SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1994 1-9383
WESTAMERICA BANCORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2156203
(State of incorporation) (I.R.S. Employer
Identification Number)
1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA 94901
(Address of principal executive offices and zip code)
(415) 257-8000
Registrant's area code and telephone number
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
Common Stock, no par value
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 X NO ___
Aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the closing price of such stock,
as of March 24, 1995: $281,124,395
Number of shares outstanding of each of the registrant's classes of
common stock, as of March 24, 1995.
Title of Class Shares Outstanding
Common Stock, no par value 9,200,164
Documents Incorporated by Reference
Document* Incorporated Into:
Proxy Statement dated March 21, 1995
for Annual Meeting of Shareholders
to be held on April 25, 1995 Part III
* Only selected portions of the documents specified are
incorporated by reference into this report, as more particularly
described herein. Except to the extent expressly incorporated
herein by reference, such documents shall not be deemed to be
filed as part of this Annual Report on Form 10-K.
TABLE OF CONTENTS
Page
PART-I
Item 1 Business. . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2 Description of Property . . . . . . . . . . . . . . . . . 12
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . 13
Item 4 Submission of Matters to a Vote of Security Holders . . . 13
PART-II
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . 13
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . 15
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 16
Item 8 Financial Statements and Supplementary Data . . . . . . . 35
Item 9 Disagreements on Accounting and Financial Disclosure. . . 65
PART-III
Item 10 Directors and Executive Officers of the Registrant. . . . 65
Item 11 Executive Compensation. . . . . . . . . . . . . . . . . . 65
Item 12 Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . . 65
Item 13 Certain Relationships and Related Transactions. . . . . . 65
PART-IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 66
PART I
ITEM I. Business
WESTAMERICA BANCORPORATION (the "Company") is a bank holding company
registered under the Bank Holding Company Act of 1956 ("BHC"), as amended.
It was incorporated under the laws of the State of California as
"Independent Bankshares Corporation" on February 11, 1972. Its principal
executive offices are located at 1108 Fifth Avenue, San Rafael, California
94901, and its telephone number is (415) 257-8000. 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. The Banks
are subject to competition from other financial institutions and
regulations of certain agencies and undergo periodic examinations by those
regulatory authorities.
The Company was originally formed pursuant to a plan of reorganization
among three previously unaffiliated banks: Bank of Marin, Bank of Sonoma
County and First National Bank of Mendocino County (formerly First National
Bank of Cloverdale). The reorganization was consummated on December 31,
1972, and, on January 1, 1973, the Company began operations as a bank
holding company. Subsequently, the Company acquired Bank of Lake County
(a California chartered bank) in 1974, Gold Country Bank in 1979 and Vaca
Valley Bank in 1981, in each case by the exchange of the Company's Common
Stock for the outstanding shares of the acquired banks.
In mid-1983, the Company consolidated the six subsidiary banks into a
single subsidiary bank. The consolidation was accomplished by the merger
of the five state chartered banks (Bank of Marin, Bank of Sonoma County,
Bank of Lake County, Gold Country Bank and Vaca Valley Bank) into First
National Bank of Mendocino County which subsequently changed its name to
Westamerica Bank ("WAB"), a national banking association organized and
existing under the laws of the United States. The Company also owns all
the capital stock of Westcore, formerly Learnex Corp., a newly formed
company which will engage in planning and servicing retirement and employee
benefit programs.
On February 28, 1992 the Company acquired John Muir National Bank through a
merger of such bank into WAB in exchange for the issuance of the Company's
Common Stock for all of the outstanding shares of John Muir National Bank.
This business transaction was accounted for as a pooling-of-interests
basis.
On April 15, 1993, the Company acquired Napa Valley Bancorp, a bank holding
company, whose subsidiaries included Napa Valley Bank, 88 percent interest
in Bank of Lake County, 50 percent interest in Sonoma Valley Bank, Suisun
Valley Bank and Napa Valley Bancorp Services Association, established 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. Shortly after the Merger Suisun Valley
bank was merged into Westamerica Bank, the name of Napa Valley Bancorp
Services Corporation was changed to Community Banker Services Corporation
and the Company sold its 50 percent interest in Sonoma Valley Bank.
In June, 1993, the Company accepted from Westamerica Bank a dividend in the
form of all outstanding shares of capital stock of that bank's subsidiary,
Weststar Mortgage Corporation, a California corporation established to
conduct mortgage banking activities. Immediately after the receipt of this
dividend, the Company contributed all of the capital stock of Weststar
Mortgage Corporation to its subsidiary, Community Banker Services
Corporation.
Westamerica Bank and Bank of Lake County became state chartered banks in
June 1993 and December 1993, respectively.
In December 1994, the Company finished purchasing the remaining 12 percent
investment in Bank of Lake County from outside investors, becoming the sole
owner of the Bank of Lake County.
Regarding upcoming pending acquisitions, please see Note 18 to the
consolidated financial statements included in this report.
At December 31, 1994, the Company had consolidated assets of approximately
$2.03 billion, deposits of approximately $1.69 billion and shareholders'
equity of approximately $166.2 million.
The Banks are engaged in the banking business through 48 offices in eleven
counties in Northern California, including eleven offices in Marin County,
nine in Sonoma County, seven in Solano County, seven in Napa County, three
in Contra Costa County, four in Lake County, two in Mendocino County, two
in Nevada County, one in Sacramento County, one in San Francisco County and
one in Placer County. All offices are equipped to meet prescribed security
requirements.
The Banks own fifteen banking offices and three administrative service
centers including the Company's and Westamerica Bank's headquarters.
Thirty-three banking offices and two support facilities are leased.
Substantially all of the leases contain multiple renewal options and
provisions for rental increases, principally for changes in the cost of
living index, property taxes and maintenance.
Service Area
The Banks serve the following ten major market areas:
Marin County. Marin County is one of the most affluent counties in
California and has a population of approximately 244,100. San Rafael and
Novato are the largest communities in the county, with populations of
approximately 52,700 and 49,050, respectively, in close proximity to San
Francisco. The area served by WAB is a relatively densely populated area
whose economic make-up is primarily residential, commercial and light
industrial.
Sonoma-Mendocino Counties. Of the eight San Francisco Bay Area counties,
Sonoma County is the largest geographically. The population of the county
is approximately 427,500. The City of Santa Rosa is the largest population
center in Sonoma County with an estimated population of 124,900 people.
Light industry, agriculture and food processing are the primary industries
in Sonoma County, with tourism and recreational activities growing
steadily. WAB also has two branch locations in southern Mendocino County,
population 83,600, where the major business of the county is agriculture.
Nevada County. WAB is currently serving most of Nevada County, the area
generally known as the "Gold Country." The population of the entire county
is approximately 87,700. Tourism, agriculture and wood products
manufacturing are the major industries.
Solano County. WAB serves all of Solano County, with an estimated
population of 375,300. Vallejo is the largest city in the county, with a
population of approximately 116,100. While light industry and the service
sector is growing steadily, the federal government is the largest employer
in the county.
Sacramento County. In 1982, WAB established an office in the city of
Sacramento, the state capital of California. The county has a population
of approximately 1,137,400. Major industries include agriculture,
government, manufacturing and wholesale and retail trade. Sacramento is
also a major transportation center for the State.
Contra Costa County. During 1984, WAB opened an office in the city of
Walnut Creek, to serve Contra Costa County's growing commercial and
industrial construction industry. In 1992, the Company acquired John Muir
National Bank whose four banking offices in Martinez, Pittsburg and Antioch
were merged into WAB. The population of Contra Costa County is
approximately 874,700.
San Francisco County. In 1987, WAB opened an office in the financial
center of the city of San Francisco, with a focus on commercial lending and
deposit relationships in that city.
Placer County. In September 1991, WAB opened a new branch in Roseville,
which is approximately 15 miles east of the Sacramento office and serves
the growing area of the Sierra Nevada foothills. The population of Placer
County is approximately 200,100.
Lake County. Bank of Lake County, ("the Lake County's Bank"), has office
locations in Lake County, with an estimated population of approximately
57,300. Agriculture is the primary industry followed closely by recreation
and tourism.
Napa County. Napa Valley Bank has office locations in Napa County. The
population of the county is approximately 119,000, with agriculture being
its major source of business followed by tourism.
Neither the Company nor its subsidiaries have any foreign or international
activities or operations.
All population figures contained in the previous discussion are 1994
estimates as prepared by the California Department of Finance and are
exclusive of unincorporated areas.
Competition
The Banks compete with other commercial banks, savings & loan
associations, credit unions, brokerage firms, money market mutual funds,
finance and insurance companies and mortgage banking firms.
According to information obtained by the Company through an independent
market research firm, WAB was the third largest financial institution in
terms of deposits in Marin County at June 30, 1994, at which date it had
approximately 15 percent of total deposits held in federally insured
depository institutions in that county. Also, according to such
information, WAB ranked third in Sonoma County at June 30, 1994, with
approximately 8 percent of deposits; WAB was fourth in Contra Costa as of
the same date, with over 4 percent in deposits held in financial
institutions in the county and WAB was third in deposits in Solano County,
with approximately 12 percent of deposits at June 30, 1994. The share of
the market for deposits and loans held by WAB in Mendocino, Placer, San
Francisco and Sacramento Counties is not significant.
According to the same source of information NVB was the largest financial
institution in terms of deposits in the Napa Valley service area as of June
30, 1994, with over 19 percent market share.
The same source of data reports that as of June 30, 1994, BLC ranked second
in market share in terms of deposits in the Lake County service area, with
15 percent of the total.
All Banks provide checking and savings deposit services as well as
commercial, real estate and personal loans. In addition, most of the
branches offer safe deposit facilities, automated teller units, collection
services and other investment services.
The Banks believe that personal, prompt, professional service and community
identity are important in the banking business. To this end, each Bank
subsidiary has actively sought to retain its community identity and has
emphasized personalized services through "big bank resources with small
bank resourcefulness."
Competitive conditions continue to intensify as legislative enactments
dissolve historical barriers to limit participation in financial markets.
Competition is expected to further increase in the state of California, as
a result of legislation enacted in 1986 and 1989. In part, the legislation
enabled bank holding companies based outside California to own and operate
banks or bank holding companies in California on a reciprocal basis as of
January 1, 1991.
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. As an active participant in the financial
markets, the Company continually adapts to these changing competitive
conditions.
Employees
At December 31, 1994, the Company employed 1,067 people (773 full-time
equivalent staff). Employee relations are believed to be good.
Supervision and Regulation
Regulation of Westamerica Bancorporation
The Company is a bank holding company registered under the BHC Act. As
such, it is subject to the supervision of the Federal Reserve Board ("FRB")
and is required to file with that entity an annual report and such other
additional information as the FRB may require pursuant to the BHC Act. The
FRB may also conduct examinations of the Company and its respective
subsidiaries.
Under the BHC Act, bank holding companies are generally required to obtain
the prior approval of the FRB before they may (i) acquire control of or
merge with another bank holding company; (ii) acquire direct ownership or
control of 5 percent or more of the voting shares of a bank; or (iii)
otherwise acquire control of another bank. Moreover, the BHC Act generally
prohibits the Company or any of its subsidiaries from acquiring the voting
shares of, interest in or assets of, any bank located outside of California
unless the laws of such state expressly authorize such an acquisition.
Under the BHC Act, the Company is prohibited from engaging in any business
other than managing or controlling banks, or furnishing services to its
subsidiaries, unless the business proposed to undertake has been deemed
by the FRB to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. With certain exceptions, the
Company is prohibited from acquiring direct or indirect ownership or
control of more than 5 percent of the voting securities or assets of any
company unless that company engages in activities which are permissible for
bank holding companies and the FRB is given notice thereof or approves the
acquisition in advance.
Holding companies and any of their subsidiary banks are prohibited from
engaging in certain tie-in arrangements in connection with the extension of
credit. For example, a subsidiary bank generally may not extend credit on
the condition that the customer obtain some additional service from such
bank or its holding company, or refrain from obtaining such service from a
competitor.
The Company is also a bank holding company within the meaning of Section
3700 of the California Financial Code. As such, the Company and its
subsidiaries are subject to examination by, and may be required to file
reports with, the Superintendent of California State Banking Department.
Regulations have not yet been proposed or adopted, nor have steps otherwise
been taken, to implement the Superintendent's powers under this statute.
Regulation of Bank Subsidiaries
The deposits of the Banks are insured by the FDIC in an amount up to
$100,000 per depositor and is therefore subject to applicable provisions of
the Federal Deposit Insurance Act and the regulations thereunder, including
the obligation to pay assessments for such insurance.
Transactions with affiliates of a bank must be on substantially the same
terms as would be available for nonaffiliates. This restriction applies
to (i) a bank's sale of assets, payment of money or furnishing of services
to an affiliate; (ii) transactions with the bank in which an affiliate acts
as agent or broker; and (iii) transactions with the bank and a third party
in which an affiliate is also a participant or has a financial interest.
The FDIC has issued an advance notice of proposed rulemaking which would
prohibit insured banks from paying excessive fees for services provided by
their parent holding companies. The FDIC has also proposed rules which
would authorize to rescind contracts between depository institutions and
any person in connection with providing goods, products or services if the
performance of such contract would adversely affect the safety or soundness
of the institution.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
contains a "cross-guarantee" provision which could result in any insured
depository institution owned by a holding company (i.e., any bank
subsidiary) being assessed for losses incurred by the FDIC in connection
with assistance provided to, or the failure of, any other depository
institution owned by such holding company.
As a consequence of the extensive regulation of commercial banking
activities in the United States, the business of the Company and its
subsidiary banks is particularly susceptible to being affected by enactment
of federal and state legislation which may have the effect of increasing or
decreasing the cost of doing business, modifying permissible activities, or
enhancing the competitive position of other financial institutions. In
response to various business failures in the savings and loan industry and
more recently in the banking industry, in December 1991, Congress enacted
and the President signed significant banking legislation entitled the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA").
FDICIA substantially revises the bank regulatory and funding provisions of
the Federal Deposit Insurance Act and makes revisions to several other
federal banking statutes.
Among other things, FDICIA provides increased funding for the Bank
Insurance Fund (the "BIF") of the FDIC, primarily by increasing the
authority of the FDIC to borrow from the United States Treasury Department.
