1108 FIFTH AVENUE | SAN RAFAEL, CA 94901 | WESTAMERICA.COM
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WESTAMERICA
2017 ANNUAL REPORT | 2018 PROXY STATEMENT | NOTICE OF ANNUAL MEETING
1108 Fifth Avenue
San Rafael, California 94901
March 12, 2018
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of Westamerica Bancorporation. It
will be held at 10:00 a.m. Pacific Time on Thursday, April 26, 2018, at Westamerica Bancorporation, 4550
Mangels Blvd., 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; and (vi) 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 26, 2018, at Westamerica
Bancorporation, 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 26, 2018
Time: 10:00 a.m. Pacific Time
Place: Westamerica Bancorporation, 4550 Mangels Blvd., Fairfield, California.
Items of Business
1. Elect nine Directors to serve until the 2019 Annual Meeting of Shareholders;
2. Approve a non-binding advisory vote on the compensation of our named executive officers;
3. Ratify selection of independent auditor; and
4. 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 26, 2018 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, or your brokerage statement dated on or after February 26,
2018, evidencing your ownership on February 26, 2018, 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, 2017 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 12, 2018
Kris Irvine
VP/Corporate Secretary
Important notice regarding the availability of proxy materials for the shareholder meeting being held on
Thursday, April 26, 2018:
The Proxy Statement and the Annual Report on Form 10-K 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 ............................................................................................................................................. 4
Stock Ownership ....................................................................................................................................................... 4
Section 16(a) Beneficial Ownership Reporting Compliance .................................................................................... 6
BOARD OF DIRECTORS
PROPOSAL 1: ELECTION OF DIRECTORS ...................................................................................................... 6
Nominees ................................................................................................................................................................. 6
Name of Nominees, Principal Occupations, and Qualifications ............................................................................. 7
Board of Directors and Committees ......................................................................................................................... 9
Director Compensation ........................................................................................................................................... 14
Director Compensation Table for Fiscal Year 2017 ............................................................................................... 14
EXECUTIVE COMPENSATION
Executive Officers ................................................................................................................................................... 14
Compensation Discussion and Analysis ................................................................................................................. 15
Employee Benefits Compensation Committee Report ........................................................................................... 26
Compensation Committee Interlocks and Insider Participation ............................................................................. 26
Summary Compensation ......................................................................................................................................... 26
Summary Compensation Table for Fiscal Year 2017 ............................................................................................ 27
Grants of Plan-Based Awards Table for Fiscal Year 2017 ..................................................................................... 28
Outstanding Equity Awards Table at Fiscal Year End 2017 .................................................................................. 29
Option Exercises and Stock Vested Table for Fiscal Year 2017 ............................................................................ 29
Pension Benefits for Fiscal Year 2017 .................................................................................................................... 30
Nonqualified Deferred Compensation Table for Fiscal Year 2017 ........................................................................ 30
Potential Payments Upon Termination or Change in Control ................................................................................ 31
Certain Relationships and Related Party Transactions .......................................................................................... 32
PROPOSAL 2: APPROVE A NON-BINDING ADVISORY VOTE ON THE COMPENSATION
OF OUR NAMED EXECUTIVE OFFICERS ................................................................................................... 32
PROPOSAL 3: RATIFY SELECTION OF INDEPENDENT AUDITOR ...................................................... 34
AUDIT COMMITTEE REPORT ............................................................................................................................ 35
SHAREHOLDER PROPOSAL GUIDELINES ..................................................................................................... 36
SHAREHOLDER COMMUNICATION TO BOARD OF DIRECTORS .......................................................... 36
OTHER MATTERS ................................................................................................................................................... 36
EXHIBIT A - AUDIT COMMITTEE CHARTER .............................................................................................. A-1
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WESTAMERICA BANCORPORATION
1108 Fifth Avenue
San Rafael, California 94901
___________
PROXY STATEMENT
March 12, 2018
___________
GENERAL
The Westamerica Board of Directors is soliciting proxies to be used at the 2018 Annual Meeting of Shareholders
of Westamerica Bancorporation (the “Company”), which will be held at 10:00 a.m. Pacific Time, Thursday, April
26, 2018, 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 12, 2018, 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 26, 2018, 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 26, 2018;
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, and FOR ratifying the selection of independent auditor. The Proxies will also have
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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 26, 2018.
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 26, 2018, 26,574,333 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.
Election of directors
Nine nominees
receiving the
most votes
Advisory vote on executive
compensation "Say on Pay"
Majority of
shares voted
Not voted
Not voted
Not voted
Not voted
Ratification of independent
auditor
Majority of
shares voted
Not voted
Broker
discretionary vote
1
2
3
FOR
FOR
FOR
Votes in favor of Proposals 2 and 3 must also constitute a majority of the required quorum for the meeting. If votes
in favor are less than a majority of the required quorum, abstentions and non-votes will have the effect of a vote
against the proposal.
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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 and a majority of the
required quorum.
How You Can Vote. Your vote is very important and we hope that you will attend the Annual Meeting.
However, whether or not you plan to attend the Annual Meeting, please vote by proxy.
Registered Holders. If your shares are registered directly in your name with the Company’s transfer agent,
Computershare Investor Services, LLC, you are considered a registered holder of those shares. Please vote by
proxy in accordance with the instructions on your Proxy Card, or the instruction you received 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.
If you are a participant
the Westamerica Bancorporation Tax Deferred
in
Voting Deadlines.
Savings/Retirement Plan (ESOP) your vote must be received by 11:59 p.m. Central Time, on April 23, 2018.
All other shareholders voting by telephone or internet must vote by 12:01 a.m. Central Time, on April 26, 2018
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
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at a later time by telephone or on the internet prior to 12:01 a.m. Central Time, on April 26, 2018 (prior to 11:59
p.m. Central Time, on April 23, 2018 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 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 2017 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, 2017, in
addition to those disclosed in the Security Ownership of Directors and Management section below, were:
Name and Address of Beneficial Owner
BlackRock, Inc.
55 East 52nd Street, New York, NY 10055
Eaton Vance Management
2 International Place, Boston, MA 02110
The Vanguard Group, Inc.
100 Vanguard Boulevard, Malvern, PA 19355
T. Rowe Price Associates, Inc
100 East Pratt Street, Baltimore, MD 21202-1009
American Century Investment Management, Inc.
4500 Main Street, Kansas City, MO 64111
_________________________
Title of Class
Number of Shares
Beneficially Owned
Percent of Class
Common
Common
Common
Common
Common
3,396,214
(1)
12.90%
2,345,696
(2)
8.90%
2,749,499
(3)
10.43%
2,241,564
(4)
2,326,469
(5)
8.50%
8.83%
(1) The Schedule 13G filed with the SEC on January 17, 2018 disclosed that the reporting entity, BlackRock, Inc., held sole voting power
over 3,338,674 shares and sole dispositive power over 3,396,214 shares.
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(2) The Schedule 13G filed with the SEC on February 15, 2017 disclosed that the reporting entity, Eaton Vance Management, held sole
voting power over 2,345,696 shares and sole dispositive power over 2,345,696 shares.
(3) The Schedule 13G filed with the SEC on February 9, 2018 disclosed that the reporting entity, The Vanguard Group, Inc., held sole
voting power over 27,990 shares and sole dispositive power over 2,719,423 shares, and shared dispositive power over 30,076 shares.
(4) The Schedule 13G was filed with the SEC on February 14, 2018. 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.
(5) The Schedule 13G filed with the SEC on February 9, 2018 disclosed that the reporting entity, American Century Investment
Management, Inc., held sole voting power over 2,282,823 shares and sole dispositive power over 2,326,469 shares.
Security Ownership of Directors and Management. The following table shows the number of common shares
and the percentage of the common shares beneficially owned (as defined below) by each of the current
Directors, by the Chief Executive Officer (“CEO”), by the Chief Financial Officer (“CFO”), and by the three
other most highly compensated executive officers, and by all Directors and Officers of the Company as a group
as of February 26, 2018. As of February 26, 2018, there were 26,574,333 outstanding shares of Westamerica
Bancorporation’s common stock. For the purpose of the disclosure of ownership of shares by Directors and
Officers below, shares are considered to be beneficially owned if a person, directly or indirectly, has or shares
the power to vote or direct the voting of the shares, the power to dispose of or direct the disposition of the
shares, or the right to acquire beneficial ownership of shares within 60 days of December 31, 2017.
Amount And Nature Of Beneficial Ownership
Shared Voting
and Investment
Power
Right to Acquire
Within 60 days of
December 31, 2017
Total(1)
Percent of
Class(2)
Sole Voting
and
Investment
Power
10,898
(3)
1,700
-
3,460
(5)
1,000
8,600
(6)
44,000
-
-
25,887
(4)
-
-
-
-
1,453
(7)
885,570
(8)
67,490
-
30
1,061
10
-
7,778
(9)
2,097
30,098
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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(10)
Dennis R. Hansen
Russell W. Rizzardi(12)
All 14 Directors and Executives
Directors and Officers
as a Group
____________________
-
-
-
-
-
-
-
-
-
19,320
24,764
64,144
-
(11)
(11)
10,898
1,700
25,887
3,460
1,000
8,600
44,000
887,023
67,490
27,098
26,891
95,303
11
*
*
0.1%
*
*
*
0.2%
3.3%
0.3%
0.1%
0.1%
0.4%
-
139,727
952,435
108,228
1,200,390
4.5%
* 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.
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(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 CEO, 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 7,152 shares held in a trust as to which Mr. Thorson is co-trustee with shared voting and investment power.
(10) Mr. Robinson retired from the position of Banking Division Manager of Westamerica Bank effective January 31, 2018.
(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.
(12) Mr. Rizzardi’s compensation is subject to garnishments and liens pursuant to certain domestic relations orders.
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% shareholders were filed timely,
except for three reports filed one day delinquent for Messrs. Robinson, Sylvester and Thorson with respect to
the disposition of 9,200, 1,260 and 2,000 shares, respectively, and for two reports filed seventy-three days
delinquent for Messrs. Hansen and Schneck with respect to the grant of nonqualified stock options of 19,400
and 5,900 shares, respectively, with one-third vesting on the first anniversary date of the grant date.
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. The information below has been furnished to the
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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 (88) is President and CEO of Sunny Slope Vineyard in Sonoma County, California. Until 2017, she
was also President and CEO of Allen Heating and Sheet Metal. She is a member of the Employee Benefits and
Compensation Committee and the Loan and Investment Committee. Mrs. Allen is also a Director of
Westamerica Bank.
In 1972, she became the second woman in the state of California to become a licensed contractor in heating,
ventilation, air conditioning and sheet metal, and in 1974 she became President and CEO of Allen Heating and
Sheet Metal. Under her leadership the company became recognized throughout California. She was the first
woman president of Marin Builders Exchange and during her time on the executive committee she also served
as a trustee and later as chairman of their successful insurance trust. She was the first woman contractor on the
Executive Committee of the California Association of Builders Exchanges.
Etta Allen is one of the pioneers for women in non-traditional careers. As an entrepreneur, businesswoman and
an involved community leader, she brings independence, operations management and executive experience to
the Board.
Louis E. Bartolini – Director since 1991
Louis E. Bartolini (85) 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 (81) 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.
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Arthur C. Latno, Jr. – Director since 1985
Arthur C. Latno, Jr. (88) 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 (84) 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.
Catherine Cope MacMillan – Director since 1985
Catherine Cope MacMillan (70) 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 owned and 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 (75) 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.
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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 (62) 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 as Chairman of the Board, Westamerica’s dividends per share have risen twelve-
fold and capital levels have increased nine-fold. Total assets have quadrupled during his tenure and net income has
risen by a multiple of 10. Return on equity was 8.4% for the year ended December 31, 2017.
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 (81) 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. He is the Chairman of the Board of Sierra
Nevada Memorial Hospital where he is also a member of their Finance Committee and a member of the Strategic
Planning Committee. He is the liaison from the hospital board to the Sierra Nevada Memorial Hospital Foundation
and a member of the Foundation Board. Mr. Sylvester has previously served as a member and Chairman of the
California Transportation Commission that prioritizes state transportation projects and allocates funding. He is a
past President of the Rotary Club of Grass Valley and past Chairman of the Grass Valley Chamber of Commerce.
Mr. Sylvester has run 23 marathons to date and was the 14th person in the world to complete a full marathon on all
seven continents including Antarctica.
The depth of Mr. Sylvester’s experience gives him first-hand understanding of all the nuances of development and
development funding, a current knowledge of the retail economy, and a state-wide perspective and experience in
funding allocation. His long tenure on the Board brings a historical and long-term perspective while he remains
current on financial issues with his continuing leadership role in the community and active management positions.
THE BOARD OF DIRECTORS RECOMMENDS ELECTION OF ALL NOMINEES
Board of Directors and Committees
Director Independence and Leadership Structure
The Board of Directors has considered whether any relationships or transactions related to a Director were
inconsistent with a Director’s independence. Based on this review, the Board has determined that E. Allen, L.E.
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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.
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
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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 Audit 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 Audit 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 met on nine days during 2017. Every Director
attended at least 75% of the aggregate of: (i) the Board meetings held during that period in which they served; and
(ii) the total number of meetings of any Committee of the Board on which the Director served. Each individual who
served on the Board of the Company on the date of the 2017 Annual Meeting of Shareholders attended the meeting,
except for Ms. Allen.
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 2017
Executive Committee
Executive
Committee
Audit
Committee
Employee
Benefits and
Compensation
Committee
Loan and
Investment
Committee
Nominating
Committee
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Chair
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9
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X
5
X
X
X
Chair
X
Chair
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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.
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;
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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 January 2018 and is attached as Exhibit A to the Proxy Statement for this
2018 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
reaffirmed by the Board of Directors in January 2017 and attached as Exhibit B to the Proxy Statement for the 2017
Annual Meeting of Shareholders. The 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.
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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 the 2016
Annual Meeting of Shareholders.
While the Board does not have a formal diversity policy, it 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;
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;
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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 2017. Directors who are employees of the Company
receive no compensation for their services as Directors.
Director Compensation Table For Fiscal Year 2017
Name(1)
Etta Allen
Louis E. Bartolini
E. Joseph Bowler
Arthur C. Latno, Jr.
Patrick D. Lynch
Catherine Cope MacMillan
Ronald A. Nelson
Edward B. Sylvester
_________________________
Fees Earned
Paid in Cash
$37,000
36,400
37,000
44,450
43,050
42,400
41,250
43,800
Change in Pension Value and
Nonqualified Deferred
Compensation Earnings(2)
$56,616
554
0
0
0
0
0
9,722
Total
$93,616
36,954
37,000
44,450
43,050
42,400
41,250
53,522
(1) Non-employee Directors did not receive options or stock awards. During 2017, non-employee Directors of the Company each received an
annual retainer of $22,000. Each non-employee Director received $1,200 for each meeting of the Board attended and $600 for each
Committee meeting attended. The Chairman of each Committee received an additional $250 for each Committee meeting attended. All non-
employee Directors are reimbursed for expenses incurred in attending Board and Committee meetings. The Chairman of the Board, David
L. Payne, is compensated as an employee and did not receive any compensation as a Director.
(2) The Deferred Compensation Plan allows non-employee Directors to defer some or all of their Director compensation with interest
earnings credited on deferred compensation accounts. The amount shown is the interest on nonqualified deferred compensation that exceeds
120% of the long-term Applicable Federal Rate, with compounding, on all cash compensation deferred in 2017 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
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.
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David L. Payne – Held since 1984
David L. Payne (62) is the Chairman of the Board, President and CEO of the Company and Westamerica Bank. Mr.
Payne also manages his family printing, publishing and cable television business.
John “Robert” Thorson – Held since 2005
John “Robert” Thorson (57) is Senior Vice President and Chief Financial Officer of 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.
Dennis R. Hansen – Held since 2005
Dennis R. Hansen (67) 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.
David L. Robinson – Held since 2007(1)
David L. Robinson (58) was 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.
Russell W. Rizzardi – Held since 2008
Russell W. Rizzardi (62) 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.
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.
Compensation Discussion and Analysis
The executive compensation practices described below have been followed consistently for twenty-five years. At
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:
(1) Mr. Robinson retired from the position of Banking Division Manager of Westamerica Bank effective January 31, 2018.
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– 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 avoids 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.
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
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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 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
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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 26, 2018, 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.
Long-Term Incentive Attributes
The Board of Directors has designated the Compensation Committee as the administrator of the 2012 Amended
Plan. The Compensation Committee reports to the Board the terms and conditions of stock option awards. In
carrying out this responsibility, the Compensation Committee designs such awards as long-term incentives. The
terms and conditions of currently outstanding awards include:
NQSO grants vest one-third (1/3) on each anniversary of the grant date. As such, NQSO grants become
fully vested over a three-year period. NQSO grants expire on the tenth anniversary of the grant date. The
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.
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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 CEO with responsibilities
including oversight of the organization and external strategic initiatives. Mr. Payne also serves as President and
CEO 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 30 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.(1) 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 CEO 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
objectives. The “target” cash incentive and the weighting of goals for the named executive officers for 2017
performance were as follows:
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(1) The value of the surrendered RPS shares and the Pension Agreement were considered equivalent based on actuarial assumptions.
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“Target”
Cash
Incentive
$371,000
107,200
82,500
73,900
60,500
Corporate
80%
55%
50%
55%
55%
Goal Weighting
Divisional
–
25%
40%
25%
35%
Individual
20%
20%
10%
20%
10%
Mr. Payne
Mr. Thorson
Mr. Robinson(1)
Mr. Hansen
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 2017 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 2017, the Compensation Committee expected nominal economic growth with an uncertain interest rate
environment., 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 2017 operating environment was generally characterized as follows:
Growth in the United States’ economy increased slightly from the prior year, but growth was tempered;
Inflation remained below targets established by the Federal Open Market Committee in spite of continuing
monetary policy accommodation and improving employment conditions;
The Federal Open Market Committee increased the federal funds rate on three occasions resulting in rising
short-term interest rates; however, intermediate term interest rates did not begin to increase until late in the
year;
Throughout most of 2017, competitive interest rates on loans remained below the yields required for the
Company to deliver satisfactory financial results throughout a full business cycle;
Interest rates on investment securities remained relatively low compared to interest rates which would exist
with moderated monetary policies and economic conditions;
Real estate values in the Company’s metropolitan geographies appeared to increase to levels above those
which could be sustained by prevailing economic conditions; and
Regulations imposed on banks continued to pressure compliance costs, revenue opportunities, and
increased operational risks.
The Compensation Committee considered Management’s response to the current operating environment including:
Management maintained discipline in pricing loans for long-term financial results;
Management consistently maintained conservative loan underwriting practices to appropriately manage the
Company’s exposure to credit risk;
(1) Mr. Robinson retired from the position of Banking Division Manager of Westamerica Bank effective January 31, 2018.
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Management avoided higher-yielding longer-dated investment securities, maintaining an appropriately
short duration bond portfolio to provide asset re-pricing opportunities in a rising interest rate environment;
Management increased the value of the Company’s deposit base by increasing checking and savings
deposits and reducing time deposits;
Management reduced operating costs to offset market interest rate pressure on revenues;
Management maintained high levels of customer service; and
Management prudently managed capital enabling the Company to continue delivering increasing annual
levels of dividends per share and position the Company for growth opportunities.
The Compensation Committee chose to make adjustments to actual results to take into account the impact of the
operating environment. Adjusted actual results against “target” performance goals were:
Performance
“Target”
Adjusted Actual
Results
Profitability Goals:
Return on average shareholders’ equity
Return on average assets
Diluted earnings per share
10.30%
1.09%
$2.280
10.29%
1.10%
$2.285
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
$40 million
$18 million
$11.0 million
0.15%
Improving
$6.6 million
0.08%
Improving
51.0%
$99.0 million
none
50.4%
$97.1 million
none
In reviewing the operating environment, Management’s response to the operating environment, and adjusted results
compared to “target” performance goals, the Compensation Committee determined corporate performance to be
110.5% 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:
Manage the Company to achievement of financial goals including return on equity, return on assets, and
earnings per share;
Maintain and improve credit quality in a manner prudent for the final stages of an economic expansion;
Achieving budgeted deposit growth goals;
Stabilizing loan volumes;
Satisfactory regulatory examinations and external and internal audit results;
Development of management succession plans;
Monitoring the development of sub-divisional employees;
Investor relations goals; and
Pursue mergers and acquisitions.
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Based on individual performance against these goals, the Committee exercised its discretion and assigned Mr. Payne
a composite corporate and individual performance level of 61%.
In addition to routine on-going divisional responsibilities, Mr. Thorson managed the Finance Division toward
functional goals, which included:
Manage the level of earning assets to achieve desired financial results;
Manage the investment securities portfolio in anticipation of rising interest rates: maximize yield while
meeting duration objectives and maintaining high credit quality;
Monitor market rates on depository products and meet low-cost funding objective;
Manage the process of adopting new accounting standards;
Manage the Trust Department toward achieving fee growth goals, maintaining satisfactory audit results,
and achieving personnel development objectives;
Provide management oversight to the Regulatory Compliance Department;
Develop personnel to foster business continuity;
Implement upgrades to functional operational systems;
Managing operating units to deliver superior customer service; and
Satisfactory regulatory examinations, external audits, and internal audits with all areas of responsibility.
Based on the Finance Division’s results, the Committee determined divisional performance to be 116%.
In addition to daily management responsibilities, Mr. Thorson’s individual goals included:
Support cross-divisional regulatory compliance initiatives;
Monitor federal tax reform legislation and implement the impact of enacted legislation on the Company’s
financial position and operating results, and other operational and administrative impacts;
Solicit shareholder votes which support the Board of Directors proxy recommendations;
Management of Bank and Company level capital positions; and
Provide financial management support to potential merger and acquisitions activities.
Based on individual performance against these goals, the Committee determined Mr. Thorson’s individual
performance to be 138%. In considering all elements of performance, the Committee exercised its discretion and
assigned Mr. Thorson a composite corporate, divisional and individual performance level of 146%.
