WESTAMERICA
2019 ANNUAL REPORT | 2020 PROXY STATEMENT | NOTICE OF ANNUAL MEETING
1108 Fifth Avenue
San Rafael, California 94901
March 09, 2020
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 23, 2020, 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 (iv) conduct other business that may properly come before the Annual Meeting.
In order to ensure your shares are voted at the Annual Meeting, you can vote through the internet, by telephone
or by mail. Instructions regarding internet and telephone voting are included on the Proxy Card. If you elect to vote
by mail, please sign, date and return the Proxy Card in the accompanying postage-paid envelope. The Proxy
Statement explains more about voting in the section entitled “Voting Information – How You Can Vote.”
We look forward to seeing you at the Annual Meeting on Thursday, April 23, 2020, at Westamerica
Bancorporation, in Fairfield, California.
Sincerely,
David L. Payne
Chairman of the Board, President
and Chief Executive Officer
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2020 WESTAMERICA BANCORPORATION PROXY
WESTAMERICA BANCORPORATION
1108 Fifth Avenue
San Rafael, California 94901
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Date: Thursday, April 23, 2020
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 2021 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.
Management’s nine nominees are listed and described in the attached proxy statement.
Who Can Vote?
Shareholders of Record at the close of business on February 24, 2020 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 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,
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 24, 2020, evidencing your ownership on February 24,
2020, 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, 2019 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 09, 2020
Kris Irvine
VP/Corporate Secretary
Important notice regarding the availability of proxy materials for the shareholder meeting being held on
Thursday, April 23, 2020:
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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2020 WESTAMERICA BANCORPORATION PROXY
TABLE OF CONTENTS
GENERAL
Voting Information ................................................................................................................................................... 1
Additional Information ............................................................................................................................................. 4
Stock Ownership ....................................................................................................................................................... 4
Anti-Hedging & Anti-Pledging Policy ..................................................................................................................... 6
PROPOSAL 1: ELECTION OF DIRECTORS ...................................................................................................... 6
Board of Directors .................................................................................................................................................... 6
Nominees ................................................................................................................................................................. 6
Name of Nominees, Principal Occupations, and Qualifications ............................................................................. 6
Board of Directors and Committees ......................................................................................................................... 9
Director Compensation ........................................................................................................................................... 13
Director Compensation Table for Fiscal Year 2019 ............................................................................................... 14
EXECUTIVE COMPENSATION
Executive Officers ................................................................................................................................................... 14
Compensation Discussion and Analysis ................................................................................................................. 15
Employee Benefits Compensation Committee Report ........................................................................................... 25
Compensation Committee Interlocks and Insider Participation ............................................................................. 26
Summary Compensation ......................................................................................................................................... 26
Summary Compensation Table for Fiscal Year 2019 ............................................................................................ 26
Grants of Plan-Based Awards Table for Fiscal Year 2019 ..................................................................................... 27
Outstanding Equity Awards Table at Fiscal Year End 2019 .................................................................................. 28
Option Exercises and Stock Vested Table for Fiscal Year 2019 ............................................................................ 28
Pension Benefits for Fiscal Year 2019 .................................................................................................................... 29
Nonqualified Deferred Compensation Table for Fiscal Year 2019 ........................................................................ 29
Potential Payments Upon Termination or Change in Control ................................................................................ 30
Certain Relationships and Related Party Transactions .......................................................................................... 31
PROPOSAL 2: APPROVE A NON-BINDING ADVISORY VOTE ON THE COMPENSATION
OF OUR NAMED EXECUTIVE OFFICERS ................................................................................................... 31
PROPOSAL 3: RATIFY SELECTION OF INDEPENDENT AUDITOR ...................................................... 32
AUDIT COMMITTEE REPORT ............................................................................................................................ 33
SHAREHOLDER PROPOSAL GUIDELINES ..................................................................................................... 34
SHAREHOLDER COMMUNICATION TO BOARD OF DIRECTORS .......................................................... 35
OTHER MATTERS ................................................................................................................................................... 35
EXHIBIT A – EMPLOYEE BENEFITS/COMPENSATION COMMITTEE CHARTER ..................................... A-1
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2020 WESTAMERICA BANCORPORATION PROXY
WESTAMERICA BANCORPORATION
1108 Fifth Avenue
San Rafael, California 94901
___________
PROXY STATEMENT
March 09, 2020
___________
GENERAL
The Westamerica Board of Directors is soliciting proxies to be used at the 2020 Annual Meeting of Shareholders of
Westamerica Bancorporation (the “Company”), which will be held at 10:00 a.m. Pacific Time, Thursday, April 23,
2020, or at any adjournment or postponement of the Annual Meeting. The Board of Directors is soliciting proxies
to give all shareholders 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 09, 2020, we mailed a Notice of Internet
Availability of Proxy Materials (“Notice”) to certain of our shareholders. The Notice contains instructions about
how to access our proxy materials and vote online or vote by telephone. If you would like to receive a paper copy of
our proxy materials, please follow the instructions included in the Notice. If you previously chose to receive our
proxy materials electronically, you will continue to receive access to these materials via email unless you elect
otherwise.
Proof of Ownership May Be Required for Attending Annual Meeting in Person. You are entitled to attend
the Annual Meeting only if you are a shareholder as of the close of business on February 24, 2020, 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:
the Notice of Internet Availability of Proxy Materials;
a brokerage statement or letter from a bank or broker indicating ownership on February 24, 2020;
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 Catherine MacMillan, Ronald A. Nelson and Edward B. Sylvester to serve
as proxies for the Annual Meeting. As proxies, they will vote the shares represented by proxies at the Annual
Meeting. If you sign, date and return your Proxy Card but do not specify how to vote your shares, the proxies will
vote FOR the election of all of the Director nominees, FOR approval of the advisory vote on the compensation of
our named executive officers, and FOR ratifying the selection of independent auditor. The proxies will also have
discretionary authority to vote in accordance with their judgment on any other matter that may properly come before
the Annual Meeting that we did not have notice of by January 24, 2020.
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Quorum and Shares Outstanding. A quorum, which is a majority of the total shares outstanding as of the record
date, must be present to hold the Annual Meeting. A quorum is calculated based on the number of shares represented
by shareholders attending in person or by proxy. On February 24, 2020, 27,101,866 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 if 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 by proxy, you may vote in person in order to rescind your previous vote if you are a registered
holder of shares.
Vote Required; Effect of Abstentions and Broker Non-Votes. The shares of a shareholder whose proxy 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. 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 on these
matters, you must submit your voting instruction form to your broker or custodian.
The following table summarizes the votes required for passage of each proposal and the effect of abstentions and
uninstructed shares held by brokers:
Proposal
Number
Proposal
1
2
3
Election of directors
Advisory vote on executive
compensation "Say on Pay"
Ratification of independent
auditor
Votes Required for
Approval
Nine nominees
receiving the
most votes
Majority of
shares voted
Majority of
shares voted
Abstentions
Uninstructed Shares
Board Vote
Recommendation
Not voted
Not voted
Not voted
Not voted
Not voted
Broker
discretionary vote
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.
Voting Deadlines. If you are a participant in the Westamerica Bancorporation Tax Deferred Savings/Retirement
Plan (ESOP) your vote must be received by 11:59 p.m. Central Time, on April 20, 2020. All other shareholders
voting by telephone or internet must vote by 12:01 a.m. Central Time, on April 23, 2020 to ensure that their vote
is counted.
Revocation of Proxy. Registered holders who vote by proxy, whether by telephone, internet or mail, may revoke
that proxy at any time before it is voted at the Annual Meeting. You may do this by: (a) signing another Proxy
Card with a later date and delivering it to us prior to the Annual Meeting or sending a notice of revocation to the
Corporate Secretary of Westamerica at 1108 Fifth Avenue, San Rafael, CA 94901; (b) voting at a later time by
telephone or on the internet prior to 12:01 a.m. Central Time, on April 23, 2020 (prior to 11:59 p.m. Central Time,
on April 20, 2020 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.
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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 2019 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, 2019, in
addition to those disclosed in the Security Ownership of Directors and Management section below, were:
Number of Shares
Beneficially Owned
(1)
14.00%
Common
Common
3,789,359
Title of Class
Percent of Class
Name and Address of Beneficial Owner
BlackRock, Inc.
55 East 52nd Street, New York, NY 10055
The Vanguard Group, Inc.
100 Vanguard Boulevard, Malvern, PA 19355
T. Rowe Price Associates, Inc
100 East Pratt Street, Baltimore, MD 21202-1009
Eaton Vance Management
2 International Place, Boston, MA 02110
8.54%
(1) The Schedule 13G filed with the SEC on February 4, 2020 disclosed that the reporting entity, BlackRock, Inc., held sole voting power
over 3,733,107 shares and sole dispositive power over 3,789,359 shares.
(2) The Schedule 13G filed with the SEC on February 12, 2020 disclosed that the reporting entity, The Vanguard Group, Inc., held sole voting
power over 30,942 shares and sole dispositive power over 3,100,490 shares, and shared dispositive power over 32,068 shares.
(3) The Schedule 13G was filed with the SEC on February 14, 2020. These securities are owned by various individual and institutional
investors, which T. Rowe Price Associates, Inc. (Price Associates) serves as investment adviser with power to direct investments and/or sole
power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, Price Associates is deemed
to be a beneficial holder of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial holder of such
securities.
(4) The Schedule 13G filed with the SEC on February 12, 2020 disclosed that the reporting entity, Eaton Vance Management, held sole voting
power over 2,203,813 shares and sole dispositive power over 2,203,813 shares.
2,203,813
3,058,373
3,132,558
Common
Common
11.30%
11.57%
(2)
(4)
(3)
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2020 WESTAMERICA BANCORPORATION PROXY
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”), by the three other most highly
compensated executive officers, and by all Directors and Officers of the Company as a group as of February 24,
2020. As of February 24, 2020, there were 27,101,866 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, 2019.
Amount And Nature Of Beneficial Ownership
Shared Voting
and Investment
Power
Right to Acquire
Within 60 days of
December 31, 2019
Name and Address**
Etta Allen
Louis E. Bartolini
E. Joseph Bowler
Melanie Chiesa(5)
Catherine Cope MacMillan
Michele Hassid(7)
Ronald A. Nelson
David L. Payne
Edward B. Sylvester
Jesse Leavitt(10)
John "Robert" A. Thorson
Brian Donohoe(12)
George "Steven" Ensinger
Sole Voting
and
Investment
Power
10,923
(3)
1,700
-
-
8,600
(6)
44,000
-
-
25,887
(4)
-
-
-
1,453
(8)
885,570
(9)
62,490
1
-
5,767
14,534
-
-
10,366
(11)
-
-
Total(1)
10,923
1,700
25,887
-
8,600
44,000
887,023
62,490
1
40,883
11,367
29,921
Percent of
Class(2)
*
*
0.1%
*
*
0.2%
3.3%
0.2%
*
0.1%
0.3%
0.1%
-
-
-
-
-
-
-
-
-
30,517
5,600
15,387
-
-
-
-
*
4.3%
51,504
921,823
149,468
1,122,795
Russell W. Rizzardi
All 14 Directors and
Officers as a Group
* Indicates beneficial ownership of less than one-tenth of one percent (0.1%) of the Company’s common shares.
** The address of all persons listed is 1108 Fifth Avenue, San Rafael, CA 94901.
(1) None of the shares held by the Directors and Officers listed above have been pledged.
(2) In calculating the percentage of ownership, all shares which the identified person or persons have the right to acquire by exercise of options
are deemed to be outstanding for the purpose of computing the percentage of the class owned by such person, but are not deemed to be
outstanding for the purpose of computing the percentage of the class owned by any other person.
(3) Includes 10,350 shares held in a trust as to which Mrs. Allen is trustee.
(4) Includes 25,887 shares held in trust as to which Mr. Bowler is co-trustee with shared voting and investment power.
(5) Dr. Martella Chiesa was appointed Director January 23, 2020.
(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) Ms. Hassid was appointed Director September 26, 2019
(8) Includes 462 shares held in a trust under the California Uniform Gift to Minors Act as to which Mr. Payne is custodian.
(9) 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.
(10) Mr. Leavitt was appointed CFO January 1, 2020.
(11) Includes 9,961 shares held in a trust as to which Mr. Thorson is co-trustee with shared voting and investment power.
(12) Mr. Donohoe was appointed Manager of Operations and Systems Administration of Community Banker Services Corporation January 1,
2019.
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Anti-Hedging and Anti-Pledging Policy. The Company’s Insider Trading and Stock Hedging Policy prohibits
our directors, executive officers, and other employees with access to material non-public information from
engaging in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value
of Company securities in which they have an economic interest. Prohibited transactions include but are not
limited to: (1) selling short any Company common stock; and (2) buying or selling puts or calls or other derivatives
on Company securities, or otherwise entering into any hedging arrangements involving Company securities.
PROPOSAL 1 – ELECTION OF DIRECTORS
Board of Directors
The Board has nominated nine candidates for election as Directors 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 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 (90) 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 the chair of the Employee Benefits and
Compensation Committee and member of the Executive Committee and the Nominating Committee. Mrs. Allen
is also a Director of Westamerica Bank.
In 1972, she became the second woman in the state of California to become a licensed contractor in heating,
ventilation, air conditioning and sheet metal, and in 1974 she became President and CEO of Allen Heating and
Sheet Metal. Under her leadership the company became recognized throughout California. She was the first
woman president of Marin Builders Exchange and during her time on the executive committee she also served as
a trustee and later as Chairman of their successful insurance trust. She was the first woman contractor on the
Executive Committee of the California Association of Builders Exchanges.
Etta Allen is one of the pioneers for women in non-traditional careers. As an entrepreneur, businesswoman and
an involved community leader, she brings independence, operations management and executive experience to the
Board.
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Louis E. Bartolini – Director since 1991
Louis E. Bartolini (87) retired from Merrill Lynch, Pierce, Fenner & Smith, Inc. (now Merrill Lynch and Co.) as
a financial consultant. He currently serves on the Audit Committee, the Employee Benefits and Compensation
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 (83) retired as Senior Vice President and Treasurer of the Company in 2002. He currently serves as
a member of the Audit Committee, the Loan and Investment 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.
Melanie Martella Chiesa – Director since 2020
Melanie Martella Chiesa (54) is an optometrist in private practice at Monte Vista Optometry in Turlock, California.
Dr. Martella Chiesa is a member of the Loan and Investment Committee. She is also a Director of Westamerica Bank.
Dr. Martella Chiesa was elected to the Board in January 2020.
Dr. Martella Chiesa is a lifelong resident of Hughson, California where she is a partner in her family’s walnut and
almond farming operations. She is an owner and board member of Martella Farms, Inc., Ag Commodities, Grower
Direct Nut, Inc., ARK Development and Nutty Gourmet Nut Company. Dr. Martella Chiesa is a graduate of the
University of California, Berkeley, where she received her Doctor of Optometry degree. Dr. Martella Chiesa also
received Bachelor of Science degrees in food science and nutrition, functional biology and visual sciences.
Dr. Chiesa is passionate about local community and philanthropy. She, along with her husband, founded the Ciara
Chiesa Circle of Hope Fund. Melanie is also the board chair of the Stanislaus Community Foundation, chaired their
Scholarship Committee and served on the Executive and Development Committees. Dr. Martella Chiesa also serves
as a trustee for the Gallo Center for the Arts.
Along with leadership and private business knowledge, Dr. Chiesa brings to the Board an understanding of agriculture,
healthcare, philanthropy and issues of the Central Valley of California.
Michele Hassid – Director since 2019
Michele Hassid (57) is Managing Partner of Eckhoff and Company, San Rafael. Ms. Hassid is a member of the
Audit and Employee Benefits and Compensation Committees. She is also a Director of Westamerica Bank. Ms.
Hassid was elected to the Board in September 2019.
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Ms. Hassid joined Eckhoff and Company in 1990, where along with being a Managing Partner, she also serves as a
Partner with Eckhoff Wealth Management. Ms. Hassid assists clients with financial and operational needs. Ms.
Hassid graduated with honors from San Francisco State University with a B.A. in Accounting and is a graduate of
the San Rafael Leadership Institute. She holds a CPA certificate and a CGMA certification. Ms. Hassid has
memberships with AICPA, CALCPA, is a board member of the San Rafael Chamber of Commerce and is a finance
committee member for Congregation Ner Tamid in San Francisco.
Ms. Hassid’s background and education provides financial expertise and entrepreneurial skills.
Catherine Cope MacMillan – Director since 1985
Catherine Cope MacMillan (72) 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 (77) 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, Executive Committee, and Nominating Committee. He is also a Director of Westamerica Bank. Mr.
Nelson has a background as a Certified Public Accountant and has been designated as the Audit Committee’s
“financial expert.” He has been a resident of Sonoma County since 1970, which is one of the bank’s primary markets
and where he has been involved in business management, investment management, and the development of
commercial real estate. He also served as a board member and Chairman of Santa Rosa Memorial Hospital, which is
the area’s primary acute care hospital.
Mr. Nelson’s extensive business and financial expertise provides important oversight of our financial reporting and
risk management.
David L. Payne – Director since 1984
David L. Payne (64) 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 eleven-fold. Total assets have quadrupled during his tenure and net income has risen
by a multiple of 16. Return on equity was 11.9% for the year ended December 31, 2019.
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
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Bank. Mr. Payne also manages his family printing, publishing and cable television business.
Edward B. Sylvester – Director since 1979
Edward Sylvester (83) 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, Chairman of 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 served as the Chairman of the Board of Sierra
Nevada Memorial Hospital from 2016-2018. He is a board member of 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. Bartolini, E.J. Bowler, M. Chiesa, M. Hassid, 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 named executive officers have an average tenure of 19 years and do 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.
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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 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 2019. 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 2019 Annual Meeting of Shareholders attended the
meeting.
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Director Name
Etta Allen
Louis E. Bartolini
E. Joseph Bowler
Melanie Martella Chiesa (2)
Michele Hassid (3)
Catherine Cope MacMillan
Ronald A. Nelson
David L. Payne
Edward B. Sylvester
Committees of the Board
Executive
Committee
X
Audit
Committee
Employee
Benefits and
Compensation
Committee
Chair (1)
Loan and
Investment
Committee
Nominating
Committee
X
X
X
X
X
Chair
5
X
X
X
5
X
X
X
Chair
9
X
Chair
5
X
Chair
X
Number of Meetings in 2019
(1) Ms. Allen was appointed Chair March 9, 2019.
(2) Dr. Martella Chiesa was appointed Director January 23, 2020.
(3) Ms. Hassid was appointed Director September 26, 2019.
9
Executive Committee. 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 of the Audit Committee are independent,
as that term is defined by applicable rules of NASDAQ for Audit Committee purposes. The Board has also designated
Mr. Nelson as the “Audit Committee financial expert” as defined by the rules of the SEC and has determined that he
is “financially sophisticated” under NASDAQ rules. In concluding that Mr. Nelson is the Audit Committee financial
expert, the Board determined that he has:
an understanding of generally accepted accounting principles and financial statements;
the ability to assess the general application of such principles in connection with the accounting for estimates,
accruals and reserves;
experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level
of complexity of accounting issues that are generally comparable to the breadth and complexity of issues
that can reasonably be expected to be raised by the Company’s financial statements, or experience actively
supervising one or more persons engaged in such activities;
an understanding of internal control over financial reporting; and
an understanding of Audit Committee functions.
Designation of a person as an Audit Committee financial expert does not result in the person being deemed an expert
for any purpose, including under Section 11 of the Securities Act of 1933. The designation does not impose on the
person any duties, obligations or liability greater than those imposed on any other Audit Committee member or any
other Director and does not affect the duties, obligations or liability of any other member of the Audit Committee or
Board of Directors.
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
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Directors in January 2020 and attached as Exhibit A to the Proxy Statement for the 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.
The Compensation Committee administers Westamerica Bancorporation’s equity incentive plan, 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 2020 and is attached as Exhibit A to the Proxy Statement for this 2020
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.
Nominating Committee. The Board of Directors has determined that all members of the Nominating Committee
are independent, as defined in NASDAQ rules.
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 by the Board of Directors in January 2020 and attached as Exhibit A to the Proxy Statement for the 2019
Annual Meeting of Shareholders.
While the Board does not have a formal diversity policy, it broadly defines diversity to encompass a 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.
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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;
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. 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 2019. Directors who are employees of the Company
receive no compensation for their services as Directors.
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Director Compensation Table For Fiscal Year 2019
Name(1)
Etta Allen
Louis E. Bartolini
E. Joseph Bowler
Michele Hassid(3)
Patrick D. Lynch(4)
Catherine Cope MacMillan
Ronald A. Nelson
Fees Earned
Paid in Cash
$44,350
38,800
40,600
12,133
9,600
42,400
48,450
Change in Pension Value and
Nonqualified Deferred
Compensation Earnings(2)
$37,243
355
-
-
-
-
-
Total
$81,593
39,155
40,600
12,133
9,600
42,400
48,450
47,200
Edward B. Sylvester
(1) Non-employee Directors did not receive options or stock awards. During 2019, 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 2019 and in previous years.
(3) Ms. Hassid was appointed Director September 26, 2019.
(4) Mr. Lynch passed away March 9, 2019.
53,679
6,479
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 appointed to serve in such capacities at that meeting.
David L. Payne – Held since 1984
David L. Payne (64) 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.
Jesse Leavitt – Held since 2020
Jesse Leavitt (34) is Senior Vice President and Chief Financial Officer of the Company. Mr. Leavitt is a California
licensed certified public accountant who joined Westamerica Bancorporation as Vice President and Controller in
March 2019. Prior to joining the Company, Mr. Leavitt was a bank examiner with a federal financial regulatory
agency from 2011 until 2016 and was Assistant Controller for a $12 billion financial institution from 2016 until 2019.
John “Robert” Thorson – Held since 2020
John “Robert” Thorson (59) is Senior Vice President and Treasurer of the Company. Mr. Thorson joined Westamerica
Bancorporation in 1989, was Vice President and Manager of Human Resources from 1995 until 2001, was Senior
Vice President and Treasurer from 2002 until 2005, and was Senior Vice President and Chief Financial Officer from
2005 until 2019.
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Brian Donohoe – Held since 2019
Brian Donohoe (39) is Senior Vice President and Manager of Operations and System Administration of
Community Banker Service Corporation. Mr. Donohoe joined Westamerica Bancorporation in 1999 and has held
a variety of positions in the Banking Division and the Operations and Systems Division, most recently, Vice
President and Manager of Business Services until 2018.
Russell W. Rizzardi – Held since 2008
Russell W. Rizzardi (64) 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.
Code of Ethics. 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-seven years. At
each Annual Meeting of Shareholders since 2010, a majority of our shareholders approved an advisory proposal on
the Company’s executive compensation. Last year 99% of the shares voting on this proposal voted to support our
Corporation’s executive compensation strategy
The Compensation Committee governs the executive compensation program that combines three compensation
elements: base salary, annual non-equity cash incentives, and long-term stock grants. Several compensation
philosophies and practices underlie this program:
base salaries for participants in this program should be limited to foster an environment where incentive
compensation motivates and rewards corporate, divisional, and individual performance.
incentive compensation (annual non-equity cash incentives and long-term stock grants) is based on
measurement of performance against pre-established objective measurable goals. Specific criteria for each
objective are established for “threshold,” “target,” and “outstanding” performance. On any one measure,
performance below “threshold” results in no credit for that objective. “Threshold” performance results in
75% achievement, “target” performance results in 100% achievement, and “outstanding” performance
results in 150% achievement. The performance achievement level determines the size of incentive
compensation awards.
long-term incentive stock grants will be awarded to senior management if the corporate performance level
is rated “threshold” or better. The purpose of long-term incentive grants is to:
– motivate senior management to focus on long-term performance;
–
–
–
–
avoid excessive risk-taking and instill conservative management practices;
build equity ownership among Westamerica’s senior management;
link shareholder interests to management incentives; and
create ownership mentality among senior management.
In February 2013, the Board of Directors adopted a clawback policy that requires executive officers to forfeit
previously awarded incentive compensation if the incentives were based on materially inaccurate financial statements
or other performance measures that are later proven to be materially inaccurate or the achievement of which were due
to fraud or other misconduct. The Company’s 2019 Omnibus Equity Incentive Plan (the “2019 Omnibus Plan”)
includes a clawback provision with similar terms.