It also provides for expanded regulation of depository institutions and
their affiliates. A significant portion of the borrowings would be repaid
by insurance premiums assessed on BIF members, including the Banks and
their subsidiaries. In addition, FDICIA generally mandates that the FDIC
achieve a ratio of reserves to insured deposits of 1.25 percent within the
next 15 years, also to be financed by insurance premiums. The result of
these provisions could be a significant increase in the assessment rate on
deposits of BIF members. FDICIA also provides authority for special
assessments against insured deposits. No assurance can be given at this
time as to what the future level of premiums will be.
As required by FDICIA, the FDIC adopted a transitional risk-based
assessment system for deposit insurance premiums which became effective
January 1, 1993. Under this system, depository institutions are charged
anywhere from 23 cents to 31 cents for every $100 in insured domestic
deposits, based on such institutions' capital levels and supervisory
ratings. FDICIA prohibits assessment rates from falling below the current
annual assessment rate of 23 cents per $100 of eligible deposits if the
FDIC has outstanding borrowings from the United States Treasury Department
or the 1.25 percent designated reserve ratio has not been met.
FDICIA also restricts the acceptance of brokered deposits by insured
depository institutions and contains a number of consumer banking
provisions, including disclosure requirements and substantive contractual
limitations with respect to deposit accounts.
FDICIA contains numerous other provisions, including new reporting,
examination and auditing requirements, termination of the "too big to fail"
doctrine except in special cases, limitations on the FDIC's payment of
deposits at foreign branches, and revised regulatory standards for, among
other things, real estate lending and capital adequacy.
Implementation of the various provisions of FDICIA are subject to the
adoption of regulations by the various banking agencies or to certain
phase-in periods. The effect of FDICIA on the Company and its subsidiary
banks cannot be determined until implementing regulations are adopted by
the agencies.
Regulations Applicable to Bank Subsidiaries. The Company's subsidiary banks
are state-chartered banks and subject to regulation, supervision and
regular examinations by the State of California Banking Department as well
as the FDIC. The regulations of these agencies and the FRB affect most
aspects of the banking business and prescribe permissible types of loans
and investments, requirements for branch offices, the permissible scope of
activities and various other requirements. As WAB is also a member of the
Federal Reserve System, it is subject to certain other regulations of the
FRB dealing primarily with check clearing activities, establishment of
banking reserves, truth-in-lending, truth-in-savings and equal credit
opportunity.
Capital Requirements
Risk-Based Capital Ratio. The agencies which regulate financial
institutions have adopted risk-based capital adequacy standards applicable
to financial institutions. These guidelines provide a measure of capital
adequacy and are intended to reflect the degree of risk associated with
both on and off balance sheet items, including residential loans sold with
recourse, legally binding loan commitments and standby letters of credit.
Under these regulations, financial institutions are required to maintain
capital to support activities which in the past did not require capital.
Failure to meet the minimum capital requirements established by the
regulators will result in an institution being classified as
"undercapitalized", "significantly undercapitalized", or "critically
undercapitalized".
A financial institution's risk-based capital ratio is calculated by
dividing its qualifying capital by its risk-weighted assets. Financial
institutions generally are expected to meet a minimum ratio of qualifying
total capital to risk-weighted assets of 8 percent, of which at least 4
percent of qualifying total capital must be in the form of core capital
(Tier 1), i.e., common stock, noncumulative perpetual preferred stock,
minority interests, retained earnings in equity capital accounts of
consolidated subsidiaries and allowed mortgage servicing rights less all
intangible assets other than allowed mortgage servicing rights.
Supplementary capital (Tier 2) consists of the allowance for loan losses up
to 1.25 percent of risk-weighted assets, cumulative preferred stock, term
preferred stock, hybrid capital instruments and term subordinated debt.
The maximum amount of Tier 2 capital which may be recognized for risk-based
capital purposes is limited to 100 percent of Tier 1 capital (after any
deductions for disallowed intangibles). Certain other limitations and
restrictions apply as well.
The risk-based capital ratio analysis establishes minimum supervisory
guidelines and standards. The guidelines do not currently evaluate all
factors affecting an organization's financial condition. Factors which are
not evaluated include (i) overall interest rate exposure; (ii) liquidity,
funding and market risks; (iii) quality and level of earnings; (iv)
investment or loan portfolio concentrations; (v) quality of loans and
investments; (vi) the effectiveness of loan and investment policies; and
(vii) management's overall ability to monitor and control other financial
and operating risks. FDICIA also requires the guidelines to reflect the
actual performance and expected risk of loss of multifamily mortgages.
These provisions will affect the capital positions and capital standing of
all institutions and may result in the need for increased capital.
However, the ultimate effect of FDICIA risk-based capital provisions cannot
be determined until final regulations are adopted. Until such time,
however, the capital adequacy assessment of federal bank regulators will
continue to include analysis of the foregoing elements and, in particular,
the level and severity of problem and classified assets.
Minimum Leverage Ratio. The FDIC and the FRB have also adopted a 3 percent
minimum leverage ratio which is intended to supplement risk-based capital
requirements and to ensure that all financial institutions, even those that
invest predominantly in low risk assets, continue to maintain a minimum
level of Tier 1 capital. A financial institution's minimum leverage ratio
is determined by dividing its Tier 1 capital by its quarterly average total
assets, less intangibles not includable in Tier 1 capital.
Under the guidelines, a minimum leverage ratio of 3 percent is required for
institutions which have been determined to be in the highest of five
categories used by regulators to rate financial institutions. All other
organizations are required to maintain leverage ratios of at least 100 to
200 basis points above the 3 percent minimum. It is improbable, however,
that an institution with a 3 percent leverage ratio would be rated in the
highest category since a strong capital position is also a requirement for
the highest rating. Therefore, the "minimum" leverage ratio is, for all
practical purposes, significantly above 3 percent.
The leverage ratio establishes a limit on the ability of banking
organizations, including the Company, to increase assets and liabilities
without increasing capital proportionately. The Company's Management
believes that conformance with the leverage ratio will not have an adverse
effect on the operations of the Company or require it to raise additional
capital in the foreseeable future.
New Capital Standards. FDICIA requires the federal banking regulators to
take "prompt corrective action" with respect to banks that do not meet
minimum capital requirements. In response to this requirement, the FDIC
and the FRB participated in the adoption of final rules based upon
FDICIA's five capital tiers. These rules provide that an institution is
"well capitalized" if its risk-based capital ratio is 10 percent or
greater; its Tier 1 risk-based capital ratio is 6 percent or greater; its
leverage ratio is 5 percent or greater; and the institution is not subject
to a capital directive. A bank is "adequately capitalized" if its
risk-based capital ratio is 8 percent or greater; its Tier 1 risk-based
capital ratio is 4 percent or greater; and its leverage ratio is 4 percent
or greater (3 percent or greater for one rated institutions). An
institution is considered "undercapitalized" if its risk-based capital
ratio is less than 8 percent; its Tier 1 risk-based capital ratio is less
than 4 percent; or its leverage ratio is 4 percent or less. An institution
is "significantly undercapitalized" if its risk-based capital ratio is less
than 6 percent; its Tier 1 risk-based capital ratio is less than 3 percent;
or its leverage ratio is less than 3 percent. A bank is deemed to be
"critically undercapitalized" if its ratio of tangible equity (Tier 1
capital) to total assets is equal to or less than 2 percent. An
institution may be deemed to be in a capitalization category that is lower
than is indicated by its actual capital position if it engages in unsafe or
unsound banking practices.
No sanctions apply to institutions which are well capitalized. Adequately
capitalized institutions are prohibited from accepting brokered deposits
without the consent of the primary regulator. Undercapitalized
institutions are required to submit a capital restoration plan for
improving capital. In order to be accepted, such plan must include a
financial guaranty from the institution's holding company that the
institution will return to capital compliance. If such a guarantee were
deemed to be a commitment to maintain capital under the Federal Bankruptcy
Code, a claim for a subsequent breach of the obligations under such
guarantee in a bankruptcy proceeding involving the holding company would be
entitled to a priority over third party general unsecured creditors of the
holding company. Undercapitalized institutions are prohibited from making
capital distributions or paying management fees to controlling persons; may
be subject to limitations pertaining to growth; and are restricted from
acquisitions, branching and entering into new lines of business. Finally,
the institution's regulatory agency has discretion to impose certain of the
restrictions generally applicable to significantly undercapitalized
institutions.
In the event an institution is deemed to be significantly undercapitalized,
it may be required to: sell stock; merge or be acquired; restrict
transactions with affiliates including restrictions on payment of
dividends; restrict interest rates paid; divest a subsidiary; or dismiss
specified directors or officers. If the institution is a bank holding
company, it may be prohibited from making any capital distributions without
prior approval of the FRB and may be required to divest a subsidiary. A
critically undercapitalized institution is generally prohibited from making
payments on subordinated debt and may not, without the approval of the
FDIC, enter into a material transaction other than in the ordinary course
of business; engage in any covered transaction; or pay excessive
compensation or bonuses. Critically undercapitalized institutions are
subject to appointment of a receiver or conservator.
As of December 31, 1994, the Company was in compliance with applicable
capital and risk-based capital ratio requirements.
ITEM 2. Descrpition of Property
Branch Offices and Facilities
The Banks are engaged in the banking business through 48 offices in eleven
counties in Northern California, including eleven offices in Marin County,
nine in Sonoma County, seven in Solano County, seven in Napa County, three
in Contra Costa County, four in Lake County, two in Mendocino County, two
in Nevada County, one in Sacramento County, one in San Francisco County and
one in Placer County. All offices are constructed and equipped to meet
prescribed security requirements.
The Banks own fifteen banking office locations and three administrative
buildings, including the Company's headquarters. Thirty-three banking
offices and two support facilities are leased. Substantially all of the
leases contain multiple five-year renewal options and provisions for rental
increase, principally for changes in the cost of living index, property
taxes and maintenance.
ITEM 3. Legal Proceedings
The Company and its subsidiaries are defendants in various legal actions
which, in the opinion of management based on discussions with independent
legal counsel, will be resolved with no material effect on the Company's
consolidated results of operations or financial position.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the shareholders during the fourth
quarter of 1994.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is traded on the NASDAQ National Market Exchange
(NASDAQ) under the symbol "WABC". The following table shows the high and
low closing price for the common stock, for each quarter, as reported by
NASDAQ, previously reported on the American Stock Exchange.
Period High Low
1994
--------------------------------------------------------------
First quarter ........................... $29.25 $25.88
Second quarter ........................... 32.50 27.00
Third quarter ........................... 33.25 29.25
Fourth quarter ........................... 33.25 29.00
1993
--------------------------------------------------------------
First quarter ........................... $30.25 $22.13
Second quarter ........................... 28.75 23.88
Third quarter ........................... 28.50 25.13
Fourth quarter ........................... 28.50 25.75
As of December 31, 1994, there were 5,101 holders of record of the
Company's common stock. This number does not include Napa Valley Bancorp.
stockholders that as of December 31, 1994 had not yet tendered their
shares for conversion to Company Common Stock.
The Company has paid cash dividends on its common stock in every quarter
since commencing operations on January 1, 1973, and 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 the earnings,
financial condition and capital requirements of the Company and its
subsidiaries. Furthermore, the Company's ability to pay future dividends is
subject to contractual restrictions under the terms of the note
agreement, as discussed in Note 6 to the Consolidated Financial
Statements. Under the most restrictive of these contractual provisions,
$24.4 million of retained earnings was available for the payment of
dividends at December 31, 1994. Limitations of the Company's ability to
pay dividends is discussed in Note 15 to the Consolidated Financial
Statements on page 58 of this report.
Additional information (required by Item 5) regarding the amount of cash
dividends declared on common stock for the two most recent fiscal years is
discussed in Note 17 to the consolidated financial statements on page 61
of this report.
As discussed in Note 7 of the notes to the consolidated financial
statements, in December 1986, the Company declared a dividend distribution
of one common share purchase right (a "Right") for each outstanding share
of common stock. The terms of the Rights were amended and restated on
September 28, 1989. On March 23, 1995, the Board of Directors of the
Company approved a further amendment and restatement of the Rights. Among
other things, the amendments approved on that date included a provision to
the effect that, after an acquisition of 15 percent of the Company's common
stock without the prior consent of the Company, the Board of Directors will
have the power to cause each Right to be exchanged for one share of common
stock of the Company.
ITEM 6. Selected Financial Data
Financial Summary
(In thousands, except per share data and number of shareholders)
----------------------------------------------------------------------------------------------------
Years ended December 31 1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------------------
Interest income $134,238 $136,916 $154,753 $176,552 $187,550
Interest expense 41,115 42,271 58,892 87,357 98,653
----------------------------------------------------------------------------------------------------
Net interest income 93,123 94,645 95,861 89,195 88,897
Provision for loan losses 5,880 9,452 7,005 10,418 8,138
Non-interest income 19,421 23,946 23,827 23,976 22,339
Non-interest expense 71,123 96,645 89,604 84,943 81,641
----------------------------------------------------------------------------------------------------
Income before income taxes 35,541 12,494 23,079 17,810 21,457
Provision for income taxes 10,868 3,039 7,857 5,833 6,838
----------------------------------------------------------------------------------------------------
Net income $24,673 $9,455 $15,222 $11,977 $14,619
====================================================================================================
Per share:
Net income $3.06 $1.17 $ 1.92 $1.52 $1.89
Dividends declared .64 .57 .51 .44 .41
Book value at December 31 20.65 18.87 17.96 16.49 15.44
Average common
shares outstanding 8,074 8,054 7,933 7,855 7,736
Shares outstanding
at December 31 8,048 8,080 8,000 7,847 7,758
Estimated number of shareholders
at December 31 7,255 7,351 7,595 7,940 8,069
----------------------------------------------------------------------------------------------------
At December 31 1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 112,401 $102,618 $139,497 $124,136 $128,813
Investment securities and
money market assets 759,589 726,136 571,602 517,394 435,033
Loans, net 1,076,171 1,089,152 1,166,205 1,242,108 1,277,417
Other assets 82,074 86,513 104,045 82,443 79,142
-----------------------------------------------------------------------------------------------------
Total assets $2,030,235 $2,004,419 $1,981,349 $1,966,081 $1,920,405
=====================================================================================================
Non-interest
bearing deposits $381,354 $369,820 $323,719 $283,594 $285,336
Interest bearing deposits 1,307,526 1,361,408 1,466,199 1,505,707 1,437,763
Other liabilities 175,150 120,744 47,757 47,360 77,495
Shareholders' equity 166,205 152,447 143,674 129,420 119,811
-----------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $2,030,235 $2,004,419 $1,981,349 $1,966,081 $1,920,405
=====================================================================================================
Financial Ratios
For the year:
Return on assets 1.21% .48% .77% .62% .77%
Return on equity 15.59 6.51 11.16 9.52 12.87
Net interest margin (FTE)* 5.31 5.48 5.50 5.21 5.30
Net loan losses to
average loans .36 .69 .50 .44 .39
At December 31:
Equity to assets 8.19 7.61 7.25 6.58 6.24
Total capital to
risk-adjusted assets 15.32 14.40 12.01 10.82 10.55
Loan loss reserve
to loans 2.50 2.30 2.08 1.88 1.47
[FN]
*Fully taxable equivalent
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 (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 36 through
62, as well as with the other information presented throughout the report.
