SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1995 Commission File Number 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 22, 1996: $423,623,000
Number of shares outstanding of each of the registrant's classes of
common stock, as of March 20, 1996
Title of Class Shares Outstanding
Common Stock, no par value 9,760,650
Documents Incorporated by Reference
Document* Incorporated Into:
Proxy Statement dated March 20, 1996
for Annual Meeting of Shareholders
to be held on April 23, 1996 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.
<PAGE>
TABLE OF CONTENTS
Page
PART-I
Item 1 Business. . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2 Description of Property . . . . . . . . . . . . . . . . . 11
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . 12
Item 4 Submission of Matters to a Vote of Security Holders . . . 12
PART-II
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . 13
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . 14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 16
Item 8 Financial Statements and Supplementary Data . . . . . . . 39
Item 9 Disagreements on Accounting and Financial Disclosure. . . 74
PART-III
Item 10 Directors and Executive Officers of the Registrant. . . . 74
Item 11 Executive Compensation. . . . . . . . . . . . . . . . . . 74
Item 12 Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . . 74
Item 13 Certain Relationships and Related Transactions. . . . . . 74
PART-IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 74
<PAGE>
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, 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.
In addition, the Company also owns all the capital stock of Westcore, a newly
formed company engaged in performing certain administrative functions for the
Company.
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.
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. 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
<PAGE>
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 completed the purchase of the remaining 12
percent investment in Bank of Lake County from outside investors, becoming
the sole owner of the Bank of Lake County.
On January 31, 1995, the Company acquired PV Financial, parent company
of PV National Bank, through a merger of such bank into WAB in exchange for
the issuance of the Company's Common Stock for all the outstanding shares of
PV Financial. The business combination was accounted for using the
pooling-of-interests method of accounting.
On June 6, 1995, the merger of CapitolBank Sacramento with and into WAB
became effective. Under the terms of the merger, the Company issued shares of
its Common Stock in exchange for all of CapitolBank Sacramento's common
stock. This acquisition was accounted for as a pooling-of-interests business
combination.
On July 17, 1995, Company acquired North Bay Bancorp, parent company of
Novato National Bank. Under the terms of the merger agreement, the Company
issued shares of its Common Stock in exchange for all of the outstanding
common stock of North Bay Bancorp. The subsidiary bank was merged with and
into WAB. The business combination was accounted for as a
pooling-of-interests business combination.
At December 31, 1995, the Company had consolidated assets of
approximately $2.49 billion, deposits of approximately $2.05 billion and
shareholders' equity of approximately $223.9 million.
SERVICE AREA
The Banks serve the following eleven major markets:
Marin County. Marin County is one of the most affluent counties in
California and has a population of approximately 235,540. San Rafael and
Novato are the largest communities in the county, with populations of
approximately 53,250 and 49,070, respectively. Both are in close proximity to
the city of San Francisco. The area served by WAB is a relatively dense
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 geographically the largest. The population of the
county is approximately 432,220. The city of Santa Rosa is the largest
population center in Sonoma County with an estimated population of 128,260.
Light industry, agriculture and food processing are the primary industries in
Sonoma County, with tourism and recreational activities growing steadily. In
1995, WAB added one branch in the city of Point Arena to its two-branch
network in the southern part of Mendocino County, population 86,230, where
the major business is agriculture.
<PAGE>
Solano County. WAB serves all of Solano County, with an estimated
population of 377,570. Vallejo is the largest city in the county, with a
population of approximately 114,690. While light industry and the service
sector is growing steadily, the federal government is the largest employer in
the county.
Stanislaus County. In January 1995, three new branches were added to
WAB's branch network in this county, following the acquisition of PV
Financial, parent company of Pacific Valley National Bank with headquarters
in the city of Modesto, with a population of approximately 181,780. The
county, whose major industry is agriculture, has a population of
approximately 419,970.
Contra Costa County. During 1984, WAB opened an office in the city of
Walnut Creek, with a population of approximately 63,390, to serve Contra
Costa's growing commercial and industrial construction industry. In 1992, the
Company acquired John Muir National Bank, serving individuals and businesses
in this county, and merged with and into WAB. During 1995, WAB opened a new
branch in the city of Concord. The population of the county is approximately
883,390.
Sacramento County. In 1982, WAB established an office in Sacramento,
the state capital of California. The county has a population of approximately
1,139,187. Major industries include agriculture, government, manufacturing
and wholesale and retail trade. Sacramento is also a major transportation
center for the state.
Nevada County. WAB is currently serving most of Nevada County, an area
generally known as the "Gold Country". The population of the entire county,
where tourism, agriculture and wood product manufacturing are the major
industries, is approximately 89,490.
Placer County. In 1991, WAB opened a new branch in Roseville, located
approximately 15 miles east of WAB's Sacramento office, to serve the growing
area of the Sierra Nevada foothills. The population of Placer County is
approximately 210,010.
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.
Lake County. Bank of Lake County, ("Lake County's Bank"), ("BLC") has
4 office locations in Lake County, which has an estimated population of
approximately 57,510. In October 1995, BLC purchased a branch in Kelseyville
and merged it into the already existing Kelseyville branch. Agriculture is
the primary industry of the county, followed closely by recreation and
tourism.
Napa County. Napa Valley Bank ("NVB") has 7 office locations in Napa
County. The population of the county is approximately 120,600, with
agriculture being its major source of business, followed by tourism.
Neither the Company nor any of its subsidiaries have any foreign or
international activities or operations.
All population figures contained in the previous discussion are 1995
estimates as prepared by the California Department of Finance and are
exclusive of incorporated areas.
<PAGE>
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 total deposits in Marin County at June 30, 1995, at which date it
had approximately 10 percent of total deposits held in federally insured
depository institutions in that county. The acquisition of Novato National
Bank added approximately 2 percent to WAB's market share in Marin County in
terms of total deposits. According to the same source of information and in
terms of total deposits, as of June 30, 1995 WAB ranked second in WAB's
Sonoma-Mendocino counties service area, with approximately an 8 percent share
of the market, and was third in the Solano-Contra Costa counties service area
with a market share of approximately 6 percent of the market. In addition,
WAB's market share in the Sacramento-Placer-Nevada counties service area was
approximately 7 percent, ranking fourth among its competitors. The
acquisition of Pacific Valley National Bank gave WAB a presence in Stanislaus
County: as of June 30, 1995, WAB's market share in WAB's Stanislaus County
service area was approximately 6 percent, ranking fourth when compared with
other financial institutions in terms of total deposits. The share of the
market for deposits and loans held by WAB in San Francisco County is not
significant.
According to the same source of information, NVB was the largest
financial institution in terms of total deposits in the Napa Valley service
area as of June 30, 1995, with approximately 18 percent market share. The
same source of data reports that BLC ranked third in market share in the Lake
County service area with 14 percent of the total.
The 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
of one the Banks has 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 the financial markets.
Competition is expected to further increase in the state of California as a
result of legislation enacted in 1986 and 1989, which enabled bank holding
companies based outside the state 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.
<PAGE>
EMPLOYEES
At December 31, 1995, the Company employed 1,169 people (841 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 agency 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.
<PAGE>
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 revised risk-based assessment
system for deposit insurance premiums which became effective January 1, 1996.
Under this system, depository institutions are charged anywhere from 0 cents
to 27 cents for every $100 in insured domestic deposits, based on such
institutions' capital levels and supervisory ratings.
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.
<PAGE>
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.
<PAGE>
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;
<PAGE>
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, 1995, the Company was in compliance with applicable
capital and risk-based capital ratio requirements.
ITEM 2. Description of Property
BRANCH OFFICES AND FACILITIES
The Banks are engaged in the banking business through 55 offices in
twelve counties in Northern California, including eleven offices in Marin
County, nine in Sonoma County, seven in Napa County, six in Solano County,
five in Stanislaus County, four in Contra Costa County, four in Lake County,
three in Mendocino County, two in Nevada County, two 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. Forty banking offices and
two support facilities are leased. Most of the leases contain multiple
<PAGE>
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 1995.
<PAGE>
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
1995 High Low
--------------------------------------------------------------
First quarter ........................... $33.25 $29.50
Second quarter ........................... 37.50 33.00
Third quarter ........................... 38.50 36.50
Fourth quarter ........................... 43.25 38.50
1994 High Low
--------------------------------------------------------------
First quarter ........................... $29.25 $25.88
Second quarter ........................... 32.50 27.00
Third quarter ........................... 33.25 29.25
Fourth quarter ........................... 33.25 29.00
As of December 31, 1995, there were 6,832 holders of record of the
Company's common stock. This number does not include stockholders from
acquired companies that as of December 31, 1995 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. As of December 31, 1995, $45.9 million was available for
payment of dividends by the Company to its shareholders, under the
restrictions imposed by regulatory agencies.
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 68
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 provided 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.
<PAGE>
ITEM 6. Selected Financial Data
Financial Summary
(In thousands, except per share data and number of shareholders)
<TABLE>
<CAPTION>
Financial Summary
(In thousands,
except per share data) 1995 1994* 1993* 1992* 1991*
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Years ended December 31
Interest income $ 174,377 $ 166,094 $ 165,975 $ 185,060 $ 212,811
Interest expense 58,612 49,860 51,158 69,951 103,233
- --------------------------------------------------------------------------------------------
Net interest income 115,765 116,234 114,817 115,109 109,578
Provision for loan losses 5,595 7,420 10,581 8,410 12,201
Non-interest income 21,533 25,999 33,806 30,646 28,485
Non-interest expense 86,340 94,341 121,441 111,662 103,358
- --------------------------------------------------------------------------------------------
Income before income taxes 45,363 40,472 16,601 25,683 22,504
Provision for income taxes 13,979 12,810 4,507 9,642 7,742
- --------------------------------------------------------------------------------------------
Net income $ 31,384 $ 27,662 $ 12,094 $ 16,041 $ 14,762
============================================================================================
Per share:
Net income $ 3.18 $ 2.79 $ 1.22 $ 1.66 $ 1.54
Dividends declared .77 .64 .57 .51 .44
Book value at December 31 22.87 20.67 19.03 18.18 17.12
Average common shares outstanding 9,877 9,916 9,884 9,678 9,587
Shares outstanding at December 31 9,793 9,901 9,914 9,772 9,494
At December 31
Cash and cash equivalents $ 182,133 $ 180,957 $ 157,750 $ 198,011 $ 183,296
Investment securities and
money market assets 862,762 826,896 807,490 654,883 599,187
Loans, net 1,353,732 1,354,539 1,368,923 1,424,436 1,494,766
Other assets 92,317 95,035 94,685 99,385 89,456
- --------------------------------------------------------------------------------------------
Total assets $2,490,944 $2,457,427 $2,428,848 $2,376,715 $2,366,705
============================================================================================
Non-interest bearing deposits $ 497,489 $ 472,301 $ 462,636 $ 397,185 $ 357,295
Interest bearing deposits 1,552,032 1,599,391 1,647,395 1,744,900 1,788,136
Other liabilities 217,486 181,074 130,173 56,990 58,691
Shareholders' equity 223,937 204,661 188,644 177,640 162,583
- --------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $2,490,944 $2,457,427 $2,428,848 $2,376,715 $2,366,705
============================================================================================
<FN>
* Restated on an historical basis to reflect the January 31, 1995
acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp, on a
pooling-of-interests basis.
** Fully taxable equivalent
</TABLE>
<PAGE>
Financial Summary
Continued
<TABLE>
<CAPTION>
(In thousands,
except per share data) 1995 1994* 1993* 1992* 1991*
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Ratios
For the year:
Return on assets 1.30% 1.13% .51% .68% .64%
Return on equity 14.61 14.13 6.73 9.49 9.33
Net interest margin (FTE)** 5.56 5.45 5.50 5.51 5.34
Net loan losses to average loans .33 .37 .65 .50 .44
At December 31:
Equity to assets 8.99 8.33 7.77 7.47 6.87
Total capital to
risk-adjusted assets 15.18 15.01 14.13 12.25 11.12
Loan loss reserve to loans 2.42 2.34 2.15 2.03 1.85
<FN>
* Restated on an historical basis to reflect the January 31, 1995
acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp, on a
pooling-of-interests basis.
** Fully taxable equivalent
</TABLE>
<PAGE>
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 40 through 69, as
well as with the other information presented throughout the report.
All financial information has been restated on an historical basis to
reflect the PV Financial acquisition on January 31, 1995, the CapitolBank
Sacramento acquisition on June 6, 1995, and the North Bay Bancorp acquisition
on July 17, 1995, (the "Mergers") using the pooling-of-interests method of
accounting.
The Company achieved record earnings of $31.4 million in 1995,
representing a 13 percent increase from the $27.7 million earned in 1994 and
160 percent higher than 1993 earnings of $12.1 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 that were
taken in the form of asset write-downs, a special loan loss provision and
other merger-related charges.
Components of Net Income
(Percent of average earning assets) 1995 1994 1993
- ---------------------------------------------------------------------
Net interest income* 5.56% 5.45% 5.50%
Provision for loan losses (.25) (.33) (.49)
Non-interest income .98 1.17 1.58
Non-interest expense (3.92) (4.23) (5.67)
Taxes* (.94) (.82) (.35)
- ---------------------------------------------------------------------
Net income 1.43% 1.24% .57%
=====================================================================
Net income as a percentage of
average total assets 1.30% 1.13% .51%
* Fully taxable equivalent (FTE)
On a per share basis, 1995 net income was $3.18, compared to $2.79 and
$1.22 in 1994 and 1993, respectively. During 1995, the Company benefited from
increases in earning assets yields and continuing expense controls which were
partially offset by increases in cost of funds and declines in non-interest
income. Earnings in 1994 were favorably affected compared to 1993 by
reductions in cost of funds and expense controls which were partially offset
by declines in non-interest income.
The Company's return on average total assets was 1.30 percent in 1995,
compared to 1.13 percent and .51 percent in 1994 and 1993, respectively.
Return on average equity in 1995 was 14.61 percent, compared to 14.13 percent
and 6.73 percent, respectively, in the two previous years.
Net Interest Income
The Company was able to increase net interest income levels from 1994,
due to increases in earning assets yields that more than offset the lower
<PAGE>
level of average earning assets and a more unfavorable composition of
deposits. Comparing 1994 to 1993, due to increases in the average earning
assets, including increases in the tax-free investment securities portfolio
which resulted in a higher fully taxable equivalent adjustment, and a more
favorable composition of deposits, the Company was able to generate higher
net interest income on a fully taxable equivalent basis.
