully vest three years from date of grant if performance goals are met. RPS grants vest as follows: Messrs. Thorson - 2,810 vest in
January 2016, 2,300 shares vest in January 2017 and 2,920 shares vest in January 2018; Robinson - 2,830 shares vest in January 2016, 2,320 shares vest in
January 2017, and 2,940 shares vest in January 2018; Hansen - 2,530 shares vest in January 2016, 2,080 shares vest in January 2017, and 2,630 shares
vest in January 2018; and Rizzardi - 2,280 shares vest in January 2016, 1,870 shares vest in January 2017, and 2,370 shares vest in January 2018.
(3) Mr. Rizzardi's compensation is subject to garnishments and liens pursuant to certain domestic relations orders.
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Option Exercises And Stock Vested Table For Fiscal Year 2015
Option Awards
Stock Awards
Name
David L. Payne
John "Robert" A. Thorson
David L. Robinson
Dennis R. Hansen
Russell W. Rizzardi(2)
_____________________
Number of Shares
Acquired on Exercise
Value Realized
on Exercise($)
Number of Shares
Acquired on Vesting
Value Realized on
Vesting($)(1)
-
21,700
-
-
$-
120,873
-
-
15,366
86,975
-
2,680
2,690
2,410
2,170
$-
115,897
116,329
104,220
93,842
(1) Amounts represent value upon vesting of RPS shares. Dividends are paid in cash during deferral period and distributions are paid in stock.
(2) Mr. Rizzardi’s compensation is subject to garnishments and liens pursuant to certain domestic relations orders.
Pension Benefits For Fiscal Year 2015
Name
Plan Name
Present Value of
Accumulated Benefit
Payments during
Last Fiscal Year
David L. Payne
Non-Qualified Pension Agreement
$5,366,778
$511,950
During 1997, the Company 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 Company’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 4.30%, as used by the Company in determining benefit
obligations for its post-employment retirement benefits as of December 31, 2015. The obligation is an unfunded
general obligation of the Company.
Nonqualified Deferred Compensation Table For Fiscal Year 2015
Name
David L. Payne
John "Robert" A. Thorson
David L. Robinson
Dennis R. Hansen
Russell W. Rizzardi
_____________________
Executive Contributions
in Last
Fiscal Year(1)
Aggregate
Earnings in Last
Fiscal Year(2)
Aggregate
Withdrawls/
Distributions(3)
Aggregate Balance at
Last
Fiscal Year End(4)
$-
55,000
62,000
50,000
-
$-
92,034
65,996
51,908
-
$-
-
(29,284)
(22,613)
-
$-
1,696,526
2,378,923
1,850,501
-
(1) No RPS shares were deferred upon vesting in 2015. Non-equity incentive plan compensation deferred in 2015 was earned in 2014 and disclosed as
compensation in the Summary Compensation Table for 2014 and is therefore excluded from the Summary Compensation Table for Fiscal Year 2015.
(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 2015 on page 24 are as follows: Messrs. Thorson - $38,786; Robinson -
$33,782; Hansen - $26,485.
(3) Includes dividends paid on deferred RPS shares.
(4) Aggregate balance of deferred compensation reported as compensation prior to 2015 is as follows: Messrs. Thorson - $1,604,492; Robinson -
$2,330,211; Hansen - $1,821,206.
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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 2015 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 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 Company or a sale of substantially all of the Company’s assets to another company, or a tender offer for 5%
or more of the Company’s outstanding common stock or a merger in which the Company’s shareholders before the
merger hold less than 50% of the voting power of the surviving company 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: Messrs.
Payne: $0; Thorson: $507,282; Robinson: $511,202; Hansen: $457,374; and Rizzardi(3) $411,855. The value is computed
by multiplying the difference between the market value on December 31, 2015, the last business day of 2015, and the
exercise price of each option by the number of shares subject to accelerated vesting.
Under the Company’s Severance Payment Plan, executive officers receive six weeks pay for every year or partial year
(3) Mr. Rizzardi’s compensation is subject to garnishments and liens pursuant to certain domestic relations orders.
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of service up to one year’s base salary (see Summary Compensation Table for Fiscal Year 2015 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 Company. The
Severance Payment Plan is subject to Section 409A of the Internal Revenue Code.
Certain Relationships and Related Party Transactions
In accordance with the Audit Committee Charter, the Audit Committee is responsible for reviewing and approving or
disapproving all related party transactions required to be disclosed by Item 404 of Regulation S-K for potential conflicts
of interest. Additionally, the Company’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
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 not related
to the Company, 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 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. Payne, Thorson, and Hansen have
mortgage loans through this Program. The largest aggregate amount of principal during 2015 was $423,287, $299,280,
and $234,596, respectively. The principal amount outstanding at December 31, 2015 was $404,058, $282,451, and
$224,274, respectively. The amount of principal paid during 2015 was $19,229, $16,829, and $10,322, respectively. The
amount of interest paid during 2015 was $7,985, $5,450, and $4,310, respectively. The rate of interest payable on the
loan is 2.00%, 2.00%, and 1.875%, respectively.
PROPOSAL 2 – APPROVE A NON-BINDING ADVISORY VOTE ON THE COMPEN-
SATION 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.
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In 2003, shareholders approved the Company’s 2003 Amended Plan to include the following changes:
Disallowing re-pricing stock options for poor stock performance;
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 Company’s 2012 Amended and Restated Stock Option Plan of 1995. The 2012
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 26, 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 Company’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
Change in Certified Accountant
Dismissal of Previous Independent Accounting Firm
On February 25, 2015, the Audit Committee of the Board of Directors of the Company, dismissed KPMG LLP as the
Company’s principal independent accounting firm upon completion of the audit of the consolidated financial statements
as of and for the year ended December 31, 2014.
During the Company’s two most recent fiscal years ended December 31, 2014, there were no disagreements between the
Company and KPMG LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing
scope or procedures that, if not resolved to KPMG LLP’s satisfaction, would have caused it to make reference to the
matter in conjunction with its report on the Company’s consolidated financial statements for the relevant year, and there
were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.
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The audit report of KPMG LLP on the consolidated financial statements of the Company as of December 31, 2014 and
2013, contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit
scope or accounting principles.
The Company furnished a copy of the above disclosure to KPMG LLP and requested that KPMG LLP provide a letter
addressed to the U.S. Securities and Exchange Commission (SEC) stating whether or not it agrees with the statements
made above. A copy of the letter from KPMG LLP dated March 3, 2015 is filed as Exhibit 16.1 to the Company’s
Form 8-K filed with the SEC on March 3, 2015.
Engagement of New Independent Accounting Firm
On February 25, 2015, the Audit Committee of the Board of Directors of the Company approved the engagement of
Crowe Horwath LLP as the Company’s independent registered public accounting firm for the fiscal year ending
December 31, 2015. During the Company’s two fiscal years ended December 31, 2014 and 2013 neither the Company,
nor anyone on its behalf, consulted with Crowe regarding either (i) the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s
consolidated financial statements; and as such, no written report or oral advice was provided, and none was an important
factor considered by the Company in reaching a decision as to the accounting, auditing, financial reporting issues; or
(ii) or any matter that was either the subject of a disagreement or a reportable event.
Ratify Selection of Independent Auditor
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 Company and its shareholders. If the proposal to ratify the selection of Crowe Horwath LLP as the
Company’s independent auditors is rejected by the shareholders then the Audit Committee will reconsider its choice
of independent auditors. A representative of Crowe Horwath 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.
Audit Fees
The aggregate fees billed to the Company by Crowe Horwath LLP, the independent audit firm for fiscal year 2015 and
the aggregate fees billed to the Company by KPMG LLP, the independent audit firm for fiscal year 2014, with respect to
services performed are as follows:
Audit Fees (1)
Audit related fees (2)
Tax fees (3)
All other fees
Total
_____________________
2015
$510,000
33,875
38,050
-
$581,925
2014
$900,000
-
-
-
$900,000
(1) Audit fees consisted of fees billed by Crowe Horwath LLP and KPMG LLP for professional services rendered for the audit of the Company’s
consolidated financial statements, reviews of the consolidated financial statements included in the Company’s quarterly reports on Form 10-Q, and the
audit of the Company’s internal controls over financial reporting. The audit fees also relate to services such as consents and audits of mortgage banking
subsidiaries.
(2) Audit-related fees for 2015 consisted of fees billed by Crowe Horwath LLP for audits of certain employee benefits plans.
(3) Tax fees for 2015 consisted of fees billed by Crowe Horwath LLP for the compilation and review of 2014 tax returns.
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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 Company for the purpose of preparing or issuing an audit report or performing
other audit, review or attest services for the Company. Any accounting firm appointed by the Company 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 Company 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
express 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 Company during the fiscal year in which the services are provided. This
exception also requires that at the time of the engagement, the Company 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 2015, 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 Company by Crowe Horwath LLP during fiscal year 2015.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE
RATIFICATION OF THE SELECTION OF CROWE HORWATH LLP AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
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 Company’s filings under the Securities Act of 1933 or the Exchange Act, whether made in the
past or in the future even if any of those filings contain any general incorporation language.
The Audit Committee is composed of four Directors who are neither officers nor employees of the Company, and
who meet the NASDAQ independence requirements for Audit Committee members. The Audit Committee selects,
appoints and retains the Company’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 Company’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 Company’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 2015 and discussed them with
Management and with Crowe Horwath, LLP, the Corporation’s independent auditors.
Management represented to the Audit Committee that the Company’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, 2015, and that internal control over
financial reporting was effective. The independent auditor discussed with the Audit Committee matters required to be
discussed by Auditing Standard No. 16 (Communications with Audit Committees), including certain matters related to
the conduct of an audit and to obtain certain information from the Audit Committee relevant to the audit.
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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 Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for filing with the SEC.
Submitted by the Audit Committee
Ronald A. Nelson, Chairman
Louis E. Bartolini
E. Joseph Bowler
Catherine C. MacMillan
PROPOSAL 4 – REQUIRE INDEPENDENT BOARD CHAIRMAN
The Board unanimously recommends you vote “AGAINST” the shareholder proposal set forth below.
Shareholder Proposal
Gerald R. Armstrong, 621 Seventeenth Street, No. 2000, Denver, Colorado 80293-2001, (303) 355-1199, the owner of
3,455 shares of our common stock, has advised us that he plans to introduce the following resolution at the annual
meeting. In accordance with rules of the SEC, the text of the proponent’s resolution and supporting statement is printed
verbatim from his submission.
That the shareholder of Westamerica Bancorporation request its Board of Directors to adopt a policy and amend the
by-laws as necessary, to require the Chairman of the Board of Directors be an independent member of the Board of
Directors.
This policy should not be implemented to violate any contractual obligation and should specify: (a) how to select a
new ‘‘independent’’ chairman if the current chairman ceases to be independent during the time between annual
meetings of shareholders; and, (b) that compliance is excused if no independent director is available and willing to
serve as Chairman.
The reasons given by the proponent for the resolution are as follows:
This proposal’s proponent is a long-term shareholder of Westamerica Bancorporation owning shares since 1989 and
owned shares in most of the banks acquired by Westamerica.
As a shareholder, I am concerned about the wilting performance of Westamerica which, after analysis, I believe to
be caused by the entrenchment of David Payne as Chairman, Executive Officer, and President and members of the
Board of Directors whose average tenure was 27.5 years and an average age of 75 years (based on the proxy
statement for the 2015 annual meeting).
Let’s look at some numbers of the “Five Year Return Performance” graphs contained in 10-K reports of
Westamerica and two other bank holding companies. (Cumulative Return on investment and re-investment of all
dividends):
Westamerica Bancorporation
Bank of Marin Bancorp
FNB Bancorp (South San Francisco)
12/31/2009
$ 100.00
100.00
100.00
12/31/2014
$ 103.08
177.00
495.04
The greatest difference in the governance practices of Bank of Marin Bancorp and FNB Bancorp is that each has an
“independent chairman” of the Board of Directors while Westamerica has one person, David Payne, serving in both
capacities. In other words, he, as President accounts to himself as Chairman. I believe that this is why Westamerica
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is the underachiever.
Moreover, I believe Mr. Payne’s dual positions at Westamerica are only part-time as the proxy statement discloses
he “also manages his family printing, publishing and cable television business.”
DuPont’s failures were placed upon its Board Chair and Chief Executive Officer who was ousted by its board in the
same manner that Target Company’s board ousted its Chairman/Chief Executive Officer a year earlier. Studies have
confirmed that underperforming companies lack an independent chairman and companies, worldwide, are routinely
separating the positions of Chairman and CEO (CEO Succession 2000-2009: A Decade of Convergence and
Compression, Booz & Co., Summer, 2010).
A 2007 Booz & Co. study found that in 2006, all of the underperforming North American companies with long-
tenured CEO’s lacked an independent Chairman (The ERA of the Inclusive Leader; Summer, 2007).
Norges Bank Investment Management, has stated in support of a similar proposal:
‘‘The roles of Chairman of the Board and CEO are fundamentally different and should not be held by the same
person. There should be a clear division of responsibilities between these positions to insure a balance of power and
authority on the Board.”
If you agree, please vote ‘‘FOR’’ this proposal.
Board of Directors’ Recommendation
The proposal's comparison of Westamerica’s stock performance to two peers is misleading in regard to stock
performance and Westamerica’s leadership.
The five-year stock performance evaluation provided in the shareholder’s proposal begins with December 31, 2009,
a point in time when publicly traded bank stock values reflected significant declines due to the “Financial
Recession” of 2008 and 2009. Contrary to the banking industry’s negative stock performance as a result of the
recession, Westamerica’s stock price rose in 2008 and 2009, as depicted in the ten-year performance chart on page
15 of the enclosed Form 10-K, Annual Report. During this period, shareholders recognized the value of
Westamerica’s leadership and its conservative, value-oriented, and long-term strategies. Westamerica’s exceptional
credit quality and strong financial condition leading into the recession positioned the Company to grow by acquiring
two failed banks from the FDIC.
Westamerica’s current leadership was established in 1989, coincidentally the same year the proposing shareholder
became an investor in Westamerica Bancorporation common stock. The company’s current leadership has followed
consistent low-risk value-oriented strategies which have provided superior long-term stock performance through
three business cycles:
Total Return with Dividends Reinvested December 29, 1989 through December 31, 2015(4)
Westamerica Bancorporation (WABC)
S&P 500 Index (SPX)
NASDAQ Bank Index (CBNK)
1,039%
902%
630%
Westamerica’s shareholders are best served by our current leadership structure.
In light of the current environment for the banking industry and Westamerica’s business strategies, the Board
believes that the most effective leadership structure for Westamerica at the present time is for our CEO, David L.
Payne, to serve as chairman of the Board. Combining the positions of chairman and CEO most effectively utilizes
Mr. Payne’s extensive experience and knowledge regarding our company. Chairman Payne was appointed CEO in
1989 and since his appointment identified, negotiated and executed eleven acquisitions to fuel Westamerica’s
growth. Each of the acquisitions resulted in higher levels of earnings per share within one or two quarters following
the acquisition. Mr. Payne has the knowledge, expertise and experience to continue implementing Westamerica’s
long-term strategies.
The Board believes that Mr. Payne has the requisite talent, foresight, and leadership skills to perform at a high-level
(4) Source: Bloomberg
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in the roles of CEO and chairman. By combining the positions, the Board can respond quickly and effectively to the
many business, market and regulatory challenges facing banks in the rapidly changing banking industry.
The Board should retain the flexibility to determine the most effective leadership structure for Westamerica.
The Board's leadership structure should be determined in light of all relevant facts and circumstances at a given
time. This approach allows the Board flexibility to determine whether the roles of CEO and chairman should be
separate or combined based upon Westamerica’s needs and the Board's assessment of our company's leadership
from time to time. The Board has deep knowledge of our strategic goals and the various strengths and capabilities of
our senior management. Thus, the Board is best positioned to determine the most effective leadership structure for
Westamerica at any given time.
Westamerica’s corporate governance practices provide for strong independent leadership and effective
independent oversight of our company.
The Board is committed to maintaining high corporate governance standards, and has implemented a structure to
provide for Board independence and effective oversight of management. With the exception of Mr. Payne, the Board
is composed entirely of independent directors, and key committees are fully comprised of independent directors.
Further, in accordance with widely accepted corporate governance guidelines, the Board has established a strong,
independent lead director who must serve at least one year and has the following clearly delineated and
comprehensive duties:
Presides at all meetings of the board at which the chairman is not present, including executive sessions of
the independent directors;
Serves as liaison between the chairman and the independent directors;
Approves information sent to the Board;
Approves meeting agendas for the Board;
Approves meeting schedules to assure that there is sufficient time for discussion of all agenda items;
Has the authority to call meetings of the independent directors; and
If requested by major shareholders, ensures that he or she is available for consultation and direct
communication.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “AGAINST” THE
SHAREHOLDER PROPOSAL REQUIRING THAT THE CHAIRMAN OF THE BOARD
BE AN INDEPENDENT DIRECTOR
SHAREHOLDER PROPOSAL GUIDELINES
To be considered for inclusion in the Company’s Proxy Statement and form of proxy for next year’s Annual Meeting,
shareholder proposals must be delivered to the Corporate Secretary, Westamerica Bancorporation A-2M, P.O. Box 1200,
Suisun City, CA 94585, no later than 5:00 p.m. on November 14, 2016. 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.
In order for business, other than a shareholder proposal submitted for the Company’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
Corporate Secretary. To be timely, written notice must be received by the Corporate Secretary at least 45 days before the
anniversary of the day our Proxy Statement was mailed to shareholders in connection with the previous year’s Annual
Meeting or January 27, 2017, for the 2017 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
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shareholder, the number of shares of the Company’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 Company will pay the cost of proxy solicitation. The Company 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 Company 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
March 14, 2016
Fairfield, California
Kris Irvine
VP/Corporate Secretary
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EXHIBIT A
Westamerica Bancorporation
Audit Committee Charter – Reaffirmed April, 2015
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, statement of income and comprehensive income, statement of changes in shareholders’
equity and statement of cash flows 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.
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
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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 policies, 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 deficiencies; 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 matters 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, including:
(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 independent public
accounting firms or other persons not employed by the auditor who are involved in the audit;
(c) the basis for the auditor’s determination that he or she can serve as principal auditor, if significant parts of
the audit will be performed by other auditors;
(d) situations in which the auditor identified a concern regarding management’s anticipated application of
accounting pronouncements that have been issued but are not yet effective and might have a significant
effect on future financial reporting;
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(e) difficult or contentious matters for which the auditor consulted outside the engagement team;
the auditor’s evaluation of going concern;
(f)
(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 financial
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 recommendations 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 relevant Statements of Auditing
Standards 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 statements prior to
the filing of its Form 10-Q, including the results of the independent auditor’s review 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 principles 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 Statements on Auditing Standards, as 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 information 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 employees 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, including
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, including 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 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 Company’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
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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 Company.
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 services 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 independent
auditor’s independence and discuss such reports with the auditor. Ensure that each independent 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 independent auditor’s
internal quality control procedures. The report should include any material issues 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 auditing
executive.
28. Review any reports to management prepared by the internal auditing department and management’s responses.
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 requirements and the
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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 Company 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 Company’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 Company 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 meeting 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 determine 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 executive sessions
with each of the Company’s CEO, senior internal audit executive and the independent 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 affiliates), other than transactions
which the Board has delegated to the Company’s Employee Benefits/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 activities for the coming year and the
times at which such activities shall occur, which shall be submitted to the Audit Committee for its review and
approval, with such changes as the Audit Committee shall determine to be appropriate.
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EXHIBIT B
Westamerica Bancorporation
Nominating Committee Charter – Reaffirmed January 27, 2016
Purpose
This charter (“Charter”) governs the operations of the Nominating Committee (“Committee”) of the Board of Directors
(“Board”) of Westamerica Bancorporation (“Company”). The Committee is responsible for exercising oversight with
respect to the governance of the Board, including reviewing the qualifications of and recommending to the Board,
proposed nominees for election to the Board, reviewing and reporting to the Board on matters of corporate governance
and leading the Board in their annual evaluation.
Composition
The Committee shall be comprised of at least three directors. All members of the Committee shall meet the
independence requirements of and satisfy any other requirements imposed on members of the Committee pursuant to the
federal securities laws and the rules and regulations of the Securities and Exchange Commission, California state law and
The Nasdaq Stock Market (“Nasdaq”).
The other qualifications of individuals to serve on the Committee shall be determined by the Board, and all members
shall be appointed annually by the Board. The Committee may form and delegate authority to subcommittees when
appropriate. 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 filing vacancies.
Responsibilities
The Committee shall be responsible for screening and recommending qualified candidates to the Board for membership.
The Committee shall annually recommend a slate of director nominees to be submitted for election at each annual
meeting of shareholders. The Committee will evaluate and consider all candidates submitted by shareholders in
accordance with the Company’s bylaws. The Committee will consider persons recommended by shareholders in the
same manner as Committee-recommended nominees. The Committee will carefully consider each existing Board
member’s qualifications and contributions to evaluate his or her performance as a director prior to recommending an
individual for re-nomination each year. In the case of a vacancy in the office of a director, including a vacancy created
by an increase in the size of the Board, the Committee shall recommend to the Board an individual to fill such vacancy
either through appointment by the Board or through election by shareholders. If not designated by the Board, the
Committee may designate a member as its Chairman.
For the purpose of identifying nominees for the Board, the Committee will rely on personal contacts, the expertise of
management and the corporate staff, and other members of the Board as deemed appropriate, and may engage a
professional search firm if the Committee deems it appropriate to do so. The Company shall provide appropriate
funding, as determined by the Committee, for payment of compensation to any advisors employed by the Committee and
ordinary administrative expenses that the Committee deems to be necessary or appropriate in carrying out its duties. The
Committee or a member or members of the Committee designated by the Committee will interview all candidates.