All data presented for 1992 include the April 15, 1993 acquisition of Napa
Valley Bancorp.
The Company achieved record earnings of $24.7 million in 1994, representing
a 161 percent increase from the $9.5 million earned in 1993 and 62 percent
higher than 1992 earnings of $15.2 million. The reduced level of earnings
in 1993 was mostly due to $10.5 million in after-tax charges resulting from
the April 15, 1993 merger with Napa Valley Bancorp (the "Merger"), that
were taken in the form of asset write-downs, an additional loan loss
provision and other merger-related charges. The asset write-downs and the
additional loan loss provision reflect the Company's plan of non-performing
asset resolution.
Components of Net Income
-----------------------------------------------------------------------
(Percent of average earning assets) 1994 1993 1992
-----------------------------------------------------------------------
Net interest income* 5.31% 5.48% 5.50%
Provision for loan losses (.32) (.53) (.39)
Non-interest income 1.05 1.34 1.33
Non-interest expense (3.84) (5.43) (5.00)
Taxes* (.87) (.33) (.59)
-----------------------------------------------------------------------
Net income 1.33% .53% .85%
=======================================================================
Net income as a percentage of
average total assets 1.21% .48% .77%
=======================================================================
* Fully taxable equivalent (FTE)
On a per share basis, 1994 net income was $3.06, compared to $1.17 and
$1.92 in 1993 and 1992, respectively. During 1994, the Company continued to
benefit from reductions in cost of funds and expense controls which offset
declines in non-interest income. Earnings in 1993 were favorably affected
compared to 1992 by reductions in cost of funds, increases in service fees
and other non-interest income, and expense controls. However,
merger-related costs more than offset those benefits. The Company's return
on average total assets was 1.21 percent in 1994, compared to .48 percent
and .77 percent in 1993 and 1992, respectively. Return on average equity in
1994 was 15.59 percent, compared to 6.51 percent and 11.16 percent,
respectively, in the two previous years.
Net Interest Income
Due to increases in the level of average earning assets and a more
favorable composition of deposits represented by increasing volumes of
lower-costing demand and savings account balances and a reduction in the
volumes of higher costing time deposits, the Company was able to generate
higher net interest income (FTE) in 1994 when compared to 1993. However,
net interest income (FTE) was still slightly lower than 1992. Continuing
decreases in higher-yielding loan volumes and the growth of the
lower-yielding investment securities portfolio more than offset the effect
of increasing market interest rates and the Company's containment of rates
paid on interest-bearing liabilities, resulting in a lower net interest
margin for 1994.
Components of Net Interest Income
--------------------------------------------------------------------
(In millions) 1994 1993 1992
--------------------------------------------------------------------
Interest income $ 134.2 $ 137.0 $ 154.8
Interest expense (41.1) (42.3) (58.9)
FTE adjustment 5.3 2.8 2.7
--------------------------------------------------------------------
Net interest income (FTE) $ 98.4 $ 97.5 $ 98.6
====================================================================
Average earning assets $1,851.9 $1,779.3 $1,793.8
Net interest margin (FTE) 5.31% 5.48% 5.50%
====================================================================
Net interest income (FTE) in 1994 increased $900,000 from 1993 to $98.4
million. Interest income decreased $2.8 million from 1993, as a result of
the combined effect of a 32 basis point decline in earning-asset yields
partially offset by a $72.6 million increase in average balances. During
1994, increases in the balance of tax-exempt municipal securities resulted
in an FTE adjustment $2.5 million higher than 1993. Interest expense
decreased $1.2 million from 1993, the result of a decrease of 11 basis
points in rates paid partially offset by an increase of $11.8 million in
the average balance of interest-bearing liabilities.
Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present, for the periods indicated, information
regarding the consolidated average assets, liabilities and shareholders'
equity, the amounts of interest income from average earning assets and the
resulting yields, and the amount of interest expense paid on
interest-bearing liabilities. Average loan balances include non-performing
loans. Interest income includes proceeds from loans on non-accrual status
only to the extent cash payments have been received and applied as interest
income. Yields on securities and certain loans have been adjusted upward
to reflect the effect of income thereon exempt from federal income
taxation at the current statutory tax rate. Amortized loan fees, which are
included in interest and fee income on loans were $1.2 million lower in
1994 than in 1993 and $1.5 million lower in 1993 than in 1992.
Distribution of Average Assets, Liabilities and Shareholders' equity
Yield/Rates and Interest Margin
-----------------------------------------------------------------------
(In thousands) 1994
-----------------------------------------------------------------------
Interest Rates
Average income/ earned/
balance expense paid
-----------------------------------------------------------------------
Assets
Money market assets and funds sold $ 250 $ -- -- %
Trading account securities 37 2 4.24
Investment securities 763,360 45,711 5.99
Loans:
Commercial 593,548 52,777 8.89
Real estate construction 37,968 3,890 10.24
Real estate residential 178,946 12,566 7.02
Consumer 277,780 24,583 8.85
---------------------------------------------------------------
Earning assets 1,851,889 139,529 7.53
Other assets 187,012
-------------------------------------------------------
Total assets $2,038,901
=======================================================
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $ 359,768 $ -- -- %
Savings and interest-bearing
transaction 970,592 18,785 1.94
Time less than $100,000 282,530 11,034 3.91
Time $100,000 or more 97,928 3,545 3.62
---------------------------------------------------------------
Total interest-bearing deposits 1,351,050 33,364 2.47
Funds purchased 126,225 5,139 4.17
Notes and mortgages payable 29,690 2,612 8.80
---------------------------------------------------------------
Total interest-bearing liabilities 1,506,965 41,115 2.73
Other liabilities 13,887
Shareholders' equity 158,281
-------------------------------------------------------
Total liabilities and shareholders' equity $2,038,901
=======================================================
Net interest spread (1) 4.80 %
Net interest income and interest margin (2) $98,414 5.31 %
=======================================================================
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on
interest-bearing liabilities.
(2) Net interest margin is computed by dividing net interest
income by total average earning assets.
Distribution of Average Assets, Liabilities and Shareholders' equity
Yield/Rates and Interest Margin
----------------------------------------------------------------------
(in thousands) 1993
-----------------------------------------------------------------------
Interest Rates
Average income/ earned/
balance expense paid
-----------------------------------------------------------------------
Assets
Money market assets and funds sold $ 4,463 $ 170 3.80 %
Trading account securities 183 6 3.14
Investment securities 631,700 39,794 6.30
Loans:
Commercial 615,981 53,990 8.76
Real estate construction 55,038 4,745 8.62
Real estate residential 168,379 13,322 7.91
Consumer 303,567 27,726 9.13
---------------------------------------------------------------
Earning assets 1,779,311 139,753 7.85
Other assets 200,561
-------------------------------------------------------
Total assets $1,979,872
=======================================================
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $ 330,867 $ -- -- %
Savings and interest-bearing
transaction 938,475 19,305 2.06
Time less than $100,000 340,122 14,176 4.17
Time $100,000 or more 135,505 4,837 3.57
---------------------------------------------------------------
Total interest-bearing deposits 1,414,102 38,318 2.71
Funds purchased 57,135 1,937 3.39
Notes and mortgages payable 17,959 2,016 11.22
---------------------------------------------------------------
Total interest-bearing liabilities 1,489,196 42,271 2.84
Other liabilities 14,652
Shareholders' equity 145,157
-------------------------------------------------------
Total liabilities and shareholders' equity $1,979,872
=======================================================
Net interest spread (1) 5.01 %
Net interest income and interest margin (2) $97,482 5.48 %
=======================================================================
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on
interest-bearing liabilities.
(2) Net interest margin is computed by dividing net interest
income by total average earning assets.
Distribution of Average Assets, Liabilities and Shareholders' equity
Yield/Rates and Interest Margin
------------------------------------------------------------------------
(in thousands) 1992
------------------------------------------------------------------------
Interest Rates
Average income/ earned/
balance expense paid
-----------------------------------------------------------------------
Assets
Money market assets and funds sold $ 42,964 $ 1,765 -- %
Trading account securities 103 4 3.67
Investment securities 534,793 40,332 7.54
Loans:
Commercial 646,359 60,050 9.29
Real estate construction 76,173 7,058 9.27
Real estate residential 168,030 15,314 9.11
Consumer 325,393 33,003 10.14
---------------------------------------------------------------
Earning assets 1,793,815 157,526 8.78
Other assets 175,609
-------------------------------------------------------
Total assets $1,969,424
=======================================================
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $ 284,366 $ -- -- %
Savings and interest-bearing
transaction 903,211 26,518 2.94
Time less than $100,000 406,161 20,948 5.16
Time $100,000 or more 184,799 8,365 4.53
---------------------------------------------------------------
Total interest-bearing deposits 1,494,171 55,831 3.74
Funds purchased 15,729 698 4.44
Notes and mortgages payable 20,439 2,363 11.56
---------------------------------------------------------------
Total interest-bearing liabilities 1,530,339 58,892 3.85
Other liabilities 18,263
Shareholders' equity 136,456
-------------------------------------------------------
Total liabilities and shareholders' equity $1,969,424
=======================================================
Net interest spread (1) 4.93 %
Net interest income and interest margin (2) $98,634 5.50 %
=======================================================================
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on
interest-bearing liabilities.
(2) Net interest margin is computed by dividing net interest
income by total average earning assets.
Rate and volume variances
The following table sets forth a summary of the changes in interest income
and interest expense from changes in average assets and liability balances
(volume) and changes in average interest rates for the periods indicated.
Changes not solely attributable to volume or rates have been allocated in
proportion to the respective volume and rate components.
(In thousands) For the years ended December 31,
------------------------------------------------------------------------------------------------------------
1994 compared with 1993 1993 compared with 1992
--------------------------- ----------------------------
Volume Rate Total Volume Rate Total
-------------------------------------------------------------- -----------------------------
Increase (decrease) in
interest and fee income:
MMkt. assets and funds sold $ (83) ($ 87) ($170) $(1,473) $ (122) ($1,595)
Trading account securities (7) 3 (4) 2 (-) 2
Investment securities 7,756 (1,839) 5,917 (5,899) 5,361 (538)
Loans:
Commercial (2,014) 801 (1,213) (2,750) (3,310) (6,060)
Real estate construction (2,176) 1,321 (855) (1,849) (464) (2,313)
Real estate residential 955 (1,711) (756) 32 (2,024) (1,992)
Consumer (2,302) (841) (3,143) (2,125) (3,152) (5,277)
-------------------------------------------------------------- -------------------------------------
Total loans (5,537) (430) (5,967) (6,692) (8,950) (15,642)
-------------------------------------------------------------- -------------------------------------
Total decrease in interest
and fee income 2,129 (2,353) (224) ($14,062) ($3,711) ($17,773)
-------------------------------------------------------------- -------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-
bearing deposits 714 (1,234) (520) 1,082 (8,295) (7,213)
Time less than $ 100,000 (2,290) (852) (3,142) (3,106) (3,666) (6,772)
Time $ 100,000 or more (1,361) 69 (1,292) (1,968) (1,560) (3,528)
-------------------------------------------------------------- -------------------------------------
Total interest-bearing (2,937) (2,017) (4,954) (3,992) (13,521) (17,513)
Funds purchased 2,746 456 3,202 1,361 (122) 1,239
Notes and mortgages payable 890 (294) 596 (280) (67) (347)
-------------------------------------------------------------- -------------------------------------
Total (decrease) increase in
interest expense 699 (1,855) (1,156) (2,911) (13,710) (16,621)
-------------------------------------------------------------- -------------------------------------
Increase (decrease) in
net interest income $1,430 ($498) $932 ($11,151) $9,999 ($1,152)
============================================================== =====================================
[FN]
(1) Amounts calculated on a fully taxable equivalent basis using the current
statutory federal tax rate.
Provision for Loan Losses
The level of the provision for loan losses reflects the Company's
continuing efforts to improve loan quality by enforcing strict underwriting
and administration procedures and aggressively pursuing collection efforts
with troubled debtors. The provision for loan losses was $5.9 million for
1994, compared to $9.5 million in 1993 and $7.0 million in 1992. The 1993
provision included a $3.1 million merger-related provision, reflecting an
aggressive workout strategy for problem loans and properties acquired in
the Merger. For further information regarding net credit losses and the
reserve for loan losses, see the "Asset Quality" section of this report.
Investment Portfolio
The Company maintains a securities portfolio consisting of U.S. Treasury,
U.S. Government Agencies and Corporations, State and political
subdivisions, asset-backed and other securities. Investment securities are
held in safekeeping by an independent custodian. In May 1993, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No.115"). The statement addresses the accounting and
reporting for investments in equity securities that have a readily
determinable fair value and for all investments in debt securities. The
statement requires that all securities be classified, at acquisition, into
one of three categories: held to maturity, available for sale, and trading.
In classifying securities as being held to maturity, available for sale or
trading, the Banks consider their collateral needs, asset/liability
management strategies, liquidity needs, interest rate sensitivity and other
factors that will determine the intent and ability to hold the securities
to maturity. SFAS No. 115 was effective for fiscal years beginning after
December 15, 1993.
The objective of the investment securities held to maturity is to
strengthen the portfolio yield, and to provide collateral to pledge for
federal, state and local government deposits and other borrowing
facilities. The investments held to maturity had an average term to
maturity of 43 months at December 31, 1994 and, as of the same date, those
investments included $594.8 million in fixed rate and $3.9 million in
adjustable rate securities.
Investment securities available for sale are typically used to supplement
the Banks' liquidity. Unrealized net gains and losses on these securities
are recorded as an adjustment to equity net of taxes, and are not reflected
in the current earnings of the Company. If the security is sold, any gain or
loss is recorded as a charge to earnings and the equity adjustment is
reversed. At December 31, 1994, the Banks held $160.6 million classified as
investments available for sale. At December 31, 1994, a net unrealized loss
of $1.8 million net of taxes of $1.2 million related to these securities
was held in stockholders' equity.