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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”) are restricted stock unit awards that vest upon the achievement of performance
objectives established by the Compensation Committee. Historically, the Company has granted RPS awards to its
executives with a three-year vesting period and vesting conditions based on performance factors including the
Company’s three year cumulative diluted earnings per share (EPS), three year average of annual return on average
total assets (ROA); three year average of annual return on average shareholders’ equity relative to industry average
ROE (ROE differential); non-performing assets to total assets (NPA); and the efficiency ratio over three years.
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
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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 “equity incentive 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. The
2012 Amended Plan:
reduces 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.
establishes 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 established governing terms and conditions for all stock grants awarded from the effective
date of the plan through the effective date of the 2019 Omnibus Plan.
The Company’s 2019 Proxy Statement, as filed with the SEC on March 11, 2019, summarizes the 2019 Omnibus
Plan. The 2019 Omnibus Plan:
authorizes the grant of up to 1,235,898 shares (plus shares that become available if awards under prior plans
expire unexercised or are cancelled, forfeited or terminated before being exercised). In addition, the 2019
Omnibus Plan authorizes the issuance of shares under an award granted in the assumption of, or in
substitution for, outstanding awards previously granted by another business entity acquired by the Company.
Any additional authorization of shares available for issuance must be approved by shareholders.
establishes a plan expiration date of April 25, 2029 after which shareholder approval is again required to
extend the term or approve a new stock option plan.
replaces the Company’s 2012 Amended and Restated Stock Option Plan of 1995 (the “2012 Amended
Plan”), though award previously issued under such plan continue to be outstanding, subject to the terms of
the applicable awards agreements.
The equity incentive plans allow the following 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.
Share Appreciation Rights. (“SAR”) provide the holder a cash payment equal to the difference between the fair
market value of the Westamerica Bancorporation’s common stock on the date the SAR is surrendered and the fair
market value of the Company’s common stock on the date the SAR was granted. The optionee incurs taxable income
at the time the SAR is settled and the Company receives a corporate tax deduction in the same amount.
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2020 WESTAMERICA BANCORPORATION PROXY
Restricted Shares and Restricted Stock Units. The Compensation Committee determines the vesting schedule and
performance goals, if any, applicable to the grant of restricted shares and Restricted Stock Units. Restricted Stock Units
are awards that may be settled in Westamerica Bancorporation’s common stock or cash, subject to vesting. As
described above, the Company has historically granted Restricted Stock Units as RPS awards that settle in shares of
Westamerica Bancorporation’s common stock, 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 equity incentive plans. 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 24,
2020, the Company had no ISO, SAR or restricted stock awards outstanding.
Determination of Exercise Price. The equity incentive plans require the exercise price of each NQSO, ISO or SAR
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 equity incentive plans do 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 equity incentive plans. The Compensation Committee reports to the Board the terms and
conditions of awards granted under these plans. In carrying out this responsibility, the Compensation Committee
designs such awards as long-term incentives. The terms and conditions of currently outstanding awards under the
Company’s several equity incentive plans 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 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 29 of this Proxy Statement 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 2019
performance were as follows:
“Target”
Cash
Goal Weighting
Individual
20%
Mr. Payne
20%
Mr. Thorson
20%
Mr. Donohoe
Mr. Rizzardi
10%
Mr. Ensinger 49,100 55% 35% 10%
Corporate
80%
55%
55%
55%
Divisional
–
25%
25%
35%
Incentive
$371,000
112,200
42,000
60,500
(1)The value of the surrendered RPS shares and the Pension Agreement were considered equivalent based on actuarial assumptions.
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2020 WESTAMERICA BANCORPORATION PROXY
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 2019 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 (classified loans and other real estate owned, non-
performing loans and other real estate owned, and net loan losses to average loans) and service quality measures
(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 2019, the Compensation Committee expected uncertain economic growth with short-term interest rates rising and
a flattening or inverting yield curve. 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 2019 operating environment was generally characterized as follows:
economic growth in the United States’ slowed, but remained positive;
inflation remained below targets established by the Federal Open Market Committee in spite of improving
employment conditions;
the Federal Open Market Committee reduced the federal funds rate on three occasions resulting in declining
short-term interest rates; intermediate-term and long-term interest rates declined as well;
throughout much of 2019, competitive interest rates on loans remained below the yields required for the
Company to deliver satisfactory financial results throughout a full business cycle; 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 and deposits for long-term financial results;
management consistently maintained conservative corporate bond and loan underwriting practices to
appropriately manage the Company’s exposure to credit risk;
management enhanced the value of the Company’s deposit base through growth in checking and savings
deposits and a reduction in time deposits;
management contained operating costs to deliver revenue improvement to pre-tax income;
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:
Profitability Goals:
Return on average shareholders’ equity
Return on average assets
Diluted earnings per share
11.55%
1.39%
$2.87
11.62%
1.40%
$2.89
Performance
“Target”
Adjusted Actual
Results
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2020 WESTAMERICA BANCORPORATION PROXY
Quality Goals:
Classified loans and other real estate owned
Non-performing loans and other real estate
owned
Net loan losses to average loans
Service quality
$35 million
$25 million
$8 million
0.20%
Improving
$5 million
0.15%
Improving
Control Goals:
Non-interest expense to revenues (efficiency ratio)
Non-interest expenses
Below satisfactory internal audits
49.3%
$104.2 million
none
48.1%
$99.9 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
116.0% 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:
achievement of assigned corporate performance financial goals including return on equity, return on assets,
earnings per share and expense level;
prepare for a decline in interest rates to ensure achievement of financial goals;
oversee internal controls and risk management activities including internal audits, external audits and
regulatory exams;
ensure application of consistent underwriting and credit management supervision;
oversee transitions in divisional managers;
mentor new senior level managers;
achievement of merchant processing services revenue objectives;
maintaining effective communication throughout the Company; and
merger and acquisition projects.
investor relations goals;
Based on individual performance against these goals, the Committee exercised its discretion and assigned Mr. Payne
a composite corporate and individual performance level of 81%.
In addition to routine on-going divisional responsibilities, Mr. Thorson managed the Finance Division toward
functional goals, which included:
manage the balance sheet to meet financial performance objectives while maintaining appropriate liquidity
and managing interest rate risk,
management of the investment securities portfolio including credit risk, liquidity, and risks derived from
possible movements in interest rates;
monitor market rates on depository products and meet low-cost funding objective;
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;
provide management oversight to the Facilities Department;
manage implementation of new accounting standards;
manage operating units to deliver superior customer service; and
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2020 WESTAMERICA BANCORPORATION PROXY
satisfactory regulatory examinations, external audits, and internal audits within all areas of responsibility.
Based on the Finance Division’s results, the Committee determined divisional performance to be 114%.
In addition to daily management responsibilities, Mr. Thorson’s individual goals included:
provide training, mentoring and development to personnel hired to assume divisional responsibilities;
hire, train, mentor and develop key divisional personnel;
develop personnel succession plans; and
evaluate the impact of California wage laws on the Companies salary administration practices.
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 145%.
In addition to routine on-going divisional responsibilities, Mr. Donohoe managed the Operations & Systems Division
toward functional goals, which included:
achievement of customer service objectives;
meet or exceed non-interest expense goals;
achieve risk management goals;
execute staff development plans; and
complete divisional projects in the areas of compliance, systems development and implementation, and other
areas of responsibility.
Based on the Operations & Systems Division’s results, the Committee determined divisional performance to be 116%.
In addition to daily management responsibilities, Mr. Donohoe’s individual goals included:
successfully assume division management responsibilities;
evaluate and complete recommended organizational restructuring;
establish strong and effective communication practices with division managers and the Board of Directors;
personnel management objectives; and
satisfactory internal audit, external audit and regulatory exam outcomes.
Based on individual performance against these goals, the Committee determined Mr. Donohoe’s individual
performance to be 125%. As a result, Mr. Donohoe’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:
managing loan portfolio credit risk to established targets;
completion of regulatory compliance projects;
update divisional credit policies and procedures manuals,
satisfactory results from internal, third-party and regulatory examinations; and
achievement of satisfactory service quality objectives.
Based on the Credit Division’s results, the Committee determined divisional performance to be 105%.
In addition to daily management responsibilities, Mr. Rizzardi’s individual goals included:
enhance communication practices with the Board of Directors;
fill critical divisional staffing vacancies;
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2020 WESTAMERICA BANCORPORATION PROXY
maintain consistency of underwriting standards and principles; and
provide support to the Loan Review function.
Based on individual performance against these goals, the Committee determined Mr. Rizzardi’s individual
performance to be 99%. As a result, Mr. Rizzardi’s composite corporate, divisional and individual performance level
was 110%.
In addition to routine on-going divisional responsibilities, Mr. Ensinger managed the Human Resources Division
toward functional goals, which included:
achievement of corporate-wide training objectives;
monitor and communicate changes in state and federal employment laws;
administration of the employee relations program;
management of the workers’ compensation and unemployment claims programs; and
delivery of satisfactory divisional customer service throughout the Company.
Based on the Human Resources Division’s results, the Committee determined divisional performance to be 100%.
In addition to daily management responsibilities, Mr. Ensinger’s individual goals included:
evaluation of the Company’s affirmative action plan;
maintaining and updating policies and procedures to remain compliant with state and federal laws;
enhance communication practices with division managers and the Board of Directors; and
manage expenses to budgeted amounts.
Based on individual performance against these goals, the Committee determined Mr. Ensinger’s individual
performance to be 111%. As a result, Mr. Ensinger’s composite corporate, divisional and individual performance level
was 109%.
Based on the above described performance against objectives, the Committee determined cash incentive awards as
follows:
“Target”
Cash
Incentive
$371,000
112,200
42,000
60,500
49,100
Mr. Payne
Mr. Thorson
Mr. Donohoe
Mr. Rizzardi
Mr. Ensinger
X
Composite Corporate
Divisional and Individual
Performance Level
=
81%
145%
118%
110%
109%
Cash
Incentive
Award
$300,000
163,200
49,400
66,800
53,400
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 stock. For achievement of corporate performance in 2019, the following stock grants were awarded
in January 2020:
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2020 WESTAMERICA BANCORPORATION PROXY
X
X
“Target”
Nonqualified
Stock Option
Grant
–
17,160
10,600
13,790
11,210
“Target”
RPS
Grant
–
1,680
1,090
1,360
1,110
Mr. Payne
Mr. Thorson
Mr. Donohoe
Mr. Rizzardi
Mr. Ensinger
Mr. Payne
Mr. Thorson
Mr. Donohoe
Mr. Rizzardi
Mr. Ensinger
Corporate
Performance
Level
116.0%
116.0%
116.0%
116.0%
116.0%
Corporate
Performance
Level
116.0%
116.0%
116.0%
116.0%
116.0%
=
=
Nonqualified
Stock
Option
Award
–
19,900
12,300
16,000
13,000
RPS
Award
–
1,950
1,260
1,580
1,290
RPS awards vest three years following the grant date, only if certain corporate performance objectives are achieved
over the three-year period. In January 2020, the Compensation Committee evaluated whether the three year corporate
performance objectives were met for RPS awards granted in January 2017. The performance objectives for the RPS
granted in January 2017 included:
3 year cumulative diluted earnings per share (EPS);
3 year average of annual return on average total assets (ROA);
3 year average of annual return on average shareholders’ equity relative to industry average ROE (ROE
differential);
ending non-performing assets to total 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
$6.70
1.00%
0.25%
0.50%
56.00%
Target
$6.85
1.05%
0.50%
0.35%
55.00%
Outstanding
$6.95
1.10%
0.75%
0.25%
53.00%
Result
Outstanding
Outstanding
Target
Outstanding
Outstanding
With five of the goals achieving the “threshold” performance level or better, the Compensation Committee determined
the RPS shares awarded in 2017 vested upon achievement of the three year goals.
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2020 WESTAMERICA BANCORPORATION PROXY
Nonqualified Deferred Compensation Programs. The Company maintains nonqualified deferred compensation
programs to provide senior and mid-level executives the ability to defer compensation in excess of the annual limits
imposed on the Company’s 401(k) plan. The Company believes these tax deferral programs enhance loyalty and
motivate retention of executives. These programs allow executives to defer cash pay and RPS shares upon vesting.
The programs also allow Directors to defer Director fees.
Cash pay deferred in the program accumulates in accounts in the names of the participating Directors and
executives. The Company credits the balance of these accounts with interest using an interest rate that
approximates the crediting rate on corporate-owned life insurance policies, under which Directors and
executives are the named insured. Deferrals and interest credits represent general obligations of the
Company.
The common stock the Company issues to executives upon the vesting of RPS grants may be deferred into
the program and deposited into a “Rabbi Trust.” Since these shares are outstanding shares of the Company’s
common stock, the Company pays dividends on these shares at the same rate paid to all shareholders. The
shares held in the “Rabbi Trust” are subject to claims by the Company’s creditors.
Employment Contracts. None of the executives named in the accompanying tables have employment contracts
with the Company.
Compensation in the Event of a Change in Control. The banking industry has significant merger and acquisition
activity. To promote retention of senior executives, unvested NQSO and RPS grants contain a “change in control”
provision, which trigger full vesting upon a change in control. The Compensation Committee determined these
provisions were appropriate in order to retain executives to continue managing the Company after any “change in
control” was announced through its ultimate consummation. Since none of the named executive officers have entered
employment contracts with the Company, they serve in an “at-will” capacity and could terminate their employment
at any time. The Compensation Committee felt it would be in the best interests of shareholders to have a retention
mechanism in place to provide continuity of management during a “change in control” process. Further, the
Committee expects the named executive officers would be terminated by an acquiring institution rather than retained
in a similar functional capacity.
The Company also maintains a Severance Payment Plan covering all employees to promote employee retention.
The Severance Payment Plan provides salary continuation benefits for employees in the event of a “change in
control.” The amount of salary continuation benefits is based on years of service and corporate title, but in no
event exceed the equivalent of one times annual salary. Messrs. Payne, Thorson and Rizzardi are eligible for one
year’s salary under the plan. Mr. Ensinger was eligible for the equivalent of 30-weeks salary under the plan as of
December 31, 2019.
Internal Revenue Code. 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 as of November 2, 2017. 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, 2019.
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2020 WESTAMERICA BANCORPORATION PROXY
Submitted by the Employee Benefits and Compensation Committee
Etta Allen, Chair
Louis E. Bartolini
Michele Hassid
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, 2019, 2018, and 2017. These persons are referred to as named executive officers elsewhere in this
Proxy Statement.
Summary Compensation Table For Fiscal Year 2019
Name / Position
Year
Salary
Awards(1)
Stock
Option
Awards(2)
Non-Stock
Incentive Plan
Compensation(3)
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings(4)
All Other
Compensation(5)
TOTAL
David L. Payne
2019
$371,000
Chairman,
President & CEO
John "Robert" A. Thorson
SVP & Chief
Financial Officer
Russell W. Rizzardi
SVP/Credit Administrator
Division Manager
George "Steven" Ensinger
SVP/Human Resources
Division Manager
Brian Donohoe(6)
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
371,000
371,000
$-
-
-
$-
-
-
149,000
124,718
216,028
149,000
123,688
210,578
149,000
122,932
179,459
120,960
101,529
175,268
120,960
100,070
169,660
120,960
100,061
144,725
98,160
82,101
141,641
98,160
81,423
138,722
98,160
81,192
116,607
120,000
-
-
55,026
54,890
$300,000
250,000
225,000
163,200
160,700
156,200
66,800
65,500
65,400
53,300
53,400
52,300
49,400
22,100
$-
-
-
23,955
22,351
36,594
-
-
-
137
130
214
-
-
$24,274
$695,274
19,813
640,813
19,031
615,031
32,405
709,306
29,012
695,329
27,366
671,551
9,050
7,903
7,491
473,607
464,093
438,637
16,134
391,473
15,408
387,243
15,315
363,788
2,605
7,422
227,031
171,760
SVP/Operations & Systems
2018
87,348
-
2017
75,348
Division Manager
48,793
(1) Stock Awards represent RPS shares as described in the Compensation Discussion & Analysis. The amounts shown represent the aggregate
grant date fair market value computed in accordance with FASB ASC Topic 718. For further information, see Note 1 to the Company's audited
financial statements for the year ended December 31, 2019 included in the Company's Annual Report on Form 10-K.
(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 computed in accordance with FASB ASC Topic 718. For further information, see Note 1
to the Company's audited financial statements for the year ended December 31, 2019 included in the Company's Annual Report on Form 10-K.
(3) The amounts shown are non-equity incentive compensation only. No interest or other form of earnings was paid on the compensation.
147,127
17,300
5,686
-
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2020 WESTAMERICA BANCORPORATION PROXY
(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 2019.”
(5) Each of the above-named executive officers received less than $10,000 of aggregate perquisites and personal benefits. 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. Donohoe was appointed Manager of Operations and Systems Administration of Community Banker Services Corporation on January
1, 2019.
Based on the compensation disclosed in the Summary Compensation Table, approximately 36% 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.
Median Employee total annual compensation
Mr. Payne total annual compensation
Ratio of PEO to Median Employee Compensation
$ 35,667
$695,274
19.5:1.0
In determining the median employee total annual compensation, the Company prepared a census of all employees
as of December 31, 2019, except the PEO, with compensation annualized for those employees hired in 2019. For
simplicity, the value of benefits provided by the Company’s qualified retirement plans and welfare benefit plans
were excluded from the determination of total annual compensation as all employees are offered the same benefit
programs.
Grants of Plan-Based Awards Table For Fiscal Year 2019
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
Target
Threshold
Maximum
All Other Stock
Awards: Number
of Shares
of Stock
or Units(1)
All Other Stock
Awards: Number
of Securities
Underlying
Options(2)
Exercise or
Base Price of
Option Awards
($/Share)(2)
Name
David L. Payne
John "Robert" A. Thorson
Brian Donohoe
Russell W. Rizzardi
George "Steven" Ensinger
Grant Date
1/24/19
1/24/19
1/24/19
1/24/19
1/24/19
1/24/19
1/24/19
1/24/19
1/24/19
1/24/19
1/24/19
1/24/19
1/24/19
1/24/19
1/24/19
$-
$371,000
$556,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
112,200
168,300
-
-
-
-
42,000
$63,000
-
-
-
-
60,500
90,750
-
-
-
-
49,100
$73,650
-
-
-
-
-
-
-
-
1,990
-
-
-
-
-
1,620
-
-
1,310
-
Grant Date
Fair Value(3)
$-
-
-
-
124,718
183,168
-
-
-
-
-
-
$-
-
-
-
-
21,200
62.67
-
-
-
-
-
5,400
62.67
46,656
-
-
-
-
17,200
62.67
-
-
-
-
13,900
62.67
-
101,529
148,608
-
82,101
120,096
(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 three-year performance goals are established by the Compensation Committee for each grant;
• The Compensation Committee may revise the goals upon significant events;
• Accelerated vesting occurs upon a “change in control;” and
27
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2020 WESTAMERICA BANCORPORATION PROXY
• 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.”
(3) The amounts shown for NQSOs and RPS awards represent the aggregate grant date fair market value.
Outstanding Equity Awards Table at Fiscal Year End 2019
Option Awards
Stock Awards
Name
David L. Payne
John "Robert" A. Thorson
Brian Donohoe
Russell W. Rizzardi
Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable(1)
Number of
Securities
Underlying
Unexercised
Options
(#) Unexercisable(1)
-
Option
Exercise
Price ($)(1)
$-
-
-
7,034
-
3,933
1,834
-
-
-
-
4,634
-
7,233
14,066
21,200
1,967
3,666
5,400
5,833
11,333
17,200
4,700
57.178
62.155
62.673
57.178
62.155
62.673
57.178
62.155
62.673
57.178
9,266
13,900
62.155
62.673
Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That
Have Not
Vested (#)(2)
-
Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares,
Units or Other Rights
That Have Not
Vested ($) valued at
12/31/19(2)
$-
6,130
415,430
-
-
4,980
337,495
Option
Expiration
Date(1)
-
1/26/2027
1/25/2028
1/24/2029
1/26/2027
1/25/2028
1/24/2029
1/26/2027
1/25/2028
1/24/2029
1/26/2027
1/25/2028
1/24/2029
George "Steven" Ensinger
9,400
273,791
(1) Option Awards vest ratably over three years beginning one year from date of grant. Options expiring in 2027 fully vested in January 2020.
Options expiring in 2028 fully vest in January 2021. Options expiring in 2029 fully vest in January 2022.
(2) RPS shares fully vest three years from date of grant if performance goals are met. RPS grants vest as follows: Messrs. Thorson - 2,150
shares vested in January 2020, 1,990 vest in January 2021, and 1,990 vest in January 2022; Rizzardi - 1,750 shares vested in January 2020,
1,610 shares vest in January 2021, and 1,620 shares vest in 2022; and Ensinger - 1,420 shares vested in January 2020, 1,310 shares vest in
January 2021, and 1,310 vest in January 2022. Donohoe – has no RPS shares. Vesting may occur on a pro-rated basis for employees separating
from service due to retirement.
4,040
Option Exercises And Stock Vested Table For Fiscal Year 2019
Option Awards
Stock Awards
Name
David L. Payne
John "Robert" A. Thorson
Brian Donohoe
Russell W. Rizzardi
Number of Shares
Acquired on Exercise
Value Realized
on Exercise($)
Number of Shares
Acquired on Vesting
Value Realized on
Vesting($)(1)
-
23,634
0
24,767
$-
305,114
0
219,463
235,964
-
2,930
0
2,370
1,930
$-
181,587
0
146,881
119,612
George "Steven" Ensinger
(1) Amounts represent value upon vesting of RPS shares.
11,500
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2020 WESTAMERICA BANCORPORATION PROXY
Pension Benefits For Fiscal Year 2019
Name
Plan Name
Present Value of
Accumulated Benefit
Payments during
Last Fiscal Year
David L. Payne
Non-Qualified Pension Agreement
$4,455,863
$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 2.76%. The obligation is an unfunded general obligation
of the Company.
Nonqualified Deferred Compensation Table For Fiscal Year 2019
Name
David L. Payne
John "Robert" A. Thorson
Brian Donohoe
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)
$-
45,000
-
-
$-
109,886
-
-
$-
-
-
-
$-
2,259,249
-
-
George "Steven" Ensinger
(1) No RPS shares were deferred upon vesting in 2019.
(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 2019 on page 27 are as follows: Messrs. Thorson
- $23,955; Baker - $571; Ensinger - $137.
(3) Includes dividends paid on deferred RPS shares.
(4) Aggregate balance of deferred compensation reported as compensation prior to 2019 is as follows: Messrs. Thorson - $2,104,363; Ensinger
- $12,2823.
12,912
629
-
-
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 credited during 2019 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
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.
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2020 WESTAMERICA BANCORPORATION PROXY
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.
Under the 2019 Omnibus Plan, a change in control occurs when (i) a person or entity becomes the beneficial owner
of more than 50% of voting power of the Company; (ii) there is an unapproved change in the majority membership
of the Board of Directors; (iii) a merger of the Company or any of its subsidiaries is completed, other than (A) a
merger that results in the Company’s voting securities continuing to represent 50% or more of the combined voting
power of the surviving entity and the Board of Directors immediately prior to the merger or consolidation continuing
to represent at least a majority of the Board of Directors of the surviving entity or (B) a merger or consolidation
effected to implement a recapitalization in which no person is or becomes the owner of voting securities representing
more than 50% of the combined voting power of the Company; or (iv) shareholders approve of a plan of liquidation
or dissolution.
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: $679,093; Donohoe: $68,947; Rizzardi: $550,592; and Ensinger: $488,477. The
value is computed by multiplying the difference between the market value on December 31, 2019, the last
business day of 2019, 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 2019 for annual
base salary for all named executive officers). Messrs. Payne, Thorson, Donohoe and Rizzardi are eligible for one
year’s salary under the plan. Mr. Ensinger was eligible for the equivalent of 36-weeks pay under the plan as of
December 31, 2019. 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.
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2020 WESTAMERICA BANCORPORATION PROXY
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 and Thorson have mortgage loans through this Program. The largest aggregate
amount of principal during 2019 was $347,727 and $229,015, respectively. The principal amount outstanding at
December 31, 2019 was $329,659 and $203,677, respectively. The amount of principal paid during 2019 was
$18,068 and $25,338, respectively. The amount of interest paid during 2019 was $13,234 and $10,109,
respectively. The rate of interest payable on the loans is 3.75% and 3.38%, respectively.