In addition to routine on-going divisional responsibilities, Mr. Robinson(1) managed the Banking Division toward
functional goals, which included:
Achievement of deposit goals;
Stabilization of Banking Division loan volumes;
Achievement of Community Development loan objectives;
Delivering superior customer service throughout the branching system; and
Satisfactory branch audit results.
Based on the Banking Division’s results, the Committee determined divisional performance to be 100%.
In addition to daily management responsibilities, Mr. Robinson’s individual goals included:
Regional sales management responsibilities;
Coach and mentor subordinates to higher levels of performance;
(1) Mr. Robinson retired from the position of Banking Division Manager of Westamerica Bank effective January 31, 2018.
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Outbound customer calling activities;
Leadership in the career development initiatives; and
Management of service quality standards within the Banking Division.
Based on individual performance against these goals, the Committee determined Mr. Robinson’s individual
performance to be 138%. 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:
Maintain and improve customer service quality;
Meet or exceed non-interest expense goals;
Satisfactory risk management as measured by the results of internal, third-party and regulatory
examinations;
Installation of new and upgraded systems;
Management and satisfactory completion of information technology projects; and
Improvements in divisional compliance programs.
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:
Managerial oversight of marketing and merchant processing services functions;
Management of divisional internal controls and risks;
Satisfactory audit results; and
Meeting staff development objectives to position the Company for internal growth.
Based on individual performance against these goals, the Committee determined Mr. Hansen’s individual
performance to be 138%. As a result, Mr. Hansen’s composite corporate, divisional and individual performance
level was 118%.
In addition to routine on-going divisional responsibilities, Mr. Rizzardi managed the Credit Division toward
functional goals, which included:
Maintain loan underwriting standards to ensure stable to improving credit quality;
Maintain credit quality as measured by net loan charge-offs, levels of non-performing loans and other real
estate owned, and delinquent loans;
Manage staff to production objectives in commercial loan underwriting offices;
Meet divisional compliance responsibilities;
Delivery of superior customer service; and
Satisfactory internal audit, loan review and regulatory examination results.
Based on the Credit Division’s results, the Committee determined divisional performance to be 108%.
In addition to daily management responsibilities, Mr. Rizzardi’s individual goals included:
Progress in meeting staff development initiatives; and
Manage divisional compliance projects.
Based on individual performance against these goals, the Committee determined Mr. Rizzardi’s individual
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performance to be 97%. As a result, Mr. Rizzardi’s composite corporate, divisional and individual performance
level was 108%.
Based on the above described performance against objectives, the Committee determined cash incentive awards as
follows:
“Target”
Cash
Incentive
$371,000
107,200
82,500
73,900
60,500
Mr. Payne
Mr. Thorson
Mr. Robinson(1)
Mr. Hansen
Mr. Rizzardi
X
Composite Corporate
Divisional and Individual
Performance Level
=
61%
146%
133%
118%
108%
Cash
Incentive
Award
$225,000
156,200
109,900
86,900
65,400
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 2017, the following
stock grants were awarded in January 2018:
“Target”
Nonqualified
Stock Option
Grant
–
19,095
–
17,285
15,385
“Target”
RPS
Grant
–
1,801
–
1,620
1,457
X
X
Corporate
Performance
Level
110.5%
110.5%
110.5%
110.5%
110.5%
Corporate
Performance
Level
110.5%
110.5%
110.5%
110.5%
110.5%
=
Nonqualified
Stock
Option
Award
–
21,100
–
19,100
17,000
=
RPS
Award
–
1,990
–
1,790
1,610
Mr. Payne
Mr. Thorson
Mr. Robinson(2)
Mr. Hansen
Mr. Rizzardi
Mr. Payne
Mr. Thorson
Mr. Robinson(3)
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 2018, the Compensation Committee evaluated whether the three year
corporate performance objectives were met for RPS awards granted in January 2015. The performance objectives
for the RPS granted in January 2015 included:
3 year cumulative diluted earnings per share (EPS);
(1) Mr. Robinson retired from the position of Banking Division Manager of Westamerica Bank effective January 31, 2018.
(2) Mr. Robinson retired from the position of Banking Division Manager of Westamerica Bank effective January 31, 2018. As such, no
NQSO were granted to Mr. Robinson.
(3) Mr. Robinson retired from the position of Banking Division Manager of Westamerica Bank effective January 31, 2018. As such, no RPS
were granted to Mr. Robinson.
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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
$6.75
1.10%
1.00%
0.50%
56.00%
Target
$6.85
1.14%
1.50%
0.35%
55.00%
Outstanding
$6.95
1.18%
2.30%
0.25%
53.00%
Result
Target
Threshold
Target
Outstanding
Outstanding
With five of the goals achieving the “threshold” performance level or better, the Compensation Committee
determined the RPS shares awarded in 2015 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 ESOP plan. The
Company 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
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“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. Prior to
enactment of the Tax Cuts and Jobs Act of 2017 (the “Act”), certain “performance-based compensation” was
not counted toward this limit. The Act eliminated the “performance-based compensation” exemption. The
Company intends generally to qualify compensation paid to executive officers for deductibility under the IRC
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, 2017.
Submitted by the Employee Benefits and Compensation Committee
Patrick D. Lynch, Chairman
Etta Allen
Arthur C. Latno, Jr.
Ronald A. Nelson
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is a current or former officer or employee of the 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, 2017, 2016, and 2015. These persons are referred to as named executive officers elsewhere in
this Proxy Statement.
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Summary Compensation Table For Fiscal Year 2017
Name / Position
Year
Salary
Awards(1)
Stock
Option
Awards(2)
Non-Stock
Incentive Plan
Compensation(3)
David L. Payne
2017
$371,000
Chairman,
President & CEO
John "Robert" A. Thorson
SVP & Chief
Financial Officer
David L. Robinson(6)
SVP/Banking Division
Manager
Dennis R. Hansen
2016
2015
2017
2016
2015
2017
2016
2015
2017
371,000
371,000
$-
-
-
$-
-
-
149,000
122,932
179,459
149,000
124,027
164,175
149,000
124,669
144,144
150,000
124,075
180,286
150,000
124,450
164,772
150,000
125,523
145,236
130,008
110,924
160,438
SVP/Operations & Systems
2016
130,008
111,751
147,459
Division Manager
Russell W. Rizzardi(7)
SVP/Credit Administrator
2015
2017
2016
2015
130,008
112,288
129,948
120,960
100,061
144,725
120,960
100,322
133,131
120,960
101,187
116,844
___________________
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings(4)
$-
-
-
36,594
42,431
38,786
30,526
36,094
33,782
23,579
28,092
26,485
-
-
-
All Other
Compensation(5)
TOTAL
$19,031
$615,031
19,535
615,535
19,557
615,557
27,366
671,551
28,749
658,582
27,788
625,987
20,235
615,022
18,491
603,607
16,027
580,568
36,610
548,459
37,854
541,864
33,140
517,069
7,491
7,695
7,466
438,637
424,408
413,457
$225,000
225,000
225,000
156,200
150,200
141,600
109,900
109,800
110,000
86,900
86,700
85,200
65,400
62,300
67,000
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(1) Stock Awards represent RPS shares as described in the Compensation Discussion & Analysis. The amounts shown represent the
aggregate grant date fair market value.
(2) Option awards represent Nonqualified Stock Options as described in the Compensation Discussion & Analysis. The amounts shown
represent the aggregate grant date fair market value.
(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 2017.”
(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
(ESOP and Deferred 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. Robinson retired from the position of Banking Division Manager of Westamerica Bank effective January 31, 2018.
(7) Mr. Rizzardi's compensation is subject to garnishments and liens pursuant to certain domestic relations orders.
Based on the compensation disclosed in the Summary Compensation Table, approximately 32% of total
compensation comes from base salaries. See Compensation Discussion and Analysis for more details.
Pay Ratio Disclosure
In August 2015 pursuant to a mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the
Securities and Exchange Commission adopted a rule requiring annual disclosure of the ratio of the median
employee’s annual total compensation to the total annual compensation of the principal executive officer
(“PEO”). The Company’s PEO is Mr. Payne.
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Median Employee total annual compensation
Mr. Payne total annual compensation
Ratio of PEO to Median Employee Compensation
$ 38,387
$615,031
16.0:1.0
In determining the median employee total annual compensation, the Company prepared a census of all
employees as of December 31, 2017, who were employed for the full 2017 calendar year. For simplicity, the
value of benefits provided by the Company’s qualified retirement plans and welfare benefit plans were excluded
from the determination of total annual compensation as all employees are offered the same benefit programs.
Grants of Plan-Based Awards Table For Fiscal Year 2017
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
Target
Threshold
Maximum
$-
$371,000
$556,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
107,200
160,800
-
-
-
-
82,500
123,750
-
-
-
-
73,900
110,850
-
-
-
-
60,500
90,750
-
-
-
-
All Other Stock
Awards: Number
of Shares
of Stock
or Units(1)
All Other Stock
Awards: Number
of Securities
Underlying
Options(2)
Exercise or
Base Price of
Option Awards
($/Share)(2)
Grant Date
Fair Value(3)
-
-
-
-
2,150
-
-
2,170
-
-
1,940
-
-
1,750
-
-
-
-
-
-
$-
-
57.18
-
-
21,700
57.18
-
-
-
-
21,800
57.18
-
-
-
-
19,400
57.18
-
-
-
-
17,500
57.18
$-
-
-
-
122,932
179,459
-
124,075
180,286
-
110,924
160,438
-
100,061
144,725
Name
David L. Payne
John "Robert" A. Thorson
David L. Robinson(4)
Dennis R. Hansen
Russell W. Rizzardi(5)
Grant Date
1/26/17
1/26/17
1/26/17
1/26/17
1/26/17
1/26/17
1/26/17
1/26/17
1/26/17
1/26/17
1/26/17
1/26/17
1/26/17
1/26/17
1/26/17
_____________________
(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 16;
• Accelerated vesting occurs upon a “change in control” as defined in the 2012 Amended Plan as described on page 25 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 25 of this Proxy
statement.
(3) The amounts shown for NQSOs and RPS awards represent the aggregate grant date fair market value.
(4) Mr. Robinson retired from the position of Banking Division Manager of Westamerica Bank effective January 31, 2018.
(5) 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 2017
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
12/31/17(2)
-
$-
Option
Exercise
Price ($)(1)
$-
Option
Expiration
Date(1)
-
Name
David L. Payne
John "Robert" A. Thorson
David L. Robinson(3)
Dennis R. Hansen
Russell W. Rizzardi(4)
-
-
-
-
-
-
-
15,867
8,234
-
-
-
-
8,800
18,333
21,700
8,867
18,400
21,800
7,933
16,466
19,400
7,133
14,866
17,500
42.695
42.330
57.178
42.695
42.330
57.178
42.695
42.330
57.178
42.695
42.330
57.178
1/22/2025
1/28/2026
1/26/2027
1/22/2025
1/28/2026
1/26/2027
1/22/2025
1/28/2026
1/26/2027
1/22/2025
1/28/2026
1/26/2027
8,000
476,400
8,050
479,378
7,210
429,356
6,490
386,480
_____________________
(1) Option Awards vest ratably over three years beginning one year from date of grant. Options expiring in 2025 fully vested in January
2018. Options expiring in 2026 fully vest in January 2019. Options expiring in 2027 fully vest in January 2020.
(2) RPS shares fully vest three years from date of grant if performance goals are met. RPS grants vest as follows: Messrs. Thorson - 2,920
shares vested in January 2018, 2,930 shares vest in January 2019, and 2,150 vest in January 2020; Hansen - 2,630 shares vested in January
2018, 2,640 shares vest in January 2019, and 1,940 shares vest in January 2020; and Rizzardi - 2,370 shares vested in January 2018, 2,370
shares vest in January 2019, and 1,750 shares vest in January 2020. As described on page 31 of this Proxy statement, vesting can occur on a
pro-rated basis for employees separating from service due to retirement. Accordingly, Mr. Robinson’s RPS grants vest as follows: 5,624
shares vested in January 2018 and 2,426 shares were forfeited in January 2018.
(3) Mr. Robinson retired from the position of Banking Division Manager of Westamerica Bank effective January 31, 2018.
(4) Mr. Rizzardi's compensation is subject to garnishments and liens pursuant to certain domestic relations orders.
Option Exercises And Stock Vested Table For Fiscal Year 2017
Option Awards
Stock Awards
Name
David L. Payne
John "Robert" A. Thorson
David L. Robinson(2)
Dennis R. Hansen
Russell W. Rizzardi(3)
_____________________
Number of Shares
Acquired on Exercise
Value Realized
on Exercise($)
Number of Shares
Acquired on Vesting
Value Realized on
Vesting($)(1)
-
81,767
82,366
159,512
20,500
$-
515,129
513,719
1,350,743
277,778
-
2,300
2,320
2,080
1,870
$-
129,985
131,115
117,551
105,683
(1) Amounts represent value upon vesting of RPS shares.
(2) Mr. Robinson retired from the position of Banking Division Manager of Westamerica Bank effective January 31, 2018.
(3) Mr. Rizzardi’s compensation is subject to garnishments and liens pursuant to certain domestic relations orders.
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Pension Benefits For Fiscal Year 2017
Name
Plan Name
Present Value of
Accumulated Benefit
Payments during
Last Fiscal Year
David L. Payne
Non-Qualified Pension Agreement
$4,861,948
$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 3.99%. The obligation is an unfunded general obligation
of the Company.
Nonqualified Deferred Compensation Table For Fiscal Year 2017
Name
David L. Payne
John "Robert" A. Thorson
David L. Robinson(5)
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)
$-
50,000
12,000
-
-
$-
97,324
46,544
35,959
-
$-
-
(30,050)
(23,205)
-
$-
2,001,836
2,812,454
2,167,268
-
(1) No RPS shares were deferred upon vesting in 2017. Non-equity incentive plan compensation deferred in 2017 was earned in 2016 and
disclosed as compensation in the Summary Compensation Table for 2016 and is therefore excluded from the Summary Compensation Table
for Fiscal Year 2017.
(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 2017 on page 27 are as follows: Messrs.
Thorson - $42,431; Robinson - $36,094; Hansen - $28,092.
(3) Includes dividends paid on deferred RPS shares.
(4) Aggregate balance of deferred compensation reported as compensation prior to 2017 is as follows: Messrs. Thorson - $1,854,512;
Robinson - $2,783,960; Hansen - $2,154,514.
(5) Mr. Robinson retired from the position of Banking Division Manager of Westamerica Bank effective January 31, 2018.
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 2017 was 5.0%. 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
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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: $991,902; Robinson(1): $997,399; Hansen: $892,637; and Rizzardi(2) $804,217. The value is
computed by multiplying the difference between the market value on December 29, 2017, the last business day of
2017, 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 week’s pay for every year or partial
year of service up to one year’s base salary (see Summary Compensation Table for Fiscal Year 2017 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.
(1) Mr. Robinson retired from the position of Banking Division Manager of Westamerica Bank effective January 31, 2018.
(2) Mr. Rizzardi’s compensation is subject to garnishments and liens pursuant to certain domestic relations orders.
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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. The Company is also required by NASDAQ Rule 5250(b)(3) to disclose all
agreements and arrangements between any director or nominee for director, and any person or entity other than the
Company (the “Third Party”), relating to compensation or other payment in connection with such person’s
candidacy or service as a director of the Company. The Company is not aware of any such agreements.
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 2017 was $384,877, $267,611, and $214,079, respectively. The principal amount outstanding at
December 31, 2017 was $367,495, $254,253, and $0, respectively. The amount of principal paid during 2017 was
$17,382, $13,358, and $214,079, respectively. The amount of interest paid during 2017 was $8,825, $6,215, and
$825, respectively. The rate of interest payable on the loans is 2.875%, 3.125%, and 0%, 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 99% 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 2022.
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
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performance metrics in order to properly balance risk with the incentives to drive our key annual financial
and/or strategic initiatives; in addition, the annual incentive program incorporates a 150% maximum payout to
further manage risk and the possibility of excessive payments.
In 2003, shareholders approved the 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 Amended 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 Amended 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
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PROPOSAL 3 – RATIFY SELECTION OF INDEPENDENT AUDITOR
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 with respect to services performed for fiscal
2017 and 2016 are as follows:
Audit Fees (1)
Audit related fees (2)
Tax fees (3)
All other fees
Total
_____________________
2017
2016
$510,000
35,210
40,200
-
$585,410
$510,000
34,450
39,000
-
$583,450
(1) Audit fees consisted of fees billed by Crowe Horwath 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 consisted of fees billed by Crowe Horwath LLP for audits of certain employee benefits plans.
(3) Tax fees consisted of fees billed by Crowe Horwath LLP for the compilation and review of the Company’s tax returns.
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
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of the Audit Committee and approved prior to the completion of the audit by the Audit Committee. During
fiscal year 2017, 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 2017.
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 United States generally accepted accounting principles and on
internal control over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee
reviewed the audited consolidated financial statements for the fiscal year 2017 and discussed them with
Management and with Crowe Horwath, LLP, the Corporation’s independent registered public accountants.
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,
2017, 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 of the Public Accounting Oversight
Board (PCAOB), including certain matters related to the conduct of an audit and to obtain certain information
from the Audit Committee relevant to the audit.
The auditors also provided to the Audit Committee the written disclosures and the letter from the independent
auditors required by PCAOB standards. 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, 2017 for filing with the SEC.
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Submitted by the Audit Committee
Ronald A. Nelson, Chairman
Louis E. Bartolini
E. Joseph Bowler
Catherine C. MacMillan
SHAREHOLDER PROPOSAL GUIDELINES
To be considered for inclusion in the 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 12, 2018. 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 25, 2019, for the 2019 Annual Meeting. If the date of the
Annual Meeting is changed by more than 30 days, the deadline is a reasonable time before we begin to produce
and distribute our Proxy Statement. A shareholder’s notice must set forth a brief description of the proposed
business, the name and residence address of the shareholder, the number of shares of the Company’s common
stock that the shareholder owns and any material interest the shareholder has in the proposed business. The
Company will have discretionary voting authority with respect to any non-Rule 14a-8 proposals for the next
annual shareholders meeting that are not received by January 25, 2019.
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
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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 12, 2018
Fairfield, California
Kris Irvine
VP/Corporate Secretary
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EXHIBIT A
Westamerica Bancorporation
Audit Committee Charter – Updated and Reaffirmed January 24, 2018
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, (4) the Company’s Internal Audit and control function, and (5) the
Company’s Loan Review 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
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.
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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;
(e) difficult or contentious matters for which the auditor consulted outside the engagement team;
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(f)
the auditor’s evaluation of management’s use of the going concern basis of accounting in the
preparation of the financial statements;
(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. 1301 (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.
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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 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.
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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 Audit 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.
Oversight of the Company’s Loan Review Function
30. Review any reports to management prepared by the Loan Review department.
Compliance Oversight Responsibilities
31. 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 Company’s code of ethics.
32. 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.
33. 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.
34. 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.
35. Review with appropriate members of management or appropriate legal counsel legal matters that may have
a material impact on the financial statements, the Company’s compliance policies and any material reports
or inquiries received from regulators or governmental agencies.
36. 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.
37. 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.
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38. 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.
39. 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.
40. 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.
41. 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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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
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 NO
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 NO
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 NO
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 NO
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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of "large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer
Smaller reporting company
Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO
The aggregate market value of the Common Stock held by non-affiliates of the registrant as of June 30, 2017 as reported on the NASDAQ Global Select Market,
was $1,081,997,447.44. 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 13, 2018: 26,567,573 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement relating to registrant’s Annual Meeting of Shareholders, to be held on April 26, 2018, 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, future credit quality and performance, the
appropriateness of the allowance for loan losses, loan growth or reduction, mitigation of risk in the Company’s loan and
investment securities portfolios, 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", “estimates”,
"intends", "targeted", "projected", “forecast”, "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 or security 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, hurricanes, fire, flood, drought, and other
disasters, on the uninsured value of the Company’s assets and 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; (13)
changes in the securities markets and (14) the outcome of contingencies, such as legal proceedings. However, the reader should
not consider the above-mentioned factors to be a complete set of all potential risks or uncertainties.
Forward-looking statements speak only as of the date they are made. The Company undertakes no obligation to update any
forward-looking statements in this Report to reflect circumstances or events that occur after the date forward looking statements
are made, except as may be required by law. 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 commercial 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
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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.
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, 2017, the Company had consolidated assets of approximately $5.5 billion, deposits of approximately $4.8
billion and shareholders’ equity of approximately $590 million. The Company and its subsidiaries employed 785 full-time
equivalent staff as of December 31, 2017.
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
(https://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
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of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of
earnings retention appears consistent with its capital needs, asset quality and overall financial condition. See the section entitled
“Restrictions on Dividends and Other Distributions” for additional restrictions on the ability of the Company and the Bank to pay
dividends.
Transactions between the Company and the Bank are restricted under Regulation W. The regulation codifies prior interpretations
of the FRB and its staff under Sections 23A and 23B of the Federal Reserve Act. In general, subject to certain specified
exemptions, a bank or its subsidiaries are limited in their ability to engage in “covered transactions” with affiliates: (a) to an
amount equal to 10% of the bank’s capital and surplus, in the case of covered transactions with any one affiliate; and (b) to an
amount equal to 20% of the bank’s capital and surplus, in the case of covered transactions with all affiliates. The Company is
considered to be an affiliate of the Bank. A “covered transaction” includes, among other things, a loan or extension of credit to an
affiliate; a purchase of securities issued by an affiliate; a purchase of assets from an affiliate, with some exceptions; and the
issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate.
Federal regulations governing bank holding companies and change in bank control (Regulation Y) provide for a streamlined and
expedited review process for bank acquisition proposals submitted by well-run bank holding companies. These provisions of
Regulation Y are subject to numerous qualifications, limitations and restrictions. In order for a bank holding company to qualify
as “well-run,” both it and the insured depository institutions which it controls must meet the “well capitalized” and “well
managed” criteria set forth in Regulation Y.