The Company had no trading securities at December 31, 1994.
For more information on investment securities, see Notes 1 and 2 to the
consolidated financial statements.
The following table shows the amortized cost of the Company's investment
securities as of the dates indicated:
-----------------------------------------------------------
December 31,
(in thousands) 1994 1993 1992
-----------------------------------------------------------
U.S. Treasury $241,322 $245,586 $126,522
U.S. government agencies
and corporations 256,133 254,635 237,753
States and political
subdivisions (domestic) 198,135 127,302 87,031
Asset backed securities 37,162 65,433 82,270
Other securities 29,632 28,529 36,660
-----------------------------------------------------------
Total $762,384 $721,485 $570,236
===========================================================
The following table is a summary of the relative maturities and
yields of the Company's investment securities as of December 31,
1994. Weighted average yields have been computed by dividing annual
interest income, adjusted for amortization of premium and accretion
of discount, by the book value of the related securities. Yields on
state and political subdivision securities have been calculated on
a fully taxable equivalent basis using the federal tax rate of 35
percent.
After one but After five but
(in thousands) Within one within five within ten After
year years years ten years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
--------------------------------------------------------------------------------------------------------------------------
Investment securities available for sale
----------------------------------------
U.S. Treasury $15,304 5.37% $ 66,574 5.99% $ - -% $ - -% $81,878 5.87%
U.S. Government Agencies
and Corporations 2,002 6.20% 13,179 6.14% - -% 38,644 5.82% 53,825 5.91%
States and Political
Subdivisions 9,423 6.72% - -% - -% - -% 9,423 6.72%
Asset backed - - -% - -% - -% -
Other 8,503 7.59% 10,025 6.54% - -% - -% 18,528 7.02%
--------------------------------------------------------------------------------------------------------------------------
Total $35,232 6.32% $ 89,778 6.07% $ - -% $ 38,644 3.82% $163,654 6.07%
==========================================================================================================================
Investment securities held to maturity
--------------------------------------
U.S. Treasury $21,084 4.08% $138,360 4.92% $ - -% $ - -% $159,444 4.81%
U.S. Government Agencies
and Corporations - -% 52,245 5.52% 77,912 5.49% 72,151 5.65% 202,308 5.55%
States and Political
Subdivisions 4,496 9.12% 24,744 8.25% 43,037 8.06% 116,435 8.14% 188,712 8.16%
Asset backed - -% 37,162 5.11% - -% - -% 37,162 5.11%
Other 6,700 6.00% 2,911 6.91% - -% 1,493 6.00% 11,104 6.24%
--------------------------------------------------------------------------------------------------------------------------
Total $32,280 5.18% $255,422 5.42% $120,949 6.40% $190,079 7.18% $598,730 6.16%
==========================================================================================================================
Loan Portfolio
The following table shows the composition of loans of the Company by
type of loan or type of borrower, on the dates indicated.
Composition of the loan portfolio
1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------
Commercial and
commercial real estate $ 605,245 $ 612,756 $ 635,895 $ 667,082 $ 670,364
Real estate construction 27,278 40,533 63,886 89,946 122,988
Real estate residential 193,061 172,245 175,834 163,938 148,460
Consumer 292,735 304,993 334,215 364,276 377,112
Unearned income (14,548) (15,788) (18,883) (19,281) (22,504)
--------------------------------------------------------------------------------------------
Gross loans $1,103,771 $1,114,739 $1,190,947 $1,265,961 $1,296,420
Reserve for loan losses (27,600) (25,587) (24,742) (23,853) (19,001)
--------------------------------------------------------------------------------------------
Net loans $1,076,171 $1,089,152 $1,166,205 $1,242,108 $1,277,419
============================================================================================
Maturities and Sensitivity of Selected Loans to Changes in Interest Rates
The following table shows the maturity distribution and
interest rate sensitivity of Commercial and Real estate
construction loans at December 31, 1994.*
Within One to After
one year five years five years Total
---------------------------------------------------------------------------------
Commercial and Commercial
real estate** $349,444 $91,367 $164,434 $605,245
Real estate construction 25,542 1,736 0 27,278
---------------------------------------------------------------------------------
Total $374,986 $93,103 $164,434 $632,523
=================================================================================
Loans with fixed interest rates $ 31,060 $93,103 $164,434 $288,597
Loans with floating interest rates 343,926 0 0 343,926
---------------------------------------------------------------------------------
Total $374,986 $93,103 $164,434 $632,523
=================================================================================
[FN]
* Excludes loans to individuals and residential mortgages totaling
$471,248. These types of loans are typically paid in monthly
installments over a number of years.
**Includes demand loans
Commitments and Lines of Credit
It is not the policy of the Company to issue formal commitments on lines of
credit except to a limited number of well established and financially
responsible local 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 customer's
particular business transaction. Commitment fees generally are not charged
except where Letters of Credit are involved. Commitments and lines of
credit typically mature within one year. See also Note 12 of the
consolidated notes to the financial statements.
Asset Quality
The Company closely monitors the markets in which it conducts its lending
operations. The Company continues its strategy to control its exposure to
loans with higher credit risk and increase diversification of earning
assets into less risky investments. Asset reviews are performed using
grading standards and criteria similar to those employed by bank regulatory
agencies. Assets receiving lesser grades fall under the "classified assets"
category which includes all non-performing assets and potential problem
loans. These lesser grades occur when known information about possible
credit problems causes doubts about the ability of such borrowers to comply
with loan repayment terms. These loans have varying degrees of uncertainty
and may become non-performing assets. Classified assets receive an elevated
level of attention by Management to ensure collection. Total classified
assets peaked during the second quarter of 1993 as a result of the Merger
but declined significantly to $63.6 million by December 31, 1993, mainly
due to improvements in the Napa Valley Bank classified asset portfolio.
Continuing write-downs, loan collections, real estate liquidations and
restructuring reflecting the Company's workout strategy, resulted in
classified assets of $46.5 million at December 31, 1994, a decrease of
$17.1 million, or 27 percent, from the previous year end.
Non-Performing Assets
Non-performing assets include non-accrual loans, loans 90 or more days past
due and still accruing, other real estate owned and loans classified as
substantively foreclosed. Loans are placed on non-accrual status upon
reaching 90 days or more delinquent, unless the loan is well secured and in
the process of collection. Interest previously accrued on loans placed on
non-accrual status is charged against interest income. Loans secured by
real estate with temporarily impaired values and commercial loans to
borrowers experiencing financial difficulties are placed on non-accrual
status even though the borrowers continue to repay the loans as scheduled.
Such loans are classified by Management as "performing non-accrual" and are
included in total non-performing assets.
Performing non-accrual loans are reinstated to accrual status when
improvements in credit quality eliminate the doubt as to the full
collectibility of both interest and principal and the loan is brought
current. When the ability to fully collect non-accrual loan principal is in
doubt, cash payments received are applied against the principal balance of
the loans until such time as full collection of the remaining recorded
balance is expected. Any additional payments received after that point are
recorded as interest income on a cash basis.
Non performing assets
------------------------------------------------------------------------------------
(in millions) 1994 1993 1992 1991 1990
------------------------------------------------------------------------------------
Performing non-accrual loans $ 2.0 $ 1.9 $ 1.1 $ 2.2 $16.0
Non-performing non-accrual loans 5.1 7.2 14.9 37.7 9.3
------------------------------------------------------------------------------------
Total non-accrual loans 7.1 9.1 16.0 39.9 25.3
Loans 90 or more days past due
and still accruing 0.4 0.3 0.1 1.0 6.2
Loan collateral substantively
foreclosed -- 5.4 16.6 7.1 6.0
Other real estate owned 7.4 12.5 17.9 4.9 2.7
------------------------------------------------------------------------------------
Total non-performing assets $14.9 $27.3 $50.6 $52.9 $40.2
====================================================================================
Reserve for loan losses as a
percentage of non-accrual loans
and loans 90 or more past
due and still accruing 369% 272% 153% 58% 60%
Performing non-accrual loans increased $100,000 to $2.0 million at December
31, 1994 while non-performing non-accrual loans decreased $2.1 million to
$5.1 million at December 31, 1994, due to loan collections, write-downs and
foreclosure of loan collateral. The amount of gross interest income that
would have been recorded for non-accrual loans for the year ended December
31, 1994, if all such loans had been current in accordance with their
original terms while outstanding during the period was $814,000. The amount
of interest income that was recognized on non-accrual loans from cash
payments made during the year ended December 31, 1994 totaled $386,000,
representing an annualized yield of 4.39 percent. Cash payments received
which were applied against the book balance of performing and
non-performing non-accrual loans outstanding at December 31, 1994, totaled
$248,000 compared to $534,000 in 1993. Of the $5.4 million loan collateral
substantively foreclosed at December 31, 1993, a total of $415,000 was
reclassified as non-accrual loans at December 31, 1994 and the rest was
either foreclosed or liquidated. The declining OREO balance during 1994 and
1993 is due to asset write-downs and liquidations.
Summary of non-accrual loans
(In thousands)
--------------------------------------------------------------------------------------------------------
December 31, 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------
Performing non-accrual loans $1,943 $1,855 $1,083 $2,227 $9,281
Non-performing non-accrual loans 5,126 7,215 14,856 37,665 4,832
--------------------------------------------------------------------------------------------------------
Total non-accrual loans $7,069 $9,070 $15,939 $39,892 $14,113
Performing non-accrual loans
Commercial 1,761 1,126 1,009 2,227 4,291
Real estate construction 156 729 -- -- 4,961
Real estate residential -- -- 74 -- --
Consumer 26 -- -- -- 29
--------------------------------------------------------------------------------------------------------
Total performing non-accrual loans 1,943 1,855 1,083 2,227 9,281
Non-performing non-accrual loans
Commercial 3,484 4,373 13,575 19,277 3,639
Real estate construction 1,247 2,106 573 17,305 7,500
Real estate residential 252 197 481 796 4,455
Consumer 143 539 227 287 411
--------------------------------------------------------------------------------------------------------
Total non-performing non-accrual loans 5,126 7,215 14,856 37,665 16,005
--------------------------------------------------------------------------------------------------------
Total non-accrual loans $7,069 $9,070 $15,939 $39,892 $25,286
========================================================================================================
The Company's reserve for loan losses is maintained at a level estimated
by Management to be adequate to provide for losses that can be reasonably
anticipated based upon specific conditions as determined by Management,
credit loss experience, the amount of past due and non-performing loans,
recommendations of regulatory authorities, prevailing economic conditions
and other factors. The reserve is allocated to segments of the loan
portfolio based in part on quantitative analysis of historical credit loss
experience. Criticized and classified loan balances are analyzed using a
linear regression model or standard allocation percentages. The results of
this analysis are applied to current criticized and classified loan
balances to allocate the reserve to the respective segments of the loan
portfolio. In addition, loans with similar characteristics not usually
criticized using regulatory guidelines due to their small balances and
numerous accounts, are analyzed based on the historical rate of net losses
and delinquency trends grouped by the number of days the payments on those
loans are delinquent. While these factors are essentially judgmental and
may not be reduced to a mathematical formula, Management considers the
$27.6 million reserve for loan losses, which constituted 2.50 percent of
total loans at December 31, 1994, to be adequate as a reserve against
inherent losses. Management continues to evaluate the loan portfolio and
assess current economic conditions that will dictate future reserve levels.
The following table summarizes the loan loss experience of the Company for
the periods indicated:
Loan loss experience
(In thousands)
--------------------------------------------------------------------------------------------------------
December 31, 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------
Total loans outstanding $1,103,771 $1,114,739 $1,190,947 $1,265,961 $1,296,420
Average loans outstanding during the period 1,088,242 1,142,965 1,215,955 1,276,098 1,306,992
Analysis of the reserve:
Balance, beginning of period $25,587 $24,742 $23,852 $19,001 $15,960
Credit losses:
Commercial, commercial real estate (2,646) (5,560) (4,081) (4,770) (5,647)
Real estate construction (747) (1,908) (1,657) (50) --
Real estate residential -- (66) -- -- --
Consumer (2,528) (2,557) (3,055) (4,320) (4,542)
--------------------------------------------------------------------------------------------------------
Total (5,921) (10,091) (8,793) (9,140) (10,189)
Credit loss recoveries:
Commercial, commercial real estate 811 972 1,105 878 2,551
Real estate construction -- -- -- -- 239
Real estate residential -- -- 18 -- --
Consumer 1,243 1,196 1,555 2,695 2,302
--------------------------------------------------------------------------------------------------------
Total 2,054 2,168 2,678 3,573 5,092
--------------------------------------------------------------------------------------------------------
Net credit losses (3,867) (7,923) (6,115) (5,567) (5,097)
Sale of Sonoma Valley Bank -- (684) -- -- --
Additions to the reserve charged to
operating expense 5,880 9,452 7,005 10,418 8,138
--------------------------------------------------------------------------------------------------------
Balance, end of period $27,600 $25,587 $24,742 $23,852 $19,001
========================================================================================================
Net credit losses to average loans 0.36% 0.69% 0.50% 0.44% 0.39%
Reserve for loan losses as a percentage
of loans outstanding 2.50% 2.30% 2.08% 1.88% 1.47%
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement No. 114, "Accounting by Creditors for Impairment of a Loan"
("SFAS 114"), which addresses the accounting treatment of certain impaired
loans and amends FASB Statements No. 5 and No. 15. In October, 1994, the
FASB issued statement No. 118, "Accounting by Creditors for Impairment of a
Loan" Income Recognition and Disclosures" ("SFAS 118"), which amends the
income recognition and disclosure provisions of SFAS 114. SFAS 114 and SFAS
118 are effective January 1, 1995.
Under SFAS 114, a loan is considered impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. Under SFAS 114, impairment may be measured based on the present
value of the expected future cash flows discounted at the loan's effective
interest rate. Alternatively, impairment may be measured by using the
loan's observable market price or the fair value of the collateral if
repayment is expected to be provided solely by the underlying collateral.
The Company will implement SFAS 114, as amended by SFAS 118, in January,
1995. Management believes that the adoption of this pronouncement will not
significantly impact the Company's financial statements.