PROPOSAL 2 – APPROVE A NON-BINDING ADVISORY VOTE ON THE COMPEN-
SATION OF OUR NAMED EXECUTIVE OFFICERS
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires that
shareholders cast a non-binding advisory vote on the executive compensation paid to the executive officers listed
in the Summary Compensation Table (a so-called “say on pay” vote) as well as an advisory vote with respect to
whether future say on pay votes will be held every one, two or three years. The result of the shareholder vote on
the proposal to determine the frequency of future say on pay proposals was that shareholders should review
executive compensation annually. Therefore, Proposal 2 requests that shareholders again approve the
compensation paid to our named executive officers. Last year 98.6% 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 RPS and option awards are based on a minimum
achievement of meeting the “threshold” level for each pre-established objective. Vesting of our RPS award is
conditioned upon the achieve of performance criteria. Both awards have a three-year vesting period. Our annual
incentive plan incorporates at least four financial and/or strategic performance metrics in order to properly balance
risk with the incentives to drive our key annual financial and/or strategic initiatives; in addition, the annual
31
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2020 WESTAMERICA BANCORPORATION PROXY
incentive program incorporates a 150% maximum payout to further manage risk and the possibility of excessive
payments.
Consistent with our pay-for-performance philosophy, the 2019 Omnibus Plan and the 2012 Amended Plan, which
were approved by shareholders, include the following features:
disallow re-pricing stock options for poor stock performance;
limits the number of shares that may be awarded; and
includes a clawback provision.
Vote Required. The “say on pay” proposal gives you as a shareholder the opportunity to endorse or not endorse
our executive pay program through the following resolution:
“Resolved, that the shareholders approve, on an advisory basis, the compensation of the named
executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities
and Exchange Commission, which disclosure includes the compensation discussion and analysis,
the compensation tables and any related footnotes and narratives in the Company’s proxy
statement for the Annual Meeting of Shareholders.”
Because your vote is advisory, it will not be binding on the Board or create or imply any additional fiduciary duty
by the Board. However, the Compensation Committee may take into account the outcome of the vote when
considering future executive compensation arrangements.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF OUR NAMED
EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT
PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE
SECURITIES AND EXCHANGE COMMISSION
PROPOSAL 3 – RATIFY SELECTION OF INDEPENDENT AUDITOR
Ratify Selection of Independent Auditor. At the Annual Meeting, shareholders will be asked to ratify the Audit
Committee’s selection of Crowe LLP to serve as the Company’s independent auditors for the fiscal year ending
December 31, 2020. 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
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 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 LLP with respect to services performed for
fiscal 2019 and 2018 are as follows:
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2020 WESTAMERICA BANCORPORATION PROXY
Audit Fees (1)
Audit related fees (2)
Tax fees (3)
All other fees
Total
2019
2018
$619,800
43,305
42,400
77,072
$782,577
$530,000
37,355
46,540
40,340
$654,235
(1) Audit fees consisted of fees billed by Crowe 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 LLP for audits of certain employee benefits plans.
(3) Tax fees consisted of fees billed by Crowe 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
of the Audit Committee and approved prior to the completion of the audit by the Audit Committee. During fiscal
year 2019, 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 for the Company by Crowe LLP during fiscal year 2019.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE
RATIFICATION OF THE SELECTION OF CROWE 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 five 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
33
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2020 WESTAMERICA BANCORPORATION PROXY
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 2019 and discussed them with Management and with Crowe
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, 2019,
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, 2019 for filing with the SEC.
Submitted by the Audit Committee
Ronald A. Nelson, Chairman
Louis E. Bartolini
E. Joseph Bowler
Michele Hassid
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 09, 2020. 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 22, 2021, for the 2021 Annual Meeting. If the date of the
34
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2020 WESTAMERICA BANCORPORATION PROXY
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 22, 2021.
The requirements and process for shareholder nominations of director candidates are described under the heading
“Nominating Directors” on page 13.
Westamerica reserves the right to reject, to rule out of order, or to take other appropriate action with respect to
any proposal that does not comply with these and other applicable legal requirements.
SHAREHOLDER COMMUNICATION TO BOARD OF DIRECTORS
Shareholders and other interested parties who wish to communicate with the Board may do so by writing to: Kris
Irvine, VP/Corporate Secretary, Westamerica Bancorporation A-2M, P.O. Box 1200, Suisun City, CA 94585.
The Directors have established procedures for the handling of communications from shareholders and other
interested parties and have directed the Corporate Secretary to act as their agent in processing any communications
received. All communications that relate to matters that are within the responsibility of one of the Board
Committees are to be forwarded to the Chair of the appropriate Committee. Communications that relate to
ordinary business matters that are not within the scope of the Board’s responsibilities, such as customer
complaints, are to be sent to Management. Solicitations, junk mail and obviously frivolous or inappropriate
communications are not to be forwarded, but will be made available to any Director who wishes to review them.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the Annual Meeting other than those
specifically referred to in this Proxy Statement. If any other matters should properly come before the meeting or
any postponement or adjournment of the meeting, the persons named in the enclosed proxy intend to vote thereon
in accordance with their best business judgment. If a nominee for Director becomes unavailable to serve as a
Director, the Proxies will vote for any substitute nominated by the Board of Directors.
The Company will pay the cost of proxy solicitation. The Company has retained the services of Georgeson to
assist in the proxy distribution at a cost not to exceed $2,000 plus reasonable out-of-pocket expenses. The
Company will reimburse banks, brokers and others holding stock in their names or names of nominees or
otherwise, for reasonable out-of-pocket expenses incurred in sending proxies and proxy materials to the holders
of such stock.
BY ORDER OF THE BOARD OF DIRECTORS
Kris Irvine
VP/Corporate Secretary
March 09, 2020
Fairfield, California
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2020 WESTAMERICA BANCORPORATION PROXY
EXHIBIT A
Westamerica Bancorporation
Employee Benefits/Compensation Committee Charter – Reaffirmed January 22, 2020
Purpose
The Employee Benefits Committee (the “Committee”) is appointed by the Board of Directors (the “Board”) to
discharge the Board’s responsibilities relating to compensation of the Westamerica Bancorporation (the
“Company”) Chief Executive Officer (the “CEO”) and the Company’s other Executive Officers, as defined by Rule
3b-7 of the Securities Exchange Act of 1934 as amended (the “Exchange Act”) (collectively, including the CEO, the
“Executive Officers”). The Committee has overall responsibility for approving and evaluating all compensation
plans, policies and procedures of the Company as they affect the Executive Officers.
Committee Membership
The Committee shall consist of no fewer than three members. The members of the Committee shall meet the
independence requirements of the Nasdaq Stock Market. At least two members of the Committee also shall qualify
as “outside” directors within the meaning of Internal Revenue Code Section 162(m) and as “non-employee”
directors within the meaning of Rule 16b-3 under the Exchange Act. The members of the Committee shall be
appointed by the Board. One member of the Committee shall be appointed as Committee Chair by the Board.
Committee members may be replaced by the Board.
Meetings
The Committee shall meet as often as necessary to carry out its responsibilities, meeting no less than four times each
year. The Committee Chair shall preside at each meeting. In the event the Committee Chair is not present at a
meeting, the Committee Chair shall designate a member to act as chair of such meeting.
Committee Responsibilities and Authority
1.
2.
3.
The Committee shall, at least annually, review and approve the annual base salaries and annual
incentive opportunities of the Executive Officers. The CEO shall not be present during any Committee
deliberations or voting with respect to his or her compensation.
The Committee shall, periodically and as and when appropriate, review and approve the following as
they affect the Executive Officers: (a) all other incentive awards and opportunities, including both
cash-based and equity-based awards and opportunities; (b) any employment agreements and severance
arrangements; (c) any change-in-control agreements and change-in-control provisions affecting any
elements of compensation and benefits; and (d) any special or supplemental compensation and benefits
for the Executive Officers and individuals who formerly served as Executive Officers, including
supplemental retirement benefits and the perquisites provided to them during and after employment.
The Committee shall review and discuss the Compensation Discussion and Analysis (the “CD&A”)
required to be included in the Company’s proxy statement and annual report on Form 10-K by the
rules and regulations of the Securities and Exchange Commission (the “SEC”) with management and,
based on such review and discussion, determine whether or not to recommend to the Board that the
CD&A be so included.
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2020 WESTAMERICA BANCORPORATION PROXY
4.
5.
6.
7.
8.
9.
10.
11.
The Committee shall produce the annual Compensation Committees Report for inclusion in the
Company’s proxy statement in compliance with the rules and regulations promulgated by the SEC.
The Committee shall monitor the Company’s compliance with the requirements under the Sarbanes-
Oxley Act of 2002 relating to loans to directors and officers, and with all other applicable laws
affecting employee compensation and benefits.
The Committee shall oversee the Company’s compliance with SEC rules and regulations regarding
shareholder approval of certain executive compensation matters, including advisory votes on executive
compensation and the frequency of such votes, and the requirement under the Nasdaq rules that, with
limited exceptions, shareholders approve equity compensation plans.
The Committee shall receive periodic reports on the Company’s compensation programs as they affect
all employees.
The Committee shall make regular reports to the Board.
The Committee shall have the authority, in its sole discretion, to retain and terminate or obtain the
advice of any adviser to assist it in performance of its duties, but only after taking into consideration
factors relevant to the adviser’s independence from management specified in Nasdaq Listing Rule
5605(d)(3). The Committee shall be directly responsible for the appointment, compensation and
oversight of the work of any adviser retained by the Committee and shall have sole authority to
approve the adviser’s fees and the other terms and conditions of the adviser’s retention. The Company
must provide for appropriate funding, as determined by the Committee, for payment of reasonable
compensation to any adviser retained by the Committee.
The Committee may form and delegate authority to subcommittees as it deems appropriate.
The Committee will annually review and reassess this Charter.
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2020 WESTAMERICA BANCORPORATION PROXY
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, 2019
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 each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, no par value
WABC
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 every Interactive Data File required to be submitted 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 such files.) YES NO
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
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, 2019 as reported on the NASDAQ Global Select Market,
was $1,661,107,564.55. 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 20, 2020: 27,101,866 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement relating to registrant’s Annual Meeting of Shareholders, to be held on April 23, 2020, are incorporated by reference in
Items 10, 11, 12, 13 and 14 of Part III to the extent described therein.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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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9
14
14
14
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14
18
19
45
45
91
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2019 WESTAMERICA BANCORPORATION FORM 10-K
FORWARD-LOOKING STATEMENTS
This Report on Form 10-K contains forward-looking statements about Westamerica Bancorporation for which it claims the
protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. Examples of forward-
looking statements include, but are not limited to: (i) projections of revenues, expenses, 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 any 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.
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The Company acquired five banks within its immediate market area during the early to mid 1990’s. In April 1997, the Company
acquired ValliCorp Holdings, Inc., parent company of ValliWide Bank, the largest independent bank holding company
headquartered in Central California. Under the terms of all of the merger agreements, the Company issued shares of its common
stock in exchange for all of the outstanding shares of the acquired institutions. The subsidiary banks acquired were merged with
and into WAB. These six aforementioned business combinations were accounted for as poolings-of-interests.
During the period 2000 through 2005, the Company acquired three additional banks. These acquisitions were accounted for using
the purchase accounting method.
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, 2019, the Company had consolidated assets of approximately $5.6 billion, deposits of approximately $4.8 billion
and shareholders’ equity of approximately $731 million. The Company and its subsidiaries employed 737 full-time equivalent staff
as of December 31, 2019.
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
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2019 WESTAMERICA BANCORPORATION FORM 10-K
be closely related to banking or managing or controlling banks. A bank holding company must demonstrate that the benefits to the
public of the proposed activity will outweigh the possible adverse effects associated with such activity.
The FRB generally prohibits a bank holding company from declaring or paying a cash dividend that would impose undue pressure
on the capital of subsidiary banks or would be funded only through borrowing or other arrangements which might adversely affect
a bank holding company’s financial position. Under the FRB policy, a bank holding company should not continue its existing rate
of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of
earnings retention appears consistent with its capital needs, asset quality and overall financial condition. See the section entitled
“Restrictions on Dividends and Other Distributions” for additional restrictions on the ability of the Company and the Bank to pay
dividends.
Transactions between the Company and the Bank are restricted under Regulation W. The regulation codifies prior interpretations
of the FRB and its staff under Sections 23A and 23B of the Federal Reserve Act. In general, subject to certain specified exemptions,
a bank or its subsidiaries are limited in their ability to engage in “covered transactions” with affiliates: (a) to an amount equal to
10% of the bank’s capital and surplus, in the case of covered transactions with any one affiliate; and (b) to an amount equal to 20%
of the bank’s capital and surplus, in the case of covered transactions with all affiliates. The Company is considered to be an affiliate
of the Bank. A “covered transaction” includes, among other things, a loan or extension of credit to an affiliate; a purchase of
securities issued by an affiliate; a purchase of assets from an affiliate, with some exceptions; and the issuance of a guarantee,
acceptance or letter of credit on behalf of an affiliate.
Federal regulations governing bank holding companies and change in bank control (Regulation Y) provide for a streamlined and
expedited review process for bank acquisition proposals submitted by well-run bank holding companies. These provisions of
Regulation Y are subject to numerous qualifications, limitations and restrictions. In order for a bank holding company to qualify as
“well-run,” both it and the insured depository institutions which it controls must meet the “well capitalized” and “well managed”
criteria set forth in Regulation Y.
The Gramm-Leach-Bliley Act (the “GLBA”), or the Financial Services Act of 1999, repealed provisions of the Glass-Steagall Act,
which had prohibited commercial banks and securities firms from affiliating with each other and engaging in each other’s
businesses. Thus, many of the barriers prohibiting affiliations between commercial banks and securities firms have been eliminated.
The BHCA was also amended by the GLBA to allow new “financial holding companies” (“FHCs”) to offer banking, insurance,
securities and other financial products to consumers. Specifically, the GLBA amended section 4 of the BHCA in order to provide
for a framework for the engagement in new financial activities. A bank holding company (“BHC”) may elect to become an FHC if
all its subsidiary depository institutions are well capitalized and well managed. If these requirements are met, a BHC may file a
certification to that effect with the FRB and declare that it elects to become an FHC. After the certification and declaration is filed,
the FHC may engage either de novo or through an acquisition in any activity that has been determined by the FRB to be financial
in nature or incidental to such financial activity. BHCs may engage in financial activities without prior notice to the FRB if those
activities qualify under the list of permissible activities in section 4(k) of the BHCA. However, notice must be given to the FRB
within 30 days after an FHC has commenced one or more of the financial activities. The Company has not elected to become an
FHC.
Regulation and Supervision of Banks
The Bank is a California state-chartered Federal Reserve member bank and its deposits are insured by the FDIC. The Bank is subject
to regulation, supervision and regular examination by the California Department of Business Oversight (“DBO”) and the 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
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2019 WESTAMERICA BANCORPORATION FORM 10-K
engaging in any activity as a principal that is not permissible for a national bank, unless the Bank is adequately capitalized and the
FDIC approves the investment or activity after determining that such investment or activity does not pose a significant risk to the
deposit insurance fund.
On July 21, 2010, financial regulatory reform legislation entitled the "Dodd-Frank Wall Street Reform and Consumer Protection
Act" (the "Dodd-Frank Act") was signed into law. The Dodd-Frank Act 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.
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As of December 31, 2019, 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. 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 Company’s ability to pay dividends depends in part on the Bank’s ability to pay cash dividends to the Company. 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.
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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 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.
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 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.
In September 2018, the DIF reached 1.36%, exceeding the statutorily required minimum reserve ratio of 1.35% ahead of the
September 30, 2020, deadline required under the Dodd-Frank Act. FDIC regulations provide for two changes to deposit insurance
assessments upon reaching the minimum: (1) surcharges on insured depository institutions with total consolidated assets of $10
billion or more (large banks) will cease; and (2) small banks will receive assessment credits for the portion of their assessments that
contributed to the growth in the reserve ratio from between 1.15% and 1.35%, to be applied when the reserve ratio is at or above
1.38%. In January 2019, the Bank, which meets the definition of a “small Bank”, was advised by the FDIC its assessment credit to
be applied when the reserve ratio is at or above 1.38% was $1.4 million. The Bank received notification from the FDIC during the
third quarter 2019 that the reserve ratio exceeded 1.38%, and the FDIC applied the Bank’s assessment credits against the Bank’s
second and third quarter 2019 deposit insurance premiums. The Company expects application of FDIC assessment credits against
the Bank’s fourth quarter 2019 deposit insurance premiums and partial application against the Bank’s first quarter 2020 deposit
insurance premiums. 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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2019 WESTAMERICA BANCORPORATION FORM 10-K
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.
Programs To Mitigate Identity Theft
In November 2007, federal banking agencies together with the National Credit Union Administration and Federal Trade
Commission adopted regulations under the Fair and Accurate Credit Transactions Act of 2003 to require financial institutions and
other creditors to develop and implement a written identity theft prevention program to detect, prevent and mitigate identity theft
in connection with certain new and existing accounts. Covered accounts generally include consumer accounts and other accounts
that present a reasonably foreseeable risk of identity theft. Each institution’s program must include policies and procedures designed
to: (i) identify indicators, or “red flags,” of possible risk of identity theft; (ii) detect the occurrence of red flags; (iii) respond
appropriately to red flags that are detected; and (iv) ensure that the program is updated periodically as appropriate to address
changing circumstances. The regulations include guidelines that each institution must consider and, to the extent appropriate,
include in its program.
Pending Legislation
Changes to state laws and regulations (including changes in interpretation or enforcement) can affect the operating environment of
BHCs and their subsidiaries in substantial and unpredictable ways. From time to time, various legislative and regulatory proposals
are introduced. These proposals, if codified, may change banking statutes and regulations and the Company’s operating environment
in substantial and unpredictable ways. If codified, these proposals could increase or decrease the cost of doing business, limit or
expand permissible activities or affect the competitive balance among banks, savings associations, credit unions and other financial
institutions. The Company cannot accurately predict whether those changes in laws and regulations will occur, and, if those changes
occur, the ultimate effect they would have upon our financial condition or results of operations. It is likely, however, that the current
level of enforcement and compliance-related activities of federal and state authorities will continue and potentially increase.
Competition
The Bank’s principal competitors for deposits and loans are major banks and smaller community banks, savings and loan
associations and credit unions. To a lesser extent, competitors include 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 offer 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.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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 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. 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.
Changes in capital market conditions could reduce asset valuations.
Capital market conditions, including interest rates, 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
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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 and other equity awards 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 27.1 million shares of common stock were outstanding at December 31, 2019. Pursuant to its stock option plans, at
December 31, 2019, the Company had outstanding options for 561 thousand shares of common stock, of which 190 thousand were
currently exercisable. As of December 31, 2019, 1,327 thousand shares of Company common stock remained available for grants
under the Company’s equity incentive 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, 2019, 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 risk that borrowers may not pay interest or repay their loans as agreed is an inherent risk of the banking business. The company
mitigates this risk by adhering to sound and proven underwriting practices, managed by experienced and knowledgeable credit
professionals. Nonetheless, the Company may incur losses on loans that meet its underwriting criteria, and these losses may exceed
the amounts set aside as reserves. 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 or its results of operations.
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, 2019, real estate served as the principal source of collateral with respect to approximately 57% 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 and municipal governments’ budgetary and fiscal
conditions. 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.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
The markets in which the Company operates are subject to the risk of earthquakes, fires, 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 wildfires,
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
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, pandemics, 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
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approval. A reduction in subsidiary dividends paid to the Company could limit the capacity of the Company to pay dividends. In
addition, if any of the Company’s subsidiaries were to liquidate, that subsidiary’s creditors will be entitled to receive distributions
from the assets of that subsidiary to satisfy their claims against it before the Company, as a holder of an equity interest in the
subsidiary, will be entitled to receive any of the assets of the subsidiary.
Adverse effects of changes in banking or other laws and regulations or governmental fiscal or monetary policies could adversely
affect the Company.
The Company is subject to significant federal and state regulation and supervision, which is primarily for the benefit and protection
of the Company’s customers and not for the benefit of investors. In the past, the Company’s business has been materially affected
by these regulations.
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 recessions of 2008 and 2009, the FRB provided vast amounts of liquidity into the banking system. The FRB purchased
large quantities of U.S. government securities, including agency-backed mortgage securities, increasing the demand for such
securities thereby reducing interest rates. Interest rates remained historically low through 2016 as the monetary policy of the Federal
Open Market Committee (the “FOMC”) was highly accommodative. The FRB began reducing these asset purchase activities in the
fourth quarter 2013 and the FOMC began removing monetary stimulus in December 2016 and increased the federal funds rate by
2.00 percent to 2.50 percent through December 2018. During 2019, the FOMC reduced rates from 2.50 percent to 1.75 percent. The
changes in the target range for the federal funds rate could reduce or increase liquidity in the markets and cause interest rates to
fluctuate. In the rising interest environment, the Bank’s funding costs would increase, potentially reducing the availability of funds
to the Bank to finance its existing operations, and causing fixed-rate investment securities and loans to decline in value.
Federal and state governments could pass legislation detrimental to the Company’s performance.
As an example, the Company could experience higher credit losses because of federal or state legislation or regulatory action that
reduces the amount the Bank's borrowers are otherwise contractually required to pay under existing loan contracts. Also, the
Company could experience higher credit losses because of federal or state legislation or regulatory action that limits or delays the
Bank's ability to foreclose on property or other collateral or makes foreclosure less economically feasible. 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.
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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.
A new accounting standard will significantly change the manner in which the Company recognizes credit losses and may have
a material impact on the Company’s results of operations, financial condition or liquidity.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting update, FASB ASU 2016-13, Financial
Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU changes the accounting
for estimates for credit losses related to financial assets measured at amortized cost and certain other contracts. The ASU replaces
the incurred loss model with a model based on expected credit loss (“CECL”), which will accelerate recognition of credit losses.
Additionally, credit losses relating to debt securities available-for-sale will be recorded through an allowance for credit losses under
the new standard. The Company will adopt the ASU provisions effective January 1, 2020. The ASU significantly changed the
manner in which the Company determines the adequacy of its allowance for loan losses. The Company is evaluating the impact the
CECL model will have, but the Company may recognize a one-time cumulative-effect adjustment to its allowance for loan losses
as of January 1, 2020. Any required adjustment to the allowance for loan losses resulting from this change in methodology will be
accomplished through an offsetting after-tax-adjustment to shareholders’ equity. Moreover, the CECL model may create more
volatility in the level of the allowance for loan losses after adoption. If the Company is required to materially increase the level of
its allowance for loan losses for any reason, such increase could adversely affect its business, financial condition and results of
operations. See Note 1 to the consolidated financial statements, “Recently Issued Accounting Standards” for more information on
the CECL methodology.
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.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
Branch Offices and Facilities
Westamerica Bank is engaged in the banking business through 80 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 30 banking office locations and one centralized administrative service center facility and leases 56 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
Due to the nature of its business, the Company is subject to various threatened or filed legal cases. 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. Based on the
advice of legal counsel, the Company does not expect such cases will have a material, adverse effect on its business, financial
position or results of operations. Legal liabilities are accrued when obligations become probable and the amount can be reasonably
estimated. In the third quarter 2018, the Company achieved a mediated settlement to dismiss a lawsuit and accrued a liability for
$3,500 thousand; the liability was paid in the first quarter 2019. In the second quarter 2019, the Company achieved a mediated
settlement to dismiss a lawsuit and paid the resulting liability of $252 thousand. The Company determined that it will be obligated
to provide refunds of revenue recognized in years prior to 2018 to some customers. The Company initially estimated the probable
amount of these obligations to be $5,542 thousand and accrued a liability for such amount in 2017; based on additional information
received in the second quarter 2019, the Company increased such liability to $5,843 thousand by recognizing an expense of $301
thousand; the estimated liability is subject to revision.
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”. As of
January 31, 2020, there were approximately 5,300 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 19 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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2019 WESTAMERICA BANCORPORATION FORM 10-K
Stock performance
The following chart compares the cumulative return on the Company’s stock during the ten years ended December 31, 2019 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, 2009 and reinvestment of all dividends.
Ten-Year Return Performance
$400
$350
$300
$250
$200
$150
$100
$50
$0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Westamerica Bancorporation (WABC)
S&P 500 (SPX)
NASDAQ Bank Index (CBNK)
December 31,
Westamerica Bancorporation (WABC) ......................................