Components of Net Interest Income
(In millions) 1995 1994 1993
- -------------------------------------------------------------
Interest income $ 174.4 $ 166.1 $ 166.0
Interest expense (58.6) (49.9) (51.1)
FTE adjustment 6.5 5.4 2.8
- -------------------------------------------------------------
Net interest income (FTE) $ 122.3 $ 121.6 $ 117.7
=============================================================
Average earning assets $ 2,200.9 $2,232.6 $2,146.0
Net interest margin (FTE) 5.56% 5.45% 5.50%
Net interest income (FTE) in 1995 increased $700,000 from 1994 to $122.3
million. Interest income increased $8.3 million from 1994, the combined
effect of a 53 basis point increase in earning-asset yields partially offset
by a $29.2 million decrease in average balances. The effect was offset by an
$8.7 million increase in interest expense, the result of an increase of 62
basis points in rates paid combined with a $69.2 million decrease in the
average balance of interest-bearing liabilities. In addition, the FTE
adjustment increased $1.1 million due to increases in tax-free earning
assets. Comparing 1994 to 1993, net interest income increased $3.9 million. A
decrease in interest expense of $1.2 million and a $2.6 million increase in
the fully taxable equivalent adjustment due to increases in the tax-free
investment securities portfolio account for the majority of the variance.
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 $1.3 million lower in 1995 than in 1994 and $1.8
million lower in 1994 than in 1993.
<PAGE>
Distribution of Average Assets, Liabilities and Shareholders' Equity
Yields/Rates and Interest Margin
(Dollars in thousands) Full Year 1995
- --------------------------------------------------------------------------
Interest Rates
Average income/ earned/
balance expense paid
- --------------------------------------------------------------------------
Assets
Money market assets and funds sold $ 4,886 $ 276 5.65 %
Trading account securities 11 1 6.35
Investment securities 826,329 51,289 6.21
Loans:
Commercial 806,103 79,010 9.80
Real estate construction 62,562 7,178 11.47
Real estate residential 213,967 15,919 7.44
Consumer 287,032 27,249 9.49
- ------------------------------------------------------------------
Earning assets 2,200,890 180,922 8.22
Other assets 215,973
- ---------------------------------------------------------
Total assets $2,416,863
=========================================================
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $ 451,560
Savings and interest-bearing
transaction 1,087,169 24,519 2.26 %
Time less than $100,000 305,507 15,066 4.93
Time $100,000 or more 166,241 8,895 5.35
- ------------------------------------------------------------------
Total interest-bearing deposits 1,558,917 48,480 3.11
Funds purchased 149,902 8,403 5.61
Notes and mortgages payable 22,667 1,729 7.63
- ------------------------------------------------------------------
Total interest-bearing liabilities 1,731,486 58,612 3.39
Other liabilities 18,961
Shareholders' equity 214,856
- ---------------------------------------------------------
Total liabilities and shareholders' equity $2,416,863
=========================================================
Net interest spread (1) 4.83 %
Net interest income and interest margin (2) $122,310 5.56 %
==========================================================================
(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.
<PAGE>
Distribution of Average Assets, Liabilities and Shareholders' Equity
Yields/Rates and Interest Margin
(Dollars in thousands) Full Year 1994
- ---------------------------------------------------------------------------
Interest Rates
Average income/ earned/
balance expense paid
- --------------------------------------------------------------------------
Assets
Money market assets and funds sold $ 35,514 $ 1,367 3.85 %
Trading account securities 37 2 4.24
Investment securities 831,478 49,272 5.93
Loans:
Commercial 798,894 72,894 9.12
Real estate construction 76,875 7,695 10.01
Real estate residential 197,675 14,236 7.20
Consumer 292,080 25,959 8.89
- ------------------------------------------------------------------
Earning assets 2,232,553 171,425 7.68
Other assets 221,555
- ---------------------------------------------------------
Total assets $2,454,108
=========================================================
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $ 439,881 $ -- -- %
Savings and interest-bearing
transaction 1,166,249 23,672 2.03
Time less than $100,000 320,915 12,533 3.91
Time $100,000 or more 153,504 5,762 3.75
- ------------------------------------------------------------------
Total interest-bearing deposits 1,640,668 41,967 2.56
Funds purchased 130,299 5,281 4.05
Notes and mortgages payable 29,690 2,612 8.80
- ------------------------------------------------------------------
Total interest-bearing liabilities 1,800,657 49,860 2.77
Other liabilities 17,780
Shareholders' equity 195,790
- ---------------------------------------------------------
Total liabilities and shareholders' equity $2,454,108
=========================================================
Net interest spread (1) 4.91 %
Net interest income and interest margin (2) $121,565 5.45 %
==========================================================================
(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.
<PAGE>
Distribution of Average Assets, Liabilities and Shareholders' Equity
Yields/Rates and Interest Margin
(Dollars in thousands) Full Year 1993
- ---------------------------------------------------------------------------
Interest Rates
Average income/ earned/
balance expense paid
- --------------------------------------------------------------------------
Assets
Money market assets and funds sold $ 36,348 $ 1,159 3.19 %
Trading account securities 183 6 3.14
Investment securities 698,961 43,328 6.20
Loans:
Commercial 807,878 71,201 8.81
Real estate construction 87,080 7,854 9.02
Real estate residential 196,346 16,039 8.17
Consumer 319,182 29,226 9.16
- ------------------------------------------------------------------
Earning assets 2,145,978 168,813 7.87
Other assets 231,498
- ---------------------------------------------------------
Total assets $2,377,476
=========================================================
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $ 405,200 $ -- -- %
Savings and interest-bearing
transaction 1,121,004 24,130 2.15
Time less than $100,000 382,608 15,852 4.14
Time $100,000 or more 194,072 7,141 3.68
- ------------------------------------------------------------------
Total interest-bearing deposits 1,697,684 47,123 2.78
Funds purchased 60,136 2,018 3.36
Notes and mortgages payable 17,986 2,017 11.21
- ------------------------------------------------------------------
Total interest-bearing liabilities 1,775,806 51,158 2.88
Other liabilities 16,757
Shareholders' equity 179,713
- ---------------------------------------------------------
Total liabilities and shareholders' equity $2,377,476
=========================================================
Net interest spread (1) 4.99 %
Net interest income and interest margin (2) $117,655 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.
<PAGE>
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.
For the years
(In thousands) ended December 31,
- -------------------------------------------------------------------
1995 compared with 1994
---------------------------
Volume Rate Total
- ------------------------------------------------------------------
Increase (decrease) in
interest and fee income:
MMkt. assets and funds sold $(2,386) $1,295 $(1,091)
Trading account securities (3) 2 (1)
Investment securities (303) 2,320 2,017
Loans:
Commercial 663 5,453 6,116
Real estate construction (2,407) 1,890 (517)
Real estate residential 1,201 482 1,683
Consumer (438) 1,728 1,290
- ------------------------------------------------------------------
Total loans (981) 9,553 8,572
- ------------------------------------------------------------------
Total increase (decrease) in
interest and fee income (3,673) 13,170 9,497
- ------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (1,326) 2,173 847
Time less than $ 100,000 (566) 3,099 2,533
Time $ 100,000 or more 511 2,622 3,133
- ------------------------------------------------------------------
Total interest-bearing (1,381) 7,894 6,513
Funds purchased 880 2,242 3,122
Notes and mortgages payable (565) (318) (883)
- ------------------------------------------------------------------
Total increase (decrease) in
interest expense (1,066) 9,818 8,752
- ------------------------------------------------------------------
Increase (decrease) in
net interest income $(2,607) $3,352 $ 745
==================================================================
(1) Amounts calculated on a fully taxable equivalent basis using the
current statutory federal tax rate.
<PAGE>
For the years
(In thousands) ended December 31,
- ------------------------------------------------------------------
1994 compared with 1993
---------------------------
Volume Rate Total
- ------------------------------------------------------------------
Increase (decrease) in
interest and fee income:
MMkt. assets and funds sold $ (26) $ 234 $ 208
Trading account securities (7) 3 (4)
Investment securities 7,743 (1,799) 5,944
Loans:
Commercial (779) 2,472 1,693
Real estate construction (2,539) 2,380 (159)
Real estate residential 109 (1,912) (1,803)
Consumer (2,427) (840) (3,267)
- ------------------------------------------------------------------
Total loans (5,636) 2,100 (3,536)
- ------------------------------------------------------------------
Total increase (decrease) in
interest and fee income 2,074 (538) 2,612
- ------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing 1,108 (1,566) (458)
Time less than $ 100,000 (2,448) (871) (3,319)
Time $ 100,000 or more (1,526) 147 (1,379)
- ------------------------------------------------------------------
Total interest-bearing (2,866) (2,290) (5,156)
Funds purchased 2,770 493 3,263
Notes and mortgages payable 890 (295) 595
- ------------------------------------------------------------------
Total increase (decrease) in
interest expense 794 (2,092) (1,298)
- ------------------------------------------------------------------
Increase in net
interest income $1,280 $2,630 $3,910
==================================================================
(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 $5.6 million for
1995, compared to $7.4 million in 1994 and $10.6 million in 1993. The
reduction in the provision in 1995 was due to improved asset quality. The
1993 provision included a $3.1 million merger-related provision, reflecting
an aggressive workout strategy for loans and properties acquired in the Napa
Valley Bancorp merger. For further information regarding net credit losses
and the reserve for loan losses, see the "Reserve for Loan Losses" section of
this report.
<PAGE>
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 November 1995, the
Financial Accounting Standards Board issued a special report, "A Guide to
Implementation to Statement No. 115, on Accounting for Certain Investments in
Debt and Equity Securities - Questions and Answers" (the "Special Report").
The Special Report allowed companies to reassess the appropriateness of the
classifications of all securities and account for any reclassification at
fair value. The Company adopted the reclassification provision stated in the
Special Report prior to December 31, 1995 and transferred $329.4 million
of securities held to maturity into available for sale. The unrealized pretax
gain upon transfer was $1.1 million as of December 31, 1995.
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 64 months
at December 31, 1995 and, on the same date, those investments included $241.2
million in fixed rate and $1.0 million in adjustable rate securities.
Investment securities available for sale are generally 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 a security is sold, any
gain or loss is recorded as a charge to earnings and the equity adjustment is
reversed. At December 31, 1995, the Banks held $620.3 million classified as
investments available for sale. At December 31, 1995, a net unrealized gain
of $1.7 million, related to these securities was held in stockholders'
equity.
The Company had no trading securities at December 31, 1995.
For more information on investment securities, see Notes 1 and 2
to the consolidated financial statements found on pages 47 and 50.
The following table shows the amortized cost of the Company's investment
securities as of the dates indicated:
(In thousands) 1995 1994 1993
- ------------------------------------------------------------------------
U.S. Treasury $240,832 $279,014 $286,300
U.S. Government agencies and corporations 248,964 275,221 269,004
States and political subdivisions 228,068 198,135 128,758
Asset backed securities 83,636 37,162 65,433
Other securities 58,079 40,785 45,701
- ------------------------------------------------------------------------
Total $859,579 $830,317 $795,196
========================================================================
The following table is a summary of the relative maturities and yields
of the Company's investment securities as of December 31, 1995. Weighted
average yields have been computed by dividing annual interest income,
adjusted for amortization of premium and accretion of discount, by the
<PAGE>
amortized cost of the related security. Yields on state and political
subdivision securities have been calculated on a fully taxable equivalent
basis using the current statutory rate.
<TABLE>
<CAPTION>
Held to Maturity
- -----------------------------------------------------------------------------------------
Within After One After Five
One But Within But Within After Ten Mortgage
(Dollars in thousands) Year Five Years Ten Years Years Backed Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ -- $ -- $ -- $ -- $ -- $ --
Interest rate --% --% --% --% --% --%
U.S. Government agencies
and corporations -- -- -- -- -- --
Interest rate --% --% --% --% --% --%
States and political
subdivisions 997 4,020 47,286 57,451 -- 109,754
Interest rate 7.97% 10.81% 8.11% 8.31% --% 8.31%
Asset backed -- 3,264 -- -- -- 3,264
Interest rate --% 5.53% --% --% --% 5.53%
Other securities 1,896 -- -- 2,198 -- 4,094
Interest rate 6.70% --% --% 6.00% --% 6.32%
- -----------------------------------------------------------------------------------------
Subtotal $2,893 $7,284 $47,286 $59,649 $ -- $117,112
Interest rate 7.14% 8.44% 8.11% 8.23% --% 8.16%
Mortgage backed -- -- -- -- 125,063 125,063
Interest rate --% --% --% --% 5.20% 5.20%
- -----------------------------------------------------------------------------------------
Total $2,893 $7,284 $47,286 $59,649 $125,063 $242,175
Interest rate 7.14% 8.44% 8.11% 8.23% 5.20% 6.63%
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Available for Sale
- ----------------------------------------------------------------------------------------
Within After One After Five
One But Within But Within After Ten Mortgage
(Dollars in thousands) Year Five Years Ten Years Years Backed Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $121,547 $119,284 $ -- $ -- $ -- $240,831
Interest rate 5.80% 5.27% --% --% --% 5.54%
U.S. Government agencies
and corporations 13,000 20,349 -- -- -- 33,349
Interest rate 4.93% 5.82% --% --% --% 5.47%
States and political
subdivisions 8,452 24,038 26,205 59,618 -- 118,313
Interest rate 7.98% 9.36% 7.85% 8.17% --% 8.32%
Asset backed -- 33,879 46,493 -- -- 80,372
Interest rate --% 5.60% 6.09% --% --% 5.88%
Other securities 1,010 47,470 -- 5,505 -- 53,985
Interest rate 7.00% 6.26% --% 10.22% --% 6.68%
- -----------------------------------------------------------------------------------------
Subtotal $144,009 $245,020 $72,698 $65,124 $-- $526,850
Interest rate 5.86% 5.95% 6.72% 8.34% --% 6.33%
Mortgage backed -- -- -- -- 90,554 90,554
Interest rate --% --% --% --% 6.10% 6.10%
- -----------------------------------------------------------------------------------------
Total $144,009 $245,020 $72,698 $65,124 $90,553 $617,404
Interest rate 5.86% 5.95% 6.72% 8.34% 6.10% 6.30%
=========================================================================================
</TABLE>
<PAGE>
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.