The following tables present the allocation of the loan loss reserve
balance on the dates indicated:
Allocation of the loan loss reserve:
-----------------------------------------------------------------------------------
December 31,
----------------------------------------------
1994 1993
---------------------- ----------------------
Allocation Loans as Allocation Loans as
of reserve percent of of reserve percent of
balance total loans balance total loans
---------- ----------- ---------- -----------
Type of loan
Commercial $10,705 54.8% $12,537 55.0%
Real estate construction 1,987 2.5 2,538 3.6
Real estate residential 47 17.5 85 15.5
Consumer 3,765 25.2 3,921 25.9
Unallocated portion of the reserve 11,096 - 6,506 -
----------------------------------------------------------------------------------
Total $27,600 100.0% $25,587 100.0%
==================================================================================
----------------------------------------------------------------------------------
December 31,
---------------------------------------------
1992 1991
--------------------- ---------------------
Allocation Loans as Allocation Loans as
of reserve percent of of reserve percent of
balance total loans balance total loans
--------- ----------- --------- -----------
Type of loan
Commercial $13,551 53.4% $8,325 52.7%
Real estate construction 964 5.4 2,336 7.1
Real estate residential 545 14.8 50 12.9
Consumer 3,872 26.4 2,363 27.3
Unallocated portion of the reserve 5,810 - 10,778 -
----------------------------------------------------------------------------------
Total $24,742 100.0% $23,852 100.0%
==================================================================================
------------------------------------------------------------
December 31,
-----------------------
1990
-----------------------
Allocation Loans as
of reserve percent of
balance total loans
------- -----------
Type of loan
Commercial $2,698 52.5%
Real estate construction 4,360 9.5
Real estate residential 29 10.4
Consumer 1,782 27.6
Unallocated portion of the reserve 10,132 -
----------------------------------------------------------
Total $19,001 100.0%
==========================================================
The reduced allocation to commercial loans from December 31, 1993 to
December 31, 1994 is primarily due to a reduction in the balance of
criticized loans. The unallocated component includes Management's
judgemental determination of the amounts necessary for concentrations,
economic uncertainties and other subjective factors. The changes in the
allocation to loan portfolio segments from December 31, 1992 to December
31, 1993 reflect changes in criticized and classified loan balances. The
increased allocation to construction loans is attributable to an increase
in criticized loans due to the recessionary environment. The decreased
allocation to commercial and consumer loans is attributable to a higher
level of recoveries.
Asset and Liability Management
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. The principal
sources of asset liquidity are marketable investment and money market
securities available for sale. At December 31, 1994, investment securities
available for sale totaled $160.6 million. As in previous years, decreased
loan balances resulted in an increase in the size of the securities
portfolio.
The Company generates significant liquidity from its operating activities.
The Company's profitability in 1994, 1993 and 1992 generated cash flows
provided from operations for such years of $27.7 million, $28.4 million and
$33.4 million, respectively.
Additional cash flow may be provided by financing activities, primarily
the acceptance of customer deposits and short-term borrowings from banks.
Over the last three years, deposit balances have either remained flat, as
in 1992, or declined, as in 1993 and 1994. The decline in 1993 was mainly
due to the sale of its 50 percent interest in Sonoma Valley Bank. During
1994, the Company paid off $9.8 million in principal of its high-rate
long-term debt. To compensate for decreases in deposits and long-term debt,
the Company increased its short-term borrowings, which grew $64.2 million,
$57.0 million and $2.5 million in 1994, 1993 and 1992, respectively. In
addition, in December, 1993, Westamerica Bank issued a ten-year, $20.0
million subordinated capital note that qualifies as Tier II Capital, to be
used as a source of working capital.
The Company uses cash flow from operating and financing activities to make
investments in loans, money market assets and investment securities. The
Company's strategy to reduce its exposure to high-risk loans is shown in
the reduction of loan volumes over the past three years, when balances
decreased $11.0 million, $68.1 million and $32.8 million in 1994, 1993 and
1992, respectively. The smaller decline in 1994 reflects efforts of the
Company to stabilize loan volume without jeopardizing credit quality. The
net repayment of loans resulted in added liquidity for the Company, which
increased its investment securities portfolio by $40.9 million, $153.3
million, and $54.7 million in 1994, 1993 and 1992, respectively.
Interest rate risk is influenced by market forces. However, that risk may
be controlled by monitoring and managing the repricing characteristics of
interest-bearing assets and liabilities. The primary analytical tool used
by Management to gauge interest-rate sensitivity is a simulation model used
by many major banks and bank regulators. This industry standard model is
used to simulate the effects on net interest income of changes in market
interest rates that are up to 2 percent higher or 2 percent lower than
current levels. The results of the model indicate that the mix of
interest-rate sensitive assets and liabilities at December 31, 1994 would
not, in the view of Management, expose the Company to an unacceptable level
of interest-rate risk.
Capital Resources
The current and projected capital position of the Company and the impact of
capital plans and long-term strategies is reviewed regularly by Management.
The Company's capital position represents the level of capital available
to support continuing operations and expansion. The Company's primary
capital resource is shareholders' equity, which increased $13.8 million or
9 percent from the previous year end and increased $22.5 million from
December 31, 1992. During 1994, the Board of Directors approved a 13
percent increase in the cash dividend on the Company's Common Stock, from
15 cents to 17 cents per share. During 1994, the Company recorded common
stock dividends of $5.2 million. The ratio of total risk-based capital to
risk-adjusted assets increased to 15.32 percent at December 31, 1994, from
14.40 percent at December 31, 1993. Tier I risk-based capital to
risk-adjusted assets increased to 12.57 percent at December 31, 1994, from
11.11 percent at year-end 1993.
Capital to Risk-Adjusted Assets
Minimum Regulatory Capital
Minimum
Regulatory
Capital
At December 31, 1994 1993 Requirements
-----------------------------------------------------------------------
Tier I Capital 12.57% 11.11% 4.00%
Total Capital 15.32 14.40 8.00
Leverage ratio 8.23 7.42 3.00
The risk-based capital ratios improved in 1994 due to a more rapid growth
in equity than total assets, in conjunction with the decline in loan
volumes and increase in investment securities, which reduced the level of
risk-adjusted assets. Capital ratios are reviewed on a regular basis to
ensure that capital exceeds the prescribed regulatory minimums and is
adequate to meet the Company's future needs. All ratios are in excess of
regulatory definitions of "well capitalized".
Financial Ratios
The following table shows key financial ratios for the periods indicated:
For the Years Ended
------------------------------------------------------------------------------------
1994 1993 1992
------------------------------------------------------------------------------------
Return on average total assets 1.21% .48% .77%
Return on average shareholders' equity 15.59 6.51 11.16
Average shareholders' equity as a percent of:
Average total assets 7.76 7.33 6.93
Average total loans 14.54 12.70 11.22
Average total deposits 9.25 8.32 7.67
Deposits
The following table sets forth, by time remaining to maturity, the
Company's domestic time deposits in amounts of $100,000 or more.
Time Remaining to Maturity
December 31,
----------------------------------------------------------------
(in thousands) 1994 1993 1992
----------------------------------------------------------------
Three months or less $49,939 $ 73,988 $ 92,581
Three to six months 25,114 23,817 46,378
Six months to twelve months 13,453 10,503 12,895
Over twelve months 8,055 4,685 6,630
----------------------------------------------------------------
Total $96,561 $112,993 $158,484
================================================================
Short-term borrowings
The following table sets forth the short-term borrowings of the Company.
December 31,
-----------------------------------------------------------------------
(in thousands) 1994 1993 1992
-----------------------------------------------------------------------
Federal funds purchased $ 1,300 $25,000 $ --
Other borrowed funds:
Retail repurchase agreements 111,957 28,038 4,099
Other 19,961 16,026 7,939
-----------------------------------------------------------------------
Total other borrowed funds $131,918 $44,064 $12,038
-----------------------------------------------------------------------
Total funds purchased $133,218 $69,064 $12,038
=======================================================================
Further details of the other borrowed funds are:
December 31,
-----------------------------------------------------------------------
(in thousands) 1994 1993 1992
-----------------------------------------------------------------------
Outstanding
Average during the year $118,263 $37,284 $11,509
Maximum during the year 167,081 68,608 19,055
Interest rates
Average during the period 4.11% 3.13% 4.73%
Average at period end 5.07 3.04 3.23
Non-Interest Income
Components of Non-Interest Income
---------------------------------------------------------------
(In millions) 1994 1993 1992
---------------------------------------------------------------
Service charges on deposit accounts $11.8 $12.8 $12.4
Merchant credit card 2.3 2.2 2.9
Mortgage banking .8 1.5 1.8
Brokerage commissions .7 .8 .6
Net investment securities gain - .1 1.1
Sale of Sonoma Valley Bank - .7 -
Automobile receivable servicing - 1.3 -
Other 3.8 4.5 5.0
---------------------------------------------------------------
Total $19.4 $23.9 $23.8
===============================================================
Non-interest income was $19.4 million in 1994. The $4.5 million decrease
from 1993 resulted from the 1993 recognition of a deferred gain on an
earlier sale of automobile receivables, the gain on the sale of the
Company's 50 percent interest in Sonoma Valley Bank, and gains from the
sale of credit cardholders' portfolios acquired through the Merger,
partially offset by refunds from prior years' income tax returns recognized
in 1994. In addition, the decrease was the result of lower service charges
on deposit accounts, and lower mortgage banking income and brokerage
commissions, partially offset by higher merchant credit card fees.
In 1993 non-interest income increased $100,000 from the previous year, as
the items recognized in 1993 were partially offset by a $1.1 million gain
on the sale of securities available for sale recognized in 1992. In
addition, service charges on deposit accounts and brokerage commissions
which were higher in 1993 when compared to 1992, were partially offset by
lower merchant credit card and mortgage banking income.
Non-Interest Expense
Components of Non-Interest Expense
------------------------------------------------------------------
(In millions) 1994 1993 1992
------------------------------------------------------------------
Salaries $27.4 $31.6 $33.7
Other personnel benefits 7.0 7.4 7.2
Occupancy 7.3 8.6 8.5
Equipment 4.9 6.2 5.3
FDIC insurance assessment 3.9 4.1 4.0
Data processing 3.7 3.7 3.1
Professional fees 2.1 3.1 3.3
Loan expense 1.4 1.6 1.4
Stationery and supplies 1.3 1.9 1.7
Advertising and public relations 1.2 1.8 1.8
Operational losses 1.1 2.0 .7
Other real estate owned 1.0 11.5 6.2
Merchant credit card .8 1.1 1.7
Insurance .6 .9 1.0
Other 7.4 11.1 10.0
------------------------------------------------------------------
Total $71.1 $96.6 $89.6
==================================================================
Average full-time equivalent staff 796 905 1,092
Average assets per full-time
equivalent staff $2,561 $2,188 $1,804
Non-interest expense decreased $25.5 million or 26 percent in 1994 compared
to 1993 which, in turn, increased $7.0 million or 8 percent from 1992.
Lower expenses in 1994 reflect the Company's improved efficiency and
exercise of cost controls, plus the effect of consolidating operations
after the Merger. The combination of these effects is the main reason for
the $4.6 million decrease in personnel-related expenses, $1.0 million
reduction in professional fees, and other reductions in most non-interest
expense categories. Higher expenses in 1993 are the direct result of
merger-related foreclosed real estate owned expenses, including a $10.0
million write-down of assets acquired in the Merger to net realizable value
and chargeoffs of excess furniture, equipment and stationery and supplies
also associated with the Merger. The ratio of average assets per full-time
equivalent staff was $2.6 million in 1994 compared to $2.2 million and $1.8
million in 1993 and 1992, respectively. The Company's strategy to improve
efficiency can be seen in the reduction of the average number of full-time
equivalent staff from 1,092 in 1992 to 905 and 796 in 1993 and 1994,
respectively.
Provision for Income Tax
The provision for income tax increased $7.9 million in 1994 as a direct
result of higher pretax income partially offset by an increase in
tax-exempt interest income from municipal securities. The provision was
$10.9 million in 1994, reflecting an effective tax rate of 31 percent,
compared to $3.0 million in 1993 and $7.9 million in 1992, reflecting
effective tax rates of 24 percent and 34 percent, respectively.
ITEM 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets as of December 31, 1994 and 1993 36
Consolidated Statements of Income for the years ended
December 31, 1994, 1993 and 1992 37
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1994, 1993 and 1992 38
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 39
Notes to consolidated financial statements 40
Management's Letter of Financial Responsibility 63
Independent Auditors' Report 64
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
-------------------------------------------------------------------------------
December 31, 1994 1993
-------------------------------------------------------------------------------
Assets
Cash and cash equivalents (Note 15) $ 112,401 $ 102,618
Money market assets 250 250
Trading account securities - 10
Investment securities available for sale;
fair value (Note 2) 160,609 168,819
Investment securities held to maturity;
market value of $569,684 in 1994
and $563,563 in 1993 (Note 2) 598,730 557,057
Loans, net of reserve for loan losses of:
$27,600 at December 31, 1994
$25,587 at December 31, 1993
(Notes 3, 4 and 14) 1,076,171 1,089,152
Loan collateral substantively foreclosed
and other real estate owned 7,431 17,905
Premises and equipment, net (Notes 5 and 6 23,287 25,341
Interest receivable and other assets (Note 8) 51,356 43,267
--------------------------------------------------------------------------
Total assets $2,030,235 $2,004,419
==========================================================================
Liabilities
Deposits:
Non-interest bearing $ 381,354 $ 369,820
Interest bearing:
Transaction 285,153 289,322
Savings 659,434 654,766
Time (Note 6) 362,939 417,320
--------------------------------------------------------------------------
Total deposits 1,688,880 1,731,228
Funds purchased 133,218 69,064
Liability for interest, taxes,
other expenses, minority interest and
other (Note 8) 16,408 15,328
Notes and mortgages payable (Notes 6 and 15) 25,524 36,352
--------------------------------------------------------------------------
Total liabilities 1,864,030 1,851,972
Commitments and contingent
liabilities (Notes 4, 11 and 12) - -
Shareholders' Equity (Notes 7 and 15)
Common stock (no par value)
Authorized- 20,000 shares
Issued and outstanding- 8,048 shares
in 1994 and 8,080 shares in 1993 53,510 52,499
Capital surplus 10,289 10,831
Unrealized net (loss) gain on
securities available for sale (1,753) 2,527
Retained earnings 104,159 86,590
--------------------------------------------------------------------------
Total shareholders' equity 166,205 152,447
--------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,030,235 $2,004,419
==========================================================================
[FN]
See accompanying notes to consolidated financial statements.