S&P 500 (SPX) ...........................................................................
NASDAQ Bank Index (CBNK)..................................................
2010
2009
2014
$100.00 $102.89 $83.95 $84.15 $115.14 $103.08
100.00 115.05 117.34 135.88 179.79 204.19
100.00 114.29 102.20 120.83 171.36 179.68
2013
2012
2011
December 31,
2017
2015
2016
2019
$101.76 $141.57 $137.75 $132.37 $165.24
206.93 231.63 282.10 269.60 354.19
195.39 269.25 283.61 237.35 294.81
2018
Westamerica Bancorporation (WABC) .......................................................
S&P 500 (SPX) ............................................................................................
NASDAQ Bank Index (CBNK)...................................................................
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2019 WESTAMERICA BANCORPORATION FORM 10-K
The following chart compares the cumulative return on the Company’s stock during the five years ended December 31, 2019 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, 2014 and reinvestment of all dividends.
Five-Year Return Performance
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
2014
2015
2016
2017
2018
2019
Westamerica Bancorporation (WABC)
S&P 500 (SPX)
NASDAQ Bank Index (CBNK)
Westamerica Bancorporation (WABC) ......................................
S&P 500 (SPX) ...........................................................................
NASDAQ Bank Index (CBNK)..................................................
ISSUER PURCHASES OF EQUITY SECURITIES
December 31,
2016
2014
2015
2019
$100.00 $98.72 $137.33 $133.63 $128.41 $160.30
100.00 101.34 113.44 138.15 132.03 173.46
100.00 108.74 149.85 157.84 132.10 164.07
2018
2017
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, as amended (the “Exchange
Act”), of common stock during the quarter ended December 31, 2019 (in thousands, except per share data).
Period
October 1 through October 31
November 1 through November 30
December 1 through December 31
Total
2019
(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
$ -
-
-
$ -
-
-
-
-
1,750
1,750
1,750
1,750
-
-
-
-
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16
2019 WESTAMERICA BANCORPORATION FORM 10-K
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.
No shares were repurchased during the period from October 1, 2019 through December 31, 2019. A program approved by the Board
of Directors on July 25, 2019 authorizes the purchase of up to 1,750 thousand shares of the Company’s common stock from time
to time prior to September 1, 2020.
[The remainder of this page intentionally left blank]
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17
2019 WESTAMERICA BANCORPORATION FORM 10-K
ITEM 6. SELECTED FINANCIAL DATA
The following financial information for the five years ended December 31, 2019 has been derived from the Company’s audited consolidated financial statements.
This information should be read in conjunction with those statements, notes and other information included elsewhere herein.
WESTAMERICA BANCORPORATION
FINANCIAL SUMMARY
Interest and loan fee income
Interest expense
Net interest and loan fee income
Provision (reversal) for loan losses
Noninterest income:
Securities gains (losses)
Other noninterest income
Total noninterest income
Noninterest expense:
Loss contingency
Other noninterest expense
Total noninterest expense
Income before income taxes
Income tax provision
Net income
Average common shares outstanding
Average diluted common shares outstanding
Common shares outstanding at December 31,
Per common share:
Basic earnings
Diluted earnings
Book value at December 31,
Financial ratios:
Return on assets
Return on common equity
Net interest margin (FTE)(1)
Net loan losses to average loans
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
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
2019
$158,682
1,888
156,794
-
217
47,191
47,408
553
98,433
98,986
105,216
24,827
$80,389
26,956
27,006
27,062
$2.98
2.98
27.03
1.44%
11.90%
3.11%
0.16%
47.4%
13.02%
$5,619,555
1,126,664
19,484
3,816,918
4,812,621
123,064
30,928
731,417
16.83%
11.07%
$1.63
55%
For the Years Ended December 31,
2018
2016
2017
(In thousands, except per share data and ratios)
$151,723
1,959
149,764
$138,312
1,900
136,412
(1,900)
$135,919
2,116
133,803
(3,200)
-
(52)
48,201
48,149
3,500
103,416
106,916
90,997
19,433
$71,564
26,649
26,756
26,730
$2.69
2.67
23.03
1.27%
11.35%
2.98%
0.14%
52.52%
11.05%
$5,568,526
1,207,202
21,351
3,641,026
4,866,839
123,602
51,247
615,591
17.03%
9.04%
$1.60
60%
7,955
48,673
56,628
5,542
102,226
107,768
87,172
37,147
$50,025
26,291
26,419
26,425
$1.90
1.89
22.34
0.92%
8.39%
2.95%
0.08%
52.51%
10.71%
$5,513,046
1,287,982
23,009
3,352,371
4,827,613
125,523
58,471
590,239
16.17%
8.63%
$1.57
83%
-
46,574
46,574
3
103,617
103,620
79,957
21,104
$58,853
25,612
25,678
25,907
$2.30
2.29
21.67
1.12%
10.85%
3.03%
0.04%
53.55%
10.46%
$5,366,083
1,352,711
25,954
3,237,070
4,704,741
128,600
59,078
561,367
15.95%
8.26%
$1.56
68%
2015
$136,529
2,424
134,105
-
-
47,867
47,867
-
105,300
105,300
76,672
17,919
$58,753
25,555
25,577
25,528
$2.30
2.30
20.85
1.16%
11.32%
3.36%
0.11%
53.69%
10.30%
$5,168,875
1,533,396
29,771
2,886,291
4,540,659
132,104
53,028
532,205
13.39%
7.94%
$1.53
67%
(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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18
2019 WESTAMERICA BANCORPORATION FORM 10-K
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 87, 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.
Financial Overview
Westamerica Bancorporation and subsidiaries’ (collectively, the “Company”) reported net income of $80.4 million or $2.98 diluted
earnings per common share (“EPS”) in 2019. Results for 2019 include a tax-exempt life insurance gain of $433 thousand and $553
thousand in loss contingencies. The loss contingencies include a $301 thousand increase in estimated customer refunds of revenue
recognized prior to 2018 and a $252 thousand settlement to dismiss a lawsuit. The tax-exempt life insurance gain and loss
contingencies did not have a significant impact on the EPS for 2019. Although loss contingencies represent estimated liabilities,
which are subject to revision, the Company does not anticipate additional losses for either of these matters. The 2019 results compare
to net income of $71.6 million or $2.67 EPS in 2018 and net income of $50.0 million or $1.89 EPS for the year ended December
31, 2017. The 2018 results include a $585 thousand tax-exempt life insurance policy gain and a $3.5 million loss contingency for a
mediated settlement to dismiss a lawsuit, which on an aggregate basis reduced EPS $0.07. The liability was paid in January 2019.
The 2017 results include $12.3 million in adjustments to net deferred tax asset values triggered by enactment of the Tax Cuts and
Jobs Act of 2017 (the “Act”) which reduced EPS $0.48, recognition of a $5.5 million loss contingency, which reduced EPS $0.12,
and securities gains of $8.0 million, which increased EPS $0.18.
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 monetary policy of the Federal Open Market Committee (the “FOMC”) 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 changed composition
of the earning assets and low market interest rates pressured the net interest margin to lower levels. The FOMC began removing
monetary stimulus in December 2016 and increased the federal funds rate by 2.00% to 2.50% through June 2019, although longer-
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2019 WESTAMERICA BANCORPORATION FORM 10-K
term rates did not increase by a similar magnitude. The increase in market interest rates benefited the Company’s earning asset
yields until the FOMC cut the federal funds rate in July 2019 by 0.25%, in September 2019 by 0.25% and in October by 0.25%.
The funding source 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 average 2019 volume of checking and savings deposits was 96.2% of average total deposits.
Credit quality remained solid with nonperforming assets totaling $4.9 million at December 31, 2019 and net chargeoffs of $1.9
million in 2019. The Company did not recognize a provision for loan losses in 2019.
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. 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% for
2017. Due to the Act, the federal tax rate was 21% for 2019 and 2018; as such, the upward adjustment to reflect the effect of income
exempt from federal taxation is lower in 2019 and 2018 than in 2017.
The Company’s significant accounting policies (see Note 1 “Summary of Significant Accounting Policies” to the Consolidated
Financial Statements below) are fundamental to understanding the Company’s results of operations and financial condition. The
Company adopted the FASB ASU 2016-02, Leases (Topic 842) provisions effective January 1, 2019, and recorded a lease liability
of $15.3 million and right-of-use asset of $15.3 million for facilities leases. The change in occupancy and equipment expense was
not material. The Company also adopted the FASB ASU 2017-08, Receivables – Non-Refundable Fees and Other Costs (Subtopic
310-20): Premium Amortization on Purchased Callable Debt Securities on January 1, 2019. The implementing entry reduced the
carrying value of investment securities by $3.1 million and reduced retained earnings by $2.8 million, net of tax. The change in
premium amortization method was not material to revenue recognition.
Net Income
Following is a summary of the components of net income for the periods indicated:
Net interest and loan fee income
FTE adjustment
Net interest and loan fee income (FTE)
Reversal of (provision for) loan losses
Noninterest income
Noninterest expense
Income before income taxes (FTE)
Income taxes (FTE)
Net income
For the Years Ended December 31,
2019
2017
2018
($ in thousands, except per share data)
$156,794
4,612
161,406
-
47,408
(98,986)
109,828
(29,439)
$80,389
$149,764
5,646
155,410
-
48,149
(106,916)
96,643
(25,079)
$71,564
$136,412
12,182
148,594
1,900
56,628
(107,768)
99,354
(49,329)
$50,025
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
$2.98
11.90%
1.44%
$2.67
11.35%
1.27%
$1.89
8.39%
0.92%
Comparing 2019 with 2018, net income increased $8.8 million. Net interest and loan fee (FTE) income increased $6.0 million due
to a higher net yield on earning assets and higher average balances of investments, partially offset by lower average balances of
interest-bearing cash and loans. The provision for loan losses remained zero, reflecting Management's evaluation of losses inherent
in the loan portfolio. In 2019, noninterest income decreased $741 thousand compared with 2018 due to lower income from service
charges on deposit accounts, other service charges and debit card fees, offset in part by an increase in merchant processing services
and securities gains in 2019. In 2019 noninterest expense decreased $7.9 million compared with 2018 primarily due to decreases in
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2019 WESTAMERICA BANCORPORATION FORM 10-K
loss contingencies, salaries and related benefits, FDIC insurance assessments, and intangible amortization. The effective tax rates
(FTE) was 26.8% for 2019 compared with 26.0% for 2018.
Comparing 2018 with 2017, net income increased $21.5 million. Net interest and loan fee income increased in 2018 compared with
2017 mostly attributable to higher average balances of investments and higher yields on earning assets as market interest rates rose.
The increase was offset by lower average balances of loans. Net interest and loan fee income (FTE) in 2018 included a lower FTE
adjustment than in 2017 due to the reduced federal corporate tax as a result of enactment of the Act. The provision for loan losses
remained zero, reflecting Management's evaluation of losses inherent in the loan portfolio. In 2018, noninterest income decreased
$8.5 million compared with 2017 because 2017 results included $8.0 million in gains of sale of securities. The non-FTE book tax
provision for 2018, which reflected the tax-exempt nature of a $585 thousand life insurance policy gain, was $19.4 million compared
with $37.1 million for 2017, representing effective tax rates of 21.4% and 42.6%, respectively. The non-FTE book tax provision
for 2017 includes $12.3 million in adjustments to net deferred tax asset values triggered by enactment of the Act. The federal
statutory tax rate was reduced from 35% in 2017 to 21% in 2018 due to the Act. The non-FTE book tax provisions for 2018 and
2017 include tax benefits of $737 thousand and $698 thousand, respectively, for tax deductions from the exercise of employee stock
options which exceed related compensation expenses recognized in the financial statements.
Net Interest and Loan Fee Income (FTE)
The Company's primary source of revenue is net interest income, or the difference between interest income earned on loans and
investment securities and interest expense paid on interest-bearing deposits and other borrowings.
Components of Net Interest and Loan Fee Income (FTE)
2019
For the Years Ended December 31,
2018
($ in thousands)
2017
Interest and loan fee income
Interest expense
Net interest and loan fee income
FTE adjustment
Net interest and loan fee income (FTE)
$158,682
(1,888)
156,794
4,612
$161,406
$151,723
(1,959)
149,764
5,646
$155,410
$138,312
(1,900)
136,412
12,182
$148,594
Net interest margin (FTE)
3.11%
2.98%
2.95%
Comparing 2019 with 2018, net interest and loan fee (FTE) income increased $6.0 million due to a higher net yield on earning
assets (up 0.12%) and higher average balances of investments (up $127 million), partially offset by lower average balances of
interest-bearing cash (down $101 million) and loans (down $47 million).
Comparing 2018 with 2017, net interest and loan fee income increased $13.4 million due to higher average balances of investments
(up $270 million) and higher yield on interest earning assets (up 0.03%), offset by lower average balances of loans (down $106
million). The FTE adjustment was lower in 2018 compared with 2017 mainly due to the reduced federal corporate tax rate as a
result of enactment of the Act.
The yield on earning assets (FTE) was 3.14% in 2019, 3.02% in 2018 and 2.99% in 2017. The net interest margin (FTE) increased
in 2019, reflecting earning assets repriced to higher yields. The 2019 yield on earning assets (FTE) reflected higher market interest
rates which offset the impact of the reduced FTE adjustment.
The Company’s funding cost was 0.03% in 2019 compared with 0.04% in 2018 and 2017. Average balances of time deposits
declined $64 million from 2017 to 2019 while lower-cost checking and savings deposits grew 3% in the same period. Average
balances of checking and saving deposits accounted for 96.2% of average total deposits in 2019 compared with 95.6% in 2018 and
94.8% in 2017.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present information regarding the consolidated average assets, liabilities and shareholders’ equity, the amounts
of interest income earned from average interest earning assets and the resulting yields, and the amounts of interest expense incurred
on average interest-bearing liabilities and the resulting rates. Average loan balances include nonperforming loans. Interest income
includes reversal of previously accrued interest on loans placed on non-accrual status during the period and proceeds from loans on
nonaccrual status only to the extent cash payments have been received and applied as interest income and accretion of purchased
loan discounts. Yields on tax-exempt securities and loans have been adjusted upward to reflect the effect of income exempt from
federal income taxation at the federal statutory tax rate of 35 percent for 2017. Due to the Tax Cuts and Jobs Act of 2017, the federal
tax rate is 21 percent for 2018 and 2019; as such, the upward adjustment to reflect the effect of income exempt from federal taxation
is lower in 2019 and 2018 than in 2017.
Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin
For the Year Ended December 31, 2019
Interest
Income/
Expense
($ 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 bearing cash
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)
$3,089,099
615,665
3,704,764
1,112,250
49,529
1,161,779
324,733
5,191,276
405,833
$5,597,109
$2,222,876
2,396,604
103,399
78,925
2,578,928
51,442
2,630,370
68,351
675,512
$5,597,109
$77,800
19,923
97,723
56,550
2,028
58,578
6,993
163,294
$-
1,274
254
326
1,854
34
1,888
$161,406
2.52%
3.24%
2.64%
5.08%
4.10%
5.04%
2.15%
3.14%
- %
0.05%
0.25%
0.41%
0.07%
0.07%
0.07%
3.07%
3.11%
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(2) Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing
liabilities.
(3) Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of
interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand
deposits.
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22
2019 WESTAMERICA BANCORPORATION FORM 10-K
Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin
For the Year Ended December 31, 2018
Interest
Income/
Expense
($ 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 bearing cash
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)
$2,830,075
747,522
3,577,597
1,153,549
55,618
1,209,167
425,871
5,212,635
407,983
$5,620,618
$2,209,924
2,447,652
119,586
94,919
2,662,157
59,992
2,722,149
57,848
630,697
$5,620,618
$65,330
24,610
89,940
57,240
2,264
59,504
7,925
157,369
$-
1,275
279
368
1,922
37
1,959
$155,410
2.31%
3.29%
2.51%
4.96%
4.07%
4.92%
1.86%
3.02%
- %
0.05%
0.23%
0.39%
0.07%
0.06%
0.07%
2.95%
2.98%
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(2) Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing
liabilities.
(3) Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of
interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand
deposits.
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23
2019 WESTAMERICA BANCORPORATION FORM 10-K
Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin
For the Year Ended December 31, 2017
Interest
Income/
Expense
($ 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 bearing cash
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
406,034
5,028,373
411,309
$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
4,476
150,494
$-
1,123
318
415
1,856
44
1,900
$148,594
2.06%
3.92%
2.52%
4.77%
5.00%
4.78%
1.10%
2.99%
- %
0.05%
0.23%
0.38%
0.07%
0.06%
0.07%
2.92%
2.95%
(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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24
2019 WESTAMERICA BANCORPORATION FORM 10-K
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, 2019
Compared with
For the Year Ended December 31, 2018
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 interest bearing cash
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) increase in interest expense
(Decrease) increase in net interest and loan fee income (1)
$5,979
(4,341)
1,638
(2,049)
(248)
(2,297)
(1,882)
(2,541)
(27)
(38)
(62)
(127)
(7)
(134)
($2,407)
$6,491
(346)
6,145
1,359
12
1,371
950
8,466
26
13
20
59
4
63
$8,403
$12,470
(4,687)
7,783
(690)
(236)
(926)
(932)
5,925
(1)
(25)
(42)
(68)
(3)
(71)
$5,996
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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 interest bearing cash
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) increase in interest expense
(Decrease) increase in net interest and loan fee income (1)
For the Year Ended December 31, 2018
Compared with
For the Year Ended December 31, 2017
Yield/Rate
(In thousands)
Total
Volume
$6,839
(2,417)
4,422
(4,715)
(355)
(5,070)
219
(429)
32
(39)
(55)
(62)
(7)
(69)
($360)
$7,046
(4,710)
2,336
2,255
(517)
1,738
3,230
7,304
120
-
8
128
-
128
$7,176
$13,885
(7,127)
6,758
(2,460)
(872)
(3,332)
3,449
6,875
152
(39)
(47)
66
(7)
59
$6,816
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
Provision for Loan Losses
The Company provided no provision for loan losses in 2019 and 2018. The Company recorded a reversal of the provision for loan
losses of $1.9 million in 2017. Classified loans declined $3.8 million in 2019. Nonaccrual loans were $4 million at December 31,
2019 compared with $5 million at December 31, 2018. These factors were reflected in Management’s evaluation of credit quality,
the level of the provision for loan losses in 2019, and the adequacy of the allowance for loan losses at December 31, 2019. For
further information regarding credit risk, 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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26
2019 WESTAMERICA BANCORPORATION FORM 10-K
Noninterest Income
Components of Noninterest Income
Service charges on deposit accounts
Merchant processing services
Debit card fees
Trust fees
ATM processing fees
Other service fees
Life insurance gains
Financial services commissions
Securities gains (losses)
Other noninterest income
Total Noninterest Income
2019
2017
For the Years Ended December 31,
2018
(In thousands)
$18,508
9,630
6,643
2,938
2,752
2,567
585
499
(52)
4,079
$48,149
$17,882
10,132
6,357
2,963
2,776
2,255
433
392
217
4,001
$47,408
$19,612
8,426
6,421
2,875
2,610
2,584
-
639
7,955
5,506
$56,628
In 2019, noninterest income decreased $741 thousand compared with 2018. Income from service charges on deposit accounts
decreased due to lower overdraft fees in 2019. Other service charges decreased due to lower income from internet banking. Debit
card fees and financial services commissions decreased in 2019. Merchant processing services increased due to successful sales
efforts and higher transaction volumes and partially offset the decrease in noninterest income in 2019 compared with 2018.
In 2018, noninterest income decreased $8.5 million compared with 2017 primarily because 2017 results included $8.0 million in
gains on sale of securities. Service charges on deposit accounts decreased $1.1 million due to declines in fees for overdrafts,
checking accounts and analyzed accounts. The decreases in other noninterest income were partially offset by an increase in
merchant processing services fees of $1.2 million due to successful sales efforts and higher transaction volumes and a $585 thousand
life insurance gain in 2018.
Noninterest Expense
Components of Noninterest Expense
Salaries and related benefits
Occupancy and equipment
Outsourced data processing services
Professional fees
Courier service
Loss Contingency
Amortization of identifiable intangibles
Impairment of tax credit investments
Other noninterest expense
Total Noninterest Expense
2019
2017
For the Years Ended December 31,
2018
(In thousands)
$53,007
19,679
9,229
2,842
1,779
3,500
1,921
-
14,959
$106,916
$51,054
20,240
9,471
2,465
1,878
553
538
-
12,787
$98,986
$51,519
19,430
9,035
2,161
1,732
5,542
3,077
625
14,647
$107,768
In 2019, noninterest expense decreased $7.9 million compared with 2018 primarily due to decreases in loss contingencies, salaries
and related benefits, FDIC insurance assessments, and intangible amortization. The 2019 loss contingencies include a $301 thousand
increase in estimated customer refunds of revenue recognized prior to 2018 and a $252 thousand settlement to dismiss a lawsuit.
Although loss contingencies represent estimated liabilities, which are subject to revision, the Company does not anticipate additional
losses for either of these matters. Salaries and related benefits decreased $1.9 million primarily due to employee attrition and lower
incentives and employee benefit costs. Amortization of intangibles decreased $1.4 million as assets are amortized on a declining
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27
2019 WESTAMERICA BANCORPORATION FORM 10-K
balance method. FDIC insurance assessments (included in “other noninterest expense”) decreased primarily due to application of
the Bank’s assessment credit described in Part 1, Item 1, “Premiums for Deposit Insurance”.
In 2018, noninterest expense decreased $852 thousand compared with 2017. The 2018 noninterest expense included a $3.5 million
mediated settlement to dismiss a lawsuit. 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 Act. The 2017 loss
contingency represents the Company’s estimated refunds to customers of revenue recognized in prior years. Salaries and related
benefits increased $1.5 million primarily due to the annual merit increase cycle and higher incentives and employee benefit costs.
Professional fees increased $681 thousand due to higher legal and consulting fees. Amortization of intangibles decreased $1.2
million as assets are amortized on a declining balance method.
Provision for Income Tax
The Company’s income tax provision was $24.8 million in 2019 compared with $19.4 million in 2018 and $37.1 million in 2017,
representing effective tax rates of 23.6%, 21.4% and 42.6%, respectively. The effective tax rate (FTE) was 26.8% in 2019, 26.0%
in 2018 and 49.7% in 2017.
The higher effective tax rate (FTE) in 2019 compared with 2018 is due to lower levels of tax-exempt interest income and stock
compensation tax deductions in 2019. The tax provisions (FTE) for 2019 and 2018 include tax benefits of $435 thousand and $737
thousand, respectively, for tax deductions from the exercise of employee stock options which exceed related compensation expenses
recognized in the financial statements. In 2019, the Company decreased unrecognized tax benefits by $909 thousand related to
settlements with taxing authorities. The settlements incorporated amended tax returns for which the Company had recognized a
deferred tax asset in the amount of $1,003 thousand.
The 2017 income tax provision 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. The book tax provisions for 2018 and 2017 include tax benefits of $737 thousand
and $698 thousand, respectively, for tax deductions from the exercise of employee stock options which exceed related compensation
expenses recognized in the financial statements. The lower effective tax rate for 2018 compared with 2017 reflects a reduction in
the federal corporate tax rate as a result of enactment of the Act and the tax-exempt nature of a $585 thousand life insurance policy
gain.
Investment Securities Portfolio
The Company maintains an investment securities portfolio consisting of securities issued by the U.S. Treasury, U.S. Government
sponsored entities, agency and non-agency mortgage backed securities, state and political subdivisions, corporations, and other
securities.
Management has managed the investment securities portfolio in response to changes in deposit and loan volumes. The carrying
value of the Company’s investment securities portfolio was $3.8 billion at December 31, 2019 and $3.6 billion at December 31,
2018.
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.
At December 31, 2019, 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 the Company’s internal analyses compared with the ratings
assigned by the third party credit rating agencies.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
The Company had no equity securities at December 31, 2019. All of the equity securities were sold with no gains or losses from
the sale during the third quarter 2019. The market value of the equity securities was $1,747 thousand at December 31, 2018. The
Company recognized gross unrealized holding gains of $50 thousand in earnings in 2019.