<TABLE>
Composition of the Loan Portfolio
<CAPTION>
(In thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and commercial
real estate $ 816,422 $ 813,589 $ 812,630 $ 820,666 $ 844,870
Real estate construction 54,181 73,492 76,330 99,924 131,450
Real estate residential 237,535 207,477 206,264 201,080 181,216
Consumer 291,350 308,812 319,545 350,919 384,642
Unearned income (12,248) (16,381) (15,801) (18,899) (19,301)
- --------------------------------------------------------------------------------------------
Gross loans $1,387,240 $1,386,989 $1,398,968 $1,453,690 $1,522,877
Reserve for loan losses (33,508) (32,450) (30,045) (29,254) (28,111)
- --------------------------------------------------------------------------------------------
Net loans $1,353,732 $1,354,539 $1,368,923 $1,424,436 $1,494,766
============================================================================================
</TABLE>
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,
1995.*
<TABLE>
<CAPTION>
Within One to After
one year five years five years Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and Commercial
real estate** $540,942 $132,501 $142,979 $816,422
Real estate construction 52,445 1,736 -- 54,181
- ----------------------------------------------------------------------------------
Total $593,387 $134,237 $142,979 $870,603
==================================================================================
Loans with fixed interest rates $ 31,065 $134,237 $142,979 $308,281
Loans with floating interest rates 562,322 -- -- 562,322
- ----------------------------------------------------------------------------------
Total $593,387 $134,237 $142,979 $870,603
==================================================================================
<FN>
* Excludes loans to individuals and residential mortgages totaling $516.6
million. These types of loans are typically paid in monthly installments
over a number of years.
** Incudes demand loans
</TABLE>
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 found on page 61.
<PAGE>
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, and receive an elevated level of attention to ensure collection.
The following is a summary of classified assets on the dates indicated:
(In millions)
At December 31, 1995 1994
- ------------------------------------------------------
Classified loans $44.9 $49.7
Other classified assets 5.1 8.0
- ------------------------------------------------------
Total classified assets $50.0 $57.7
======================================================
Classified loans at December 31, 1995 decreased $4.8 million or 10
percent to $44.9 million from December 31, 1994, reflecting improvements in
the borrowers' financial condition and satisfaction of debt. The improvement
is primarily due to the repayment of classified loans with real estate
collateral. Other classified assets, which decreased $2.9 million from the
prior year, were due to sales and write-downs of properties classified as
other real estate owned.
Non-Performing Assets
Non-performing assets include non-accrual loans, loans 90 or more days
past due and still accruing and other real estate owned. 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.
Generally, 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. When the ability to fully collect non-accrual loan principal
is in doubt, cash payments received are applied against the principal balance
of the loan 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.
<PAGE>
<TABLE>
Non-performing assets
<CAPTION>
(in millions) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Performing non-accrual loans $ 2.4 $ 2.0 $ 1.9 $ 1.2 $ 2.2
Non-performing non-accrual loans 7.5 8.3 13.9 36.2 50.1
- --------------------------------------------------------------------------------
Total non-accrual loans 9.9 10.3 15.8 37.4 52.3
Loans 90 or more days past due
and still accruing .3 1.8 1.7 .6 1.6
- --------------------------------------------------------------------------------
Total non-performing loans 10.2 12.1 17.5 38.0 53.9
Other real estate owned 5.1 8.0 14.0 18.6 5.8
- --------------------------------------------------------------------------------
Total non-performing assets $15.3 $20.1 $31.5 $56.6 $59.7
================================================================================
Reserve for loan losses as a percentage of
non-performing loans 329% 268% 172% 77% 52%
</TABLE>
Performing non-accrual loans increased $400,000 to $2.4 million at
December 31, 1995 while non-performing non-accrual loans decreased $800,000
to $7.5 million at December 31, 1995, due to loan collections, write-downs
and payoffs.
The declining other real estate balance during 1995 and 1994 was due to
asset write-downs and liquidations. The overall credit quality of the loan
portfolio has improved, resulting in an increase in the ratio of loan loss
reserve as a percentage of total non-accrual loans and loans 90 or more days
past due and still accruing. The performance of any individual loan can be
impacted by external factors such as the interest rate environment or factors
particular to the borrower. The amount of gross interest income that would
have been recorded for non-accrual loans if all such loans had been current
in accordance with their original terms was $817,000, $1.2 million and $1.4
million in 1995, 1994 and 1993, respectively. The amount of interest income
that was recognized on non-accrual loans from cash payments made in 1995,
1994 and 1993 was $237,000, $413,000 and $372,000, respectively. Cash
payments received which were applied against the book balance of performing
and non-performing non-accrual loans were immaterial for all three years.
<PAGE>
<TABLE>
<CAPTION>
Summary of Non-Accrual Loans
(In thousands)
- --------------------------------------------------------------------------------
December 31, 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Performing non-accrual loans $2,464 $ 1,943 $ 1,927 $ 1,199 $ 2,227
Non-performing non-accrual loans 7,486 8,347 13,852 36,182 50,074
- --------------------------------------------------------------------------------
Total non-accrual loans 9,950 10,290 15,779 37,381 52,301
- --------------------------------------------------------------------------------
Performing non-accrual loans
Commercial 1,367 1,761 1,198 1,125 2,227
Real estate construction 1,097 156 729 -- --
Real estate residential -- -- -- 74 --
Consumer -- 26 -- -- --
- --------------------------------------------------------------------------------
Total performing
non-accrual loans 2,464 1,943 1,927 1,199 2,227
- --------------------------------------------------------------------------------
Non-performing non-accrual loans
Commercial 3,641 4,201 9,143 22,671 25,237
Real estate construction 2,927 2,229 3,887 1,078 22,032
Real estate residential 645 1,774 197 2,142 2,491
Consumer 272 143 625 291 314
- --------------------------------------------------------------------------------
Total non-performing
non-accrual loans 7,486 8,347 13,852 36,182 50,074
- --------------------------------------------------------------------------------
Total non-accrual loans $9,950 $10,290 $15,779 $37,381 $52,301
================================================================================
</TABLE>
It is the position of the Company that, even though the strategy to
improve credit quality is reflected in the declining balances of non-
performing assets during the past five years, the increased levels of the
loan loss reserve is adequate to provide for losses that can be estimated
based on anticipated specific and general conditions as determined by
Management. These include credit loss experience, the amount of past due and
non-performing loans, recommendations of regulatory authorities and
prevailing economic conditions. The reserve is allocated to segments of the
loan portfolio based in part on a quantitative analysis of historical credit
loss experience. Criticized and classified loans 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 homogeneous nature, 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 judgemental and may not be reduced to a
mathematical formula, management considers the reserve for loan losses, for
the periods presented, 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.
<PAGE>
The following table summarizes the loan loss experience of the Company
for the periods indicated:
<TABLE>
Loan Loss Experience
<CAPTION>
(In thousands)
- --------------------------------------------------------------------------------------------
December 31, 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total loans outstanding $1,387,240 $1,386,989 $1,398,968 $1,453,690 $1,522,877
Average loans outstanding
during the period 1,369,663 1,363,109 1,410,485 1,471,777 1,536,926
Analysis of the reserve:
Balance, beginning of period $32,450 $30,045 $29,254 $28,111 $22,592
Credit losses:
Commercial (3,033) (4,004) (6,469) (5,286) (6,118)
Real estate construction (1,292) (750) (2,274) (1,657) (50)
Real estate residential (167) -- (114) (80) --
Consumer (2,278) (2,663) (2,657) (3,178) (4,336)
- --------------------------------------------------------------------------------------------
Total (6,770) (7,417) (11,514) (10,201) (10,504)
Credit loss recoveries:
Commercial 1,117 1,088 1,193 1,360 1,118
Real estate construction 3 65 -- -- --
Real estate residential -- -- 5 18 --
Consumer 1,113 1,249 1,210 1,556 2,704
- --------------------------------------------------------------------------------------------
Total 2,233 2,402 2,408 2,934 3,822
- --------------------------------------------------------------------------------------------
Net credit losses (4,537) (5,015) (9,106) (7,267) (6,682)
- --------------------------------------------------------------------------------------------
Sale of Sonoma Valley Bank -- -- (684) -- --
Additions to the reserve charged
to operating expense 5,595 7,420 10,581 8,410 12,201
- --------------------------------------------------------------------------------------------
Balance, end of period $33,508 $32,450 $30,045 $29,254 $28,111
============================================================================================
Net credit losses to average loans .33% .37% .65% .49% .43%
Reserve for loans losses as a
percentage of loans outstanding 2.42% 2.34% 2.15% 2.01% 1.85%
</TABLE>
<PAGE>
The following table present the allocation of the loan loss reserve
balance on the dates indicated:
Allocation of the Loan Loss Reserve
(Dollars in thousands)
- ----------------------------------------------------------------------------
At December 31, 1995 1994
- ------------------------------------------------ -----------------------
Allocation Loans as Allocation Loans as
of Percent of of Percent of
Type of loan Reserve Total Reserve Total
- ------------ Balance Loans Balance Loans
------- ------- ------- -------
Commercial $13,519 58.9% $11,596 58.6%
Real estate construction 3,586 3.9 2,108 5.3
Real estate residential 57 17.1 47 15.0
Consumer 3,588 20.1 3,765 21.1
Unallocated portion
of the reserve 12,758 14,934
------- ------- ------- -------
Total $33,508 100.0% $32,450 100.0%
======= ======= ======= =======
At December 31, 1993 1992
- ------------------------------------------------- ---------------------
Allocation Loans as Allocation Loans as
of Percent of of Percent of
Type of loan Reserve Total Reserve Total
- ------------ Balance Loans Balance Loans
------- ------- ------- -------
Commercial $15,454 58.1% $16,610 56.5%
Real estate construction 2,592 5.5 964 6.9
Real estate residential 85 14.7 545 13.8
Consumer 3,921 21.7 3,872 22.8
Unallocated portion
of the reserve 7,993 7,263
- --------------------------------------------------------------------------
Total $30,045 100.0% $29,254 100.0%
==========================================================================
At December 31, 1991
- --------------------------------------------------------------
Allocation Loans as
of Percent of
Type of loan Reserve Total
- ------------ Balance Loans
------- -------
Commercial $11,041 55.5%
Real estate construction 2,390 8.6
Real estate residential 50 11.9
Consumer 2,363 24.0
Unallocated portion of the reserve 12,267
- --------------------------------------------------------------
Total $28,111 100.0%
==============================================================
<PAGE>
The increase in the allocation to commercial loans from December 1994 to
December 1995 is primarily due to the inclusion of reserves allocated to
certain loans acquired through the 1995 mergers. The reduced allocation to
commercial loans during prior years is primarily due to fluctuations in the
balance of criticized loans. The increased allocation to construction loans
in attributable to increases in criticized loans due to the recessionary
environment and the level of credit loss recoveries. The unallocated
component includes Management's judgemental determination of the amounts
necessary for concentrations, economic uncertainties and other subjective
factors.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" ("SFAS 114"), as amended by Statement of Financial Accounting Standards
No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures" ("SFAS 118"). 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
(principal and interest) according to the contractual terms of the loan
agreement. The measurement of impairment may be based on (i) the present
value of the expected cash flows of the impaired loan discounted at the
loan's original effective interest rate, (ii) the observable market price of
the impaired loans or (iii) the fair value of the collateral of a collateral-
dependent loan. SFAS 114, as amended by SFAS 118, does not apply to large
groups of smaller balance homogeneous loans that are collectively evaluated
for impairment. The Company generally identifies loans to be reported as
impaired when such loans are in non-accrual status or are considered troubled
debt restructurings due to the granting of a below-market rate of interest or
a partial forgiveness of indebtedness on an existing loan.
In measuring impairment for the purpose of establishing specific loan
loss reserves, the Company reviews all impaired commercial and construction
loans classified "Substandard" and "Doubtful" that meet materiality
thresholds of $250,000 and $100,000, respectively. The Company considers
classified loans below the established thresholds to represent immaterial
loss risk. All "Loss" classified loans are fully reserved under the Company's
standard loan loss reserve methodology and subsequently charged-off.
Commercial and construction loans that are not classified, and large groups
of smaller balance homogeneous loans such as installment, personal revolving
credit, residential real estate and student loans, are evaluated collectively
for impairment under the Company's standard loan loss reserve methodology and
are, therefore, excluded from the specific evaluation using SFAS 114.
The following summarizes the Company's impaired loans at December 31, 1995:
Troubled Total
Non-accrual Debt Impaired Specific
(In thousands) Loans Restructurings Other Loans Reserves
- ------------------------------------------------------------------------
$9,950 $-- $251 $10,201 $850
The average balances of the Company's impaired loans for the year
ended December 31, 1995 were $10.3 million.
<PAGE>
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. In evaluating the
exposure to interest rate risk, the Company considers the effects of various
factors in implementing interest rate risk management activities, including
interest rate swaps, utilized to hedge the impact of interest rate
fluctuations on interest-bearing assets and liabilities in the current
interest rate environment. Interest rate swaps are agreements to exchange
interest payments computed on notional amounts, which are used as a basis for
the calculations only and do not represent exposure to risk for the Company.
The risk to the Company is associated with fluctuations of interest rates and
with the counterparty's ability to meet its interest payment obligations. The
Company minimizes this credit risk by entering into contracts with well-
capitalized money-center banks and by requiring settlement of only the net
difference between the exchanged interest payments. During 1994, the Company
was a party in four interest rate swaps, with notional amounts totaling
$110.0 million. In August 1995, the last two of these contracts, with
notional amounts totaling $60.0 million, expired. The Company paid a variable
rate based on three-month LIBOR and received an average fixed rate of 4.11
percent. The other two swaps, with notional amounts totaling $50.0 million,
expired in November and December 1994. The effect of entering into these
contracts resulted in reductions of net interest income of $763,000 and
$604,000 in 1995 and 1994, respectively.
The primary analytical tool used by the Company 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, based on the
current and projected portfolio mix, the effects on net interest income of
changes in market interest rates. Under the Company's policy and practice,
the projected amount of net interest income over the ensuing twelve months is
not allowed to fluctuate more than ten percent even under alternate assumed
interest rate changes of plus or minus 200 basis points. The results of the
model indicate that the mix of interest rate sensitive assets and liabilities
at December 31, 1995 did not expose the Company to an unacceptable level of
interest rate risk.