The Committee shall be responsible for assessing the appropriate balance of skills required of Board members. The
Committee may also seek to recommend candidates with specific attributes that may assist the Board to comply with
industry-specific requirements and other rules and regulations.
The Committee may recommend to the Board directors believed qualified to serve on each standing committee of the
Board. The Board shall approve all appointments to the standing committees of the Board.
The Committee will perform other functions as may be assigned by the Board or required by federal securities laws, and
rules and regulations of the SEC, the State of California or Nasdaq.
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The Committee will periodically review and make recommendations regarding the appropriate size of the Board. The
Committee will periodically review and make recommendations regarding the director retirement age policy. The
Committee will also periodically make recommendations to the Board with respect to the compensation of Board
members.
The Committee shall annually administer and report results of the Board evaluation.
The Committee shall periodically review and report to the Board on matters of corporate governance.
The Committee will review and re-assess the adequacy of this Charter annually and recommend any proposed changes to
the Board for approval.
Meetings
The Committee will meet at least once per year or on a more frequent basis as necessary to carry out its responsibilities.
The Committee shall make regular reports to the Board summarizing the action taken at Committee meetings.
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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, 2015
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 of this chapter) is not
contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (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.
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, 2015 as reported on the NASDAQ
Global Select Market, was $1,103,045,781.58. Shares of Common Stock held by each executive officer and director and by each person who
owns 10% 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 17, 2016
25,400,087 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement relating to registrant’s Annual Meeting of Shareholders, to be held on April 28, 2016, are
incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III to the extent described therein.
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TABLE OF CONTENTS
PART I
Item 1 Business................................................................................................................................................................
Item 1A Risk Factors ..........................................................................................................................................................
Item 1B Unresolved Staff Comments.................................................................................................................................
Item 2 Properties ..............................................................................................................................................................
Item 3 Legal Proceedings.................................................................................................................................................
Item 4 Mine Safety Disclosures .......................................................................................................................................
PART II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities ...................................................................................................................
Item 6 Selected Financial Data ........................................................................................................................................
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations ...............................
Item 7A Quantitative and Qualitative Disclosures About Market Risk..............................................................................
Item 8 Financial Statements and Supplementary Data.....................................................................................................
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...............................
Item 9A Controls and Procedures .......................................................................................................................................
Item 9B Other Information .................................................................................................................................................
PART III
Item 10 Directors, Executive Officers and Corporate Governance....................................................................................
Item 11 Executive Compensation ......................................................................................................................................
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .............
Item 13 Certain Relationships, Related Transactions and Director Independence ............................................................
Item 14 Principal Accountant Fees and Services ...............................................................................................................
PART IV
Item 15 Exhibits, Financial Statement Schedules ..............................................................................................................
Signatures .............................................................................................................................................................................
Exhibit Index ........................................................................................................................................................................
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FORWARD-LOOKING STATEMENTS
This report on Form 10-K contains forward-looking statements about Westamerica Bancorporation for which it claims the
protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. Examples of forward-
looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share,
the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and
expectations of the Company or its management or board of directors, including those relating to products or services;
(iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as
"believes", "anticipates", "expects", "intends", "targeted", "projected", "continue", "remain", "will", "should", "may" and other
similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such
statements.
These forward-looking statements are based on Management’s current knowledge and belief and include information concerning
the Company’s possible or assumed future financial condition and results of operations. A number of factors, some of which are
beyond the Company’s ability to predict or control, could cause future results to differ materially from those contemplated. These
factors include but are not limited to (1) the length and severity of 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.
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On February 6, 2009, Westamerica Bank acquired the banking operations of County Bank (“County”) from the Federal Deposit
Insurance Corporation (“FDIC”). 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.
At December 31, 2015, the Company had consolidated assets of approximately $5.2 billion, deposits of approximately $4.5
billion and shareholders’ equity of approximately $532 million. The Company and its subsidiaries employed 813 full-time
equivalent staff as of December 31, 2015.
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 as well as the Company’s director, officer and employee Code of Conduct and Ethics are
also available free of charge from the Company 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.
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.
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Transactions between the Company and the Bank are restricted under Regulation W. The regulation codifies prior interpretations
of the FRB and its staff under Sections 23A and 23B of the Federal Reserve Act. In general, subject to certain specified
exemptions, a bank or its subsidiaries are limited in their ability to engage in “covered transactions” with affiliates: (a) to an
amount equal to 10% of the bank’s capital and surplus, in the case of covered transactions with any one affiliate; and (b) to an
amount equal to 20% of the bank’s capital and surplus, in the case of covered transactions with all affiliates. The Company is
considered to be an affiliate of the Bank. A “covered transaction” includes, among other things, a loan or extension of credit to an
affiliate; a purchase of securities issued by an affiliate; a purchase of assets from an affiliate, with some exceptions; and the
issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate.
Federal regulations governing bank holding companies and change in bank control (Regulation Y) provide for a streamlined and
expedited review process for bank acquisition proposals submitted by well-run bank holding companies. These provisions of
Regulation Y are subject to numerous qualifications, limitations and restrictions. In order for a bank holding company to qualify
as “well-run,” both it and the insured depository institutions which it controls must meet the “well capitalized” and “well
managed” criteria set forth in Regulation Y.
The Gramm-Leach-Bliley Act (the “GLBA”), or the Financial Services Act of 1999, repealed provisions of the Glass-Steagall
Act, which had prohibited commercial banks and securities firms from affiliating with each other and engaging in each other’s
businesses. Thus, many of the barriers prohibiting affiliations between commercial banks and securities firms have been
eliminated.
The BHCA was also amended by the GLBA to allow new “financial holding companies” (“FHCs”) to offer banking, insurance,
securities and other financial products to consumers. Specifically, the GLBA amended section 4 of the BHCA in order to provide
for a framework for the engagement in new financial activities. A bank holding company (“BHC”) may elect to become an FHC
if all its subsidiary depository institutions are well capitalized and well managed. If these requirements are met, a BHC may file a
certification to that effect with the FRB and declare that it elects to become an FHC. After the certification and declaration is
filed, the FHC may engage either de novo or through an acquisition in any activity that has been determined by the FRB to be
financial in nature or incidental to such financial activity. BHCs may engage in financial activities without prior notice to the FRB
if those activities qualify under the list of permissible activities in section 4(k) of the BHCA. However, notice must be given to
the FRB within 30 days after an FHC has commenced one or more of the financial activities. The Company has not elected to
become an FHC.
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Regulation and Supervision of Banks
The Bank is a California state-chartered Federal Reserve member bank and its deposits are insured by the FDIC. The Bank is
subject to regulation, supervision and regular examination by the California Department of Business Oversight (“DBO”), and the
FRB. The regulations of these agencies affect most aspects of the Bank’s business and prescribe permissible types of loans and
investments, the amount of required reserves, requirements for branch offices, the permissible scope of its activities and various
other requirements.
In addition to federal banking law, the Bank is also subject to applicable provisions of California law. Under California law, the
Bank is subject to various restrictions on, and requirements regarding, its operations and administration including the maintenance
of branch offices and automated teller machines, capital requirements, deposits and borrowings, shareholder rights and duties, and
investment and lending activities.
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:
•
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Centralized responsibility for consumer financial protection by creating a new agency, the Consumer Financial
Protection Bureau, responsible for implementing, examining and (as to banks with $10 billion or more in assets)
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.
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• Applied the same leverage and risk-based capital requirements that would apply to insured depository institutions to
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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 1250% for assets with relatively higher credit risk, such as
certain securitizations. A banking organization’s risk-based capital ratios are obtained by dividing its qualifying capital by its total
risk-adjusted assets and off balance sheet items.
The federal banking agencies take into consideration concentrations of credit risk and risks from nontraditional activities, as well
as an institution’s ability to manage those risks, when determining the adequacy of an institution’s capital. This evaluation is
made as a part of the institution’s regular safety and soundness examination. The federal banking agencies also consider interest
rate risk (related to the interest rate sensitivity of an institution’s assets and liabilities, and its off balance sheet financial
instruments) in the evaluation of a bank’s capital adequacy.
As of December 31, 2015, 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 over a transitional period 2015 through 2018.
See the sections entitled “Capital Resources and Capital to Risk-Adjusted Assets” in Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations for additional information.
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Prompt Corrective Action and Other Enforcement Mechanisms
FDICIA requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository
institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios.
An institution that, based upon its capital levels, is classified as “well capitalized,” “adequately capitalized” or “undercapitalized”
may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and
opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment.
At each successive lower capital category, an insured depository institution is subject to more restrictions. In addition to measures
taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement
actions by the federal banking agencies for unsafe or unsound practices in conducting their businesses or for violations of any
law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency.
Safety and Soundness Standards
The Company’s ability to pay dividends to its shareholders is subject to the restrictions set forth in the California General
Corporation Law (“CGCL”). The CGCL provides that a corporation may make a distribution to its shareholders if (i) the
corporation’s retained earnings equal or exceed the amount of the proposed distribution plus unpaid accrued dividends, (if any) on
securities with a dividend preference, or (ii) immediately after the dividend, the corporation’s total assets equal or exceed total
liabilities plus unpaid accrued dividends (if any) on securities with a dividend preference.
FDICIA also implemented certain specific restrictions on transactions and required federal banking regulators to adopt overall
safety and soundness standards for depository institutions related to internal control, loan underwriting and documentation, and
asset growth. Among other things, FDICIA limits the interest rates paid on deposits by undercapitalized institutions, restricts the
use of brokered deposits, limits the aggregate extensions of credit by a depository institution to an executive officer, director,
principal shareholder or related interest, and reduces deposit insurance coverage for deposits offered by undercapitalized
institutions for deposits by certain employee benefits accounts. The federal banking agencies may require an institution to submit
an acceptable compliance plan as well as have the flexibility to pursue other more appropriate or effective courses of action given
the specific circumstances and severity of an institution’s noncompliance with one or more standards.
Federal banking agencies require banks to maintain adequate valuation allowances for potential credit losses. The Company has
an internal staff that continually reviews loan quality and reports to the Board of Directors. This analysis includes a detailed
review of the classification and categorization of problem loans, assessment of the overall quality and collectability of the loan
portfolio, consideration of loan loss experience, trends in problem loans, concentration of credit risk, and current economic
conditions, particularly in the Bank’s market areas. Based on this analysis, Management, with the review and approval of the
Board, determines the adequate level of allowance required. The allowance is allocated to different segments of the loan portfolio,
but the entire allowance is available for the loan portfolio in its entirety.
Restrictions on Dividends and Other Distributions
The power of the board of directors of an insured depository institution to declare a cash dividend or other distribution with
respect to capital is subject to statutory and regulatory restrictions which limit the amount available for such distribution
depending upon the earnings, financial condition and cash needs of the institution, as well as general business conditions. FDICIA
prohibits insured depository institutions from paying management fees to any controlling persons or, with certain limited
exceptions, making capital distributions, including dividends, if, after such transaction, the institution would be undercapitalized.
In addition to the restrictions imposed under federal law, banks chartered under California law generally may only pay cash
dividends to the extent such payments do not exceed the lesser of retained earnings of the bank or the bank’s net income for its
last three fiscal years (less any distributions to shareholders during this period). In the event a bank desires to pay cash dividends
in excess of such amount, the bank may pay a cash dividend with the prior approval of the Commissioner in an amount not
exceeding the greatest of the bank’s retained earnings, the bank’s net income for its last fiscal year or the bank’s net income for its
current fiscal year.
The federal banking agencies also have the authority to prohibit a depository institution from engaging in business practices
which are considered to be unsafe or unsound, possibly including payment of dividends or other payments under certain
circumstances even if such payments are not expressly prohibited by statute.
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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 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 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
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
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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.
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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 that also compete with banks for deposit business. Federal
legislation in recent years has encouraged competition between different types of financial institutions and fostered new entrants
into the financial services market.
Legislative changes, as well as technological and economic factors, can be expected to have an ongoing impact on competitive
conditions within the financial services industry. While the future impact of regulatory and legislative changes cannot be
predicted with certainty, the business of banking will remain highly competitive.
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ITEM 1A. RISK FACTORS
Readers and prospective investors in the Company’s securities should carefully consider the following risk factors as well as the
other information contained or incorporated by reference in this report.
The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties that
Management is not aware of or focused on or that Management currently deems immaterial may also impair the Company’s
business operations. This report is qualified in its entirety by these risk factors.
If any of the following risks actually occur, the Company’s financial condition and results of operations could be materially and
adversely affected. If this were to happen, the value of the company’s securities could decline significantly, and investors could
lose all or part of their investment in the Company’s common stock.
Market and Interest Rate Risk
Changes in interest rates could reduce income and cash flow.
The discussion in this report under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Asset, Liability and Market Risk Management” and “- Liquidity and Funding” and “Item 7A Quantitative and
Qualitative Disclosures About Market Risk” is incorporated by reference in this paragraph. The Company’s income and cash flow
depend to a great extent on the difference between the interest earned on loans and investment securities and the interest paid on
deposits and other borrowings, and the Company’s success in competing for loans and deposits. The Company cannot control or
prevent changes in the level of interest rates which fluctuate in response to general economic conditions, the policies of various
governmental and regulatory agencies, in particular, the Federal Open Market Committee of the FRB, and pricing practices of the
Company’s competitors. Changes in monetary policy, including changes in interest rates, will influence the origination of loans,
the purchase of investments, the generation of deposits and other borrowings, and the rates received on loans and investment
securities and paid on deposits and other liabilities.
Changes in capital market conditions could reduce asset valuations.
Capital market conditions, including liquidity, investor confidence, bond issuer credit worthiness, perceived counter-party risk,
the supply of and demand for financial instruments, the financial strength of market participants, and other factors can materially
impact the value of the Company’s assets. An impairment in the value of the Company’s assets could result in asset write-downs,
reducing the Company’s asset values, earnings, and equity.
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.
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
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approximately 25.5 million shares of common stock were outstanding at December 31, 2015. Pursuant to its stock option plans, at
December 31, 2015, the Company had outstanding options for 1.5 million shares of common stock, of which 1.1 million were
currently exercisable. As of December 31, 2015, 1.5 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, 2015, approximately 1.7 million shares remained available to repurchase under such plans. The
Company has been active in repurchasing and retiring shares of its common stock when alternative uses of excess capital, such as
acquisitions, have been limited. The Company could repurchase shares of its common stock at price levels considered excessive,
thereby spending more cash on such repurchases as deemed reasonable and effectively retiring fewer shares than would be retired
if repurchases were affected at lower prices.
Risks Related to the Nature and Geographical Location of the Company’s Business
The Company invests in loans that contain inherent credit risks that may cause the Company to incur losses.
The Company can provide no assurance that the credit quality of the loan portfolio will not deteriorate in the future and that such
deterioration will not adversely affect the Company.
The Company’s operations are concentrated geographically in California, and poor economic conditions may cause the
Company to incur losses.
Substantially all of the Company’s business is located in California. A portion of the loan portfolio of the Company is dependent
on real estate. At December 31, 2015, real estate served as the principal source of collateral with respect to approximately 53% 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 25% 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.
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Adverse changes in general business or economic conditions could have a material adverse effect on the Company’s financial
condition and results of operations.
A sustained or continuing weakness or weakening in business and economic conditions generally or specifically in the principal
markets in which the Company does business could have one or more of the following adverse impacts on the Company’s
business:
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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.
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 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.
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.
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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-
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.
Following the most recent recession, the FRB has been providing vast amounts of liquidity into the banking system. 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 asset purchase activities in the fourth
quarter 2013 and the Federal Open Market Committee increased the target range for the federal funds rate to 1/4 to 1/2 percent on
December 16, 2015 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.
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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, energy delivery systems, cyber attacks, and other events. Although the
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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
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.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
Branch Offices and Facilities
Westamerica Bank is engaged in the banking business through 88 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 32 banking office locations and one centralized administrative service center facility and leases 64 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
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER 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
2015:
First quarter.........................................................................................................
Second quarter ....................................................................................................
Third quarter .......................................................................................................
Fourth quarter .....................................................................................................
$49.45
52.16
52.40
49.89
2014:
First quarter.........................................................................................................
Second quarter ....................................................................................................
Third quarter .......................................................................................................
Fourth quarter .....................................................................................................
$56.51
55.34
53.93
51.24
$40.57
42.09
42.97
41.99
$48.36
47.85
46.12
42.71
As of January 31, 2016, there were approximately 6,100 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.
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Stock performance
The following chart compares the cumulative return on the Company’s stock during the ten years ended December 31, 2015 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, 2005 and reinvestment of all dividends.
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December 31,
Westamerica Bancorporation (WABC) ......................................
S&P 500 (SPX)...........................................................................
NASDAQ Bank Index (CBNK) .................................................
2006
2005
2010
$100.00 $97.91 $88.64 $104.44 $116.37 $119.73
97.33 112.01
100.00 115.78 122.14
68.37
59.88
91.16
100.00 113.80
76.96
71.54
2008
2009
2007
Westamerica Bancorporation (WABC) ........................................................
S&P 500 (SPX).............................................................................................
NASDAQ Bank Index (CBNK) ...................................................................
December 31,
2013
2011
2012
2015
$97.70 $97.92 $133.99 $119.96 $118.42
114.35 132.63 175.55 199.52 202.28
72.65 102.94 107.99 117.54
61.19
2014
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The following chart compares the cumulative return on the Company’s stock during the five years ended December 31, 2015 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, 2010 and reinvestment of all dividends.
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Westamerica Bancorporation (WABC) ......................................
S&P 500 (SPX)...........................................................................
NASDAQ Bank Index (CBNK) .................................................
ISSUER PURCHASES OF EQUITY SECURITIES
December 31,
2012
2011
2010
2015
$100.00 $81.60 $81.79 $111.91 $100.19 $98.91
100.00 102.09 118.41 156.73 178.13 180.59
89.49 106.26 150.56 157.95 171.92
100.00
2013
2014
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, 2015 (in thousands, except per share data).
Period
October 1 through October 31
November 1 through November 30
December 1 through December 31
Total
2015
(a) Total Number of
shares Purchased
(c) Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs*
(In thousands, except exercise price)
(b) Average Price Paid
per Share
(d) Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs
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$43.01
-
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43.01
2
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1,727
1,727
1,727
1,727
* No shares were purchased during the fourth quarter 2015 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.
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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 2015 pursuant to a program approved by the Board of Directors on July 23,
2015 authorizing the purchase of up to 1,750 thousand shares of the Company’s common stock from time to time prior to
September 1, 2016.
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ITEM 6. SELECTED FINANCIAL DATA
The following financial information for the five years ended December 31, 2015 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
Interest and loan fee income
Interest expense
Net interest and loan fee income
Provision for loan losses
Noninterest income:
Net losses from securities
Deposit service charges and other
Total noninterest income
Noninterest expense:
Settlements
Other noninterest expense
Total noninterest expense
Income before income taxes
Income tax provision
Net income
Average common shares outstanding
Average diluted common shares outstanding
Common 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 (FTE)(1)
Net loan losses to average loans
(2)
Efficiency ratio
Equity to assets
Period end balances:
Assets
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
Shareholders' equity
Capital ratios at period end:
Total risk based capital
Tangible equity to tangible assets
Dividends paid per common share
Common dividend payout ratio
For the Years Ended December 31,
2013
2012
2014
(In thousands, except per share data and ratios)
$140,209
3,444
136,765
2,800
$154,396
4,671
149,725
8,000
$183,364
5,744
177,620
11,200
2015
$136,529
2,424
134,105
-
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47,867
47,867
-
105,300
105,300
76,672
17,919
$58,753
25,555
25,577
25,528
$2.30
2.30
20.85
1.16%
11.32%
3.36%
0.11%
53.69%
10.30%
-
51,787
51,787
-
106,799
106,799
78,953
18,307
$60,646
26,099
26,160
25,745
$2.32
2.32
20.45
1.22%
11.57%
3.70%
0.17%
52.24%
10.46%
$5,168,875
1,533,396
29,771
2,886,291
4,540,659
132,104
53,028
-
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$5,035,724
1,700,290
31,485
2,639,439
4,349,191
135,960
89,784
20,015
-
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532,205
526,603
13.39%
7.94%
$1.53
67%
14.54%
7.97%
$1.52
66%
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
28,628
28,742
28,150
$3.07
3.06
19.85
1.78%
16.14%
5.32%
0.52%
45.77%
11.08%
$5,042,161
2,523,806
32,597
1,561,556
4,249,921
150,302
115,689
26,023
10,000
15,000
558,641
15.75%
8.35%
$1.45
47%
-
57,011
57,011
-
112,614
112,614
86,122
18,945
$67,177
26,826
26,877
26,510
$2.50
2.50
20.48
1.38%
12.48%
4.08%
0.33%
50.11%
11.20%
$4,847,055
1,827,744
31,693
2,211,680
4,163,781
140,230
62,668
20,577
10,000
-
542,934
16.18%
8.56%
$1.49
60%
(1,287)
58,309
57,022
-
116,885
116,885
106,557
25,430
$81,127
27,654
27,699
27,213
$2.93
2.93
20.58
1.64%
14.93%
4.79%
0.59%
46.01%
11.31%
$4,952,193
2,111,357
30,234
1,981,677
4,232,492
144,934
53,687
25,799
10,000
15,000
560,102
16.33%
8.64%
$1.48
51%
(1)
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.
(2) The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income on an FTE basis, which is a non-GAAP financial measure, and
noninterest income).
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion addresses information pertaining to the financial condition and results of operations of Westamerica
Bancorporation and subsidiaries (the “Company”) that may not be otherwise apparent from a review of the consolidated financial
statements and related footnotes. It should be read in conjunction with those statements and notes found on pages 48 through 89,
as well as with the other information presented throughout this 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 to be
the accounting area 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.