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
---------------------------------------------------------------------------------
For the years ended December 31, 1994 1993 1992
--------------------------------------------------------------------------------
Interest Income
Loans $93,140 $99,607 $115,357
Money market assets and federal funds sold - 298 1,745
Trading account securities 1 6 4
Investment securities available for sale:
Taxable 9,057 - -
Non-taxable 174 - -
Investment securities held to maturity:
Taxable 22,658 31,265 32,343
Non-taxable 9,208 5,740 5,304
--------------------------------------------------------------------------------
Total interest income 134,238 136,916 154,753
--------------------------------------------------------------------------------
Interest Expense
Transaction deposits 2,804 4,219 7,680
Savings deposits 15,981 15,085 18,838
Time deposits (Note 6) 14,579 19,014 29,314
Funds purchased 5,139 1,937 698
Notes and mortgages (Note 6) 2,612 2,016 2,362
--------------------------------------------------------------------------------
Total interest expense 41,115 42,271 58,892
--------------------------------------------------------------------------------
Net Interest Income 93,123 94,645 95,861
Provision for loan losses (Note 3) 5,880 9,452 7,005
--------------------------------------------------------------------------------
Net interest income after provision
for loan losses 87,243 85,193 88,856
--------------------------------------------------------------------------------
Non-Interest Income
Service charges on deposit accounts 11,815 12,809 12,437
Merchant credit card 2,251 2,217 2,900
Mortgage banking 801 1,467 1,808
Brokerage commissions 650 839 555
Net gain on sales of securities
available for sale 24 68 1,066
Other 3,880 6,546 5,061
--------------------------------------------------------------------------------
Total non-interest income 19,421 23,946 23,827
--------------------------------------------------------------------------------
Non-Interest Expense
Salaries and related benefits (Note 13) 34,346 39,007 40,826
Occupancy (Notes 5 and 11) 7,323 8,625 8,524
Equipment (Notes 5 and 11) 4,851 6,195 5,302
FDIC insurance assessment 3,930 4,079 4,021
Data processing 3,712 3,658 3,137
Professional fees 2,086 3,071 3,332
Other real estate owned 1,042 11,526 5,183
Other 13,833 20,484 19,279
--------------------------------------------------------------------------------
Total non-interest expense 71,123 96,645 89,604
--------------------------------------------------------------------------------
Income Before Income Taxes 35,541 12,494 23,079
Provision for income taxes (Note 8) 10,868 3,039 7,857
--------------------------------------------------------------------------------
Net Income $24,673 $ 9,455 $ 15,222
================================================================================
Average common shares outstanding 8,074 8,054 7,933
Per Share Data (Notes 7 and 18)
Net income $ 3.06 $ 1.17 $ 1.92
Dividends declared .64 .57 .51
[FN]
See accompanying notes to consolidated financial statements.
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
------------------------------------------------------------------------------------------
Unrealized Net Unrealized
Gain (Loss) on (Loss) Gain on
Securities Marketable
Capital Available Retained Equity
Common Stock Surplus for Sale Earnings Securities Total
------------------------------------------------------------------------------------------
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 (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
------------------------------------------------------------------------------------------
Net income - - - 24,673 - 24,673
Stock issued (Note 7) 1,567 (542) - - - 1,025
Retirement of stock (556) - - (1,932) - (2,488)
Dividends declared - - - (5,172) - (5,172)
Unrealized loss on securities - - (4,280) - - (4,280)
------------------------------------------------------------------------------------------
December 31, 1994 $ 53,510 $ 10,289 $( 1,753) $104,159 $ - $166,205
==========================================================================================
[FN]
See accompanying notes to consolidated financial statements.
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
---------------------------------------------------------------------------------
For the years ended December 31, 1994 1993 1992
---------------------------------------------------------------------------------
Operating Activities
Net income $24,673 $ 9,455 $ 15,222
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 3,708 3,622 4,198
Loan loss provision 5,880 9,452 7,005
Amortization of deferred net
loan (cost)/fees (1,159) (462) 615
(Increase) decrease in interest
income receivable (1,491) (2,542) 1,070
(Increase) decrease in other assets (2,129) 2,888 (3,204)
Decrease in income taxes payable (677) (1,529) (1,179)
Increase (decrease) in interest
expense payable 467 (1,169) (1,933)
(Decrease) increase in accrued expenses (20) (1,809) 1,420
Gain on sale of securities (538) (68) (1,066)
Loss on sale of securities 514 - -
Loss on sale of developed land - - 2,930
Loss on sale/write-down
of premises and equipment 179 1,476 225
Originations of loans for resale (26,634) (92,374) (100,055)
Proceeds from sale of loans
originated for resale 24,762 92,536 103,855
Loss on sale/write-down of
property acquired
in satisfaction of debt 175 9,618 3,507
Gain on sale of Sonoma Valley Bank - (668) -
Net maturities (purchases)
of trading securities 10 (10) 779
---------------------------------------------------------------------------------
Net cash provided by operating activities 27,720 28,416 33,389
---------------------------------------------------------------------------------
Investing Activities
Net repayments of loans 11,021 68,109 32,782
Purchases of money market assets - (325) (16,833)
Purchases of investment securities (266,792) (427,886) (339,583)
Purchases of property, plant and equipment (1,833) (3,481) (4,416)
Improvements on developed land - - (1,435)
Proceeds from maturity/sale of
money market assets - 1,441 17,574
Proceeds from maturity of securities 142,798 274,451 263,793
Proceeds from sale of securities 83,117 184 21,128
Proceeds from sale of property and equipment - - 1,640
Net proceeds from sale of developed land - 356 1,928
Proceeds from disposition of property
acquired in satisfaction of debt 5,955 6,313 4,513
Proceeds from sale of Sonoma Valley Bank - 2,733 -
Net repayments on loan collateral
substantively foreclosed 3,455 669 1,187
---------------------------------------------------------------------------------
Net cash used in investing activities (22,279) (77,436) (17,722)
---------------------------------------------------------------------------------
Financing Activities
Net (decrease) increase in deposits (42,349) (58,691) 617
Net increase in federal funds purchased 64,154 57,026 2,468
Issuance of notes payable - 20,000 -
Principal and interest payments on notes
and mortgages payable (10,828) (2,985) (2,423)
Exercise of stock options 1,025 1,446 2,214
Retirement of stock (2,488) - (204)
Unrealized loss in marketable
equity securities - - 9
Dividends paid (5,172) (4,655) (2,987)
---------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 4,342 12,141 (306)
---------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 9,783 (36,879) 15,361
---------------------------------------------------------------------------------
Cash and cash equivalents at
beginning of year 102,618 139,497 124,136
---------------------------------------------------------------------------------
Cash and cash equivalents at
end of period $112,401 $102,618 $139,497
=================================================================================
Supplemental disclosures:
Loans transferred to other real estate owned
and substantively repossessed $ 3,892 $ 16,111 $ 36,572
Interest paid 41,582 42,982 57,491
Income tax payments 11,725 5,700 9,773
Unrealized (loss) gain on securities
available for sale (4,280) 2,527 -
[FN]
See accompanying notes to consolidated financial statements.
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. 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 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, and all the
Company's subsidiaries which include the Banks, Community Banker Services
Corporation and Subsidiary and Westcore, a newly formed company which will
engage in planning and servicing retirement and employee benefit programs.
Significant intercompany transactions have been eliminated in
consolidation. All data presented for 1992 has been restated to include 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
Investment securities consist of U.S. Treasury, federal agencies, state,
county and municipal securities, mortgage-backed, corporate debt and equity
securities. Under the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", the Company classifies its debt and marketable equity
securities in one of three categories: trading, available for sale or held
to maturity. Trading securities are bought and held principally for the
purpose of selling them in the near term. Held-to-maturity securities are
those securities in which the Company has the ability and intent to hold
the security until maturity. All other securities not included in trading
or held to maturity are classified as available for sale. 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.
A decline in the market value of any available-for-sale or held-to-maturity
security 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
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 throughout 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 formula 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.
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 market
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 annual 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. In 1993, the
Company had loans classified as "loan collateral substantially foreclosed"
when the borrower had little or no equity in the collateral, when proceeds
for repayment of the loan were expected to come only from the operation or
sale of the collateral, and the debtor had either formally or effectively
abandoned control of the collateral to the Company or had 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, there were doubts about the ability of the debtor to
rebuild equity in the collateral or otherwise repay the loan in the near
term. Losses recognized at the time the loans were reclassified as
substantive foreclosures were charged against the reserve for loan losses.
Subsequent losses incurred due to declines in property values, were
recognized as non-interest expense as were other routine holding costs. The
Company had no loans classified as substantively foreclosed at December 31,
1994.
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. 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 strategy to reduce interest rate risk. These 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 counterparties to meet
the terms of the contracts. The Company controls the credit risk of 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 for trading purposes. As a hedging mechanism, the differential to
be paid or received on such agreements is recognized as an adjustment to
interest income in the period received or paid. Payments made and/or
received in connection with early termination of interest rate swap
agreements are recognized over the remaining original term of the swap
agreement.
Earnings Per Share
Earnings per share amounts are computed on the basis of the weighted
average of common and common equivalent shares outstanding during each of
the years.
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 consolidated 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 presentation. These reclassification have no
effect on previously reported income.
Note 2: Investment Securities
An analysis of available for sale investment securities portfolio as
of December 31, 1994 follows:
------------------------------------------------------------------------------------------------------------------
(In thousands) One One Five Over
year or to five to ten ten Amortized Unrealized Unrealized Fair
Maturity in Years less years years years Cost gains losses Value
------------------------------------------------------------------------------------------------------------------
December 31, 1994:
U.S. Treasury Securities $15,304 $66,574 $-- $ -- $ 81,878 $ 19 $(1,706) $ 80,191
Securities of U.S. Govt.
Agencies and Corporations * 2,002 13,179 -- 38,644 53,825 140 (805) 53,160
Obligations of States and
Political Subdivisions 9,423 -- -- -- 9,423 2 (29) 9,396
Asset Backed (Automobile
Receivables) -- -- -- -- -- -- -- --
Other Securities (Preferred
Stocks and Corporate Bonds) 8,503 10,025 -- -- 18,528 19 (685) 17,862
------------------------------------------------------------------------------------------------------------------
Total $35,232 $89,778 $-- $38,644 $163,654 $180 $(3,225) $160,609
==================================================================================================================
Fair Value by Maturity $34,334 $88,220 $-- $38,055
======================================================================
[FN]
* Includes $46.8 million in Collateralized Mortgage Obligations with the
following maturities: 1 to 5 years $10.2 million; over 10 years $36.6
million. The average yield of these securities is 5.91 percent.
An analysis of held to maturity investment securities portfolio as of
December 31, 1994 follows:
------------------------------------------------------------------------------------------------------------------
(In thousands) One One Five Over
year or to five to ten ten Amortized Unrealized Unrealized Fair
Maturity in Years less years years years Cost gains losses Value
------------------------------------------------------------------------------------------------------------------
December 31, 1994:
U.S. Treasury Securities $21,084 $138,360 $ -- $ -- $159,444 $ -- $ (7,481) $151,963
Securities of U.S. Govt.
Agencies and Corporations * -- 52,245 77,912 72,151 202,308 291 (10,784) 191,815
Obligations of States and
Political Subdivisions 4,496 24,744 43,037 116,435 188,712 365 (10,487) 178,590
Asset Backed (Automobile
Receivables) -- 37,162 -- -- 37,162 -- (933) 36,229
Other Securities (Preferred
Stocks and Corporate Bonds) 6,700 2,911 -- 1,493 11,104 3 (20) 11,087
------------------------------------------------------------------------------------------------------------------
Total $32,280 $255,422 $120,949 $190,079 $598,730 $659 $(29,705) $569,684
==================================================================================================================
Fair Value by Maturity $31,889 $244,831 $115,552 $177,412
======================================================================
[FN]
* Includes $155.1 million in Collateralized Mortgage Obligations with the
following maturities: 1 to 5 years $16.6 million; 5 to 10 years $71.6
million; over 10 years $66.9 million. These securities have a market
value of $146.6 million and an average yield of 5.28 percent.
An analysis of available for sale investment securities portfolio as
of December 31, 1993 follows:
------------------------------------------------------------------------------------------------------------------
(In thousands) One One Five Over
year or to five to ten ten Amortized Unrealized Unrealized Fair
Maturity in Years less years years years Cost gains losses Value
------------------------------------------------------------------------------------------------------------------
December 31, 1993:
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
Asset Backed (Automobile
Receivables) -- -- -- -- -- -- -- --
Other Securities (Preferred
Stocks and Corporate Bonds) 6,250 3,017 -- -- 9,267 313 -- 9,580
------------------------------------------------------------------------------------------------------------------
Total $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
======================================================================
[FN]
* 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 held to maturity investment securities portfolio as of
December 31, 1993 follows:
------------------------------------------------------------------------------------------------------------------
(In thousands) One One Five Over
year or to five to ten ten Amortized Unrealized Unrealized Fair
Maturity in Years less years years years Cost gains losses Value
------------------------------------------------------------------------------------------------------------------
December 31, 1993:
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 and Corporate Bonds) 12,999 3,115 1,654 1,494 19,262 749 -- 20,011
------------------------------------------------------------------------------------------------------------------
Total $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
======================================================================
[FN]
* 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 obligations have a market value of $162.4 million and an average
yield of 5.45 percent.
As of December 31, 1994, $248.1 million of investment securities held to
maturity were pledged to secure public deposits.
Note 3: Loans and Reserve for Loan Losses
Loans at December 31, consisted of the following:
----------------------------------------------------------------
(In thousands) 1994 1993
----------------------------------------------------------------
Commercial $262,518 $266,448
Real estate-commercial 342,727 346,308
Real estate-construction 27,278 40,533
Real estate-residential 193,061 172,245
----------------------------------------------------------------
Total real estate loans 563,066 559,086
Installment and personal 292,735 304,993
Unearned income (14,548) (15,788)
----------------------------------------------------------------
Gross loans 1,103,771 1,114,739
Loan loss reserve (27,600) (25,587)
----------------------------------------------------------------
Net loans $1,076,171 $1,089,152
================================================================
Included in real estate-residential at December 31, 1994 and 1993 are loans
held for resale of $1.9 million and $5.9 million, respectively, the cost of
which approximates market value.