<PAGE>
<TABLE>
Interest Rate Sensitivity Analysis
<CAPTION>
At December 31, 1995
-------------------------------------------------------------------
Repricing within:
-----------------
0-30 31-90 91-180 180-365 Over One Non-
(In millions) Days Days Days Days Year Repricing Total
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investment securities $ 21 $ 32 $ 68 $ 138 $ 604 $ -- $ 863
Loans 686 42 62 66 531 -- 1,387
Other assets -- -- -- -- -- 241 241
- ------------------------------------------------------------------------------------------------
Total assets $ 707 $ 74 $ 130 $ 204 $1,135 $ 241 $2,491
================================================================================================
Liabilities
Non-interest bearing $ -- $ -- $ -- $ -- $ -- $ 497 $ 497
Interest bearing:
Transaction 356 -- -- -- -- -- 356
Money market savings 477 -- -- -- -- -- 477
Passbook savings 240 -- -- -- -- -- 240
Time 104 111 105 75 84 -- 479
Short-term borrowings 176 -- -- -- -- -- 176
Long-term debt -- -- -- -- 20 -- 20
Other liabilities -- -- -- -- -- 22 22
Shareholders' equity -- -- -- -- -- 224 224
- ------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,353 $ 111 $ 105 $ 75 $ 104 $ 743 $2,491
================================================================================================
Net assets (liabilities)
subject to repricing $ (646) $ (37) $ 25 $ 129 $1,031 $(502)
- --------------------------------------------------------------------------------------
Cumulative net assets
(liabilities) subject
to repricing $ (646) $(683) $(658) $(529) $ 502 $ --
======================================================================================
</TABLE>
The repricing terms of the table above do not represent contractual
principal maturity but rather principal cash flows available for repricing.
The interest rate sensitivity report shown above categorize interest-bearing
transaction deposits and savings deposits as repricing within 30 days.
However, it is the experience of Management that the historical interest rate
volatility of these interest-bearing transaction and savings deposits can be
similar to liabilities with longer repricing dates, depending on market
conditions. Moreover, the degree to which these interest-bearing transaction
and savings deposits respond to changes in money market rates usually is less
than the response of interest rate sensitive loans. These factors cause the
cumulative net liability position shown above to indicate a much greater
degree of liability sensitivity than Management believes really exists based
on the additional analysis previously discussed.
Liquidity
The principal sources of asset liquidity are marketable investment and
money market securities available for sale.
At December 31, 1995, investment securities available for sale totaled
$620.3 million. This represents an increase of $432.2 million from December
31, 1994. The increase from prior year is, in large part, the result of a
one-time reclassification, at December 31, 1995, of $329.4 million of
securities held to maturity to available for sale, that will provide greater
flexibility for managing the securities portfolio. (See Note 2 to the
consolidated financial statements regarding this one-time reclassification.)
In addition, and as in previous years, growth in deposits and purchased funds
exceeded loan growth, resulting in an increase in the overall size of the
securities portfolio.
<PAGE>
The Company generates significant liquidity from its operating
activities. The Company's profitability in 1995, 1994 and 1993 generated
substantial cash flows provided from operations of $40.1 million, $64.7
million and $27.8 million, respectively.
Additional cash flow may be provided by financing activities, primarily
the acceptance of customer deposits and short-term borrowings from banks.
Deposit balances declined $22.2 million, $38.3 million and $32.1 million
during 1995, 1994 and 1993, respectively. The decline in 1993 included the
effect of the sale of Sonoma Valley Bank. During 1994, the Company paid off
$10.8 million 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 $40.2 million, $59.1 million and $57.2 million in 1995, 1994 and
1993, respectively. In addition, in December 1993, Westamerica Bank issued a
ten-year, $20.0 million subordinated capital note that qualified 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 was partially
offset by the risk level of loan portfolios acquired through the Mergers in
1995. The combination resulted in loan volume increases of $4.9 million and
$19.6 million in 1995 and 1994, respectively. It is the intention of the
Company to moderately increase loan volume without jeopardizing credit
quality. The investment securities portfolio increased by $29.3 million and
$27.4 million, in 1995 and 1994, respectively. The Company anticipates
increasing its cash levels through the end of 1996 mainly due to increased
profitability and retained earnings. For the same period, it is anticipated
that the investment securities portfolio and demand for loans will moderately
increase. The growth in deposit balances is expected to follow the
anticipated growth in loan and investment balances through the end of 1996.
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 continued operations and expansion. The Company's
primary capital resource is shareholders' equity, which increased $19.3
million or 9 percent from the previous year end and increased $35.3 million
or 19 percent from December 31, 1993. The ratio of total risk-based capital
to risk-adjusted assets increased to 15.18 percent at December 31, 1995, from
15.01 percent at December 31, 1994. Tier I risk-based capital to
risk-adjusted assets increased to 12.77 percent at December 31, 1995, from
12.53 percent at year end 1994.
Capital to Risk-Adjusted Assets
Minimum
Regulatory
Capital
At December 31, 1995 1994 Requirements
- -------------------------------------------------------------------
Tier I Capital 12.77% 12.53% 4.00%
Total Capital 15.18 15.01 8.00
Leverage ratio 9.12 8.37 4.00
<PAGE>
The risk-based capital ratios improved in 1995 due to a more rapid
growth in equity than total assets, in conjunction with an increase in
investment securities and a decrease in loan balances, 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 . During 1995 and 1994, the Board
of Directors of the Company authorized the repurchase and retirement of up to
313,450 shares of common stock from time to time, subject to appropriate
regulatory and other accounting requirements. These purchases were made
periodically in the open market and reduced the dilutive impact of issuing
new shares to meet stock performance, option plans and other requirements.
The Company also plans to issue a $22.5 million senior note in 1996. The
proceeds of this note will be used primarily for working capital and for the
Company's ongoing stock repurchase program.
In fact, as of February 16, 1996, the Company issued $22.5 million of
its 7.11 percent Senior Notes due February 1, 2006 pursuant to a note
agreement dated as of February 1, 1996.
Financial Ratios
The following table shows key financial ratios for the periods indicated:
- -------------------------------------------------------------------
For the Years Ended 1995 1994 1993
- -------------------------------------------------------------------
Return on average total assets 1.30% 1.13% .51%
Return on average shareholders equity 14.61 14.13 6.73
Average shareholders' equity as a
percent of:
Average total assets 8.89 7.98 7.56
Average total loans 15.69 14.36 12.79
Average total deposits 10.69 9.41 8.55
Dividend payout ratio 24% 23% 47%
Deposits
The following table sets forth, by time remaining to maturity, the Company's
domestic time deposits in amounts of $100,000 or more.
(In thousands)
- ----------------------------------------------
December 31, 1995
- ----------------------------------------------
Three months or less $109,112
Three to six months 25,979
Six to 12 months 21,858
Over twelve months 12,801
- ----------------------------------------------
Total $169,750
==============================================
<PAGE>
Short Term Borrowings
The following table sets forth the short-term borrowings of the Company.
(In thousands)
- ------------------------------------------------------------------
December 31, 1995 1994 1993
- ------------------------------------------------------------------
Federal funds purchased $ 45,000 $ 1,300 $25,000
Other borrowing funds:
Retail repurchased agreements 91,622 114,340 35,450
Other 39,000 19,786 15,847
- ------------------------------------------------------------------
Total other borrowing funds 130,622 134,126 51,297
- ------------------------------------------------------------------
Total funds purchased $175,622 $135,426 $76,297
==================================================================
Further detail of the other borrowed funds are:
(In thousands)
- ------------------------------------------------------------------
December 31, 1995 1994 1993
- ------------------------------------------------------------------
Outstanding:
Average for the year $140,083 $122,236 $40,154
Maximum during the year 154,022 173,201 74,818
Interest rates:
Average for the year 5.57% 4.09% 3.36%
Average at period end 5.31% 5.11% 3.20%
<PAGE>
Non-Interest Income
Components of Non-Interest Income
- --------------------------------------------------------------
(In millions) 1995 1994 1993
- --------------------------------------------------------------
Deposit account fees $12.7 $12.9 $13.9
Credit card merchant fees 2.4 2.4 2.3
Mortgage banking income 1.5 4.3 8.1
Brokerage commissions .6 .7 .8
Trust fees .6 .8 .7
Net investment
securities (loss) gain -- (.1) .4
Sale of Sonoma Valley Bank -- -- .7
Automobile receivable servicing -- -- 1.3
Other income 3.7 5.0 5.6
- --------------------------------------------------------------
Total $21.5 $26.0 $33.8
==============================================================
Non-interest income was $21.5 million in 1995, $4.5 million lower than
1994. Lower mortgage banking income, due to reduced refinancing volumes
resulting in lower income from sale of loans, lower deposit account fees and
lower trust fees, account for the majority of the variance. In 1994,
non-interest income decreased $7.8 million from 1993 due to lower mortgage
banking income, a deferred gain on an earlier sale of automobile receivables,
gain on the sale of the Company's 50 percent interest in Sonoma Valley Bank,
refunds from prior years' income tax returns and gain from the sale of credit
card holders' portfolios acquired through the merger with Napa Valley
Bancorp. In addition, lower service charges on deposit accounts and brokerage
commissions were partially offset by higher merchant credit card and trust
fees in 1994.
Non-Interest Expense
Components of Non-Interest Expense
- -----------------------------------------------------------------
(In millions, except
full-time equivalent staff) 1995 1994 1993
- -----------------------------------------------------------------
Salaries $32.6 $36.4 $ 40.4
Other personnel benefits 8.6 8.7 8.8
Occupancy 10.7 10.6 11.8
Equipment 6.3 6.1 7.5
Data processing 4.2 4.5 4.3
Professional fees 3.9 4.1 4.3
FDIC insurance assessment 2.4 4.7 5.0
Stationery and supplies 1.6 1.7 2.4
Advertising and public relations 1.6 1.6 2.3
Loan expense 1.1 3.0 5.7
Operational losses 1.0 1.3 2.0
Insurance 1.0 .9 1.2
Merchant credit card .8 .9 1.1
Other real estate owned .9 .6 11.6
Other expense 9.6 9.2 13.0
- -----------------------------------------------------------------
Total $86.3 $94.3 $121.4
=================================================================
<PAGE>
Components of Non-Interest Expense
Continued
- -----------------------------------------------------------------
(In millions, except
full-time equivalent staff) 1995 1994 1993
- -----------------------------------------------------------------
Average full-time equivalent staff 898 1,024 1,143
Average assets per full-time
equivalent staff $ 2.69 $ 2.40 $ 2.08
Non-interest expense decreased $8.0 million or 8 percent in 1995
compared with 1994. Lower expenses in 1995 reflect the Company's improved
efficiency and exercise of cost controls, plus the effect of consolidating
operations after the Mergers. The combination of these effects is the main
reason for the $3.9 million decrease in personnel related expenses, $1.9
million reduction in loan related expenses, and other reductions in most
non-interest expense categories. In addition, a $2.3 million reduction in
FDIC insurance expense resulting from reduced premiums, contributed to the
overall year-to-year decreases in this category.
Non-interest expense in 1994 was $27.1 million or 22 percent lower than
1993. This expense reduction is the direct result of efficiencies,
streamlining and consolidations of operations achieved after the 1993 merger
with Napa Valley Bancorp. These were the major reasons for the $4.1 million
reduction in employee related expenses and decreases in almost all other non-
interest expense categories. Further, 1993 included higher other real estate
owned expense, including a $10.0 million write-down of assets acquired in the
Napa Valley Bancorp merger to net realizable value, and chargeoffs of excess
fixed assets, which were the main reasons for the 1994 expense reductions in
equipment and occupancy of $1.4 million and $1.2 million, respectively.
The ratio of average assets per full-time equivalent staff was $2.7
million in 1995 compared to $2.4 million and $2.1 million in 1994 and 1993,
respectively. The Company's strategy to improve efficiency can be seen in the
reduction of the average number of full-time equivalent staff from 1,143 in
1993 to 1,024 and 898 in 1994 and 1995, respectively.
Provision for Income Tax
The provision for income tax increased by $1.2 million in 1995 mainly as
a direct result of higher pretax income partially offset by an increase in
tax- exempt interest income from municipal securities. The 1995 provision of
$14.0 million reflects an effective tax rate of 31 percent compared to
provisions of $12.8 million in 1994 and $4.5 million in 1993, reflecting
effective tax rates of 32 percent and 27 percent, respectively.
<PAGE>
ITEM 8. Financial Statements and Supplementary Data
Index to Financial Statements
Page
----
Consolidated Balance Sheets as of December 31, 1995 and 1994 40
Consolidated Statements of Income for the years ended
December 31. 1995, 1994 and 1993 42
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1995, 1994 and 1993 44
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 45
Notes to consolidated financial statements 47
Management's Letter of Financial Responsibility 70
Independent Auditors' Report 71
<PAGE>
Westamerica Bancorporation
Consolidated Balance Sheets
(In thousands)
December 31, 1995 1994*
- --------------------------------------------------------------------------
Assets
Cash and cash equivalents (Note 15) $ 182,133 $ 180,957
Money market assets 250 250
Trading account securities -- --
Investment securities available for sale;
fair value (Note 2) 620,337 188,187
Investment securities held to maturity;
market values of $244,303 in 1995
and $608,146 in 1994 (Note 2) 242,175 638,459
Loans, net of reserve for loan losses of
$33,508 in 1995 and $32,450 in 1994
(Notes 3, 4 and 14) 1,353,732 1,354,539
Other real estate owned 5,103 8,023
Premises and equipment,
net (Notes 5 and 6) 26,625 29,332
Interest receivable and
other assets (Note 8) 60,589 57,680
- --------------------------------------------------------------------------
Total assets $2,490,944 $2,457,427
==========================================================================
Liabilities
Deposits:
Non-interest bearing $ 497,489 $ 472,301
Interest bearing:
Transaction 356,099 357,682
Savings 716,871 784,933
Time (Notes 2 and 6) 479,062 456,776
Total deposits 2,049,521 2,071,692
Funds purchased (Note 6) 175,622 135,426
Liability for interest, taxes,
other expenses, minority interest
and other (Note 8) 21,864 20,124
Notes and mortgages payable (Note 6) 20,000 25,524
- --------------------------------------------------------------------------
Total liabilities 2,267,007 2,252,766
- --------------------------------------------------------------------------
Commitments and contingent
liabilities (Notes 4, 11 and 12) -- --
* Restated on an historical basis to reflect the January 31, 1995
acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp,
on a pooling-of-interests basis.
See accompanying notes to consolidated financial statements.