The Gramm-Leach-Bliley Act (the “GLBA”), or the Financial Services Act of 1999, repealed provisions of the Glass-Steagall
Act, which had prohibited commercial banks and securities firms from affiliating with each other and engaging in each other’s
businesses. Thus, many of the barriers prohibiting affiliations between commercial banks and securities firms have been
eliminated.
The BHCA was also amended by the GLBA to allow new “financial holding companies” (“FHCs”) to offer banking, insurance,
securities and other financial products to consumers. Specifically, the GLBA amended section 4 of the BHCA in order to provide
for a framework for the engagement in new financial activities. A bank holding company (“BHC”) may elect to become an FHC
if all its subsidiary depository institutions are well capitalized and well managed. If these requirements are met, a BHC may file a
certification to that effect with the FRB and declare that it elects to become an FHC. After the certification and declaration is
filed, the FHC may engage either de novo or through an acquisition in any activity that has been determined by the FRB to be
financial in nature or incidental to such financial activity. BHCs may engage in financial activities without prior notice to the FRB
if those activities qualify under the list of permissible activities in section 4(k) of the BHCA. However, notice must be given to
the FRB within 30 days after an FHC has commenced one or more of the financial activities. The Company has not elected to
become an FHC.
Regulation and Supervision of Banks
The Bank is a California state-chartered Federal Reserve member bank and its deposits are insured by the FDIC. The Bank is
subject to regulation, supervision and regular examination by the California Department of Business Oversight (“DBO”), and the
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.
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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 implemented far-reaching changes across the financial
regulatory landscape, including provisions that, among other things:
Centralized responsibility for consumer financial protection by creating a new agency, the Consumer Financial
Protection Bureau, responsible for implementing, examining and (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.
Applied the same leverage and risk-based capital requirements that would apply to insured depository institutions to
most bank holding companies.
Required bank regulatory agencies to seek to make their capital requirements for banks countercyclical so that capital
requirements increase in times of economic expansion and decrease in times of economic contraction.
Changed the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets
less tangible capital, eliminated the ceiling on the size of the Deposit Insurance Fund ("DIF") and increased the floor of
the size of the DIF.
Imposed comprehensive regulation of the over-the-counter derivatives market, which would include certain provisions
that would effectively prohibit insured depository institutions from conducting certain derivatives businesses in the
institution itself.
Required large, publicly traded bank holding companies to create a risk committee responsible for the oversight of
enterprise risk management.
Implemented corporate governance revisions, including with regard to executive compensation and proxy access by
shareholders, that would apply to all public companies, not just financial institutions.
Made permanent the $250 thousand limit for federal deposit insurance.
Repealed the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository
institutions to pay interest on business transaction and other accounts.
Amended the Electronic Fund Transfer Act ("EFTA") to, among other things, give the FRB the authority to establish
rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10
billion and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a
transaction to the issuer. While the Company’s assets are currently less than $10 billion, interchange fees charged by
larger institutions may dictate the level of fees smaller institutions will be able to charge to remain competitive.
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, 2017, 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 minimum capital
requirements and for the Bank the standards for well capitalized depository institutions.
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.
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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.
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
FDICIA has 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 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.
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 or its holding company 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. The Federal reserve Board has issued
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guidance indicating its expectations that a bank holding company will inform and consult with Federal Reserve supervisory staff
sufficiently in advance of (i) declaring and paying a dividend that could raise safety and soundness concerns (e.g., declaring and
paying a dividend that exceeds earnings for the period for which the dividend is being paid); (ii) redeeming or repurchasing
regulatory capital instruments when the bank holding company is experiencing financial weaknesses; or (iii) redeeming or
repurchasing common stock or perpetual preferred stock that would result in a net reduction as of the end of the quarter in the
amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase
occurred.
Premiums for Deposit Insurance
Substantially all of the deposits of the Bank are insured up to applicable limits by the 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 July 2010, Congress in the Dodd-Frank Act increased the minimum for the DIF reserve ratio, the ratio of the amount in the
fund to insured deposits, from 1.15% to 1.35% and required that the ratio reach that level by September 30, 2020. Further, the
Dodd-Frank Act made banks with $10 billion or more in assets responsible for the increase from 1.15% to 1.35%, among other
provisions.
In October 2010, the FDIC adopted a new DIF restoration plan to ensure the DIF reaching 1.35% by September 30, 2020. In
assessing its progress in restoring the reserves, at least semi-annually, the FDIC updates its loss and income projections for the
fund and, if needed, increases or decreases assessment rates, following notice-and-comment rulemaking, if required.
In February 2011, the FDIC adopted a final rule effective April 1, 2011 to:
(1) Redefine the deposit insurance assessment base from total domestic deposits to average total assets minus average
tangible equity as required by the Dodd-Frank Act;
(2) Change the deposit insurance assessment rates (which sets forth progressively lower assessment rate schedules that
will take effect when the reserve ratio exceeds 1.15%, 2%, and 2.5%) ;
(3) Implement the Dodd-Frank Act DIF dividend provisions; and
(4) Revise the risk-based assessment system for all “large” and “highly complex” insured depository institutions.
“Large” depository institutions are defined generally as having more than $10 billion in assets and "highly complex"
institutions 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.
In March, 2016, the FDIC issued a final rule to increase the DIF reserve ratio to the statutory minimum level of 1.35%, effective
July 1, 2016, if the reserve ratio reached 1.15% before that date.
In August, 2016, the FDIC announced the DIF reserve ratio surpassed the 1.15% reserve ratio target, triggering three major
changes:
(1) The decline in the range of initial assessment rates for all banks from 5-35 basis points to 3-30 basis points;
(2) The assessment of a quarterly surcharge on large banks equal to an annual rate of 4.5 basis points in addition to
regular assessments; and
(3) A revised method to calculate risk-based assessment rates for established small banks (under $1 billion in assets)
pursuant to an FDIC final rule issued April, 2016.
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.
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Financial Privacy Legislation and Customer Information Security
The GLBA, in addition to the previously described changes in permissible nonbanking activities permitted to banks, BHCs and
FHCs, also required the federal banking agencies, among other federal regulatory agencies, to adopt regulations governing the
privacy of consumer financial information. The Bank is subject to the FRB’s regulations in this area. The federal bank regulatory
agencies have established standards for safeguarding nonpublic personal information about customers that implement provisions
of the GLBA (the “Guidelines”). Among other things, the Guidelines require each financial institution, under the supervision and
ongoing oversight of its Board of Directors or an appropriate committee thereof, to develop, implement and maintain a
comprehensive written information security program designed to ensure the security and confidentiality of customer information,
to protect against any anticipated threats or hazards to the security or integrity of such information, and to protect against
unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.
U.S.A. PATRIOT Act
Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Act of 2001 (“USA Patriot Act”) is the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001. It
includes numerous provisions for fighting international money laundering and blocking terrorist access to the U.S. financial
system. The goal of Title III is to prevent the U.S. financial system and the U.S. clearing mechanisms from being used by parties
suspected of terrorism, terrorist financing and money laundering. The provisions of Title III of the USA Patriot Act which affect
the Bank are generally set forth as amendments to the Bank Secrecy Act. These provisions relate principally to U.S. banking
organizations’ relationships with foreign banks and with persons who are resident outside the United States. The USA Patriot Act
does not impose any filing or reporting obligations for banking organizations, but does require certain additional due diligence
and recordkeeping practices.
Sarbanes-Oxley Act of 2002
The stated goals of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) are to increase corporate responsibility, to provide for
enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving
the accuracy and reliability of corporate disclosures pursuant to the securities laws. Sarbanes-Oxley generally applies to all
companies, both U.S. and non-U.S., that file or are required to file periodic reports under the Securities Exchange Act of 1934
(the “Exchange Act”).
Sarbanes-Oxley includes very specific additional disclosure requirements and corporate governance rules, required the SEC and
securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules and mandates further
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)
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respond appropriately to red flags that are detected; and (iv) ensure that the program is updated periodically as appropriate to
address changing circumstances. The regulations include guidelines that each institution must consider and, to the extent
appropriate, include in its program.
Pending Legislation
Changes to state laws and regulations (including changes in interpretation or enforcement) can affect the operating environment
of BHCs and their subsidiaries in substantial and unpredictable ways. From time to time, various legislative and regulatory
proposals are introduced. These proposals, if codified, may change banking statutes and regulations and the Company’s operating
environment in substantial and unpredictable ways. If codified, these proposals could increase or decrease the cost of doing
business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions
and other financial institutions. The Company cannot accurately predict whether those changes in laws and regulations will occur,
and, if those changes occur, the ultimate effect they would have upon our financial condition or results of operations. It is likely,
however, that the current level of enforcement and compliance-related activities of federal and state authorities will continue and
potentially increase.
Competition
In the past, the Bank’s principal competitors for deposits and loans have been major banks and smaller community banks, savings
and loan associations and credit unions. To a lesser extent, competition was also provided by thrift and loans, mortgage brokerage
companies and insurance companies. Other institutions, such as brokerage houses, mutual fund companies, credit card companies,
and certain retail establishments have offered investment vehicles 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.
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.
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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
approximately 26.4 million shares of common stock were outstanding at December 31, 2017. Pursuant to its stock option plans, at
December 31, 2017, the Company had outstanding options for 1.0 million shares of common stock, of which 469 thousand were
currently exercisable. As of December 31, 2017, 930 thousand 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, 2017, approximately 1.8 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 effected 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.
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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, 2017, 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 was severely affected by the recessionary period of 2008 to 2009. 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 recovered more soundly from the recent recession than counties in the
California “Central Valley,” from Sacramento in the north to Bakersfield in the south. Approximately 22% of the Company’s
loans are to borrowers in the California “Central Valley.” Economic conditions in California’s diverse geographic markets can be
vastly different and are subject to various uncertainties, including the condition of the construction and real estate sectors, the
effect of drought on the agricultural sector and its infrastructure, and the California state government’s budgetary and fiscal
condition. The Company can provide no assurance that conditions in any sector or geographic market of 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, fire storms 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. Further, the Company invests in securities issued by
companies and municipalities operating throughout the United States, and in mortgage-backed securities collateralized by real
property located throughout the United States. California and other regions of the United States are 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
debtors may experience uninsured property losses, or sustained business or employment interruption and/or loss which may
materially impair their ability to meet the terms of their debt obligations. A major earthquake, flood, prolonged drought, fire or
other natural disaster in California or other regions of the United States could have a material adverse effect on the Company’s
business, financial condition, results of operations and cash flows.
Adverse changes in general business or economic conditions could have a material adverse effect on the Company’s financial
condition and results of operations.
A sustained or continuing weakness or weakening in business and economic conditions generally or specifically in the principal
markets in which the Company does business could have one or more of the following adverse impacts on the Company’s
business:
a decrease in the demand for loans and other products and services offered by the Company;
an increase or decrease in the usage of unfunded credit commitments;
an increase or decrease in the amount of deposits;
a decrease in non-depository funding available to the Company;
an impairment of certain intangible assets, including 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, reduced interest revenue and cash flows, 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 2008 - 2009 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. The failure of institutions with FDIC insured deposits can cause the DIF reserve ratio to decline,
resulting in increased deposit insurance assessments on surviving FDIC insured institutions. 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, are highly dependent upon the business environment in the
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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; 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. The Bank obtained regulatory approval for dividends paid to the Company in 2017. 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.
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 (“FOMC”) has been increasing the target range for the federal funds rate.
On December 13, 2017, the FOMC raised the target range for the federal funds rate to 1¼ to 1½ percent, 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. Federal, state and local
governments could pass tax legislation causing the Company to pay higher levels of taxes.
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
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
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ITEM 2. PROPERTIES
Branch Offices and Facilities
Westamerica Bank is engaged in the banking business through 82 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 29 banking office locations and one centralized administrative service center facility and leases 58 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
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 Stock 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
2017:
First quarter ......................................................................................................... $64.07
Second quarter .................................................................................................... 57.78
Third quarter ....................................................................................................... 59.54
Fourth quarter ..................................................................................................... 63.03
2016:
First quarter ......................................................................................................... $49.63
Second quarter .................................................................................................... 51.53
Third quarter ....................................................................................................... 50.96
Fourth quarter ..................................................................................................... 65.34
$54.12
51.31
49.54
53.96
$40.72
45.86
46.61
48.20
As of January 31, 2018, there were approximately 5,700 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, 2017 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, 2007 and reinvestment of all dividends.
Ten-Year Return Performance
$250
$200
$150
$100
$50
$0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Westamerica Bancorporation (WABC)
S&P 500 (SPX)
NASDAQ Bank Index (CBNK)
December 31,
Westamerica Bancorporation (WABC) ......................................
S&P 500 (SPX) ...........................................................................
NASDAQ Bank Index (CBNK) .................................................
2007
2008
2012
$100.00 $117.83 $131.29 $135.08 $110.22 $110.48
93.62 108.59
100.00
79.69
67.12
100.00
63.01
78.47
91.71
75.00
79.69
65.69
2010
2011
2009
Westamerica Bancorporation (WABC) ........................................................
S&P 500 (SPX) .............................................................................................
NASDAQ Bank Index (CBNK) ...................................................................
December 31,
2015
2014
2013
2017
$151.16 $135.34 $129.56 $179.56 $169.70
143.73 163.36 162.32 181.53 216.54
112.92 118.46 126.39 174.06 179.77
2016
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The following chart compares the cumulative return on the Company’s stock during the five years ended December 31, 2017 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, 2012 and reinvestment of all dividends.
Five-Year Return Performance
$250
$200
$150
$100
$50
$0
2012
2013
2014
2015
2016
2017
Westamerica Bancorporation (WABC)
S&P 500 (SPX)
NASDAQ Bank Index (CBNK)
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Westamerica Bancorporation (WABC) ......................................
S&P 500 (SPX) ...........................................................................
NASDAQ Bank Index (CBNK) .................................................
ISSUER PURCHASES OF EQUITY SECURITIES
December 31,
2014
2012
2013
2017
$100.00 $136.83 $122.50 $117.28 $162.54 $153.61
100.00 132.36 150.43 149.48 167.16 199.41
100.00 141.69 148.65 158.61 218.42 225.59
2015
2016
The table below sets forth the information with respect to purchases made by or on behalf of Westamerica Bancorporation or any
“affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of common stock during the
quarter ended December 31, 2017 (in thousands, except per share data).
Period
October 1 through October 31
November 1 through November 30
December 1 through December 31
Total
2017
(a) Total Number of
shares Purchased
(c) Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
(In thousands, except exercise price)
(b) Average Price Paid
per Share
(d) Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs
-
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$ -
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1,750
1,750
1,750
1,750
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.
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No shares were repurchased during the period from October 1, 2017 through December 31, 2017. A program approved by the
Board of Directors on July 27, 2017 authorizes the purchase of up to 1,750 thousand shares of the Company’s common stock
from time to time prior to September 1, 2018.
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ITEM 6. SELECTED FINANCIAL DATA
The following financial information for the five years ended December 31, 2017 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
(Reversal of) provision for loan losses
Noninterest income:
Securities gains
Other noninterest income
Total noninterest income
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
Efficiency ratio(2)
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
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,
2016
2014
2015
(In thousands, except per share data and ratios)
$134,051
2,116
131,935
(3,200)
$136,529
2,424
134,105
$140,209
3,444
136,765
2,800
-
2017
$133,836
1,900
131,936
(1,900)
7,955
48,673
56,628
103,292
87,172
37,147
$50,025
26,291
26,419
26,425
$1.90
1.89
22.34
0.92%
8.39%
3.12%
0.08%
51.45%
10.71%
-
46,574
46,574
101,752
79,957
21,104
$58,853
25,612
25,678
25,907
$2.30
2.29
21.67
1.12%
10.85%
3.24%
0.04%
53.09%
10.46%
-
47,867
47,867
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%
$5,513,046
1,287,982
23,009
3,352,371
4,827,613
125,523
58,471
-
-
$5,366,083
1,352,711
25,954
3,237,070
4,704,741
128,600
59,078
-
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$5,168,875
1,533,396
29,771
2,886,291
4,540,659
132,104
53,028
-
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590,239
561,367
532,205
16.17%
8.63%
$1.57
83%
15.95%
8.26%
$1.56
68%
13.39%
7.94%
$1.53
67%
2013
$154,396
4,671
149,725
8,000
-
57,011
57,011
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%
-
51,787
51,787
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%
$5,035,724
1,700,290
31,485
2,639,439
4,349,191
135,960
89,784
20,015
-
526,603
14.54%
7.97%
$1.52
66%
(1) Yields on securities and certain loans have been adjusted upward to a "fully taxable equivalent" ("FTE") basis 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 and noninterest income).
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion addresses information pertaining to the financial condition and results of operations of Westamerica
Bancorporation and subsidiaries (the “Company”) that may not be otherwise apparent from a review of the consolidated financial
statements and related footnotes. It should be read in conjunction with those statements and notes found on pages 47 through 88,
as well as with the other information presented throughout 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
The Company reported net income of $50.0 million and diluted earnings per common share (“EPS”) of $1.89 in 2017. The 2017
results include adjustments to net deferred tax asset values triggered by enactment of the Tax Cuts and Jobs Act of 2017 which
reduced EPS $0.48, recognition of a loss contingency which reduced EPS $0.12, and securities gains which increased EPS $0.18.
The 2017 results compare to net income of $58.9 million or $2.29 EPS for the year ended December 31, 2016 and net income of
$58.8 million or $2.30 EPS for the year ended December 31, 2015.
The Company’s principal source of revenue is net interest and loan fee income, which represents interest and fees earned on loans
and investment securities (“earning assets”) reduced by interest paid on deposits and other borrowings (“interest-bearing
liabilities”). Market interest rates declined considerably following the recession of 2008 and 2009. Interest rates remained
historically low through 2016 as the Federal Open Market Committee’s (“FOMC”) monetary policy was highly accommodative.
During this period, Management avoided originating long-dated, low-yielding loans given the potential impact of such assets on
forward earning potential; as a result, loans declined and investment securities increased. The changing composition of the
earning assets and low market interest rates has pressured the net interest margin to lower levels. The FOMC’s first post-recession
increase in the federal funds rate occurred in December 2015, although longer-term rates declined. The FOMC’s successive post-
recession increases in the federal funds rate occurred between December 2016 and December 2017, although longer-term rates
have not increased by a similar magnitude. The more recent increase in rates has resulted in competitive loan yields which are
more appealing from a profitability perspective, in Management’s opinion.
The funding of the Company’s earning assets is primarily customer deposits. The Company’s long-term strategy includes
maximizing checking and savings deposits as these types of deposits are lower-cost and less sensitive to changes in interest rates
compared to time deposits. The 2017 average volume of checking and savings deposits was 95 percent of average total deposits.
The Company recognized a reversal of the provision for loan losses of $1.9 million in 2017. Credit quality improved during 2017
with nonperforming assets declining $4 million to $8 million at December 31, 2017. The Company’s net losses in 2017 were
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0.08% of average loan balances. These developments were reflected in Management’s evaluation of credit quality, the level of the
provision for loan losses, and the adequacy of the allowance for loan losses at December 31, 2017.
The Company presents its net interest margin and net interest income on an FTE basis using the current statutory federal tax rate.
Management believes the FTE basis is valuable to the reader because the Company’s loan and investment securities portfolios
contain a relatively large portion of municipal loans and securities that are federally tax exempt. The Company’s tax exempt
loans and securities composition may not be similar to that of other banks. Therefore in order to reflect the impact of the federally
tax exempt loans and securities on the net interest margin and net interest income for comparability with other banks, the
Company presents its net interest margin and net interest income on an FTE basis.
The Company’s significant accounting policies (see Note 1 (“Summary of Significant Accounting Policies”) to Financial
Statements in the Company’s 2017 Form 10-K) are fundamental to understanding the Company’s results of operations and
financial condition. The Company adopted the FASB ASU 2016-09, Improvements to Employee Share-Based Payment
Accounting effective January 1, 2017. The 2017 results reflect the Company’s prospective adoption of ASU 2016-09; The 2017
income tax provision was $698 thousand lower than would have been under accounting standards prior to the adoption of ASU
2016-09.
Components of Net Income
Net interest and loan fee income (FTE)
Reversal of (provision for) loan losses
Noninterest income
Noninterest expense
Income before income taxes (FTE)
Income taxes (FTE)
Net income
For the Years Ended December 31,
2017
2015
2016
($ in thousands, except per share data)
$144,118
1,900
56,628
(103,292)
99,354
(49,329)
$50,025
$145,077
3,200
46,574
(101,752)
93,099
(34,246)
$58,853
$148,258
-
47,867
(105,300)
90,825
(32,072)
$58,753
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
$1.89
8.39%
0.92%
$2.29
10.85%
1.12%
$2.30
11.32%
1.16%
Comparing 2017 with 2016, net income decreased $8.8 million. Net interest and loan fee income (FTE) decreased in 2017
compared with 2016 mostly attributable to lower average balances of loans and lower net yield on those loans, partially offset by
higher average balances of investments. The Company recorded a $1.9 million reversal of provision for loan losses in 2017 and a
$3.2 million reversal of provision for loan losses in 2016, reflecting Management's evaluation of losses inherent in the loan
portfolio. Noninterest income increased primarily due to gains on sale of securities of $8.0 million and higher merchant
processing services fees, partially offset by lower service charges on deposit accounts. Noninterest expense increased due to a
$5.5 million loss contingency and an impairment charge of tax credit investments, partially offset by reductions in professional
fees and correspondent service charges. The tax provision (FTE) for 2017 was higher than in 2016 primarily due to a $12.3
million charge to re-measure the Company’s net deferred tax asset triggered by enactment of the Tax Cuts and Jobs Act of 2017.
The 2017 income tax provision was $698 thousand lower than it would have been under accounting standards prior to the
adoption of ASU 2016-09.