Net Income
In response to the “great recession” of 2008 and early 2009, 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. The Company’s principal source of revenue is net interest 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 relatively low level of market interest rates during the five years ended December
31, 2015 has reduced the spread between interest rates on earning assets and interest bearing liabilities. The Company’s net
interest margin and net interest income declined as market interest rates on newly originated loans remain below the yields earned
on older-dated loans and on the overall loan portfolio. The Company has been reducing its exposure to rising interest rates by
purchasing shorter-duration investment securities with lower yields than longer-duration securities. The Company’s credit quality
continued to improve, as nonperforming loans at December 31, 2015 declined 15.5 percent compared with December 31, 2014
and net loan losses have also declined from $3.0 million in 2014 to $1.7 million in 2015. The improvement in credit quality has
resulted in Management reducing the provision for loan losses to zero in 2015 from $2.8 million in 2014 and $8.0 million in 2013.
Management is focused on controlling all noninterest expense levels, particularly due to market interest rate pressure on net
interest income.
The Company reported net income of $58.8 million or $2.30 diluted earnings per common share for the year ended December 31,
2015 compared with net income of $60.6 million or $2.32 diluted earnings per common share for the year ended December 31,
2014 and net income of $67.2 million or $2.50 diluted earnings per common share for the year ended December 31, 2013.
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Components of Net Income
Net interest and loan fee income (FTE)
Provision for loan losses
Noninterest income
Noninterest expense
(1)
Income before income taxes (FTE)
(1)
Income taxes (FTE)
Net income
(1)
Net income per average fully-diluted common share
Net income as a percentage of average shareholders' equity
Net income as a percentage of average total assets
(1) Fully taxable equivalent (FTE)
For the Years Ended December 31,
2013
2014
2015
($ in thousands, except per share data)
$148,258
-
47,867
(105,300)
90,825
(32,072)
$58,753
$2.30
11.32%
1.16%
$152,656
(2,800)
51,787
(106,799)
94,844
(34,198)
$60,646
$2.32
11.57%
1.22%
$167,737
(8,000)
57,011
(112,614)
104,134
(36,957)
$67,177
$2.50
12.48%
1.38%
Comparing 2015 with 2014, net income decreased $1.9 million or 3.1%, primarily due to lower net interest and loan fee income
(FTE) and lower noninterest income, 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 and lower average balances of
higher-costing interest-bearing liabilities. 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. Lower
noninterest income was mostly attributable to lower merchant processing service fees and lower service charges on deposit
accounts. Noninterest expense decreased primarily due to reduced personnel costs and other operational expenses.
Comparing 2014 with 2013, net income decreased $6.5 million primarily due to lower net interest and fee income (FTE) and
lower noninterest income, partially offset by decreases in the provision for loan losses, noninterest expense and income tax
provision (FTE). The lower net interest and fee income (FTE) was primarily caused by a lower average volume of loans and
lower yields on interest earning assets, partially offset by higher average balances of investments and lower average balances of
higher-costing interest-bearing liabilities. The provision for loan losses was reduced, reflecting Management's evaluation of losses
inherent in the loan portfolio. Lower noninterest income was mostly attributable to lower merchant processing service fees and
lower service charges on deposit accounts. Noninterest expense decreased mostly due to reduced OREO expense net of
disposition gains, lower personnel costs and other operational expenses.
Net Interest and Loan Fee Income (FTE)
The Company's primary source of revenue is net interest income, or the difference between interest income earned on loans and
investment securities and interest expense paid on interest-bearing deposits and other borrowings.
Components of Net Interest and Loan Fee Income (FTE)
2015
For the Years Ended December 31,
2014
($ in thousands)
2013
Interest and loan fee income
Interest expense
FTE adjustment
Net interest and loan fee income (FTE)
(1)
Net interest margin (FTE)
(1) Fully taxable equivalent (FTE)
(1)
$136,529
(2,424)
14,153
$148,258
$140,209
(3,444)
15,891
$152,656
$154,396
(4,671)
18,012
$167,737
3.36%
3.70%
4.08%
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Comparing 2015 with 2014, net interest and fee income (FTE) decreased $4.4 million or 2.9% primarily due to a lower average
volume of loans (down $155 million) and lower yields on interest-earning assets (FTE) (down 37 basis points “bp”), partially
offset by higher average balances of investments (up $436 million) and lower average balances of higher-costing interest-bearing
liabilities.
Comparing 2014 with 2013, net interest and fee income (FTE) decreased $15.1 million or 9.0% primarily due to a lower average
volume of loans (down $182 million) and lower yields on interest-earning assets (FTE) (down 41 basis points “bp”), partially
offset by higher average balances of investments (up $206 million) and lower average balances of higher-costing interest-bearing
liabilities.
Loan volumes have declined due to problem loan workout activities (such as chargeoffs, collateral repossessions and principal
payments), 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. Management has maintained relatively stable interest-earning asset
volumes by increasing investment securities as loan volumes have declined.
Yields on interest-earning assets have declined due to relatively low interest rates prevailing in the market. The net interest
margin (FTE) was 3.36% in 2015, 3.70% in 2014 and 4.08% in 2013. During the three years ended December 31, 2015, the net
interest margin (FTE) was affected by declining market interest rates. The volume of older-dated higher-yielding loans declined
due to principal maturities and paydowns. Newly originated loans have lower yields. The Company, in anticipation of rising
interest rates, has been purchasing floating rate and shorter-duration investment securities with lower yields than longer-duration
securities to increase liquidity. The Company’s high levels of liquidity will provide an opportunity to obtain higher yielding assets
assuming market interest rates start rising. The Company has been purchasing securities of U. S. government sponsored entities
which have call options; the issuing entities have been exercising the call options, and the Company has re-invested the proceeds
at prevailing market rates; interest rates in the two to five-year time horizon were volatile throughout 2015 providing some
opportunity to re-invest cash flows at higher yields.
The Company has been replacing higher-cost funding sources with low-cost deposits and interest expense has declined to offset
some of the decline in interest income. Interest expense has been reduced by lowering rates paid on interest-bearing deposits and
borrowings and by reducing the volume of higher-cost funding sources. A $15 million long-term note was repaid in October 2013
and a $10 million term repurchase agreement was repaid in August 2014. Federal Home Loan Bank (“FHLB”) advances were
repaid in January 2015. Average balances of time deposits declined $100 million in 2015 compared with 2014. Lower-cost
checking and savings deposits accounted for 92.5% of total average deposits in 2015 compared with 89.8% in 2014 and 86.3% in
2013.
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Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present information regarding the consolidated average assets, liabilities and shareholders’ equity, the
amounts of interest income earned from average interest earning assets and the resulting yields, and the amounts of interest
expense incurred on average interest-bearing liabilities and the resulting rates. Average loan balances include nonperforming
loans. Interest income includes reversal of previously accrued interest on loans placed on non-accrual status during the period and
proceeds from loans on nonaccrual status only to the extent cash payments have been received and applied as interest income and
accretion of purchased loan discounts. Yields on tax-exempt securities and loans have been adjusted upward to reflect the effect
of income exempt from federal income taxation at the current statutory tax rate.
Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin
For the Year Ended December 31, 2015
Interest
Income/
Expense
($ in thousands)
Yields/
Rates
Average
Balance
Assets
Investment securities:
Taxable
Tax-exempt (1)
Total investments (1)
Loans:
Taxable
Tax-exempt (1)
Total loans (1)
Total interest-earning assets (1)
Other assets
Total assets
Liabilities and shareholders' equity
Deposits:
Noninterest-bearing demand
Savings and interest-bearing transaction
Time less than $100,000
Time $100,000 or more
Total interest-bearing deposits
Short-term borrowed funds
Federal Home Loan Bank advances
Total interest-bearing liabilities
Other liabilities
Shareholders' equity
Total liabilities and shareholders' equity
Net interest spread (1) (2)
Net interest and fee income and interest margin (1) (3)
$1,947,835
849,618
2,797,453
1,542,264
76,007
1,618,271
4,415,724
668,276
$5,084,000
$1,968,817
2,134,256
172,836
161,710
2,468,802
75,054
494
2,544,350
51,707
519,126
$5,084,000
$34,472
36,284
70,756
75,677
4,249
79,926
150,682
$-
1,112
571
687
2,370
53
1
2,424
$148,258
1.77%
4.27%
2.53%
4.91%
5.59%
4.94%
3.41%
- %
0.05%
0.33%
0.42%
0.10%
0.07%
0.20%
0.10%
3.31%
3.36%
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(2) Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing
liabilities.
(3) Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance
of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing
demand deposits.
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-
0
1
M
R
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O
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O
P
R
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N
A
B
A
C
I
R
E
M
A
T
S
E
W
5
1
0
2
Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin
For the Year Ended December 31, 2014
Interest
Income/
Expense
($ in thousands)
Yields/
Rates
Average
Balance
Assets
Investment securities:
Taxable
Tax-exempt (1)
Total investments (1)
Loans:
Taxable
Tax-exempt (1)
Total loans (1)
Total interest-earning assets (1)
Other assets
Total assets
Liabilities and shareholders' equity
Deposits:
Noninterest-bearing demand
Savings and interest-bearing transaction
Time less than $100,000
Time $100,000 or more
Total interest-bearing deposits
Short-term borrowed funds
Federal Home Loan Bank advances
Term repurchase agreement
Total interest-bearing liabilities
Other liabilities
Shareholders' equity
Total liabilities and shareholders' equity
Net interest spread (1) (2)
Net interest and fee income and interest margin (1) (3)
$1,474,579
886,932
2,361,511
1,685,329
87,633
1,772,962
4,134,473
821,170
$4,955,643
$1,841,522
2,005,502
197,821
237,002
2,440,325
70,252
20,308
6,082
2,536,967
52,866
524,288
$4,955,643
$24,766
40,525
65,291
85,787
5,022
90,809
156,100
$-
1,174
820
893
2,887
90
407
60
3,444
$152,656
1.68%
4.57%
2.76%
5.09%
5.73%
5.12%
3.78%
- %
0.06%
0.41%
0.38%
0.12%
0.13%
2.00%
0.99%
0.14%
3.64%
3.70%
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(2) Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing
liabilities.
(3) Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance
of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing
demand deposits.
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K
Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin
For the Year Ended December 31, 2013
Interest
Income/
Expense
($ in thousands)
Yields/
Rates
Average
Balance
Assets
Investment securities:
Taxable
Tax-exempt (1)
Total investments (1)
Loans:
Taxable
Tax-exempt (1)
Total loans (1)
Total interest-earning assets (1)
Other assets
Total assets
Liabilities and shareholders' equity
Deposits:
Noninterest-bearing demand
Savings and interest-bearing transaction
Time less than $100,000
Time $100,000 or more
Total interest-bearing deposits
Short-term borrowed funds
Federal Home Loan Bank advances
Term repurchase agreement
Debt financing
Total interest-bearing liabilities
Other liabilities
Shareholders' equity
Total liabilities and shareholders' equity
Net interest spread (1) (2)
Net interest and fee income and interest margin (1) (3)
$1,254,474
900,616
2,155,090
1,847,710
106,871
1,954,581
4,109,671
754,191
$4,863,862
$1,683,447
1,910,131
228,061
341,184
2,479,376
57,454
25,499
10,000
12,452
2,584,781
57,469
538,165
$4,863,862
$22,201
45,396
67,597
98,547
6,264
104,811
172,408
$-
1,182
1,070
1,096
3,348
77
480
98
668
4,671
$167,737
1.77%
5.04%
3.13%
5.33%
5.86%
5.36%
4.19%
- %
0.06%
0.47%
0.32%
0.14%
0.13%
1.88%
0.98%
5.37%
0.18%
4.01%
4.08%
(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.
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-
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1
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R
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F
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N
A
B
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W
5
1
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2
Summary of Changes in Interest Income and Expense due to Changes in Average Asset & Liability Balances and Yields
Earned & Rates Paid
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
For the Year Ended December 31, 2015
Compared with
For the Year Ended December 31, 2014
Yield/Rate
(In thousands)
Total
Volume
Increase (decrease) in interest and loan fee income:
Investment securities:
Taxable
Tax-exempt (1)
Total investments (1)
Loans:
Taxable
Tax-exempt (1)
Total loans (1)
Total decrease in interest and loan fee income (1)
Increase (decrease) in interest expense:
Deposits:
Savings and interest-bearing transaction
Time less than $100,000
Time $100,000 or more
Total interest-bearing deposits
Short-term borrowed funds
Federal Home Loan Bank advances
Term repurchase agreement
Total decrease in interest expense
Decrease in net interest and loan fee income (1)
Federal Home Loan Bank advances
$7,948
(1,705)
6,243
(7,282)
(666)
(7,948)
(1,705)
75
(104)
(284)
(313)
6
(397)
(60)
(764)
($941)
$1,758
(2,536)
(778)
(2,828)
(107)
(2,935)
(3,713)
(137)
(145)
78
(204)
(43)
(9)
-
(256)
($3,457)
$9,706
(4,241)
5,465
(10,110)
(773)
(10,883)
(5,418)
(62)
(249)
(206)
(517)
(37)
(406)
(60)
(1,020)
($4,398)
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
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Summary of Changes in Interest Income and Expense
Increase (decrease) in interest and loan fee income:
Investment securities:
Taxable
Tax-exempt (1)
Total investments (1)
Loans:
Taxable
Tax-exempt (1)
Total loans (1)
Total decrease in interest and loan fee income (1)
Increase (decrease) in interest expense:
Deposits:
Savings and interest-bearing transaction
Time less than $100,000
Time $100,000 or more
Total interest-bearing deposits
Short-term borrowed funds
Federal Home Loan Bank advances
Term repurchase agreement
Debt financing
Total decrease in interest expense
Decrease in net interest and loan fee income (1)
Federal Home Loan Bank advances
2
0
1
5
W
E
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F
O
R
M
1
0
-
K
For the Year Ended December 31, 2014
Compared with
For the Year Ended December 31, 2013
Yield/Rate
(In thousands)
Total
Volume
$3,957
(770)
3,187
(7,846)
(1,128)
(8,974)
(5,787)
59
(142)
(335)
(418)
17
(97)
(38)
(668)
(1,204)
($4,583)
($1,392)
(4,101)
(5,493)
(4,914)
(114)
(5,028)
(10,521)
(67)
(108)
132
(43)
(4)
24
-
-
(23)
($10,498)
$2,565
(4,871)
(2,306)
(12,760)
(1,242)
(14,002)
(16,308)
(8)
(250)
(203)
(461)
13
(73)
(38)
(668)
(1,227)
($15,081)
(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 no provision for loan losses in 2015 compared with $2.8 million in 2014 and $8.0 million in 2013. The
provision for loan losses is determined based on Management’s evaluation of credit quality for the loan portfolio. The reduction
in the provision for loan losses in 2015 and 2014 reflects the decline in net losses and nonperforming loan volumes during the
periods relative to earlier periods. 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 secured by single-family residential
real estate are “covered” through February 6, 2019 by loss-sharing agreements the Company entered with the FDIC which
mitigates losses during the term of the agreements. The FDIC indemnification of purchased County Bank non-single-family
residential secured loans expired February 6, 2014. 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 Loan Losses” sections of this report.
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1
M
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A
B
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5
1
0
2
Noninterest Income
Components of Noninterest Income
Service charges on deposit accounts
Merchant processing services
Debit card fees
Other service charges
Trust fees
ATM processing fees
Financial services commissions
Other
Total
2015
2013
For the Years Ended December 31,
2014
(In thousands)
$24,191
7,219
5,960
2,717
2,582
2,473
757
5,888
$51,787
$22,241
6,339
6,084
2,689
2,732
2,397
695
4,690
$47,867
$25,693
9,031
5,829
2,846
2,313
2,758
831
7,710
$57,011
In 2015, noninterest income decreased $3.9 million or 7.6% compared with 2014. Service charges on deposits decreased $2.0
million compared with 2014 due to declines in fees charged on overdrawn and insufficient funds accounts (down $913 thousand),
lower fees on analyzed accounts (down $661 thousand) and lower activity on checking accounts (down $325 thousand). Merchant
processing services declined $880 thousand primarily due to lower transaction volumes.
In 2014, noninterest income decreased $5.2 million or 9.2% compared with 2013. Merchant processing services fees decreased
$1.8 million primarily due to lower transaction volumes. Service charges on deposits decreased $1.5 million compared with 2013
primarily due to declines in fees charged on overdrawn and insufficient funds accounts (down $1.0 million) and lower activity on
checking accounts (down $410 thousand). ATM processing fees decreased $285 thousand mainly because the Bank customers
had fewer transactions at non-Westamerica ATMs and other cash dispensing terminals. Other noninterest income decreased $1.8
million primarily due to the recognition in 2013 of a loan principal recovery exceeding the purchase date fair value. Trust fees
increased $269 thousand mostly due to marketing efforts to increase customer accounts and higher court-approved fees. Debit
card fees increased $131 thousand primarily due to higher transaction volumes.
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K
Noninterest Expense
Components of Noninterest Expense
Salaries and related benefits
Occupancy
Outsourced data processing services
Furniture and equipment
Amortization of intangible assets
Professional fees
Courier service
Other real estate owned
Other
Total
2015
2013
For the Years Ended December 31,
2014
(In thousands)
$54,777
14,992
8,411
4,174
4,270
2,346
2,624
(642)
15,847
$106,799
$52,192
14,960
8,441
4,434
3,856
2,490
2,329
504
16,094
$105,300
$56,633
15,137
8,548
3,869
4,704
3,057
2,868
1,035
16,763
$112,614
In 2015, noninterest expense decreased $1.5 million or 1.4% compared with 2014 primarily due to decreases in personnel costs
and other operational expenses. Salaries and related benefits decreased $2.6 million primarily due to employee attrition.
Amortization of identifiable intangibles decreased as assets are amortized on a declining balance method. Courier expense
decreased primarily due to consolidating service runs. OREO expense in 2015 included net writedowns while in 2014 the
Company realized net gains on disposition of foreclosed assets. Furniture and equipment expense increased primarily due to
higher depreciation costs resulting from computer and software upgrades and higher software license fees.
In 2014, noninterest expense decreased $5.8 million or 5.2% compared with 2013. Salaries and related benefits decreased $1.9
million primarily due to employee attrition. Expenses for other real estate owned, net of disposition gains, declined $1.7 million
due to higher net gains on sale of repossessed loan collateral. Professional fees declined $711 thousand due to lower legal fees
associated with nonperforming assets. Amortization of identifiable intangibles decreased $434 thousand as assets are amortized
on a declining balance method. Other noninterest expense decreased $916 thousand primarily due to lower loan administration
costs and lower limited partnership operating losses. Furniture and equipment expenses increased $305 thousand primarily due to
increased depreciation costs associated with computer system and software upgrades.
Provision for Income Tax
The income tax provision (FTE) was $32.1 million in 2015 compared with $34.2 million in 2014 and $37.0 million in 2013. The
2015 effective tax rate (FTE) was 35.3% compared with 36.1% in 2014 and 35.5% in 2013. The effective tax rates without FTE
adjustments were 23.4% for 2015 and 23.2% for 2014 and 22.0% for 2013. The 2015 tax provision included adjustments based on
filing the 2014 federal and state tax returns and tax benefits from completing audits with the California Franchise Tax Board and
recognizing California enterprise zone hiring credits for filed amended returns (2010). The 2014 tax provision reflected an
adjustment based on filing 2013 federal tax return and tax benefits from completing audits with the California Franchise Tax
Board.
Effective January 1, 2014, the new legislation signed by California’s Governor Jerry Brown eliminated the net interest deduction
for enterprise zone loans and the hiring credits were significantly altered. The Company did not incur a significant change in its
tax provision due to the new laws; the state tax benefits recognized from the current enterprise zone tax incentive program for the
years ended December 31, 2014 and 2013 were $47 thousand and $121 thousand, net of federal income tax consequences,
respectively.
Investment Portfolio
The Company maintains a securities portfolio consisting of securities issued by U.S. Treasury, U.S. Government sponsored
entities, agency and non-agency mortgage backed securities, state and political subdivisions, corporations, and asset-backed and
other securities. Investment securities are held in safekeeping by an independent custodian.
Management has increased the investment portfolio in response to deposit growth and loan volume declines. The carrying value
of the Company’s investment securities portfolio was $2.9 billion as of December 31, 2015, an increase of $247 million compared
to December 31, 2014.
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Management continually evaluates the Company’s investment securities portfolio in response to established asset/liability
management objectives, changing market conditions that could affect profitability, liquidity, 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.
The Company’s positioning of the balance sheet for rising interest rates has resulted in the purchase of floating rate corporate
bonds, federal agency bonds, mortgage-backed securities, and short-term state and municipal bonds. As of December 31, 2015,
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.
The Company’s procedures for evaluating investments in securities 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.
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
U.S. Treasury securities
Securities of U.S. Government sponsored entities
Agency residential mortgage-backed securities (MBS)
Non-agency commercial MBS
Agency residential collateralized mortgage obligations (CMO)
Non-agency residential CMO
Obligations of states and political subdivisions
Asset-backed securities
FHLMC and FNMA stock
Corporate securities
Other securities
Total
2015
$ -
301,882
18,874
2,379
183,670
370
157,509
2,003
4,329
896,369
2,831
$1,570,216
At December 31,
2014
(In thousands)
$3,505
635,188
26,407
2,919
221,851
606
181,799
8,313
5,168
512,239
2,786
$1,600,781
2013
$3,506
130,492
34,176
3,425
251,440
1,456
191,386
14,555
13,372
432,431
3,142
$1,079,381
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The following table sets forth the relative maturities and contractual yields of the Company’s available for sale securities (stated
at fair value) at December 31, 2015. Yields on state and political subdivision securities have been calculated on a fully taxable
equivalent basis using the current federal statutory rate. Mortgage-backed securities are shown separately because they are
typically paid in monthly installments over a number of years.
