SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15)d)
of the Securities Exchange Act of 1934
Date of Report: February 3, 1995
Westamerica Bancorporation
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation)
1-9383
(Commission File Number)
94-2156203
(IRS Employer Identification No.)
of incorporation)
1108 Fifth Avenue, San Rafael, California 94901
(Address of principal executive offices)
Registrant's telephone number. including area code: (415) 257-8000
Not Applicable
(Former name or former address, if changed since last report)
1
Item 5. Other Events.
This Current Report on Form 8-K contains the consent of
Arthur Andersen LLP with respect to the consolidated financial
statements of Napa Valley Bancorp as of and for the years ended
December 31, 1992 and 1991, which have been restated in
Westamerica Bancorporation's financial statements for the fiscal
years ended December 31, 1992 and 1991, which financial
statements were filed with Westamerica Bancorporation's Annual
Report on Form 10-K for the year ended December 31, 1993.
Item 7. Financial Statement and Exhibits.
(c) Exhibits. Listed below are the exhibits filed as part of this
Current Report on Form 8-K and in accordance with the provisions of Item 601
of Regulation S-K:
Exhibit
Number Description of Exhibit
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Arthur Andersen LLP.
99.1 Audited Financial Statements of Westamerica
Bancorporation (see Index to Financial Statements
herein).
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Westamerica Bancorporation
Date: February 3, 1995 /s/ James M. Barnes
James M. Barnes
Executive Vice President
and Chief Financial Officer
3
EXHIBIT INDEX
Exhibit
Number Document Description Page
23.1 Consent of KPMG Peat Marwick LLP. 5
23.2 Consent of Arthur Andersen LLP. 6
99.1 Audited Financial Statements of
Westamerica Bancorporation (see Index
to Financial Statements, herein).
4
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Westamerica Bancorporation:
We consent to the use of our report included herein, with
respect to the consolidated balance sheets of Westamerica
Bancorporation and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of income, changes
in shareholder's equity, and cash flows for each of the years in
the three-year period ended December 31, 1993. On April 15,
1993, the Company acquired Napa Valley Bancorp on a pooling-of-
interests basis. We did not audit the financial statements of
Napa Valley Bancorp as of December 31, 1992 and for the two year
period ended December 31, 1992. Those statements, which are
included in the 1992 and 1991 restated consolidated totals, were
audited by other auditors. Our report, insofar as it related to
the amounts included for Napa Valley Bancorp, is based solely on
the report of the other auditors.
/s/ KPMG Peat Marwick LLP
San Francisco, California
January 31, 1995
5
[Letterhead of Arthur Andersen LLP appears here]
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Form 8-K, filed by Westamerica
Bancorporation, of our reports dated March 31, 1993 on our audits of
Napa Valley Bancorp's financial statements for the years ended
December 31, 1992 and 1991, included (or incorporated by reference)
in Westamerica Bancorporation's 10-K for the year ended December 31,
1993 and to all references to our Firm included in this 8-K. It
should be noted that we have performed no audit procedures subsequent
to March 31, 1993, the date of our report. Furthermore, we have not
audited any financial statements of Napa Valley Bancorp as of any
date or for any period subsequent to December 31, 1992.
/s/ Arthur Andersen LLP
San Francisco, California
January 31, 1995
6
Exhibit 99.1
INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets as of December 31, 1993
and 1992 ........................................... 7
Consolidated Statements of Income for the years ended
December 31, 1993, 1992 and 1991 ................... 8
Consolidated Statements in Changes in Shareholders'
Equity for the years ended December 31, 1993,
1992 and 1991 ...................................... 10
Consolidated Statements of Cash Flows for the years
ended December 31, 1993, 1992 and 1991 ............. 11
Notes to Consolidated Financial Statements .............. 12
Management's Letter of Financial Responsibility ......... 36
Independent Auditors' Report ............................ 37
Report of Independent Public Accountants ................ 38
7
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, 1993 1992*
- - - ---------------------------------------------------------------------------
Assets
Cash and cash equivalents (Note 14) $ 102,618 $ 139,497
Money market assets 250 1,366
Trading account securities 10 --
Investment securities available-for-sale (Note 2) 168,819 --
Investment securities held-to-maturity; market
value of $563,563 in 1993 and $581,768
in 1992 (Note 2) 557,057 570,236
Loans, net of reserve for loan losses of:
$25,587 at December 31, 1993
$24,742 at December 31, 1992 (Notes 3, 4 and 13) 1,089,152 1,166,205
Loan collateral substantively foreclosed and
other real estate owned 17,905 34,506
Land held for sale 800 1,123
Investment in joint venture 766 1,026
Premises and equipment, net (Notes 5 and 6) 25,341 26,959
Interest receivable and other assets (Note 8) 41,701 40,431
- - - ---------------------------------------------------------------------------
Total assets $2,004,419 $1,981,349
===========================================================================
Liabilities
Deposits:
Non-interest bearing $ 369,820 $ 323,719
Interest bearing:
Transaction 289,322 369,871
Savings 654,766 564,763
Time (Notes 2 and 6) 417,320 531,565
- - - ---------------------------------------------------------------------------
Total deposits 1,731,228 1,789,918
Funds purchased 69,064 12,038
Liability for interest, taxes,
other expenses, minority interest
and other (Note 8) 15,328 16,382
Notes and mortgages payable (Notes 6 and 14) 36,352 19,337
- - - ---------------------------------------------------------------------------
Total liabilities 1,851,972 1,837,675
Commitments and contingent
liabilities (Notes 4, 10 and 11) -- --
Shareholders' Equity (Notes 7 and 14)
Common stock (no par value)
Authorized- 20,000 shares
Issued and outstanding- 8,080 shares in 1993
and 8,000 shares in 1992 52,499 51,053
Capital surplus 10,831 10,831
Unrealized gains on securities
available for sale (Note 2) 2,527 --
Retained earnings 86,590 81,790
- - - ---------------------------------------------------------------------------
Total shareholders' equity 152,447 143,674
- - - ---------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,004,419 $1,981,349
===========================================================================
*Data has been restated on an historical basis to reflect the April 15, 1993
acquisition of Napa Valley Bancorp on a pooling-of-interests basis.
See accompanying notes to consolidated financial statements.