Comparing 2016 with 2015, net income increased $100 thousand due to a reversal of provision for loan losses and lower
noninterest expense, partially offset by lower net interest and fee income (FTE), lower noninterest income and higher income tax
provision (FTE). The lower net interest and fee income (FTE) was primarily caused by lower average balances of loans, partially
offset by higher average balances of investments and lower average balances of higher-costing time deposits. The Company
recorded a reversal of the provision for loan losses of $3.2 million, reflecting Management's evaluation of losses inherent in the
loan portfolio. Noninterest income decreased primarily due to reduced levels of service charges on deposit accounts, financial
services commissions and other service fees, partially offset by higher debit card fees. Noninterest expense decreased mostly due
to lower personnel expense, lower occupancy expense, and lower other operating expense, offset in part by higher legal fees.
Income tax provision (FTE) increased in 2016 due to higher pretax income, declining tax preference items and lower tax credits.
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Net Interest and Loan Fee Income (FTE)
The Company's primary source of revenue is net interest income, or the difference between interest income earned on loans and
investment securities and interest expense paid on interest-bearing deposits and other borrowings.
Components of Net Interest and Loan Fee Income (FTE)
2017
For the Years Ended December 31,
2016
($ in thousands)
2015
Interest and loan fee income
Interest expense
FTE adjustment
Net interest and loan fee income (FTE)
$133,836
(1,900)
12,182
$144,118
$134,051
(2,116)
13,142
$145,077
$136,529
(2,424)
14,153
$148,258
Net interest margin (FTE)
3.12%
3.24%
3.36%
Comparing 2017 with 2016, net interest and loan fee income (FTE) decreased $959 thousand mostly due to lower average
balances of loans (down $109 million) and lower net yield on those loans (down 0.16%), partially offset by higher average
balances of investments (up $255 million).
Comparing 2016 with 2015, net interest and loan fee income (FTE) decreased $3.2 million due to lower average balances of loans
(down $194 million), partially offset by higher average balances of investments (up $255 million) and lower average balances of
higher-costing time deposits (down $62 million).
Loan volumes have declined due to payoffs and problem loan workout activities (such as chargeoffs, collateral repossessions and
principal payments), particularly with purchased loans, and reduced volumes of loan originations. The Company did not take an
aggressive posture relative to loan portfolio growth during the post-recession period of historically low interest rates.
Management increased investment securities as loan volumes declined. The average balance of the investment securities portfolio
increased from $2.8 billion in 2015 to $3.1 billion in 2016 and $3.3 billion in 2017. The Company has been purchasing 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 as market interest rates rise.
Yields on interest-earning assets declined due to historically low interest rates prevailing in the market. The net interest margin
(FTE) was 3.12% in 2017, 3.24% in 2016 and 3.36% in 2015. The volume of older-dated higher-yielding loans and securities
declined due to principal maturities and paydowns. As the investment securities portfolio grew during the three years ended
December 31, 2017, the investment securities portfolio generated an increasing portion of the interest income (FTE). Interest
income (FTE) generated from investments represented 47.0% of total interest income (FTE) in 2015, 52.2% in 2016 and 57.0% in
2017. During the three years ended December 31, 2017, the net interest margin (FTE) was affected by low market interest rates
and the changing composition of interest-earning assets.
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 by reducing the volume of higher-cost funding sources. Federal Home Loan Bank (“FHLB”) advances were repaid in
January 2015. Average balances of time deposits declined $27 million in 2017 compared with 2016 while lower-cost checking
and savings deposits grew 4% in the same period. Lower-cost checking and savings deposits accounted for 94.8% of total average
deposits in 2017 compared with 94.1% in 2016 and 92.5% in 2015.
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Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present information regarding the consolidated average assets, liabilities and shareholders’ equity, the
amounts of interest income earned from average interest earning assets and the resulting yields, and the amounts of interest
expense incurred on average interest-bearing liabilities and the resulting rates. Average loan balances include nonperforming
loans. Interest income includes reversal of previously accrued interest on loans placed on non-accrual status during the period and
proceeds from loans on nonaccrual status only to the extent cash payments have been received and applied as interest income and
accretion of purchased loan discounts. Yields on tax-exempt securities and loans have been adjusted upward to reflect the effect
of income exempt from federal income taxation at the federal statutory tax rate of 35 percent for 2015, 2016 and 2017. Due to the
Tax Cuts and Jobs Act of 2017, the federal tax rate will be 21 percent for 2018; as such, the upward adjustment to reflect the
effect of income exempt from federal taxation will be lower in 2018.
Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin
For the Year Ended December 31, 2017
Interest
Income/
Expense
($ 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
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
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)
$2,498,001
809,136
3,307,137
1,252,474
62,728
1,315,202
4,622,339
817,343
$5,439,682
$2,095,522
2,380,841
136,324
109,563
2,626,728
69,671
2,696,399
51,405
596,356
$5,439,682
$51,445
31,737
83,182
59,700
3,136
62,836
146,018
$-
1,123
318
415
1,856
44
1,900
$144,118
2.06%
3.92%
2.52%
4.77%
5.00%
4.78%
3.16%
- %
0.05%
0.23%
0.38%
0.07%
0.06%
0.07%
3.09%
3.12%
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(2) Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing
liabilities.
(3) Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of
interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand
deposits.
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Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin
For the Year Ended December 31, 2016
Interest
Income/
Expense
($ 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
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
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)
$2,212,234
840,262
3,052,496
1,356,417
67,842
1,424,259
4,476,755
769,389
$5,246,144
$2,026,939
2,290,640
154,022
118,750
2,563,412
61,276
2,624,688
52,216
542,301
$5,246,144
$42,718
34,103
76,821
66,842
3,530
70,372
147,193
$-
1,166
402
509
2,077
39
2,116
$145,077
1.93%
4.06%
2.52%
4.93%
5.20%
4.94%
3.29%
- %
0.05%
0.26%
0.43%
0.08%
0.06%
0.08%
3.21%
3.24%
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(2) Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing
liabilities.
(3) Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of
interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand
deposits.
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Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin
For the Year Ended December 31, 2015
Interest
Income/
Expense
($ 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
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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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, 2017
Compared with
For the Year Ended December 31, 2016
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
Total decrease in interest expense
(Decrease) increase in net interest and loan fee income (1)
$5,518
(1,263)
4,255
(5,118)
(266)
(5,384)
(1,129)
45
(46)
(39)
(40)
5
(35)
($1,094)
$3,209
(1,103)
2,106
(2,024)
(128)
(2,152)
(46)
(88)
(38)
(55)
(181)
-
(181)
$135
$8,727
(2,366)
6,361
(7,142)
(394)
(7,536)
(1,175)
(43)
(84)
(94)
(221)
5
(216)
($959)
(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) increase 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
Total decrease in interest expense
(Decrease) increase in net interest and loan fee income (1)
For the Year Ended December 31, 2016
Compared with
For the Year Ended December 31, 2015
Yield/Rate
(In thousands)
Total
Volume
$4,679
(400)
4,279
(9,119)
(456)
(9,575)
(5,296)
81
(62)
(183)
(164)
(10)
(1)
(175)
($5,121)
$3,567
(1,781)
1,786
284
(263)
21
1,807
(27)
(107)
5
(129)
(4)
-
(133)
$1,940
$8,246
(2,181)
6,065
(8,835)
(719)
(9,554)
(3,489)
54
(169)
(178)
(293)
(14)
(1)
(308)
($3,181)
(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 recorded a reversal of the provision for loan losses of $1.9 million in 2017 and $3.2 million in 2016. The Company
provided no provision for loan losses in 2015. Classified loans declined $10.5 million (which included nonperforming loans of
$5.9 million) in 2017. The Company’s net loan losses decreased from $1.7 million in 2015 to $617 thousand in 2016 and $1.0
million in 2017; these developments were reflected in Management’s evaluation of credit quality, the level of the provision for
loan losses, and the adequacy of the allowance for loan losses at December 31, 2017. At December 31, 2017, the Company had
$7.8 million in residential real estate secured loans which are indemnified from loss by the FDIC up to eighty percent of principal;
the indemnification expires February 6, 2019. 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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Noninterest Income
Components of Noninterest Income
Service charges on deposit accounts
Merchant processing services
Securities gains
Debit card fees
Trust fees
ATM processing fees
Other service fees
Financial services commissions
Other noninterest income
Total Noninterest Income
2017
2015
For the Years Ended December 31,
2016
(In thousands)
$20,854
6,377
-
6,290
2,686
2,411
2,571
568
4,817
$46,574
$19,612
8,426
7,955
6,421
2,875
2,610
2,584
639
5,506
$56,628
$22,241
6,339
-
6,084
2,732
2,397
2,689
695
4,690
$47,867
In 2017, noninterest income increased $10.1 million compared with 2016 mainly due to $8.0 million in gains on sale of securities.
Merchant processing services fees increased $2.0 million due to successful sales efforts and higher transaction volumes. ATM
processing fees and debit card fees increased $199 thousand and $131 thousand, respectively, primarily due to increased
transaction volumes. Trust fees increased $189 thousand due to successful sales efforts. Offsetting the increase were service
charges on deposits which decreased $1.2 million due to declines in fees charged on overdrawn and insufficient funds accounts
(down $1.0 million) and lower fees on analyzed accounts (down $220 thousand).
In 2016, noninterest income decreased $1.3 million or 2.7% compared with 2015. Service charges on deposits decreased $1.4
million due to declines in fees charged on overdrawn and insufficient funds accounts (down $1.1 million) and lower fees on
analyzed accounts (down $393 thousand). The decrease was partially offset by increased debit card fees of $206 thousand as a
result of increased transaction volumes.
Noninterest Expense
Components of Noninterest Expense
Salaries and related benefits
Occupancy and equipment
Outsourced data processing services
Loss contingency
Amortization of identifiable intangibles
Professional fees
Courier service
Impairment of tax credit investments
Other noninterest expense
Total Noninterest Expense
2015
2017
For the Years Ended December 31,
2016
(In thousands)
$51,507
19,017
8,505
3
3,504
3,980
1,952
-
13,284
$101,752
$51,519
19,430
9,035
5,542
3,077
2,161
1,732
625
10,171
$103,292
$52,192
19,394
8,441
-
3,856
2,490
2,329
-
16,598
$105,300
In 2017, noninterest expense increased $1.5 million compared with 2016. The 2017 noninterest expense included a $5.5 million
loss contingency and a $625 thousand impairment of low income housing limited partnership investments due to enactment of the
Tax Cuts and Jobs Act of 2017. The loss contingency represents the Company’s estimated refunds to customers of revenue
recognized in prior years. Outsourced data processing services expense increased $530 thousand primarily due to additional
processing services. Expenses for occupancy and equipment increased $413 thousand due to technology upgrades. Other
noninterest expense decreased $3.1 million primarily due to decreases in correspondent bank service charges and insurance
premiums. Professional fees decreased $1.8 million due to lower legal fees associated with nonperforming assets. Amortization of
intangibles decreased $427 thousand as assets are amortized on a declining balance method.
In 2016, noninterest expense decreased $3.5 million or 3.4% compared with 2015. Salaries and related benefits decreased $685
thousand primarily due to employee attrition, offset in part by higher expenses for stock based compensation. Occupancy and
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equipment expense decreased $377 thousand in 2016 compared with 2015 mostly due to branch closures and a lease expiration
related to a non-branch building, partially offset by higher depreciation costs for technology. Courier expense decreased $377
thousand primarily due to logistical changes and switching to new vendors. Amortization of identifiable intangibles decreased
$352 thousand as assets are amortized on a declining balance method. Other operating expense decreased $3.3 million primarily
due to lower expenses for correspondent service charges, insurance premiums, operating losses on limited partnership investments
and higher net gains on foreclosed properties. Professional fees increased $1.5 million due to higher legal fees associated with
loan administration and collection activities.
Provision for Income Tax
The income tax provision (FTE) was $49.3 million in 2017 compared with $34.2 million in 2016 and $32.1 million in 2015. The
2017 income tax provision (FTE) included a $12.3 million charge to re-measure the Company’s net deferred tax asset triggered
by enactment of the Tax Cuts and Jobs Act of 2017. Effective January 1, 2017, the Company adopted ASU 2016-09 which has the
potential to create volatility in the book tax provision at the time nonqualified stock options are exercised or expire. During 2017,
509 thousand shares were issued due to the exercise of nonqualified stock options resulting in a tax deduction exceeding related
share based compensation by $1.7 million. The 2017 income tax provision was $698 thousand lower than it would have been
under accounting standards prior to the adoption of ASU 2016-09. The 2017 effective tax rate (FTE) was 49.6% compared with
36.8% in 2016 and 35.3% in 2015. The effective tax rates without FTE adjustments were 42.6% for 2017, 26.4% for 2016 and
23.4% for 2015. The effective tax rates for 2017 were higher than the effective tax rates for 2016 due to the 2017 $12.3 million
charge to re-measure the Company’s net deferred tax asset, higher pre-tax income, and declining tax preference items. The
effective tax rates for 2016 were higher than the effective tax rates for 2015 due to higher pre-tax income and declining tax
preference items. Interest income earned on municipal securities and loans which are exempt from federal income taxes and the
tax credits earned from investments in limited partnerships have each declined in 2017 and 2016.
Investment Securities Portfolio
The Company maintains an investment securities portfolio consisting of securities issued by U.S. Government sponsored entities,
agency and non-agency mortgage backed securities, state and political subdivisions, corporations, and other securities.
Management has increased the investment securities portfolio in response to deposit growth and loan volume declines. The
carrying value of the Company’s investment securities portfolio was $3.4 billion as of December 31, 2017 and $3.2 billion as of
December 31, 2016.
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 and change the composition of the Company’s investment securities portfolio. In 2016 Management
reduced securities of U.S. Government sponsored entities to reduce call optionality and increased agency residential MBS to
develop more reliable cash flows. In 2017 corporate securities increased in order to improve yields without extending the duration
of the bond portfolio.
As of December 31, 2017, 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. There have been no significant differences in our internal analyses compared with the
ratings assigned by the third party credit rating agencies.
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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
Securities of U.S. Government sponsored entities
Agency residential mortgage-backed securities (MBS)
Non-agency residential MBS
Agency commercial MBS
Securities of U.S. Government entities
Obligations of states and political subdivisions
Asset-backed securities
FHLMC(1) and FNMA(2) stock
Corporate securities
Other securities
Total
(1) Federal Home Loan Mortgage Corporation
(2) Federal National Mortgage Association
2017
$119,319
767,706
154
2,219
1,590
185,221
-
At December 31,
2016
(In thousands)
$138,660
691,499
271
-
2,025
183,411
695
2015
$301,882
202,544
370
-
2,379
157,509
2,003
-
1,115,498
1,800
$2,193,507
10,869
860,857
2,471
$1,890,758
4,329
896,369
2,831
$1,570,216
The following table sets forth the relative maturities and contractual yields of the Company’s available for sale securities (stated
at fair value) at December 31, 2017. Yields on state and political subdivision securities have been calculated on a fully taxable
equivalent basis using the current federal statutory rate. Mortgage-backed securities are shown separately because they are
typically paid in monthly installments over a number of years.
Available for Sale Portfolio Maturity Distribution
Within one year
After one but
within five
years
After five but
within ten
years
After ten years
($ in thousands)
At December 31, 2017
Securities of U.S. Government sponsored entities
Interest rate
Securities of U.S. Government entities
Interest rate
Obligations of states and political subdivisions
Interest rate
Corporate securities
Interest rate
Subtotal
Interest rate
MBS
Interest rate
Other securities without set maturities
Interest rate
Total
Interest rate
$80
5.84%
124
2.15%
11,256
3.04%
181,925
1.86%
193,385
1.93%
-
- %
-
- %
$193,385
1.93%
$66,635
1.90%
-
- %
27,948
5.23%
928,464
2.32%
1,023,047
2.37%
-
- %
-
- %
$1,023,047
2.37%
$52,604
1.97%
1,466
2.67%
100,863
5.51%
5,109
2.73%
160,042
4.23%
-
- %
-
- %
$160,042
4.23%
$ -
- %
-
- %
45,154
3.49%
-
- %
45,154
3.49%
-
- %
-
- %
$45,154
3.49%
Mortgage-
backed
$ -
- %
-
- %
-
- %
-
- %
-
- %
770,079
2.05%
-
- %
$770,079
2.05%
Other
Total
$ -
- %
-
- %
-
- %
-
- %
-
- %
-
- %
1,800
2.39%
$1,800
2.39%
$119,319
1.94%
1,590
2.63%
185,221
4.56%
1,115,498
2.24%
1,421,628
2.52%
770,079
2.05%
1,800
2.39%
$2,193,507
2.35%
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The following table shows the amortized cost carrying amount and fair value of the Company’s investment securities held to
maturity as of the dates indicated:
Held to Maturity Portfolio
Securities of U.S. Government sponsored entities
Agency residential MBS
Non-agency residential MBS
Agency commercial MBS
Obligations of states and political subdivisions
Total
Fair value
2017
$ -
545,883
4,462
9,041
599,478
$1,158,864
$1,155,342
At December 31,
2016
(In thousands)
$581
668,235
5,370
9,332
662,794
$1,346,312
$1,340,741
2015
$764
595,503
9,667
16,258
693,883
$1,316,075
$1,325,699
The following table sets forth the relative maturities and contractual yields of the Company’s held to maturity securities at
December 31, 2017. Yields on state and political subdivision securities have been calculated on a fully taxable equivalent basis
using the current federal statutory rate. Mortgage-backed securities are shown separately because they are typically paid in
monthly installments over a number of years.
Held to Maturity Portfolio Maturity Distribution
Obligations of states and political subdivisions
Interest rate
MBS
Interest rate
Total
Interest rate
Within one year
After one but
within five
years
After five but
within ten
years
After ten years
Mortgage-
backed
At December 31, 2017
($ in thousands)
$50,295
2.99%
-
- %
$50,295
2.99%
$269,050
2.95%
-
- %
$269,050
2.95%
$277,170
4.38%
-
- %
$277,170
4.38%
$2,963
4.23%
-
- %
$2,963
4.23%
$ -
- %
559,386
2.03%
$559,386
2.03%
Total
$599,478
3.54%
559,386
2.03%
$1,158,864
2.81%
The following table summarizes total corporate securities by the industry sector in which the issuing companies operate:
2
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At December 31,
2017
2016
As percent of
total corporate
securities
Market value
As percent of
total corporate
securities
($ in thousands)
3%
5%
1%
12%
47%
12%
6%
14%
100%
$14,083
40,744
44,491
56,543
583,658
39,455
41,251
40,632
$860,857
2%
5%
5%
6%
68%
4%
5%
5%
100%
Market value
$35,219
50,763
12,592
133,476
525,932
129,989
71,708
155,819
$1,115,498
Basic materials
Communications
Consumer, cyclical
Consumer, non-cyclical
Financial
Industrial
Technology
Utilities
Total corporate securities
During the third quarter 2017, the Atlantic hurricane season caused severe damage within many US States and Territories.
Management has evaluated investment security exposures within the counties receiving disaster designations. The Company’s
exposures are limited to municipal and corporate bond investment securities from issuers within Texas, Florida and Georgia
counties. The Company holds municipal bonds of $19 million issued by 17 municipalities within Texas counties, $8 million
issued by eight municipalities within Florida counties and $6 million issued by four municipalities within Georgia counties. The
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market value of the bonds at December 31, 2017 was $20 million, $9 million and $7 million, respectively. The bonds mature as
follows:
2018
2019
2020
Texas
Florida
Georgia
$280
1,000
-
$1,280
$4,285
2,185
-
$6,470
$3,220
-
-
$3,220
2021
and
2022
$ -
-
-
$ -
2023
2024
2025
2026
2027
Total
(In thousands)
$4,460
1,755
-
$6,215
$710
600
-
$1,310
$4,435
340
1,325
$6,100
$1,625
635
4,880
$7,140
$350
1,405
-
$1,755
$19,365
7,920
6,205
$33,490
In Management’s judgment, each municipality’s financial resources and the availability of federal and state disaster funds
mitigate the risk exposure of the bonds, particularly for intermediate-term and longer-term bonds.
In addition, the Company holds one $12.0 million (market value) corporate bond maturing in 2021 issued by a regulated utility in
a Texas county which can recapture capital expenditures through rates charged customers; the market value of this corporate bond
at December 31, 2017 was 119.0% of its par value, which reflects the bond’s 9.15% coupon rate.
Based on currently available information, Management does not expect any of the bonds affected by the hurricanes to become
impaired; Management will continue to monitor the value of these bonds for impairment.
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, 2017, the Company’s investment securities portfolios included securities issued by 647 state and local
government municipalities and agencies located within 44 states. None of the Company’s investment securities were issued by
Puerto Rican government entities. The largest exposure to any one municipality or agency was $10.0 million (fair value)
represented by nine general obligation bonds.
Obligations of states and political subdivisions:
General obligation bonds:
California
Texas
New Jersey
Minnesota
Other (36 states)
Total general obligation bonds
Revenue bonds:
California
Kentucky
Iowa
Colorado
Washington
Indiana
Other (29 states)
Total revenue bonds
Total obligations of states and political subdivisions
At December 31, 2017
Amortized
Cost
Fair
Value
(In thousands)
$104,330
66,636
39,387
30,485
292,102
$532,940
$38,838
21,731
17,304
14,956
13,506
12,914
130,196
$249,445
$782,385
$106,311
66,699
39,612
30,707
294,779
$538,108
$39,660
21,958
17,287
15,086
13,963
13,054
131,301
$252,309
$790,417
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At December 31, 2016, the Company’s investment securities portfolios included securities issued by 698 state and local
government municipalities and agencies located within 44 states. None of the Company’s investment securities were issued by
Puerto Rican government entities. The largest exposure to any one municipality or agency was $10.0 million (fair value)
represented by nine general obligation bonds.