Available for Sale Portfolio Maturity Distribution
Within one year
After one but
within five
years
After five but
within ten
years
At December 31, 2015
After ten years
($ in thousands)
Mortgage-
backed
Other
Total
U.S. Government sponsored entities
Interest rate
Obligations of states and political subdivisions
Interest rate
Asset-backed securities
Interest rate
Corporate securities
Interest rate
Subtotal
Interest rate
MBS
Interest rate
Other securities without set maturities
Interest rate
Total
Interest rate
$ -
- %
4,145
5.90%
-
- %
132,831
1.65%
136,976
1.78%
-
- %
-
- %
$136,976
1.78%
$265,922
1.74%
21,586
5.85%
-
- %
756,945
1.71%
1,044,453
1.80%
-
- %
-
- %
$1,044,453
1.80%
$35,960
2.20%
129,029
6.16%
2,003
0.61%
6,593
1.67%
173,585
5.10%
-
- %
-
- %
$173,585
5.10%
$ -
- %
2,749
6.90%
-
- %
-
- %
2,749
6.90%
-
- %
-
- %
$2,749
6.90%
$ -
- %
-
- %
-
- %
-
- %
-
- %
205,293
1.95%
-
- %
$205,293
1.95%
$ -
- %
-
- %
-
- %
-
- %
-
- %
-
- %
7,160
1.99%
$7,160
1.99%
$301,882
1.79%
157,509
6.00%
2,003
0.61%
896,369
1.68%
1,357,763
2.20%
205,293
1.95%
7,160
1.99%
$1,570,216
2.14%
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:
2
0
1
5
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
Held to Maturity Portfolio
Securities of U.S. Government sponsored entities
Agency residential MBS
Agency commercial MBS
Agency residential CMO
Non-agency residential CMO
Obligations of states and political subdivisions
Total
Fair value
2015
$764
400,384
16,258
195,119
9,667
693,883
$1,316,075
$1,325,699
At December 31,
2014
(In thousands)
$1,066
59,078
-
247,047
11,278
720,189
$1,038,658
$1,048,562
2013
$1,601
65,076
-
296,312
12,603
756,707
$1,132,299
$1,112,676
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30
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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
5
1
0
2
The following table sets forth the relative maturities and contractual yields of the Company’s held to maturity securities at
December 31, 2015. 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 Portfolio Maturity Distribution
Securities of U.S. Government sponsored entities
Interest rate
Obligations of states and political subdivisions
Interest rate
Subtotal
Interest rate
MBS
Interest rate
Total
Interest rate
Within one year
After one but
within five
years
After five but
within ten
years
After ten years
Mortgage-
backed
At December 31, 2015
$ -
- %
20,709
4.47%
20,709
4.47%
-
- %
$20,709
4.47%
$ -
- %
259,556
3.09%
259,556
3.09%
-
- %
$259,556
3.09%
($ in thousands)
$764
1.73%
288,804
4.12%
289,568
4.11%
-
- %
$289,568
4.11%
$ -
- %
124,814
4.58%
124,814
4.58%
-
- %
$124,814
4.58%
$ -
- %
-
- %
-
- %
621,428
2.02%
$621,428
2.02%
Total
$764
1.73%
693,883
3.71%
694,647
3.71%
621,428
2.02%
$1,316,075
2.91%
The following tables summarize the total general obligation and revenue bonds issued by states and political subdivisions held in
the Company’s investment securities portfolios as of the dates indicated, identifying the state in which the issuing government
municipality or agency operates.
At December 31, 2015, the Company’s investment securities portfolios included securities issued by 725 state and local
government municipalities and agencies located within 44 states with a fair value of $864.2 million. None of the Company’s
investment securities were issued by Puerto Rican government entities. The largest exposure to any one municipality or agency
was $10.3 million (fair value) represented by nine general obligation bonds.
Obligations of states and political subdivisions:
General obligation bonds:
California
Texas
Pennsylvania
New Jersey
Minnesota
Other (34 states)
Total general obligation bonds
Revenue bonds:
California
Pennsylvania
Kentucky
Iowa
Colorado
Other (31 states)
Total revenue bonds
Total obligations of states and political subdivisions
At December 31, 2015
Amortized
Cost
Fair
Value
(In thousands)
$117,968
62,030
51,547
38,651
32,588
243,488
$546,272
$49,095
29,446
19,825
18,156
16,161
163,633
$296,316
$842,588
$121,096
63,394
52,115
39,322
33,133
249,854
$558,914
$51,206
29,841
20,400
18,728
16,560
168,592
$305,327
$864,241
31
- 31 -
At December 31, 2014, the Company’s investment securities portfolios included securities issued by 763 state and local
government municipalities and agencies located within 45 states with a fair value of $911.0 million. The largest exposure to any
one municipality or agency was $7.4 million (fair value) represented by three revenue bonds.
Obligations of states and political subdivisions:
General obligation bonds:
California
Texas
Pennsylvania
Minnesota
New Jersey
Arizona
Other (34 states)
Total general obligation bonds
Revenue bonds:
California
Pennsylvania
Kentucky
Iowa
Colorado
Indiana
Other (31 states)
Total revenue bonds
Total obligations of states and political subdivisions
At December 31, 2014
Amortized
Cost
Fair
Value
(In thousands)
$107,997
65,292
48,675
33,524
30,223
28,492
249,513
$563,716
$60,473
29,462
19,975
18,225
18,532
16,865
164,848
$328,380
$892,096
$110,563
66,162
49,546
33,840
30,598
29,378
254,043
$574,130
$62,788
30,101
20,370
18,898
18,862
16,859
168,972
$336,850
$910,980
2
0
1
5
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, 2015, 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 22 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 (renewal)
College & University
Lease (abatement)
Other
Total revenue bonds by revenue source
At December 31, 2015
Amortized
Cost
Fair
Value
(In thousands)
$62,661
45,912
31,680
21,673
17,967
17,017
99,406
$296,316
$65,412
47,242
32,945
22,227
18,215
17,769
101,517
$305,327
32
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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
5
1
0
2
At December 31, 2014, 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 25 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 (renewal)
Lease (abatement)
College & University
Other
Total revenue bonds by revenue source
At December 31, 2014
Amortized
Cost
Fair
Value
(In thousands)
$66,305
48,461
35,045
21,789
19,002
17,655
120,123
$328,380
$68,885
49,773
36,289
22,091
19,710
17,849
122,253
$336,850
See Note 2 to the consolidated financial statements for additional information related to the investment securities.
Loan Portfolio
The Company originates loans with the intent to hold such assets until principal is repaid. Management follows written loan
underwriting policies and procedures which are approved by the Bank’s Board of Directors. Loans are underwritten following
approved underwriting standards and lending authorities within a formalized organizational structure. The Board of Directors also
approves independent real estate appraisers to be used in obtaining estimated values for real property serving as loan collateral.
Prevailing economic trends and conditions are also taken into consideration in loan underwriting practices.
All loan applications must be for clearly defined legitimate purposes with a determinable primary source of repayment, and as
appropriate, secondary sources of repayment. All loans are supported by appropriate documentation such as current financial
statements, tax returns, credit reports, collateral information, guarantor asset verification, title reports, appraisals, and other
relevant documentation.
Commercial loans represent term loans used to acquire durable business assets or revolving lines of credit used to finance
working capital. Underwriting practices evaluate each borrower’s cash flow as the principal source of loan repayment.
Commercial loans are generally secured by the borrower’s business assets as a secondary source of repayment. Commercial loans
are evaluated for credit-worthiness based on prior loan performance, borrower financial information including cash flow,
borrower net worth and aggregate debt.
Commercial real estate loans represent term loans used to acquire real estate to be operated by the borrower in a commercial
capacity. Underwriting practices evaluate each borrower’s global cash flow as the principal source of loan repayment,
independent appraisal of value of the property, and other relevant factors. Commercial real estate loans are generally secured by a
first lien on the property as a secondary source of repayment.
Real estate construction loans represent the financing of real estate development. Loan principal disbursements are controlled
through the use of project budgets, and disbursements are approved based on construction progress, which is validated by project
site inspections. The real estate serves as collateral, secured by a first lien position on the property.
Residential real estate loans generally represent first lien mortgages used by the borrower to purchase or refinance a principal
residence. For interest-rate risk purposes, the Company offers only fully-amortizing, adjustable-rate mortgages. In underwriting
first lien mortgages, the Company evaluates each borrower’s ability to repay the loan, an independent appraisal of the value of the
property, and other relevant factors. The Company does not offer riskier mortgage products, such as non-amortizing “interest-
only” mortgages and “negative amortization” mortgages.
For loans secured by real estate, the Bank requires title insurance to insure the status of its lien and each borrower is obligated to
insure the real estate collateral, naming the Company as loss payee, in an amount sufficient to repay the principal amount
outstanding in the event of a property casualty loss.
33
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Consumer installment and other loans are predominantly comprised of indirect automobile loans with underwriting based on
credit history and scores, personal income, debt service capacity, and collateral values.
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 loans purchased from the FDIC. 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.
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:
Loan Portfolio
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
Total loans
2015
2014
At December 31,
2013
(In thousands)
$364,159
799,019
13,896
185,057
465,613
$1,533,396 $1,700,290 $1,827,744
$391,815
718,604
13,872
149,827
426,172
$382,748
637,456
3,951
120,091
389,150
2012
2011
$401,331
916,594
16,515
234,035
542,882
$2,111,357
$513,362
1,114,496
34,437
286,727
574,784
$2,523,806
2
0
1
5
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 maturity distribution and interest rate sensitivity of commercial, commercial real estate, and
construction loans at December 31, 2015. Balances exclude residential real estate loans and consumer loans totaling $509.2
million. These types of loans are typically paid in monthly installments over a number of years.
Loan Maturity Distribution
Commercial and Commercial real estate
Construction
Total
Loans with fixed interest rates
Loans with floating or adjustable interest rates
Total
Commitments and Letters of Credit
Within One
Year
At December 31, 2015
After Five
Years
One to Five
Years
(In thousands)
Total
$211,914
3,951
$215,865
$88,441
127,424
$215,865
$200,373
-
$200,373
$88,273
112,100
$200,373
$607,917
-
$607,917
$104,131
503,786
$607,917
$1,020,204
3,951
$1,024,155
$280,845
743,310
$1,024,155
The Company issues formal commitments on lines of credit to well-established and financially responsible commercial
enterprises. Such commitments can be either secured or unsecured and are typically in the form of revolving lines of credit for
seasonal working capital needs. Occasionally, such commitments are in the form of letters of credit to facilitate the customers’
particular business transactions. Commitment fees are generally charged for commitments and letters of credit. Commitments on
lines of credit and letters of credit typically mature within one year. For further information, see the accompanying notes to the
consolidated financial statements.
Loan Portfolio Credit Risk
The Company extends loans to commercial and consumer customers which expose the Company to the risk borrowers will
default, causing loan losses. The Company’s lending activities are exposed to various qualitative risks. All loan segments are
exposed to risks inherent in the economy and market conditions. Significant risk characteristics related to the commercial loan
segment include the borrowers’ business performance and financial condition, and the value of collateral for secured loans.
34
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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
5
1
0
2
Significant risk characteristics related to the commercial real estate segment include the borrowers’ business performance and the
value of properties collateralizing the loans. Significant risk characteristics related to the construction loan segment include the
borrowers’ performance in successfully developing the real estate into the intended purpose and the value of the property
collateralizing the loans. Significant risk characteristics related to the residential real estate segment include the borrowers’
financial wherewithal to service the mortgages and the value of the property collateralizing the loans. Significant risk
characteristics related to the consumer loan segment include the financial condition of the borrowers and the value of collateral
securing the loans.
The preparation of the financial statements requires Management to estimate the amount of losses inherent in the loan portfolio
and establish an allowance for credit losses. The allowance for credit losses is established by assessing a provision for loan losses
against the Company’s earnings. In estimating credit losses, Management must exercise judgment in evaluating information
deemed relevant, such as financial information regarding individual borrowers, overall credit loss experience, the amount of past
due, nonperforming and classified loans, recommendations of regulatory authorities, prevailing economic conditions and other
information. The amount of ultimate losses on the loan portfolio can vary from the estimated amounts. Management follows a
systematic methodology to estimate loss potential in an effort to reduce the differences between estimated and actual losses.
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. 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. “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”).
The former County Bank loans and repossessed loan collateral were purchased from the FDIC with indemnifying loss-sharing
agreements. The loss-sharing agreement on single-family residential real estate assets expires February 6, 2019. The loss-sharing
agreement on non-single-family residential real estate assets expired February 6, 2014 as to losses and expires February 6, 2017
as to loss recoveries.
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35
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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
2
0
1
5
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
2015
2014
At December 31,
2013
(In thousands)
2012
2011
$6,302
350
6,652
295
6,947
5,829
$12,776
$5,296
13
5,309
502
5,811
4,809
$10,620
$ -
-
-
-
-
-
$ -
$297
-
297
-
297
-
$297
$8,346
-
8,346
-
8,346
3,435
$11,781
$11,901
97
11,998
-
11,998
1,565
$13,563
$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
Total nonperforming assets
$24,557
$24,480
$35,032
$59,261
$101,023
At December 31, 2015, two loans secured by commercial real estate totaling $10,990 thousand were on nonaccrual status. The
remaining sixteen nonaccrual loans held at December 31, 2015 had an average carrying value of $251 thousand and the largest
carrying value was $1,323 thousand.
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.
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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
5
1
0
2
Allowance for Credit Losses
The Company’s allowance for loan losses represents Management’s estimate of loan 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 loan losses represents Management’s estimate of loan losses in
excess of these reductions to the carrying value of loans within the loan portfolio.
The following table summarizes the allowance for credit losses, chargeoffs and recoveries of the Company for the periods
indicated:
Analysis of the Allowance for Loan Losses
Balance, beginning of period
Provision for loan losses
Loans charged off:
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
Purchased covered loans
Purchased non-covered loans
Total chargeoffs
Recoveries of loans previously charged off:
Commercial
Commercial real estate
Construction
Consumer installment and other
Purchased covered loans
Purchased non-covered loans
Total recoveries
Net loan losses
Balance, end of period
Net loan losses:
Originated loans
Purchased covered loans
Purchased non-covered loans
Net loan losses as a percentage of average loans
2015
2014
For the Years Ended December 31,
2013
($ in thousands)
2012
2011
$31,485
-
$31,693
2,800
(756)
(449)
-
-
(3,493)
-
(431)
(5,129)
1,153
72
45
1,906
-
239
3,415
(1,714)
$29,771
(1,890)
(762)
-
(30)
(4,214)
-
(522)
(7,418)
2,250
213
3
1,869
-
75
4,410
(3,008)
$31,485
$30,234
8,000
(2,857)
(997)
-
(109)
(4,097)
(2,286)
(385)
(10,731)
1,575
191
-
2,152
272
-
4,190
(6,541)
$31,693
$32,597
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)
$30,234
$35,636
11,200
(8,280)
(1,332)
(2,167)
(739)
(6,754)
(987)
-
(20,259)
3,129
-
1
2,890
-
-
6,020
(14,239)
$32,597
($1,522)
($2,561)
-
(192)
0.11%
-
(447)
0.17%
($4,142)
(2,014)
(385)
0.33%
($12,644)
(809)
(110)
0.59%
($13,252)
(987)
-
0.52%
The Company's allowance for loan 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
loan loss experience, the amount of past due, nonperforming and classified loans, the amount of non-indemnified purchased loans,
recommendations of regulatory authorities, prevailing economic conditions and other factors. A portion of the allowance is
individually 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 loans with outstanding principal balances in excess of
$500 thousand which are classified or on nonaccrual status and all “troubled debt restructured” loans for impairment. The
remainder of the loan portfolio is collectively evaluated for impairment based in part on quantitative analyses of historical loan
loss experience of loan portfolio segments to determine standard loss rates for each segment. The loss rate for each loan portfolio
segment reflects both the historical loss experience during a look-back period and the loss emergence period. During 2014, the
Company refined its processes used to measure look-back periods and loss emergence periods. The loss rates are applied to
segmented loan balances to allocate the allowance to the segments of the loan portfolio.
Purchased loans were recorded on the date of purchase at estimated fair value; fair value discounts include a component for
estimated loan 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 loan 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 the purchased loan, an allocation of the allowance for loan losses is
established for the deficiency. For all other purchased loan portfolio segments, Management applies the standard loss rates to the
37
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purchased loan portfolio segments to determine initial allocations of the allowance. Further, liquidating purchased consumer
installment loans are evaluated separately by applying historical loss rates to forecasted liquidating principal balances to initially
measure losses inherent in this portfolio segment. The initial allocations of the allowance to purchased loan portfolio segments are
compared to loan default discounts ascribed to each segment. Management establishes allocations of the allowance for loan 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 primary external factor evaluated by the Company and the judgmental amount of
unallocated reserve assigned by Management as of December 31, 2015 are economic and business conditions $1.0 million. 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 $1.2 million, adequacy of lending Management and staff $1.3 million,
concentrations of credit $2.5 million, and other factors.
The following table presents the allocation of the allowance for loan losses as of December 31 for the years indicated:
2015
2014
At December 31,
2013
2012
2011
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
Originated loans:
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
Purchased covered loans
Purchased non-covered loans
Unallocated portion
Total
$9,559
4,224
177
1,801
7,080
-
967
5,963
$29,771
24%
34%
- %
8%
22%
1%
11%
- %
100%
$5,460
4,245
644
2,241
7,717
-
2,120
9,058
$31,485
22%
33%
1%
9%
22%
1%
12%
- %
100%
($ In thousands)
$4,005
12,070
602
405
3,198
1,561
-
9,852
$31,693
18%
33%
- %
10%
22%
14%
3%
- %
100%
$6,445
10,063
484
380
3,194
1,005
-
8,663
$30,234
16%
30%
- %
10%
22%
18%
4%
- %
100%
$6,012
10,611
2,342
781
3,072
-
-
9,779
$32,597
16%
28%
- %
11%
19%
21%
5%
- %
100%
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Commercial
Commercial
Real Estate
Construction
Allowance for Loan Losses
For the Year Ended December 31, 2015
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 recoveries (losses)
Total allowance for loan losses
$5,460
$4,245
$644
$2,241
$7,717
$2,120
3,702
356
(512)
(440)
950
(756)
1,153
397
$9,559
(449)
72
(377)
$4,224
-
45
45
$177
-
-
-
$1,801
(3,493)
1,906
(1,587)
$7,080
(961)
(431)
239
(192)
$967
$ -
-
-
-
-
$ -
$9,058
$31,485
(3,095)
-
-
-
-
$5,963
(5,129)
3,415
(1,714)
$29,771
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Commercial
Commercial
Real Estate
Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
At December 31, 2015
Consumer
Installment and
Other
(In thousands)
Purchased Non-
covered Loans
Residential
Real Estate
Construction
Purchased
Covered Loans Unallocated
Allowance for loan 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
$4,942
4,617
-
$9,559
$12,587
355,530
-
$368,117
$585
3,639
-
$4,224
$5,541
511,529
-
$517,070
$-
177
-
$177
$-
2,978
-
$2,978
$-
1,801
-
$1,801
$-
117,631
-
$117,631
$-
7,080
-
$7,080
$-
346,043
-
$346,043
Total
$5,527
24,244
-
$29,771
$-
967
-
$967
$-
-
-
$-
$-
5,963
-
$5,963
$11,777
152,038
3,681
$167,496
$-
13,855
206
$14,061
$-
-
-
$-
$29,905
1,499,604
3,887
$1,533,396
The Company allocated more allowance for loan losses to the commercial loan category at December 31, 2015, due to more
reserve being allocated to individually evaluated loans. At December r31, 2015, the decline in the unallocated was generally due
to the overall improved credit quality metrics.
Management considers the $29.8 million allowance for loan losses to be adequate as a reserve against loan losses inherent in the
loan portfolio as of December 31, 2015.
See Note 3 to the consolidated financial statements for additional information related to the loan portfolio, loan portfolio credit
risk, and allowance for loan 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 (“FOMC”) increased the target range for the federal funds rate to 1/4 to 1/2 percent on
December 16, 2015. Interest rates on United States Treasury obligations declined from January 1, 2016 through January 27, 2016.
The FOMC’s January 27, 2016 press release stated “Information received since the Federal Open Market Committee met in
December suggests that labor market conditions improved further even as economic growth slowed late last year…Market-based
measures of inflation compensation declined further; survey-based measures of longer-term inflation expectations are little
changed, on balance, in recent months…The Committee is closely monitoring global economic and financial developments and is
assessing their implications for the labor market and inflation, and for the balance of risks to the outlook…Given the economic
outlook, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of
monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2
percent inflation. In determining the timing and size of future adjustments to the target range for the federal funds rate, the
Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2
percent inflation.” In this context, Management expects a high level of uncertainty in regard to interest rate levels in the
immediate term, and Management’s most likely earnings forecast for the twelve months ending December 31, 2016 assumes
market interest rates will either remain at relatively low levels or short-term rates will rise gradually.
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In adjusting the Company's asset/liability position, Management attempts to manage interest rate risk while enhancing the net
interest margin and net interest income. At times, depending on expected increases or decreases in general interest rates, the
relationship between long and short-term interest rates, market conditions and competitive factors, Management may adjust the
Company's interest rate risk position in order to manage its net interest margin and net interest income. The Company's results of
operations and net portfolio values remain subject to changes in interest rates and to fluctuations in the difference between long
and short-term interest rates.
The Company’s asset and liability position was slightly “asset sensitive” at December 31, 2015, depending on the interest rate
assumptions applied to the simulation model employed by Management to measure interest rate risk. An “asset sensitive” position
results in a slightly larger change in interest income than in interest expense 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 or gradually increasing
interest rates in the near-term and intermediate term. 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.