8
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For the years ended December 31, 1993 1992* 1991*
- - - ---------------------------------------------------------------------
Interest Income
Loans $ 99,607 $115,357 $137,656
Money market assets and
federal funds sold 298 1,745 2,191
Trading account securities 6 4 54
Investment securities:
U.S. Treasury 10,284 4,484 6,159
Securities of U.S. government
agencies and corporations 13,994 18,802 18,406
Obligations of states and
political subdivisions 5,894 5,358 5,272
Asset backed 4,942 5,809 5,675
Other 1,891 3,194 1,139
- - - ---------------------------------------------------------------------
Total interest income 136,916 154,753 176,552
- - - ---------------------------------------------------------------------
Interest Expense
Transaction deposits 4,219 7,680 13,371
Savings deposits 15,085 18,838 22,748
Time deposits (Note 6) 19,014 29,314 46,950
Funds purchased 1,937 698 1,677
Notes and mortgages payable (Note 6) 2,016 2,362 2,611
- - - ---------------------------------------------------------------------
Total interest expense 42,271 58,892 87,357
- - - ---------------------------------------------------------------------
Net Interest Income 94,645 95,861 89,195
Provision for loan losses (Note 3) 9,452 7,005 10,418
- - - ---------------------------------------------------------------------
Net interest income after
provision for loan losses 85,193 88,856 78,777
- - - ---------------------------------------------------------------------
Non-Interest Income
Service charges on deposit accounts 12,809 12,437 12,056
Merchant credit card 2,217 2,900 2,881
Mortgage banking 1,467 1,808 1,457
Brokerage commissions 839 555 392
Net investment securities gain 68 1,066 1,742
Other 6,546 5,061 5,448
- - - ---------------------------------------------------------------------
Total non-interest income 23,946 23,827 23,976
- - - ---------------------------------------------------------------------
9
Non-Interest Expense
Salaries and related
benefits (Note 12) 39,007 40,826 40,252
Other real estate owned 11,550 5,183 2,884
Occupancy (Notes 5 and 10) 8,625 8,524 8,401
Equipment (Notes 5 and 10) 6,195 5,302 5,522
FDIC insurance assessment 4,079 4,021 3,545
Data processing 3,658 3,137 2,964
Professional fees 3,071 3,332 3,346
Other 20,460 19,279 18,029
- - - ----------------------------------------------------------------------
Total non-interest expense 96,645 89,604 84,943
- - - ----------------------------------------------------------------------
Income Before Income Taxes 12,494 23,079 17,810
Provision for income taxes (Note 8) 3,039 7,857 5,833
- - - ----------------------------------------------------------------------
Net Income $ 9,455 $ 15,222 $ 11,977
======================================================================
Average common shares outstanding 8,054 7,933 7,855
Per Share Data (Notes 7 and 17)
Net income $ 1.17 $ 1.92 $ 1.52
Dividends declared .57 .51 .44
*Data has been restated on an historical basis to reflect the April 15, 1993
acquisition of Napa Valley Bancorp on a pooling-of-interests basis.
See accompanying notes to consolidated financial statements.
10
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
Unrealized Net Unrealized
Gain on (Loss) Gain on
Securities Marketable
Common Available Retained Equity
Stock Surplus for Sale Earnings Securities Total
- - - ------------------------------------------------------------------------------------------------
December 31, 1990
(as originally presented) $ 21,851 $10,777 $ -- $53,624 $-- $ 86,252
Adjustments to reflect
acquisition of Napa
Valley Bancorp (Note 17) 26,564 -- -- 6,995 -- 33,559
- - - ------------------------------------------------------------------------------------------------
December 31, 1990* 48,415 10,777 -- 60,619 -- 119,811
Net income -- -- -- 11,977 -- 11,977
Stock issued (Note 7) 1,516 9 -- -- -- 1,525
Retirement of stock (Note 7) (843) -- -- -- -- (843)
Dividends declared -- -- -- (3,041) -- (3,041)
Unrealized loss on securities -- -- -- -- (9) (9)
- - - -------------------------------------------------------------------------------------------------
December 31, 1991* 49,088 10,786 -- 69,555 (9) 129,420
Net income -- -- -- 15,222 -- 15,222
Stock issued (Note 7) 2,169 45 -- -- -- 2,214
Retirement of stock (Note 7) (204) -- -- -- -- (204)
Dividends declared -- -- -- (2,987) -- (2,987)
Unrealized gain on securities -- -- -- -- 9 9
- - - ------------------------------------------------------------------------------------------------
December 31, 1992* 51,053 10,831 -- 81,790 -- 143,674
Net income -- -- -- 9,455 -- 9,455
Stock issued (Note 7) 1,446 -- -- -- -- 1,446
Dividends declared -- -- -- (4,655) -- (4,655)
Unrealized gain on securities -- -- 2,527 -- -- 2,527
- - - ------------------------------------------------------------------------------------------------
December 31, 1993 $52,499 $10,831 $2,527 $86,590 $-- $152,447
================================================================================================
*Data has been restated on an historical basis to reflect the April 15, 1993
acquisition of Napa Valley Bancorp on a pooling-of-interests basis.
See accompanying notes to consolidated financial statements.
11
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the years ended December 31, 1993 1992* 1991*
- - - ---------------------------------------------------------------------------
Operating Activities
Net income $ 9,455 $ 15,222 $ 11,977
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 3,622 4,198 4,189
Loan loss provision 9,452 7,005 10,418
Amortization of net deferred
loan (cost)/fees (462) 615 433
(Increase) decrease in interest
income receivable (2,542) 1,070 1,698
Decrease (increase) in other assets 2,888 (3,204) 2,062
Decrease in income taxes payable (1,529) (1,179) (2,752)
Decrease in interest expense payable (1,169) (1,933) (1,145)
(Decrease) increase in accrued expenses (1,809) 1,420 (405)
Net gain on sale of investment securities (68) (1,066) (1,742)
Loss (gain) on sale of developed land -- 2,930 (107)
Loss (gains) on sales/write-down
of premises and equipment 1,476 225 (86)
Originations of loans for resale (92,374) (100,055) (102,300)
Proceeds from sale of loans
originated for resale 92,536 103,855 102,019
Loss on sale/write-down of property
acquired in satisfaction of debt 9,618 3,507 2,559
Gain on sale of Sonoma Valley Bank (668) -- --
Net (purchases) maturities of
trading securities (10) 779 (130)
- - - ---------------------------------------------------------------------------
Net cash provided by
operating activities 28,416 33,389 26,688
- - - ---------------------------------------------------------------------------
Investing Activities
Net repayments of loans 68,109 32,782 15,470
Purchases of money market assets (325) (16,833) (34,551)
Purchases of investment securities (427,886) (339,583) (269,505)
Purchases of property, plant
and equipment (3,481) (4,416) (5,161)
Improvements on developed land -- (1,435) --
Proceeds from maturity/sale
of money market assets 1,441 17,574 34,301
Proceeds from maturity of securities 274,451 263,793 139,549
Proceeds from sale of securities 184 21,128 49,580
Proceeds from sale of
property and equipment -- 1,640 858
Net proceeds from sale of developed land 356 1,928 107
Proceeds from disposition of property
acquired in satisfaction of debt 6,313 4,513 624
Proceeds from sale of Sonoma Valley Bank 2,733 -- --
Net repayments on loan collateral
substantively foreclosed 669 1,187 629
- - - ---------------------------------------------------------------------------
Net cash used in investing activities (77,436) (17,722) (68,099)
- - - ---------------------------------------------------------------------------
Financing Activities
Net increase (decrease) in deposits (58,691) 617 66,203
Net (decrease) increase in
federal funds purchased 57,026 2,468 (25,529)
Proceeds from issuance of capital notes 20,000 -- --
Principal payments on notes
and mortgages payable (2,985) (2,423) (1,672)
Exercise of stock options 1,446 2,214 1,525
Retirement of stock -- (204) (843)
Unrealized loss (gain) in
marketable equity securities -- 9 (9)
Dividends paid (4,655) (2,987) (3,041)
- - - ---------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 12,141 (306) 36,634
- - - ---------------------------------------------------------------------------
Net (decrease) increase in
cash and cash equivalents (36,879) 15,361 (4,777)
Cash and cash equivalents at
beginning of year 139,497 124,136 128,913
- - - ---------------------------------------------------------------------------
Cash and cash equivalents at
end of year $102,618 $139,497 $124,136
===========================================================================
Supplemental disclosures:
Loans transferred to other real
estate owned and
substantively repossessed $16,111 $36,572 $9,132
Interest paid 42,982 57,491 87,163
Income tax payments 5,700 9,773 9,045
Unrealized gain on securities
available for sale 2,527 -- --
*Data has been restated on an historical basis to reflect the April 15,
1993 acquisition of Napa Valley Bancorp on a pooling-of-interests basis.
See accompanying notes to consolidated financial statements.
12
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 individual and
corporate customers in Northern California through its subsidiary banks
(the Banks), Westamerica Bank and Subsidiary, Bank of Lake County and Napa
Valley Bank and Subsidiary. The Banks are subject to competition from other
financial institutions and to regulations of certain agencies and undergo
periodic examinations by those regulatory authorities.