Obligations of states and political subdivisions:
General obligation bonds:
California
Texas
New Jersey
Pennsylvania
Minnesota
Other (36 states)
Total general obligation bonds
Revenue bonds:
California
Kentucky
Pennsylvania
Iowa
Colorado
Other (30 states)
Total revenue bonds
Total obligations of states and political subdivisions
At December 31, 2016
Amortized
Cost
Fair
Value
(In thousands)
$105,129
69,017
40,111
37,384
32,946
280,488
$565,075
$47,415
22,854
18,568
18,086
15,574
157,452
$279,949
$845,024
$106,391
68,671
40,102
37,543
32,847
279,571
$565,125
$48,429
22,902
18,683
18,302
15,674
159,054
$283,044
$848,169
At December 31, 2017 and 2016, 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 at
December 31, 2017 and 23 revenue sources at December 31, 2016. The revenue sources that represent 5% or more individually of
the total revenue bonds are summarized in the following tables.
Revenue bonds by revenue source:
Water
Sewer
Sales tax
Lease (renewal)
College & University
Other (17 sources)
Total revenue bonds by revenue source
At December 31, 2017
Amortized
Cost
Fair
Value
(In thousands)
$50,737
30,427
30,233
20,007
17,230
100,811
$249,445
$51,854
31,030
30,777
20,235
17,087
101,326
$252,309
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Revenue bonds by revenue source:
Water
Sewer
Sales tax
Lease (renewal)
College & University
Other (18 sources)
Total revenue bonds by revenue source
At December 31, 2016
Amortized
Cost
Fair
Value
(In thousands)
$55,401
37,996
31,146
24,242
17,856
113,308
$279,949
$56,826
38,497
31,835
24,235
17,762
113,889
$283,044
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 and borrower financial information including cash flow,
borrower net worth and aggregate debt.
Commercial real estate loans represent term loans used to acquire or refinance 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. A first lien on the real estate serves as collateral to secure the loan.
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.
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 two 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 payoffs and problem loan workout activities, particularly with purchased loans, and reduced volumes of loan
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originations. The Company did not take an aggressive posture relative to loan portfolio growth during the post-recession period of
historically low interest rates. Management increased investment securities as loan volumes declined.
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
2017
2016
2014
2013
At December 31,
2015
(In thousands)
$382,748
637,456
3,951
120,091
389,150
$335,996
568,584
5,649
65,183
312,570
$364,159
799,019
13,896
185,057
465,613
$1,287,982 $1,352,711 $1,533,396 $1,700,290 $1,827,744
$391,815
718,604
13,872
149,827
426,172
$354,697
542,171
2,555
87,724
365,564
The following table shows the maturity distribution and interest rate sensitivity of commercial, commercial real estate, and
construction loans at December 31, 2017. Balances exclude residential real estate loans and consumer loans totaling $377.8
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, 2017
After Five
Years
One to Five
Years
(In thousands)
$151,661
5,649
$157,310
$49,271
108,039
$157,310
$195,110
-
$195,110
$85,095
110,015
$195,110
$557,809
-
$557,809
$61,134
496,675
$557,809
Total
$904,580
5,649
$910,229
$195,500
714,729
$910,229
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.
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.
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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 maintained by assessing or reversing a provision
for loan losses through 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 audit committee of the Board of Directors.
The Loan Review Department performs independent evaluations of loans to challenge the credit risk grades assigned by
Management 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”).
Nonperforming Assets
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
2017
2016
At December 31,
2015
(In thousands)
2014
2013
$1,641
4,285
5,926
531
6,457
1,426
$7,883
$3,956
4,429
8,385
497
8,882
3,095
$11,977
$14,648
350
14,998
295
15,293
9,264
$24,557
$17,494
110
17,604
502
18,106
6,374
$24,480
$19,893
1,409
21,302
410
21,712
13,320
$35,032
Nonperforming assets have declined during 2016 and 2017 due to payoffs, chargeoffs and sale of Other Real Estate Owned. At
December 31, 2017, one loan secured by commercial real estate with a balance of $4.3 million was on nonaccrual status. The
remaining five nonaccrual loans held at December 31, 2017 had an average carrying value of $328 thousand and the largest
carrying value was $1.0 million.
Management believes the overall credit quality of the loan portfolio is reasonably stable; however, classified and nonperforming
assets could fluctuate from period to period. The performance of any individual loan can be affected by external factors such as
the interest rate environment, economic conditions, and collateral values or factors particular to the borrower. No assurance can
be given that additional increases in nonaccrual and delinquent loans will not occur in the future.
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Allowance for Credit Losses
The Company’s allowance for loan losses represents Management’s estimate of loan losses inherent in the loan portfolio. In
evaluating credit risk for loans, Management measures loss potential of the carrying value of loans. As described above, payments
received on nonaccrual loans may be applied against the principal balance of the loans until such time as full collection of the
remaining recorded balance is expected.
The following table summarizes the allowance for loan losses, chargeoffs and recoveries for the periods indicated:
Analysis of the Allowance for Loan Losses
Balance, beginning of period
Provision for loan losses
Loans charged off:
Commercial
Commercial real estate
Construction
Residential real estate
Consumer and other installment
Total chargeoffs
Recoveries of loans previously charged off:
Commercial
Commercial real estate
Construction
Consumer and other installment
Total recoveries
Net loan losses
Balance, end of period
2017
2016
For the Years Ended December 31,
2015
($ in thousands)
2014
2013
$25,954
(1,900)
(961)
-
-
-
(4,957)
(5,918)
762
88
1,899
2,124
4,873
(1,045)
$23,009
$29,771
(3,200)
(2,023)
-
-
-
(4,749)
(6,772)
4,028
554
-
1,573
6,155
(617)
$25,954
$31,485
-
(756)
(449)
(431)
-
(3,493)
(5,129)
1,174
290
45
1,906
3,415
(1,714)
$29,771
$31,693
2,800
(2,152)
(1,022)
-
(30)
(4,214)
(7,418)
2,275
213
53
1,869
4,410
(3,008)
$31,485
$30,234
8,000
(4,472)
(1,816)
(237)
(109)
(4,097)
(10,731)
1,765
273
-
2,152
4,190
(6,541)
$31,693
Net loan losses as a percentage of average loans
0.08%
0.04%
0.11%
0.17%
0.33%
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, 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 for impairment all loans with outstanding principal balances in excess of $500 thousand which are classified
or on nonaccrual status and all “troubled debt restructured” loans. 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 a loss emergence period. Liquidating purchased consumer installment loans are evaluated
separately by applying historical loss rates to forecasted liquidating principal balances to measure losses inherent in this portfolio
segment. The loss rates are applied to segmented loan balances to allocate the allowance to the segments of the loan portfolio.
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, 2017 is economic and business conditions $0.5 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 $1.1 million, adequacy of lending Management and staff $0.5 million
and concentrations of credit $1.3 million.
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The following table presents the allocation of the allowance for loan losses as of December 31 for the years indicated:
2017
2016
At December 31,
2015
2014
2013
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
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
Unallocated portion
Total
$7,746
3,849
335
995
6,418
3,666
$23,009
26%
44%
1%
5%
24%
- %
100%
$8,327
3,330
152
1,330
7,980
4,835
$25,954
26%
40%
- %
7%
27%
- %
100%
($ in thousands)
$9,559
4,212
235
1,801
8,001
5,963
$29,771
25%
42%
- %
8%
25%
- %
100%
$5,460
4,245
654
2,241
9,827
9,058
$31,485
23%
42%
1%
9%
25%
- %
100%
$4,005
12,223
617
405
4,591
9,852
$31,693
20%
44%
1%
10%
25%
- %
100%
The 2017 decline in the allowance for loan losses was due to declines in classified loans, delinquent loans, and the overall loan
portfolio. The increase in the allocation of the allowance for loan losses to commercial real estate and construction loans is due to
increased loan volumes outstanding. The decline in the unallocated portion was due to improved economic conditions within the
Company’s geographic markets.
Allowance for Loan Losses
For the Year Ended December 31, 2017
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment
and Other
Unallocated
Total
$8,327
$3,330
$152
$1,330
$7,980
$4,835
$25,954
(382)
431
(1,716)
(335)
1,271
(1,169)
(1,900)
(961)
762
(199)
$7,746
-
88
88
$3,849
-
1,899
1,899
$335
-
-
-
$995
(4,957)
2,124
(2,833)
$6,418
-
-
-
$3,666
(5,918)
4,873
(1,045)
$23,009
Allowance for loan losses:
Balance at beginning of period
Additions:
(Reversal) provision
Deductions:
Chargeoffs
Recoveries
Net loan (losses) recoveries
Total allowance for loan losses
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
Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
At December 31, 2017
Commercial
Commercial
Real Estate
Construction
Consumer
Installment and
Other
Residential
Real Estate
(In thousands)
Unallocated
Total
$4,814
2,932
-
$7,746
$10,675
325,291
30
$335,996
$171
3,678
-
$3,849
$14,234
553,769
581
$568,584
$-
335
-
$335
$-
5,649
-
$5,649
$-
995
-
$995
$208
64,975
-
$65,183
$-
6,418
-
$6,418
$-
312,406
164
$312,570
$-
3,666
-
$3,666
$4,985
18,024
-
$23,009
$-
-
-
$-
$25,117
1,262,090
775
$1,287,982
Management considers the $23.0 million allowance for loan losses to be adequate as a reserve against loan losses inherent in the
loan portfolio as of December 31, 2017.
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.
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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
United States government and its agencies, particularly the Federal Open Market Committee (the “FOMC”). The monetary
policies of the FOMC 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.
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, 2018 assumes market interest rates will gradually rise, with
short-term rates rising more than long-term rates.
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, 2017, 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 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
affects 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 and potentially adding volatility to the book tax provision.
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Finally, the amount of compensation expense associated with share based compensation fluctuates with changes in and the
volatility of the Company's common stock price.
Market Risk - Other
Market values of loan collateral can directly impact the level of loan 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 securities portfolio requiring the Company to recognize other than
temporary impairment charges. Other types of market risk, such as foreign currency exchange 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 98 percent of funding for average total assets in
2017 and in 2016. 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 $3.4
billion in total investment securities at December 31, 2017. Under certain deposit, borrowing and other arrangements, the
Company must hold and pledge investment securities as collateral. At December 31, 2017, such collateral requirements totaled
approximately $716 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 continually monitors the Company’s cash levels. 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, liquidity management and a variety of other conditions, deposit growth may be used
to fund loans 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. The Parent Company currently has no debt.
Substantially all of the Parent Company's revenues are obtained from subsidiary dividends and service fees.
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The Bank’s dividends paid to the Parent Company, proceeds from the exercise of stock options, and Parent Company cash
balances provided adequate cash for the Parent Company to pay shareholder dividends of $41 million in 2017, $40 million in
2016 and $39 million in 2015, and retire common stock in the amount of $314 thousand in 2017, $6 million in 2016 and $15
million in 2015. 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 deposits, short-term borrowing arrangements and post-
retirement benefit plans, of the Company:
Within One
Year
Over One to
Three Years
At December 31, 2017
Over Three
to Five
Years
(In thousands)
After Five
Years
Operating Lease Obligations
Purchase Obligations
Total
$6,481
8,138
$14,619
$8,025
16,652
$24,677
$2,194
8,518
$10,712
$825
-
$825
Total
$17,525
33,308
$50,833
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.
Capital Resources
The Company has historically generated high levels of earnings, which provide a means of accumulating capital. The Company's
net income as a percentage of average shareholders' equity (“return on equity” or “ROE”) has been 8.4% in 2017, 10.9% in 2016
and 11.3% in 2015. The Company also raises capital as employees exercise stock options. Capital raised through the exercise of
stock options was $25 million in 2017, $24 million in 2016 and $5 million in 2015.
The Company paid common dividends totaling $41 million in 2017, $40 million in 2016 and $39 million in 2015, which represent
dividends per common share of $1.57, $1.56 and $1.53, 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 6 thousand shares valued at $314 thousand in 2017, 137 thousand shares valued at $6 million in 2016 and 344 thousand
shares valued at $15 million in 2015.
The Company's primary capital resource is shareholders' equity, which was $590 million at December 31, 2017 compared with
$561 million at December 31, 2016. The Company's ratio of equity to total assets was 10.71% at December 31, 2017 and 10.46%
at December 31, 2016.
The Company performs capital stress tests on a periodic basis to evaluate the sustainability of its capital. Under the stress testing,
the Company assumes various scenarios such as deteriorating economic and operating conditions, unanticipated asset
devaluations, and significant operational lapses. The Company measures the impact of these scenarios on its earnings and capital.
Based on the results of the most recent stress tests, Management is satisfied with the capital condition of the Bank and the
Company. However, no assurance can be given the Bank or Company will not experience a period of reduced earnings or a
reduction in capital from unanticipated events and circumstances.
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Capital to Risk-Adjusted Assets
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 is subject to the “advanced
approaches rule” and both 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 began on January 1, 2016 and will 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 “common equity tier 1” ratio.
The capital ratios for the Company and the Bank under the new capital framework are presented in the tables below, on the dates
indicated.
At December 31, 2017
Company
Bank
Effective
January 1, 2017
Effective
January 1, 2019
Required for
Capital Adequacy Purposes
To Be
Well-capitalized
Under Prompt
Corrective Action
Regulations (Bank)
Common Equity Tier I Capital
Tier I Capital
Total Capital
Leverage Ratio
(1) Includes 1.25% capital conservation buffer.
(2) Includes 2.5% capital conservation buffer.
15.36%
15.36%
16.17%
8.86%
12.50%
12.50%
13.52%
7.16%
5.75%(1)
7.25%(1)
9.25%(1)
4.00%
7.00%(2)
8.50%(2)
10.50%(2)
4.00%
6.50%
8.00%
10.00%
5.00%
At December 31, 2016
Company
Bank
Effective
January 1, 2016
Effective
January 1, 2019
Required for
Capital Adequacy Purposes
To Be
Well-capitalized
Under Prompt
Corrective Action
Regulations (Bank)
Common Equity Tier I Capital
Tier I Capital
Total Capital
Leverage Ratio
(3) Includes 0.625% capital conservation buffer.
(4) Includes 2.5% capital conservation buffer.
14.85%
14.85%
15.95%
8.46%
11.70%
11.70%
13.02%
6.63%
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5.125%(3)
6.625%(3)
8.625%(3)
4.000%
7.00%(4)
8.50%(4)
10.50%(4)
4.00%
6.50%
8.00%
10.00%
5.00%
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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.
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
2017
Percentage of
Total
Deposits
Average
Balance
Rate
For the Years Ended December 31,
2016
Percentage of
Total
Deposits
($ In thousands)
Average
Balance
Rate
2015
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)
$2,095,522
44.4%
- %
$2,026,939
44.1%
- %
$1,968,817
44.4%
- %
888,116
1,492,725
136,324
109,563
18.8%
31.6%
2.9%
2.3%
$4,722,250
100.0%
0.03%
0.02%
0.17%
0.38%
0.07%
862,581
1,428,059
154,022
118,750
18.8%
31.1%
3.4%
2.6%
$4,590,351
100.0%
0.03%
0.06%
0.26%
0.43%
0.08%
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%
(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 2015 to 2017 higher costing time deposits declined from 7% to 5% of
total deposits. The Company’s average balances of checking and savings accounts represented 95% of average balances of total
deposits in 2017 compared with 94% in 2016 and 93% in 2015.
Total time deposits were $232 million and $256 million at December 31, 2017 and 2016, 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
2018
2019
2020
2021
2022
Thereafter
Total
At December 31, 2017
(In thousands)
$179,421
23,096
11,990
11,329
5,979
3
$231,818
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The following sets forth, by time remaining to maturity, the Company’s domestic time deposits in amounts of $100 thousand or
more:
Time Deposits $100,000 or more Maturity Distribution
Three months or less
Over three through six months
Over six through twelve months
Over twelve months
Total
Short-term Borrowings
At December 31, 2017
(In thousands)
$41,560
21,336
25,415
25,659
$113,970
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:
2017
$58,471
$58,471
At December 31,
2016
(In thousands)
$59,078
$59,078
2015
$53,028
$53,028
2017
For the Years Ended December 31,
2016
($ in thousands)
2015
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
$5
-
1.53%
- %
$5
-
0.77%
- %
$69,666
82,126
0.06%
0.06%
$61,271
74,815
0.06%
0.06%
$ -
-
- %
- %
$ -
-
- %
- %
$8
-
0.48%
- %
$75,046
89,484
0.07%
0.06%
$494
-
0.20%
- %
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Financial Ratios
The following table shows key financial ratios for the periods indicated:
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
Common dividend payout ratio
At and For the Years Ended December 31,
2016
1.12%
10.85%
2017
0.92%
8.39%
2015
1.16%
11.32%
10.96%
45.34%
12.63%
83%
10.34%
38.08%
11.81%
68%
10.21%
32.08%
11.70%
67%
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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, 2017 and 2016 ............................................................................
Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015 .................................
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015 .......
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2017, 2016
and 2015..................................................................................................................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 ..........................
Notes to the Consolidated Financial Statements .......................................................................................................
Report of Independent Registered Public Accounting Firm .....................................................................................
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89
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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, 2017. 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, 2017 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, 2017 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 89.
Dated: February 27, 2018
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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:
$1,155,342 at December 31, 2017 and $1,340,741 at December 31, 2016
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
Other liabilities
Total Liabilities
Contingencies (Note 13)
Shareholders' Equity:
Common stock (no par value), authorized - 150,000 shares
Issued and outstanding: 26,425 at December 31, 2017 and 25,907 at December 31, 2016
Deferred compensation
Accumulated other comprehensive loss
Retained earnings
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
See accompanying notes to consolidated financial statements.
At December 31,
2017
2016
(In thousands)
$575,002
2,193,507
1,158,864
1,287,982
(23,009)
1,264,973
1,426
35,301
3,850
121,673
158,450
$5,513,046
$2,197,526
2,630,087
4,827,613
58,471
36,723
4,922,807
$462,271
1,890,758
1,346,312
1,352,711
(25,954)
1,326,757
3,095
36,566
6,927
121,673
171,724
$5,366,083
$2,089,443
2,615,298
4,704,741
59,078
40,897
4,804,716
431,734
1,533
(16,832)
173,804
590,239
$5,513,046
404,606
1,533
(10,074)
165,302
561,367
$5,366,083
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WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Interest and Loan Fee Income:
Loans
Investment securities available for sale
Investment securities held to maturity
Total Interest and Loan Fee Income
Interest Expense:
Deposits
Short-term borrowed funds
Federal Home Loan Bank advances
Total Interest Expense
Net Interest and Loan Fee Income
Reversal of Provision for Loan Losses
Net Interest and Loan Fee Income After Reversal of Provision For Loan Losses
Noninterest Income:
Service charges on deposit accounts
Merchant processing services
Securities gains
Debit card fees
Trust fees
ATM processing fees
Other service fees
Financial services commissions
Other noninterest income
Total Noninterest Income
Noninterest Expense:
Salaries and related benefits
Occupancy and equipment
Outsourced data processing services
Loss contingency
Amortization of identifiable intangibles
Professional fees
Courier service
Impairment of tax credit investments
Other noninterest expense
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.
For the Years Ended December 31,
2017
2015
2016
(In thousands, except per share data)
$61,740
44,664
27,432
133,836
1,856
44
-
1,900
131,936
(1,900)
133,836
19,612
8,426
7,955
6,421
2,875
2,610
2,584
639
5,506
56,628
51,519
19,430
9,035
5,542
3,077
2,161
1,732
625
10,171
103,292
87,172
37,147
$50,025
26,291
26,419
$1.90
1.89
1.57
$69,139
34,276
30,636
134,051
2,077
39
-
2,116
131,935
(3,200)
135,135
20,854
6,377
-
6,290
2,686
2,411
2,571
568
4,817
46,574
51,507
19,017
8,505
3
3,504
3,980
1,952
-
13,284
101,752
79,957
21,104
$58,853
25,612
25,678
$2.30
2.29
1.56
$78,441
31,263
26,825
136,529
2,370
53
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2,424
134,105
-
134,105
22,241
6,339
-
6,084
2,732
2,397
2,689
695
4,690
47,867
52,192
19,394
8,441
-
3,856
2,490
2,329
-
16,598
105,300
76,672
17,919
$58,753
25,555
25,577
$2.30
2.30
1.53
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WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2017
For the Years Ended December 31,
2016
(In thousands)
$58,853
$50,025
2015
$58,753
(3,767)
1,585
(7,955)
3,345
(6,792)
59
(25)
34
(6,758)
$43,267
(18,610)
7,825
-
-
(10,785)
61
(25)
36
(10,749)
$48,104
(8,028)
3,375
-
-
(4,653)
61
(25)
36
(4,617)
$54,136
Net Income
Other comprehensive loss:
Changes in net unrealized gains on securities available for sale
Deferred tax benefit
Reclassification of gains included in net income
Deferred tax expense on gains included in net income
Changes in unrealized gains and losses 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
Total Comprehensive Income
See accompanying notes to consolidated financial statements.
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$526,603
58,753
(4,617)
4,848
(1,284)
741
1,272
105
(15,092)
(39,124)
532,205
58,853
(10,749)
24,031
394
753
1,494
90
(5,780)
(39,924)
561,367
50,025
(6,758)
24,583
707
1,824
104
(314)
(41,299)
$590,239
(10,003)
(39,124)
150,094
58,853
(3,721)
(39,924)
165,302
50,025
(224)
(41,299)
$173,804
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Common
Shares
Outstanding
Common
Stock
Deferred
Compensation
Accumulated
Other
Comprehensive
Income (Loss)
(In thousands)
Retained
Earnings
Total
$5,292
(4,617)
$140,468
58,753
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 exercise and
expiration of stock options
Restricted stock activity
Stock based compensation
Stock awarded to employees
Retirement of common stock
Dividends
108
4,848
17
2
(344)
(1,284)
874
1,272
105
(5,089)
(133)
Balance, December 31, 2015
25,528
378,858
2,578
675
Net income for the year 2016
Other comprehensive loss
Exercise of stock options
Tax benefit increase upon exercise and
expiration of stock options
Restricted stock activity
Stock based compensation
Stock awarded to employees
Retirement of common stock
Dividends
(10,749)
(1,045)
499
24,031
15
2
(137)
394
1,798
1,494
90
(2,059)
Balance, December 31, 2016
25,907
404,606
1,533
(10,074)
Net income for the year 2017
Other comprehensive loss
Exercise of stock options
Restricted stock activity
Stock based compensation
Stock awarded to employees
Retirement of common stock
Dividends
509
13
2
(6)
24,583
707
1,824
104
(90)
(6,758)
Balance, December 31, 2017
26,425
$431,734
$1,533
($16,832)
See accompanying notes to consolidated financial statements.