<PAGE>
Westamerica Bancorporation
Consolidated Balance Sheets
Continued
(In thousands)
December 31, 1995 1994*
- --------------------------------------------------------------------------
Shareholders' Equity (Notes 7 and 15)
Common stock (no par value)
Authorized 50,000 shares
Issued and outstanding
9,793 shares in 1995 and
9,901 shares in 1994 94,786 93,629
Unrealized gain (loss) on securities
available for sale, net of taxes 1,691 (2,270)
Retained earnings 127,460 113,302
- --------------------------------------------------------------------------
Total shareholders' equity 223,937 204,661
- --------------------------------------------------------------------------
Total liabilities and
shareholders' equity $2,490,944 $2,457,427
==========================================================================
* Restated on an historical basis to reflect the January 31, 1995
acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp,
on a pooling-of-interests basis.
See accompanying notes to consolidated financial statements.
<PAGE>
Westamerica Bancorporation
Consolidated Statements of Income
(In thousands, except per share amounts)
For the years ended December 31, 1995 1994* 1993*
- ----------------------------------------------------------------------------
Interest Income
Loans $128,264 $120,115 $124,060
Money market assets
and federal funds sold 276 1,367 1,159
Trading account securities 1 2 6
Investment securities available for sale:
Taxable 12,550 10,444 --
Non-taxable 270 174 --
Investment securities held to maturity:
Taxable 21,797 24,678 --
Non-taxable 11,219 9,314 --
Investment securities:
Taxable -- -- 34,891
Non-taxable -- -- 5,859
- ----------------------------------------------------------------------------
Total interest income 174,377 166,094 165,975
- ----------------------------------------------------------------------------
Interest Expense
Transaction deposits 3,802 3,669 5,189
Savings deposits 20,716 20,003 18,941
Time deposits (Note 6) 23,961 18,295 22,993
Funds purchased 8,403 5,281 2,018
Notes and mortgages payable (Note 6) 1,730 2,612 2,017
- ----------------------------------------------------------------------------
Total interest expense 58,612 49,860 51,158
- ----------------------------------------------------------------------------
Net Interest Income 115,765 116,234 114,817
Provision for loan losses (Note 3) 5,595 7,420 10,581
- ----------------------------------------------------------------------------
Net interest income
after provision for loan losses 110,170 108,814 104,236
- ----------------------------------------------------------------------------
Non-Interest Income
Service charges on deposit accounts 12,734 12,948 13,920
Merchant credit card 2,422 2,401 2,338
Mortgage banking 1,479 4,270 8,052
Trust fees 615 751 689
Brokerage commissions 611 673 839
Net investment securities gain (loss) 19 (60) 351
Other 3,653 5,016 7,617
- ----------------------------------------------------------------------------
Total non-interest income 21,533 25,999 33,806
- ----------------------------------------------------------------------------
* Restated on an historical basis to reflect the January 31, 1995
acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp, on a
pooling-of-interests basis.
See accompanying notes to consolidated financial statements.
<PAGE>
Westamerica Bancorporation
Consolidated Statements of Income
Continued
(In thousands, except per share amounts)
For the years ended December 31, 1995 1994* 1993*
- ----------------------------------------------------------------------------
Non-Interest Expense
Salaries and related
benefits (Note 13) 41,171 45,106 49,163
Occupancy (Notes 5 and 11) 10,684 10,632 11,822
Equipment (Notes 5 and 11) 6,255 6,149 7,514
Data processing 4,239 4,466 4,297
Professional fees 3,905 4,079 4,313
FDIC insurance assessment 2,375 4,683 4,952
Other real estate owned 890 623 11,589
Other 16,821 18,603 27,791
- ----------------------------------------------------------------------------
Total non-interest expense 86,340 94,341 121,441
- ----------------------------------------------------------------------------
Income Before Income Taxes 45,363 40,472 16,601
Provision for income
taxes (Note 8) 13,979 12,810 4,507
- ----------------------------------------------------------------------------
Net Income $ 31,384 $ 27,662 $ 12,094
============================================================================
Average common shares outstanding 9,877 9,916 9,884
Per Share Data (Notes 7 and 18)
Net income $ 3.18 $ 2.79 $ 1.22
Dividends declared .77 .64 .57
* Restated on an historical basis to reflect the January 31, 1995
acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp, on a
pooling-of-interests basis.
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Westamerica Bancorporation
Consolidated Statements of Changes in Shareholders' Equity
(In thousands)
<CAPITON>
Unrealized Unrealized
Gain (Loss) Decline in
on Securities Fair Value
Available for of Bond Retained
Common Stock Sale, net of taxes Mutual Funds Earnings Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1992* $ 90,793 $ -- $ (117) $ 86,962 $177,638
Net income for the year -- -- -- 12,094 12,094
Stock issued 1,521 -- -- -- 1,521
Retirement of stock -- -- -- -- --
Dividends 629 -- -- (5,735) (5,106)
Cash in lieu of
fractional shares -- -- -- (54) (54)
Net change in unrealized
decline in fair value
of bond mutual funds -- -- 117 -- 117
Adoption of SFAS No. 115
Unrealized gain on secur-
ities available for sale -- 2,434 -- -- 2,434
- --------------------------------------------------------------------------------------------
December 31, 1993* $ 92,943 $ 2,434 $ -- $ 93,267 $188,644
Net income for the year -- -- -- 27,662 27,662
Stock issued 1,242 -- -- -- 1,242
Retirement of stock (556) -- -- (1,932) (2,488)
Dividends -- -- -- (5,695) (5,695)
Unrealized loss on
securities available
for sale -- (4,704) -- -- (4,704)
- --------------------------------------------------------------------------------------------
December 31, 1994* $ 93,629 $ (2,270) $ -- $113,302 $204,661
Net income for the year -- -- -- 31,384 31,384
Stock issued 3,797 -- -- -- 3,797
Retirement of stock (2,640) -- -- (9,701) (12,341)
Dividends -- -- -- (7,489) (7,489)
Cash in lieu of
fractional shares -- -- -- (36) (36)
Unrealized gain on
securities available
for sale -- 3,961 -- -- 3,961
- --------------------------------------------------------------------------------------------
December 31, 1995 $ 94,786 $ 1,691 $ -- $127,460 $223,937
============================================================================================
<FN>
* Restated on an historical basis to reflect the January 31, 1995
acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp, on
a pooling-of-interests basis.
See accompanying notes to consolidated financial statements.
</TABLE>
Westamerica Bancorporation
Consolidated Statements of Cash Flows
(In thousands)
For the years ended December 31, 1995 1994* 1993*
- ----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 31,384 $ 27,662 $ 12,094
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 4,731 5,231 4,982
Loan loss provision 5,595 7,420 10,581
Amortization of deferred
net loan fees/costs (1,858) (1,143) 122
Increase in interest income receivable (1,170) (1,379) (2,385)
(Decrease) increase in other assets 2,438 (1,871) 962
Decrease in income taxes payable (2,129) (1,228) (1,642)
(Decrease) increase in other liabilities (1,331) 1,897 (3,202)
Net gain (loss) on sale of
investment securities (19) 60 (351)
Loss on sale/write-down of
premises and equipment 1,586 179 1,476
Originations of loans for resale (8,920) (134,221) (433,980)
Proceeds from sale of loans
originated for resale 9,254 161,887 430,106
Write-down/loss on sale of
other real estate owned 540 178 9,689
Net purchases of trading securities -- 10 (10)
Gain on sale of Sonoma Valley Bank -- -- (668)
- ----------------------------------------------------------------------------
Net cash provided by operating
activities 40,101 64,682 27,774
- ----------------------------------------------------------------------------
INVESTING ACTIVITIES
Net (disbursement) repayment of loans (4,878) (19,559) 35,157
Purchases of investment securities -- -- (471,142)
Purchases of investment securities
available for sale (140,160) (110,944) --
Purchases of investment securities
held to maturity (52,928) (412,652) --
Purchases of premises and equipment (3,662) (3,327) (4,951)
Proceeds from maturity of
investment securities -- -- 309,435
Proceeds from maturity of
securities available for sale 66,621 45,498 --
Proceeds from maturity of
securities held to maturity 91,592 346,380 --
Proceeds from sale of
investment securities -- -- 13,773
Proceeds from sale of
securities available for sale 4,310 104,294 --
Proceeds from sale of
securities held to maturity 1,316 -- --
Proceeds from sale of property,
plant and equipment 52 -- 5
Proceeds from property acquired
in satisfaction of debt 2,380 5,815 8,467
<PAGE>
Westamerica Bancorporation
Consolidated Statements of Cash Flows
Continued
(In thousands)
For the years ended December 31, 1995 1994* 1993*
- ----------------------------------------------------------------------------
Proceeds from sale of
Sonoma Valley Bank -- -- 2,733
- ----------------------------------------------------------------------------
Net cash used in investing activities (35,357) (44,495) (106,523)
- ----------------------------------------------------------------------------
FINANCING ACTIVITIES
Net decrease in deposits (22,171) (38,339) (32,054)
Net increase in funds purchased 40,196 59,128 57,241
Issuance of notes payable -- -- 20,000
Principal and interest payments
on long-term debt (5,524) (10,828) (3,060)
Issuance of shares of common stock 3,797 1,242 1,521
Cash in lieu of fractional shares (36) -- (54)
Retirement of common stock (12,341) (2,488) --
Dividends (7,489) (5,695) (5,106)
- ----------------------------------------------------------------------------
Net cash (used in) provided
by financing activities (3,568) 3,020 38,488
- ----------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 1,176 23,207 (40,261)
Cash and cash equivalents at
beginning of year 180,957 157,750 198,011
- ----------------------------------------------------------------------------
Cash and cash equivalents at end of year $182,133 $180,957 $157,750
============================================================================
Supplemental disclosures:
Loans transferred to other
real estate owned $ 4,095 $ 4,474 $ 5,853
Transfer of securities from
held to maturity to available
for sale 329,357 -- --
Unrealized gain (loss)
on securities available for sale 3,961 (4,704) 2,434
Interest paid for the period 58,581 50,156 51,915
Income tax payments for the period 15,394 14,016 7,511
* Restated on an historical basis to reflect the January 31, 1995
acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp,
on a pooling-of-interests basis.
See accompanying notes to consolidated financial statements.
<PAGE>
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, 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 has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of income and expenses for the periods presented in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
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 engaged in performing certain administrative functions
for the Company. Significant intercompany transactions have been eliminated
in consolidation. All data for 1994 and 1993 have been restated to include
the acquisitions of PV Financial, CapitolBank Sacramento and North Bay
Bancorp on a pooling-of-interests basis. (Note 18)
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 ("SFAS") 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. Securities held to maturity 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 securities and
securities available for sale are recorded at fair value. Securities held to
maturity 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 securities available for sale are excluded from
earnings and are reported as a separate component of shareholders' equity
until realized. Unrealized gains and losses associated with transfers of
securities from held to maturity to available for sale are recorded as a
<PAGE>
separate component of shareholders' equity. The unrealized gains and losses
included in the separate component of shareholders' equity for securities
transferred from available for sale to held to maturity are maintained and
amortized into earnings over the remaining life of the security as an
adjustment to yield in a manner consistent with the amortization or accretion
of premiums or discounts on the associated security.
A decline in the market value of any security available for sale or held
to maturity 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 from the sale of securities classified as available
for sale or held to maturity are included in earnings and are derived using
the specific identification method for determining the cost of securities
sold.
Loans and Reserve for Loan Losses. The reserve for loan losses is a
combination of specific and general reserves available to absorb estimated
future losses 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. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Company's reserve for loan losses. Such agencies may require the
Company to recognize additions to the reserve based on their judgment of
information available to them at the time of their examination. Adjustments
to previous estimates of loan losses are charged to income in the period
which they become known. Loans are stated at the principal amount
outstanding, net of unearned discount and deferred fees. 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. Other real estate owned is comprised of
property acquired through a foreclosure proceeding or acceptance of a
deed-in-lieu of foreclosure. Losses recognized at the time of acquiring
property in full or partial satisfaction of loans, are charged against the
reserve for loan losses. Other real estate owned is recorded at the lower of
the related loan balance or fair value of the collateral less estimated
disposition costs at the date acquired. Fair value is generally based upon an
independent property appraisal. Subsequently, other real estate owned is
<PAGE>
valued at the lower of the amount recorded at the date acquired or the then
current fair value less estimated disposition costs. Subsequent losses
incurred due to the declines in annual independent property appraisals are
recognized as non-interest expense. Routine holding costs, such as property
taxes, insurance, maintenance and losses from sales and dispositions are
recognized as non-interest expense.
Premises and Equipment. Premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation is computed
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.
Impairment of Long-Lived Assets. In 1995, the Financial Accounting
Standard Board issued the Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" ("SFAS 121"). Under the provisions of SFAS 121, long-lived
assets and certain identifiable intangibles to be held and used by an entity
are required to be reviewed for impairment whenever events or changes
indicate that the carrying amount of an asset may not be recoverable. The
Company will implement SFAS 121 in January 1996. Management believes that the
adoption of this statement will not have a material impact on the Company's
financial condition.
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 over the
life of the agreements. Payments made and/or received in connection with
early termination of interest rate swap agreements are recognized over the
remaining term of the swap agreement.
Earnings Per Share. Earnings per share amounts are computed on the
basis of the weighted average of common and common equivalent shares
outstanding during each of the years presented. Fully diluted earnings per
share were approximately equal to primary earnings per share in each of the
years in the three-year period ended December 31, 1995.
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.
<PAGE>
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
reclassifications have no effect on previously reported net income.
Note 2: Investment Securities
An analysis of investment securities available for sale portfolio as of
December 31, 1995, follows:
Amortized Unrealized Unrealized Estimated
(In thousands) Cost Gains Losses Market Value
- ----------------------------------------------------------------------------
U.S. Treasury securities $240,832 $ 992 $ (595) $241,229
Securities of U.S.
Government agencies
and corporations 123,902 177 (762) 123,317
Obligations of states and
political subdivisions 118,314 2,636 (580) 120,370
Asset backed
(Automobile receivables) 80,372 624 (73) 80,923
Other securities 53,984 549 (35) 54,498
- ----------------------------------------------------------------------------
Total $617,404 $4,978 $(2,045) $620,337
============================================================================
An analysis of investment securities held to maturity portfolio as of
December 31, 1995, follows:
Amortized Unrealized Unrealized Estimated
(In thousands) Cost Gains Losses Market Value
- ----------------------------------------------------------------------------
Securities of U.S.