Summary of Significant Accounting Policies
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles and general practices within the
banking industry. The following is a summary of significant accounting
policies used in the preparation of the accompanying financial statements.
In preparing the financial statements, Management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the balance sheets and revenues and expenses
for the periods indicated.
Principles of Consolidation. The financial statements include the accounts of
the Company, a registered bank holding company, and all the Company's
subsidiaries which include the Banks and Community Banker Services
Corporation and Subsidiary. Significant intercompany transactions have been
eliminated in consolidation. All data has been restated on an historical
basis to reflect the April 15, 1993 acquisition of Napa Valley Bancorp on a
pooling-of-interests basis.
Cash Equivalents. Cash equivalents include Due From Banks balances and
Federal Funds Sold which are both readily convertible to known amounts of
cash and are so near their maturity that they present insignificant risk of
changes in value because of interest rate volatility.
Securities. Marketable investment securities at December 31, 1993 consist of
U.S. Treasury, U. S. Government Agencies and Corporations, Municipal,
asset-backed and other securities. The Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS No. 115) at December 31,
1993. Under SFAS No. 115, the Company classifies its debt and marketable
equity securities into one of three categories: trading, available-for-sale
or held-to-maturity. Trading securities are bought and held principally for
the purpose of selling in the near term. Held-to-maturity securities are
those securities which the Company has the ability and intent to hold until
maturity. All other securities not included in trading or held-to-maturity
are classified as available-for-sale.
13
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts.
Unrealized gains and losses on trading securities are included in earnings.
Unrealized gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as
a separate component of shareholders' equity until realized.
Unrealized gains and losses associated with transfers of securities from
held-to-maturity to available-for-sale are recorded as a separate component
of shareholders' equity. The unrealized gains or losses included in the
separate component of shareholders' equity for securities transferred from
available-for-sale to held-to-maturity are maintained and amortized into
earnings over the remaining life of the security as an adjustment to yield in
a manner consistent with the amortization or accretion of premium or discount
on the associated security.
A decline in the market value of held-to-maturity and available-for-sale
securities below cost that is deemed other than temporary, results in a
charge to earnings and the establishment of a new cost basis for the
security.
Premiums and discounts are amortized or accreted over the life of the
related investment security as an adjustment to yield using the effective
interest method. Dividend and interest income are recognized when earned.
Realized gains and losses for securities classified as available-for-sale and
held-to-maturity are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
Loans and Reserve for Loan Losses. The reserve for loan losses is a
combination of specific and general reserves available to absorb estimated
future losses in the loan portfolio and is maintained at a level considered
adequate to provide for such losses. Credit reviews of the loan portfolio,
designed to identify problem loans and to monitor these estimates, are
conducted continually, taking into consideration market conditions, current
and anticipated developments applicable to the borrowers and the economy, and
the results of recent examinations by regulatory agencies. Management
approves the conclusions resulting from credit reviews. Ultimate losses may
vary from current estimates. Adjustments to previous estimates of loan losses
are charged to income in the period which they become known.
Unearned interest on discounted loans is amortized over the life of these
loans, using the sum-of-the-months digits method for which the results are
not materially different from those obtained by using the interest method.
For all other loans, interest is accrued daily on the outstanding 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 non-accrual status.
14
Non-refundable fees and certain costs associated with originating or
acquiring loans are deferred and amortized as an adjustment to interest
income over the estimated respective loan lives. Loans held for sale are
identified upon origination and are reported at the lower of cost or fair
value on an individual loan basis.
Other Real Estate Owned and Loan Collateral Substantively Foreclosed. Other
real estate owned includes property acquired through foreclosure or
forgiveness of debt. These properties are transferred at fair value, which
becomes the new cost basis of the property. Losses recognized at the time of
acquiring property in full or partial satisfaction of loans are charged
against the reserve for loan losses. Subsequent losses incurred due to the
declines in property values as identified in independent property appraisals
are recognized as non-interest expense. Routine holding costs, such as
property taxes, insurance and maintenance, and losses from sales and
dispositions are recognized as non-interest expense.
The Company classifies loans as loan collateral substantively foreclosed
(substantive repossessions) when the borrower has little or no equity in
the collateral, when proceeds for repayment of the loan can be expected to
come only from the operation or sale of the collateral, and the debtor has
either formally or effectively abandoned control of the collateral to the
Company or has retained control of the collateral but, because of the current
financial condition of the debtor or the economic prospects for the debtor
and/or collateral in the foreseeable future, it is doubtful that the debtor
will be able to rebuild equity in the collateral or otherwise repay the loan
in the foreseeable future. Losses recognized at the time the loans are
reclassified as substantive repossessions are charged against the reserve for
loan losses. Subsequent losses incurred due to subsequent declines in
property values, as identified in independent property appraisals, are
recognized as non-interest expense. Routine holding costs, such as property
taxes, insurance and maintenance, and losses from sales and dispositions are
recognized as non-interest expense.
Premises and Equipment. Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation is computed 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. Fully depreciated and/or amortized assets are removed from the
Company's balance sheet.
Interest Rate Swap Agreements. The Company uses interest rate swap
agreements as an asset/liability management tool to reduce interest
15
rate risk. Interest rate swap agreements are exchanges of fixed and
variable interest payments based on a notional principal amount. The
primary risk associated with swaps is the exposure to movements in interest
rates and the ability of the counter parties to meet the terms of the
contracts. The Company controls the credit risk of the these agreements
through credit approvals, limits and monitoring procedures. The Company is
not a dealer but an end user of these instruments and does not use them
speculatively.
Accounted for as hedges, the differential to be paid or received on such
agreements is recognized over the life of the agreements. Payments made or
received in connection with early termination of interest rate swap
agreements are recognized over the remaining term of the swap agreement.
Earnings Per Share. Earnings per share amounts are computed on the basis of
the weighted average of common shares outstanding during each of the years
presented.
Income Taxes. The Company and its subsidiaries file consolidated tax
returns. For financial reporting purposes, the income tax effects of
transactions are recognized in the year in which they enter into the
determination of recorded income, regardless of when they are recognized
for income tax purposes. Accordingly, the provisions for income taxes in
the consolidated statements of income include charges or credits for
deferred income taxes relating to temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements.
Other. Securities and other property held by the Banks 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. Certain amounts in
prior years financial statements have been reclassified to conform with the
current years presentation. These reclassifications had no effect on
previously reported income.
16
Note 2: Investment Securities
An analysis of investment securities available-for-sale as of
December 31, 1993, is as follows:
Gross Gross
1 year 1 to 5 5 to 10 Over 10 Amortized unrealized unrealized Fair
Maturity in years or less years years years cost gains losses value
- - - -----------------------------------------------------------------------------------------------------------------
(In thousands)
U.S. Treasury securities $11,044 $109,473 -- -- $120,517 $4,029 ($2) $124,544
Securities of U.S. Govt.
Agencies and Corporations* 9,582 18,478 2,008 1,571 31,639 275 (219) 31,695
Obligations of States and
Political Subdivisions 3,005 -- -- -- 3,005 -- (5) 3,000
Other Securities (Preferred
Stocks & Corporate Bonds) 6,250 3,017 -- -- 9,267 313 -- 9,580
- - - -----------------------------------------------------------------------------------------------------------------
Total Securities
Available-for-sale $29,881 $130,968 $2,008 $1,571 $164,428 $4,617 ($226) $168,819
=================================================================================================================
Fair Value by Maturity $30,103 $135,100 $2,001 $1,615
*Includes $24.6 million in Collateralized Mortgage Obligations with the
following maturities: 1 year or less $9.4 million; 1 to 5 years $15.2
million. The average yield of these securities is 5.56 percent.