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Market Risk - Other
Market values of loan collateral can directly impact the level of loan chargeoffs and the provision for loan losses. 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 of funding for average total assets in
2015 and 2014. The stability of the Company’s funding from customer deposits is in part 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.
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 $2.9
billion in total investment securities at December 31, 2015. Under certain deposit, borrowing and other arrangements, the
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Company must hold and pledge investment securities as collateral. At December 31, 2015, such collateral requirements totaled
approximately $739 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 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 2016. 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 volatility in economic
conditions, 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. 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 2015 and 2014 to pay shareholder dividends of $39 million and $40 million, respectively, and retire
common stock in the amount of $15 million and $53 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:
Within One
Year
Over One to
Three Years
At December 31, 2015
Over Three
to Five
Years
(In thousands)
After Five
Years
Operating Lease Obligations
Purchase Obligations
Total
$6,708
8,270
$14,978
$10,887
-
$10,887
$5,549
-
$5,549
$1,516
-
$1,516
Total
$24,660
8,270
$32,930
Operating lease obligations have not been reduced by minimum sublease rentals of $2 million due in the future under
noncancelable subleases. 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 liabilities under contracts
with third-party automation services providers.
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Capital Resources
The Company has historically generated high levels of earnings, which provides a means of accumulating capital. The Company's
net income as a percentage of average shareholders' equity (“return on equity” or “ROE”) has been 11.3% in 2015, 11.6% in 2014
and 12.5% in 2013. The Company also raises capital as employees exercise stock options. Capital raised through the exercise of
stock options was $5 million in 2015 compared with $12 million in 2014 and $21 million in 2013.
The Company paid common dividends totaling $39 million in 2015, $40 million in 2014 and $40 million in 2013, which represent
dividends per common share of $1.53, $1.52 and $1.49, 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 344 thousand shares valued at $15 million in 2015, 1.0 million shares valued at $53 million in 2014 and 1.2 million shares
valued at $57 million in 2013.
The Company's primary capital resource is shareholders' equity, which was $532 million at December 31, 2015 compared with
$527 million at December 31, 2014. The Company's ratio of equity to total assets was 10.30% at December 31, 2015 and 10.46%
at December 31, 2014.
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
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 most affected the regulatory capital requirements of the Company and the
Bank:
•
•
•
•
•
Introduced a new “Common Equity Tier 1” capital measurement,
Established higher minimum levels of capital,
Introduced a “capital conservation buffer,”
Increased the risk-weighting of certain assets, and
Established limits on the amount of deferred tax assets with any excess treated as a deduction from Tier 1 capital.
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. Neither the Company nor the Bank are subject to the “advanced
approaches rule” and made the election not to include most elements of Accumulated Other Comprehensive Income in regulatory
capital.
Banking organizations that are not subject to the “advanced approaches rule” began complying with the final rule on January 1,
2015; on such date, the Company and the Bank became 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 began 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 did not supersede provisions of 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 revised the PCA thresholds to incorporate the higher minimum levels of capital, including the newly proposed “common
equity tier 1” ratio.
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The capital ratios for the Company and the Bank under the new capital framework are presented in the table below.
Transitional
Minimum
Regulatory
Requirement
Effective
January 1, 2015
Minimum
Regulatory
Requirement (1)
Effective
January 1, 2016
Minimum
Regulatory
Requirement (2)
Effective
January 1, 2019
Well-capitalized
by Regulatory
Definition
Under FDICIA
Effective
January 1, 2015
At December 31, 2015
Company
Bank
Common Equity Tier I Capital
Tier I Capital
Total Capital
Leverage Ratio
12.82%
12.82%
13.39%
7.99%
11.00%
11.00%
11.68%
6.82%
4.50%
6.00%
8.00%
4.00%
5.125%
6.625%
8.625%
4.000%
7.00%
8.50%
10.50%
4.00%
6.50%
8.00%
10.00%
5.00%
(1) Includes 0.625% capital conservation buffer.
(2) Includes 2.5% capital conservation buffer.
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.
The following summarizes the ratios of regulatory capital to risk-adjusted assets under the superseded capital framework on the
date indicated:
At December 31, 2014
Company
Bank
Minimum
Regulatory
Requirement
Well-capitalized
by Regulatory
Definition
Tier I Capital
Total Capital
Leverage Ratio
13.30%
14.54%
7.95%
12.04%
13.49%
7.16%
4.00%
8.00%
4.00%
6.00%
10.00%
5.00%
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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
2015
Percentage of
Total
Deposits
Average
Balance
Rate
For the Years Ended December 31,
2014
Percentage of
Total
Deposits
($ In thousands)
Average
Balance
Rate
2013
Percentage of
Total
Deposits
Average
Balance
Rate
Noninterest-bearing demand
Interest bearing:
Transaction
Savings
Time less than $100 thousand
Time $100 thousand or more
Total (1)
$1,968,817
44.4%
- %
$1,841,522
43.0%
- %
$1,683,447
40.4%
- %
822,156
1,312,100
172,836
161,710
18.5%
29.6%
3.9%
3.6%
$4,437,619
100.0%
0.03%
0.06%
0.33%
0.42%
0.10%
790,467
1,215,035
197,821
237,002
18.5%
28.4%
4.6%
5.5%
$4,281,847
100.0%
0.03%
0.07%
0.41%
0.38%
0.07%
758,771
1,151,360
228,061
341,184
18.2%
27.7%
5.5%
8.2%
$4,162,823
100.0%
0.03%
0.08%
0.47%
0.32%
0.08%
(1) 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 2013 to 2015 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 93% of average balances of total deposits in 2015 compared with 90% in 2014 and 86% in 2013.
Total time deposits were $287 million and $385 million at December 31, 2015 and 2014, 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
2016
2017
2018
2019
2020
Thereafter
Total
At December 31, 2015
(In thousands)
$223,662
30,949
11,920
15,107
2,950
2,380
$286,968
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
Three months or less
Over three through six months
Over six through twelve months
Over twelve months
Total
At December 31, 2015
(In thousands)
$49,800
26,434
31,049
28,905
$136,188
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Short-term Borrowings
The following table sets forth the short-term borrowings of the Company:
Short-Term Borrowings Distribution
Securities sold under agreements to repurchase the securities
Total short-term borrowings
Further detail of federal funds purchased and other borrowed funds is as follows:
2015
$53,028
$53,028
At December 31,
2014
(In thousands)
$89,784
$89,784
2013
$62,668
$62,668
2015
For the Years Ended December 31,
2014
($ in thousands)
2013
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:
Average balance for the year
Maximum month-end balance during the year
Average interest rate for the year
Average interest rate at period end
Financial Ratios
The following table shows key financial ratios for the periods indicated:
$8
-
0.48%
- %
$75,046
89,484
0.07%
0.06%
$494
-
0.20%
- %
$ -
-
- %
- %
$8
-
0.48%
- %
$70,244
89,784
0.07%
0.06%
$20,308
20,530
2.00%
2.04%
$6,082
10,000
0.99%
- %
$8
-
0.60%
- %
$57,446
66,640
0.07%
0.07%
$25,499
25,780
1.88%
1.96%
$10,000
10,000
0.98%
0.97%
Return on average total assets
Return on average common shareholders' equity
Average shareholders' equity as a percentage of:
Average total assets
Average total loans
Average total deposits
At and For the Years Ended December 31,
2014
1.22%
11.57%
2015
1.16%
11.32%
2013
1.38%
12.48%
10.21%
32.08%
11.70%
10.58%
29.57%
12.24%
11.06%
27.53%
12.93%
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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......................................................................................
Consolidated Balance Sheets as of December 31, 2015 and 2014...........................................................................
Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013................................
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013......
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2015, 2014
and 2013.................................................................................................................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013.........................
Notes to the Consolidated Financial Statements......................................................................................................
Reports of Independent Registered Public Accounting Firms .................................................................................
Page
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Westamerica Bancorporation and subsidiaries (the “Company”) is responsible for establishing and maintaining
adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over
financial reporting as of December 31, 2015. 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, 2015 based upon criteria in Internal Control — Integrated Framework (2013) 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, 2015 based on the criteria in Internal
Control - Integrated Framework (2013) 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. Their opinion and attestation on internal control over financial reporting
appear on page 90.
Dated: February 26, 2016
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WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
Assets:
Cash and due from banks
Investment securities available for sale
Investment securities held to maturity, with fair values of:
$1,325,699 at December 31, 2015 and $1,048,562 at December 31, 2014
Loans
Allowance for loan losses
Loans, net of allowance for loan losses
Other real estate owned
Premises and equipment, net
Identifiable intangibles, net
Goodwill
Other assets
Total Assets
Liabilities:
Noninterest bearing deposits
Interest bearing deposits
Total deposits
Short-term borrowed funds
Federal Home Loan Bank advances
Other liabilities
Total Liabilities
Shareholders' Equity:
2
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At December 31,
2015
2014
(In thousands)
$433,044
1,570,216
1,316,075
1,533,396
(29,771)
1,503,625
9,264
38,693
10,431
121,673
165,854
$5,168,875
$2,026,049
2,514,610
4,540,659
53,028
-
42,983
4,636,670
$380,836
1,600,781
1,038,658
1,700,290
(31,485)
1,668,805
6,374
37,852
14,287
121,673
166,458
$5,035,724
$1,910,781
2,438,410
4,349,191
89,784
20,015
50,131
4,509,121
Common stock (no par value), authorized - 150,000 shares
Issued and outstanding: 25,528 at December 31, 2015 and 25,745 at December 31, 2014
Deferred compensation
Accumulated other comprehensive income
Retained earnings
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
378,858
378,132
2,578
675
150,094
532,205
$5,168,875
2,711
5,292
140,468
526,603
$5,035,724
See accompanying notes to consolidated financial statements.
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WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
2015
For the Years Ended December 31,
2014
(In thousands, except per share data)
2013
Interest and Fee Income:
Loans
Investment securities available for sale
Investment securities held to maturity
Total Interest and Fee Income
Interest Expense:
Deposits
Short-term borrowed funds
Federal Home Loan Bank advances
Term repurchase agreement
Debt financing
Total Interest Expense
Net Interest Income
Provision for Loan Losses
Net Interest Income After Provision For Loan Losses
Noninterest Income:
Service charges on deposit accounts
Merchant processing services
Debit card fees
Other service fees
Trust fees
ATM processing fees
Financial services commissions
Other
Total Noninterest Income
Noninterest Expense:
Salaries and related benefits
Occupancy
Outsourced data processing services
Amortization of identifiable intangibles
Furniture and equipment
Courier service
Professional fees
Other real estate owned
Other
Total Noninterest Expense
Income Before Income Taxes
Provision for income taxes
Net Income
Average Common Shares Outstanding
Diluted Average Common Shares Outstanding
Per Common Share Data:
Basic earnings
Diluted earnings
Dividends paid
See accompanying notes to consolidated financial statements.
$78,441
31,263
26,825
136,529
2,370
53
1
-
-
2,424
134,105
-
134,105
22,241
6,339
6,084
2,689
2,732
2,397
695
4,690
47,867
52,192
14,960
8,441
3,856
4,434
2,329
2,490
504
16,094
105,300
76,672
17,919
$58,753
25,555
25,577
$2.30
2.30
1.53
$89,056
24,740
26,413
140,209
2,887
90
407
60
-
3,444
136,765
2,800
133,965
24,191
7,219
5,960
2,717
2,582
2,473
757
5,888
51,787
54,777
14,992
8,411
4,270
4,174
2,624
2,346
(642)
15,847
106,799
78,953
18,307
$60,646
26,099
26,160
$2.32
2.32
1.52
$102,626
21,822
29,948
154,396
3,348
77
480
98
668
4,671
149,725
8,000
141,725
25,693
9,031
5,829
2,846
2,313
2,758
831
7,710
57,011
56,633
15,137
8,548
4,704
3,869
2,868
3,057
1,035
16,763
112,614
86,122
18,945
$67,177
28,826
26,877
$2.50
2.50
1.49
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WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2015
For the Years Ended December 31,
2014
(In thousands)
$60,646
$58,753
2013
$67,177
(8,028)
3,375
(4,653)
61
(25)
36
(4,617)
$54,136
1,627
(684)
943
61
(25)
36
979
$61,625
(17,855)
7,507
(10,348)
61
(25)
36
(10,312)
$56,865
Net Income
Other comprehensive (loss) income:
(Decrease) increase in net unrealized gains on securities available for sale
Deferred tax (expense) benefit
(Decrease) increase in net unrealized gains on securities available for sale, net of tax
Post-retirement benefit transition obligation amortization
Deferred tax expense
Post-retirement benefit transition obligation amortization, net of tax
Total Other Comprehensive (Loss) Income
Total Comprehensive Income
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Common
Shares
Outstanding
Common
Stock
Deferred
Compensation
Accumulated
Other
Comprehensive
Income (loss)
(In thousands)
Retained
Earnings
Total
Balance, December 31, 2012
27,213
$372,012
$3,101
$14,625
Net income for the year 2013
Other comprehensive loss
Exercise of stock options
Tax benefit decrease upon expiration/
exercise of stock options
Restricted stock activity
Stock based compensation
Stock awarded to employees
Retirement of common stock including
repurchases
Dividends
479
21,499
15
2
(298)
1,068
1,397
107
(1,199)
(16,839)
(390)
Balance, December 31, 2013
26,510
378,946
2,711
Net income for the year 2014
Other comprehensive income
Exercise of stock options
Tax benefit decrease upon expiration/
exercise of stock options
Restricted stock activity
Stock based compensation
Stock awarded to employees
Retirement of common stock including
repurchases
Dividends
256
12,396
21
2
(447)
1,114
1,318
102
(1,044)
(15,297)
Balance, December 31, 2014
25,745
378,132
2,711
Net income for the year 2015
Other comprehensive loss
Exercise of stock options
Tax benefit decrease upon expiration/
exercise of stock options
Restricted stock activity
Stock based compensation
Stock awarded to employees
Retirement of common stock including
repurchases
Dividends
108
4,848
17
2
(1,284)
874
1,272
105
(344)
(5,089)
(133)
(10,312)
4,313
979
5,292
(4,617)
Balance, December 31, 2015
25,528
$378,858
$2,578
$675
See accompanying notes to consolidated financial statements.
$170,364
67,177
(40,481)
(40,096)
156,964
60,646
(37,381)
(39,761)
140,468
58,753
$560,102
67,177
(10,312)
21,499
(298)
678
1,397
107
(57,320)
(40,096)
542,934
60,646
979
12,396
(447)
1,114
1,318
102
(52,678)
(39,761)
526,603
58,753
(4,617)
4,848
(1,284)
741
1,272
105
(10,003)
(39,124)
$150,094
(15,092)
(39,124)
$532,205
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WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
2015
For the Years Ended December 31,
2014
(In thousands)
2013
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$58,753
$60,646
$67,177
16,402
-
(310)
(780)
830
(1,828)
1,272
1,284
265
(86)
(5,754)
-
109
-
-
247
70,404
164,093
-
(946,794)
967,118
(437,935)
153,014
(4,474)
940
1,774
(102,264)
191,476
(56,756)
-
-
4,848
(1,284)
(15,092)
(39,124)
84,068
52,208
380,836
$433,044
15,502
2,800
(279)
(469)
1,417
(2,923)
1,318
447
478
(111)
4,474
(400)
76
-
-
(665)
82,311
126,414
6,703
(1,126,203)
604,475
(67,725)
153,405
(3,791)
3,248
8,212
(295,262)
185,508
26,741
-
(10,000)
12,396
(447)
(52,678)
(39,761)
121,759
(91,192)
472,028
$380,836
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
$4,911
2,885
2,533
17,666
$968
2,892
3,822
16,412
$8,643
3,769
5,452
22,562
Depreciation and amortization/accretion
Loan loss provision
Net amortization of deferred loan fees
(Increase) decrease in interest income receivable
Decrease (increase) in net deferred tax asset
(Increase) decrease in other assets
Stock option compensation expense
Tax benefit decrease upon expiration/exercise of stock options
Increase (decrease) in income taxes payable
Decrease in interest expense payable
(Decrease) increase in other liabilities
Gain on sale of real estate and other assets
Write-down/net loss on sale of premises and equipment
Originations of mortgage loans for resale
Proceeds from sale of mortgage loans originated for resale
Net loss/write-down (gain) on sale of foreclosed assets
Net Cash Provided by Operating Activities
Investing Activities:
Net repayments of loans
Proceeds from FDIC(1) loss-sharing indemnification
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
Net change in FRB(2)/FHLB(3) securities
Proceeds from sale of foreclosed assets
Net Cash (Used in) Provided by Investing Activities
Financing Activities:
Net change in deposits
Net change in short-term borrowings and FHLB(3) advances
Repayments of debt financing
Repayments of term repurchase agreement
Exercise of stock options/issuance of shares
Tax benefit decrease upon expiration/exercise of stock options
Retirement of common stock including repurchases
Common stock dividends paid
Net Cash Provided by (Used in) Financing Activities
Net Change In Cash and Due from Banks
Cash and Due from Banks at Beginning of Period
Cash and Due from Banks at End of Period
Supplemental Cash Flow Disclosures:
Supplemental disclosure of noncash activities:
Loan collateral transferred to other real estate owned
Securities purchases pending settlement
Supplemental disclosure of cash flow activities:
Interest paid for the period
Income tax payments for the period
See accompanying notes to consolidated financial statements.
(1) Federal Deposit Insurance Corporation ("FDIC")
(2) Federal Reserve Bank ("FRB")
(3) Federal Home Loan Bank ("FHLB")
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WESTAMERICA BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Business and Accounting Policies
Westamerica Bancorporation, a registered bank holding company (the “Company”), provides a full range of banking services to
corporate and individual customers in Northern and Central California through its subsidiary bank, Westamerica Bank (the
“Bank”). The Bank is subject to competition from both financial and nonfinancial institutions and to the regulations of certain
agencies and undergoes periodic examinations by those regulatory authorities.
The Company has evaluated events and transactions subsequent to the balance sheet date. Based on this evaluation, the Company
is not aware of any events or transactions that occurred subsequent to the balance sheet date but prior to filing that would require
recognition or disclosure in its consolidated financial statements. Certain amounts in prior periods have been reclassified to
conform to the current presentation.
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 2016 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.”
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. Cash 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, agency and non-agency 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
securities between more than one third-party source. When third-party information is not available, valuation adjustments are
estimated in good faith by Management and classified as Level 3 in the fair value hierarchy.
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
judgment, an unrealized loss in the fair value of a debt security is generally deemed to be temporary when the fair value of the
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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
recognized in interest income. Other fees, including those collected upon principal prepayments, are included in interest income
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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 Acquired 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 on a prospective basis. 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 Company extends loans to commercial and consumer customers in Northern and Central
California. These lending activities expose the Company to the risk borrowers will default, causing loan losses. The Company’s
lending activities are exposed to various qualitative risks. All loan segments are exposed to risks inherent in the economy and
market conditions. Significant risk characteristics related to the commercial loan segment include the borrowers’ business
performance and financial condition, and the value of collateral for secured loans. Significant risk characteristics related to the
commercial real estate segment include the borrowers’ business performance and the value of properties collateralizing the loans.
Significant risk characteristics related to the construction loan segment include the borrowers’ performance in successfully
developing the real estate into the intended purpose and the value of the property collateralizing the loans. Significant risk
characteristics related to the residential real estate segment include the borrowers’ financial wherewithal to service the mortgages
and the value of the property collateralizing the loans. Significant risk characteristics related to the consumer loan segment
include the financial condition of the borrowers and the value of collateral securing the loans.
The preparation of these financial statements requires Management to estimate the amount of probable incurred losses inherent in
the loan portfolio and establish an allowance for credit losses. The allowance for credit losses is established by assessing a
provision for loan losses against the Company’s earnings. In estimating credit losses, Management must exercise significant
judgment in evaluating information deemed relevant, such as financial information regarding individual borrowers, overall credit
loss experience, the amount of past due, nonperforming and classified loans, recommendations of regulatory authorities,
prevailing economic conditions and other information. The amount of ultimate losses on the loan portfolio can vary from the
estimated amounts. Management follows a systematic methodology to estimate loss potential in an effort to reduce the differences
between estimated and actual 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. The results of this analysis are applied to current loan balances to allocate the reserve
to the respective segments of the loan portfolio exclusive of loans individually evaluated for impairment. In addition, consumer
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installment 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. 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 segment of the loan portfolio in a statistically meaningful manner.
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,
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.
Revenue Recognition. The Company recognizes revenue as it is earned based on contractual terms, as transactions occur, or as
services are provided and collectability is reasonably assured. In certain circumstances, noninterest income is reported net of
associated expenses that are directly related to variable volume-based sales or revenue sharing arrangements or when the
Company acts on an agency basis for others.
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.
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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.
Stock Options. The Company applies FASB ASC 718 – Compensation – Stock Compensation, to account for stock based awards
granted to employees using the fair value method. The Company recognizes compensation expense for restricted performance
share grants over the relevant attribution period. Restricted performance share grants have no exercise price, therefore, the
intrinsic value is measured using an estimated per share price at the vesting date for each restricted performance share. The
estimated per share price is adjusted during the attribution period to reflect actual stock price performance. The Company’s
obligation for unvested outstanding restricted performance share grants is classified as a liability until the vesting date due to a
cash settlement feature, at which time the issued shares become classified as shareholders’ equity.
Extinguishment of Debt. Gains and losses, including fees, incurred in connection with the early extinguishment of debt are
charged to current earnings as reductions in noninterest income.
Postretirement Benefits. The Company uses an actuarial-based accrual method of accounting for post-retirement benefits.
Other. Securities and other property held by the Bank in a fiduciary or agency capacity are not included in the financial statements
since such items are not assets of the Company or its subsidiaries.