Government agencies
and corporations $125,062 $ 508 $(1,102) $124,468
Obligations of states and
political subdivisions 109,754 3,330 (605) 112,479
Asset backed
(Automobile receivables) 3,264 3 (6) 3,261
Other securities 4,095 2 (2) 4,095
- ----------------------------------------------------------------------------
Total $242,175 $3,843 $(1,715) $244,303
============================================================================
<PAGE>
An analysis of investment securities available for sale portfolio as of
December 31, 1994, follows:
Amortized Unrealized Unrealized Estimated
(In thousands) Cost Gains Losses Market Value
- ----------------------------------------------------------------------------
U.S. Treasury securities $ 93,936 $ 26 $(2,078) $ 91,884
Securities of U.S. Government
agencies and corporations 59,971 140 (1,066) 59,045
Obligations of states and
political subdivisions 9,423 2 (29) 9,396
Other securities 28,528 19 (685) 27,862
- ----------------------------------------------------------------------------
Total $191,858 $187 $(3,858) $188,187
============================================================================
An analysis of investment securities held to maturity portfolio as of
December 31, 1994, follows:
Amortized Unrealized Unrealized Estimated
(In thousands) Cost Gains Losses Market Value
- ----------------------------------------------------------------------------
U.S. Treasury securities $185,078 $ -- $ (8,109) $176,969
Securities of U.S. Government
agencies and corporations 215,250 292 (11,424) 204,118
Obligations of states and
political subdivisions 188,712 365 (10,487) 178,590
Asset backed
(Automobile receivables) 37,162 -- (933) 36,229
Other securities 12,257 3 (20) 12,240
- ----------------------------------------------------------------------------
Total $638,459 $660 $(30,973) $608,146
============================================================================
The amortized cost and estimated market value of securities at December 31,
1995, by contractual maturity, are shown on the following table:
Securities Available for Sale Securities Held to Maturity
----------------------------- ---------------------------
Maturity in years Amortized Estimated Amortized Estimated
(In thousands) Cost Market Value Cost Market Value
- --------------------------------------------------------------------------
1 year or less $144,009 $144,099 $ 2,893 $ 2,898
1 to 5 years 245,020 246,180 7,284 7,579
5 to 10 years 72,698 73,801 47,286 48,264
Over 10 years 65,123 66,193 59,649 61,094
- --------------------------------------------------------------------------
$526,850 $530,273 $117,112 $119,835
Mortgage-backed 90,554 90,064 125,063 124,468
- --------------------------------------------------------------------------
Total $617,404 $620,337 $242,175 $244,303
==========================================================================
Expected maturities of mortgage-backed securities can differ from
contractual maturities because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties. In addition, such
factors as prepayments and interest rates may affect the yield and the
carrying value of mortgage-backed securities. At December 31, 1995 and 1994,
the Company had no high-risk collateralized mortgage obligations as defined
by regulatory agencies.
<PAGE>
Proceeds from the sale of securities during 1995, 1994 and 1993 were
$5.6 million. $104.3 million and $13.8 million, respectively. In 1995, the
Company realized gains from the sale of these securities in the amount of
$19,000, compared to losses of $60,000 in 1994 and gains of $351,000 in 1993.
Included in the sale of these securities in 1995 were securities classified
as held to maturity that had principal paydowns exceeding 85 percent of the
principal outstanding at the time of purchase. Proceeds from the sale were
$1.3 million in 1995. In November 1995, the Financial Accounting Standards
Board issued a special report, "A Guide to Implementation of Statement No.
115, on Accounting for Certain Investments in Debt and Equity Securities
Questions and Answers" (the "Special Report"). The Special Report allowed
companies to reassess the appropriateness of the classifications of all
securities and account for any reclassification at fair value. The Company
adopted the reclassification provision stated in the Special Report prior to
December 31, 1995 and transferred $329.4 million of securities held to
maturity into available for sale. The unrealized pretax gain upon transfer
was $1.1 million as of December 31, 1995. As of December 31, 1995 and 1994,
$321.0 million and $271.5 million, respectively, of investment securities
were pledged to secure public deposits.
Note 3: Loans and Reserve for Loan Losses
Loans at December 31, consisted of the following:
(In thousands) 1995 1994
- ----------------------------------------------------------------
Commercial $ 339,142 $ 386,330
Real estate-commercial 477,280 427,259
Real estate-construction 54,181 73,492
Real estate-residential 237,535 207,477
- ----------------------------------------------------------------
Total real estate loans 768,996 708,228
Installment and personal 291,350 308,812
Unearned income (12,248) (16,381)
- ----------------------------------------------------------------
Gross loans 1,387,240 1,386,989
Loan loss reserve (33,508) (32,450)
- ----------------------------------------------------------------
Net loans $1,353,732 $1,354,539
================================================================
Included in real estate-residential at December 31, 1995 and 1994 are
loans held for resale of $2.1 million and $3.0 million, respectively, the
cost of which approximates market value.
Changes in the loan loss reserve were:
(In thousands) 1995 1994 1993
- ------------------------------------------------------------------
Balance at January 1, $32,450 $30,045 $29,254
Provision for loan losses 5,595 7,420 10,581
Credit losses (6,770) (7,417) (11,514)
Credit loss recoveries 2,233 2,402 2,408
Sale of Sonoma Valley Bank -- -- (684)
- ------------------------------------------------------------------
Balance at December 31, $33,508 $32,450 $30,045
==================================================================
<PAGE>
The Company had no troubled debt restructurings at December 31, 1995 and
$4.4 million at December 31, 1994. The Company had $9.9 million and $10.3
million in non-accrual loans as of December 31, 1995 and 1994, respectively.
The following is a summary of interest foregone on non-accrual and
restructured loans for the years ended December 31:
(In thousands) 1995 1994 1993
- ---------------------------------------------------------------------
Interest income that would have
been recognized had the loans
performed in accordance
with their original terms $823 $1,538 $1,873
Less: Interest income
recognized on non-accrual
and restructured loans (242) (677) (590)
- ----------------------------------------------------------------------
Interest foregone on non-accrual
and restructured loans $581 $ 861 $1,283
======================================================================
There were no commitments to lend additional funds to borrowers whose
loans are included above. The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan" as amended by SFAS No. 118 (collectively referred to as
"SFAS 114") on January 1, 1995. SFAS 114 required entities to measure certain
impaired loans based on the present value of future cash flows discounted at
the loan's effective interest rate, or at the loan's market value or the fair
value of collateral if the loan is secured. A loan is considered impaired
when, based on current information and events, it is probable that the
Company will be unable to collect all amounts due according to the
contractual terms of the loan agreement, including scheduled interest
payments. If the measurement of the impaired loans is less than the recorded
investment in the loan, impairment is recognized by creating or adjusting an
existing allocation of the allowance for loan losses. The adoption of SFAS
114 did not have a material effect on the Company's financial statements, as
the Company's policy of measuring loan impairment was consistent with methods
prescribed in these standards. At December 31, 1995, the recorded investment
in loans for which impairment was recognized in accordance with SFAS 114
totaled $10.2 million, of which there was a related reserve for loan losses
of $850,000. For the year ended December 31, 1995, the average recorded net
investment in impaired loans was approximately $10.3 million. In general, the
Company does not recognize any interest income on loans that are classified
as impaired.
In May 1995, the Financial Accounting Standards Board issued Statement
No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS 122"), which
amends statement No. 65. SFAS 122 requires recognition as a separate asset
the right to service mortgage loans for others regardless of how the
servicing rights were acquired, whether by purchase of loans or by
origination of loans. SFAS 122 also requires the assessment of capitalized
mortgage servicing rights for impairment to be based on the current value of
those rights. The Company will implement SFAS 122 effective January 1, 1996.
Management believes that the adoption of this statement will not have a
material impact on the Company's financial condition.
<PAGE>
Note 4: Concentration 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, 1995 and 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
standby letters of credit related to real estate loans of $29.3 million at
December 31, 1995. 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
Premises and equipment at December 31 consisted of the following:
Accumulated Net
Depreciation and Book
(In thousands) Cost Amortization Value
- ---------------------------------------------------------------------------
1995
Land $ 4,212 $ -- $ 4,212
Buildings and improvements 18,634 (7,061) 11,573
Leasehold improvements 4,499 (2,848) 1,651
Furniture and equipment 18,130 (8,941) 9,189
- ---------------------------------------------------------------------------
Total $45,475 $(18,850) $26,625
===========================================================================
1994
Land $ 4,412 $ -- $ 4,412
Buildings and improvements 21,581 (7,613) 13,968
Leasehold improvements 6,100 (3,370) 2,730
Furniture and equipment 20,018 (11,796) 8,222
- ---------------------------------------------------------------------------
Total $52,111 $(22,779) $29,332
===========================================================================
Depreciation and amortization included in operating expenses amount to
$4.7 million in 1995, $5.2 million in 1994 and $5.0 million in 1993.
<PAGE>
Note 6: Borrowed Funds
Notes payable include the unsecured obligations of the Company as of
December 31, 1995 and 1994, as follows:
(In thousands) 1995 1994
- -------------------------------------------------------------------------
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
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 $20,000 $25,000
=========================================================================
At December 31, 1994, mortgages payable of $524,000 consisted of a note
of Westamerica Bank secured by a deed of trust on premises having a net book
value of $756,000. The note, which had an effective interest rate of 10
percent, matured in April 1995.
At December 31, 1995 and 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, 1995 and 1994, the Banks had $169.8 million and $137.2
million, respectively, in time deposit accounts in excess of $100,000.
Interest on these accounts in 1995, 1994 and 1993 was $8.9 million, $5.8
million and $7.1 million, respectively.
Funds purchased include federal funds purchased and securities sold with
repurchase agreements. Securities sold with repurchase agreements were $91.6
million and $112.1 million in 1995 and 1994, respectively. Securities sold
under these repurchase arrangements are held in the custody of independent
securities brokers.
Note 7: Shareholders' Equity
Under the Stock Option Plan adopted by the Company in 1985, 750,000
shares were 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 share ("RPS") grants. An RPS grant becomes fully vested after
three years of being awarded, provided that the Company has attained its
performance goals for such three-year period. RPSs granted were 32,350,
33,900 and 24,700, for the years ended December 31, 1995, 1994 and 1993,
respectively. The related amounts charged to non-interest expense for those
years were $1.2 million, $960,000 and $740,000, respectively. In 1995, the
Company adopted the 1995 Stock Option Plan. Stock appreciation rights,
restricted performance shares, incentive stock options and non-qualified
stock options are available under this plan. Under the terms of this plan, on
January 1 of each year beginning in 1995, 2 percent of the Company's issued
and outstanding shares of common stock will be reserved for granting. At
December 31, 1995, 160,951 shares were reserved for issuance.
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:
1995 562,764 6.85- 30.75 12,537,900
1994 665,386 6.84- 28.06 11,610,977
1993 580,760 6.84- 24.50 9,100,508
Options exercised during:
1995 202,940 6.97- 24.50 2,867,547
1994 51,008 6.84- 24.93 673,663
1993 58,335 6.84- 24.50 767,157
At December 31, 1995 and 1994 options to acquire 286,818 and 373,812
shares of common stock, respectively, were exercisable.
PV Financial, CapitolBank Sacramento, and North Bay Bancorp had separate
stock option plans (the "Option Plans") whereby options were granted to
certain officers, directors, and employees. Following the effective dates of
the mergers, the Option Plans were terminated. All outstanding options were
substituted for the Company's options, adjusted for the exchange ratios as
defined in the merger agreements.
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 50,000,000 shares of Common Stock presently
authorized. At December 31, 1995, 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.
On October 23, 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
The recognition provisions and disclosure requirements of SFAS 123 are
effective January 1, 1996. SFAS 123 allows an entity to either (i) retain the
current method of accounting for stock compensation (principally APB Opinion
<PAGE>
No. 25) for purposes of preparing its basic financial statements or (ii)
adopt a new fair value based method that is established by the provisions of
SFAS 123. Companies may continue to apply the accounting provisions of APB
Opinion No. 25 in determining net income; however, they must apply the
disclosure requirements of SFAS 123. The Company plans to retain its current
method of accounting for stock compensation when it adopts this statement in
1996 and thus does not expect the statement to have an impact on the
Company's results of operations.
Note 8: Income Taxes
The Company accounts for income taxes in accordance with the provisions
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 amounts reported in the financial statements of existing assets
and liabilities and their respective tax bases and net 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 asset as of December 31, are as
follows:
(In thousands) 1995 1994
- ------------------------------------------------------------------
Deferred tax asset
Reserve for loan losses $13,715 $12,868
State franchise taxes 1,690 1,582
Securities available for sale -- 1,401
Deferred compensation 1,533 1,309
Real estate owned 1,800 2,451
Other 1,109 1,388
Net operating loss carryforwards 916 1,190
General tax credit carryforwards 160 160
- ------------------------------------------------------------------
20,923 22,349
Valuation allowance (486) (1,409)
- ------------------------------------------------------------------
Total deferred tax asset 20,437 20,940
Deferred tax liability
Net deferred loan costs 600 416
Fixed assets 958 1,567
Securities available for sale 1,242 --
Other 341 277
- ------------------------------------------------------------------
Total deferred tax liability 3,141 2,260
- ------------------------------------------------------------------
Net deferred tax asset $17,296 $18,680
==================================================================
A valuation allowance has been provided to reduce the deferred tax asset
to an amount which is more likely than not to be realized. The valuation
allowance relates to the deferred tax asset acquired through the merger with
CapitolBank Sacramento. Prior to this merger, CapitolBank reduced the
valuation allowance because of its improved earnings performance during 1995.
The reduction in the valuation allowance resulted in a decrease in the
provision for income tax for the year ended December 31, 1995 of $923,000.