An analysis of investment securities held-to-maturity as of
December 31, 1993, is as follows:
Gross Gross
1 year 1 to 5 5 to 10 Over 10 Amortized unrealized unrealized Fair
Maturity in years or less years years years cost gains losses value
- - - -----------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $3,029 $122,040 -- -- $125,069 $540 ($270) $125,339
Securities of U.S. Govt.
Agencies and Corporations* 9,886 51,668 80,419 81,023 222,996 1,859 (793) 224,062
Obligations of States and
Political Subdivisions 11,823 23,185 38,065 51,224 124,297 4,548 (758) 128,087
Asset Backed (Automobile
Receivables) 152 65,281 -- -- 65,433 665 (34) 66,064
Other Securities (Preferred
Stocks & Corporate Bonds) 12,999 3,115 1,654 1,494 19,262 749 -- 20,011
- - - -----------------------------------------------------------------------------------------------------------------
Total Securities
Held-to-maturity $37,889 $265,289 $120,138 $133,741 $557,057 $8,361 ($1,855) $563,563
=================================================================================================================
Fair Value by Maturity $38,638 $266,843 $120,892 $137,190
*Includes $162.6 million in Collateralized Mortgage Obligations with the
following maturities: 1 year or less $9.9 million; 1 to 5 years $9.3
million; 5 to 10 years $71.3 million; over 10 years $72.1 million.
These securities have a market value of $162.4 million and an average
yield of 5.45 percent.
As of December 31, 1993, $173.5 million of investment securities
held-to-maturity were pledged to secure public deposits.
A summary of investment securities portfolio held-to-maturity as of
December 31, 1992, is as follows:
Gross Gross
Book unrealized unrealized Fair
Value gains losses Value
- - - --------------------------------------------------------------------
U.S. Treasury securities $126,522 $2,208 ($156) $128,574
Securities of U.S. Govt.
Agencies and Corporations 237,753 4,919 (517) 242,155
Obligations of States and
Political Subdivisions 87,031 3,655 (197) 90,489
Asset Backed (Automobile
Receivables) 82,270 1,040 (105) 83,205
Other Securities (Preferred
Stocks & Corporate Bonds) 36,660 735 (50) 37,345
- - - --------------------------------------------------------------------
Total Securities
Held-to-maturity $570,236 $12,557 ($1,025) $581,768
====================================================================
17
Note 3: Loans and Reserve for Loan Losses
Loans at December 31, consisted of the following:
(In thousands) 1993 1992
- - - -------------------------------------------------------
Commercial $ 266,448 $ 439,494
Real estate-commercial 346,308 196,401
Real estate-construction 40,533 63,886
Real estate-residential 172,245 175,834
Installment and personal 304,993 334,215
Unearned income (15,788) (18,883)
- - - -------------------------------------------------------
Gross loans 1,114,739 1,190,947
Loan loss reserve (25,587) (24,742)
- - - -------------------------------------------------------
Net loans $1,089,152 $1,166,205
=======================================================
18
Included in real estate-residential at December 31, 1993 and 1992 are loans
held for resale of $5.9 million and $3.6 million, respectively, the cost of
which approximates market value.
Changes in the loan loss reserve were:
(In thousands) 1993 1992 1991
- - - ------------------------------------------------------------------
Balance at January 1, $24,742 $23,853 $19,002
Sale of Sonoma Valley Bank (684) -- --
Provision for loan losses 9,452 7,005 10,418
Credit losses (10,091) (8,794) (9,140)
Credit loss recoveries 2,168 2,678 3,573
- - - ------------------------------------------------------------------
Balance at December 31, $25,587 $24,742 $23,853
==================================================================
Restructured loans were $4.4 million and $319,000 at December 31, 1993 and
1992, respectively.
The following is a summary of interest foregone on restructured loans for the
years ended December 31:
(In thousands) 1993 1992 1991
- - - -------------------------------------------------------------
Interest income that would have
been recognized had the loans
performed in accordance with
their original terms $472 $135 $173
Less: Interest income recognized
on restructured loans (218) -- (8)
- - - -------------------------------------------------------------
Interest foregone on restructured
loans $254 $135 $165
=============================================================
19
Note 4: Concentrations of Credit Risk
The Company's business activity is with customers in Northern California. The
loan portfolio is well diversified with no industry comprising greater than
ten percent of total loans outstanding as of December 31, 1993.
The Company has a significant number of credit arrangements that are
secured by real estate collateral. In addition to real estate loans
outstanding as disclosed in Note 3, the Company had loan commitments and
stand by letters of credit related to real estate loans of $18.7 million at
December 31, 1993. The Company requires collateral on all real estate loans
and generally attempts to maintain loan-to-value ratios no greater than 75
percent on commercial real estate loans and no greater than 80 percent on
residential real estate loans.
Note 5: Premises and Equipment
A summary as of December 31, follows:
Accumulated
Depreciation and Net
(In thousands) Cost Amortization Book Value
- - - -------------------------------------------------------------------------
1993
Land $ 3,735 $ -- $ 3,735
Buildings and improvements 20,072 (6,876) 13,196
Leasehold improvements 2,537 (1,513) 1,024
Furniture and equipment 14,347 (6,961) 7,386
- - - -------------------------------------------------------------------------
Total $40,691 $(15,350) $25,341
=========================================================================
1992
Land $5,483 $ -- $ 5,483
Buildings and improvements 19,131 (7,225) 11,906
Leasehold improvements 4,878 (2,929) 1,949
Furniture and equipment 19,711 (12,090) 7,621
- - - -------------------------------------------------------------------------
Total $49,203 $(22,244) $26,959
=========================================================================
Depreciation and amortization included in non-interest expense amount to
$3,621,800 in 1993, $4,198,000 in 1992 and $4,189,400 in 1991.
20
Note 6: Borrowed Funds
Notes payable include the unsecured obligations of the Company as of
December 31, 1993 and 1992, as follows:
(In thousands) 1993 1992
- - - ------------------------------------------------------------------------
Unsecured note dated September, 1976,
interest payable semiannually at 9 7/8% and
principal payments of $267 due annually
to September 1, 1996. $ 196 $ 463
Unsecured note dated May, 1984, interest
payable quarterly at 12.95% and principal
payments of $1,000 due annually beginning
September 1, 1991 and ending on September 1,
1996. Note agreement provides for partial
prepayment under certain conditions without
penalty and for prepayment of all or a portion
of the note under certain conditions with a
premium which decreases over the contractual term. 2,100 3,100
Equity contract notes, originated in April 1986
and maturing on April 1, 1996. Interest payable
semiannually at 11 5/8% and principal payments
of $2,500 due annually, on April 1, starting
in 1993. 7,500 10,000
Senior notes, originated in May 1988 and
maturing on June 30, 1995. Interest payable
semiannually at 10.87% and principal
payment due at maturity. 5,000 5,000
Subordinated note, issued by Westamerica Bank,
originated in December 1993 and maturing
September 30, 2003. Interest at an annual rate
of 6.99% payable semiannually on March 31 and
September 30, with principal due at maturity. 20,000 --
- - - ------------------------------------------------------------------------
Total notes payable $34,796 $18,563
========================================================================
Mortgages payable of $524,000 consist of a note of Westamerica Bank secured
by a deed of trust on premises having a net book value of $790,000 and
$824,000 at December 31, 1993 and 1992, respectively. The note, which has an
effective interest rate of 10 percent, is scheduled to mature in April 1995.
21
Included in notes and mortgages payable are senior liens on other real
estate, land held for sale and investments in joint venture properties that
totaled $1,032,000 and $250,000 at December 31, 1993 and 1992,
respectively.