Changes in the loan loss reserve were:
------------------------------------------------------------------
(In thousands) 1994 1993 1992
------------------------------------------------------------------
Balance at January 1, $25,587 $24,742 $23,853
Sale of Sonoma Valley Bank - (684) -
Provision for loan losses 5,880 9,452 7,005
Credit losses (5,921) (10,091) (8,794)
Credit loss recoveries 2,054 2,168 2,678
------------------------------------------------------------------
Net chargeoffs (3,867) (7,923) (6,116)
------------------------------------------------------------------
Balance at December 31, $27,600 $25,587 $24,742
==================================================================
Restructured loans were $4.4 million at December 31, 1994 and at
December 31; 1993, they were $319,000 at December 31, 1992.
The following is a summary of interest foregone on restructured loans
for the years ended December 31:
------------------------------------------------------------------------
(In thousands) 1994 1993 1992
------------------------------------------------------------------------
Interest income that would have
been recognized had the loans
performed in accordance with
their original terms $380 $472 $135
Less: Interest income recognized
on restructured loans (264) (218) -
------------------------------------------------------------------------
Interest foregone on restructured loans $116 $254 $135
========================================================================
There were no commitments to lend additional funds to borrowers whose loans
are included above.
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, 1994.
The Company has a significant amount 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 $11.8 million at
December 31, 1994. 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
-------------------------------------------------------------------------
1994
Land $ 3,735 $ - $ 3,735
Buildings and improvements 19,861 (7,286) 12,575
Leasehold improvements 2,276 (1,520) 756
Furniture and equipment 13,737 (7,516) 6,221
-------------------------------------------------------------------------
Total $39,609 $(16,322) $23,287
=========================================================================
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
=========================================================================
Depreciation and amortization included in non-interest expense amount to
$3,708,000 in 1994, $3,622,000 in 1993 and $4,198,000 in 1992.
Note 6: Borrowed Funds
Notes payable include the unsecured obligations of the Company as of
December 31, 1994 and 1993, as follows:
-----------------------------------------------------------------------
(In thousands) 1994 1993
-----------------------------------------------------------------------
Unsecured note dated September, 1976, interest
payable semiannually at 9 7/8% and principal
payments of $267,000 due annually to September
1, 1996. Note was paid off in September, 1994. $ - $ 196
Unsecured note dated May, 1984, interest
payable quarterly at 12.95% and principal
payments of $1,000,000 due annually beginning
September 1, 1991 and ending on September 1,
1996. Note was paid off in October, 1994. - 2,100
Equity contract notes, originated in April, 1986
and maturing on April 1, 1996. Interest payable
semiannually at 11 5/8% and principal payments
of $2,500,000 due annually, on April 1, starting
in 1993. Notes were paid off in April, 1994. - 7,500
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 of 6.99% per
annum is payable semiannually on March 31
and September 30, with principal due at
maturity. 20,000 20,000
-----------------------------------------------------------------------
Total notes payable $25,000 $34,796
=======================================================================
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 $756,000 at
December 31, 1994. The note, which has an effective interest rate of 10
percent, is scheduled to mature in April, 1995.
At December 31, 1994, the Company had unused lines of credit amounting to
$2.5 million. Compensating balance arrangements are not significant to the
operations of the Company.
At December 31, 1994, the Banks had $96.6 million in time deposit accounts
in excess of $100,000; interest on these accounts in 1994 was $3.5 million.
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 grant. At December
31, 1994, 17,340 options were outstanding and exercisable. 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
and non-qualified stock options 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 shares ("RPS") grants. RPS's granted were 33,900,
24,700, and 27,450, for the years ended December 31, 1994, 1993 and 1992,
respectively. The related expense for those years was $960,000, $740,000,
and $315,000, respectively. 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, 1994, 167,209
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:
1994 399,741 8.50 - 28.06 8,628,494
1993 313,564 8.50 - 24.50 5,766,400
1992 278,544 6.06 - 22.00 4,249,399
Options exercised during:
1994 31,742 8.88 - 24.50 456,150
1993 51,260 8.88 - 22.00 692,157
1992 168,423 6.06 - 13.29 1,975,000
At December 31, 1994, options for 204,104 shares 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, 1994, no shares of Class B or
Preferred Stock had been issued.
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 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
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", ("SFAS 109"). Under SFAS 109, 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 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.
The components of the net deferred tax assets as of December 31 are as
follows:
------------------------------------------------------------------------
(In thousands) 1994 1993
------------------------------------------------------------------------
Deferred tax asset
Reserve for loan losses $11,280 $10,321
State franchise taxes 1,318 676
Securities available for sale 1,293 -
Deferred compensation 998 534
Real estate owned 2,135 2,742
Other 1,187 1,037
------------------------------------------------------------------------
18,211 15,310
Valuation allowance - -
------------------------------------------------------------------------
Total deferred tax asset 18,211 15,310
Deferred tax liability
Net deferred loan costs 452 502
Fixed assets 1,076 1,164
Securities available for sale - 1,864
Other 23 148
------------------------------------------------------------------------
Total deferred tax liability 1,551 3,678
------------------------------------------------------------------------
Net deferred tax asset $16,660 $11,632
========================================================================
The Company believes a valuation allowance is not needed to reduce the
deferred tax asset because it is more likely than not that the deferred tax
asset will be realized through recoverable taxes or future 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) 1994 1993 1992
-----------------------------------------------------------------
Current income tax expense:
Federal $ 8,693 $2,501 $6,977
State 4,045 2,195 3,130
-----------------------------------------------------------------
Total current 12,738 4,696 10,107
-----------------------------------------------------------------
Deferred income tax benefit:
Federal (1,590) (646) (1,758)
State (280) (617) (492)
-----------------------------------------------------------------
Total deferred (1,870) (1,263) (2,250)
Adjustment of net deferred tax asset
for enacted changes in tax rates:
Federal - (304) -
State - (90) -
-----------------------------------------------------------------
Provision for income taxes $10,868 $3,039 $7,857
=================================================================
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) 1994 1993 1992
-----------------------------------------------------------------
Federal income taxes due
at statutory rate $12,433 $4,248 $7,846
(Reductions) increases in
income taxes resulting from:
Interest not taxable for federal
income tax purposes (3,362) (1,895) (1,735)
State franchise taxes, net of
federal income tax benefit 2,447 982 1,753
Deferred benefit and other (650) (296) (7)
-----------------------------------------------------------------
Provision for income taxes $10,868 $3,039 $7,857
=================================================================
Note 9: Fair Value of Financial Instruments
The following fair values of financial instruments 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 represent the Company's
best estimate of fair value using the methodologies discussed below. The
fair value of financial instruments which have a relatively short period of
time between their origination and their expected realization was estimated
using historical cost. The estimated fair value of such financial
instruments at December 31, was:
---------------------------------------------------------------------------
(In thousands) 1994 1993
---------------------------------------------------------------------------
Cash and cash equivalents $ 112,401 $ 102,618
Money market assets 250 250
Interest and taxes receivable 34,777 28,799
Non-interest bearing and interest-bearing
transaction and savings deposits 1,325,941 1,313,908
Funds purchased 133,218 69,064
Interest payable 3,167 2,700
The fair value at December 31, of the following financial instruments was
estimated using quoted market prices:
--------------------------------------------------------------------------
(In thousands) 1994 1993
--------------------------------------------------------------------------
Investment securities available for sale $ 160,609 $ 168,819
Investment securities held to maturity 569,684 563,563
Trading account securities - 10
Loans were separated into two groups for valuation. Variable rate loans,
except for those which have reached their maximum contractual rates, which
reprice frequently with changes in market rates were valued using
historical data. 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
$27,600,000 reserve for loan losses was applied against the estimated fair
value to recognize future defaults of contractual cash flows. The estimated
fair value of loans at December 31, was:
---------------------------------------------------------------------------
(In thousands) 1994 1993
---------------------------------------------------------------------------
Loans $1,054,768 $1,096,164
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) 1994 1993
--------------------------------------------------------------------------
Time deposits $ 362,186 $ 420,475
Notes and mortgages payable 22,898 36,014
The estimated fair value 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 $1,071,000 and
$593,000, respectively, at December 31, 1994 and 1993.
Note 10: Interest Rate Risk Management
The Company considers the effects of various factors in implementing
interest rate risk management activities, including the utilization of
interest-rate swaps. The notional amounts of interest rate swaps
outstanding were:
--------------------------------------------------------------------
(In thousands) 1994 1993 1992
--------------------------------------------------------------------
Balance, January 1, $110,000 $ 50,000 $75,000
Contracts entered - 60,000 50,000
Contracts matured (50,000) - (75,000)
--------------------------------------------------------------------
Balance, December 31, $ 60,000 $110,000 $50,000
--------------------------------------------------------------------
Fair value, December 31, $ (1,071) $ (593) $ -
====================================================================
Under interest rate swaps, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed-rate and
floating-rate interest amounts calculated by reference to the notional
amounts. For the $60 million of interest rate swaps outstanding at December
31, 1994, comprised of two contracts with notional amounts of $30 million
each, the Company pays a floating rate, based on the three-month London
Interbank Offering Rate (LIBOR), and receives a weighted average fixed rate
of 4.11 percent. The LIBOR rate has averaged 4.43 percent from the date
these swaps were entered into through December 31, 1994. The Company is
exposed to credit-related losses in the event of non-performance by the
counterparty but does not expect this event to occur, as the Company deals
only with highly rated counterparties. At December 31, 1994 and 1993, due
to the loss position, no credit exposure existed in connection with the
interest rate swaps. These swap contracts are scheduled to mature in
August, 1995.
Note 11: Lease Commitments
Fifteen banking offices and three administrative service centers are owned
and thirty-three banking offices and two support facilities are leased.
Substantially all the leases contain multiple renewal options and
provisions for rental increases, principally for cost of living index,
property taxes and maintenance. The Company also leases certain pieces of
equipment. Minimum future rental payments, net of sublease income, at
December 31, 1994, are as follows:
(In thousands)
Year Amount
--------------------------------------
1995 $ 3,600
1996 2,933
1997 1,772
1998 1,262
1999 825
Thereafter 2,600
--------------------------------------
Total minimum lease payments $12,992
======================================
Total rentals for premises and equipment net of sublease income included in
non-interest expense were $3,129,000 in 1994, $3,862,000 in 1993 and
$3,910,000 in 1992.
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 $161.8
million at December 31, 1994.
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 totaled $6.5
million and $6.4 million at December 31, 1994 and 1993, respectively. 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 the
legal counsel, does not expect such cases will have a material, adverse
effect on its financial position or results of operations.
Note 13: 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 Plan's funded status as of
December 31 and the pension cost for the years ended December 31:
--------------------------------------------------------------------------
(In thousands) 1994 1993
--------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $ (8,870) $(11,245)
--------------------------------------------------------------------------
Accumulated benefit obligation $(10,120) $(11,430)
--------------------------------------------------------------------------
Projected benefit obligation $(10,331) $(11,612)
Plan assets at fair market value 10,430 11,677
--------------------------------------------------------------------------
Funded status - projected benefit obligation
less than plan assets $ 99 $ 65
==========================================================================
Comprised of:
Prepaid pension cost $ 69 $ 22
Unrecognized net (loss) gain 27 (75)
Unrecognized prior service cost 362 529
Unrecognized net obligation, net
of amortization (359) (411)
--------------------------------------------------------------------------
Total $ 99 $ 65
==========================================================================
--------------------------------------------------------------------------
(In thousands) 1994 1993
--------------------------------------------------------------------------
Net pension costs includes the
following components:
Service cost during the period $ 372 $ 364
Interest cost on projected
benefit obligation 776 744
Actual return on plan assets (68) (1,012)
Net amortization and deferral (775) 64
--------------------------------------------------------------------------
Net periodic pension cost $ 305 $ 160
==========================================================================
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit
obligation were 7.25 percent and 4.50 percent, respectively, at December
31, 1994 and 6.75 percent and 4.50 percent, respectively, at December 31,
1993. The expected long-term rate of return on plan assets in 1994 and 1993
was 7 percent.
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 $1,327,000 in
1994, $1,160,000 in 1993 and $1,037,000 in 1992.
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 salaries as contributions to the plan.
Participants may invest in five funds, including Westamerica Bancorporation
Common Stock Fund. The matching contributions charged to operating expense
were $477,000 in 1994, $482,000 in 1993 and $462,000 in 1992.
Effective December 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 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 years ended December 31 and the funded status of the plan at
December 31:
----------------------------------------------------------------------
(In thousands) 1994 1993
----------------------------------------------------------------------
Service cost $ - $ -
Interest cost 105 107
Actual return on plan assets - -
Amortization of unrecognized
transition obligation 61 61
Other, net - -
----------------------------------------------------------------------
Net periodic cost $ 166 $ 168
----------------------------------------------------------------------
Accumulated postretirement benefit
obligation attributable to:
Retirees $1,140 $1,130
Fully eligible participants 239 265
Other 188 158
----------------------------------------------------------------------
Total $1,567 $1,553
======================================================================
Fair value of plan assets $ - $ -
Accumulated postretirement benefit
obligation in excess of plan assets 1,567 $1,553
Comprised of:
Unrecognized prior service cost - -
Unrecognized net gain (loss) - -
Unrecognized transition obligation 1,407 1,471
Recognized postretirement obligation 160 82
----------------------------------------------------------------------
Total $1,567 $1,553
======================================================================
The discount rate used in measuring the accumulated postretirement benefit
obligation was 7.25 percent at December 31, 1994 and 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 8 percent for 1995
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 components of the 1994 and 1993 net periodic cost by $87,000
and $73,000, respectively, and increase the accumulated postretirement
benefit obligation at December 31, 1994 and 1993 by $255,000 and $204,000,
respectively.
Note 14: Related Party Transactions
Certain directors and executive officers of the Company and/or its
subsidiaries were loan customers of the Banks during 1994 and 1993. All
such loans were made in the ordinary course of business on normal credit
terms, including interest rate and collateral requirements. No related
party loans represent more than normal risk of collection. Such loans were
$3,108,000 and $5,238,000 at December 31, 1994 and 1993, respectively.