The following table shows the fair value carrying amount of the Company’s equity securities and debt securities available for sale
as of the dates indicated:
Equity securities:
Mutual funds
Total equity securities
Debt securities available for sale:
U.S. Treasury securities
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
Collateralized Loan Obligations
Total debt securities available for sale
Total
2019
At December 31,
2018
(In thousands)
2017
$ -
-
$1,747
1,747
$1,800
1,800
20,000
111,167
939,750
-
3,708
544
163,139
1,833,783
6,755
3,078,846
$3,078,846
139,574
164,018
853,871
114
1,842
1,119
179,091
1,315,041
-
2,654,670
$2,656,417
-
119,319
767,706
154
2,219
1,590
185,221
1,115,498
-
2,191,707
$2,193,507
The following table sets forth the relative maturities and contractual yields of the Company’s debt securities available for sale
(stated at fair value) at December 31, 2019. 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.
Debt Securities Available for Sale Maturity Distribution
U.S. Treasury securities
Interest rate
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
Collaterized loan obligations
Interest rate
Subtotal
Interest rate
MBS
Interest rate
Total
Interest rate
Within one year
After one but
within five
years
After five but
within ten
years
After ten years
Mortgage-
backed
At December 31, 2019
$20,000
2.56%
1,001
2.00%
-
- %
18,852
2.91%
255,402
2.65%
-
- %
295,255
2.66%
-
- %
$295,255
2.66%
$ -
- %
110,166
1.92%
-
- %
45,770
4.15%
966,455
2.69%
-
- %
1,122,391
2.67%
-
- %
$1,122,391
2.67%
($ in thousands)
$ -
- %
-
- %
544
3.61%
64,052
4.00%
611,926
3.22%
6,755
2.78%
683,277
3.29%
-
- %
$683,277
3.29%
$ -
- %
-
- %
-
- %
34,465
2.96%
-
- %
-
- %
34,465
2.96%
-
- %
$34,465
2.96%
$ -
- %
-
- %
-
- %
-
- %
-
- %
-
- %
-
- %
943,458
2.36%
$943,458
2.36%
Total
$20,000
2.56%
111,167
1.93%
544
3.61%
163,139
3.58%
1,833,783
2.85%
6,755
2.78%
2,135,388
2.85%
943,458
2.36%
$3,078,846
2.70%
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2019 WESTAMERICA BANCORPORATION FORM 10-K
The following table shows the amortized cost carrying amount and fair value of the Company’s debt securities held to maturity as
of the dates indicated:
Agency residential MBS
Non-agency residential MBS
Agency commercial MBS
Obligations of states and political subdivisions
Total
Fair value
2019
$353,937
2,354
-
381,781
$738,072
$744,296
At December 31,
2018
(In thousands)
$447,332
3,387
-
533,890
$984,609
$971,445
2017
$545,883
4,462
9,041
599,478
$1,158,864
$1,155,342
The following table sets forth the relative maturities and contractual yields of the Company’s debt securities held to maturity at
December 31, 2019. Yields on state and political subdivision securities have been calculated on a fully taxable equivalent basis
using the current federal statutory rate. Mortgage-backed securities are shown separately because they are typically paid in monthly
installments over a number of years.
Debt Securities Held to Maturity Maturity Distribution
Obligations of states and political subdivisions
Interest rate
MBS
Interest rate
Total
Interest rate
Within one year
After one but
within five
years
After five but
within ten
years
After ten years
Mortgage-
backed
At December 31, 2019
($ in thousands)
$70,378
2.24%
-
- %
$70,378
2.24%
$161,911
2.98%
-
- %
$161,911
2.98%
$149,492
3.54%
-
- %
$149,492
3.54%
$ -
- %
-
- %
$ -
- %
$ -
- %
356,291
1.94%
$356,291
1.94%
Total
$381,781
3.04%
356,291
1.94%
$738,072
2.51%
The following table summarizes total corporate securities by the industry sector in which the issuing companies operate:
At December 31, 2019
At December 31, 2018
As a percent of
total corporate
securities
Market value
As a percent of
total corporate
securities
Market value
($ in thousands)
Financial
Utilities
Consumer, Non-cyclical
Industrial
Communications
Technology
Energy
Basic Materials
Consumer, Cyclical
Total Corporate securities
$772,852
222,951
185,784
177,051
128,635
107,632
86,883
76,434
75,561
$1,833,783
42%
12%
10%
10%
7%
6%
5%
4%
4%
100%
$531,512
197,568
169,851
152,636
49,642
105,324
19,668
30,410
58,430
$1,315,041
40%
15%
13%
12%
4%
8%
1%
2%
5%
100%
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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, 2019, the Company’s investment securities portfolios included securities issued by 451 state and local government
municipalities and agencies located within 42 states. The largest exposure to any one municipality or agency was $9.0 million (fair
value) represented by one general obligation bond.
Obligations of states and political subdivisions:
General obligation bonds:
California
Texas
New Jersey
Washington
Minnesota
Other (33 states)
Total general obligation bonds
Revenue bonds:
California
Kentucky
Colorado
Washington
Indiana
Virginia
Arizona
Other (25 states)
Total revenue bonds
Total obligations of states and political subdivisions
At December 31, 2019
Amortized
Cost
Fair
Value
(In thousands)
$83,984
36,396
29,347
23,862
20,624
189,286
$383,499
$31,829
16,384
12,176
11,208
9,935
8,027
7,912
60,338
$157,809
$541,308
$86,527
36,815
29,688
24,516
20,871
193,302
$391,719
$32,278
16,680
12,479
11,509
10,145
8,328
8,106
61,347
$160,872
$552,591
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2019 WESTAMERICA BANCORPORATION FORM 10-K
At December 31, 2018, the Company’s investment securities portfolios included securities issued by 583 state and local government
municipalities and agencies located within 43 states. The largest exposure to any one municipality or agency was $9.3 million (fair
value) represented by eight general obligation bonds.
Obligations of states and political subdivisions:
General obligation bonds:
California
Texas
New Jersey
Minnesota
Other (35 states)
Total general obligation bonds
Revenue bonds:
California
Kentucky
Colorado
Washington
Iowa
Indiana
Other (28 states)
Total revenue bonds
Total obligations of states and political subdivisions
At December 31, 2018
Amortized
Cost
Fair
Value
(In thousands)
$104,607
56,653
35,501
29,609
267,402
$493,772
$35,164
19,320
14,564
13,034
13,202
12,007
113,047
$220,338
$714,110
$105,730
56,286
35,527
29,593
266,136
$493,272
$35,399
19,328
14,539
13,228
13,052
12,034
112,805
$220,385
$713,657
At December 31, 2019 and December 31, 2018, 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 20 revenue sources at
December 31, 2019 and 22 revenue sources December 31, 2018. 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)
Lease (abatement)
Other (15 sources)
Total revenue bonds by revenue source
At December 31, 2019
Amortized
Cost
Fair
Value
(In thousands)
$36,960
19,039
15,695
15,230
10,913
59,972
$157,809
$37,699
19,545
16,101
15,539
11,160
60,828
$160,872
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Revenue bonds by revenue source:
Water
Sales tax
Sewer
Lease (renewal)
College & University
Other (17 sources)
Total revenue bonds by revenue source
At December 31, 2018
Amortized
Cost
Fair
Value
(In thousands)
$46,326
28,264
28,335
17,013
13,919
86,481
$220,338
$46,671
28,517
28,502
17,051
13,714
85,930
$220,385
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.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Loan volumes have declined due to payoffs and problem loan workout activities, 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 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
2019
2018
2016
2015
At December 31,
2017
(In thousands)
$335,996
568,584
5,649
65,183
312,570
$222,085
578,758
1,618
32,748
291,455
$382,748
637,456
3,951
120,091
389,150
$1,126,664 $1,207,202 $1,287,982 $1,352,711 $1,533,396
$354,697
542,171
2,555
87,724
365,564
$275,080
580,480
3,982
44,866
302,794
The following table shows the maturity distribution and interest rate sensitivity of commercial, commercial real estate, and
construction loans at December 31, 2019. Balances exclude residential real estate loans and consumer loans totaling $324.2 million.
These types of loans are typically paid in monthly installments over a number of years.
Loan Maturity Distribution
Commercial and Commercial real estate
Construction
Total
Loans with fixed interest rates
Loans with floating or adjustable interest rates
Total
Commitments and Letters of Credit
At December 31, 2019
Within One
Year
One to Five
Years
After Five
Years
(In thousands)
$81,528
1,618
$83,146
$36,610
46,536
$83,146
$153,156
-
$153,156
$64,427
88,729
$153,156
$566,159
-
$566,159
$32,451
533,708
$566,159
Total
$800,843
1,618
$802,461
$133,488
668,973
$802,461
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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2019 WESTAMERICA BANCORPORATION FORM 10-K
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
2019
2018
At December 31,
2017
(In thousands)
2016
2015
$659
3,781
4,440
440
4,880
43
$4,923
$998
3,870
4,868
551
5,419
350
$5,769
$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
Nonperforming assets have declined during 2019 due to payoffs, chargeoffs and sale of Other Real Estate Owned. At December
31, 2019, one loan secured by commercial real estate with a balance of $3.7 million was on nonaccrual status. The remaining eight
nonaccrual loans held at December 31, 2019 had an average carrying value of $96 thousand.
Management believes the overall credit quality of the loan portfolio is reasonably stable; however, classified and nonperforming
assets could fluctuate from period to period. The performance of any individual loan can be affected by external factors such as the
interest rate environment, economic conditions, and collateral values or factors particular to the borrower. No assurance can be
given that additional increases in nonaccrual and delinquent loans will not occur in the future.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Allowance for Credit Losses
The Company’s allowance for loan losses represents Management’s estimate of loan losses inherent in the loan portfolio. In
evaluating credit risk for loans, Management measures loss potential of the carrying value of loans. As described above, payments
received on nonaccrual loans may be applied against the principal balance of the loans until such time as full collection of the
remaining recorded balance is expected.
The following table summarizes the allowance for loan losses, chargeoffs and recoveries for the periods indicated:
Analysis of the Allowance for Loan Losses
Balance, beginning of period
(Reversal of) provision for loan losses
Loans charged off:
Commercial
Commercial real estate
Construction
Residential real estate
Consumer and other installment
Total chargeoffs
Recoveries of loans previously charged off:
Commercial
Commercial real estate
Construction
Consumer and other installment
Total recoveries
Net loan losses
Balance, end of period
2019
2018
For the Years Ended December 31,
2017
($ in thousands)
2016
2015
$21,351
-
(97)
-
-
-
(4,473)
(4,570)
768
196
-
1,739
2,703
(1,867)
$19,484
$23,009
-
(513)
(240)
-
-
(4,124)
(4,877)
1,447
-
-
1,772
3,219
(1,658)
$21,351
$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
Net loan losses as a percentage of average loans
0.16%
0.14%
0.08%
0.04%
0.11%
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 all loans with outstanding principal balances in excess of $500 thousand that are classified or on nonaccrual
status and all “troubled debt restructured” loans for impairment. The remainder of the loan portfolio is collectively evaluated for
impairment based in part on quantitative analyses of historical loan loss experience of loan portfolio segments to determine standard
loss rates for each segment. The loss rate for each loan portfolio segment reflects both the historical loss experience during a look-
back period and 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, 2019 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: concentrations of credit at $1.2 million, adequacy of lending Management and staff at $0.9
million, and loan review system at $1.1 million.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
The following table presents the allocation of the allowance for loan losses as of December 31 for the years indicated:
2019
2018
At December 31,
2017
2016
2015
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
$4,959
4,064
109
206
6,445
3,701
$19,484
20%
51%
- %
3%
26%
- %
100%
$6,311
3,884
1,465
869
5,645
3,177
$21,351
23%
48%
- %
4%
25%
- %
100%
($ in thousands)
$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%
$9,559
4,212
235
1,801
8,001
5,963
$29,771
25%
42%
- %
8%
25%
- %
100%
The portion of the allowance for loan losses ascribed to loan segments changed from December 31, 2018 to December 31, 2019
based on Management’s evaluation of credit risk. The allowance for loan losses ascribed to commercial loans, construction loans
and residential real estate loans declined primarily due to lower levels of credit exposure. The allowance for loan losses ascribed to
consumer installment loans increased based on Management’s assessment of delinquency rates.
Allowance for Loan Losses
For the Twelve Months Ended December 31, 2019
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment
and Other
Unallocated
Total
$6,311
(2,023)
(97)
768
$4,959
$3,884
(16)
-
196
$4,064
$1,465
(1,356)
-
-
$109
$869
(663)
-
-
$206
$5,645
3,534
(4,473)
1,739
$6,445
$3,177
524
-
-
$3,701
$21,351
-
(4,570)
2,703
$19,484
Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
At December 31, 2019
Commercial
Commercial
Real Estate
Construction
Consumer
Installment and
Other
Residential
Real Estate
(In thousands)
Unallocated
Total
$2,413
2,546
$4,959
$8,182
213,903
$222,085
$-
4,064
$4,064
$7,409
571,349
$578,758
$-
109
$109
$-
1,618
$1,618
$-
206
$206
$-
6,445
$6,445
$-
3,701
$3,701
$2,413
17,071
$19,484
$190
32,558
$32,748
$43
291,412
$291,455
$-
-
$-
$15,824
1,110,840
$1,126,664
Allowance for loan losses:
Balance at beginning of period
(Reversal) provision
Chargeoffs
Recoveries
Total allowance for loan losses
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Total
Carrying value of loans:
Individually evaluated for impairment
Collectively evaluated for impairment
Total
Management considers the $19.4 million allowance for loan losses to be adequate as a reserve against probable incurred loan losses
in the loan portfolio as of December 31, 2019.
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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2019 WESTAMERICA BANCORPORATION FORM 10-K
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. Financial instruments may mature or re-price at different times. Financial instruments 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 financial instruments may change as interest rates change. In addition, the changing
levels of interest rates may have an impact on loan demand and demand for various deposit products.
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 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 loans and investment securities and
paid for deposits and other borrowings. The nature and impact of future changes in monetary policies are generally not predictable.
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 market 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. 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.
Management monitors the Company’s interest rate risk using a purchased simulation model, which is periodically validated using
supervisory guidance issued by the Board of Governors of the Federal Reserve System, SR 11-7 “Guidance on Model Risk
Management.” Management measures its exposure to interest rate risk using both a static and dynamic composition of financial
instruments. Within the static composition simulation, cash flows are assumed redeployed into like financial instruments at
prevailing rates and yields. Within the dynamic composition simulation, Management makes assumptions regarding the expected
change in the volume of financial instruments given the assumed change in market interest rates. Both simulations are used to
measure expected changes in net interest income assuming various levels of change in market interest rates.
The Company’s asset and liability position was slightly “asset sensitive” at December 31, 2019, depending on the interest rate
assumptions applied to each simulation model. 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.
At December 31, 2019, Management’s most recent measurements of estimated changes in net interest income were:
Static Simulation (balance sheet composition unchanged):
Assumed Immediate Parallel Shift in Interest Rates
First Year Change in Net Interest Income
-1.00%
-8.20%
Dynamic Simulation (balance sheet composition changes):
Assumed Change in Interest Rates Over 1 Year
First Year Change in Net Interest Income
-1.00%
-4.10%
0.00%
0.00%
0.00%
0.00%
+1.00%
+5.10%
+1.00%
+1.90%
Simulation estimates depend on, and will change with, the size and mix of the actual and projected composition of financial
instruments at the time of each simulation.
The Company does not currently engage in trading activities or use derivative instruments to manage interest rate risk, even though
such activities may be permitted with the approval of the Company's Board of Directors.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Market Risk - Equity Markets
Equity price risk can affect the Company. Preferred or common stock holdings, as permitted by banking regulations, can fluctuate
in value. Changes in value of preferred or common stock holdings are recognized 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 at times 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. Finally, the amount of
compensation expense and tax deductions 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% of funding for average total assets in the twelve months
ended December 31, 2019 and December 31, 2018. 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.
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 source of liquidity. The Company held $3.8
billion in total investment securities at December 31, 2019. Under certain deposit, borrowing and other arrangements, the Company
must hold and pledge investment securities as collateral. At December 31, 2019, such collateral requirements totaled approximately
$760 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
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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 the 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.
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 $44 million and $43 million in the years ended
December 31, 2019 and December 31, 2018, respectively, and retire common stock in the amount of $488 thousand and $524
thousand, respectively. Payment of dividends to the Parent Company by the Bank is limited under California and Federal laws. The
Company believes these regulatory dividend restrictions will not have an impact on the Parent Company's ability to meet its ongoing
cash obligations.
Contractual Obligations
Deposits and sort-term borrowings are detailed on pages 42, 43 and 44. 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, 2019
Over Three
to Five
Years
(In thousands)
After Five
Years
Operating Lease Obligations
Purchase Obligations
Total
$6,048
8,457
$14,505
$7,683
8,584
$16,267
$3,838
-
$3,838
$637
-
$637
Total
$18,206
17,041
$35,247
Operating lease obligations have not been reduced by minimum sublease rentals of $1.5 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 11.9% in the year ended
December 31, 2019 and 11.3% in the year ended December 31, 2018. The Company also raises capital as employees exercise stock
options. Capital raised through the exercise of stock options was $14 million in the year ended December 31, 2019 and $13 million
in the year ended December 31, 2018.
The Company paid common dividends totaling $44 million in the year ended December 31, 2019 and $43 million in the year ended
December 31, 2018, which represent dividends per common share of $1.63 and $1.60, 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 at times repurchased and retired its common stock as another means to return earnings to
shareholders. The Company repurchased and retired 8 thousand shares valued at $488 thousand in the year ended December 31,
2019 and 9 thousand shares valued at $524 thousand in the year ended December 31, 2018.
The Company's primary capital resource is shareholders' equity, which was $731 million at December 31, 2019 compared with
$616 million at December 31, 2018. The Company's ratio of equity to total assets was 13.0% at December 31, 2019 and 11.1% at
December 31, 2018.
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,
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2019 WESTAMERICA BANCORPORATION FORM 10-K
and significant operational lapses. The Company measures the impact of these scenarios on its earnings and capital. Based on the
results of the most recent stress tests, Management is satisfied with the capital condition of the Bank and the Company. However,
no assurance can be given the Bank or Company will not experience a period of reduced earnings or a reduction in capital from
unanticipated events and circumstances.
Capital to Risk-Adjusted Assets
On July 2, 2013, the Federal Reserve Board approved a final rule that implements changes to the regulatory capital framework for
all banking organizations. The rule’s provisions which most affected the regulatory capital requirements of the Company and the
Bank:
Introduced a new “Common Equity Tier 1” capital measurement,
Established higher minimum levels of capital,
Introduced a “capital conservation buffer,”
Increased the risk-weighting of certain assets, and
Established limits on the amount of deferred tax assets with any excess treated as a deduction from Tier 1 capital.
Under the final rule, a banking organization that is not subject to the “advanced approaches rule” may make a one-time election not
to include most elements of Accumulated Other Comprehensive Income, including net-of-tax unrealized gains and losses on debt
securities available for sale, 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 ended January 1, 2019, when the 2.5%
capital conservation buffer was fully implemented. Any banking organization subject to the rule which is unable to maintain its
“capital conservation buffer” above the minimum regulatory capital ratios 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.
Common Equity Tier I Capital
Tier I Capital
Total Capital
Leverage Ratio
(1) Includes 2.5% capital conservation buffer.
At December 31, 2019
Company
Bank
16.22%
16.22%
16.83%
10.50%
11.80%
11.80%
12.58%
7.60%
To Be
Well-capitalized
Under Prompt
Corrective Action
Regulations (Bank)
6.50%
8.00%
10.00%
5.00%
Required for
Capital Adequacy
Purposes
7.00%(1)
8.50%(1)
10.50%(1)
4.00%
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2019 WESTAMERICA BANCORPORATION FORM 10-K
At December 31, 2018
Company
Bank
Effective
January 1, 2018
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
16.30%
16.30%
17.03%
9.51%
13.01%
13.01%
13.94%
7.55%
6.375%(1)
7.875%(1)
9.875%(1)
4.000%
7.00%(2)
8.50%(2)
10.50%(2)
4.00%
6.50%
8.00%
10.00%
5.00%
(1) Includes 1.875% capital conservation buffer.
(2) Includes 2.5% capital conservation buffer.
In June 2016, the Financial Accounting Standards Board issued an update to the accounting standards for credit losses known as
the "Current Expected Credit Losses" (CECL) methodology, which replaces the existing incurred loss methodology for certain
financial assets. The Company will adopt the CECL methodology effective January 1, 2020, which involves an implementing
accounting entry to retained earnings on a net-of-tax basis. In December 2018, the federal bank regulatory agencies approved a final
rule which became effective April 1, 2019, modifying their regulatory capital rules and providing an option to phase in over a period
of three years the day-one regulatory capital effects of implementing the CECL methodology. The Company does not expect the
adoption of the CECL methodology to have a material adverse day-one impact to capital ratios and does not plan to adopt the phase
in regulatory capital relief. See Note 1 to the consolidated financial statements, “Recently Issued Accounting Standards” for more
information on the CECL methodology.
The Company and the Bank routinely project capital levels by analyzing forecasted earnings, credit quality, 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
2019
Percentage of
Total
Deposits
Average
Balance
Rate
For the Years Ended December 31,
2018
Percentage of
Total
Deposits
($ In thousands)
Average
Balance
Rate
2017
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)
$2,222,876
46.3%
- %
$2,209,924
45.4%
- %
$2,095,522
44.4%
- %
932,524
1,464,080
103,399
78,925
19.4%
30.5%
2.2%
1.6%
$4,801,804
100.0%
0.05%
0.06%
0.25%
0.41%
0.07%
928,277
1,519,375
119,586
94,919
19.0%
31.2%
2.5%
1.9%
$4,872,081
100.0%
0.04%
0.06%
0.23%
0.39%
0.04%
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%
0.04%
(1) The rates for total deposits reflect the 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. Average balances of higher costing time deposits declined 26% to $182 million from 2017
to 2019. The Company’s average balances of checking and savings accounts represented 96% of average balances of total deposits
in 2019 compared with 96% in 2018 and 95% in 2017.
- 42 -
42
2019 WESTAMERICA BANCORPORATION FORM 10-K
Total time deposits were $169 million and $195 million at December 31, 2019 and 2018, 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
2020
2021
2022
2023
2024
Thereafter
Total
At December 31, 2019
(In thousands)
$126,859
20,375
9,300
5,871
6,892
40
$169,337
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, 2019
(In thousands)
$26,739
14,263
17,257
22,723
$80,982
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
2019
$30,928
$30,928
At December 31,
2018
(In thousands)
$51,247
$51,247
2017
$58,471
$58,471
[The remainder of this page intentionally left blank]
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43
2019 WESTAMERICA BANCORPORATION FORM 10-K
Further detail of federal funds purchased and other borrowed funds is as follows:
2019
For the Years Ended December 31,
2018
($ in thousands)
2017
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
Financial Ratios
The following table shows key financial ratios for the periods indicated:
$1
-
1.98%
- %
$1
-
2.56%
- %
$5
-
1.53%
- %
$51,441
61,411
0.07%
0.06%
$59,991
68,894
0.06%
0.06%
$69,666
82,126
0.06%
0.06%
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,
2018
1.27%
11.35%
2019
1.44%
11.90%
2017
0.92%
8.39%
12.07%
58.14%
14.07%
55%
11.22%
52.16%
12.95%
60%
10.96%
45.34%
12.63%
83%
[The remainder of this page intentionally left blank]
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44
2019 WESTAMERICA BANCORPORATION FORM 10-K
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 Report on Internal Control Over Financial Reporting ....................................................................
Consolidated Balance Sheets as of December 31, 2019 and 2018 ........................................................................
Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017 .............................
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017 ...
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2019, 2018
and 2017..............................................................................................................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017 ......................
Notes to the Consolidated Financial Statements ...................................................................................................
Report of Independent Registered Public Accounting Firm .................................................................................
Page
46
47
48
49
50
51
52
88
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45
2019 WESTAMERICA BANCORPORATION FORM 10-K
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, 2019. 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, 2019 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, 2019 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 the Company’s internal control
over financial reporting. Their opinion and attestation on internal control over financial reporting appear on page 88.
Dated: February 27, 2020
- 46 -
46
2019 WESTAMERICA BANCORPORATION FORM 10-K
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
Assets:
Cash and due from banks
Equity securities
Debt securities available for sale
Debt securities held to maturity, with fair values of:
$744,296 at December 31, 2019 and $971,445 at December 31, 2018
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 12)
Shareholders' Equity:
Common stock (no par value), authorized - 150,000 shares
Issued and outstanding: 27,062 at December 31, 2019 and 26,730 at December 31, 2018
Deferred compensation
Accumulated other comprehensive income (loss)
Retained earnings
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
See accompanying notes to consolidated financial statements.