The combined aggregate amount of maturities of notes payable is $3,696,000,
$8,500,000, $2,600,000, $0 and $0 for the years 1994 through 1998, and
$20,000,000 thereafter.
At December 31, 1993, the Company had unused lines of credit amounting to
$7,500,000. Compensating balance arrangements are not significant to the
operations of the Company.
At December 31, 1993, the Banks had $113.0 million in time deposit accounts
in excess of $100,000; interest on these accounts in 1993 was $4,837,000.
Note 7: Shareholders' Equity
In April 1982, the Company adopted an Incentive Stock Option Plan and
413,866 shares were reserved for issuance. Under this plan, all options are
currently exercisable and terminate 10 years from the date of the grant.
Under the Stock Option Plan adopted by the Company in 1985, 750,000 shares
have been reserved for issuance. Stock appreciation rights, incentive stock
options, non-qualified stock options and restricted performance shares are
available under this plan. Options are granted at fair market value and are
generally exercisable in equal installments over a three-year period with the
first installment exercisable one year after the date of the grant. Each
incentive stock option has a maximum ten-year term while non-qualified stock
options may have a longer term. The 1985 plan was amended in 1990 to provide
for restricted performance share (RPS) grants. An RPS grant becomes
fully vested after three years of being awarded, provided that the
Company has attained its performance goals for such three-year period.
At December 31, 1993, 299,046 options were available for grant under the 1985
Stock Option Plan.
Information with respect to options outstanding and options exercised under
the plans is summarized in the following table:
Number Option Price
of shares* $ per share $ Total
Shares under option at December 31:
1993 313,564 8.88- 24.50 5,766,400
1992 278,544 6.06- 22.00 4,249,399
1991 400,247 6.06- 22.00 6,202,300
Options exercised during:
1993 51,260 8.88- 22.00 692,157
1992 168,423 6.06- 13.29 1,975,000
1991 120,362 6.06- 13.63 997,700
* Issuable upon exercise.
22
At December 31, 1993, options to acquire 164,794 shares of common stock
were exercisable.
Shareholders have authorized issuance of two new classes of 1,000,000
shares each, to be denominated Class B Common Stock and Preferred Stock,
respectively, in addition to the 20,000,000 shares of Common Stock
presently authorized. At December 31, 1993, no shares of Class B or
Preferred Stock had been issued. At December 31, 1993, the Company's Tier I
Capital was $149,937,000 and Total Capital was $194,415,000 or 11.11 percent
and 14.40 percent, respectively, of risk-adjusted assets.
In December 1986, the Company declared a dividend distribution of one
common share purchase right (the Right) for each outstanding share of
common stock. The Rights are exercisable only in the event of an
acquisition of, or announcement of a tender offer to acquire, 15 percent or
more of the Company's stock or 50 percent or more of its assets without the
prior consent of the Board of Directors. If the Rights become exercisable,
the holder may purchase one share of the Company's common stock for $65.
Following an acquisition of 15 percent of the Company's common stock or 50
percent or more of its assets without prior consent of the Company, each
right will also entitle the holder to purchase $130 worth of common stock of
the Company for $65. Under certain circumstances, the Rights may be redeemed
by the Company at a price of $.05 per right prior to becoming exercisable and
in certain circumstances thereafter. The Rights expire on December 31, 1999,
or earlier, in connection with certain Board-approved transactions.
Note 8: Income Taxes
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, (SFAS No. 109).
Adoption of SFAS No. 109 required a change from the deferred method to the
asset and liability method of accounting for income taxes. Under the deferred
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
reported amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carry forwards. 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.
23
The components of the net deferred tax asset as of December 31, are as
follows:
(In thousands) 1993 1992
- - - -------------------------------------------------------------------
Deferred tax asset
Reserve for loan losses $ 10,321 $ 9,013
State franchise taxes 676 941
Deferred compensation 534 723
Real estate owned 2,742 1,851
Net deferred loan fees -- 268
Other 1,037 587
- - - -------------------------------------------------------------------
15,310 13,383
Valuation allowance -- --
- - - -------------------------------------------------------------------
Total deferred tax asset 15,310 13,383
- - - -------------------------------------------------------------------
Deferred tax liability
Net deferred loan costs 502 --
Fixed assets depreciation 1,164 1,171
Securities available-for-sale 1,864 --
Other 148 373
- - - -------------------------------------------------------------------
Total deferred tax liability 3,678 1,544
- - - -------------------------------------------------------------------
Net deferred tax asset $11,632 $11,839
===================================================================
The Company believes a valuation allowance is not needed to reduce the
deferred tax asset because there is no material portion of the deferred
tax asset that will not be realized through sufficient taxable income.
The provisions for federal and state income taxes consist of amounts
currently payable and amounts deferred which, for the years ended December
31, are as follows:
(In thousands) 1993 1992 1991
- - - ------------------------------------------------------------
Current income tax expense:
Federal $2,501 $6,977 $5,314
State 2,195 3,130 2,638
- - - ------------------------------------------------------------
Total current 4,696 10,107 7,952
- - - ------------------------------------------------------------
Deferred income tax benefit:
Federal (646) (1,758) (1,335)
State (617) (492) (784)
- - - ------------------------------------------------------------
Total deferred (1,263) (2,250) (2,119)
- - - ------------------------------------------------------------
24
Adjustment of net deferred
tax asset for enacted changes
in tax rates:
Federal (304) -- --
State (90) -- --
- - - -------------------------------------------------------------
Total adjustment (394) -- --
- - - -------------------------------------------------------------
Provision for income taxes $3,039 $7,857 $5,833
=============================================================
The provisions for income taxes differ from the provisions computed by
applying the statutory federal income tax rate to income before taxes, as
follows:
(In thousands) 1993 1992 1991
- - - --------------------------------------------------------------------
Federal income taxes due
at statutory rate $4,248 $7,846 $6,056
(Reductions) increases in
income taxes resulting from:
Interest not taxable for federal
income tax purposes (1,895) (1,735) (1,836)
State franchise taxes, net of
federal income tax benefit 982 1,753 1,226
Deferred benefit and other (296) (7) 387
- - - ---------------------------------------------------------------------
Provision for income taxes $3,039 $7,857 $5,833
=====================================================================
Note 9: Fair Value of Financial Instruments
The fair value of financial instruments which have a relative short period
of time between their origination and their expected realization were
valued using historical cost. Such financial instruments and their
estimated fair values at December 31, were:
(In thousands) 1993 1992
- - - -------------------------------------------------------------------
Cash and cash equivalents $102,618 $139,497
Money market assets 250 1,366
Interest and taxes receivable 28,799 25,741
Non-interest bearing and interest-bearing
transaction and savings deposits 1,313,908 1,258,353
Funds purchased 69,064 12,038
Interest payable 2,700 3,824
The fair value at December 31 of the following financial instruments was
estimated using quoted market prices:
25
(In thousands) 1993 1992
- - - -------------------------------------------------------------------
Investment securities available for sale $168,819 $ --
Investment securities held to maturity 563,563 581,768
Trading account securities 10 --
Loans were separated into two groups for valuation. Variable rate loans,
which reprice frequently with changes in market rates, were valued using
historical cost. Fixed rate loans were valued by discounting the future
cash flows expected to be received from the loans using current interest
rates charged on loans with similar characteristics. Additionally, the
$25,587,000 and $24,742,000 reserves for loan losses as of December 31,
1993 and 1992, respectively, were applied against the estimated fair value
to recognize future defaults of contractual cash flows. The estimated fair
market value of loans at December 31, was:
(In thousands) 1993 1992
- - - --------------------------------------------------------------------
Loans $1,096,164 $1,171,630
The fair value of time deposits and notes and mortgages payable was
estimated by discounting future cash flows related to these financial
instruments using current market rates for financial instruments with
similar characteristics.