Recently Issued Accounting Standards
FASB Accounting Standards Update (ASU) 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities, was issued January 2016. The ASU addresses certain aspects of
recognition, measurement, presentation, and disclosure of financial instruments. Most notably, the ASU changes the income
statement impact of equity investments held by the Company and the requirement for the Company to use the exit price notion
when measuring the fair value of financial instruments for disclosure purposes.
The Company will be required to adopt the ASU provisions on January 1, 2018. Management is evaluating the impact that the
ASU will have on the Company’s financial statements.
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Note 2: Investment Securities
An analysis of the amortized cost, gross unrealized gains and losses accumulated in other comprehensive income, and fair value
of the available for sale investment securities portfolio follows:
Investment Securities Available for Sale
At December 31, 2015
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Amortized
Cost
Securities of U.S. Government sponsored entities
Agency residential mortgage-backed securities (MBS)
Non-agency residential MBS
Non-agency commercial MBS
Obligations of states and political subdivisions
Asset-backed securities
FHLMC(1) and FNMA(2) stock
Corporate securities
Other securities
Total
$302,292
208,046
354
2,383
148,705
2,025
775
902,308
2,039
$1,568,927
(1) Federal Home Loan Mortgage Corporation
(2) Federal National Mortgage Association
(In thousands)
$255
1,407
16
5
8,861
-
3,554
882
952
$15,932
($665)
(6,909)
-
(9)
(57)
(22)
-
(6,821)
(160)
($14,643)
Fair
Value
$301,882
202,544
370
2,379
157,509
2,003
4,329
896,369
2,831
$1,570,216
An analysis of the amortized cost, gross unrecognized gains and losses, and fair value of the held to maturity investment securities
portfolio follows:
Securities of U.S. government sponsored entities
Agency residential MBS
Non-agency residential MBS
Agency commercial MBS
Obligations of states and political subdivisions
Total
Investment Securities Held to Maturity
At December 31, 2015
Gross
Gross
Unrecognized
Unrecognized
Losses
Gains
(In thousands)
$-
1,810
185
20
13,638
$15,653
$-
(4,966)
-
(274)
(789)
($6,029)
Amortized
Cost
$764
595,503
9,667
16,258
693,883
$1,316,075
Fair
Value
$764
592,347
9,852
16,004
706,732
$1,325,699
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An analysis of the amortized cost, gross unrealized gains and losses accumulated in other comprehensive income, and fair value
of the available for sale investment securities portfolio follows:
Investment Securities Available for Sale
At December 31, 2014
Gross
Gross
Unrealized
Unrealized
Losses
Gains
(In thousands)
Amortized
Cost
U.S. Treasury securities
Securities of U.S. Government sponsored entities
Residential MBS
Commercial MBS
Residential collateralized mortgage obligations (CMO)
Obligations of states and political subdivisions
Asset-backed securities
FHLMC and FNMA stock
Corporate securities
Other securities
Total
$3,500
635,278
24,647
2,923
230,347
171,907
8,349
775
511,699
2,039
$1,591,464
$5
937
1,776
6
634
10,015
-
4,393
2,169
871
$20,806
$-
(1,027)
(16)
(10)
(8,524)
(123)
(36)
-
(1,629)
(124)
($11,489)
Fair
Value
$3,505
635,188
26,407
2,919
222,457
181,799
8,313
5,168
512,239
2,786
$1,600,781
An analysis of the amortized cost, gross unrecognized gains and losses, and fair value of the held to maturity investment securities
portfolio follows:
Securities of U.S. government sponsored entities
Residential MBS
Residential CMO
Obligations of states and political subdivisions
Total
At December 31, 2014
Gross
Gross
Unrecognized
Unrecognized
Losses
Gains
(In thousands)
$11
1,183
2,236
11,350
$14,780
$-
(137)
(2,381)
(2,358)
($4,876)
Amortized
Cost
$1,066
59,078
258,325
720,189
$1,038,658
Fair
Value
$1,077
60,124
258,180
729,181
$1,048,562
The amortized cost and fair value of investment 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
MBS
Other securities
Total
At December 31, 2015
Securities Available
for Sale
Amortized
Cost
Fair
Value
Securities Held
to Maturity
Amortized
Cost
Fair
Value
(In thousands)
$136,717
1,049,786
166,352
2,475
1,355,330
210,783
2,814
$1,568,927
$136,976
1,044,453
173,585
2,749
1,357,763
205,293
7,160
$1,570,216
$20,709
259,556
289,568
124,814
694,647
621,428
-
$1,316,075
$21,354
262,163
296,352
127,627
707,496
618,203
-
$1,325,699
Securities available for sale at December 31, 2015 with maturity dates over one year but less than five years include $265,921
thousand (fair value) of securities of U.S. Government sponsored entities with call options on dates within one year or less, of
which $28,020 thousand have interest coupons which will increase if the issuer does not exercise the call option.
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Maturity in years:
1 year or less
Over 1 to 5 years
Over 5 to 10 years
Over 10 years
Subtotal
MBS and residential CMO
Other securities
Total
At December 31, 2014
Securities Available
for Sale
Amortized
Cost
Fair
Value
Securities Held
to Maturity
Amortized
Cost
Fair
Value
(In thousands)
$57,891
629,200
584,872
58,770
1,330,733
257,917
2,814
$1,591,464
$57,991
630,797
589,250
63,006
1,341,044
251,783
7,954
$1,600,781
$15,355
228,380
285,219
192,301
721,255
317,403
-
$1,038,658
$15,855
230,248
288,631
195,524
730,258
318,304
-
$1,048,562
Expected maturities of mortgage-related securities can differ from contractual maturities because borrowers have the right to call
or prepay obligations with or without call or prepayment penalties. In addition, such factors as prepayments and interest rates may
affect the yield on the carrying value of mortgage-related securities. At December 31, 2015 and December 31, 2014, the Company
had no high-risk collateralized mortgage obligations as defined by regulatory guidelines.
An analysis of the gross unrealized losses of the available for sale investment securities portfolio follows:
Investment Securities Available for Sale
At December 31, 2015
No. of
Investment
Positions
Less than 12 months
Fair Value
Unrealized
Losses
No. of
Investment
Positions
12 months or longer
Unrealized
Losses
Fair Value
($ in thousands)
No. of
Investment
Positions
Total
Fair Value
Unrealized
Losses
8
2
1
3
-
97
-
111
$121,392
12,491
($665)
(366)
1,071
-
2,728
(18)
-
548,177
-
$685,859
-
(5,442)
-
($6,491)
-
31
1
4
1
25
1
63
$ -
161,296
$ -
(6,543)
855
(9)
1,644
(39)
2,003
86,762
1,840
$254,400
(22)
(1,379)
(160)
($8,152)
8
33
2
7
1
122
1
174
$121,392
173,787
($665)
(6,909)
1,926
4,372
2,003
634,939
1,840
$940,259
(9)
(57)
(22)
(6,821)
(160)
($14,643)
Securities of U.S.
Government
sponsored entities
Agency residential MBS
Non-agency commercial
MBS
Obligations of states
and political
subdivisions
Asset-backed
securities
Corporate securities
Other securities
Total
An analysis of gross unrecognized losses of the held to maturity investment securities portfolio follows:
Investment Securities Held to Maturity
At December 31, 2015
No. of
Investment
Positions
Less than 12 months
Fair Value
Unrecognized
Losses
No. of
Investment
Positions
Agency residential MBS
Agency commercial MBS
Obligations of states
and political
subdivisions
Total
41
-
55
96
$426,317
-
($3,490)
-
44,585
$470,902
(249)
($3,739)
13
2
54
69
12 months or longer
Unrecognized
Losses
Fair Value
($ in thousands)
$62,041
13,951
($1,476)
(274)
42,081
$118,073
(540)
($2,290)
No. of
Investment
Positions
Total
Fair Value
Unrecognized
Losses
54
2
109
165
$488,358
13,951
($4,966)
(274)
86,666
$588,975
(789)
($6,029)
The unrealized losses on the Company’s investment securities were caused by market conditions for these types of investments,
particularly changes in risk-free interest rates. The Company evaluates securities on a quarterly basis including changes in
security ratings issued by ratings agencies, changes in the financial condition of the issuer, and, for mortgage-backed and asset-
backed securities, delinquency and loss information with respect to the underlying collateral, changes in the levels of
60
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1
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A
B
A
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E
M
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W
5
1
0
2
subordination for the Company’s particular position within the repayment structure and remaining credit enhancement as
compared to expected credit losses of the security. Substantially all of these securities continue to be investment grade rated by a
major rating agency. In addition to monitoring credit rating agency evaluations, Management performs its own evaluations
regarding the credit worthiness of the issuer or the securitized assets underlying asset backed securities.
The Company does not intend to sell any investments and has concluded that it is more likely than not that it will not be required
to sell the investments prior to recovery of the amortized cost basis. Therefore, the Company does not consider these investments
to be other-than-temporarily impaired as of December 31, 2015.
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, 2015, $738,865 thousand of investment securities were pledged to secure public deposits and short-term
borrowed funds. As of December 31, 2014, $757,623 thousand of investment securities were pledged to secure public deposits,
short-term borrowed funds and FHLB advances.
An analysis of gross unrealized losses of investment securities available for sale follows:
Investment Securities Available for Sale
At December 31, 2014
No. of
Investment
Positions
Less than 12 months
Fair Value
Unrealized
Losses
No. of
Investment
Positions
12 months or longer
Unrealized
Losses
Fair Value
($ in thousands)
No. of
Investment
Positions
Total
Fair Value
Unrealized
Losses
Securities of U.S.
Government
sponsored entities
Residential MBS
Commercial MBS
Residential CMO
Obligations of states
and political
subdivisions
Asset-backed
securities
Corporate securities
Other securities
Total
15
-
1
-
7
1
53
-
77
$253,632
-
942
-
($989)
-
(7)
-
2,548
(18)
5,008
165,026
-
$427,156
(7)
(1,304)
-
($2,325)
1
2
1
32
17
1
5
1
60
$9,963
822
803
205,074
($38)
(16)
(3)
(8,524)
5,518
(105)
3,305
34,222
1,876
$261,583
(29)
(325)
(124)
($9,164)
16
2
2
32
24
2
58
1
137
$263,595
822
1,745
205,074
($1,027)
(16)
(10)
(8,524)
8,066
(123)
8,313
199,248
1,876
$688,739
(36)
(1,629)
(124)
($11,489)
An analysis of gross unrecognized losses of investment securities held to maturity follows:
Investment Securities Held to Maturity
At December 31, 2014
No. of
Investment
Positions
Less than 12 months
Fair Value
Unrecognized
Losses
No. of
Investment
Positions
Residential MBS
Residential CMO
Obligations of states
and political
subdivisions
Total
4
5
$19,467
13,932
103
112
76,202
$109,601
($132)
(166)
(439)
($737)
1
22
138
161
12 months or longer
Unrecognized
Losses
Fair Value
($ in thousands)
$201
119,513
($5)
(2,215)
123,370
$243,084
(1,919)
($4,139)
No. of
Investment
Positions
Total
Fair Value
Unrecognized
Losses
5
27
241
273
$19,668
133,445
($137)
(2,381)
199,572
$352,685
(2,358)
($4,876)
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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:
2015
For the Years Ended December 31,
2014
(In thousands)
2013
Taxable
Tax-exempt from regular federal income tax
Total interest income from investment securities
$34,472
23,616
$58,088
$24,766
26,387
$51,153
$22,201
29,569
$51,770
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:
Gross purchased covered loans
Purchased loan discount
Purchased non-covered loans:
Gross purchased non-covered loans
Purchased loan discount
Total
Originated loans
Purchased covered loans:
Gross purchased covered loans
Purchased loan discount
Purchased non-covered loans:
Gross purchased non-covered loans
Purchased loan discount
Total
At December 31, 2015
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment
& Other
Total
$368,117
$517,070
$2,978
$117,631
$346,043
$1,351,839
-
-
-
-
15,620
(989)
$382,748
124,650
(4,264)
$637,456
-
-
973
-
$3,951
2,385
(133)
11,828
(19)
14,213
(152)
231
(23)
$120,091
32,454
(1,156)
$389,150
173,928
(6,432)
$1,533,396
At December 31, 2014
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment
& Other
Total
$374,005
$567,594
$11,003
$146,925
$370,842
$1,470,369
-
-
-
-
-
-
2,626
(434)
14,920
(34)
17,546
(468)
19,166
(1,356)
$391,815
157,502
(6,492)
$718,604
2,919
(50)
$13,872
972
(262)
$149,827
41,656
(1,212)
$426,172
222,215
(9,372)
$1,700,290
Changes in the carrying amount of impaired purchased loans were as follows:
Impaired purchased 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,
2015
2014
(In thousands)
$4,672
(785)
$3,887
$4,936
(264)
$4,672
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A
B
A
C
I
R
E
M
A
T
S
E
W
5
1
0
2
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
Change in FDIC indemnification
(Increase) in interest income
For the Years Ended December 31,
2015
2014
(In thousands)
$2,261
3,051
(4,053)
$1,259
($4,053)
698
($3,355)
$2,505
5,016
(5,260)
$2,261
($5,260)
1,110
($4,150)
The following summarizes activity in the allowance for loan losses:
Commercial
Commercial
Real Estate
Construction
Allowance for Loan Losses
For the Year Ended December 31, 2015
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 recoveries (losses)
Total allowance for loan losses
$5,460
$4,245
$644
$2,241
$7,717
$2,120
3,702
356
(512)
(440)
950
(756)
1,153
397
$9,559
(449)
72
(377)
$4,224
-
45
45
$177
-
-
-
$1,801
(3,493)
1,906
(1,587)
$7,080
(961)
(431)
239
(192)
$967
$ -
-
-
-
-
$ -
$9,058
$31,485
(3,095)
-
-
-
-
$5,963
(5,129)
3,415
(1,714)
$29,771
Commercial
Commercial
Real Estate
Construction
Allowance for Credit Losses
For the Year Ended December 31, 2014
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 recoveries (losses)
Indemnification expiration
Balance at end of period
Liability for off-balance sheet credit exposure
Total allowance for credit losses
$4,005
$12,070
1,095
(7,276)
(1,890)
2,250
360
-
5,460
2,408
$7,868
(762)
213
(549)
-
4,245
-
$4,245
$602
39
-
3
3
-
644
344
$988
$405
$3,198
$-
$1,561
$9,852
$31,693
1,866
6,864
1,006
-
(794)
2,800
(30)
-
(30)
-
2,241
-
$2,241
(4,214)
1,869
(2,345)
-
7,717
437
$8,154
(522)
75
(447)
1,561
2,120
-
$2,120
-
-
-
(1,561)
-
-
$-
-
-
-
-
9,058
(496)
$8,562
(7,418)
4,410
(3,008)
-
31,485
2,693
$34,178
FDIC indemnification expired February 6, 2014 for County Bank non-single-family residential collateralized purchased loans;
accordingly, such loans have been reclassified from purchased covered loans to purchased non-covered loans as well as the
related allowance for credit losses.
[The remainder of this page intentionally left blank]
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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
$-
$1,005
$8,663
$30,234
385
(385)
-
(385)
-
-
$-
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
The allowance for credit losses and recorded investment in loans were evaluated for impairment as follows:
Commercial
Commercial
Real Estate
Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
At December 31, 2015
Consumer
Installment and
Other
(In thousands)
Purchased Non-
covered Loans
Residential
Real Estate
Construction
Purchased
Covered Loans Unallocated
Allowance for loan 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
$4,942
4,617
-
$9,559
$12,587
355,530
-
$368,117
$585
3,639
-
$4,224
$5,541
511,529
-
$517,070
$-
177
-
$177
$-
2,978
-
$2,978
$-
1,801
-
$1,801
$-
117,631
-
$117,631
$-
7,080
-
$7,080
$-
346,043
-
$346,043
$-
967
-
$967
$-
-
-
$-
$-
5,963
-
$5,963
$11,777
152,038
3,681
$167,496
$-
13,855
206
$14,061
$-
-
-
$-
$29,905
1,499,604
3,887
$1,533,396
2
0
1
5
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, 2014
Consumer
Installment and
Other
(In thousands)
Purchased Non-
covered Loans
Residential
Real Estate
Construction
Purchased
Covered Loans Unallocated
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
$496
7,372
-
$7,868
$11,811
362,194
-
$374,005
$-
4,245
-
$4,245
$2,970
564,624
-
$567,594
$-
988
-
$988
$-
11,003
-
$11,003
$-
2,241
-
$2,241
$574
146,351
-
$146,925
$-
8,154
-
$8,154
$599
370,243
-
$370,842
$-
2,120
-
$2,120
$12,364
196,034
4,445
$212,843
$-
-
-
$-
$-
8,562
-
$8,562
$-
16,851
227
$17,078
$-
-
-
$-
$28,318
1,667,300
4,672
$1,700,290
The Bank’s customers are small businesses, professionals and consumers. Given the scale of these borrowers, corporate credit
rating agencies do not evaluate the borrowers’ financial condition. The Bank maintains a Loan Review Department which reports
directly to the Board of Directors. The Loan Review Department performs independent evaluations of loans and assigns credit
risk grades to evaluated loans using grading standards employed by bank regulatory agencies. Loans judged to carry lower-risk
attributes are assigned a “pass” grade, with a minimal likelihood of loss. Loans judged to carry higher-risk attributes are referred
to as “classified loans,” and are further disaggregated, with increasing expectations for loss recognition, as “substandard,”
“doubtful,” and “loss.” Loan Review Department evaluations occur every calendar quarter. If the Bank becomes aware of
deterioration in a borrower’s performance or financial condition between Loan Review Department examinations, assigned risk
grades are re-evaluated promptly. Credit risk grades assigned by the Loan Review Department are subject to review by the Bank’s
regulatory authorities during regulatory examinations.
64
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Total
$5,527
24,244
-
$29,771
Total
$496
33,682
-
$34,178
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
5
1
0
2
The following summarizes the credit risk profile by internally assigned grade:
Credit Risk Profile by Internally Assigned Grade
At December 31, 2015
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
Consumer
Installment and
Other
Purchased Non-
covered Loans
Purchased
Covered Loans
(1)
Total
(In thousands)
$353,474
14,643
-
-
-
$368,117
$496,744
20,326
-
-
-
$517,070
$2,978
-
-
-
-
$2,978
$114,525
3,106
-
-
-
$117,631
$344,876
781
12
374
-
$346,043
$149,100
24,810
18
-
(6,432)
$167,496
$12,563
1,650
-
-
(152)
$14,061
$1,474,260
65,316
30
374
(6,584)
$1,533,396
Grade:
Pass
Substandard
Doubtful
Loss
Purchased loan discount
Total
(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, 2014
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
Consumer
Installment and
Other
Purchased Non-
covered Loans
Purchased
Covered Loans
(1)
Total
(In thousands)
$366,487
7,506
12
-
-
$374,005
$527,980
39,614
-
-
-
$567,594
$11,003
-
-
-
-
$11,003
$144,902
2,023
-
-
-
$146,925
$369,618
734
12
478
-
$370,842
$182,644
39,473
77
21
(9,372)
$212,843
$15,509
2,037
-
-
(468)
$17,078
$1,618,143
91,387
101
499
(9,840)
$1,700,290
Grade:
Pass
Substandard
Doubtful
Loss
Purchased loan discount
Total
(1) Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification.
The following tables summarize loans by delinquency and nonaccrual status:
Summary of Loans by Delinquency and Nonaccrual Status
At December 31, 2015
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 and other
Total originated loans
Purchased non-covered loans
Purchased covered loans
Total
$365,450
504,970
2,978
115,575
341,566
1,330,539
158,554
13,929
$1,503,022
$1,777
5,930
-
1,202
3,263
12,172
589
132
$12,893
(In thousands)
$122
726
-
414
919
2,181
7
-
$2,188
$ -
-
-
-
295
295
-
-
$295
$768
5,444
-
440
-
6,652
8,346
-
$14,998
$368,117
517,070
2,978
117,631
346,043
1,351,839
167,496
14,061
$1,533,396
[The remainder of this page intentionally left blank]
65
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Summary of Loans by Delinquency and Nonaccrual Status
At December 31, 2014
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
(In thousands)
Nonaccrual
Total Loans
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
Total originated loans
Purchased non-covered loans
Purchased covered loans
Total
$372,235
557,041
11,003
144,021
365,753
1,450,053
196,150
16,389
$1,662,592
$1,704
6,500
-
1,513
3,310
13,027
4,204
389
$17,620
$36
-
-
817
625
1,478
491
3
$1,972
$ -
-
-
-
502
502
-
-
$502
$30
4,053
-
574
652
5,309
11,998
297
$17,604
$374,005
567,594
11,003
146,925
370,842
1,470,369
212,843
17,078
$1,700,290
The following is a summary of the effect of nonaccrual loans on interest income:
Interest income that would have been recognized had the loans
performed in accordance with their original terms
Interest income recognized on nonaccrual loans
Total reduction of interest income
For the Years Ended December 31,
2015
2013
2014
(In thousands)
$1,277
(362)
$915
$1,146
(60)
$1,086
$1,866
(402)
$1,464
2
0
1
5
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
There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at December 31, 2015
and December 31, 2014.