At December 31,
2019
2018
(In thousands)
$373,421
-
3,078,846
738,072
1,126,664
(19,484)
1,107,180
43
34,597
1,391
121,673
164,332
$5,619,555
$2,240,112
2,572,509
4,812,621
30,928
44,589
4,888,138
465,460
771
26,051
239,135
731,417
$5,619,555
$420,284
1,747
2,654,670
984,609
1,207,202
(21,351)
1,185,851
350
34,507
1,929
121,673
162,906
$5,568,526
$2,243,251
2,623,588
4,866,839
51,247
34,849
4,952,935
448,351
1,395
(39,996)
205,841
615,591
$5,568,526
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2019 WESTAMERICA BANCORPORATION FORM 10-K
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
2019
2017
2018
(In thousands, except per share data)
Interest and Loan Fee Income:
Loans
Equity securities
Debt securities available for sale
Debt securities held to maturity
Interest-bearing cash
Total Interest and Loan Fee Income
Interest Expense:
Deposits
Short-term borrowed funds
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
Debit card fees
Trust fees
ATM processing fees
Other service fees
Life insurance gains
Financial services commissions
Securities gains (losses)
Other noninterest income
Total Noninterest Income
Noninterest Expense:
Salaries and related benefits
Occupancy and equipment
Outsourced data processing services
Professional fees
Courier service
Loss contingency
Amortization of identifiable intangibles
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.
$58,153
392
74,147
18,997
6,993
158,682
1,854
34
1,888
156,794
-
156,794
17,882
10,132
6,357
2,963
2,776
2,255
433
392
217
4,001
47,408
51,054
20,240
9,471
2,465
1,878
553
538
-
12,787
98,986
105,216
24,827
$80,389
26,956
27,006
$2.98
2.98
1.63
$59,030
354
60,383
24,031
7,925
151,723
1,922
37
1,959
149,764
-
149,764
18,508
9,630
6,643
2,938
2,752
2,567
585
499
(52)
4,079
48,149
53,007
19,679
9,229
2,842
1,779
3,500
1,921
-
14,959
106,916
90,997
19,433
$71,564
26,649
26,756
$2.69
2.67
1.60
$61,740
293
44,371
27,432
4,476
138,312
1,856
44
1,900
136,412
(1,900)
138,312
19,612
8,426
6,421
2,875
2,610
2,584
-
639
7,955
5,506
56,628
51,519
19,430
9,035
2,161
1,732
5,542
3,077
625
14,647
107,768
87,172
37,147
$50,025
26,291
26,419
$1.90
1.89
1.57
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48
2019 WESTAMERICA BANCORPORATION FORM 10-K
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2019
For the Years Ended December 31,
2018
(In thousands)
$71,564
$80,389
2017
$50,025
93,936
(27,771)
(167)
49
66,047
-
-
-
66,047
$146,436
(27,939)
8,258
-
-
(19,681)
-
-
-
(19,681)
$51,883
(3,767)
1,585
(7,955)
3,345
(6,792)
59
(25)
34
(6,758)
$43,267
Net Income
Other comprehensive income (loss):
Changes in net unrealized gains (losses) on debt securities available for sale
Deferred tax (expense) benefit
Reclassification of gains included in net income
Deferred tax expense on gains included in net income
Changes in unrealized gains (losses) on debt 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 Income (Loss)
Total Comprehensive Income
See accompanying notes to consolidated financial statements.
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49
2019 WESTAMERICA BANCORPORATION FORM 10-K
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Common
Shares
Outstanding
Common
Stock
Deferred
Compensation
Accumulated
Other
Comprehensive
Income (Loss)
(In thousands, except per share data)
Retained
Earnings
Total
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 ($1.57 per share)
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)
Cumulative effect of equity securities
losses reclassified
Adjusted Balance, January 1, 2018
26,425
431,734
1,533
Reclass stranded tax effects resulting
from the Tax Cuts and Jobs Act of 2017
Net income for the year 2018
Other comprehensive loss
Exercise of stock options
Restricted stock activity
Stock based compensation
Stock awarded to employees
Retirement of common stock
Dividends ($1.60 per share)
292
20
2
(9)
13,373
1,281
1,988
124
(149)
(138)
142
(16,690)
(3,625)
(19,681)
Balance, December 31, 2018
26,730
448,351
1,395
(39,996)
Cumulative effect of bond premium
amortization adjustment, net of tax
Adjusted Balance, January 1, 2019
Net income for the year 2019
Other comprehensive income
Shares issued from stock warrant
exercise, net of repurchase
Exercise of stock options
Restricted stock activity
Stock based compensation
Stock awarded to employees
Retirement of common stock
Dividends ($1.63 per share)
26,730
448,351
1,395
(39,996)
66,047
51
269
18
-
2
(8)
-
13,699
1,697
1,744
105
(136)
(624)
Balance, December 31, 2019
27,062
$465,460
$771
$26,051
See accompanying notes to consolidated financial statements.
$165,302
50,025
(224)
(41,299)
173,804
(142)
173,662
3,625
71,564
(375)
(42,635)
205,841
(2,801)
203,040
80,389
(352)
(43,942)
$239,135
$561,367
50,025
(6,758)
24,583
707
1,824
104
(314)
(41,299)
590,239
-
590,239
-
71,564
(19,681)
13,373
1,143
1,988
124
(524)
(42,635)
615,591
(2,801)
612,790
80,389
66,047
-
13,699
1,073
1,744
105
(488)
(43,942)
$731,417
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50
2019 WESTAMERICA BANCORPORATION FORM 10-K
2019
For the Years Ended December 31,
2018
(In thousands)
$71,564
$80,389
2017
$50,025
20,626
-
(260)
(2,963)
3,662
(14,806)
1,744
(1,733)
(9)
(5,298)
(433)
(217)
-
-
-
80,702
79,396
-
1,273
(970,542)
631,016
238,450
1,797
(3,994)
-
307
(22,297)
(54,218)
(20,319)
13,699
(488)
(43,942)
(105,268)
(46,863)
420,284
$373,421
$23,587
15,325
5,123
1,898
24,491
24,402
-
(203)
(2,277)
(943)
(4,017)
1,988
7,554
(27)
(580)
(585)
52
-
(216)
(83)
96,629
80,985
-
1,169
(854,555)
353,327
167,029
-
(3,123)
446
1,159
(253,563)
39,226
(7,224)
13,373
(524)
(42,635)
2,216
(154,718)
575,002
$420,284
$ -
-
-
1,932
13,627
26,082
(1,900)
(46)
(2,068)
27,018
(1,732)
1,824
(6,650)
(31)
(3,016)
-
(7,955)
(1,004)
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
$ -
-
-
1,931
17,351
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
Decrease (increase) in net deferred tax asset
Increase in other assets
Stock option compensation expense
(Decrease) increase in income taxes payable
Decrease in interest expense payable
(Decrease) increase in other liabilities
Life insurance gains
Securities (gains) losses
Gain on sale of other assets
(Gain) loss on disposal of premises and equipment
Net (gain) loss on sale of or write-down of foreclosed assets
Net Cash Provided by Operating Activities
Investing Activities:
Net repayments of loans
Net payments under FDIC(1) indemnification agreements
Proceeds from life insurance policies
Purchases of debt securities available for sale
Proceeds from sale/maturity/calls of debt securities available for sale
Proceeds from maturity/calls of debt securities held to maturity
Proceeds from sale of equity securities
Purchases of premises and equipment
Proceeds from sale of premises and equipment
Proceeds from sale of foreclosed assets
Net Cash Used in Investing Activities
Financing Activities:
Net change in deposits
Net change in short-term borrowings
Exercise of stock options
Retirement of common stock
Common stock dividends paid
Net Cash (Used in) Provided by Financing Activities
Net Change In Cash and Due from Banks
Cash and Due from Banks at Beginning of Period
Cash and Due from Banks at End of Period
Supplemental Cash Flow Disclosures:
Supplemental disclosure of noncash activities:
Right-of-use assets acquired in exchange for operating lease liabilities
Amount recognized upon initial adoption of ASU 2016-02
Supplemental disclosure of cash flow activities:
Cash paid for amounts included in operating lease liabilities
Interest paid for the period
Income tax payments for the period
See accompanying notes to consolidated financial statements.
(1) Federal Deposit Insurance Corporation ("FDIC")
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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, 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 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
fair 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. The allowance for loan losses
accounting is an 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 the accounting for the allowance for loan losses is included in
the following “Loans” and “Allowance for Credit Losses” sections. Carrying assets and liabilities at fair value inherently results in
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 “Securities”
section discusses the factors that may affect the valuation of the Company’s securities. Although the estimates contemplate current
conditions and how Management expects them to change in the future, it is reasonably possible that in 2020 actual conditions could
be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition.
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.
Equity Securities. Equity securities consist of marketable equity securities and mutual funds which are recorded at fair value.
Unrealized gains and losses are included in net income effective January 1, 2018. Prior to such date unrealized gains and losses
were included in other comprehensive income.
Debt Securities. Debt securities consist of securities of the U.S. Treasury, government sponsored entities, states, counties,
municipalities, corporations, agency and non-agency mortgage-backed securities and asset-backed securities. Securities transactions
are recorded on a trade date basis. The Company classifies its debt 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 net income. Held to maturity debt securities are
those securities which the Company has the ability and intent to hold until maturity. Held to maturity debt 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 debt securities. Available for sale debt securities are recorded at fair value. Unrealized gains and
losses, net of the related tax effect, on available for sale debt securities are included in accumulated other comprehensive income.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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 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 to the earliest call date and purchase discounts are amortized to maturity 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
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2019 WESTAMERICA BANCORPORATION FORM 10-K
information and events, it is probable that it will be unable to collect both the contractual interest and principal payments as
scheduled in the loan agreement. Income recognition on impaired loans conforms to that used on nonaccrual loans. In certain
circumstances, the Company might agree to restructured loan terms with borrowers experiencing financial difficulties; such
restructured loans are evaluated under ASC 310-40, “Troubled Debt Restructurings by Creditors.” In general, a restructuring
constitutes a troubled debt restructuring when the Company, for reasons related to a borrower’s financial difficulties, grants a
concession to the borrower it would not otherwise consider. Loans are evaluated on an individual basis. The Company follows its
general nonaccrual policy for troubled debt restructurings. Performing troubled debt restructurings are reinstated to accrual status
when improvements in credit quality eliminate the doubt as to full collectability of both principal and interest.
Nonrefundable fees and certain costs associated with originating or acquiring loans are deferred and amortized as an adjustment to
interest income over the contractual loan lives. Upon prepayment, unamortized loan fees, net of costs, are immediately recognized
in interest income. Other fees, including those collected upon principal prepayments, are included in interest income when received.
Loans held for sale are identified upon origination and are reported at the lower of cost or market value on an aggregate loan basis.
Purchased Loans. Purchased loans are recorded at estimated fair value on the date of purchase. Impaired purchased loans are
accounted for under FASB ASC 310-30, Loans and Debt Securities 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. The indemnification
expired February 6, 2019.
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. In estimating credit losses, Management must exercise significant
judgment in evaluating information deemed relevant. 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
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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 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.
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-
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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.
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.
Recently Adopted Accounting Standards
In 2019, the Company adopted the following new accounting guidance:
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 adopted the ASU provisions effective January 1, 2019, and elected the modified retrospective transition approach.
The Company elected the package of practical expedients provided in the ASU, which allowed the Company to rely on lease
classification determinations made under prior accounting guidance and forego reevaluation of (i) whether any existing contracts
are or contain a lease, (ii) whether existing leases are operating or finance leases, and (iii) the initial direct cost for any existing
leases. The Company also elected to combine lease and non-lease components and exempt short-term leases with an original term
of one year or less from on-balance sheet recognition. The implementing entry recognized a lease liability of $15.3 million and
right-of-use asset of $15.3 million for facilities leases. The change in occupancy and equipment expense was not material.
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 shortens the amortization period for certain callable debt securities
held at a premium. Specifically, the ASU requires the premium to be amortized to the earliest call date. The ASU does not require
an accounting change for securities held at a discount; the discount continues to be amortized to maturity.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
The Company adopted the ASU provisions on January 1, 2019. The implementing entry reduced the carrying value of investment
securities, specifically obligations of states and political subdivisions, by $3.1 million and reduced retained earnings by $2.8 million,
net of tax. The change in premium amortization method was not material to revenue recognition.
FASB ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, was
issued August 2017. The ASU expands and refines hedge accounting for both nonfinancial and financial risk components and
aligns 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 adopted the ASU provisions on 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. The Company evaluated the prepayable assets in the HTM portfolio and did not affect a one-time reclassification
of prepayable assets from HTM to the AFS upon implementation.
Recently Issued Accounting Standards
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 debt securities available-for-sale 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 adopt the ASU provisions effective January 1, 2020. Management has evaluated available data, defined portfolio
segments of loans with similar attributes, and selected loss estimate models for each identified loan portfolio segment. Management
has measured historical loss rates for each portfolio segment. Management has also segmented debt securities held to maturity,
selected methods to estimate losses for each segment, and preliminarily measured a loss estimate. Internal controls over financial
reporting have been designed but have not completely operated. The company is reviewing and validating the most recent loss
estimates and is completing the formal governance and approval processes. The Company expects the cumulative effect adjustment
to have an immaterial impact on the allowance for loan losses, other liabilities, shareholders’ equity, deferred taxes, and debt
securities held to maturity.
FASB ASU 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for
Fair Value Measurement, was issued August 2018. The ASU is part of the disclosure framework project, where the primary focus
is to improve the effectiveness of disclosures in the financial statements. The ASU removes, modifies and adds disclosure
requirements related to Fair Value Measurements.
The provisions of the ASU are effective January 1, 2020 with the option to early adopt any removed or modified disclosures upon
issuance of the ASU. The Company early adopted the provisions to remove and/or modify relevant disclosures in the “Fair Value
Measurements” note to the unaudited consolidated financial statements. The requirement to include additional disclosures will be
adopted by the Company effective January 1, 2020. The additional disclosures will not affect the financial results upon adoption.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Note 2: Investment Securities
Effective January 1, 2018, upon adoption of ASU 2016-01, equity securities included in the Company’s available for sale portfolio
of $1,800 thousand were reclassified to equity securities. The reclassification of equity securities resulted in recording a cumulative
effect adjustment to decrease retained earnings by $142 thousand, net of tax.
The Company had no equity securities at December 31, 2019 due to the sales of such securities during the third quarter 2019. The
market value of equity securities was $1,747 thousand at December 31, 2018. During the twelve months ended December 31, 2019,
the Company recognized gross unrealized holding gains of $50 thousand in earnings. During the twelve months ended December
31, 2018, the Company recognized gross unrealized holding losses of $52 thousand in earnings.
An analysis of the amortized cost and fair value by major categories of debt securities available for sale, which are carried at fair
value with net unrealized gains (losses) reported on an after-tax basis as a component of cumulative other comprehensive income,
and debt securities held to maturity, which are carried at amortized cost, follows:
Debt securities available for sale
U.S. Treasury securities
Securities of U.S. Government sponsored entities
Agency residential mortgage-backed securities (MBS)
Agency commercial MBS
Securities of U.S. Government entities
Obligations of states and political subdivisions
Corporate securities
Collateralized Loan Obligations
Total debt securities available for sale
Debt securities held to maturity
Agency residential MBS
Non-agency residential MBS
Obligations of states and political subdivisions
Total debt securities held to maturity
Total
At December 31, 2019
Gross
Gross
Unrealized
Unrealized
Losses
Gains
(In thousands)
$1
14
10,996
-
-
3,656
29,183
7
43,857
766
22
7,672
8,460
$52,317
$ -
(98)
(5,838)
(3)
(9)
(44)
(879)
-
(6,871)
(2,235)
-
(1)
(2,236)
($9,107)
Amortized
Cost
$19,999
111,251
934,592
3,711
553
159,527
1,805,479
6,748
3,041,860
353,937
2,354
381,781
738,072
$3,779,932
Fair
Value
$20,000
111,167
939,750
3,708
544
163,139
1,833,783
6,755
3,078,846
352,468
2,376
389,452
744,296
$3,823,142
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Debt securities available for sale
U.S. Treasury securities
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
Total debt securities available for sale
Debt securities held to maturity
Agency residential MBS
Non-agency residential MBS
Obligations of states and political subdivisions
Total debt securities held to maturity
Total
At December 31, 2018
Gross
Gross
Unrealized
Unrealized
Losses
Gains
(In thousands)
$5
65
595
1
-
-
1,856
1,075
3,597
249
40
3,403
3,692
$7,289
($3)
(3,275)
(30,439)
-
(27)
(9)
(2,985)
(23,642)
(60,380)
(14,129)
-
(2,727)
(16,856)
($77,236)
Amortized
Cost
$139,572
167,228
883,715
113
1,869
1,128
180,220
1,337,608
2,711,453
447,332
3,387
533,890
984,609
$3,696,062
Fair
Value
$139,574
164,018
853,871
114
1,842
1,119
179,091
1,315,041
2,654,670
433,452
3,427
534,566
971,445
$3,626,115
The amortized cost and fair value of debt 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
Total
Maturity in years:
1 year or less
Over 1 to 5 years
Over 5 to 10 years
Over 10 years
Subtotal
MBS
Total
At December 31, 2019
Debt Securities Available
for Sale
Debt Securities Held
to Maturity
Amortized
Cost
Fair
Value
Amortized
Cost
(In thousands)
Fair
Value
$294,698
1,104,775
670,595
33,489
2,103,557
938,303
$3,041,860
$295,255
1,122,391
683,277
34,465
2,135,388
943,458
$3,078,846
$70,378
161,911
149,492
-
381,781
356,291
$738,072
$70,602
165,126
153,724
-
389,452
354,844
$744,296
At December 31, 2018
Debt Securities Available
for Sale
Debt Securities Held
to Maturity
Amortized
Cost
Fair
Value
Amortized
Cost
(In thousands)
Fair
Value
$262,418
1,438,849
85,817
38,672
1,825,756
885,697
$2,711,453
$261,976
1,414,020
85,877
36,970
1,798,843
855,827
$2,654,670
$86,172
214,137
232,544
1,037
533,890
450,719
$984,609
$86,148
213,829
233,515
1,074
534,566
436,879
$971,445
Expected maturities of mortgage-related securities can differ from contractual maturities because borrowers have the right to call
or prepay obligations with or without call or prepayment penalties. In addition, such factors as prepayments and interest rates may
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2019 WESTAMERICA BANCORPORATION FORM 10-K
affect the yield on the carrying value of mortgage-related securities. At December 31, 2019 and December 31, 2018, the Company
had no high-risk collateralized mortgage obligations as defined by regulatory guidelines.
An analysis of the gross unrealized losses of the debt securities available for sale portfolio follows:
Debt Securities Available for Sale
At December 31, 2019
No. of
Investment
Positions
Less than 12 months
Fair Value
Unrealized
Losses
No. of
Investment
Positions
12 months or longer
Unrealized
Losses
Fair Value
($ in thousands)
No. of
Investment
Positions
Total
Fair Value
Unrealized
Losses
1
6
1
-
-
8
16
$9,951
11,674
3,708
-
-
71,577
$96,910
($49)
(100)
(3)
-
-
(162)
($314)
3
47
-
2
7
11
70
$45,877
347,384
-
($49)
(5,738)
-
544
(9)
4,163
64,380
$462,348
(44)
(717)
($6,557)
4
53
1
2
7
19
86
$55,828
359,058
3,708
($98)
(5,838)
(3)
544
(9)
4,163
135,957
$559,258
(44)
(879)
($6,871)
Securities of U.S.
Government
sponsored entities
Agency residential MBS
Agency commercial MBS
Securities of U.S.
Government entities
Obligations of states
and political
subdivisions
Corporate securities
Total
An analysis of gross unrecognized losses of the debt securities held to maturity portfolio follows:
Debt Securities Held to Maturity
At December 31, 2019
No. of
Investment
Positions
Less than 12 months
Fair Value
Unrecognized
Losses
No. of
Investment
Positions
12 months or longer
Unrecognized
Losses
Fair Value
($ in thousands)
No. of
Investment
Positions
Total
Fair Value
Unrecognized
Losses
Agency residential MBS
Obligations of states
and political
subdivisions
Total
6
-
6
$12,098
($87)
54
$277,203
($2,148)
60
$289,301
($2,235)
-
$12,098
-
($87)
1
55
251
$277,454
(1)
($2,149)
1
61
251
$289,552
(1)
($2,236)
The unrealized losses on the Company’s debt securities were caused by market conditions for these types of investments,
particularly changes in risk-free interest rates. The Company evaluates debt 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.
One corporate bond with an amortized cost of $15.0 million and a fair value of $14.5 million at December 31, 2019, is rated below
investment grade. 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 debt securities and has concluded that it is more likely than not that it will not be required
to sell the debt securities prior to recovery of the amortized cost basis. Therefore, the Company does not consider these debt
securities to be other-than-temporarily impaired as of December 31, 2019.
The fair values of the debt 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 debt securities declines. As a result, other than temporary
impairments may occur in the future.
As of December 31, 2019 and December 31, 2018, the Company had debt securities pledged to secure public deposits and short-
term borrowed funds of $760,365 thousand and $728,161 thousand, respectively.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
An analysis of the gross unrealized losses of the debt securities available for sale portfolio follows:
Debt Securities Available for Sale
At December 31, 2018
No. of
Investment
Positions
Less than 12 months
Fair Value
Unrealized
Losses
No. of
Investment
Positions
$54,805
($3)
990
107,497
1,842
-
(5)
(507)
(27)
-
-
9
58
-
2
12 months or longer
Unrealized
Losses
Fair Value
($ in thousands)
No. of
Investment
Positions
Total
Fair Value
Unrealized
Losses
$ -
$ -
2
$54,805
($3)
117,963
640,210
(3,270)
(29,932)
-
1,119
-
(9)
10
66
1
2
118,953
747,707
(3,275)
(30,439)
1,842
1,119
(27)
(9)
26,452
308,157
$499,743
(166)
(3,403)
($4,111)
71
79
219
67,121
722,740
$1,549,153
(2,819)
(20,239)
($56,269)
103
117
301
93,573
1,030,897
$2,048,896
(2,985)
(23,642)
($60,380)
U.S. Treasury securities
Securities of U.S.
Government
sponsored entities
Agency residential MBS
Agency commercial
MBS
Securities of U.S.
Government entities
Obligations of states
and political
subdivisions
Corporate securities
Total
2
1
8
1
-
32
38
82
An analysis of gross unrecognized losses of the debt securities held to maturity portfolio follows:
Debt Securities Held to Maturity
At December 31, 2018
No. of
Investment
Positions
Less than 12 months
Fair Value
Unrecognized
Losses
No. of
Investment
Positions
Agency residential MBS
Non-agency residential
MBS
Obligations of states
and political
subdivisions
Total
16
1
97
114
$8,495
($34)
26
-
83,633
$92,154
(271)
($305)
78
-
142
220
12 months or longer
Unrecognized
Losses
Fair Value
($ in thousands)
$412,574
($14,095)
-
-
151,546
$564,120
(2,456)
($16,551)
No. of
Investment
Positions
Total
Fair Value
Unrecognized
Losses
94
1
239
334
$421,069
($14,129)
26
-
235,179
$656,274
(2,727)
($16,856)
The following table provides information about the amount of interest income earned on investment securities which is fully taxable
and which is exempt from federal income tax:
2019
For the Years Ended December 31,
2018
(In thousands)
2017
Taxable
Tax-exempt from regular federal income tax
Total interest income from investment securities
$77,800
15,736
$93,536
$65,330
19,438
$84,768
$51,445
20,651
$72,096
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Note 3: Loans and Allowance for Credit Losses
At December 31, 2018, the Company had $5,713 thousand in loans secured by residential real estate which are indemnified from
loss by the FDIC up to 80% of principal; the indemnification expired February 6, 2019.