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2017
For the Years Ended December 31,
2016
(In thousands)
$58,853
$50,025
2015
$58,753
26,082
(1,900)
(46)
(2,068)
(842)
27,018
(890)
1,824
-
(6,650)
(31)
(3,016)
(1,004)
(7,955)
60
147
80,754
66,065
(63)
(635,814)
319,324
-
178,429
(2,720)
-
1,521
(73,258)
122,872
(607)
24,583
-
-
(314)
(41,299)
105,235
112,731
462,271
$575,002
19,939
(3,200)
(340)
(1,316)
(828)
4,380
(2,493)
1,494
(394)
(40)
(52)
2,026
-
-
30
(422)
77,637
183,506
(127)
(1,080,959)
737,625
(246,956)
204,054
(1,818)
-
7,412
(197,263)
164,082
6,050
24,031
(356)
394
(5,424)
(39,924)
148,853
29,227
433,044
$462,271
16,402
-
(310)
(780)
(782)
830
(1,046)
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
(357)
(1,284)
(14,735)
(39,124)
84,068
52,208
380,836
$433,044
$ -
-
1,931
17,351
$821
-
2,202
19,264
$4,911
2,885
2,533
17,666
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WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization/accretion
(Reversal of) provision for loan losses
Net amortization of deferred loan fees
Increase in interest income receivable
Life insurance premiums paid
Decrease in net deferred tax asset
Increase in other assets
Stock option compensation expense
Tax benefit (increase) decrease upon exercise and expiration of stock options
(Decrease) increase in income taxes payable
Decrease in interest expense payable
(Decrease) increase in other liabilities
Gain on sale of other assets
Gain on sale of securities
Write-down/net loss on sale of premises and equipment
Net loss/write-down (gain) on sale of foreclosed assets
Net Cash Provided by Operating Activities
Investing Activities:
Net repayments of loans
Change in payable to FDIC(1)
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 FHLB(2) securities
Proceeds from sale of foreclosed assets
Net Cash Used in Investing Activities
Financing Activities:
Net change in deposits
Net change in short-term borrowings and FHLB(2) advances
Exercise of stock options/issuance of shares
Taxes paid by withholding shares for tax purposes
Tax benefit increase (decrease) upon expiration/exercise of stock options
Retirement of common stock
Common stock dividends paid
Net Cash Provided by 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 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 wholly-owned 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. All of the financial service operations are
considered by management to be aggregated in one reportable operating segment.
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 2018 actual conditions could be worse than anticipated in those estimates, which could materially affect our results of
operations and financial conditions.
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 includes 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 accumulated 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 cost basis. 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 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 primarily 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.
Life Insurance Cash Surrender Value. The Company has purchased life insurance policies on certain directors and officers as well
as acquired such assets as part of the acquisition of other banks. Company owned life insurance is recorded at the amount that can
be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other
amounts due that are probable at settlement. These assets are included in other assets on the consolidated balance sheets.
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 impairment exists.
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Impairment of Long-Lived Assets. The Company reviews its long-lived and certain intangible assets for impairment whenever
events or changes indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Income Taxes. The Company and its subsidiaries file consolidated tax returns. The Company accounts for income taxes in
accordance with FASB ASC 740, Income Taxes, resulting in two components of income tax expense: current and deferred.
Current income tax expense approximates taxes to be paid or refunded for the current period. The Company determines deferred
income taxes using the balance sheet method. Under this method, the net deferred tax asset or liability is based on the tax effects
of the differences between the book and tax bases of assets and liabilities, and recognizes enacted changes in tax rates and laws in
the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between
periods. Deferred tax assets are recognized subject to Management’s judgment that realization is more likely than not. A tax
position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize.
The tax position is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon
settlement. Interest and penalties are recognized as a component of income tax expense.
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.
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Recently Adopted Accounting Standards
In 2017, the Company adopted the following new accounting guidance:
FASB Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, was issued
March 30, 2016. The provisions of the new standard changed several aspects of the accounting for share-based payment award
transactions, including: (1) Accounting and Cash Flow Classification for Excess Tax Benefits, (2) Forfeitures, and (3) Tax
Withholding Requirements and Cash Flow Classification. The Company adopted the ASU provisions effective January 1, 2017,
which has the potential to create volatility in the book tax provision at the time nonqualified stock options are exercised or expire.
During 2017, 509 thousand shares were issued due to the exercise of nonqualified stock options resulting in a tax deduction
exceeding related share based compensation by $1,667 thousand. The 2017 income tax provision was $698 thousand lower than it
would have been under accounting standards prior to the adoption of ASU 2016-09. The Company elected to account for
forfeitures as they occur.
Recently Issued Accounting Standards
FASB ASU 2014-09, Revenue (Topic 606): Revenue from Contracts with Customers, was issued May 2014. The ASU specifies a
standardized approach for revenue recognition across industries and transactions. The ASU also requires additional disclosures.
The scope of the ASU does not include revenue streams covered by other ASU topics; thus, Topic 606 does not apply to revenue
related to financial instruments, guarantees and leases, such as the Company’s net interest income.
Approximately 73% of our revenue, including all of our net interest income and a portion of our noninterest income, is out of
scope of the guidance. The contracts that are in scope of the guidance are primarily related to service charges and fees on deposit
accounts, merchant processing fees, trust fees and other service charges, commissions and fees. We have completed analyzing the
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individual contracts in scope and determined our revenue recognition will not change in any material regard upon adoption of the
ASU. The Company adopted the ASU on January 1, 2018.
FASB 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 was required to adopt the ASU provisions on January 1, 2018, and for those equity securities with readily
determinable fair values, the Company elected the retrospective transition approach with a cumulative effect adjustment to the
balance sheet and for those equity securities that do not have readily determinable fair values, the Company elected the
prospective transition approach. The impact of the adoption of this accounting standard on the Company’s consolidated financial
statements will be subject to the price volatility of the equity investments, which is immaterial. At December 31, 2017, the
Company had $2000 thousand in equity investments with readily determinable fair value.
FASB ASU 2016-02, Leases (Topic 842), was issued February 25, 2016. The provisions of the new standard require lessees to
recognize most leases on-balance sheet, increasing reported assets and liabilities. Lessor accounting remains substantially similar
to current U.S. GAAP.
The Company will be required to adopt the ASU provisions January 1, 2019, and plans to elect the modified retrospective
transition approach. Management is evaluating the impact that the ASU will have on the Company’s financial statements. As of
December 31, 2017, the Company leased 58 of its operating facilities; the remaining minimum lease payments were $17.5
million. The Company does not expect a material change in noninterest expenses upon adoption of the new standard.
FASB ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, was issued on June 16, 2016. The ASU significantly changes estimates for credit losses related to financial assets
measured at amortized cost and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model
with the current expected credit loss (CECL) model, which will accelerate recognition of credit losses. Additionally, credit losses
relating to available-for-sale debt securities will be recorded through an allowance for credit losses under the new standard. The
Company will also be required to provide additional disclosures related to the financial assets within the scope of the new
standard.
The Company will be required to adopt the ASU provisions on January 1, 2020. Management is evaluating the impact that the
ASU will have on the Company’s consolidated financial statements. The ultimate adjustment to the allowance for loan losses will
be accomplished through an offsetting after-tax adjustment to shareholders’ equity. Economic conditions and the composition of
the Company’s loan portfolio at the time of adoption will influence the extent of the adopting accounting adjustment.
FASB ASU 2017-08, Receivables – Non-Refundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on
Purchased Callable Debt Securities, was issued March 2017. The ASU will shorten the amortization period for certain callable
debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The
amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to
maturity.
The Company will be required to adopt the ASU provisions on January 1, 2019. Management is evaluating the impact the ASU
will have on the Company’s financial statements.
FASB ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, was
issued August 2017. The ASU will expand and refine hedge accounting for both nonfinancial and financial risk components and
align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements.
The ASU also provides for a one-time reclassification of prepayable assets from held-to-maturity (HTM) to available for sale
(AFS) regardless of derivative use.
The Company will be required to adopt the ASU provisions January 1, 2019. 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. However, the Company is currently evaluating the prepayable assets in the HTM portfolio
to determine if a one-time reclassification of prepayable assets from HTM to the AFS will occur upon implementation.
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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, 2017
Gross
Gross
Unrealized
Unrealized
Losses
Gains
(In thousands)
Amortized
Cost
Securities of U.S. Government sponsored entities
Agency residential mortgage-backed securities (MBS)
Non-agency residential MBS
Agency commercial MBS
Securities of U.S. Government entities
Obligations of states and political subdivisions
Corporate securities
Other securities
Total
$122,285
787,679
153
2,244
1,612
182,907
1,123,671
2,000
$2,222,551
$1
522
1
-
-
3,796
1,104
-
$5,424
($2,967)
(20,495)
-
(25)
(22)
(1,482)
(9,277)
(200)
($34,468)
Fair
Value
$119,319
767,706
154
2,219
1,590
185,221
1,115,498
1,800
$2,193,507
An analysis of the amortized cost, gross unrecognized gains and losses, and fair value of the held to maturity investment securities
portfolio follows:
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, 2017
Gross
Gross
Unrecognized
Unrecognized
Losses
Gains
(In thousands)
$606
70
-
7,736
$8,412
($9,850)
-
(66)
(2,018)
($11,934)
Amortized
Cost
$545,883
4,462
9,041
599,478
$1,158,864
Fair
Value
$536,639
4,532
8,975
605,196
$1,155,342
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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, 2016
Gross
Gross
Unrealized
Unrealized
Losses
Gains
(In thousands)
Amortized
Cost
$141,599
711,623
272
2,041
182,230
696
749
866,835
2,034
$1,908,079
$35
921
-
-
5,107
-
10,120
1,690
621
$18,494
($2,974)
(21,045)
(1)
(16)
(3,926)
(1)
-
(7,668)
(184)
($35,815)
Fair
Value
$138,660
691,499
271
2,025
183,411
695
10,869
860,857
2,471
$1,890,758
Securities of U.S. Government sponsored entities
Agency residential MBS
Non-agency residential MBS
Securities of U.S. Government entities
Obligations of states and political subdivisions
Asset-backed securities
FHLMC(1) and FNMA(2) stock
Corporate securities
Other securities
Total
(1) Federal Home Loan Mortgage Corporation
(2) Federal National Mortgage Association
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, 2016
Gross
Gross
Unrecognized
Unrecognized
Losses
Gains
(In thousands)
$1
1,122
76
11
6,031
$7,241
$-
(8,602)
-
(143)
(4,067)
($12,812)
Amortized
Cost
$581
668,235
5,370
9,332
662,794
$1,346,312
Fair
Value
$582
660,755
5,446
9,200
664,758
$1,340,741
During the quarter ending December 31, 2017, the Company sold its shares of FHLMC and FNMA stock. Total proceeds from
the sale were $8,704 thousand and the realized gain recorded in income was $7,955 thousand.
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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
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, 2017
Securities Available
for Sale
Securities Held
to Maturity
Amortized
Cost
Fair
Value
Amortized
Cost
(In thousands)
Fair
Value
$193,337
1,031,807
159,266
46,065
1,430,475
790,076
2,000
$2,222,551
$193,385
1,023,047
160,042
45,154
1,421,628
770,079
1,800
$2,193,507
$50,295
269,050
277,170
2,963
599,478
559,386
-
$1,158,864
$51,105
269,471
281,546
3,074
605,196
550,146
-
$1,155,342
At December 31, 2016
Securities Available
for Sale
Securities Held
to Maturity
Amortized
Cost
Fair
Value
Amortized
Cost
(In thousands)
Fair
Value
$154,693
750,834
238,077
47,756
1,191,360
713,936
2,783
$1,908,079
$154,835
745,219
239,153
44,416
1,183,623
693,795
13,340
$1,890,758
$14,961
292,024
318,580
37,810
663,375
682,937
-
$1,346,312
$15,639
292,062
319,587
38,052
665,340
675,401
-
$1,340,741
Expected maturities of mortgage-related securities can differ from contractual maturities because borrowers have the right to call
or prepay obligations with or without call or prepayment penalties. In addition, such factors as prepayments and interest rates may
affect the yield on the carrying value of mortgage-related securities. At December 31, 2017 and December 31, 2016, the Company
had no high-risk collateralized mortgage obligations as defined by regulatory guidelines.
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An analysis of the gross unrealized losses of the available for sale investment securities portfolio follows:
Investment Securities Available for Sale
At December 31, 2017
No. of
Investment
Positions
Less than 12 months
Fair Value
Unrealized
Losses
No. of
Investment
Positions
12 months or longer
Unrealized
Losses
Fair Value
($ in thousands)
No. of
Investment
Positions
Total
Fair Value
Unrealized
Losses
1
7
1
2
-
$996
238,554
($2)
(1,501)
1
2,219
-
-
(25)
-
50
64
-
125
21,453
571,112
-
$834,335
(228)
(4,047)
-
($5,803)
8
51
-
-
3
35
38
1
136
$117,252
516,711
($2,965)
(18,994)
-
-
-
-
1,590
(22)
52,071
282,924
1,800
$972,348
(1,254)
(5,230)
(200)
($28,665)
9
58
1
2
3
85
102
1
261
$118,248
755,265
($2,967)
(20,495)
1
2,219
1,590
-
(25)
(22)
73,524
854,036
1,800
$1,806,683
(1,482)
(9,277)
(200)
($34,468)
Securities of U.S.
Government
sponsored entities
Agency residential MBS
Non-agency residential
MBS
Agency commercial
MBS
Securities of U.S.
Government entities
Obligations of states
and political
subdivisions
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, 2017
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
15
1
146
162
$30,218
1,913
131,032
$163,163
($201)
(4)
(553)
($758)
65
1
59
125
12 months or longer
Unrecognized
Losses
Fair Value
($ in thousands)
$479,775
7,062
($9,649)
(62)
58,979
$545,816
(1,465)
($11,176)
No. of
Investment
Positions
Total
Fair Value
Unrecognized
Losses
80
2
205
287
$509,993
8,975
($9,850)
(66)
190,011
$708,979
(2,018)
($11,934)
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 rating 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
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, 2017.
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, 2017, $715,774 thousand of investment securities were pledged to secure public deposits and short-term
borrowed funds. As of December 31, 2016, $768,845 thousand of investment securities were pledged to secure public deposits
and short-term borrowed funds.
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An analysis of gross unrealized losses of investment securities available for sale follows:
Investment Securities Available for Sale
At December 31, 2016
No. of
Investment
Positions
Less than 12 months
Fair Value
Unrealized
Losses
No. of
Investment
Positions
12 months or longer
Unrealized
Losses
Fair Value
($ in thousands)
No. of
Investment
Positions
Total
Fair Value
Unrealized
Losses
8
21
2
2
43
-
53
-
129
$117,227
524,269
($2,974)
(16,494)
246
1,253
(1)
(9)
57,989
(3,905)
-
385,175
-
$1,086,159
-
(6,551)
-
($29,934)
-
28
-
1
3
1
27
1
61
$-
122,901
$-
(4,551)
-
772
-
(7)
1,117
(21)
695
96,145
1,816
$223,446
(1)
(1,117)
(184)
($5,881)
8
49
2
3
46
1
80
1
190
$117,227
647,170
($2,974)
(21,045)
246
2,025
(1)
(16)
59,106
(3,926)
695
481,320
1,816
$1,309,605
(1)
(7,668)
(184)
($35,815)
Securities of U.S.
Government
sponsored entities
Agency residential MBS
Non-agency residential
MBS
Securities of U.S.
Government entities
Obligations of states
and political
subdivisions
Asset-backed
securities
Corporate securities
Other securities
Total
An analysis of gross unrecognized losses of investment securities held to maturity follows:
Investment Securities Held to Maturity
At December 31, 2016
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
66
-
295
361
$569,876
-
($8,285)
-
272,496
$842,372
(3,710)
($11,995)
3
1
12
16
12 months or longer
Fair Value
($ in thousands)
$10,480
7,214
13,126
$30,820
Unrecognized
Losses
($317)
(143)
(357)
($817)
No. of
Investment
Positions
Total
Fair Value
Unrecognized
Losses
69
1
307
377
$580,356
7,214
($8,602)
(143)
285,622
$873,192
(4,067)
($12,812)
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:
2017
For the Years Ended December 31,
2016
(In thousands)
2015
Taxable
Tax-exempt from regular federal income tax
Total interest income from investment securities
$51,445
20,651
$72,096
$42,718
22,194
$64,912
$34,472
23,616
$58,088
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Note 3: Loans and Allowance for Credit Losses
A summary of the major categories of loans outstanding is shown in the following tables at the dates indicated.
Commercial
Commercial Real Estate
Construction
Residential Real Estate
Consumer Installment & Other
Total
At Decmber 31,
2017
2016
(In thousands)
$335,996
568,584
5,649
65,183
312,570
$1,287,982
$354,697
542,171
2,555
87,724
365,564
$1,352,711
Total loans outstanding reported above include loans purchased from the FDIC of $83,478 thousand and $121,210 thousand at
December 31, 2017 and December 31, 2016, respectively. Loans purchased from the FDIC were separately reported in prior
periods and have been reclassified into their respective categories in the current presentation.
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,
2017
2016
(In thousands)
$1,237
1,852
(2,351)
$738
($2,351)
192
($2,159)
$1,259
3,912
(3,934)
$1,237
($3,934)
1,053
($2,881)
The following summarizes activity in the allowance for loan losses:
Allowance for Loan Losses
For the Year Ended December 31, 2017
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment
and Other
Unallocated
Total
$8,327
$3,330
$152
$1,330
$7,980
$4,835
$25,954
(382)
431
(1,716)
(335)
1,271
(1,169)
(1,900)
(961)
762
(199)
$7,746
-
88
88
$3,849
-
1,899
1,899
$335
-
-
-
$995
(4,957)
2,124
(2,833)
$6,418
-
-
-
$3,666
(5,918)
4,873
(1,045)
$23,009
Allowance for Credit Losses
For the Twelve Months Ended December 31, 2016
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment
and Other
Unallocated
Total
$9,559
$4,212
$235
$1,801
$8,001
$5,963
$29,771
(3,237)
(1,436)
(83)
(471)
3,155
(1,128)
(3,200)
(2,023)
4,028
2,005
$8,327
-
554
554
$3,330
-
-
-
$152
-
-
-
$1,330
(4,749)
1,573
(3,176)
$7,980
-
-
-
$4,835
(6,772)
6,155
(617)
$25,954
Allowance for loan losses:
Balance at beginning of period
Additions:
(Reversal) provision
Deductions:
Chargeoffs
Recoveries
Net loan (losses) recoveries
Total allowance for loan losses
Allowance for loan losses:
Balance at beginning of period
Additions:
(Reversal) provision
Deductions:
Chargeoffs
Recoveries
Net loan recoveries (losses)
Total allowance for loan losses
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Allowance for Loan Losses
For the Year Ended December 31, 2015
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment
and Other
Unallocated
Total
$5,460
$4,245
$654
$2,241
$9,827
$9,058
$31,485
3,681
126
(33)
(440)
(239)
(3,095)
-
(756)
1,174
418
$9,559
(449)
290
(159)
$4,212
(431)
45
(386)
$235
-
-
-
$1,801
(3,493)
1,906
(1,587)
$8,001
-
-
-
$5,963
(5,129)
3,415
(1,714)
$29,771
Allowance for loan losses:
Balance at beginning of period
Additions:
Provision (reversal)
Deductions:
Chargeoffs
Recoveries
Net loan recoveries (losses)
Total allowance for loan losses
The allowance for loan losses and recorded investment in loans evaluated for impairment were as follows:
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
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
Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
At December 31, 2017
Commercial
Commercial
Real Estate
Construction
Consumer
Installment and
Other
Residential
Real Estate
(In thousands)
Unallocated
Total
$4,814
2,932
-
$7,746
$10,675
325,291
30
$335,996
$171
3,678
-
$3,849
$14,234
553,769
581
$568,584
$-
335
-
$335
$-
5,649
-
$5,649
$-
995
-
$995
$208
64,975
-
$65,183
$-
6,418
-
$6,418
$-
312,406
164
$312,570
$-
3,666
-
$3,666
$4,985
18,024
-
$23,009
$-
-
-
$-
$25,117
1,262,090
775
$1,287,982
Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
At December 31, 2016
Commercial
Commercial
Real Estate
Construction
Consumer
Installment and
Other
Residential
Real Estate
(In thousands)
Unallocated
Total
$5,048
3,279
-
$8,327
$11,174
343,494
29
$354,697
$-
3,330
-
$3,330
$12,706
528,957
508
$542,171
$-
152
-
$152
$-
2,555
-
$2,555
$-
1,330
-
$1,330
$835
86,889
-
$87,724
$-
7,980
-
$7,980
$-
365,236
328
$365,564
$-
4,835
-
$4,835
$5,048
20,906
-
$25,954
$-
-
-
$-
$24,715
1,327,131
865
$1,352,711
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 Audit Committee of the Board of Directors. The Loan Review Department performs independent evaluations of loans
and validates management assigned credit risk grades on 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 management and validated by the
Loan Review Department are subject to review by the Bank’s regulatory authorities during regulatory examinations.