The following summarizes impaired loans:
Impaired loans with no related allowance recorded:
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
Impaired loans with an allowance recorded:
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
Total:
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
Impaired Loans
At December 31, 2015
Unpaid
Principal
Balance
(In thousands)
Recorded
Investment
Related
Allowance
$2,979
21,168
271
697
456
10,170
5,109
-
-
-
$13,149
26,277
271
697
456
$ -
-
-
-
-
4,942
585
-
-
-
$4,942
585
-
-
-
$2,917
16,309
271
666
350
10,170
4,660
-
-
-
$13,087
20,969
271
666
350
66
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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
5
1
0
2
Impaired loans with no related allowance recorded:
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
Impaired loans with an allowance recorded:
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
Total:
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
Impaired Loans
At December 31, 2014
Unpaid
Principal
Balance
(In thousands)
Recorded
Investment
Related
Allowance
$2,031
19,478
1,834
574
1,518
9,910
-
-
-
-
$11,941
19,478
1,834
574
1,518
$2,095
25,519
1,884
574
1,628
9,910
-
-
-
-
$12,005
25,519
1,884
574
1,628
$ -
-
-
-
-
496
-
-
-
-
$496
-
-
-
-
Impaired loans include troubled debt restructured loans. Impaired loans at December 31, 2015, included $15,712 thousand of
restructured loans, $7,464 thousand of which were on nonaccrual status. Impaired loans at December 31, 2014, included $4,837
thousand of restructured loans, none of which were on nonaccrual status.
2015
Average
Recorded
Investment
Recognized
Interest
Income
Impaired Loans
For the Years Ended December 31,
2014
Average
Recorded
Investment
Recognized
Interest
Income
(In thousands)
2013
Average
Recorded
Investment
Recognized
Interest
Income
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
Total
$12,631
20,307
263
643
739
$34,583
$584
674
-
31
25
$1,314
$5,240
19,880
2,015
153
1,399
$28,687
$325
469
-
-
29
$823
$10,566
27,186
2,400
362
1,469
$41,983
$222
763
80
-
38
$1,103
The following table provides information on troubled debt restructurings:
Commercial
Commercial real estate
Residential real estate
Total
Troubled Debt Restructurings
At December 31, 2015
Number of
Contracts
Pre-Modification
Carrying Value
Period-End
Carrying Value
6
10
1
17
(In thousands)
$3,138
12,927
242
$16,307
$2,802
12,684
226
$15,712
Period-End
Individual
Impairment
Allowance
$194
-
-
$194
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Troubled Debt Restructurings
At December 31, 2014
Number of
Contracts
Pre-Modification
Carrying Value
Period-End
Carrying Value
3
4
1
8
(In thousands)
$2,075
2,890
18
$4,983
$1,901
2,928
8
$4,837
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
$ -
-
-
$ -
$-
-
$-
Period-End
Individual
Impairment
Allowance
Commercial
Commercial real estate
Consumer installment and other
Total
Commercial
Commercial real estate
Total
2
0
1
5
W
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During the year ended December 31, 2015, the Company modified ten loans with a carrying value of $11,026 thousand that were
considered troubled debt restructurings. The concessions granted in the restructurings completed in 2015 consisted of four under-
market terms and modification of payment terms to extend the maturity date to allow for deferred principal repayment and six
court orders.
During the year ended December 31, 2014, the Company modified five loans with a total carrying value of $713 thousand that
were considered troubled debt restructurings. The concessions granted in the five restructurings completed in 2014 consisted of
modification of payment terms to extend the maturity date to allow for deferred principal repayment.
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, 2015 and 2014, no troubled debt restructured loans defaulted within 12 months of the
modification date. 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. A troubled debt restructuring is considered to be in default when
payments are ninety days or more past due.
The Company repaid $20,015 thousand of Federal Home Loan Bank (“FHLB”) advances in January 2015, which had been
collateralized by loans; the collateral requirements expired upon repayment of the debt. At December 31, 2014, the Company
pledged loans to secure borrowings with a carrying value of $20,015 thousand from the FHLB. The loans restricted due to
collateral requirements approximated $18,366 thousand at December 31, 2014.
There were no loans held for sale at December 31, 2015 and December 31, 2014.
At December 31, 2015 and December 31, 2014, the Company held total other real estate owned (OREO) of $9,264 thousand net
of reserve of $1,986 thousand and $6,374 thousand net of reserve of $2,390 thousand, respectively, of which $-0- thousand and $-
0- thousand, respectively, were foreclosed residential real estate properties. The amount of consumer mortgage loans outstanding
secured by residential real estate properties for which formal foreclosure proceedings were in process totaled $-0- thousand and
$967 thousand at December 31, 2015 and December 31, 2014, respectively.
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2
Note 4: Concentration of Credit Risk
Under the California Financial Code, credit extended to any one person owing to a commercial bank at any one time shall not
exceed the following limitations: (a) unsecured loans shall not exceed 15 percent of the sum of the shareholders' equity, allowance
for loan losses, capital notes, and debentures of the bank, or (b) secured and unsecured loans in all shall not exceed 25 percent of
the sum of the shareholders' equity, allowance for loan losses, capital notes, and debentures of the bank. At December 31, 2015,
Westamerica Bank did not have credit extended to any one entity exceeding these limits. At December 31, 2015, Westamerica
Bank had 38 lending relationships with aggregate loans exceeding $5 million. 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 related to real estate loans of $61,190 thousand and $66,086 thousand at December 31, 2015 and December 31,
2014, 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. At December 31, 2015,
Westamerica Bank held corporate bonds in 47 issuing entities which exceeded $5 million of each issuer.
Note 5: Premises, Equipment and Other Assets
Premises and equipment consisted of the following:
2015
Land
Building and improvements
Leasehold improvements
Furniture and equipment
Total
2014
Land
Building and improvements
Leasehold improvements
Furniture and equipment
Total
At December 31,
Accumulated
Depreciation
and
Amortization
(In thousands)
Net Book
Value
$ -
(24,024)
(4,628)
(15,308)
($43,960)
$ -
(23,267)
(4,664)
(14,269)
($42,200)
$11,896
16,771
1,068
8,958
$38,693
$11,933
17,672
1,078
7,169
$37,852
Cost
$11,896
40,795
5,696
24,266
$82,653
$11,933
40,939
5,742
21,438
$80,052
Depreciation and amortization of premises and equipment included in noninterest expense amounted to $3,523 thousand in 2015,
$3,177 thousand in 2014 and $3,001 thousand in 2013.
Other assets consisted of the following:
Cost method equity investments:
Federal Reserve Bank stock
(1)
(2)
Federal Home Loan Bank stock
Other investments
Total cost method equity investments
Life insurance cash surrender value
Net deferred tax asset
Limited partnership investments
Interest receivable
Prepaid assets
Other assets
Total other assets
At December 31,
2015
2014
(In thousands)
$14,069
-
201
14,270
48,972
51,748
15,259
20,174
4,771
10,660
$165,854
$14,069
940
241
15,250
46,479
50,903
18,673
19,394
5,609
10,150
$166,458
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(1) A bank applying for membership in the Federal Reserve System is required to subscribe to stock in the Federal Reserve Bank (FRB) in its
district in a sum equal to six percent of the bank’s 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 FHLB must be supported by capital stock holdings. The requirement may be adjusted from time to time by the FHLB
within limits established in the FHLB's Capital Plan. The Company repaid the FHLB advances in full upon their maturity in January 2015
eliminating the requirement for FHLB capital stock holdings.
The Company invests in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for
low-income housing tax credits. At December 31, 2015, this investment totaled $15,259 thousand and $2,299 thousand of this
amount represents outstanding equity capital commitments. At December 31, 2014, this investment totaled $18,673 thousand and
$2,460 thousand of this amount represents outstanding equity capital commitments. At December 31, 2015, the $2,299 thousand
of outstanding equity capital commitments are expected to be paid as follows, $453 thousand in 2016, $763 thousand in 2017, and
$1,083 thousand in 2018, or thereafter.
The amounts recognized in net income for these investments include:
For the Years Ended December 31,
2014
(In thousands)
2013
2015
Investment loss included in pre-tax income
Tax credits recognized in provision for income taxes
$2,850
2,650
$2,950
2,825
$3,450
3,425
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 evaluated for impairment at least annually. The Company did not recognize impairment during the years
ended December 31, 2015 and December 31, 2014. Identifiable intangibles are amortized to their estimated residual values over
their expected useful lives. Such lives and residual values are also periodically reassessed to determine if any amortization period
adjustments are indicated. During the years ended December 31, 2015 and December 31, 2014, no such adjustments were
recorded.
The carrying values of goodwill were:
Goodwill
At December 31,
2015
2014
(In thousands)
$121,673
$121,673
The gross carrying amount of identifiable intangible assets and accumulated amortization was:
At December 31, 2015
Gross
Carrying
Amount
Accumulated
Amortization
At December 31, 2014
Gross
Carrying
Amount
Accumulated
Amortization
(In thousands)
Core Deposit Intangibles
Merchant Draft Processing Intangible
Total Identifiable Intangible Assets
$56,808
10,300
$67,108
($46,782)
(9,895)
($56,677)
$56,808
10,300
$67,108
($43,188)
(9,633)
($52,821)
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A
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A
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2
As of December 31, 2015, the current year and estimated future amortization expense for identifiable intangible assets was:
For the Year ended December 31, 2015 (actual)
Estimate for year ended December 31, 2016
2017
2018
2019
2020
Core
Deposit
Intangibles
$3,594
3,292
2,913
1,892
538
287
Merchant
Draft
Processing
Intangible
(In thousands)
$262
212
164
29
-
-
Total
$3,856
3,504
3,077
1,921
538
287
Note 7: Deposits and Borrowed Funds
The following table provides additional detail regarding deposits.
Noninterest-bearing
Interest-bearing:
Transaction
Savings
Time deposits less than $100 thousand
Time deposits $100 thousand through $250 thousand
Time deposits more than $250 thousand
Total deposits
Deposits
At December 31,
2015
2014
(In thousands)
$2,026,049
$1,910,781
860,706
1,366,936
150,780
96,971
39,217
$4,540,659
792,448
1,260,819
169,959
113,023
102,161
$4,349,191
Demand deposit overdrafts of $3,038 thousand and $3,173 thousand were included as loan balances at December 31, 2015 and
December 31, 2014, respectively. Interest expense for aggregate time deposits with individual account balances in excess of $100
thousand was $687 thousand in 2015, $893 thousand in 2014 and $1,096 thousand in 2013.
The following table provides additional detail regarding short-term borrowed funds.
Repurchase agreements:
Collateral securing borrowings:
Securities of U.S. Government sponsored entities
Obligations of states and political subdivisions
Corporate securities
Total collateral carrying value
Total short-term borrowed funds
Repurchase Agreements (Sweep)
Accounted for as Secured Borrowings
At December 31,
2015
2014
Remaining Contractual Maturity of the Agreements
Overnight and Continuous
(In thousands)
$98,969
3,975
54,681
$157,625
$53,028
$80,827
14,251
52,936
$148,014
$89,784
FHLB advances matured and were repaid in full in January 2015. At December 31, 2014, FHLB advances with a carrying value
of $20,015 thousand were secured by residential real estate loans and securities of approximately $26,484 thousand.
The Company has a $35,000 thousand unsecured line of credit which had no outstanding balance at December 31, 2015 and
December 31, 2014. The line of credit has a variable interest rate, which was 2.25% per annum at December 31, 2015, with
interest payable monthly on outstanding advances. Advances may be made up to the unused credit limit through March 18, 2016.
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The following table summarizes deposits and borrowed funds of the Company for the periods indicated:
Average
Balance For the
Year Ended
December 31,
2015
Weighted
Average Rate
For the Year
Ended
December 31,
2015
Average
Balance For the
Year Ended
December 31,
2014
Weighted
Average Rate
For the Year
Ended
December 31,
2014
Balance at
December 31,
2014
Balance at
December 31,
2015
Time deposits over $100 thousand
Securities sold under repurchase agreements
Federal Home Loan Bank advances
Term repurchase agreement
Federal funds purchased
$136,188
53,028
-
-
-
$161,710
75,046
494
-
8
($ in thousands)
0.42%
0.07%
0.20%
-
0.48%
$215,184
89,784
20,015
-
-
$237,002
70,244
20,308
6,082
8
0.38%
0.07%
2.00%
0.99%
0.48%
For the Years Ended December 31,
2015
2014
Highest Balance at Any Month-end
(In thousands)
$89,484
-
-
$89,784
20,530
10,000
Securities sold under repurchase agreements
Federal Home Loan Bank advances
Term repurchase agreement
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.
The following table summarizes information about stock options granted under the Plan as of December 31, 2015. The intrinsic
value is calculated as the difference between the market value as of December 31, 2015 and the exercise price of the shares. The
market value as of December 31, 2015 was $46.75 as reported by the NASDAQ Global Select Market:
Options Outstanding
Options Exercisable
At December 31, 2015
Range of Exercise
Price
Number
Outstanding
Aggregate
Intrinsic Value
(In thousands)
$40 - 45
45 - 50
50 - 55
55 - 60
$40 - 60
487
228
671
163
1,549
$1,792
86
-
-
$1,878
Weighted
Average
Remaining
Contractual
Life
(Years)
7.9
3.7
4.8
4.1
5.5
For the Year
Ended
December 31,
2015
Weighted
Average
Exercise Price
At December 31, 2015
Number
Outstanding
Aggregate
Intrinsic Value
(In thousands)
$43
47
52
57
49
133
228
532
163
1,056
$432
85
-
-
$517
For the Year
Ended
December 31,
2015
Weighted
Average
Exercise Price
$44
47
51
57
50
Weighted
Average
Remaining
Contractual
Life
(Years)
5.8
3.7
4.0
4.1
4.2
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, 2015, 2014 and 2013, the Company granted 343 thousand, 294 thousand and 322 thousand stock
options, respectively. The following weighted average assumptions were used in the option pricing to value stock options granted
in the periods indicated:
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Expected volatility
(1)
Expected life in years
(2)
Risk-free interest rate
Expected dividend yield
(3)
Fair value per award
For the Years Ended December 31,
2015
20%
4.9
1.36%
3.64%
$5.46
2014
16%
4.9
1.59%
3.32%
$5.91
2013
17%
4.8
0.74%
3.57%
$4.61
(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, 2015 is
1,453 thousand.
A summary of option activity during the year ended December 31, 2015 is presented below:
Weighted
Average
Exercise Price
$50.31
42.70
45.09
50.71
48.83
50.23
Shares
(In thousands)
1,889
343
(108)
(575)
1,549
1,056
Weighted
Average
Remaining
Contractual
Term
(Years)
5.5
4.2
Outstanding at January 1, 2015
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2015
Exercisable at December 31, 2015
A summary of the Company’s nonvested option activity during the year ended December 31, 2015 is presented below:
Nonvested at January 1, 2015
Granted
Vested
Forfeited
Nonvested at December 31, 2015
Weighted
Average Grant
Date Fair
Value
$5.40
5.46
5.34
5.45
$5.45
Shares
(In thousands)
499
343
(247)
(102)
493
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, 2015, 2014 and 2013 was $5.46, $5.91 and $4.61 per share, respectively. The total remaining
unrecognized compensation cost related to nonvested awards as of December 31, 2015 is $1,422 thousand and the weighted
average period over which the cost is expected to be recognized is 1.8 years.
The total intrinsic value of options exercised during the twelve months ended December 31, 2015, 2014 and 2013 was $504
thousand, $1,309 thousand and $2,058 thousand, respectively. The total fair value of RPSs that vested during the twelve months
ended December 31, 2015, 2014 and 2013 was $741 thousand, $1,115 thousand and $678 thousand, respectively. The total fair
value of options vested during the twelve months ended December 31, 2015, 2014 and 2013 was $1,321 thousand, $1,397
thousand and $1,514 thousand, respectively. The decrease in tax benefits recognized for the tax deductions from the exercise of
options totaled $1,284 thousand, $447 thousand and $298 thousand, respectively, for the twelve months ended December 31,
2015, 2014 and 2013.
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A summary of the status of the Company’s restricted performance shares as of December 31, 2015 and 2014 and changes during
the twelve months ended on those dates, follows:
Outstanding at January 1,
Granted
Issued upon vesting
Forfeited
Outstanding at December 31,
2015
2014
(In thousands)
50
21
(17)
(9)
45
59
17
(21)
(5)
50
As of December 31, 2015 and 2014, the restricted performance shares had a weighted-average contractual life of 1.3 years and 1.2
years, respectively. The compensation cost that was charged against income for the Company’s restricted performance shares
granted was $535 thousand, $575 thousand and $1,338 thousand for the twelve months ended December 31, 2015, 2014 and
2013, respectively. There were no stock appreciation rights or incentive stock options granted in the twelve months ended
December 31, 2015 and 2014.
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, 2015.
The Company repurchases and retires its common stock in accordance with Board of Directors approved share repurchase
programs. At December 31, 2015, approximately 1,727 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, 2015, no shares of Class B Common Stock or Preferred Stock were outstanding.
Note 9: Risk-Based Capital
The Company and the Bank were well capitalized under the regulatory framework effective January 1, 2015. 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. As of December 31, 2015, the Company and the Bank met all capital adequacy requirements to which they
are subject.
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 most affected the regulatory capital requirements of the Company and the
Bank:
•
•
•
•
•
Introduced a new “Common Equity Tier 1” capital measurement,
Established higher minimum levels of capital,
Introduced a “capital conservation buffer,”
Increased the risk-weighting of certain assets, and
Established limits on the amount of deferred tax assets with any excess treated as a deduction from Tier 1 capital.
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. Neither the Company nor the Bank are subject to the “advanced
approaches rule” and made the election not to include most elements of Accumulated Other Comprehensive Income in regulatory
capital.
Banking organizations that are not subject to the “advanced approaches rule” began complying with the final rule on January 1,
2015; on such date, the Company and the Bank became 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 began 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.
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The final rule did not supersede provisions of 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 revised the PCA thresholds to incorporate the higher minimum levels of capital, including the newly proposed “common
equity tier 1” ratio.
The capital ratios for the Company and the Bank under the new capital framework are presented in the table below.
At December 31, 2015
Amount
Ratio
Transitional Minimum
Regulatory Requirement
Effective January 1, 2015
Ratio
Amount
($ in thousands)
Well-capitalized by
Regulatory Definition
Under FDICIA
Effective January 1, 2015
Ratio
Amount
402,876
340,918
402,876
340,918
420,731
361,880
402,876
340,918
12.82%
11.00%
12.82%
11.00%
13.39%
11.68%
7.99%
6.82%
141,417
139,412
188,557
185,883
251,409
247,844
201,606
199,919
4.50%
4.50%
6.00%
6.00%
8.00%
8.00%
4.00%
4.00%
N/A
201,373
N/A
247,844
N/A
309,805
N/A
249,899
N/A
6.50%
N/A
8.00%
N/A
10.00%
N/A
5.00%
Common Equity Tier 1 Capital
Company
Bank
Tier 1 Capital
Company
Bank
Total Capital
Company
Bank
Leverage Ratio 1
Company
Bank
1 The leverage ratio consists of Tier 1capital divided by the most recent quarterly average total assets, excluding certain intangible assets.
The following summarizes the ratios of regulatory capital to risk-adjusted assets under the superseded capital framework on the
date indicated:
Tier 1 Capital
Company
Bank
Total Capital
Company
Bank
Leverage Ratio 1
Company
Bank
At December 31, 2014
Amount
Ratio
Minimum
Regulatory Requirement
Ratio
Amount
($ in thousands)
Well-capitalized by
Regulatory Definition
Under FDICIA
Amount
Ratio
391,121
349,120
427,612
391,219
391,121
349,120
13.30%
12.04%
14.54%
13.49%
7.95%
7.16%
117,644
116,018
235,289
232,036
196,809
195,149
4.00%
4.00%
8.00%
8.00%
4.00%
4.00%
176,467
174,027
294,111
290,045
246,011
243,936
6.00%
6.00%
10.00%
10.00%
5.00%
5.00%
1 The leverage ratio consists of Tier 1capital divided by the most recent quarterly average total assets, excluding certain intangible assets.
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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.
The components of the net deferred tax asset are as follows:
Deferred tax asset
Allowance for credit losses
State franchise taxes
Deferred compensation
Real estate owned
Purchased assets and assumed liabilities
Post-retirement benefits
Employee benefit accruals
VISA Class B shares
Limited partnership investments
Impaired capital assets
Leases
Premises and equipment
Other
Subtotal deferred tax asset
Valuation allowance
Total deferred tax asset
Deferred tax liability
Net deferred loan fees
Intangible assets
Securities available for sale
Other
Total deferred tax liability
Net deferred tax asset
At December 31,
2015
2014
(In thousands)
$13,466
2,612
8,082
1,062
4,975
1,072
3,772
1,691
760
19,074
-
205
397
57,168
-
57,168
456
4,294
542
128
5,420
$51,748
$14,220
2,867
7,839
1,041
6,389
1,097
4,692
1,706
1,332
18,941
84
538
730
61,476
-
61,476
461
5,770
3,919
423
10,573
$50,903
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 other assets in the Consolidated Balance Sheets.
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The provision for federal and state income taxes consists of amounts currently payable and amounts deferred are as follows:
2015
For the Years Ended December 31,
2014
(In thousands)
2013
Current income tax expense:
Federal
State
Total current
Deferred income tax expense (benefit):
Federal
State
Total deferred
Provision for income taxes
$9,647
6,738
16,385
1,643
(109)
1,534
$17,919
$11,950
7,802
19,752
(1,220)
(225)
(1,445)
$18,307
$13,975
8,597
22,572
(2,518)
(1,109)
(3,627)
$18,945
The provision for income taxes differs from the provision computed by applying the statutory federal income tax rate to income
before taxes, as follows:
Federal income taxes due at statutory rate
Reductions in income taxes resulting from:
Interest on state and municipal securities and loans not taxable for
federal income tax purposes
State franchise taxes, net of federal income tax benefit
Tax credits
Dividend received deduction
Cash value life insurance
Other
Provision for income taxes
2015
For the Years Ended December 31,
2014
(In thousands)
$27,634
$26,835
2013
$30,142
(9,046)
4,309
(2,600)
(45)
(599)
(935)
$17,919
(10,173)
4,925
(2,700)
(39)
(641)
(699)
$18,307
(11,565)
4,712
(3,190)
(32)
(747)
(375)
$18,945
At December 31, 2015, 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:
Balance at January 1,
Additions for tax positions taken in the current period
Reductions for tax positions taken in the current period
Additions for tax positions taken in prior years
Reductions for tax positions taken in prior years
Decrease related to settlements with taxing authorities
Decrease as a result of a lapse in statute of limitations
Balance at December 31,
2015
2014
(In thousands)
$1,635
-
-
55
(447)
-
-
$1,243
$1,437
245
-
-
(47)
-
-
$1,635
The Company does not anticipate any significant increase or decrease in unrecognized tax benefits during 2016. Unrecognized tax
benefits at December 31, 2015 and 2014 include accrued interest and penalties of $88 thousand and $93 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, 2015, 2014, 2013 and 2012 remain subject to examination by the Internal Revenue Service. The tax years ended December
31, 2015, 2014, 2013, 2012 and 2011 remain subject to examination by the California Franchise Tax Board. The deductibility of
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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
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 and equity 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 federal agency securities, 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 compares vendors’ pricing for each of the securities for consistency; significant pricing differences, if any, are
evaluated using all available independent quotes with the quote closely affecting the market 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.