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 December 31,
2019
2018
(In thousands)
$222,085
578,758
1,618
32,748
291,455
$1,126,664
$275,080
580,480
3,982
44,866
302,794
$1,207,202
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 twelve months ended December 31,
2019
2018
(In thousands)
$182
1,103
(472)
$813
($472)
-
($472)
$738
1,119
(1,675)
$182
($1,675)
2
($1,673)
The following summarizes activity in the allowance for loan losses:
Allowance for loan losses:
Balance at beginning of period
(Reversal) provision
Chargeoffs
Recoveries
Total allowance for loan losses
Allowance for loan losses:
Balance at beginning of period
(Reversal) provision
Chargeoffs
Recoveries
Total allowance for loan losses
Allowance for Loan Losses
For the Twelve Months Ended December 31, 2019
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment
and Other
Unallocated
Total
$6,311
(2,023)
(97)
768
$4,959
$3,884
(16)
-
196
$4,064
$1,465
(1,356)
-
-
$109
$869
(663)
-
-
$206
$5,645
3,534
(4,473)
1,739
$6,445
$3,177
524
-
-
$3,701
$21,351
-
(4,570)
2,703
$19,484
Allowance for Loan Losses
For the Twelve Months Ended December 31, 2018
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment
and Other
Unallocated
Total
$7,746
(2,369)
(513)
1,447
$6,311
$3,849
275
(240)
-
$3,884
$335
1,130
-
-
$1,465
$995
(126)
-
-
$869
$6,418
1,579
(4,124)
1,772
$5,645
$3,666
(489)
-
-
$3,177
$23,009
-
(4,877)
3,219
$21,351
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Allowance for Loan Losses
For the Twelve Months Ended December 31, 2017
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment
and Other
Unallocated
Total
$8,327
(382)
(961)
762
$7,746
$3,330
431
-
88
$3,849
$152
(1,716)
-
1,899
$335
$1,330
(335)
-
-
$995
$7,980
1,271
(4,957)
2,124
$6,418
$4,835
(1,169)
-
-
$3,666
$25,954
(1,900)
(5,918)
4,873
$23,009
Allowance for loan losses:
Balance at beginning of period
(Reversal) provision
Chargeoffs
Recoveries
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
Total
Carrying value of loans:
Individually evaluated for impairment
Collectively evaluated for impairment
Total
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Total
Carrying value of loans:
Individually evaluated for impairment
Collectively evaluated for impairment
Total
Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
At December 31, 2019
Commercial
Commercial
Real Estate
Construction
Consumer
Installment and
Other
Residential
Real Estate
(In thousands)
Unallocated
Total
$2,413
2,546
$4,959
$8,182
213,903
$222,085
$-
4,064
$4,064
$7,409
571,349
$578,758
$-
109
$109
$-
1,618
$1,618
$-
206
$206
$-
6,445
$6,445
$-
3,701
$3,701
$2,413
17,071
$19,484
$190
32,558
$32,748
$43
291,412
$291,455
$-
-
$-
$15,824
1,110,840
$1,126,664
Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
At December 31, 2018
Commercial
Commercial
Real Estate
Construction
Consumer
Installment and
Other
Residential
Real Estate
(In thousands)
Unallocated
Total
$2,752
3,559
$6,311
$9,944
265,136
$275,080
$-
3,884
$3,884
$8,438
572,042
$580,480
$-
1,465
$1,465
$-
3,982
$3,982
$-
869
$869
$-
5,645
$5,645
$-
3,177
$3,177
$2,752
18,599
$21,351
$717
44,149
$44,866
$143
302,651
$302,794
$-
-
$-
$19,242
1,187,960
$1,207,202
The Company’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 Company’s subsidiary, Westamerica Bank (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 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 performs continuous evaluations throughout the year. 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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2019 WESTAMERICA BANCORPORATION FORM 10-K
The following summarizes the credit risk profile by internally assigned grade:
Credit Risk Profile by Internally Assigned Grade
At December 31, 2019
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment and
Other
Total
$213,542
8,543
-
-
$222,085
$567,525
11,233
-
-
$578,758
$1,618
-
-
-
$1,618
$31,055
1,693
-
-
$32,748
$289,424
1,329
308
394
$291,455
$1,103,164
22,798
308
394
$1,126,664
Credit Risk Profile by Internally Assigned Grade
At December 31, 2018
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment and
Other
Total
$264,634
10,446
-
-
$275,080
$567,578
12,902
-
-
$580,480
$3,982
-
-
-
$3,982
$43,112
1,754
-
-
$44,866
$300,553
1,556
135
550
$302,794
$1,179,859
26,658
135
550
$1,207,202
Grade:
Pass
Substandard
Doubtful
Loss
Total
Grade:
Pass
Substandard
Doubtful
Loss
Total
Credit risk profile reflects internally assigned grades of purchased covered loans without regard to FDIC indemnification on $5,713
thousand in loans secured by residential real estate at December 31, 2018. The indemnification expired February 6, 2019.
The following tables summarize loans by delinquency and nonaccrual status:
Summary of Loans by Delinquency and Nonaccrual Status
At December 31, 2019
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
$531
432
-
274
2,960
$4,197
(In thousands)
$158
421
-
540
1,517
$2,636
$ -
-
-
-
440
$440
$197
4,096
-
-
147
$4,440
$222,085
578,758
1,618
32,748
291,455
$1,126,664
Summary of Loans by Delinquency and Nonaccrual Status
At December 31, 2018
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
$781
617
-
789
3,408
$5,595
(In thousands)
$254
785
-
189
1,107
$2,335
$ -
-
-
-
551
$551
$ -
4,225
-
516
127
$4,868
$275,080
580,480
3,982
44,866
302,794
$1,207,202
Current and
Accruing
$221,199
573,809
1,618
31,934
286,391
$1,114,951
Current and
Accruing
$274,045
574,853
3,982
43,372
297,601
$1,193,853
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, 2019
and December 31, 2018.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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
Total with an allowance recorded
Total
2019
Unpaid
Principal
Balance
Recorded
Investment
Impaired Loans
At December 31,
Related
Allowance
Recorded
Investment
(In thousands)
2018
Unpaid
Principal
Balance
Related
Allowance
$21
7,408
190
43
7,662
$21
8,856
220
43
9,140
$-
-
-
-
-
$755
8,438
717
270
10,180
$759
10,373
747
377
12,256
$-
-
-
-
-
8,160
8,160
$15,822
8,160
8,160
$17,300
2,413
2,413
$2,413
9,189
9,189
$19,369
9,189
9,189
$21,445
2,752
2,752
$2,752
Impaired loans include troubled debt restructured loans. Impaired loans at December 31, 2019, included $6,713 thousand of
restructured loans, $3,670 thousand of which were on nonaccrual status. Impaired loans at December 31, 2018, included $8,579
thousand of restructured loans, $4,225 thousand of which were on nonaccrual status.
Impaired Loans
For the Twelve Months Ended December 31,
2018
2019
2017
Average
Recorded
Investment
Recognized
Interest
Income
Average
Recorded
Investment
Recognized
Interest
Income
(In thousands)
Average
Recorded
Investment
Recognized
Interest
Income
Commercial
Commercial real estate
Residential real estate
Consumer installment and other
Total
$8,412
7,428
191
44
$16,075
$140
139
3
1
$283
$10,532
11,703
269
254
$22,758
$667
758
19
14
$1,458
$11,156
14,806
423
415
$26,800
$508
884
17
20
$1,429
The following tables provide information on troubled debt restructurings:
Troubled Debt Restructurings
At December 31, 2019
Number of
Contracts
Pre-Modification
Carrying Value
Period-End
Carrying Value
2
6
1
9
($ in thousands)
$278
8,367
241
$8,886
$32
6,492
189
$6,713
Period-End
Individual
Impairment
Allowance
$11
-
-
$11
Commercial
Commercial real estate
Residential real estate
Total
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Troubled Debt Restructurings
At December 31, 2018
Number of
Contracts
Pre-Modification
Carrying Value
Period-End
Carrying Value
4
8
1
13
($ in thousands)
$2,274
9,237
241
$11,752
$811
7,568
200
$8,579
Period-End
Individual
Impairment
Allowance
$19
-
-
$19
Commercial
Commercial real estate
Residential real estate
Total
During the twelve months ended December 31, 2019 and December 31, 2018, the Company did not modify any loans that were
considered troubled debt restructurings.
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.
There were no chargeoffs related to troubled debt restructurings made during the year ended December 31, 2019. During the year
ended December 31, 2018, one troubled debt restructured loan with a carrying value of $41 thousand was charged off. During the
year ended December 31, 2017, one troubled debt restructured loan with a carrying value of $58 thousand was charged off. During
the years ended December 31, 2019, 2018 and 2017, 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, 2019 and December 31, 2018.
There were no loans held for sale at December 31, 2019 and December 31, 2018.
At December 31, 2019 and December 31, 2018, the Company held total other real estate owned (OREO) of $43 thousand and $350
thousand, respectively. There was no reserve applied against OREO at December 31, 2019 and December 31, 2018. There were no
foreclosed residential real estate properties at December 31, 2019 and December 31, 2018. There was no covered OREO at
December 31, 2018. The amount of consumer mortgage loans outstanding secured by residential real estate properties for which
formal foreclosure proceedings were in process was $124 thousand at December 31, 2019 and $516 thousand at December 31,
2018.
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, 2019, the
Bank did not have credit extended to any one entity exceeding these limits. At December 31, 2019, the Bank had 34 lending
relationships each with aggregate amounts of $5 million or more. 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 $43,129 thousand and $53,891 thousand at December 31, 2019 and December 31, 2018, 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, 2019, the Bank held corporate
bonds in 92 issuing entities that exceeded $5 million for each issuer.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Note 5: Premises, Equipment, Other Assets and Other Liabilities
Premises and equipment consisted of the following:
2019
Land
Building and improvements
Leasehold improvements
Furniture and equipment
Total
2018
Land
Building and improvements
Leasehold improvements
Furniture and equipment
Total
At December 31,
Accumulated
Depreciation
and
Amortization
(In thousands)
Net Book
Value
$ -
(28,353)
(5,405)
(18,877)
($52,635)
$ -
(27,178)
(4,968)
(16,969)
($49,115)
$11,691
14,176
814
7,916
$34,597
$11,691
14,734
1,206
6,876
$34,507
Cost
$11,691
42,529
6,219
26,793
$87,232
$11,691
41,912
6,174
23,845
$83,622
Depreciation and amortization of premises and equipment included in noninterest expense amounted to $3,879 thousand in 2019,
$3,677 thousand in 2018 and $3,925 thousand in 2017.
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
Right-of-use asset
Limited partnership investments
Interest receivable
Prepaid assets
Other assets
Total other assets
At December 31,
2019
2018
(In thousands)
$14,069
158
14,227
57,810
11,085
17,136
20,773
28,797
3,737
10,767
$164,332
$14,069
158
14,227
56,083
42,256
-
10,219
25,834
4,658
9,629
$162,906
(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 net deferred tax asset at December 31, 2019 of $11,085 thousand was net of deferred tax obligations of $10,934 thousand
related to available for sale debt securities unrealized gains. The net deferred tax asset at December 31, 2018 of $42,256 thousand
included deferred tax benefits of $16,787 thousand related to available for sale debt securities unrealized losses.
The Company owns 211 thousand shares of Visa Inc. class B common stock which have transfer restrictions; the carrying value is
$-0- thousand. On September 30, 2019, Visa Inc. announced a revised conversion rate applicable to its class B common stock
resulting from its September 27, 2019 deposit of funds into its litigation escrow account. This funding reduced the conversion rate
of class B common stock into class A common stock, which is unrestricted and trades actively on the New York Stock Exchange,
from 1.6298 to 1.6228 per share, effective as of September 27, 2019. Visa Inc. class A common stock had a closing price of $187.90
per share on December 31, 2019, the last day of stock market trading for the fourth quarter 2019. The ultimate value of the
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67
2019 WESTAMERICA BANCORPORATION FORM 10-K
Company’s Visa Inc. class B shares is subject to the extent of Visa Inc.’s future litigation escrow fundings, the resulting conversion
rate to class A common stock, and current and future trading restrictions on the class B common stock.
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, 2019, this investment totaled $20,773 thousand and $16,231 thousand of this
amount represents outstanding equity capital commitments that are included in other liabilities. At December 31, 2018, this
investment totaled $10,219 thousand and $4,799 thousand of this amount represented outstanding equity capital commitments. At
December 31, 2019, the $16,231 thousand of outstanding equity capital commitments are expected to be paid as follows, $5,009
thousand in 2020, $4,075 thousand in 2021, $5,980 thousand in 2022, $295 thousand in 2023, $24 thousand in 2024, $301 thousand
in 2025 and $547 thousand in 2026 or thereafter.
The amounts recognized in net income for these investments include:
For the Years Ended December 31,
2018
(In thousands)
2019
2017
Investment loss included in pre-tax income
Valuation impairment included in pre-tax income
Tax credits recognized in provision for income taxes
$2,400
-
875
$2,900
-
1,121
$1,800
625
1,850
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.
Other liabilities consisted of the following:
Operating lease liability
Other liabilities
Total other liabilities
At December 31,
2019
2018
(In thousands)
$17,136
27,453
$44,589
$ -
34,849
$34,849
The Company has entered into leases for most branch locations and certain other offices that were classified as operating leases
primarily with original terms of 5 years. Certain lease arrangements contain extension options, which can be exercised at the
Company’s option, for one or more additional 5 year terms. Unexercised extension options are not considered reasonably certain
of exercise and have not been included in the lease term used to determine the lease liability or right-of-use asset. The Company
did not have any finance leases as of December 31, 2019.
As of December 31, 2019, the Company recorded a lease liability of $17,136 thousand and a right-of-use asset of $17,136 thousand,
respectively. The weighted average remaining life of operating leases and weighted average discount rate used to determine
operating lease liabilities were 3.9 years and 2.92%, respectively, at December 31, 2019. The Company did not have any material
lease incentives, unamortized initial direct costs, prepaid lease expense, or accrued lease expense as of December 31, 2019.
Total lease costs during the twelve months ended December 31, 2019, of $6,880 thousand was recorded within occupancy and
equipment expense. The Company did not have any material short-term or variable leases costs or sublease income during the
twelve months ended December 31, 2019.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
The following table summarizes the remaining lease payments of operating lease liabilities:
2020
2021
2022
2023
2024
Thereafter
Total minimum lease payments
Less: discount
Present value of lease liability
Minimum
future lease
payments
At December 31,
2019
(In thousands)
$6,048
4,317
3,366
2,633
1,205
637
18,206
(1,070)
$17,136
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 twelve
months ended December 31, 2019 and December 31, 2018. 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 twelve months ended December 31, 2019 and year ended December 31, 2018 no such
adjustments were recorded.
The carrying values of goodwill were:
Goodwill
At December 31,
2019
2018
(In thousands)
$121,673
$121,673
The gross carrying amount of identifiable intangible assets and accumulated amortization was:
At December 31,
2019
2018
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
(In thousands)
Core deposit intangibles
$56,808
($55,417)
$56,808
($54,879)
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2019 WESTAMERICA BANCORPORATION FORM 10-K
As of December 31, 2019, the current period and estimated future amortization expense for identifiable intangible assets was:
Total
Core
Deposit
Intangibles
(In thousands)
$538
287
269
252
236
222
For the Twelve months ended December 31, 2019 (actual)
Estimate for year ending December 31, 2020
2021
2022
2023
2024
Note 7: Deposits and Borrowed Funds
The following table provides additional detail regarding deposits.
Noninterest-bearing
Interest-bearing:
Transaction
Savings
Time deposits less than $100 thousand
Time deposits $100 thousand through $250 thousand
Time deposits more than $250 thousand
Total deposits
Deposits
At December 31,
2019
2018
(In thousands)
$2,240,112
$2,243,251
931,888
1,471,284
88,355
54,874
26,108
$4,812,621
929,346
1,498,991
102,654
64,512
28,085
$4,866,839
Demand deposit overdrafts of $1,055 thousand and $980 thousand were included as loan balances at December 31, 2019 and
December 31, 2018, respectively. Interest expense for aggregate time deposits with individual account balances in excess of $100
thousand was $326 thousand in 2019, $368 thousand in 2018 and $415 thousand in 2017.
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,
2019
2018
(In thousands)
$65,833
52,485
146,253
$264,571
$30,928
$73,803
58,380
91,837
$224,020
$51,247
Securities sold under repurchase agreements
$61,411
$68,894
For the Years Ended December 31,
2019
2018
Highest Balance at Any Month-end
(In thousands)
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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. 2019 Omnibus Equity
Incentive Plan was approved by the Company’s shareholders on April 25, 2019 and became effective for grants and stock issuance
on or after January 1, 2020.
The following table summarizes information about stock options granted under the Plan as of December 31, 2019. The intrinsic
value is calculated as the difference between the market value as of December 31, 2019 and the exercise price of the shares. The
market value as of December 31, 2019 was $67.77 as reported by the NASDAQ Global Select Market:
Options Outstanding
Options Exercisable
At December 31, 2019
Range of Exercise
Price
Number
Outstanding
Aggregate
Intrinsic Value
(In thousands)
$40 - 45
45 - 50
50 - 55
55 - 60
60 - 65
$40 - 65
60
-
28
113
360
561
$1,512
-
428
1,203
1,921
$5,064
Weighted
Average
Remaining
Contractual
Life
(Years)
5.7
-
3.1
7.1
8.6
7.7
For the
Twelve
Months Ended
December 31,
2019
Weighted
Average
Exercise Price
$42
-
53
57
62
59
At December 31, 2019
Number
Exercisable
Aggregate
Intrinsic Value
(In thousands)
60
-
28
54
48
190
$1,512
-
428
568
270
$2,778
Weighted
Average
Remaining
Contractual
Life
(Years)
5.7
-
3.1
7.1
8.1
6.3
For the
Twelve
Months Ended
December 31,
2019
Weighted
Average
Exercise Price
$42
-
53
57
62
53
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, 2019, 2018 and 2017, the Company granted 250 thousand, 249 thousand and 266 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,
2019
2018
2017
20%
4.7
2.67%
2.55%
$10.19
20%
4.8
2.50%
2.65%
$9.98
20%
4.8
1.97%
3.28%
$8.27
(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, 2019 is 1,327
thousand.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
A summary of option activity during the year ended December 31, 2019 is presented below:
Weighted
Average
Exercise Price
$53.78
62.67
50.88
61.65
58.75
53.11
Shares
(In thousands)
946
250
(516)
(119)
561
190
Weighted
Average
Remaining
Contractual
Term
(Years)
7.7
6.3
Outstanding at January 1, 2018
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2018
Exercisable at December 31, 2018
A summary of the Company’s nonvested option activity during the twelve months ended December 31, 2019 is presented below:
Nonvested at January 1, 2019
Granted
Vested
Forfeited
Nonvested at December 31, 2019
Weighted
Average Grant
Date Fair
Value
$8.71
10.19
8.01
9.82
$9.81
Shares
(In thousands)
489
250
(247)
(120)
372
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, 2019, 2018 and 2017 was $10.19, $9.98 and $8.27 per share, respectively. The total remaining
unrecognized compensation cost related to nonvested awards as of December 31, 2019 is $2,842 thousand and the weighted average
period over which the cost is expected to be recognized is 1.7 years.
The total intrinsic value of options exercised during the twelve months ended December 31, 2019, 2018 and 2017 was $3,398
thousand, $4,264 thousand and $4,642 thousand, respectively. The total fair value of Restricted Performance Shares (“RPSs”) that
vested during the twelve months ended December 31, 2019, 2018 and 2017 was $1,073 thousand, $1,143 thousand and $708
thousand, respectively. The total fair value of options vested during the twelve months ended December 31, 2019, 2018 and 2017
was $1,980 thousand, $1,835 thousand and $1,493 thousand, respectively. The Company adopted the ASU 2016-09 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 2019, 516 thousand shares were issued due to the exercise of nonqualified
stock options resulting in a tax deduction exceeding related share based compensation by $1,485 thousand. During the twelve
months of 2018, 292 thousand shares were issued due to the exercise of nonqualified stock options resulting in a tax deduction
exceeding related share based compensation by $2,516 thousand. 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 income tax provision was $435 thousand lower in 2019 and $737 thousand lower in 2018 lower than would
have been under accounting standards prior to the adoption of ASU 2016-09.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
A summary of the status of the Company’s restricted performance shares as of December 31, 2019 and 2018 and changes during
the twelve months ended on those dates, follows:
Outstanding at January 1,
Granted
Issued upon vesting
Forfeited
Outstanding at December 31,
2019
2018
(In thousands)
39
10
(17)
(5)
27
49
11
(19)
(2)
39
As of December 31, 2019 and 2018, the restricted performance shares had a weighted-average contractual life of 1.0 year and 1.2
years, respectively. The compensation cost that was charged against income for the Company’s restricted performance shares
granted was $758 thousand, $660 thousand and $827 thousand for the year ended December 31, 2019, 2018 and 2017, respectively.
There were no stock appreciation rights or incentive stock options granted in the year ended December 31, 2019 and 2018.
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. On January 29, 2019, the warrants were exercised in a cashless transaction resulting in the issuance of 50,788 shares
of the Company’s common stock.
The Company repurchases and retires its common stock in accordance with Board of Directors approved share repurchase programs.
At December 31, 2019, 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, 2019, 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 was phased in from 0.0% for 2015 to 2.50% in
2019. The capital conservation buffer was 2.5% for 2019 and 1.875% for 2018. The net unrealized gain or loss on available for sale
securities is not included in computing regulatory capital. Management believes as of December 31, 2019, 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 2019 and 2018,
the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that notification that management believes have changed the institution’s
category.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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, 2019
Amount
Ratio
Required
for Capital
Adequacy Purposes
Effective January 1, 2019
Ratio
Amount
($ in thousands)
To Be Well-capitalized
Under Prompt Corrective
Action Regulations
Amount
Ratio
$579,216
415,730
579,216
415,730
600,860
443,374
579,216
415,730
16.22%
11.80%
16.22%
11.80%
16.83%
12.58%
10.50%
7.60%
$249,976
246,671
303,542
299,529
374,964
370,007
220,755
218,851
7.000%(1)
7.000%(1)
8.500%(1)
8.500%(1)
10.500%(1)
10.500%(1)
4.000%
4.000%
N/A
$229,052
N/A
281,910
N/A
352,388
N/A
273,564
N/A
6.50%
N/A
8.00%
N/A
10.00%
N/A
5.00%
Common Equity Tier 1 Capital
Company
Bank
Tier 1 Capital
Company
Bank
Total Capital
Company
Bank
Leverage Ratio (2)
Company
Bank
(1) Includes 2.5% capital conservation buffer.
(2) The leverage ratio consists of Tier 1capital divided by the most recent quarterly average total assets, excluding certain intangible assets.
At December 31, 2018
Amount
Ratio
Required
for Capital
Adequacy Purposes
Effective January 1, 2018
Ratio
Amount
($ in thousands)
To Be Well-capitalized
Under Prompt Corrective
Action Regulations
Amount
Ratio
$528,042
415,575
528,042
415,575
551,701
445,234
528,042
415,575
16.30%
13.01%
16.30%
13.01%
17.03%
13.94%
9.51%
7.55%
$206,576
203,664
255,182
251,585
319,990
315,480
222,111
220,312
6.375%(3)
6.375%(3)
7.875%(3)
7.875%(3)
9.875%(3)
9.875%(3)
4.000%
4.000%
N/A
$207,658
N/A
255,579
N/A
319,474
N/A
275,390
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 1.875% capital conservation buffer.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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. Net deferred tax assets are included with other assets in the consolidated balance sheets.
The components of the net deferred tax asset are as follows:
Deferred tax asset
Allowance for credit losses
State franchise taxes
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
Sub total deferred tax asset
Tax valuation
Total deferred tax asset
Deferred tax liability
Net deferred loan fees
Securities available for sale
Intangible assets
Total deferred tax liability
Net deferred tax asset
At December 31,
2019
2018
(In thousands)
$6,326
1,948
-
5,118
400
406
517
1,875
263
1,228
2,875
1,606
261
377
23,200
(269)
22,931
239
10,934
673
11,846
$11,085
$6,868
3,026
16,787
5,229
553
935
555
2,104
167
708
3,070
2,554
31
721
43,308
-
43,308
291
-
761
1,052
$42,256
At December 31, 2019 and December 31, 2018, the Company had $2,875 thousand and $3,070 thousand, respectively, deferred tax
asset related to California capital loss carryforwards which will expire if unutilized within five years of the year incurred. In the
second quarter 2019, the Company re-assessed its ability to realize benefits from California capital loss carryforwards. The
Company established a $269 thousand valuation allowance to reflect the expiring California capital loss carryforwards of $1,607
thousand for 2014, $916 thousand for 2015 and $821 thousand for 2016, for a total of $3,344 thousand.