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The following summarizes the credit risk profile by internally assigned grade:
Credit Risk Profile by Internally Assigned Grade
At December 31, 2017
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment and
Other
Total
$324,185
11,811
-
-
$335,996
$548,853
19,731
-
-
$568,584
$5,649
-
-
-
$5,649
$62,253
2,930
-
-
$65,183
$310,429
1,370
1
770
$312,570
$1,251,369
35,842
1
770
$1,287,982
Grade:
Pass
Substandard
Doubtful
Loss
Total
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, 2016
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment and
Other
Total
$340,973
13,724
-
-
$354,697
$515,045
25,830
1,296
-
$542,171
$2,555
-
-
-
$2,555
$84,384
3,340
-
-
$87,724
$362,597
2,477
10
480
$365,564
$1,305,554
45,371
1,306
480
$1,352,711
Grade:
Pass
Substandard
Doubtful
Loss
Total
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, 2017
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
$627
1,143
-
-
3,321
$5,091
(In thousands)
$164
125
-
-
1,077
$1,366
$ -
-
-
-
531
$531
$297
5,433
-
-
196
$5,926
$335,996
568,584
5,649
65,183
312,570
$1,287,982
Summary of Loans by Delinquency and Nonaccrual Status
At December 31, 2016
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
$966
1,460
226
528
3,288
$6,468
$40
445
-
37
989
$1,511
$ -
-
-
-
497
$497
$194
6,889
-
1,061
241
$8,385
$354,697
542,171
2,555
87,724
365,564
$1,352,711
Current and
Accruing
$334,908
561,883
5,649
65,183
307,445
$1,275,068
Current and
Accruing
$353,497
533,377
2,329
86,098
360,549
$1,335,850
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
Total
There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at December 31, 2017
and December 31, 2016.
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The following summarizes impaired loans:
With no related allowance recorded:
Commercial
Commercial real estate
Residential real estate
Consumer installment and other
Total with no related allowance recorded
With an allowance recorded:
Commercial
Commercial real estate
Total with an allowance recorded
Total
2017
Unpaid
Principal
Balance
Recorded
Investment
Impaired Loans
At December 31,
Related
Allowance
Recorded
Investment
(In thousands)
2016
Unpaid
Principal
Balance
Related
Allowance
$1,212
13,169
208
360
14,949
9,764
1,790
11,554
$26,503
$1,271
14,985
239
466
16,961
9,764
1,792
11,556
$28,517
$-
-
-
-
-
4,814
171
4,985
$4,985
$1,234
13,233
1,279
569
16,315
10,163
-
10,163
$26,478
$1,303
15,610
1,309
675
18,897
10,172
-
10,172
$29,069
$-
-
-
-
-
5,048
-
5,048
$5,048
Impaired loans include troubled debt restructured loans. Impaired loans at December 31, 2017, included $12,081 thousand of
restructured loans, $4,285 thousand of which were on nonaccrual status. Impaired loans at December 31, 2016, included $12,381
thousand of restructured loans, $5,302 thousand of which were on nonaccrual status.
2017
Average
Recorded
Investment
Recognized
Interest
Income
Impaired Loans
For the Years Ended December 31,
2016
Average
Recorded
Investment
Recognized
Interest
Income
(In thousands)
2015
Average
Recorded
Investment
Recognized
Interest
Income
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
Total
$11,156
14,806
-
423
415
$26,800
$508
884
-
17
20
$1,429
$12,923
16,701
102
746
473
$30,945
$512
725
-
19
25
$1,281
$12,631
20,307
263
643
739
$34,583
$584
674
-
31
25
$1,314
The following tables provide information on troubled debt restructurings:
Commercial
Commercial real estate
Residential real estate
Total
Troubled Debt Restructurings
At December 31, 2017
Number of
Contracts
Pre-Modification
Carrying Value
Period-End
Carrying Value
7
10
1
18
($ in thousands)
$2,393
11,528
241
$14,162
$1,085
10,788
208
$12,081
Period-End
Individual
Impairment
Allowance
$43
-
-
$43
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Commercial
Commercial real estate
Residential real estate
Total
Commercial
Commercial real estate
Residential real estate
Total
Troubled Debt Restructurings
At December 31, 2016
Number of
Contracts
Pre-Modification
Carrying Value
Period-End
Carrying Value
7
10
1
18
($ in thousands)
$2,719
11,257
241
$14,217
$1,489
10,673
219
$12,381
Troubled Debt Restructurings
At December 31, 2015
Number of
Contracts
Pre-Modification
Carrying Value
Period-End
Carrying Value
6
10
1
17
($ in thousands)
$3,138
12,927
242
$16,307
$2,802
12,684
226
$15,712
Period-End
Individual
Impairment
Allowance
$113
-
-
$113
Period-End
Individual
Impairment
Allowance
$194
-
-
$194
During the year ended December 31, 2017, the Company modified four loans with a carrying value of $699 thousand that were
considered troubled debt restructurings. The four concessions granted in 2017 consisted of modifications of payment terms to
extend the maturity date to allow for deferred principal repayment and under-market terms.
During the year ended December 31, 2016, the Company modified four loans with a total carrying value of $4,731 thousand that
were considered troubled debt restructurings. The concessions granted in the four restructurings completed in 2016 consisted of
three modifications of payment terms to extend the maturity date to allow for deferred principal repayment and under-market
terms and one court order requiring under-market terms.
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, 2017, one troubled debt restructured loan with a carrying value of $58 thousand was charged
off. There were no chargeoffs related to troubled debt restructurings made during the year ended December 31, 2016 and 2015.
During the years ended December 31, 2017, 2016 and 2015, no troubled debt restructured loans 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.
There were no loans restricted due to collateral requirements at December 31, 2017 and December 31, 2016.
There were no loans held for sale at December 31, 2017 and December 31, 2016.
At December 31, 2017 and 2016, the Company held total other real estate owned (OREO) of $1,426 thousand net of reserve of
$1,905 thousand and $3,095 thousand net of reserve of $1,816 thousand, respectively, of which $-0- thousand was foreclosed
residential real estate properties or covered OREO at both dates, respectively. The amount of consumer mortgage loans
outstanding secured by residential real estate properties for which formal foreclosure proceedings were in process was $196
thousand at December 31, 2017. There were no consumer mortgage loans outstanding secured by residential real estate properties
for which formal foreclosure proceedings were in process at December 31, 2016.
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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, 2017,
Westamerica Bank did not have credit extended to any one entity exceeding these limits. At December 31, 2017, Westamerica
Bank had 40 lending relationships each with aggregate amounts 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 $53,874 thousand and $57,721 thousand at December 31, 2017 and
December 31, 2016, 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, 2017, Westamerica Bank held corporate bonds in 70 issuing entities that exceeded $5 million for each issuer.
Note 5: Premises, Equipment and Other Assets
Premises and equipment consisted of the following:
2017
Land
Building and improvements
Leasehold improvements
Furniture and equipment
Total
2016
Land
Building and improvements
Leasehold improvements
Furniture and equipment
Total
At December 31,
Accumulated
Depreciation
and
Amortization
(In thousands)
Net Book
Value
$ -
(26,249)
(4,790)
(15,198)
($46,237)
$ -
(25,180)
(4,599)
(14,339)
($44,118)
$11,796
15,392
1,027
7,086
$35,301
$11,896
15,812
1,323
7,535
$36,566
Cost
$11,796
41,641
5,817
22,284
$81,538
$11,896
40,992
5,922
21,874
$80,684
Depreciation and amortization of premises and equipment included in noninterest expense amounted to $3,925 thousand in 2017,
$3,959 thousand in 2016 and $3,523 thousand in 2015.
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Other assets consisted of the following:
Cost method equity investments:
Federal Reserve Bank stock (1)
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,
2017
2016
(In thousands)
$14,069
158
14,227
54,101
33,112
10,119
23,557
4,906
18,428
$158,450
$14,069
201
14,270
51,535
55,417
12,591
21,489
4,825
11,597
$171,724
(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.
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, 2017, this investment totaled $10,119 thousand and $2,299 thousand of this
amount represents outstanding equity capital commitments that are included in other liabilities. At December 31, 2016, this
investment totaled $12,591 thousand and $2,299 thousand of this amount represented outstanding equity capital commitments. At
December 31, 2017, the $2,299 thousand of outstanding equity capital commitments are expected to be paid as follows, $722
thousand in 2020, $131 thousand in 2023, $90 thousand in 2024 and $1,356 thousand in 2025 or thereafter.
The amounts recognized in net income for these investments include:
For the Years Ended December 31,
2016
(In thousands)
2017
2015
Investment loss included in pre-tax income
Valuation impairment included in pre-tax income
Tax credits recognized in provision for income taxes
$1,800
625
1,850
$2,475
-
2,286
$2,850
-
2,650
The $625 thousand valuation impairment recognized in 2017 was due to a decline in future expected federal tax benefits due to
the reduction in the federal corporate tax rate upon enactment of the Tax Cuts and Jobs Act of 2017.
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, 2017, 2016 and 2015. 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, 2017, 2016 and 2015 no such adjustments were recorded.
The carrying values of goodwill were:
Goodwill
At December 31,
2017
2016
(In thousands)
$121,673
$121,673
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The gross carrying amount of identifiable intangible assets and accumulated amortization was:
At December 31,
2017
2016
Gross
Carrying
Amount
$56,808
10,300
$67,108
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
(In thousands)
($52,987)
(10,271)
($63,258)
$56,808
10,300
$67,108
($50,074)
(10,107)
($60,181)
Core Deposit Intangibles
Merchant Draft Processing Intangible
Total Identifiable Intangible Assets
As of December 31, 2017, the current period and estimated future amortization expense for identifiable intangible assets was:
For the Year Ended December 31, 2017 (actual)
Estimate for the Year Ended December 31, 2018
2019
2020
2021
2022
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
Core
Deposit
Intangibles
$2,913
1,892
538
287
269
252
Merchant
Draft
Processing
Intangible
(In thousands)
$164
29
-
-
-
-
Total
$3,077
1,921
538
287
269
252
Deposits
At December 31,
2017
2016
(In thousands)
$2,197,526
$2,089,443
904,245
1,494,024
117,848
76,578
37,392
$4,827,613
865,701
1,493,427
133,712
84,925
37,533
$4,704,741
Demand deposit overdrafts of $2,786 thousand and $2,679 thousand were included as loan balances at December 31, 2017 and
2016, respectively. Interest expense for aggregate time deposits with individual account balances in excess of $100 thousand was
$415 thousand in 2017, $509 thousand in 2016 and $687 thousand in 2015.
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The following table provides additional detail regarding short-term borrowed funds.
Repurchase agreements:
Collateral securing borrowings:
Securities of U.S. Government sponsored entities
Agency residential MBS
Corporate securities
Total collateral carrying value
Total short-term borrowed funds
Repurchase Agreements (Sweep)
Accounted for as Secured Borrowings
Remaining Contractual Maturity of the Agreements
Overnight and Continuous
At December 31,
2017
2016
(In thousands)
$74,173
58,251
105,113
$237,537
$58,471
$74,031
63,277
90,554
$227,862
$59,078
Securities sold under repurchase agreements
$82,126
$74,815
For the Years Ended December 31,
2017
2016
Highest Balance at Any Month-end
(In thousands)
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, 2017. The intrinsic
value is calculated as the difference between the market value as of December 31, 2017 and the exercise price of the shares. The
market value as of December 31, 2017 was $59.55 as reported by the NASDAQ Global Select Market:
Options Outstanding
Options Exercisable
At December 31, 2017
Range of Exercise
Price
Number
Outstanding
Aggregate
Intrinsic Value
$40 - 45
45 - 50
50 - 55
55 - 60
$40 - 60
(In thousands)
400
22
310
298
1,030
$6,798
305
2,588
725
$10,416
Weighted
Average
Remaining
Contractual
Life
(Years)
7.5
4.1
1.9
8.3
6.0
For the Year
Ended
December 31,
2017
Weighted
Average
Exercise Price
$43
46
51
57
49
At December 31, 2017
Number
Exercisable
Aggregate
Intrinsic Value
(In thousands)
105
22
310
32
469
$1,751
305
2,588
94
$4,738
Weighted
Average
Remaining
Contractual
Life
(Years)
6.9
4.1
1.9
2.1
3.1
For the Year
Ended
December 31,
2017
Weighted
Average
Exercise Price
$43
46
51
57
49
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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, 2017, 2016 and 2015, the Company granted 266 thousand, 325 thousand and 343 thousand stock
options, respectively. The following weighted average assumptions were used in the option pricing to value stock options granted
in the periods indicated:
Expected volatility (1)
Expected life in years (2)
Risk-free interest rate (3)
Expected dividend yield
Fair value per award
For the Years Ended December 31,
2017
2016
2015
20%
4.8
1.97%
3.28%
$8.27
22%
4.8
1.41%
4.49%
$5.97
20%
4.9
1.36%
3.64%
$5.46
(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, 2017 is
930 thousand.
A summary of option activity during the year ended December 31, 2017 is presented below:
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Weighted
Average
Exercise Price
$47.36
57.18
48.29
N/A
49.44
49.45
Shares
(In thousands)
1,273
266
(509)
-
1,030
469
Weighted
Average
Remaining
Contractual
Term
(Years)
6.0
3.1
Outstanding at January 1, 2017
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2017
Exercisable at December 31, 2017
A summary of the Company’s nonvested option activity during the year ended December 31, 2017 is presented below:
Nonvested at January 1, 2017
Granted
Vested
Forfeited
Nonvested at December 31, 2017
Weighted
Average Grant
Date Fair
Value
$5.80
8.27
5.78
N/A
$6.98
Shares
(In thousands)
553
266
(258)
-
561
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, 2017, 2016 and 2015 was $8.27, $5.97 and $5.46 per share, respectively. The total remaining
unrecognized compensation cost related to nonvested awards as of December 31, 2017 is $2,012 thousand and the weighted
average period over which the cost is expected to be recognized is 0.9 years.
The total intrinsic value of options exercised during the twelve months ended December 31, 2017, 2016 and 2015 was $4,642
thousand, $3,242 thousand and $504 thousand, respectively. The total fair value of Restricted Performance Shares (“RPSs”) that
vested during the twelve months ended December 31, 2017, 2016 and 2015 was $708 thousand, $753 thousand and $741
thousand, respectively. The total fair value of options vested during the twelve months ended December 31, 2017, 2016 and 2015
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was $1,493 thousand, $1,269 thousand and $1,321 thousand, respectively. The Company adopted the ASU provisions effective
January 1, 2017, which has the potential to create volatility in the book tax provision at the time nonqualified stock options are
exercised or expire. During the twelve months of 2017, 509 thousand shares were issued due to the exercise of nonqualified stock
options resulting in a tax deduction exceeding related share based compensation by $1,667 thousand. The 2017 income tax
provision was $698 thousand lower than would have been under accounting standards prior to the adoption of ASU 2016-09. The
increase in tax benefits recognized for the tax deductions from the exercise of options totaled $394 thousand for the twelve
months ended December 31, 2016. The decrease in tax benefits recognized for the tax deductions from the exercise of options
totaled $1,284 thousand for the twelve months ended December 31, 2015.
A summary of the status of the Company’s restricted performance shares as of December 31, 2017 and 2016 and changes during
the twelve months ended on those dates, follows:
Outstanding at January 1,
Granted
Issued upon vesting
Forfeited
Outstanding at December 31,
2017
2016
(In thousands)
48
14
(13)
-
49
45
18
(15)
-
48
As of December 31, 2017 and 2016, the restricted performance shares had a weighted-average contractual life of 1.2 years and 1.1
years, respectively. The compensation cost that was charged against income for the Company’s restricted performance shares
granted was $827 thousand, $1,228 thousand and $535 thousand for the twelve months ended December 31, 2017, 2016 and
2015, respectively. There were no stock appreciation rights or incentive stock options granted in the twelve months ended
December 31, 2017 and 2016.
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 may be exercised in a manner wherein the Company withholds shares of common stock
issuable upon exercise of the warrant equal in value to the aggregate exercise price, in which case the warrant holder would not
deliver cash for the aggregate exercise price and the Company would issue a number of shares equal to the intrinsic value on the
exercise date. The warrants remain outstanding at December 31, 2017.
The Company repurchases and retires its common stock in accordance with Board of Directors approved share repurchase
programs. At December 31, 2017, approximately 1,750 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, 2017, no shares of Class B Common Stock or Preferred Stock were outstanding.
Note 9: Regulatory Capital
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies.
Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of
assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory
action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III
rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in
over a multi-year schedule, and fully phased in by January 1, 2019. Under the Basel III rules, the Company must hold a capital
conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in
from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer for 2017 was 1.25% and 0.625% for 2016. The net
unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of
December 31, 2017, the Company and Bank met all capital adequacy requirements to which they are subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial
condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital
distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2017 and 2016,
the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt
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corrective action. There are no conditions or events since that notification that management believes have changed the
institution’s category.
The capital ratios for the Company and the Bank under the new capital framework as of the dates indicated are presented in the
table below.
At December 31, 2017
Amount
Ratio
Required
for Capital
Adequacy Purposes
Effective January 1, 2017
Ratio
Amount
($ in thousands)
To Be Well-capitalized
Under Prompt Corrective
Action Regulations
Amount
Ratio
$479,259
383,796
479,259
383,796
504,576
415,113
479,259
383,796
15.36%
12.50%
15.36%
12.50%
16.17%
13.52%
8.86%
7.16%
$179,377
176,568
226,170
222,630
288,562
284,045
216,280
214,468
5.75%(1)
5.75%(1)
7.25%(1)
7.25%(1)
9.25%(1)
9.25%(1)
4.000%
4.000%
N/A
$199,599
N/A
245,660
N/A
307,076
N/A
268,085
N/A
6.50%
N/A
8.00%
N/A
10.00%
N/A
5.00%
Common Equity Tier 1 Capital
Company
Bank
Tier 1 Capital
Company
Bank
Total Capital
Company
Bank
Leverage Ratio (2)
Company
Bank
(1) Includes 1.25% capital conservation buffer.
(2) The leverage ratio consists of Tier 1capital divided by the most recent quarterly average total assets, excluding certain intangible assets.
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At December 31, 2016
Amount
Ratio
Required
for Capital
Adequacy Purposes
Effective January 1, 2016
Ratio
Amount
($ in thousands)
To Be Well-capitalized
Under Prompt Corrective
Action Regulations
Amount
Ratio
$443,574
344,739
443,574
344,739
476,595
383,572
443,574
344,739
14.85%
11.70%
14.85%
11.70%
15.95%
13.02%
8.46%
6.63%
$153,126
150,982
197,944
195,172
257,700
254,092
209,702
208,005
5.125%(3)
5.125%(3)
6.625%(3)
6.625%(3)
8.625%(3)
8.625%(3)
4.000%
4.000%
N/A
$191,489
N/A
235,680
N/A
294,600
N/A
260,006
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 (2)
Company
Bank
(2) The leverage ratio consists of Tier 1capital divided by the most recent quarterly average total assets, excluding certain intangible assets.
(3) Includes 0.625% capital conservation buffer.
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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
AMT carryforward
Securities available for sale
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
Accrued liabilities
Premises and equipment
Other
Total deferred tax asset
Deferred tax liability
Net deferred loan fees
Intangible assets
Other
Total deferred tax liability
Net deferred tax asset
At December 31,
2017
2016
(In thousands)
$7,349
1,871
1,752
8,586
5,279
553
1,111
526
2,066
96
57
3,056
1,609
299
520
34,730
281
1,247
90
1,618
$33,112
$11,801
2,679
-
7,283
8,043
756
3,026
903
3,399
137
86
18,465
967
577
724
58,846
346
2,955
128
3,429
$55,417
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:
2017
For the Years Ended December 31,
2016
(In thousands)
2015
Current income tax expense:
Federal
State
Total current
Deferred income tax (benefit) expense:
Federal
State
Total deferred
Adjustment of net deferred tax asset for enacted changes in tax rates:
Federal
State
Total adjustments
Provision for income taxes
$1,778
7,810
9,588
14,461
783
15,244
12,315
-
12,315
$37,147
$16,258
7,292
23,550
(2,604)
158
(2,446)
-
-
$ -
$21,104
$9,647
6,738
16,385
1,643
(109)
1,534
-
-
$ -
$17,919
The provision for income taxes differs from the provision computed by applying the statutory federal income tax rate to income
before taxes, as follows:
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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
Re-measurement of net deferred tax asset due to enactment of new federal tax rate
Stock compensation deduction in excess of book expense
Tax credits
Dividend received deduction
Cash value life insurance
Other
Provision for income taxes
2017
For the Years Ended December 31,
2016
(In thousands)
$27,985
$30,509
2015
$26,835
(7,794)
5,586
12,315
(583)
(1,850)
(60)
(603)
(373)
$37,147
(8,382)
4,843
-
-
(2,286)
(52)
(607)
(397)
$21,104
(9,046)
4,309
-
-
(2,600)
(45)
(599)
(935)
$17,919
The 2017 income tax provision includes a $12.3 million dollar charge to re-measure the Company’s net deferred tax asset as a
result of the enactment of the Tax Cuts and Jobs Act of 2017. At December 31, 2017, the Company had no net operating loss and
a $1,752 thousand AMT tax credit carryforward that under the Tax Cuts and Jobs Act of 2017 are fully refundable by 2022.
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,
2017
2016
(In thousands)
$1,099
-
-
-
-
(190)
-
$909
$1,243
-
-
-
(144)
-
-
$1,099
The deductibility of these tax positions will be determined through examination by the appropriate tax jurisdictions or the
expiration of the tax statute of limitations. The Company does not anticipate any significant increase or decrease in unrecognized
tax benefits during 2018. Unrecognized tax benefits at December 31, 2017 and 2016 include accrued interest and penalties of $13
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thousand and $57 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. At December 31, 2017, the tax
years ended December 31, 2016, 2015 and 2014 remain subject to examination by the Internal Revenue Service and the tax years
ended December 31, 2016, 2015, 2014, 2013, 2012 and 2011 remain subject to examination by the California Franchise Tax
Board.
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, and municipal bonds.
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. 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
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the reporting period that the transfers occur. For the years ended December 31, 2017 and 2016, there were no transfers into or out
of levels 1, 2 or 3.