The Company regularly reviews the valuation techniques and assumptions used by its vendors and determines which valuation
techniques are utilized based on observable market inputs for the type of securities being measured. The Company uses the
information to determine the placement in the fair value hierarchy as level 1, 2 or 3. 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, or reevaluates the valuation techniques and assumptions used by its vendors, it may need to transfer those assets
or liabilities to another level in the hierarchy based on the new information. The Company recognizes these transfers at the end of
the reporting period that the transfers occur. During the quarter ended June 30, 2015, the Company reevaluated the valuation
techniques and assumptions used by its vendors in valuing the Company’s available for sale securities, and based on the
evaluation, transferred $437,715 thousand out of level 1 and transferred $437,715 thousand into level 2. There were no transfers
into level 1 or into or out of level 3. Subsequent to June 30, 2015 and through the year ended December 31, 2015, and the year
ended December 31, 2014, there were no transfers into or out of levels 1, 2 or 3.
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Assets Recorded at Fair Value on a Recurring Basis
The tables below present assets measured at fair value on a recurring basis on the dates indicated.
At December 31, 2015
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2 )
Significant
Unobservable
Inputs
(Level 3 )
(In thousands)
$ -
-
-
-
-
7
-
991
$998
$301,882
202,544
370
2,379
157,509
2,003
4,322
896,369
1,840
$1,569,218
$ -
-
-
-
-
-
-
-
-
$ -
At December 31, 2014
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2 )
Significant
Unobservable
Inputs
(Level 3 )
(In thousands)
$3,505
635,188
-
-
-
-
-
5,168
-
910
$644,771
$ -
-
26,407
2,919
222,457
181,799
8,313
-
512,239
1,876
$956,010
$ -
-
-
-
-
-
-
-
-
-
$ -
Fair Value
$301,882
202,544
370
2,379
157,509
2,003
4,329
896,369
2,831
$1,570,216
Fair Value
$3,505
635,188
26,407
2,919
222,457
181,799
8,313
5,168
512,239
2,786
$1,600,781
Securities of U.S. Government sponsored entities
Agency residential MBS
Non-agency residential MBS
Agency commercial MBS
Obligations of states and political subdivisions
Asset-backed securities
FHLMC and FNMA stock
Corporate securities
Other securities
Total securities available for sale
U.S. Treasury securities
Securities of U.S. Government sponsored entities
Residential MBS
Commercial MBS
Residential CMO
Obligations of states and political subdivisions
Asset-backed securities
FHLMC and FNMA stock
Corporate securities
Other securities
Total securities available for sale
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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, 2015 and December 31, 2014, 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.
Other real estate owned
Impaired loans
Total assets measured at fair value on a nonrecurring basis
$9,264
15,633
$24,897
$ -
-
$ -
Carrying Value
Level 1
Level 2
(In thousands)
$ -
-
$ -
Level 3
$9,264
15,633
$24,897
At December 31, 2015
For the
Year Ended
December 31, 2015
Total Losses
($320)
(449)
($769)
Level 3 – Valuation is based upon independent market prices, estimated liquidation values of loan collateral or appraised value of
the collateral as determined by third-party independent appraisers, less 10% for selling costs, generally. Level 3 includes other
real estate owned that has been measured at fair value upon transfer to foreclosed assets and impaired loans collateralized by real
property and other business asset collateral where a specific reserve has been established or a chargeoff 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. The unobservable inputs and qualitative information about the unobservable inputs are not presented due to the
unavailability from third party evaluators.
Other real estate owned
Impaired loans
Total assets measured at fair value on a nonrecurring basis
$6,374
17,085
$23,459
$ -
-
$ -
Fair Value
Level 1
Level 2
(In thousands)
$6,374
7,670
$14,044
Level 3
$ -
9,415
$9,415
At December 31, 2014
For the
Year Ended
December 31, 2014
Total Losses
($358)
(884)
($1,242)
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 chargeoff 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 chargeoff has
been recorded.
Disclosures about Fair Value of Financial Instruments
The following section describes the valuation methodologies used by the Company for estimating fair value of financial
instruments not recorded at fair value 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 in 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
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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
$29,771 thousand at December 31, 2015 and $31,485 thousand at December 31, 2014 and the purchased loan discount associated
with purchased covered and purchased non-covered loans of $152 thousand and $6,432 thousand, respectively at December 31,
2015 and of $468 thousand and $9,372 thousand, respectively at December 31, 2014 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.
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.
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 for assets or paid to settle liabilities.
In addition, these values do not give effect to adjustments to fair value which may occur when financial instruments are sold or
settled 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
Financial Liabilities:
Deposits
Short-term borrowed funds
At December 31, 2015
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
(In thousands)
$433,044
-
-
Significant
Other
Observable
Inputs
(Level 2 )
Significant
Unobservable
Inputs
(Level 3 )
$ -
1,325,699
-
$ -
-
1,517,394
Carrying
Amount
$433,044
1,316,075
1,503,625
Estimated Fair
Value
$433,044
1,325,699
1,517,394
$4,540,659
53,028
$4,539,455
53,028
$ -
-
$4,253,691
53,028
$285,764
-
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At December 31, 2014
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
(In thousands)
$380,836
1,077
-
Significant
Other
Observable
Inputs
(Level 2 )
Significant
Unobservable
Inputs
(Level 3 )
$ -
1,047,485
-
$ -
-
1,685,048
Carrying
Amount
$380,836
1,038,658
1,668,805
Estimated Fair
Value
$380,836
1,048,562
1,685,048
$4,349,191
89,784
20,015
$4,348,958
89,784
20,014
$ -
-
20,014
$3,964,048
89,784
-
$384,910
-
-
Financial Assets:
Cash and due from banks
Investment securities held to maturity
Loans
Financial Liabilities:
Deposits
Short-term borrowed funds
Federal Home Loan Bank advances
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-two banking offices and a centralized administrative service center are owned and 64 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, 2015 are as follows:
2016
2017
2018
2019
2020
Thereafter
Total minimum lease payments
(In thousands)
$6,708
5,814
5,073
3,551
1,998
1,516
$24,660
The total minimum lease payments have not been reduced by minimum sublease rentals of $2,076 thousand due in the future
under noncancelable subleases. Total rentals for premises were $8,359 thousand in 2015, $8,798 thousand in 2014 and $8,953
thousand in 2013. Total sublease rentals were $1,721 thousand in 2015, $1,833 thousand in 2014 and $1,852 thousand in 2013.
Total rentals for premises, net of sublease income, included in noninterest expense were $6,638 thousand in 2015, $6,965
thousand in 2014 and $7,101 thousand in 2013.
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 $299,884 thousand and $312,694 thousand at December 31, 2015 and December 31, 2014, 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 $26,149 thousand and $29,002 thousand at December 31, 2015 and December 31, 2014, respectively. The Company also
had commitments for commercial and similar letters of credit of $40 thousand at December 31, 2015 and December 31, 2014. At
December 31, 2015 and December 31, 2014, the Company had a reserve for unfunded commitments of $2,593 thousand and
$2,693 thousand, respectively, included in other liabilities.
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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.
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 $734 thousand in 2015, $1,002 thousand in 2014 and $1,200 thousand in
2013.
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 $1,147 thousand in 2015, $1,159 thousand in 2014 and $1,214
thousand in 2013.
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
Service (benefit) cost
Interest cost
Amortization of unrecognized transition obligation
Net periodic (benefit) cost
2015
At December 31,
2014
(In thousands)
$288
122
61
$471
($202)
106
61
($35)
2013
($153)
110
61
$18
Other Changes in Benefit Obligations Recognized in Other Comprehensive Income
Amortization of unrecognized transition obligation, net of tax
Total recognized in net periodic (benefit) cost and accumulated other comprehensive income
(36)
($71)
(36)
$435
(36)
($18)
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.
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Obligation and Funded Status
Change in benefit obligation
Benefit obligation at beginning of year
Service (benefit) cost
Interest cost
Benefits paid
Benefit obligation at end of year
Accumulated post-retirement benefit obligation attributable to:
Retirees
Fully eligible participants
Other
Total
Fair value of plan assets
Accumulated post-retirement benefit obligation in excess of plan assets
Additional Information
Assumptions
Weighted-average assumptions used to determine benefit obligations
Discount rate
Weighted-average assumptions used to determine net periodic benefit cost
Discount rate
2015
$2,782
(202)
106
(164)
$2,522
At December 31,
2014
(In thousands)
$2,544
288
122
(172)
$2,782
$1,695
809
18
$2,522
-
$2,522
$1,732
998
52
$2,782
-
$2,782
2013
$2,755
(153)
110
(168)
$2,544
$1,443
983
118
$2,544
-
$2,544
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At December 31,
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(In thousands)
2013
4.30%
3.80%
4.80%
3.80%
4.80%
4.00%
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 2016 and beyond.
Assumed benefit inflation rates are not applicable for this program.
2016
2017
2018
2019
2020
Years 2021-2025
Estimated
future benefit
payments
(In thousands)
$165
165
160
156
152
700
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. In Management’s opinion, 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. In Management’s opinion, 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.
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The table below reflects information concerning loans to certain directors and executive officers and/or family members during
2015 and 2014:
Balance at January 1,
Originations
Principal reductions
Balance at December 31,
Percent of total loans outstanding.
Note 16: Regulatory Matters
2015
2014
(In thousands)
$957
-
(46)
$911
0.06%
$1,013
-
(56)
$957
0.06%
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 2015. 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 $254,600 thousand in 2015 and $400,039 thousand in 2014,
which amounts exceed the Bank’s required reserves.
Note 17: Other Comprehensive Income
The components of other comprehensive income (loss) and other related tax effects were:
Securities available for sale:
Net unrealized losses arising during the year
Reclassification of gains (losses) included in net income
Net unrealized losses arising during the year
Post-retirement benefit obligation
Other comprehensive loss
Securities available for sale:
Net unrealized gains arising during the year
Reclassification of gains (losses) included in net income
Net unrealized gains arising during the year
Post-retirement benefit obligation
Other comprehensive income
Securities available for sale:
Net unrealized losses arising during the year
Reclassification of gains (losses) included in net income
Net unrealized losses arising during the year
Post-retirement benefit obligation
Other comprehensive loss
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Before tax
2015
Tax effect
(In thousands)
Net of tax
($8,028)
-
(8,028)
61
($7,967)
$3,375
-
3,375
(25)
$3,350
($4,653)
-
(4,653)
36
($4,617)
Before tax
2014
Tax effect
(In thousands)
Net of tax
$1,627
-
1,627
61
$1,688
($684)
-
(684)
(25)
($709)
$943
-
943
36
$979
Before tax
2013
Tax effect
(In thousands)
Net of tax
($17,855)
-
(17,855)
61
($17,794)
$7,507
-
7,507
(25)
$7,482
($10,348)
-
(10,348)
36
($10,312)
Accumulated other comprehensive income (loss) balances were:
Balance, December 31, 2012
Net change
Balance, December 31, 2013
Net change
Balance, December 31, 2014
Net change
Balance, December 31, 2015
Post-retirement
Benefit
Obligation
($178)
36
(142)
36
(106)
36
($70)
Net Unrealized
Gains (losses)
on Securities
(In thousands)
$14,803
(10,348)
4,455
943
5,398
(4,653)
$745
Accumulated
Other
Comprehensive
Income (loss)
$14,625
(10,312)
4,313
979
5,292
(4,617)
$675
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.
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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 common stock equivalents for options
Weighted average number of common shares outstanding - diluted (denominator)
Diluted earnings per common share
For the Years Ended December 31,
2015
2013
2014
(In thousands, except per share data)
$58,753
$60,646
$67,177
25,555
$2.30
25,555
22
25,577
$2.30
26,099
$2.32
26,099
61
26,160
$2.32
26,826
$2.50
26,826
51
26,877
$2.50
For the years ended December 31, 2015, 2014, and 2013, options to purchase 1,313 thousand, 1,133 thousand and 1,575 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.
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Note 19: Westamerica Bancorporation (Parent Company Only Condensed Financial Information)
Statements of Income and Comprehensive Income
Dividends from subsidiaries
Interest income
Other income
Total income
Interest on borrowings
Salaries and benefits
Other expense
Total expense
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
Balance Sheets
Assets
Cash
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
Liabilities
Accounts payable to Westamerica Bank
Other liabilities
Total liabilities
Shareholders' equity
Total liabilities and shareholders' equity
For the Years Ended December 31,
2014
2015
2013
(In thousands)
$75,369
7
7,182
82,558
42
6,587
1,704
8,333
74,225
742
(14,321)
60,646
979
$61,625
$68,981
10
8,411
77,402
1
6,291
3,424
9,716
67,686
803
(9,736)
58,753
(4,617)
$54,136
$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
At December 31,
2015
2014
(In thousands)
$26,453
991
475,697
455
9,391
552
33,850
$547,389
$737
14,447
15,184
532,205
$547,389
$7,451
910
490,098
456
9,679
323
32,974
$541,891
$790
14,498
15,288
526,603
$541,891
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Statements of Cash Flows
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
(Increase) decrease in accounts receivable from affiliates
Increase in other assets
Stock option compensation expense
Tax benefit decrease upon exercise of stock options
(Benefit) provision for deferred income tax
Increase (decrease) in other liabilities
Earnings of subsidiaries less than subsidiary dividends
Gain on sales of property and equipment
Net Cash Provided by Operating Activities
Investing Activities
Purchases of premises and equipment
Net Cash Provided by Investing Activities
Financing Activities
Net reductions in debt financing
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 Period
Cash at End of Period
Supplemental Cash Flow Disclosures:
Supplemental disclosure of cash flow activities:
Interest paid for the period
Income tax payments for the period
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For the Years Ended December 31,
2015
2013
2014
(In thousands)
$58,753
$60,646
$67,177
326
(217)
(1,713)
1,272
1,284
(491)
743
9,736
(39)
69,654
-
-
-
4,848
(1,284)
(15,092)
(39,124)
(50,652)
19,002
7,451
$26,453
341
(17)
(1,668)
1,318
447
616
(814)
14,321
(88)
75,102
-
-
-
12,396
(447)
(52,678)
(39,761)
(80,490)
(5,388)
12,839
$7,451
312
26
(926)
1,397
298
(769)
2,573
21,006
(259)
90,835
-
-
(15,000)
21,499
(298)
(57,320)
(40,096)
(91,215)
(380)
13,219
$12,839
$1
17,666
$42
16,412
$840
22,562
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Note 20: Quarterly Financial Information
(Unaudited)
2015
Interest and loan fee income
Net interest income
Provision fro 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
2014
Interest and loan fee income
Net interest income
Provision fro 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
2013
Interest and loan fee income
Net interest income
Provision fro 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
March 31,
For the Three Months Ended
June 30,
September 30, December 31,
(In thousands, expect per share data and
price range of common stock)
$33,917
33,258
-
12,300
26,727
18,831
14,557
0.57
0.57
0.38
40.57 - 49.45
$35,564
34,666
1,000
12,990
26,873
19,783
15,307
0.58
0.58
0.38
48.36 - 56.51
$40,465
39,213
2,800
14,278
28,677
22,014
17,271
0.64
0.64
0.37
42.59 - 45.80
$34,425
33,808
-
12,269
26,896
19,181
14,761
0.58
0.58
0.38
42.09 - 52.16
$35,403
34,503
1,000
13,198
26,957
19,744
15,157
0.58
0.58
0.38
47.85 - 55.34
$39,269
38,050
1,800
14,284
28,192
22,342
17,112
0.64
0.64
0.37
41.76 - 46.56
$34,299
33,714
-
11,993
26,173
19,534
14,857
0.58
0.58
0.38
42.97 - 52.40
$34,900
34,054
600
13,054
26,616
19,892
15,154
0.58
0.58
0.38
46.12 - 53.93
$37,956
36,780
1,800
14,419
27,758
21,641
16,738
0.63
0.63
0.37
45.73 - 50.78
$33,888
33,325
-
11,305
25,504
19,126
14,578
0.57
0.57
0.39
41.99 - 49.89
$34,342
33,542
200
12,545
26,353
19,534
15,028
0.58
0.58
0.38
42.71 - 51.24
$36,706
35,682
1,600
14,030
27,987
20,125
16,056
0.60
0.60
0.38
48.29 - 57.59
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Westamerica Bancorporation
San Rafael, California
We have audited the accompanying consolidated balance sheet of Westamerica Bancorporation (the “Company”) as of December
31, 2015, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity, and cash
flows for the year then ended. We also have audited the Company's internal control over financial reporting as of December 31,
2015, based on criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is responsible for these consolidated financial
statements, 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 these consolidated financial statements and an opinion on the Company's
internal control over financial reporting 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 audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement and whether effective internal control over financial reporting was maintained in all material
respects. Our audit of the financial statements included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting 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 audits also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
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 consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2015, and the results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria
established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
/s/ Crowe Horwath LLP
Crowe Horwath LLP
Sacramento, California
February 26, 2016
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Westamerica Bancorporation:
We have audited the accompanying consolidated balance sheet of Westamerica Bancorporation and subsidiaries (the Company)
as of December 31, 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’
equity, and cash flows for each of the years in the two-year period ended December 31, 2014. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Westamerica Bancorporation and subsidiaries as of December 31, 2014, and the results of their operations and their cash flows
for each of the years in the two-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
KPMG LLP
San Francisco, California
February 27, 2015
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
As previously reported in the Company’s current report on Form 8-K filed March 3, 2015, the Company engaged a new
independent accounting firm for the fiscal year ending December 31, 2015. There have been no disagreements between the
Company and the previous independent accounting firm or current independent accounting firm.
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, 2015.
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, 2015 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 page 47 and 90, respectively.
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ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE
The information regarding Directors of the Registrant and compliance with Section 16(a) of the Securities Exchange Act of 1934
required by this Item 10 of this Annual Report on Form 10-K is incorporated by reference from the information contained under
the captions “Board of Directors and Committees”, “Proposal 1 — Election of Directors” and “Section 16(a) Beneficial
Ownership Reporting Compliance” in the Company’s Proxy Statement for its 2016 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.
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.
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
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 2016 Annual Meeting of
Shareholders which will be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item 12 of this Annual Report on Form 10-K is incorporated by reference from the information
contained under the caption “Stock Ownership” in the Company’s Proxy Statement for its 2016 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, 2015:
Plan category
At December 31, 2015
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
Weighted-average exercise
price of outstanding
options, warrants and
rights
(In thousands, except exercise price)
(b)
(a)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
1,453
-
1,453
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
1,549
-
1,549
$49
N/A
$49
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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
2016 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
2016 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 46. The financial statements included in Item 8 are filed as part of this
report.
(a)
2. Financial statement schedules required. No financial statement schedules are filed as part of this report since the
required information is included in the consolidated financial statements, including the notes thereto, or the
circumstances requiring inclusion of such schedules are not present.
(a)
3. Exhibits:
The exhibit list required by this item is incorporated by reference to the Exhibit Index filed with this report.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
WESTAMERICA BANCORPORATION
/s/ John “Robert” Thorson
John “Robert” Thorson
Senior Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: February 26, 2016
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 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
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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
10(f)*
Registrant’s Form 8-K filed with the Securities and Exchange Commission on March 11, 2005.
Non-Qualified Annuity Performance Agreement with David L. Payne dated November 19, 1997 incorporated by
reference to Exhibit 10(f) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31,
2004, filed with the Securities and Exchange Commission on March 15, 2005.
10(g)* Amended and Restated Westamerica Bancorporation Stock Option Plan of 1995 Nonstatutory Stock Option
Agreement Form incorporated by reference to Exhibit 10(g) to the Registrant’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2004, filed with the Securities and Exchange Commission on March 15, 2005.
10(i)*
10(j)*
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)
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.
14
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23(a).1 Consent of Crowe Horwath LLP
23(a).2 Consent of KPMG LLP
31.1
31.2
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)
96
32.1
32.2
101**
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
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, 2015, 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, 2015;
(ii) Consolidated Balance Sheets at December 31, 2015, and December 31, 2014; (iii) Consolidated Statements of
Comprehensive Income for each of the years in the three-year period ended December 31, 2015, (iv) Consolidated
Statements of Changes in Shareholders’ Equity for each of the years in the three-year period ended December 31,
2015; (v) Consolidated Statements of Cash Flows for each of the years in the three-year period ended
December 31, 2015 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.
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Corporate Information
Corporate Profile
Westamerica Bancorporation (Nasdaq:WABC) operates as
a holding company for Westamerica Bank, a community bank
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 28, 2016 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 2015 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
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
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 • Westamerica.com
2 0 1 5 A n n u a l R e p o r t • 2 0 1 6 P r o x y S t a t e m e n t • N o t i c e o f A n n u a l M e e t i n g
Westamerica