The estimated fair values at December 31, were:
(In thousands) 1993 1992
- - - ---------------------------------------------------------------------
Time deposits $420,475 $534,920
Notes and mortgages payable 36,014 20,282
The estimated fair values of the Company's interest rate swaps, which are
determined by dealer quotes and generally represent the amount that the
Company would pay to terminate its swap contracts, were $(600,000) and $0,
respectively, at December 31, 1993 and 1992.
These fair values do not represent actual amounts that may be realized upon
any sale or liquidation of the related assets or liabilities. In addition,
these values do not give effect to discounts to fair value which may occur
when financial instruments are sold in larger quantities. The fair values
presented above represent the Company's best estimate of fair value using the
methodologies discussed above.
Note 10: Lease Commitments
Fifteen banking offices and three administrative service centers are owned
and thirty-seven banking offices and two support facilities are leased.
Substantially all the leases contain multiple renewal options and provisions
for rental increases, principally for changes in the cost of living, property
taxes and maintenance. The Company also leases certain pieces of equipment.
Minimum future rental payments on operating leases, net of sublease income,
at December 31, 1993, are as follows:
26
(In thousands)
1994 $ 3,253
1995 3,091
1996 2,632
1997 1,679
1998 1,183
Thereafter 3,659
- - - -------------------------------------------------
Total minimum lease payments $15,497
=================================================
Total rentals for premises and equipment net of sublease income included in
non-interest expense were $3,862,000 in 1993, $3,910,000 in 1992 and
$3,829,000 in 1991.
Note 11: 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 $159.2
million at December 31, 1993.
Standby letters of credit commit the Company to make payments on behalf of
customers when certain specified future events occur. Standby letters of
credit are primarily issued to support customers short-term financing
requirements and must meet the Company's normal credit policies and
collateral requirements. Standby letters of credit outstanding were $6.4
million at December 31, 1993.
Interest rate swaps are agreements to exchange interest payments computed on
notional amounts. The notional amounts do not represent exposure to credit
risk; however, these agreements expose the Company to market risks associated
with fluctuations of interest rates. As of December 31, 1993, the Company had
entered into four interest rate swaps. The first two contracts have notional
amounts totaling $25 million each and the second two contracts have notional
amounts totaling $30 million each. On the first two contracts, which are
scheduled to terminate in November and December of 1994, the Company pays an
average fixed rate of interest of 5.06 percent and receives a variable rate
of interest based on the London Interbank Offering Rate (LIBOR); on the
second two contracts, scheduled to terminate in August of 1995, the Company
pays a variable rate based on LIBOR and receives an average fixed rate of
interest of 4.11 percent.
The LIBOR rate has averaged 3.39 percent from the date the first two swaps
were entered through December 31, 1993 and 3.33 percent from the date the
second two swaps were entered through December 31, 1993. The effect of
entering into these contracts resulted in a decrease to net interest income
of $659,000 for the period ended December 31, 1993.
27
The Company, because of the nature of its business, is subject to various
threatened or filed legal cases. The Company, based on the advice of legal
counsel, does not expect such cases will have material, adverse effect on its
financial position or results of operations.
Note 12: Retirement Benefit Plans
The Company sponsors a defined benefit Retirement Plan covering
substantially all of its salaried employees with one or more years of
service. The Company's policy is to expense costs as they accrue as
determined by the Projected Unit Cost method. The Company's funding policy is
to contribute annually the maximum amount that can be deducted for federal
income tax purposes.
The following table sets forth the Retirement Plans funded status as of
December 31 and the pension cost for the years ended December 31:
(In thousands) 1993 1992
- - - -----------------------------------------------------------------
Actuarial present value of benefit
obligations:
Vested benefit obligation $(11,245) $(10,625)
- - - -----------------------------------------------------------------
Accumulated benefit obligation (11,430) (11,064)
- - - -----------------------------------------------------------------
Projected benefit obligation (11,612) (11,275)
Plan assets at fair market value 11,677 11,429
=================================================================
Funded status-projected benefit
obligation (in excess of) or less
than plan assets $65 $154
=================================================================
Comprised of:
Prepaid pension cost $22 $182
Unrecognized net (loss) gain (75) (194)
Unrecognized prior service cost 529 628
Unrecognized net obligation, net
of amortization (411) (462)
- - - -----------------------------------------------------------------
Total $65 $154
=================================================================
28
Net pension cost included in the
following components:
Service cost during the period $364 $384
Interest cost on projected
benefit obligation 744 754
Actual return on plan assets (1,012) (686)
Net amortization and deferral 64 (271)
- - - -----------------------------------------------------------------
Net periodic pension cost $160 $181
=================================================================
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit
obligation were 6.75 percent and 5 percent, respectively, at December 31,
1993 and 7 percent and 5 percent, respectively, at December 31, 1992. The
expected long-term rate of return on plan assets in 1993 and 1992 was 7
percent and 8 percent, respectively.
Effective January 1, 1992, the Company adopted a defined contribution
Deferred Profit-Sharing Plan covering substantially all of its salaried
employees with one or more years of service. Participant deferred
profit-sharing account balances offset benefits accrued under the
Retirement Plan which was amended effective January 1, 1992 to coordinate
benefits with the Deferred Profit-Sharing Plan. The coordination of benefits
results in the Retirement Plan benefit formula establishing the minimum value
of participant retirement benefits which, if not provided by the Deferred
Profit-Sharing Plan, are guaranteed by the Retirement Plan.
The costs charged to non-interest expense related to benefits provided by the
Retirement Plan and the Deferred Profit-Sharing Plan were $1,160,000 in 1993,
$1,037,000 in 1992 and $759,000 in 1991.
In addition to the Retirement Plan and the Deferred Profit-Sharing Plan,
all salaried employees are eligible to participate in the voluntary Tax
Deferred Savings/Retirement Plan (ESOP) upon completion of a 90-day
introductory period. This plan allows employees to defer, on a pretax
basis, a portion of their compensation as contributions to the plan.
Participants are allowed to invest in five funds, including a Westamerica
Bancorporation Common Stock Fund. The Company's matching contributions
charged to operating expense were $482,000 in 1993, $462,000 in 1992 and
$452,000 in 1991.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, Employers Accounting for Postretirement
Benefits Other than Pensions (SFAS No. 106). Adoption of SFAS No. 106
required a change from the cash method to an actuarial based accrual method
of accounting for postretirement benefits other than pensions. The Company
offers continuation of group insurance coverage to employees electing early
retirement, as defined by the Retirement Plan, for the period from the date
of early retirement until age sixty-five. The Company contributes an amount
toward early retirees insurance premiums which is fixed at the time of early
retirement. The Company also
29
reimburses Medicare Part B premiums for all retirees over age sixty-five, as
defined by the Retirement Plan.
The following table sets forth the net periodic postretirement benefit cost
for the year ended December 31, 1993 and the funded status of the plan at
December 31, 1993:
(In thousands)
Service cost $ 482
Interest cost 107
Actual return on plan assets --
Amortization of unrecognized transition obligation 61
Other, net (482)
- - - -----------------------------------------------------------
Net periodic cost $ 168
===========================================================
Accumulated postretirement benefit obligation
attributable to:
Retirees $ 1,130
Fully eligible participants 265
Other 158
- - - -----------------------------------------------------------
Total 1,553
- - - -----------------------------------------------------------
Fair value of plan assets --
Accumulated postretirement benefit
obligation in excess of plan assets $ 1,553
===========================================================
Comprised of:
Unrecognized prior service cost --
Unrecognized net gain (loss) --
Unrecognized transition obligation 1,471
Recognized postretirement obligation 82
- - - -----------------------------------------------------------
Total $1,553
===========================================================
The discount rate used in measuring the accumulated postretirement benefit
obligation was 6.75 percent at December 31, 1993. The assumed health care
cost trend rate used to measure the expected cost of benefits covered by the
plan was 9 percent for 1994 and declined steadily to an ultimate trend rate
of 4 percent beginning in 1999. The effect of a one percentage point increase
on the assumed health care cost trend for each future year would increase the
aggregate of the service cost and interest cost components of the 1993 net
periodic cost by $73,000 and increase the accumulated postretirement benefit
obligation at December 31, 1993 by $204,000.