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, 2017
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In thousands)
$ -
-
-
-
-
-
-
-
$ -
$119,319
767,706
154
2,219
1,590
185,221
1,115,498
1,800
$2,193,507
$ -
-
-
-
-
-
-
-
$ -
At December 31, 2016
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In thousands)
$ -
-
-
-
-
-
17
-
656
$673
$138,660
691,499
271
2,025
183,411
695
10,852
860,857
1,815
$1,890,085
$ -
-
-
-
-
-
-
-
-
$ -
Fair Value
$119,319
767,706
154
2,219
1,590
185,221
1,115,498
1,800
$2,193,507
Fair Value
$138,660
691,499
271
2,025
183,411
695
10,869
860,857
2,471
$1,890,758
Securities of U.S. Government sponsored entities
Agency residential MBS
Non-agency residential MBS
Agency commercial MBS
Securities of U.S. Government entities
Obligations of states and political subdivisions
Corporate securities
Other securities
Total securities available for sale
Securities of U.S. Government sponsored entities
Agency residential MBS
Non-agency residential MBS
Securities of U.S. Government entities
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, 2017 and
December 31, 2016, the following tables provide 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:
Commercial
Commercial real estate
Total assets measured at fair value on a nonrecurring basis
Carrying Value
At December 31, 2017
Level 1
Level 2
(In thousands)
Level 3
$1,426
4,950
5,904
$12,280
$ -
-
-
$ -
$ -
-
-
$ -
$1,426
4,950
5,904
$12,280
Other real estate owned
Impaired loans:
Commercial
Commercial real estate
Total assets measured at fair value on a nonrecurring basis
Carrying Value
At December 31, 2016
Level 1
Level 2
(In thousands)
Level 3
$3,095
5,115
4,410
$12,620
$ -
-
-
$ -
$ -
-
-
$ -
$3,095
5,115
4,410
$12,620
For the
Year Ended
December 31, 2017
Total Losses
($219)
-
-
($219)
For the
Year Ended
December 31, 2016
Total Losses
($705)
-
-
($705)
Level 3 – Valuation is based upon present value of expected future cash flows, 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 as the inputs were not developed by the Company.
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 2 valuation.
Loans Loans were separated into two groups for valuation. Variable rate loans, except for those described below, which reprice
frequently with changes in market rates were valued using historical cost. Fixed rate loans and variable rate loans that have
reached their minimum contractual interest rates were valued by discounting the future cash flows expected to be received from
the loans using current interest rates charged on loans with similar characteristics. Additionally, the allowance for loan losses of
$23,009 thousand at December 31, 2017 and $25,954 thousand at December 31, 2016 was applied against the estimated fair
values to recognize estimated future defaults of contractual cash flows.
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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.
The tables below are 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 tables 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.
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At December 31, 2017
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
(In thousands)
$575,002
-
-
Significant
Other
Observable
Inputs
(Level 2 )
Significant
Unobservable
Inputs
(Level 3 )
$ -
1,155,342
-
$ -
-
1,257,811
Carrying
Amount
$575,002
1,158,864
1,264,973
Estimated Fair
Value
$575,002
1,155,342
1,257,811
$4,827,613
58,471
$4,824,586
58,471
$ -
-
$4,595,795
58,471
$228,791
-
At December 31, 2016
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
(In thousands)
$462,271
-
-
Significant
Other
Observable
Inputs
(Level 2 )
Significant
Unobservable
Inputs
(Level 3 )
$ -
1,340,741
-
$ -
-
1,337,774
Carrying
Amount
$462,271
1,346,312
1,326,757
Estimated Fair
Value
$462,271
1,340,741
1,337,774
$4,704,741
59,078
$4,702,797
59,078
$ -
-
$4,448,571
59,078
$254,226
-
Financial Assets:
Cash and due from banks
Investment securities held to maturity
Loans
Financial Liabilities:
Deposits
Short-term borrowed funds
Financial Assets:
Cash and due from banks
Investment securities held to maturity
Loans
Financial Liabilities:
Deposits
Short-term borrowed funds
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.
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Note 12: Lease Commitments
Twenty nine banking offices and a centralized administrative service center are owned and 58 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, 2017 are as follows:
2018
2019
2020
2021
2022
Thereafter
Total minimum lease payments
Minimum
future rental
payments
(In thousands)
$6,481
4,882
3,143
1,462
732
825
$17,525
The total minimum future rental payments have not been reduced by minimum sublease rentals of $2,088 thousand due in the
future under noncancelable subleases. Total rentals for premises were $6,695 thousand in 2017, $6,823 thousand in 2016 and
$8,359 thousand in 2015. Total sublease rentals were $406 thousand in 2017, $435 thousand in 2016 and $1,721 thousand in
2015. Total rentals for premises, net of sublease income, included in noninterest expense were $6,289 thousand in 2017, $6,388
thousand in 2016 and $6,638 thousand in 2015.
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 $272,646 thousand and $304,508 thousand at December 31, 2017 and 2016, 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 $19,263
thousand and $21,732 thousand at December 31, 2017 and 2016, respectively. The Company had no commitments outstanding for
commercial and similar letters of credit at December 31, 2017 and 2016. The Company had a reserve for unfunded commitments
of $2,308 thousand at December 31, 2017 and $2,408 thousand at December 31, 2016, included in other liabilities.
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 can be reasonably estimated.
The Company has determined that it will be obligated to provide refunds of revenue recognized in prior years to some customers.
The Company estimates the probable amount of these obligations will be $5,542 thousand and has accrued a liability for such
amount; the estimated liability is subject to revision.
The October 2017 California wildfires have disrupted operations in the Company's geographic footprint mainly due to temporary
power outages, unhealthy air quality, and evacuations affecting some branches and an operations center. The Company maintains
secondary power generation capability at its principal operations center. The Company maintains, and regularly tests, disaster
recovery plans and protocols to be prepared for disasters such as these wildfires. The Company has not experienced a casualty
loss as of the date of this report, but does carry customary casualty insurance to protect against such risk.
Management has performed an initial evaluation of loss exposure caused by the wildfires within the Company's loan portfolio and
investment portfolio; Management has not identified any increased risk of loss, however, continuing Management evaluations and
further wildfire developments could result in identification of losses which are not currently apparent.
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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 $944 thousand in 2017, $1,000 thousand in 2016 and $734 thousand in
2015.
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 $1,098 thousand in 2017, $1,075 thousand in 2016 and $1,147
thousand in 2015.
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, 2019. 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:
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Net Periodic Benefit Cost
Service benefit
Interest cost
Amortization of unrecognized transition obligation
Net periodic (benefit) cost
2017
At December 31,
2016
(In thousands)
($153)
108
61
$16
($311)
95
61
($155)
2015
($202)
106
61
($35)
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
(34)
($189)
(36)
($20)
(36)
($71)
The transition obligation for this post-retirement benefit plan became fully amortized during the twelve months ended December,
2017.
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Obligation and Funded Status
Change in benefit obligation
Benefit obligation at beginning of year
Service benefit
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
2017
$2,319
(311)
95
(145)
$1,958
At December 31,
2016
(In thousands)
$2,522
(153)
108
(158)
$2,319
$1,575
382
1
$1,958
-
$1,958
$1,705
606
8
$2,319
-
$2,319
2015
$2,782
(202)
106
(164)
$2,522
$1,695
809
18
$2,522
-
$2,522
2017
At December 31,
2016
2015
3.70%
4.10%
4.30%
4.10%
4.30%
3.80%
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 2017 and beyond.
Assumed benefit inflation rates are not applicable for this program.
2018
2019
2020
2021
2022
Years 2023-2027
Estimated
future benefit
payments
(In thousands)
$138
131
124
118
112
482
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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.
The table below reflects information concerning loans to certain directors and executive officers and/or family members during
2017 and 2016:
Balance at January 1,
Originations
Principal reductions
Balance at December 31,
Percent of total loans outstanding.
Note 16: Regulatory Matters
2017
2016
(In thousands)
$867
-
(245)
$622
0.05%
$911
-
(44)
$867
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 2017. 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 $458,186 thousand in 2017 and $365,880 thousand in 2016,
which amounts exceed the Bank’s required reserves.
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Note 17: Other Comprehensive Income
The components of other comprehensive (loss) income and other related tax effects were:
Securities available for sale:
Net unrealized losses arising during the year
Reclassification of gains included in net income
Net unrealized losses arising during the year
Post-retirement benefit obligation
Other comprehensive loss
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 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
Accumulated other comprehensive income (loss) balances were:
Balance, December 31, 2014
Net change
Balance, December 31, 2015
Net change
Balance, December 31, 2016
Net change
Balance, December 31, 2017
Before tax
2017
Tax effect
(In thousands)
Net of tax
($3,767)
(7,955)
(11,722)
59
($11,663)
$1,585
3,345
4,930
(25)
$4,905
($2,182)
(4,610)
(6,792)
34
($6,758)
Before tax
2016
Tax effect
(In thousands)
Net of tax
($18,610)
-
(18,610)
61
($18,549)
$7,825
-
7,825
(25)
$7,800
($10,785)
-
(10,785)
36
($10,749)
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)
Net Unrealized
Gains (losses)
on Securities
Accumulated
Other
Comprehensive
Income (loss)
Post-retirement
Benefit
Obligation
(In thousands)
($106)
36
(70)
36
(34)
34
$ -
$5,398
(4,653)
745
(10,785)
(10,040)
(6,792)
($16,832)
$5,292
(4,617)
675
(10,749)
(10,074)
(6,758)
($16,832)
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Note 18: Earnings Per Common Share
The table below shows earnings per common share and diluted earnings per common share. Basic earnings per common share are
computed by dividing net income by the average number of common shares outstanding during the period. Diluted earnings per
common share are computed by dividing net income by the average number of common shares outstanding during the period plus
the impact of common stock equivalents.
Net income (numerator)
Basic earnings per common share
Weighted average number of common shares outstanding - basic (denominator)
Basic earnings per common share
Diluted earnings per common share
Weighted average number of common shares outstanding - basic
Add 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,
2017
2015
2016
(In thousands, except per share data)
$50,025
$58,853
$58,753
26,291
$1.90
26,291
128
26,419
$1.89
25,612
$2.30
25,612
66
25,678
$2.29
25,555
$2.30
25,555
22
25,577
$2.30
For the years ended December 31, 2017, 2016 and 2015, options to purchase 323 thousand, 773 thousand and 1,313 thousand
shares of common stock, respectively, were outstanding but not included in the computation of diluted earnings per common
share because the option exercise price exceeded the fair value of the stock such that their inclusion would have had an anti-
dilutive effect.
Note 19: Westamerica Bancorporation (Parent Company Only Condensed Financial Information)
Statements of Income and Comprehensive Loss
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 greater (less) than subsidiary dividends
Net income
Other comprehensive loss, net of tax
Comprehensive income
For the Years Ended December 31,
2017
2015
2016
(In thousands)
$56,824
25
8,315
65,164
-
7,079
3,290
10,369
54,795
1,025
3,033
58,853
(10,749)
$48,104
$12,728
43
8,590
21,361
-
7,163
3,416
10,579
10,782
241
39,002
50,025
(6,758)
$43,267
$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
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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
Statements of Cash Flows
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Decrease (increase) in accounts receivable from affiliates
Insurance premiums paid
Increase in other assets
Stock option compensation expense
Tax benefit (increase) decrease upon exercise of stock options and expiration of stock options
Provision (benefit) for deferred income tax
Increase in other liabilities
Earnings of subsidiaries (greater) 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
Exercise of stock options/issuance of shares
Taxes paid by withholding shares for tax purposes
Tax benefit increase (decrease) upon exercise of stock options and expiration of stock options
Retirement of common stock
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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At December 31,
2017
2016
(In thousands)
$53,409
-
500,776
455
9,639
538
40,547
$605,364
$92
15,033
15,125
590,239
$605,364
$64,054
656
468,172
455
9,165
522
34,077
$577,101
$705
15,029
15,734
561,367
$577,101
For the Years Ended December 31,
2017
2015
2016
(In thousands)
$50,025
$58,853
$58,753
319
(16)
(704)
(1,499)
1,824
-
(3,971)
202
(39,002)
(793)
6,385
-
-
24,583
-
-
(314)
(41,299)
(17,030)
(10,645)
64,054
$53,409
305
299
(683)
(1,257)
1,494
(394)
1,983
1,392
(3,033)
(79)
58,880
-
-
24,031
(356)
394
(5,424)
(39,924)
(21,279)
37,601
26,453
$64,054
326
(217)
(637)
(1,076)
1,272
1,284
(491)
743
9,736
(39)
69,654
-
-
4,848
(357)
(1,284)
(14,735)
(39,124)
(50,652)
19,002
7,451
$26,453
$-
17,351
$-
19,264
$1
17,666
Note 20: Quarterly Financial Information
(Unaudited)
2017
Interest and loan fee income
Net interest income
(Reversal of) provision for loan 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
2016
Interest and loan fee income
Net interest income
(Reversal of) provision for loan 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
2015
Interest and loan fee income
Net interest income
Provision for loan 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
2
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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)
$33,324
32,844
-
11,657
24,615
19,886
15,049
0.58
0.57
0.39
54.12 - 64.07
$33,647
33,095
-
11,729
25,858
18,966
14,226
0.56
0.56
0.39
40.72 - 49.63
$33,917
33,258
-
12,300
26,727
18,831
14,557
0.57
0.57
0.38
40.68 - 48.44
$33,163
32,687
(1,900)
12,123
24,396
22,314
15,799
0.60
0.60
0.39
51.31 - 57.78
$33,727
33,186
-
11,702
25,229
19,659
14,546
0.57
0.57
0.39
45.86 - 51.53
$34,425
33,808
-
12,269
26,896
19,181
14,761
0.58
0.58
0.38
42.70 - 51.69
$33,145
32,672
-
12,548
24,114
21,106
15,017
0.57
0.57
0.39
49.54 - 59.54
$33,468
32,945
(3,200)
11,598
26,088
21,655
15,628
0.61
0.61
0.39
46.61 - 50.96
$34,299
33,714
-
11,993
26,173
19,534
14,857
0.58
0.58
0.38
43.00 - 51.90
$34,204
33,733
-
20,300
30,167
23,866
4,160
0.16
0.16
0.40
53.96 - 63.03
$33,209
32,709
-
11,545
24,577
19,677
14,453
0.56
0.56
0.39
48.20 - 65.34
$33,888
33,325
-
11,305
25,504
19,126
14,578
0.57
0.57
0.39
42.96 - 49.64
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors of Westamerica Bancorporation
San Rafael, California
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Westamerica Bancorporation (the "Company") as of
December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, changes in shareholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively
referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-
year period ended December 31, 2017 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, 2017, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these 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 the Company’s
financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
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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.
/s/ Crowe Horwath LLP
Crowe Horwath LLP
We have served as the Company's auditor since 2015.
Sacramento, California
February 27, 2018
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
The Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s
“disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as
amended, as of December 31, 2017.
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, 2017 that has
materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting and the attestation Report of Independent Registered Public
Accounting Firm are found on pages 46 and 89, respectively.
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 2018 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. 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
Held
Since
1984
2005
2005
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 2018 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 2018 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, 2017:
Plan category
At December 31, 2017
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)
930
-
930
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
1,030
-
1,030
$49
N/A
$49
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
2018 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 – Ratification of Independent Auditor” in the Company’s Proxy Statement for its 2018
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 45. The consolidated 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 27, 2018
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)
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/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
Date
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
Lead Independent Director
February 27, 2018
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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. https://www.sec.gov/Archives/edgar/data/311094/0000311094-98-000004.txt
By-laws, as amended (composite copy), incorporated by reference to Exhibit 3.2 to the Registrant’s Form 8-K,
filed with the Securities and Exchange Commission on December 19, 2016.
https://www.sec.gov/Archives/edgar/data/311094/000117184316013683/exh_32.htm
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.
https://www.sec.gov/Archives/edgar/data/311094/000095013409002844/f51541exv99w1.htm
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.
https://www.sec.gov/Archives/edgar/data/311094/000095013409003283/f51590exv4w2.htm
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. https://www.sec.gov/Archives/edgar/data/311094/000102140803004311/ddef14a.htm
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.
https://www.sec.gov/Archives/edgar/data/311094/000031109400000002/0000311094-00-000002.txt
10(e)* Description of Executive Cash Bonus Program incorporated by reference to Exhibit 10(e) to Exhibit 2.1 of
Registrant’s Form 8-K filed with the Securities and Exchange Commission on March 14, 2005.
https://www.sec.gov/Archives/edgar/data/311094/000031109405000008/mar8k05c.txt
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.
https://www.sec.gov/Archives/edgar/data/311094/000095013405005077/f06799exv10wxfy.htm
10(f)*
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.
https://www.sec.gov/Archives/edgar/data/311094/000095013405005077/f06799exv10wxgy.htm
10(j)*
10(i)*
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. https://www.sec.gov/Archives/edgar/data/311094/000095013405005077/f06799exv10wxhy.htm
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.
https://www.sec.gov/Archives/edgar/data/311094/000095013409004041/f51636exv10wxiy.htm
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.
https://www.sec.gov/Archives/edgar/data/311094/000095013409004041/f51636exv10wxjy.htm
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.
https://www.sec.gov/Archives/edgar/data/311094/000095013406004693/f18098exv10wxky.htm
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.
https://www.sec.gov/Archives/edgar/data/311094/000095013409002471/f51462exv99w2.htm
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.
https://www.sec.gov/Archives/edgar/data/311094/000095013409003283/f51590exv10w1.htm
10(k)*
10(m)
10(l)
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. https://www.sec.gov/Archives/edgar/data/311094/000120677412001027/westamerica_def14a.htm
10(t)
11.1
14
21
23.1
31.1
31.2
32.1
32.2
101**
Data Processing Agreement by and between Fidelity Information Services and Westamerica Bancorporation
incorporated by reference to Exhibit 10(t) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2016, filed with the Securities and Exchange Commission on February 28, 2017.
https://www.sec.gov/Archives/edgar/data/311094/000117184317001171/exh_10t.htm
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.
https://www.sec.gov/Archives/edgar/data/311094/000095014904000595/f97139exv14.txt
Subsidiaries of the registrant.
Consent of Crowe Horwath LLP
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
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, 2017, 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, 2017;
(ii) consolidated balance sheets at December 31, 2017, and December 31, 2016; (iii) consolidated statements of
comprehensive income for each of the years in the three-year period ended December 31, 2017, (iv) consolidated
statements of changes in shareholders’ equity for each of the years in the three-year period ended December 31,
2017; (v) consolidated statements of cash flows for each of the years in the three-year period ended December 31,
2017 and (vi) notes to consolidated financial statements.
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*
** 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 exhibits listed above are available through the SEC’s website (https://www.sec.gov). Alternatively, 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.
[The remainder of this page intentionally left blank]
WESTAMERICA BANCORPORATION
Subsidiaries as of December 31, 2017
Westamerica Bank
Westamerica Mortgage Company — a subsidiary of Westamerica Bank
Community Banker Services Corporation — a subsidiary of Westamerica Bank
Weststar Mortgage Corporation — a subsidiary of Community Banker Services Corporation
Money Outlet, Inc.
Westamerica Commercial Credit, Inc.
EXHIBIT 21
State of
Incorporation
California
California
California
California
California
California
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EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Westamerica Bancorporation:
We consent to the incorporation by reference in the Registration Statement No. 333-157893 on Form S-3 and Registration
Statement No. 333-105537 and 333-107329 on Form S-8 of Westamerica Bancorporation of our report dated February 27, 2018
relating to the consolidated financial statements and effectiveness of internal control over financial reporting appearing in this
Annual Report on Form 10-K.
/s/ Crowe Horwath LLP
Crowe Horwath LLP
Sacramento, California
February 27, 2018
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EXHIBIT 31.1
CERTIFICATION UNDER
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, David L. Payne, certify that:
1. I have reviewed this report on Form 10-K of Westamerica Bancorporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing
the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ David L. Payne
David L. Payne
Chairman, President and Chief Executive Officer
Dated: February 27, 2018
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EXHIBIT 31.2
CERTIFICATION UNDER
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, John “Robert” Thorson, certify that:
1. I have reviewed this report on Form 10-K of Westamerica Bancorporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing
the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ John “Robert” Thorson
John “Robert” Thorson
Senior Vice President and Chief Financial Officer
Dated: February 27, 2018
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Westamerica Bancorporation (the “Company”) on Form 10-K for the period ending
December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David L. Payne,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ David L. Payne
David L. Payne
Chairman, President and Chief Executive Officer
Dated: February 27, 2018
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Westamerica Bancorporation (the “Company”) on Form 10-K for the period ending
December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John “Robert”
Thorson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ John “Robert” Thorson
John “Robert” Thorson
Senior Vice President and Chief Financial Officer
Dated: February 27, 2018
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Corporate Information
Corporate Profile
Westamerica Bancorporation (NASDAQ:WABC) operates as
a holding company for Westamerica Bank, a community bank
serving 20 Northern and Central California counties.
Westamerica Bancorporation Headquarters
1108 Fifth Avenue, San Rafael, CA 94901
Telephone (415) 257-8000
www.westamerica.com
Subsidiary Bank
Westamerica Bank
1108 Fifth Avenue, San Rafael, CA 94901
Telephone (415) 257-8000
Notice of Annual Meeting
Thursday, April 26, 2018 at 10:00 a.m. PT
Westamerica Bancorporation
4550 Mangels Boulevard, Fairfield, CA 94534
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 2017 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 and Chief Executive Officer,
Sunny Slope Vineyard
Louis E. Bartolini, Retired Executive, Merrill Lynch
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
Curtis Belton, Vice President and General Auditor
Dennis R. Hansen, Senior Vice President Operations and Systems
Russell Rizzardi, Senior Vice President Credit Administration
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
Robert A. Thorson, Senior Vice President and Chief Financial Officer
1108 FIFTH AVENUE | SAN RAFAEL, CA 94901 | WESTAMERICA.COM
WESTAMERICA
2017 ANNUAL REPORT | 2018 PROXY STATEMENT | NOTICE OF ANNUAL MEETING
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