In the second quarter 2019, the Company decreased unrecognized tax benefits by $909 thousand related to settlements with taxing
authorities. The settlements incorporated amended tax returns for which the Company had recognized a deferred tax asset in the
amount of $1,003 thousand.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
The provision for federal and state income taxes consists of amounts currently payable and amounts deferred are as follows:
2019
For the Years Ended December 31,
2018
(In thousands)
2017
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
$11,570
9,595
21,165
2,340
1,322
3,662
-
-
-
$24,827
$10,560
9,816
20,376
(206)
(737)
(943)
-
-
-
$19,433
$1,778
7,810
9,588
14,461
783
15,244
12,315
-
12,315
$37,147
The provision for income taxes differs from the provision computed by applying the statutory federal income tax rate to income
before taxes, as follows:
Federal income taxes due at statutory rate
Additions (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
2019
For the Years Ended December 31,
2018
(In thousands)
$19,109
$22,095
2017
$30,509
(3,584)
8,625
-
(312)
(1,040)
(38)
(464)
(455)
$24,827
(4,375)
7,173
-
(528)
(1,291)
(32)
(490)
(133)
$19,433
(7,794)
5,586
12,315
(583)
(1,850)
(60)
(603)
(373)
$37,147
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.
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,
2019
2018
(In thousands)
$909
-
-
-
-
(909)
-
$ -
$909
-
-
-
-
-
-
$909
In 2019 the Company settled in full by signed agreement with the state taxing authorities and had no uncertain tax positions at
December 31, 2019, related to positions taken on tax returns which were previously under examination.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
The Company classifies interest and penalties as a component of the provision for income taxes. At December 31, 2019, the tax
years ended December 31, 2018, 2017 and 2016 remain subject to examination by the Internal Revenue Service and the tax years
ended December 31, 2018, 2017 and 2016 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. Equity securities and debt securities available for sale 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, debt 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 FASB Accounting Standards 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 mutual funds, 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 equity securities, debt securities available for
sale and debt 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 most closely reflecting the market generally used as the fair value estimate.
In addition, the Company conducts “other than temporary impairment (OTTI)” analysis on a quarterly basis; debt securities selected
for OTTI analysis include all debt securities at a market price below 95% 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.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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, 2019
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3) (1)
(In thousands)
$20,000
-
-
-
-
-
-
-
$20,000
$ -
111,167
939,750
3,708
544
163,139
1,833,783
6,755
$3,058,846
$ -
-
-
-
-
-
-
-
$ -
Fair Value
$20,000
111,167
939,750
3,708
544
163,139
1,833,783
6,755
$3,078,846
Debt securities available for sale
U.S. Treasury securities
Securities of U.S. Government sponsored entities
Agency residential mortgage-backed securities (MBS)
Agency commercial MBS
Securities of U.S. Government entities
Obligations of states and political subdivisions
Corporate securities
Collateralized Loan Obligations
Total debt securities available for sale
(1) There were no transfers in to or out of level 3 during the twelve months ended December 31, 2019.
At December 31, 2018
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3) (1)
(In thousands)
$ -
-
$1,747
1,747
139,574
-
-
-
-
-
-
-
139,574
$139,574
-
164,018
853,871
114
1,842
1,119
179,091
1,315,041
2,515,096
$2,516,843
$ -
-
-
-
-
-
-
-
-
-
-
$ -
Fair Value
$1,747
1,747
139,574
164,018
853,871
114
1,842
1,119
179,091
1,315,041
2,654,670
$2,656,417
Equity securities
Mutual funds
Total equity securities
Debt securities available for sale
U.S. Treasury securities
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
Total debt securities available for sale
Total
(1) There were no transfers in to or out of level 3 during the twelve months ended December 31, 2018.
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78
2019 WESTAMERICA BANCORPORATION FORM 10-K
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, 2019 and
December 31, 2018, 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
Residential real estate
Total assets measured at fair value on a nonrecurring basis
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, 2019
Level 1
Level 2
(In thousands)
Level 3
$43
5,747
4,091
190
$10,071
$ -
-
-
-
$ -
$ -
-
-
-
$ -
$43
5,747
4,091
190
$10,071
Carrying Value
At December 31, 2018
Level 1
Level 2
(In thousands)
Level 3
$350
6,437
3,870
$10,657
$ -
-
-
$ -
$ -
-
-
$ -
$350
6,437
3,870
$10,657
For the
Twelve Months Ended
December 31, 2019
Total Losses
$ -
-
-
-
$ -
For the
Twelve Months Ended
December 31, 2018
Total Losses
$ -
-
(240)
($240)
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 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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79
2019 WESTAMERICA BANCORPORATION FORM 10-K
At December 31, 2019
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
(In thousands)
$373,421
-
-
Significant
Other
Observable
Inputs
(Level 2 )
Significant
Unobservable
Inputs
(Level 3 )
$ -
744,296
-
$ -
-
1,152,949
Carrying
Amount
$373,421
738,072
1,107,180
Estimated Fair
Value
$373,421
744,296
1,152,949
$4,812,621
30,928
$4,810,934
30,928
$ -
-
$4,643,284
30,928
$167,650
-
At December 31, 2018
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
(In thousands)
$420,284
-
-
Significant
Other
Observable
Inputs
(Level 2 )
Significant
Unobservable
Inputs
(Level 3 )
$ -
971,445
-
$ -
-
1,184,770
Carrying
Amount
$420,284
984,609
1,185,851
Estimated Fair
Value
$420,284
971,445
1,184,770
$4,866,839
51,247
$4,862,668
51,247
$ -
-
$4,671,588
51,247
$191,080
-
Financial Assets:
Cash and due from banks
Debt securities held to maturity
Loans
Financial Liabilities:
Deposits
Short-term borrowed funds
Financial Assets:
Cash and due from banks
Debt 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.
Note 12: Commitments and Contingent Liabilities
Loan commitments are agreements to lend to a customer provided there is no violation of any condition established in the agreement.
Commitments generally have fixed expiration dates or other termination clauses. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily represent future funding requirements. Loan
commitments are subject to the Company’s normal credit policies and collateral requirements. Unfunded loan commitments were
$265,311 thousand at December 31, 2019 and $278,598 thousand at December 31, 2018. 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 $3,099 thousand at December 31,
2019 and $2,772 thousand at December 31, 2018. The Company had no commitments outstanding for commercial and similar
letters of credit at December 31, 2019 and December 31, 2018. The Company had $550 thousand and $75 thousand in outstanding
full recourse guarantees to a 3rd party credit card company at December 31, 2019 and December 31, 2018, respectively. The
Company had a reserve for unfunded commitments of $2,160 thousand at December 31, 2019 and $2,308 thousand at December
31, 2018, 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. In the second quarter
2019, the Company achieved a mediated settlement to dismiss a lawsuit and paid the resulting liability of $252 thousand.
The Company determined that it will be obligated to provide refunds of revenue recognized in years prior to 2018 to some customers.
The Company initially estimated the probable amount of these obligations to be $5,542 thousand and accrued a liability for such
amount in 2017; based on additional information received in the second quarter 2019, the Company increased such liability to
$5,843 thousand by recognizing an expense of $301 thousand.
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80
2019 WESTAMERICA BANCORPORATION FORM 10-K
Note 13: Retirement Benefit Plans
The Company sponsors a qualified defined contribution Deferred Profit-Sharing Plan covering substantially all of its salaried
employees with one or more years of service. The costs charged to noninterest expense related to discretionary Company
contributions to the Deferred Profit-Sharing Plan were $1,000 thousand in 2019, $1,057 thousand in 2018 and $944 thousand in
2017.
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 $986 thousand in 2019, $1,052 thousand in 2018 and $1,098 thousand in 2017.
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, 2021. 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 year
ended December 31 and the funded status of the post-retirement benefit plan as of December 31:
Net Periodic Benefit Cost
Service ( benefit) cost
Interest cost
Amortization of unrecognized transition obligation
Net periodic cost (benefit)
2019
At December 31,
2018
(In thousands)
$24
72
-
$96
($57)
72
-
$15
2017
($311)
95
61
($155)
Other Changes in Benefit Obligations Recognized in Other Comprehensive Income
Amortization of unrecognized transition obligation, net of tax
Total recognized in net periodic cost (benefit) and accumulated other comprehensive income
-
$15
-
$96
(34)
($189)
The transition obligation for this post-retirement benefit plan became fully amortized during the year ended December 31, 2017.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Obligation and Funded Status
Change in benefit obligation
Benefit obligation at beginning of year
Service (benefit) cost
Interest cost
Benefits paid
Benefit obligation at end of year
Accumulated post-retirement benefit obligation attributable to:
Retirees
Fully eligible participants
Other
Total
Fair value of plan assets
Accumulated post-retirement benefit obligation in excess of plan assets
Additional Information
Assumptions
Weighted-average assumptions used to determine benefit obligations
Discount rate
Weighted-average assumptions used to determine net periodic benefit cost
Discount rate
2019
$1,913
(57)
72
(146)
$1,782
At December 31,
2018
(In thousands)
$1,958
24
72
(141)
$1,913
$1,782
-
-
$1,782
-
$1,782
$1,913
-
-
$1,913
-
$1,913
2017
$2,319
(311)
95
(145)
$1,958
$1,575
382
1
$1,958
-
$1,958
2019
At December 31,
2018
2017
2.90%
3.76%
3.70%
3.76%
3.70%
4.10%
The above discount rate is based on the expected return of a portfolio of Corporate Aa debt, 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 2020 and beyond.
Assumed benefit inflation rates are not applicable for this program.
2020
2021
2022
2023
2024
Years 2025-2029
Estimated
future benefit
payments
(In thousands)
$152
152
150
149
145
604
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Note 14: 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. The table below reflects information concerning loans to certain directors and executive officers
and/or family members during 2019 and 2018:
Balance at January 1,
Originations
Principal reductions
Balance at December 31,
Percent of total loans outstanding.
Note 15: Regulatory Matters
2019
2018
(In thousands)
$577
-
(44)
$533
0.05%
$622
-
(45)
$577
0.05%
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. 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 $374,572 thousand in 2019 and $473,250 thousand in 2018, which
amounts exceed the Bank’s required reserves.
Note 16: Other Comprehensive Income (loss)
The components of other comprehensive income (loss) and other related tax effects were:
Debt securities available for sale:
Net unrealized gains arising during the year
Reclassification of gains included in net income
Net unrealized gains arising during the year
Post-retirement benefit obligation
Other comprehensive income
Debt securities available for sale:
Net unrealized losses arising during the year
Reclassification of losses included in net income
Net unrealized losses arising during the year
Post-retirement benefit obligation
Other comprehensive loss
Before tax
2019
Tax effect
(In thousands)
Net of tax
$93,936
(167)
93,769
-
$93,769
($27,771)
49
(27,722)
-
($27,722)
$66,165
(118)
66,047
-
$66,047
Before tax
2018
Tax effect
(In thousands)
Net of tax
($27,939)
-
(27,939)
-
($27,939)
$8,258
-
8,258
-
$8,258
($19,681)
-
(19,681)
-
($19,681)
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Debt 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
Accumulated other comprehensive income (loss) balances were:
Balance, December 31, 2016
Net change
Balance, December 31, 2017
Cumulative effect of equity securities losses reclassified
Adjusted Balance, January 1, 2018
Reclass stranded tax effects resulting from the Tax Cuts and Jobs Act of2017
Net change
Balance, December 31, 2018
Net change
Balance, December 31, 2019
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)
Post-retirement
Benefit
Obligation
($34)
34
-
-
-
-
-
-
-
$ -
Net Unrealized
(Losses) Gains
on Securities
(In thousands)
($10,040)
(6,792)
(16,832)
142
(16,690)
(3,625)
(19,681)
(39,996)
66,047
26,051
Accumulated
Other
Comprehensive
(Loss) Income
($10,074)
(6,758)
(16,832)
142
(16,690)
(3,625)
(19,681)
(39,996)
66,047
$26,051
The transition obligation for this post-retirement benefit plan became fully amortized during the year ended December 31, 2017.
Note 17: 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,
2019
2017
2018
(In thousands, except per share data)
$80,389
$71,564
$50,025
26,956
$2.98
26,956
50
27,006
$2.98
26,649
$2.69
26,649
107
26,756
$2.67
26,291
$1.90
26,291
128
26,419
$1.89
For the years ended December 31, 2019, 2018 and 2017, options to purchase 382 thousand, 423 thousand and 323 thousand shares
of common stock, respectively, were outstanding but not included in the computation of diluted earnings per common share because
the option exercise price exceeded the fair value of the stock such that their inclusion would have had an anti-dilutive effect.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Note 18: Westamerica Bancorporation (Parent Company Only Condensed Financial Information)
Statements of Income and Comprehensive Income
Dividends from subsidiaries
Interest income
Other income
Total income
Salaries and benefits
Other expense
Total expense
Income before taxes and equity in undistributed income of subsidiaries
Income tax benefit
Earnings of subsidiaries greater than subsidiary dividends
Net income
Other comprehensive loss, net of tax
Comprehensive income
Balance Sheets
Assets
Cash
Investment in Westamerica Bank
Investment in non-bank subsidiaries
Premises and equipment, net
Accounts receivable from Westamerica Bank
Other assets
Total assets
Liabilities
Accounts payable to Westamerica Bank
Other liabilities
Total liabilities
Shareholders' equity
Total liabilities and shareholders' equity
For the Years Ended December 31,
2019
2017
2018
(In thousands)
$43,892
33
9,447
53,372
7,575
3,181
10,756
42,616
919
28,029
71,564
(19,681)
$51,883
$80,067
54
8,778
88,899
6,978
3,729
10,707
78,192
636
1,561
80,389
66,047
$146,436
$12,728
43
8,590
21,361
7,163
3,416
10,579
10,782
241
39,002
50,025
(6,758)
$43,267
At December 31,
2019
2018
(In thousands)
$122,663
573,931
455
11,006
231
37,645
$745,931
$33
14,481
14,514
731,417
$745,931
$72,878
509,125
455
10,400
580
36,990
$630,428
$46
14,791
14,837
615,591
$630,428
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Statements of Cash Flows
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
(Increase) decrease in accounts receivable from affiliates
Increase in other assets
Stock option compensation expense
Provision (benefit) for deferred income tax
Increase in other liabilities
Earnings of subsidiaries greater than subsidiary dividends
Life insurance gains
Gain on sales of premises and equipment
Net Cash Provided by Operating Activities
Investing Activities
Proceeds from life insurance
Net Cash Provided by Investing Activities
Financing Activities
Exercise of stock options/issuance of shares
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
For the Years Ended December 31,
2019
2017
2018
(In thousands)
$80,389
$71,564
$50,025
449
80
(71)
1,744
(315)
856
(1,561)
-
(1,055)
80,516
-
-
13,699
(488)
(43,942)
(30,731)
49,785
72,878
$122,663
361
(43)
(2,638)
1,988
5,028
978
(28,029)
(585)
(538)
48,086
1,169
1,169
13,373
(524)
(42,635)
(29,786)
19,469
53,409
$72,878
319
(16)
(2,203)
1,824
(3,971)
202
(39,002)
-
(793)
6,385
-
-
24,583
(314)
(41,299)
(17,030)
(10,645)
64,054
$53,409
$-
24,491
$-
13,627
$-
17,351
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86
2019 WESTAMERICA BANCORPORATION FORM 10-K
Note 19: Quarterly Financial Information
(Unaudited)
2019
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
2018
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
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
March 31,
For the Three Months Ended
June 30,
September 30,
December 31,
(In thousands, except per share data and
price range of common stock)
$39,483
38,989
-
11,579
25,183
25,385
19,646
0.73
0.73
0.40
56.82 - 64.48
$36,315
35,856
-
11,955
26,022
21,789
17,506
0.66
0.66
0.40
55.72 - 62.52
$34,128
33,648
-
11,657
25,419
19,886
15,049
0.58
0.57
0.39
54.12 - 64.07
$39,626
39,139
-
12,288
25,561
25,866
19,625
0.73
0.73
0.41
59.51 - 64.82
$37,346
36,887
-
11,769
25,741
22,915
18,010
0.68
0.67
0.40
55.81 - 60.68
$34,083
33,607
(1,900)
12,123
25,316
22,314
15,799
0.60
0.60
0.39
51.31 - 57.78
$39,695
39,240
-
11,809
24,033
27,016
20,390
0.76
0.75
0.41
59.26 - 64.56
$38,614
38,087
-
12,528
29,366
21,249
16,993
0.64
0.63
0.40
57.56 - 64.52
$34,623
34,150
-
12,548
25,592
21,106
15,017
0.57
0.57
0.39
49.54 - 59.54
$39,878
39,427
-
11,732
24,209
26,950
20,728
0.77
0.77
0.41
60.65 - 68.58
$39,448
38,934
-
11,897
25,787
25,044
19,055
0.71
0.71
0.40
52.75 - 63.20
$35,478
35,007
-
20,300
31,441
23,866
4,160
0.16
0.16
0.40
53.96 - 63.03
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87
2019 WESTAMERICA BANCORPORATION FORM 10-K
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, 2019 and 2018, 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, 2019, 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, 2019,
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, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-
year period ended December 31, 2019 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, 2019, 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.
________________________________________________________________________________________________________
(Continued)
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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.
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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Allowance for Loan Losses – Unallocated Allowance / Qualitative Factors
As disclosed in Note 1 (Business and Accounting Policies) and Note 3 (Loans and Allowance for Credit Losses) to the financial
statements, the Company’s total allowance for loan losses balance was $19,484,000 at December 31, 2019, which consists of
specific reserves for individually evaluated impaired loans, general reserves for loans collectively evaluated for impairment, and an
unallocated allowance based on additional qualitative factors. The allowance for loan losses is the estimated amount of probable
incurred losses inherent in the loan portfolio at the balance sheet date. The Company has established an unallocated allowance,
which totals $3,701,000 at December 31, 2019, to provide for probable incurred losses not readily allocable to any specific segment
of the loan portfolio. 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 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.
We identified auditing the estimate of the unallocated allowance for loan losses as a critical audit matter as it involved especially
subjective auditor judgment. Auditing management’s unallocated allowance involved especially subjective auditor judgment
because management’s estimate involves significant and subjective assumptions relating to establishing qualitative factors, which
require a high degree of judgment relating to the Company’s loan portfolio, operations, and external operating environment and
how those items impact probable incurred losses inherent within the loan portfolio.
________________________________________________________________________________________________________
(Continued)
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2019 WESTAMERICA BANCORPORATION FORM 10-K
The primary procedures we performed to address this critical audit matter included:
Testing the effectiveness of controls over the evaluation of the qualitative factors used to estimate the unallocated allowance
for loan losses, including controls addressing:
o Management’s review controls over the completeness and accuracy of data used as the basis for the adjustments relating
to qualitative factors.
o Management’s judgments related to the qualitative and quantitative assessment of the data used in the determination of
qualitative factors and the resulting unallocated allowance for loan losses.
Substantively testing management’s process, including evaluating their judgments and assumptions, for developing the
unallocated allowance which included:
o Evaluating the completeness and accuracy of data used as a basis for the adjustments relating to qualitative reserve factors
by corroborating data obtained from external sources and reconciling and vouching internally generated data to system
reports.
o Evaluating that management’s assessment of the data used in the calculation of qualitative factors and the resulting reserves
is supported by the data and is reasonable both in direction and magnitude.
o Analytically evaluating the unallocated allowance for loan losses year over year and testing changes, or lack thereof, for
reasonableness compared to credit quality and other relevant trends.
/s/ Crowe LLP
Crowe LLP
We have served as the Company's auditor since 2015.
Sacramento, California
February 27, 2020
________________________________________________________________________________________________________
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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, 2019.
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, 2019 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 88, respectively.
ITEM 9B. OTHER INFORMATION
None.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE
The information regarding Directors of the Registrant and compliance with Section 16(a) of the Exchange Act 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 2020 Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A of
the Exchange Act.
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
Jesse Leavitt
John “Robert” Thorson
Russell W. Rizzardi
Brian J. Donohoe
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.
Mr. Leavitt, born in 1985, is Senior Vice President and Chief Financial Officer of the
Company. Mr. Leavitt joined Westamerica Bancorporation as Vice President and
Controller in March 2019.
Mr. Thorson, born in 1960, is Senior Vice President and Treasury Division Manager of
the Company. Mr. Thorson joined Westamerica Bancorporation in 1989, was Vice
President and Manager of Human Resources from 1995 until 2001, Senior Vice President
and Treasurer from 2002 until 2005, and Senior Vice President and Chief Financial
Officer from 2005 until 2019.
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.
Mr. Donohoe, born in 1981, is Senior Vice President and Manager of the Operations &
Systems Administration of Community Banker Services Corporation. Mr. Donohoe
joined Westamerica Bancorporation in 1999 and has held a variety of positions in the
Banking Division and the Operations & Systems Division, most recently, Vice President
and Manager of Business Services until 2018.
Held
Since
1984
2020
2020
2008
2019
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 2020 Annual Meeting of
Shareholders which will be filed pursuant to Regulation 14A of the Exchange Act.
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2019 WESTAMERICA BANCORPORATION FORM 10-K
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 2020 Annual Meeting of Shareholders
which will be filed pursuant to Regulation 14A of the Exchange Act.
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, 2019:
Plan category
At December 31, 2019
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
Weighted-average exercise
price of outstanding
options, warrants and
rights
(In thousands, except exercise price)
(b)
(a)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
1,327
-
1,327
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
561
-
561
$59
N/A
$59
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 2020
Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A of the Exchange Act.
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 2020
Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A of the Exchange Act.
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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93
2019 WESTAMERICA BANCORPORATION FORM 10-K
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
WESTAMERICA BANCORPORATION
/s/ Jesse Leavitt
Jesse Leavitt
Senior Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: February 27, 2020
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
/s/ Jesse Leavitt
Jesse Leavitt
/s/ Etta Allen
Etta Allen
/s/ Louis E. Bartolini
Louis E. Bartolini
/s/ E. Joseph Bowler
E. Joseph Bowler
/s/ Melanie Martella Chiesa
Melanie Martella Chiesa
/s/ Michele Hassid
Michele Hassid
/s/ Catherine C. MacMillan
Catherine C. MacMillan
/s/ Ronald A. Nelson
Ronald A. Nelson
/s/ Edward B. Sylvester
Edward B. Sylvester
Chairman of the Board and Directors
President and Chief Executive Officer
(Principal Executive Officer)
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Date
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
Lead Independent Director
February 27, 2020
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2019 WESTAMERICA BANCORPORATION FORM 10-K
Exhibit
Number
3(a)
3(b)
3(c)
4.1
10(a)*
10(d)*
10(e)*
10(f)*
10(g)*
10(h)*
10(i)*
10(j)*
10(k)*
10(l)
10(s)*
10(t)
10(u)*
EXHIBIT INDEX
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 March 26, 2018.
https://www.sec.gov/Archives/edgar/data/311094/000117184318002262/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
Description of registered securities
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
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
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
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
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
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
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
Westamerica Bancorporation 2019 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit 4 to the
Registrant’s Form S-8, filed with the Securities and Exchange Commission on September 27, 2019.
https://sec.gov/Archives/edgar/data/311094/000117184319006163/exh_4.htm
95
2019 WESTAMERICA BANCORPORATION FORM 10-K
10(v)*
10(w)*
11.1
14
21
23.1
31.1
31.2
32.1
32.2
Westamerica Bancorporation 2019 Omnibus Equity Incentive Plan Stock Option Agreement Form, incorporated by
reference to Exhibit 10.1 to the Registrant’s Form 10-Q, filed with the Securities and Exchange Commission on
November 4, 2019.
https://sec.gov/Archives/edgar/data/311094/000117184319007133/ex_161876.htm
Westamerica Bancorporation 2019 Omnibus Equity Incentive Plan Restricted Stock Unit Award Agreement Form,
incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q, filed with the Securities and Exchange
Commission on November 4, 2019.
https://sec.gov/Archives/edgar/data/311094/000117184319007133/ex_161877.htm
Statement re computation of per share earnings incorporated by reference to Note 17 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 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
101.INS XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
____________
*
Indicates management contract or compensatory plan or arrangement.
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.
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1108 FIFTH AVENUE | SAN RAFAEL, CA 94901 | WESTAMERICA.COM