30
Note 13: Related Party Transactions
Certain directors and executive officers of the Company were lending
customers of the Company during 1993 and 1992. All such loans were made in
the ordinary course of business on normal credit terms, including interest
rates and collateral requirements. No related party loan represents more than
normal risk of collection. Such loans were $5,238,000 and $10,591,000 at
December 31, 1993 and 1992, respectively.
Note 14: Restrictions
Payment of dividends to the Company by Westamerica Bank, the largest
subsidiary bank, is limited under regulations for Federal Reserve member
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 that year plus the net profits of the preceding two calendar
years less dividends declared. Under this regulation, Westamerica Bank, the
largest subsidiary bank, was not restricted as to the payment of $13.6
million in dividends to the Company as of December
31, 1993. During 1992 and 1993, Napa Valley Bank, a banking subsidiary, was
operating under a regulatory order which disallowed payment of dividends to
the Company unless it reduced the level of problem assets, liquidated, or
reserved adequately against, the real estate investments in its subsidiary
company, and strengthened its loan loss reserve. Napa Valley Bank has
complied with all conditions of the regulatory order which will be removed by
the regulators based on their fourth quarter 1993 examination. Payment of
dividends by the Company is also restricted under the terms of the note
agreements as discussed in Note 6. Under the most restrictive of these
agreements, $17.1 million was available for payment of dividends as of
December 31, 1993. Under one of the note agreements, the Company has agreed
to limit its funded debt to 40 percent of the total of funded debt plus
shareholders' equity and maintain certain other financial ratios. The Company
was in compliance with all such requirements as of December 31, 1993.
The Banks are required to maintain reserves with the Federal Reserve Bank
equal to a percentage of its reservable deposits. The Banks daily average
balance on deposit at the Federal Reserve Bank was $40.4 million in 1993 and
$40.3 million in 1992.
31
Note 15: Westamerica Bancorporation (Parent Company Only)
Statements of Income (In thousands)
Years ended December 31, 1993 1992* 1991*
- - - -----------------------------------------------------------------------
Dividends from subsidiaries $16,671 $ 8,630 $ 6,620
Interest from subsidiaries 315 61 72
Other income 2,781 1,158 1,082
- - - -----------------------------------------------------------------------
Total income 19,767 9,849 7,774
- - - -----------------------------------------------------------------------
Interest on borrowings 1,958 2,434 2,617
Salaries and benefits 4,526 782 475
Other non-interest expense 5,464 3,451 2,261
- - - -----------------------------------------------------------------------
Total expenses 11,948 6,667 5,353
- - - -----------------------------------------------------------------------
Income before income tax benefit
and equity in undistributed
income of subsidiaries 7,819 3,182 2,421
Income tax benefit 3,478 1,890 1,813
Equity in undistributed (loss)
income of subsidiaries (1,842) 10,150 7,743
- - - -----------------------------------------------------------------------
Net income $9,455 $15,222 $11,977
=======================================================================
*Data has been restated on an historical basis to reflect the April 15, 1993
acquisition of Napa Valley Bancorp on a pooling-of-interests basis.
Balance Sheets (In thousands)
Years ended December 31, 1993 1992*
- - - --------------------------------------------------------------------------
Assets
Cash and cash equivalents $4,790 $ 1,729
Investment securities held-to-maturity 9,250 13,741
Loans 149 --
Investment in subsidiaries 154,257 145,762
Premises and equipment 29 2,506
Accounts receivable from subsidiaries 65 262
Other assets 2,056 2,704
- - - -------------------------------------------------------------------------
Total assets $170,596 $166,704
=========================================================================
Liabilities
Long-term debt $ 14,796 $ 18,563
Notes payable to subsidiaries -- 2,493
Other liabilities 3,353 1,974
- - - -------------------------------------------------------------------------
Total liabilities 18,149 23,030
- - - -------------------------------------------------------------------------
Shareholders' equity 152,447 143,674
- - - -------------------------------------------------------------------------
Total liabilities and shareholders' equity $170,596 $166,704
=========================================================================
32
Statements of Cash Flows (In thousands)
Years ended December 31, 1993 1992* 1991*
- - - --------------------------------------------------------------------------
Operating Activities
Net income $ 9,455 $15,222 $11,977
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 108 67 58
Equity in undistributed loss
(income) of subsidiaries 1,842 (10,150) (7,743)
Increase in equity in subsidiaries -- (1,797) --
(Increase) decrease in receivables
from subsidiaries 197 1,020 (1,005)
Provision for deferred income taxes 60 2,633 (551)
Decrease (increase) in other assets 1,183 (1,394) (771)
Increase in other liabilities 1,583 301 39
Gain on sale of Sonoma Valley Bank (668) -- --
Net gain on sale of land -- 43 --
- - - --------------------------------------------------------------------------
Net cash provided by
operating activities 13,760 5,945 2,004
- - - --------------------------------------------------------------------------
Investing Activities
Purchases of premises and equipment -- (2,189) (761)
Net change in land held for sale (800) -- --
Net change in loan balances (149) -- --
Increase in investment in subsidiaries (9,874) (485) (510)
Purchase of investment securities
held-to-maturity (9,700) (13,991) (22,100)
Proceeds from maturities of
investment securities 14,191 10,500 23,100
Proceeds from sales of premises
and equipment 2,369 2,149 --
Proceeds from sale of Sonoma Valley Bank 2,733 -- --
- - - --------------------------------------------------------------------------
Net cash used in investing activities (1,230) (4,016) (271)
- - - --------------------------------------------------------------------------
Financing Activities
Net (decrease) increase in
short-term debt -- (656) 453
Principal reductions of long-term debt
and notes payable to subsidiaries (6,260) (2,611) (2,767)
Proceeds from issuance of note
payable to subsidiaries -- 1,368 --
Proceeds from exercise of stock options 1,446 2,139 1,507
Unrealized loss (gains) on
marketable equity securities -- 9 (9)
Dividends paid (4,655) (2,987) (3,041)
- - - --------------------------------------------------------------------------
Net cash used in financing activities (9,469) (2,738) (3,857)
- - - --------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 3,061 (809) (2,124)
Cash and cash equivalents at
beginning of year 1,729 2,538 4,662
- - - --------------------------------------------------------------------------
Cash and cash equivalents at year end $4,790 $1,729 $2,538
==========================================================================
*Data has been restated on an historical basis to reflect the April 15, 1993
acquisition of Napa Valley Bancorp on a pooling-of-interests basis.