<PAGE>
The provision for federal and state income taxes consists of amounts
currently payable and amounts deferred which, for the years ended December
31, are as follows:
(In thousands) 1995 1994 1993
- -------------------------------------------------------------------------
Current income tax expense:
Federal $10,195 $10,087 $3,624
State 5,043 4,642 2,609
- -------------------------------------------------------------------------
Total current 15,238 14,729 6,233
- -------------------------------------------------------------------------
Deferred income tax (benefit) expense:
Federal (1,374) (1,605) (614)
State 115 (314) (718)
- -------------------------------------------------------------------------
Total deferred (1,259) (1,919) (1,332)
- -------------------------------------------------------------------------
Adjustment of net deferred tax asset
for enacted changes in tax rates:
Federal -- -- (304)
State -- -- (90)
- -------------------------------------------------------------------------
Provision for income taxes $13,979 $12,810 $4,507
=========================================================================
The provision for income taxes differs from the provision computed by
applying the statutory federal income tax rate to income before taxes, as
follows:
(In thousands) 1995 1994 1993
- -------------------------------------------------------------------------
Federal income taxes due
at statutory rate $15,877 $14,110 $5,644
(Reductions) increases in
income taxes resulting from:
Interest on state and municipal
securities not taxable for
federal income tax purposes (4,494) (3,392) (1,931)
Reduction in the valuation
allowance (923) -- --
State franchise taxes, net of
federal income tax benefit 3,353 2,791 1,271
Other 166 (699) (477)
- -------------------------------------------------------------------------
Provision for income taxes $13,979 $12,810 $4,507
=========================================================================
<PAGE>
At December 31, 1995, the Company had the following net operating loss and
the general tax credit carryforwards for tax return purposes:
Expires December 31, Net Operating Tax Credit
(In thousands) Loss Carryforwards Carryforwards
- ------------------------------------------------------------------
2003 $ -- $160
2007 2,603 --
2008 14 --
- ------------------------------------------------------------------
Total $2,617 $160
==================================================================
Note 9: Fair Value of Financial Instruments
The fair value of financial instruments does 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 relative short period of time
between their origination and their expected realization were valued using
historical cost. Such financial instruments and their estimated fair value at
December 31, were:
(In thousands) 1995 1994
- -------------------------------------------------------------------
Cash and cash equivalents $ 182,133 $ 180,957
Money market assets 250 250
Interest and taxes receivable 39,060 40,468
Non-interest bearing and interest-bearing
transaction and savings deposits 1,570,459 1,614,916
Funds purchased 175,622 135,426
Interest payable 5,118 4,009
The fair value at December 31, of the following financial instruments was
estimated using quoted market prices:
(In thousands) 1995 1994
- -------------------------------------------------------------------
Investment securities available for sale $ 620,337 $ 188,187
Investment securities held to maturity 244,303 608,146
Loans were separated into two groups for valuation. Variable rate loans,
except for those having reached their maximum contractual rates, which
reprice frequently with changes in market rates, were valued using the
outstanding principal balance. 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 reserve for loan losses was applied against the estimated fair value to
recognize future defaults of contractual cash flows.
<PAGE>
The estimated fair values of loans at December 31, 1995 and 1994 were:
(In thousands) 1995 1994
- -------------------------------------------------------------------
Loans $1,351,732 $1,336,366
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) 1995 1994
- -------------------------------------------------------------------
Time deposits $480,401 $460,227
Notes and mortgages payable 20,000 22,898
The estimated fair value of the Company's interest rate swaps
outstanding as of December 31, 1994, determined by dealer quotes and
generally representing the amount that the Company would pay to terminate its
swap contracts was $1.1 million. There were no interest rate swaps
outstanding at December 31, 1995.
Note 10: Interest Rate Risk Management
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, 1995 and 1994 would not, in the view
of Management, expose the Company to an unacceptable level of interest rate
risk.
In evaluating exposure to interest rate risk, 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) 1995 1994
- ---------------------------------------------------------
Balance, January 1, $60,000 $110,000
Contracts entered
Contracts matured (60,000) (50,000)
- ---------------------------------------------------------
Balance, December 31, $ -- $ 60,000
=========================================================
Fair value, December 31, $ -- $ (1,071)
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, the Company paid a floating rate, based on the three-month London
Interbank Offering Rate (LIBOR), and received a weighted average fixed rate
of 4.11 percent. These contracts matured in August 1995. The Company was
<PAGE>
exposed to credit-related losses in the event of non-performance by the
counterparty; however, the Company deals only with highly rated
counterparties. At December 31, 1994 due to the unrealized loss position, no
credit exposure existed in connection with the interest rate swaps.
Note 11: Lease Commitments
Fifteen banking offices and three administrative service centers are
owned and forty 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, 1995, are as
follows:
(In thousands)
- ----------------------------------------
1996 $ 4,911
1997 3,775
1998 3,032
1999 2,718
2000 1,245
Thereafter 2,311
- ----------------------------------------
Total minimum lease payments $17,992
========================================
Total rental expense for premises and equipment net of sublease income
included in non-interest expense was $5.6 million in 1995, $5.5 million in
1994 and $6.2 million in 1993.
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 $221.2
million and $239.5 million at December 31, 1995 and 1994, respectively.
Standby letters of credit commit the Company to make payments on behalf
of customers when certain specified future events occur. Standby letters of
credit are primarily issued to support customers' short-term financing
requirements and must meet the Company's normal credit policies and
collateral requirements. Standby letters of credit outstanding totaled $7.7
million and $9.2 million at December 31, 1995 and 1994, 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
legal counsel, does not expect the outcome of such cases to have a material,
adverse effect on its financial position or results of operations.
<PAGE>
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) 1995 1994
- -----------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $(10,657) $ (8,870)
Non-vested benefit obligation (63) (1,250)
- ------------------------------------------------------------------------
Accumulated benefit obligation $(10,720) $(10,120)
Additional benefits related to
projected salary increases (1,231) (211)
- -----------------------------------------------------------------------
Projected benefit obligation $(11,951) $(10,331)
Plan assets at fair market value 12,369 10,430
- -----------------------------------------------------------------------
Funded status-projected benefit obligation
less than plan assets $ 418 $ 99
Comprised of:
Prepaid pension cost $ 117 $ 69
Unrecognized net gain 338 27
Unrecognized prior service cost 271 362
Unrecognized net obligation, net
of amortization (308) (359)
- -----------------------------------------------------------------------
Total $ 418 $ 99
=======================================================================
Net pension cost included in the
following components:
Service cost during the period $ 117 $ 372
Interest cost on projected
benefit obligation 697 777
Actual return on plan assets (2,864) (66)
Net amortization and deferral 2,125 (778)
- -----------------------------------------------------------------------
Net periodic pension cost $ 75 $ 305
=======================================================================
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligation were 5.50 percent and 4.50 percent, respectively, at December 31,
1995 and 7.25 percent and 4.50 percent, respectively, at December 31, 1994.
The expected long-term rate of return on plan assets was 7 percent for both
years.
Effective January 1, 1992, the Company adopted a defined contribution
Deferred Profit-Sharing Plan covering substantially all of its salaried
<PAGE>
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 $1.4 million
in 1995, $1.3 million in 1994 and $1.2 million in 1993.
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 a Westamerica Bancorporation Common Stock
fund. The matching contributions charged to operating expense were $1.2
million in 1995, $710,000 in 1994 and $640,000 in 1993.
Effective December 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions" ("SFAS 106"). Adoption of SFAS 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) 1995 1994
- ---------------------------------------------------------------------
Service cost $ 155 $ --
Interest cost 86 105
Actual return on plan assets -- --
Amortization of unrecognized
transition obligation 61 61
Other, net -- --
- ---------------------------------------------------------------------
Net periodic cost $ 302 $ 166
=====================================================================
<PAGE>
(In thousands) 1995 1994
- ---------------------------------------------------------------------
Accumulated postretirement benefit
obligation attributable to:
Retirees $1,240 $1,140
Fully eligible participants 307 239
Other 159 188
- ---------------------------------------------------------------------
Total $1,706 $1,567
=====================================================================
Fair value of plan assets -- --
- ---------------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan assets $1,706 $1,567
=====================================================================
Comprised of:
Unrecognized prior service cost $ -- $ --
Unrecognized net gain (loss) -- --
Unrecognized transition obligation 1,346 1,407
Recognized postretirement obligation 360 160
- ---------------------------------------------------------------------
Total $1,706 $1,567
=====================================================================
The discount rate used in measuring the accumulated postretirement
benefit obligation was 5.5 percent at December 31, 1995 and 7.25 percent at
December 31, 1994. The assumed health care cost trend rate used to measure
the expected cost of benefits covered by the plan was 2 percent for 1996 and
beyond. 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 1995 and 1994 net periodic cost by $82,000 and
$87,000, respectively, and increase the accumulated postretirement benefit
obligation at December 31, 1995 and 1994 by $287,000 and $255,000,
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 1995 and 1994. All such
loans were made in the ordinary course of business on normal credit terms,
including interest rate and collateral requirements. In the opinion of
Management, these credit transactions did not involve, at the time they were
contracted, more than the normal risk of collectibility or present other
unfavorable features.
<PAGE>
The table below reflects information concerning loans to certain directors
and executive officers and/or family members during 1995 and 1994:
(In thousands) 1995 1994
- -------------------------------------------------------------------
Beginning balance $4,041 $6,181
Payoffs/principal payments (767) (2,231)
Originations 973 91
- -------------------------------------------------------------------
At December 31, $4,247 $4,041
===================================================================
Percent of total loans outstanding .31% .29%
Note 15: Regulatory Matters
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 $28.0 million in dividends to the Company as
of December 31, 1995. During 1993, Napa Valley Bank 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 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, a decision further approved by the State Banking Department,
given the bank's strong capital position and despite the net losses it
incurred in 1993. Bank of Lake County started to pay dividends to the Company
in the third quarter of 1994. The Company continuously has paid quarterly
dividends to its shareholders since its formation in 1972 and, generally, has
increased them regularly on a yearly basis. As of December 31, 1995, $45.9
million was available for payment of dividends by the Company to its
shareholders.
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 $47.3 million in 1995 and
$43.9 million in 1994.
At December 31, 1995, the Company's Tier I Capital was $222.0 million
and Total Capital was $263.9 million or 12.77 percent and 15.18 percent,
respectively, of risk-adjusted assets.
<PAGE>
Note 16: Westamerica Bancorporation (Parent Company Only)
Statements of Income (In thousands)
For the years ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------
Dividends from subsidiaries $22,262 $19,680 $16,671
Interest from subsidiaries 381 200 457
Other income 4,224 4,552 3,392
- -----------------------------------------------------------------------------
Total income 26,867 24,432 20,520
Interest on borrowings 324 1,029 1,958
Salaries and benefits 5,768 5,529 4,526
Other non-interest expense 5,552 3,951 6,091
- -----------------------------------------------------------------------------
Total expenses 11,644 10,509 12,575
- -----------------------------------------------------------------------------
Income before income tax benefit
and equity in undistributed
income of subsidiaries 15,223 13,923 7,945
Income tax benefit 2,663 2,386 3,445
Equity in undistributed
income from subsidiaries 13,498 11,353 704
- -----------------------------------------------------------------------------
Net income $31,384 $27,662 $12,094
=============================================================================
Balance Sheets (In thousands)
December 31, 1995 1994
- -----------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 6,077 $ 6,411
Money market assets and investment
securities held to maturity 250 6,761
Loans 148
Investment in subsidiaries 211,605 194,269
Premises and equipment 1,972 55
Accounts receivable from affiliates 251 156
Other assets 10,390 6,671
- -----------------------------------------------------------------------------
Total assets $230,545 $214,471
=============================================================================
Liabilities
Long-term debt $ $ 5,000
Notes payable to affiliates 506 --
Other liabilities 6,102 4,810
Total liabilities 6,608 9,810
Shareholders' equity 223,937 204,661
- -----------------------------------------------------------------------------
Total liabilities and shareholders' equity $230,545 $214,471
=============================================================================
<PAGE>
Note 16: Westamerica Bancorporation (Parent Company Only)
Continued
Statements of Cash Flows (In thousands)
For the years ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 31,384 $ 27,662 $ 12,094
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 61 83 109
Undistributed earnings of affiliates (13,498) (11,353) (1,886)
(Increase) decrease in
receivables from affiliates (95) (91) 197
(Increase) decrease in other assets (3,565) (4,016) 1,318
Increase in other liabilities 1,181 1,607 1,536
Gain on sale of Sonoma Valley Bank -- -- (668)
Net loss (gain) on real estate venture -- 22 (49)
- ----------------------------------------------------------------------------
Net cash provided by operating activities 15,468 13,914 12,651
INVESTING ACTIVITIES
Purchases of premises and equipment (1,978) (92) (19)
Net change in land held for sale 80 -- (800)
Net decrease in loan balances 148 921 346
Investment in subsidiaries -- (140) (8,639)
Purchase of investment securities -- (4,500) (9,700)
Proceeds from maturities of
investment securities 6,511 7,000 14,341
Proceeds from sale of
premises and equipment -- -- 2,369
Proceeds from sale of Sonoma Valley Bank -- -- 2,733
- ----------------------------------------------------------------------------
Net cash provided by investing activities 4,761 3,189 631
FINANCING ACTIVITIES
Principal and interest payments
on long-term debt (4,494) (9,796) (6,260)
Issuance of shares of common stock 3,797 1,242 1,521
Cash in lieu of fractional shares (36) -- (54)
Retirement of common stock (12,341) (2,488) --
Dividends (7,489) (5,695) (5,106)
- ----------------------------------------------------------------------------
Net cash used in financing activities (20,563) (16,737) (9,899)
- ----------------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents (334) 366 3,383
Cash and cash equivalents at beginning of year 6,411 6,045 2,662
- ----------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 6,077 $ 6,411 $ 6,045
============================================================================
<PAGE>
Note 17: Quarterly Financial Information (Unaudited)
(In thousands except per share and price range of common stock)
March 31, June 30, Sept. 30, Dec. 31,
- -----------------------------------------------------------------------------
1995
Interest income $43,659 $43,662 $43,396 $43,660
Net interest income 29,660 28,977 28,363 28,765
Provision for loan losses 1,335 1,835 1,150 1,275
Non-interest income 5,119 5,434 5,537 5,443
Non-interest expense 22,404 23,730 20,386 19,820
Income before taxes 11,040 8,846 12,364 13,113
Net income 7,550 6,538 8,388 8,908
Earnings per share .76 .66 .85 .91
Dividends declared per share .17 .20 .20 .20
Price range, common stock
Low 29.50 33.00 36.50 38.50
High 33.25 37.50 38.50 43.25
1994
Interest income $39,544 $40,982 $42,267 $43,301
Net interest income 27,825 28,806 29,497 30,106
Provision for loan losses 2,072 2,004 1,597 1,747
Non-interest income 8,083 6,597 5,618 5,701
Non-interest expense 23,725 23,624 23,042 23,950
Income before taxes 10,111 9,775 10,476 10,111
Net income 6,852 6,472 7,244 7,094
Earnings per share .69 .65 .73 .72
Dividends declared per share .15 .15 .17 .17
Price range, common stock
Low 25.88 27.00 29.25 29.00
High 29.25 32.50 33.25 33.25
Note 18: Acquisitions
On January 31, 1995, the merger with PV Financial, parent company of PV
National Bank, became effective. At that time, the Company issued
approximately 1,174,000 shares of its common stock in exchange for all of the
outstanding common stock of PV Financial. The business combination was
accounted for as a pooling-of-interests business combination and,
accordingly, the consolidated financial statements and the financial data for
the periods prior to the combination have been restated to include the
accounts and results of operations of PV Financial.