Note 15: 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 was
not restricted as to the payment of $11.4 million in dividends to the
Company as of December 31, 1994. 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
loans, liquidated or reserved adequately against the real estate investment
in its subsidiary company, and strengthened its loan loss reserve. Napa
Valley Bank has complied with all conditions of the regulatory order, which
was removed by the regulators early in 1994. Napa Valley Bank began to pay
dividends to the Company in the fourth quarter of 1994. Bank of Lake
County, another subsidiary bank, started to pay dividends to the Company in
the third quarter of 1994. 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, $24.4 million was available
for payment of dividends as of December 31, 1994. The Banks are required to
maintain reserves with the Federal Reserve Bank equal to a percentage of
its reservable deposits. The Banks' daily average on deposit at the Federal
Reserve Bank was $43.0 million in 1994 and $40.4 million in 1993.
Note 16: Westamerica Bancorporation (Parent Company Only)
Statements of Income (In thousands)
-----------------------------------------------------------------------------
Years ended December 31, 1994 1993 1992
-----------------------------------------------------------------------------
Dividends from subsidiaries $19,680 $16,671 $ 8,630
Interest from subsidiaries 101 315 61
Other income 3,752 2,781 1,158
-----------------------------------------------------------------------------
Total income 23,533 19,767 9,849
-----------------------------------------------------------------------------
Interest on borrowings 1,029 1,958 2,434
Salaries and benefits 5,529 4,526 782
Other non-interest expense 2,927 5,464 3,451
-----------------------------------------------------------------------------
Total expenses 9,485 11,948 6,667
-----------------------------------------------------------------------------
Income before income tax benefit and
equity in undistributed income
of subsidiaries 14,048 7,819 3,182
Income tax benefit 2,463 3,478 1,890
Equity in undistributed income
(loss) of subsidiaries 8,162 (1,842) 10,150
-----------------------------------------------------------------------------
Net income $24,673 $ 9,455 $15,222
=============================================================================
Balance Sheets (In thousands)
-----------------------------------------------------------------------
Years ended December 31, 1994 1993
-----------------------------------------------------------------------
Assets
Cash and cash equivalents $ 4,526 $ 4,790
Investment securities held to maturity 6,750 9,250
Loans 148 149
Investment in subsidiaries 158,168 154,257
Premises and equipment 55 29
Accounts receivable from subsidiaries 156 65
Other assets 5,741 2,056
-----------------------------------------------------------------------
Total assets $175,544 $170,596
=======================================================================
Liabilities
Long-term debt $ 5,000 $ 14,796
Other liabilities 4,339 3,353
-----------------------------------------------------------------------
Total liabilities 9,339 18,149
Shareholders' equity 166,205 152,447
-----------------------------------------------------------------------
Total liabilities and
shareholders' equity $175,544 $170,596
=======================================================================
Statements of Cash Flows (In thousands)
---------------------------------------------------------------------------
Years ended December 31, 1994 1993 1992
---------------------------------------------------------------------------
Operating Activities
Net income $ 24,673 $ 9,455 $ 15,222
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 65 108 67
Undistributed earnings (loss)
of affiliates (8,162) 607 (10,150)
Increase in equity in affiliates - - (1,797)
(Increase) decrease in receivables
from affiliates (91) 197 1,020
Net change in income taxes (1,740) 60 2,633
(Increase) decrease in other assets (2,295) 1,183 (1,394)
Increase in other liabilities 1,448 1,583 301
Gain on sale of Sonoma Valley Bank - (668) -
Net gain on sale of land - - 43
---------------------------------------------------------------------------
Net cash provided by operating
activities 13,898 12,525 5,945
---------------------------------------------------------------------------
Investing Activities
Purchases of premises and equipment (92) - (2,189)
Net change in land held for sale - (800) -
Net change in loan balances 1 (149) -
Investment in subsidiaries (140) (8,639) (485)
Purchase of investment securities (4,500) (9,700) (13,991)
Proceeds from maturities
of investment securities 7,000 14,191 10,500
Proceeds from sale of premises
and equipment - 2,369 2,149
Proceeds from sale of Sonoma Valley Bank - 2,733 -
---------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 2,269 5 (4,016)
---------------------------------------------------------------------------
Financing Activities
Net decrease in short-term debt - - (656)
Principal reductions of long-term debt (9,796) (6,260) (2,611)
Proceeds from issuance of note
payable to affiliate - - 1,368
Proceeds from exercise of stock options 1,025 1,446 2,139
Retirement of stock (2,488) - -
Unrealized loss on marketable
equity securities - - 9
Dividends paid (5,172) (4,655) (2,987)
---------------------------------------------------------------------------
Net cash used in financing activities (16,431) (9,469) (2,738)
---------------------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents (264) 3,061 (809)
Cash and cash equivalents at
prior year end 4,790 1,729 2,538
---------------------------------------------------------------------------
Cash and cash equivalents at
December 31, $ 4,526 $ 4,790 $ 1,729
===========================================================================
Note 17: Quarterly Financial Information (Unaudited)
(In thousands except per share data and price of common stock)
March 31, June 30, Sept. 30, Dec. 31,
1994
---------------------------------------------------------------------------------
Interest income $32,478 $33,382 $34,006 $34,372
Net interest income 22,821 23,336 23,421 23,545
Provision for loan losses 1,605 1,605 1,470 1,200
Non-interest income 5,404 4,812 4,536 4,669
Non-interest expense 17,784 17,752 17,575 18,013
Income before taxes 8,836 8,791 8,912 9,001
Net income 5,995 6,023 6,286 6,369
Net income per share .74 .75 .78 .79
Dividends declared per share .15 .15 .17 .17
Price range,
common stock $25.88-29.25 $27.00-32.50 $29.25-33.25 $29.00-33.25
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
Net income (loss) per share .38 (.50) .63 .67
Dividends declared per share .14 .14 .14 .15
Price range,
common stock $22.13-30.25 $23.88-28.75 $25.13-28.50 $25.75-28.50
Note 18: Acquisitions
a) Consumated acquisitions
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. This business transaction was
accounted for as a pooling-of-interests combination and, accordingly, the
consolidated financial data for periods prior to the combination 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. The total interest and total
non-interest income previously reported by Napa Valley Bancorp included in
the accompanying 1992 consolidated financial statements were $49.9 million
and $7.1 million, respectively. The net income reported by Napa Valley
Bancorp for 1992 was $1.2 million.
b) Pending acquisitions
On July 25, 1994, the Company announced the signing of a Definitive Merger
Agreement under which the Company will acquire all of the outstanding
shares of common stock of PV Financial, a bank holding company located in
Modesto, California. Shareholders of PV Financial approved the proposed
merger with and into the Company on November 14, 1994 and the merger date
was effective January 31, 1995. Under the terms of this agreement, all of
the outstanding shares of PV Financial Common Stock will be converted into
the right to receive .5348 of a share of the Company's Common Stock,
pursuant to a tax-free exchange.
On November 17, 1994, the Company announced the signing of a Definitive
Merger Agreement under which the Company will acquire all of the
outstanding shares of common stock of CapitolBank Sacramento, headquartered
in Sacramento, California. This agreement provides for an exchange ratio of
.0938 of a share of the Company's Common Stock for each outstanding share
of CapitolBank Common Stock. Pursuant to this agreement, the exchange ratio
is subject to adjustments if certain conditions in connection with the
Company's average share price occur and other conditions as defined in the
definitive merger agreement. The parties have not yet adopted a formal
timetable, but it is estimated that the merger will be consummated by mid
1995.
On December 8, 1994, the Company and North Bay Bancorp, a bank holding
company located in Novato, California, signed a Definitive Merger Agreement
under which all of the outstanding shares of North Bay Bancorp Common Stock
will be exchanged for shares of the Company's Common Stock. This agreement
provides that holders of each share of North Bay Bancorp will be entitled
to receive, on a tax-free basis, .3600 of a share of the Company's common
stock. Pursuant to this agreement, the exchange ratio is subject to an
adjustment if certain conditions in connection with the Company's average
share price occur and other conditions as defined in the definitive merger
agreement.
The following unaudited pro forma combined financial information, based on
the historical financial statements of the parties, summarizes the combined
results of operations of the Company, PV Financial, Capitol Bank and North
Bay on a pooling-of-interests basis, as if the combinations had been
consummated on January 1 of each of the periods presented.
(In thousands, except per share data)
------------------------------------------------------------------
Years Ended December 31, 1994 1993 1992
------------------------------------------------------------------
Total assets at year end $2,457,463 $2,428,848 $2,377,028
Net loans at year end 1,353,468 1,363,543 1,407,612
Deposits at year end 2,071,668 2,109,514 2,141,800
Shareholders' equity at
year end 204,704 188,644 177,639
Net interest income 116,234 113,786 114,149
Net income 27,705 12,023 16,040
Earnings per share 2.77 1.20 1.63
Management's 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, 1994 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
LLP, independent certified public accountants 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
Independent Auditor's Report
The Board of Directors and Shareholders of Westamerica Bancorporation
We have audited the accompanying consolidated balance sheets of Westamerica
Bancorporation and subsidiaries as of December 31, 1994 and 1993, 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, 1994. 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 statements of income, changes in shareholders' equity, and
cash flows for the period ended December 31, 1992, include 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 period ended December 31, 1992, which statements reflect total interest
and non-interest income constituting 32 percent in 1992 of the related
consolidated total. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates 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, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three year
period ended December 31, 1994 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
San Francisco, California
February 13, 1995
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
Napa Valley Bancorp:
We have audited the accompanying consolidated statements of income,
changes in shareholders' equity and cash flows of Napa Valley Bancorp
and subsidiaries (the Company) for the year 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 audit.
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 results of operations and cash
flows for Napa Valley Bancorp and subsidiaries for the year ended
December 31, 1992 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
San Francisco, California,
March 31, 1993
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated herein by
reference from the "Election of Directors" and "Executive Officers" section
on Pages 2 through 10 of the Company's Proxy Statement dated March 21,
1995, which has been filed with the Commission pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by
reference from the "Executive Compensation" and "Retirement
Benefits and Other Arrangements" section on Pages 11 through 15 of the
Company's Proxy Statement dated March 21, 1995, which has been filed with
the Commission pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this Item 12 is incorporated herein by
reference from the "Security Ownership of Certain Beneficial Owners and
Management" section on Pages 8 and 9 of the Company's Proxy Statement
dated March 21, 1995, which has been filed with the Commission pursuant
to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated herein by
reference from the "Indebtedness of Directors and Management" section on
Page 6 of the Company's Proxy Statement dated March 21, 1995, which has
been filed with the Commission pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. All Financial Statements
See Index to Financial Statements on page 35.
(a) 2. Financial statement schedules required by Item 8 of
Form 10-K and by Item 14(d).
None (Information included in Financial Statements).
(a) 3. Exhibits
The following documents are included or incorporated by
reference in this annual report on Form 10-K.
Exhibit
Number
3(a) Restated Articles of Incorporation (composite copy).
3(b)** By-laws.
4(a) Ammended and Restated Rights Agreement - March 23, 1995.
10 Material contracts:
(a)* Incentive Stock Option Plan
(b)*** James M. Barnes --January 7, 1987 (Employment)
(c)*** E. Joseph Bowler --January 7, 1987 (Employment)
(d)*** Robert W. Entwisle --January 7, 1987 (Employment)
(e)**** Amended and Restated Agreement and Plan of Reorganization
by and between Westamerica Bancorporation and John Muir
National Bank, proxy and prospectus dated November 27, 1991.
(f)***** Agreement and Plan of Merger by and between Westamerica
Bancorporation and Napa Valley Bancorp, proxy and
prospectus dated November 12, 1992.
21 Subsidiaries of the registrant.
23 Consent of experts
*Exhibit 10(a) is incorporated by reference from Exhibit A to
the Company's Proxy Statement dated March 22, 1983, which was
filed with the Commission pursuant to Regulation 14A.
**Exhibits 3(b), is incorporated by reference from Exhibit 3(b) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1986.
***Exhibits 3(a), 10(b), 10(c) and 10(d) are incorporated herein
by reference from Exhibits 3(a), 10(n), 10(o), and 10(q) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1986.
****Exhibit 3(e) is incorporated herein by reference from the Form S-4
dated November 27, 1991.
*****Exhibit 3(f) is incorporated herein by reference from the Form S-4
dated November 12, 1992.
The Corporation will furnish to shareholders a copy of any exhibit listed
above, but not contained herein, upon written request to Office of the
Corporate Secretary, Westamerica Bancorporation, P. O. Box 567, San
Rafael, California 94915, and payment to the Corporation of $.25 per page.
(b) Report on Form 8-K
None
SIGNATURES
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.
WESTAMERICA BANCORPORATION
By Dennis R. Hansen By James M. Barnes
---------------------- ----------------------
Senior Vice President and Controller Executive Vice President and
(Principal Accounting Officer) Chief Financial Officer
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 Date
David L. Payne Chairman of the Board and 3/23/95
------------------------------ Director and President and CEO
David L. Payne
E. Joseph Bowler Senior Vice President 3/23/95
------------------------------ and Treasurer
E. Joseph Bowler
Etta Allen Director 3/23/95
------------------------------
Etta Allen
Louis E. Bartolini Director 3/23/95
------------------------------
Louis E. Bartolini
Charles I. Daniels, Jr. Director 3/23/95
------------------------------
Charles I. Daniels, Jr.
Don Emerson Director 3/23/95
------------------------------
Don Emerson
Arthur C. Latno Director 3/23/95
------------------------------
Arthur C. Latno
Patrick D. Lynch Director 3/23/95
------------------------------
Patrick D. Lynch
Catherine Cope MacMillan Director 3/23/95
------------------------------
Catherine Cope MacMillan
Director 3/23/95
------------------------------
James Maggetti
Dwight H. Murray, Jr. M.D. Director 3/23/95
------------------------------
Dwight H. Murray, Jr., M.D.
Ronald A. Nelson Director 3/23/95
------------------------------
Ronald A. Nelson
Carl Otto Director 3/23/95
------------------------------
Carl Otto
Edward B. Sylvester Director 3/23/95
-----------------------------
Edward B. Sylvester
Exhibit 21
WESTAMERICA BANCORPORATION
SUBSIDIARIES AS OF DECEMBER 31, 1994
State of Incorporation
Westamerica Bank California
Napa Valley Bank California
Bank of Lake County California
Community Banker Services Corporation California
Westcore California
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Form 10-K, filed by
Westamerica Bancorporation, of our reports dated March 31, 1993
on our audits of Napa Valley Bancorp's financial statements for
the year ended December 31, 1992. 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 periods subsequent to December 31, 1992.
/s/ Arthur Andersen LLP
San Francisco, California
March 27, 1995