33
Note 16: Quarterly Financial Information (Unaudited)
(In thousands except per share) March 31, June 30, Sept. 30, Dec. 31,
- - - ---------------------------------------------------------------------------------------------------
1993
Interest income $35,946 $34,293 $33,215 $33,462
Net interest income 24,174 23,392 23,301 23,778
Provision for loan losses 1,550 4,692 1,605 1,605
Non-interest income 5,018 8,344 5,575 5,009
Non-interest expense 23,314 34,245 19,594 19,492
Income (loss) before taxes 4,328 (7,201) 7,677 7,690
Net income (loss) 3,019 (4,070) 5,125 5,381
Earnings (loss) per share 0.38 (0.50) 0.63 0.67
Dividends declared per share* 0.14 0.14 0.14 0.15
Price range, common stock** $22.13-30.25 $23.88-28.75 $25.13-28.50 $25.75-28.50
- - - ----------------------------------------------------------------------------------------------------
1992
Interest income $40,200 $39,183 $38,222 $37,147
Net interest income 23,048 23,757 24,352 24,704
Provision for loan losses 1,640 2,190 1,640 1,535
Non-interest income 6,499 5,785 5,583 5,960
Non-interest expense 22,045 20,901 22,254 24,404
Income before taxes 5,862 6,451 6,041 4,725
Net income 3,821 4,150 3,925 3,326
Earnings per share 0.49 0.52 0.49 0.42
Dividends declared per share* 0.12 0.13 0.13 0.13
Price range, common stock** $18.88-20.63 $18.50-22.25 $18.25-22.25 $19.50-23.75
* As originally reported
** Represents prices quoted on the American Stock Exchange. Quoted prices
are not necessarily representative of actual transactions.
Note 17: Acquisition
On April 15, 1993, the Company issued approximately 2,122,740 shares of its
common stock in exchange for all of the outstanding common stock of Napa
Valley Bancorp, a bank holding company, whose subsidiaries included Napa
Valley Bank ("NVB"), a California-based, state-chartered banking association,
and Subsidiary, 88 percent interest in Bank of Lake County ("BLC"), a
national banking association, 50 percent interest in Sonoma Valley Bank, a
state banking association, Suisun Valley Bank, also a state chartered bank,
and Napa Valley Bancorp Services Corporation ("NVBSC"), estabilshed to
provide data processing and other services to Napa Valley Bancorp's
subsidiaries. This business transaction (the "Merger") was accounted for as
a pooling-of-interests combination and, accordingly, the consolidated
financial statements and financial data for periods prior to the combination
have been restated to include the accounts and results of operations of Napa
Valley Bancorp. Certain reclassifications have been made to Napa Valley
Bancorp to conform to
Westamerica Bancorporation's presentation. Subsequent to the combination,
Westamerica Bancorporation sold the 50 percent interest in
Sonoma Valley Bank at a gain of $668,000. This business combination has
been accounted for as a pooling-of-interests combination; and, accordingly,
the consolidated financial statements and financial data for periods prior to
the combination have been restated to include the accounts and results of
operations of Napa Valley Bancorp. Certain reclassification have been made to
Napa Valley Bancorp to conform to Westamerica Bancorporation's presentation.
34
The results of operations previously reported by the separate enterprises and
the combined amounts presented in the accompanying consolidated financial
statements are summarized as follows.
Three
months ended
March 31, 1993 Years ended December 31,
(In thousands) (unaudited) 1992 1991
- - - -----------------------------------------------------------------------
Net Interest Income:
Westamerica Bancorporation $16,809 $67,192 $62,496
Napa Valley Bancorp 7,365 28,669 26,699
- - - -----------------------------------------------------------------------
Combined $24,174 $95,861 $89,195
- - - -----------------------------------------------------------------------
Net Income (loss):
Westamerica Bancorporation $3,675 $13,979 $11,762
Napa Valley Bancorp (656) 1,243 215
- - - -----------------------------------------------------------------------
Combined $3,019 $15,222 $11,977
- - - -----------------------------------------------------------------------
Net Income (loss) Per Share:
Westamerica Bancorporation* $.63 $2.40 $2.06
Napa Valley Bancorp* (.19) .36 .06
Combined $.38 $1.92 $1.52
- - - -----------------------------------------------------------------------
* As originally reported.
Net income per share was reduced $.25 for the three months ended March 31,
1993, $.48 in 1992, and $.54 in 1991, attributable to dilution from shares
issued in connection with the acquisition. In addition, net income of the
Company for 1993 was reduced by an estimated $8.3 million due to the
consolidation of Napa Valley Bancorp's branches and operations, certain
merger-related expenses and the application of Westamerica Bancorporation's
workout strategy to the non-performing assets of Napa Valley Bancorp.
There were no significant transactions between Westamerica Bancorporation and
Napa Valley Bancorp prior to the combination.
35
MANAGEMENTS LETTER OF FINANCIAL RESPONSIBILITY
To the Shareholders:
The Management of Westamerica Bancorporation is responsible for the
preparation, integrity, reliability and consistency of the information
contained in this annual report. The financial statements, which
necessarily include amounts based on judgments and estimates, were prepared
in conformity with generally accepted accounting principles and prevailing
practices in the banking industry. All other financial information appearing
throughout this annual report is presented in a manner consistent with the
financial statements.
Management has established and maintains a system of internal controls that
provides reasonable assurance that the underlying financial records are
reliable for preparing the financial statements, and that assets are
safeguarded from unauthorized use or loss. This system includes extensive
written policies and operating procedures and a comprehensive internal
audit function, and is supported by the careful selection and training of
staff, an organizational structure providing for division of
responsibility, and a Code of Ethics covering standards of personal and
business conduct. Management believes that, as of December 31, 1993 the
Corporation's internal control environment is adequate to provide
reasonable assurance as to the integrity and reliability of the financial
statements and related financial information contained in the annual
report.
The system of internal controls is under the general oversight of the Board
of Directors acting through its Audit Committee, which is comprised
entirely of outside directors.
The Audit Committee monitors the effectiveness of and compliance with
internal controls through a continuous program of internal audit and credit
examinations. This is accomplished through periodic meetings with
Management, internal auditors, loan quality examiners, regulatory examiners
and independent auditors to assure that each is carrying out their
responsibilities.
The Corporation's financial statements have been audited by KPMG Peat
Marwick, independent auditors elected by the shareholders. All financial
records and related data, as well as the minutes of shareholders and
directors meetings, have been made available to them. Management believes
that all representations made to the independent auditors during their
audit were valid and appropriate.
David L. Payne
Chairman, President and CEO
James M. Barnes
Executive Vice President and CFO
Dennis R. Hansen
Senior Vice President and Controller
36
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Westamerica Bancorporation
We have audited the accompanying consolidate balance sheets of
Westamerica Bancorporation and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of income, changes
in shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1993. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. As discussed
in Note 1 to the consolidated financial statements, the consolidated
balance sheet of the Company as of December 31, 1992 and the related
statements of income, changes in shareholders' equity, and cash flows
for each of the years in the two year period ended December 31, 1992,
and the related footnote disclosures have been restated on an
historical basis to reflect the April 15, 1993 acquisition of Napa
Valley Bancorp on a pooling-of-interests basis. We did not audit
the financial statements of Napa Valley Bancorp as of and for the
periods ended December 31, 1992 and 1991, which statements reflect
total assets constituting 30 percent in 1992 and net income
constituting 8 percent and 2 percent in 1992 and 1991, respectively,
of the related and restated consolidated totals. Those statements
included in the 1992 and 1991 restated consolidated totals were
audited by other auditors whose report has been furnished to us, and
our opinion, insofar as it related to the amounts included for Napa
Valley Bancorp, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other
auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Westamerica Bancorporation and subsidiaries as of December 31, 1993
and 1992, and the results of their operations and their cash flows
for each of the years in the three year period ended December 31,
1993 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
San Francisco, California
January 25, 1994
37
[Letterhead of Arthur Andersen LLP appears here]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of the Napa Valley Bancorp;
We have audited the consolidated balance sheet of Napa Valley
Bancorp and subsidiaries (the Company) as of December 31, 1992
and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the two years in
the period ended December 31, 1992. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Napa Valley Bancorp and subsidiaries as of December 31, 1992
and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 1992 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
San Francisco, California
March 31, 1993
38