On June 6, 1995, the merger of CapitolBank Sacramento with and into the
Company became effective. Following the terms of the merger, the Company
issued approximately 360,000 shares of the Company's common stock to
CapitolBank Sacramento shareholders. The merger was accounted for as a
pooling-of-interests business combination and, accordingly, the consolidated
financial statements and the financial data for the periods prior to the
merger have been restated to include the accounts and results of operations
of CapitolBank Sacramento.
On July 17, 1995, the merger between the Company and North Bay Bancorp,
parent company of Novato National Bank, became effective. Under the terms of
the merger agreement, the Company issued approximately 341,000 shares of its
common stock in exchange for all of the outstanding common stock of North Bay
Bancorp. This business combination was accounted for as a pooling-of-
<PAGE>
interests business combination and, accordingly, the consolidated financial
statements and financial data for the periods prior to the merger have been
restated to include the accounts and results of operations of North Bay
Bancorp.
In all mergers, certain reclassifications have been made to conform to
the Company's presentation.
The results of operations previously reported by the separate enterprises and
the combined amounts presented in the accompanying consolidated financial
statements are summarized as follows:
Three Six
months ended months ended
March 31, June 30,
1995 1995
(In thousands) (unaudited) (unaudited) 1994 1993
- ---------------------------------------------------------------------------
Net Interest Income:
Westamerica
Bancorporation $26,297 $56,095 $ 93,123 $ 94,645
PV Financial -- -- 10,630 8,559
CapitolBank 2,067 -- 7,785 6,269
North Bay Bancorp 1,296 2,542 4,696 5,344
- ---------------------------------------------------------------------------
Combined $29,660 $58,637 $116,234 $114,817
===========================================================================
Net Income (Loss):
Westamerica
Bancorporation $ 7,238 $15,192 $ 24,673 $ 9,455
PV Financial -- -- 2,364 1,958
CapitolBank 322 -- 458 315
North Bay Bancorp (10) (1,104) 167 366
- ---------------------------------------------------------------------------
Combined $ 7,550 $14,088 $ 27,662 $ 12,094
===========================================================================
There were no significant transactions between the Company and PV
Financial, CapitolBank Sacramento and North Bay Bancorp prior to the
combination. PV National Bank, CapitolBank and Novato National Bank were
engaged in the sale of overnight funds to Westamerica Bank, to meet immediate
funding requirements.
<PAGE>
Management's Letter of Financial Responsibility
To Our 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, 1995 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.
/s/ David L. Payne
-------------------------
David L. Payne
Chairman, President and CEO
/s/ James M. Barnes
--------------------------
James M. Barnes
Executive Vice President and CFO
/s/ Dennis R. Hansen
---------------------------
Dennis R. Hansen
Senior Vice President and Controller
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders of Westamerica Bancorporation:
We have audited the accompanying consolidated balance sheets of Westamerica
Bancorporation and subsidiaries (the Company) as of December 31, 1995 and
1994, 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, 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. As discussed in Note 1 to the consolidated financial statements, the
consolidated balance sheet of the Company as of December 31, 1994 and the
related statements of income, changes in shareholders' equity, and cash flows
for the years ended December 31, 1994 and 1993, have been restated on an
historical basis to reflect the January 31, 1995 acquisition of PV Financial,
the June 6, 1995 acquisition of CapitolBank Sacramento, and the July 17, 1995
acquisition of North Bay Bancorp, on a pooling-of-interests basis. We did not
audit the financial statements of PV Financial and North Bay Bancorp as of
and for the years ended December 31, 1994 and 1993, which statements reflect
total assets constituting 12 percent in 1994 and net income constituting 9
percent and 19 percent in 1994 and 1993, respectively, of the related and
restated consolidated totals. Those statements included in the 1994 and 1993
restated consolidated totals were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to the
amounts included for PV Financial and North Bay Bancorp, is based solely on
the reports 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 the
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports
of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three year
period ended December 31, 1995 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
---------------------
KPMG Peat Marwick LLP
San Francisco, California
January 18, 1996
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
PV Financial
We have audited the accompanying consolidated balance sheets of PV Financial
and Subsidiary as of December 31, 1994 and 1993, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the period ended December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of PV Financial
and Subsidiary as of December 31, 1994 and 1993, and the consolidated results
of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As described in Note 1, Securities, the Company changed its method of
accounting for securities as of December 31, 1993.
/s/ Grant Thornton LLP
------------------
Grant Thornton LLP
Stockton, California
January 13, 1995
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of North Bay Bancorp:
We have audited the accompanying balance sheets of North Bay Bancorp (a
California corporation) and subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the 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 financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of North Bay
Bancorp and Subsidiaries as of December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 10, certain arbitration and litigation matters are
pending against the Bank and the outcome is uncertain at this time.
Accordingly, no provisions for any liabilities that may result upon the final
settlement of these matters have been made in the accompanying financial
statements.
/s/ Arthur Andersen LLP
-------------------
Arthur Andersen LLP
San Francisco, California
February 17, 1995
<PAGE>
ITEM 9. Disagreements 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 9 of the Company's Proxy Statement dated March 20,
1996, 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 9 through 12 of the
Company's Proxy Statement dated March 20, 1996, 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 5 through 7 of the Company's Proxy Statement
dated March 20, 1996, 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 4 of the Company's Proxy Statement dated March 20, 1996, 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 39.
(a) 2. Financial statement schedules required.
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.
<PAGE>
Exhibit
Number Exhibit
- ------ ------- ------------
3(a) Restated Articles of
Incorporation (composite copy).
3(b)** By-laws.
4(a) Amended 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. *****
(g) Agreement and Plan of Merger by and between
Westamerica Bancorporation and PV Financial,
proxy and prospectus dated October 11, 1994. ******
(h) Agreement and Plan of Merger by and between
Westamerica Bancorporation and CapitolBank
Sacramento, proxy and prospectus dated
February 2, 1995. *******
(i) Agreement and Plan of Merger by and between
Westamerica Bancorporation and North Bay
Bancorp, proxy and prospectus dated
February 10, 1995. ********
11 Computation of Earnings Per Share on common
and common equivalent shares and on
common shares assuming full dilution
21 Subsidiaries of the registrant.
23(a) Consent of KPMG Peat Marwick LLP
(b) Consent of Grant Thornton LLP
(c) Consent of Arthur Andersen LLP
<PAGE>
- --------------------------------------------
* 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 10(e) is incorporated herein by reference from the
Form S-4 dated November 27, 1991.
***** Exhibit 10(f) is incorporated herein by reference from the
Form S-4 dated November 12, 1992.
****** Exhibit 10(g) is incorporated herein by reference from the
Form S-4 dated October 11, 1994.
******* Exhibit 10(h) is incorporated herein by reference from the
Form S-4 dated February 3, 1995.
******** Exhibit 10(i) is incorporated herein by reference from
the Form S-4 dated February 10, 1995.
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
<PAGE>
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 /s/ Dennis R. Hansen By /s/ James M. Barnes
----------------- ----------------
Dennis R. Hansen James M. Barnes
Senior Vice President and Controller Executive Vice President
Principal Accounting Officer and 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
/s/ David L. Payne Chairman of the Board and 3/28/96
--------------------------- Director and President and CEO
David L. Payne
/s/ E. Joseph Bowler Senior Vice President 3/28/96
--------------------------- and Treasurer
E. Joseph Bowler
/s/ Etta Allen Director 3/28/96
---------------------------
Etta Allen
/s/ Louis E. Bartolini Director 3/28/96
---------------------------
Louis E. Bartolini
/s/ Charles I. Daniels, Jr. Director 3/28/96
---------------------------
Charles I. Daniels, Jr.
/s/ Don Emerson Director 3/28/96
---------------------------
Don Emerson
/s/ Arthur C. Latno Director 3/28/96
---------------------------
Arthur C. Latno
/s/ Patrick D. Lynch Director 3/28/96
---------------------------
Patrick D. Lynch
/s/ Catherine Cope MacMillan Director 3/28/96
---------------------------
Catherine Cope MacMillan
/s/ Dwight H. Murray, Jr. M.D. Director 3/28/96
---------------------------
Dwight H. Murray, Jr., M.D.
/s/ Ronald A. Nelson Director 3/28/96
---------------------------
Ronald A. Nelson
/s/ Carl Otto Director 3/28/96
---------------------------
Carl Otto
/s/ Director 3/28/96
--------------------------
Edward B. Sylvester
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<CIK> 0000311094
<NAME> WESTAMERICA BANCORPORATION
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<PERIOD-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<CASH> 182133 145512 136930
<INT-BEARING-DEPOSITS> 1552032 1599391 1647395
<FED-FUNDS-SOLD> 0 35445 30820
<TRADING-ASSETS> 0 0 10
<INVESTMENTS-HELD-FOR-SALE> 620337 188187 185864
<INVESTMENTS-CARRYING> 242175 638459 620730
<INVESTMENTS-MARKET> 244303 608146 628216
<LOANS> 1387240 1386989 1393588
<ALLOWANCE> 33508 32450 30045
<TOTAL-ASSETS> 2490944 2457427 2428848
<DEPOSITS> 2049521 2074692 2110031
<SHORT-TERM> 175622 135426 76298
<LIABILITIES-OTHER> 21864 20124 17523
<LONG-TERM> 20000 25524 36352
0 0 0
0 0 0
<COMMON> 94786 93629 92943
<OTHER-SE> 129151 111032 95701
<TOTAL-LIABILITIES-AND-EQUITY> 2490944 2457427 2428848
<INTEREST-LOAN> 128264 120115 124060
<INTEREST-INVEST> 46113 45979 41915
<INTEREST-OTHER> 0 0 0
<INTEREST-TOTAL> 174377 166094 165975
<INTEREST-DEPOSIT> 48479 41967 47123
<INTEREST-EXPENSE> 58612 49860 51158
<INTEREST-INCOME-NET> 115765 116234 114817
<LOAN-LOSSES> 5595 7420 10581
<SECURITIES-GAINS> 19 (60) 351
<EXPENSE-OTHER> 86340 94341 121441
<INCOME-PRETAX> 45363 40472 16601
<INCOME-PRE-EXTRAORDINARY> 45363 40472 16601
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 31384 27662 12094
<EPS-PRIMARY> 3.18 2.79 1.22
<EPS-DILUTED> 3.18 2.79 1.22
<YIELD-ACTUAL> 5.56 5.45 5.5
<LOANS-NON> 9950 10290 15779
<LOANS-PAST> 264 1774 1753
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 32450 30045 29254
<CHARGE-OFFS> 6770 7417 11514
<RECOVERIES> 2233 2402 2408
<ALLOWANCE-CLOSE> 33508 32450 30045
<ALLOWANCE-DOMESTIC> 20750 17516 22052
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 12758 14934 7993
</TABLE>
Exhibit 11
Westamerica Bancorporation
Computation of Earnings Per Share on Common
and Common Equivalent Shares and on Common
Shares Assuming Full Dilution
(In thousands)
For the years ended December 31, 1995 1994* 1993*
- ----------------------------------------------------------------------------
Weighted average number of common shares
outstanding 9,877 9,916 9,914
Add exercise of options reduced by the
number of shares that could have
been purchased with the proceeds
from such exercise 164 83 74
- ----------------------------------------------------------------------------
Total 10,041 9,999 9,988
============================================================================
Net income $31,384 $27,662 $12,094
Fully-diluted earnings per share $3.13 ** $2.77 ** $1.21
============================================================================
Primary earnings per share $3.18 $2.79 $1.22
============================================================================
* Data has been restated on an historical basis to reflect the January 31,
1995 acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp, all on a
pooling-of-interest basis.
**Anti-dilutive
<PAGE>
Exhibit 21
WESTAMERICA BANCORPORATION
SUBSIDIARIES AS OF DECEMBER 31, 1995
State of Incorporation
Westamerica Bank California
Napa Valley Bank California
Bank of Lake County California
Community Banker Services Corporation California
Westcore California
<PAGE>
Exhibit 23(a)
Consent of Independent Auditors
The Board of Directors
Westamerica Bancorporation
We consent to incorporation by reference in registration
statement (No. 33-60003) on Form S-8 of Westamerica
Bancorporation and subsidiaries (the Company) of our report dated
January 18, 1996, relating to the consolidated balance sheets of
Westamerica and subsidiaries as of December 31, 1995
and 1994, 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, 1995, which
report appears in the December 31, 1995, annual report on Form
10-K of Westamerica Bancorporation. On January 31, 1995 and July
17, 1995, the Company acquired PV Financial and North Bay
Bancorp, respectively, on a pooling-of-interests basis. We did
not audit the financial statements of PV Financial and North Bay
Bancorp as of and for the years ended December 31, 1994 and 1993.
Those statements, included in the 1994 and 1993 restated
consolidated totals were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it
relates to the amounts include for PV Financial and North Bay
Bancorp, is based solely on the reports of the other auditors.
/s/ KPMG Peat Marwick LLP
---------------------
KPMG Peat Marwick LLP
San Francisco, California
March 29, 1996
<PAGE>
Exhibit 23(b)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration
Statement on Form S-8 (File No. 33-60003) our report dated
January 13, 1995 (relating to the financial statements of PV
Financial not presented separately herein)
appearing in the Westamerica Bancorporation Form 10-K.
/s/ Grant Thornton LLP
------------------
Grant Thornton LLP
Stockton, California
March 21, 1996
<PAGE>
Exhibit 23(c)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated February 17, 1995, on our
audits of North Bay Bancorp's consolidated financial statements
for the years ended December 31, 1994 and 1993, included (or
incorporated by reference) in Westamerica Bancorporation's 10-K
for the year ended December 31, 1995 and to all references to our
Firm included in this Form 10-K. It should be noted that we have
performed no audit procedures subsequent to February 17, 1995,
the date of our report. Furthermore, we have not audited any
financial statements of North Bay Bancorp as of any date or for
any period subsequent to December 31, 1994.
/s/ Arthur Andersen LLP
-------------------
Arthur Andersen LLP
San Francisco, California
March 22, 1996
