Back to GetFilings.com
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.
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
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
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.
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.
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.
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.
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.
FDICIA contains numerous other provisions, including new reporting,
examination and auditing requirements, termination of the "too big to fail"
doctrine except in special cases, limitations on the FDIC's payment of
deposits at foreign branches, and revised regulatory standards for, among
other things, real estate lending and capital adequacy.
Implementation of the various provisions of FDICIA are subject to the
adoption of regulations by the various banking agencies or to certain
phase-in periods. The effect of FDICIA on the Company and its subsidiary
banks cannot be determined until implementing regulations are adopted by
the agencies.
Regulations Applicable to Bank Subsidiaries. The Company's subsidiary
banks are state-chartered banks and subject to regulation, supervision and
regular examinations by the State of California Banking Department as well
as the FDIC. The regulations of these agencies and the FRB affect most
aspects of the banking business and prescribe permissible types of loans
and investments, requirements for branch offices, the permissible scope of
activities and various other requirements. As WAB is also a member of the
Federal Reserve System, it is subject to certain other regulations of the
FRB dealing primarily with check clearing activities, establishment of
banking reserves, truth-in-lending, truth-in-savings and equal credit
opportunity.
CAPITAL REQUIREMENTS
Risk-Based Capital Ratio. The agencies which regulate financial
institutions have adopted risk-based capital adequacy standards applicable
to financial institutions. These guidelines provide a measure of capital
adequacy and are intended to reflect the degree of risk associated with
both on and off balance sheet items, including residential loans sold with
recourse, legally binding loan commitments and standby letters of credit.
Under these regulations, financial institutions are required to maintain
capital to support activities which in the past did not require capital.
Failure to meet the minimum capital requirements established by the
regulators will result in an institution being classified as
"undercapitalized", "significantly undercapitalized", or "critically
undercapitalized".
A financial institution's risk-based capital ratio is calculated by
dividing its qualifying capital by its risk-weighted assets. Financial
institutions generally are expected to meet a minimum ratio of qualifying
total capital to risk-weighted assets of 8 percent, of which at least 4
percent of qualifying total capital must be in the form of core capital
(Tier 1), i.e., common stock, noncumulative perpetual preferred stock,
minority interests, retained earnings in equity capital accounts of
consolidated subsidiaries and allowed mortgage servicing rights less all
intangible assets other than allowed mortgage servicing rights.
Supplementary capital (Tier 2) consists of the allowance for loan losses up
to 1.25 percent of risk-weighted assets, cumulative preferred stock, term
preferred stock, hybrid capital instruments and term subordinated debt.
The maximum amount of Tier 2 capital which may be recognized for risk-based
capital purposes is limited to 100 percent of Tier 1 capital (after any
deductions for disallowed intangibles). Certain other limitations and
restrictions apply as well.
The risk-based capital ratio analysis establishes minimum supervisory
guidelines and standards. The guidelines do not currently evaluate all
factors affecting an organization's financial condition. Factors which are
not evaluated include (i) overall interest rate exposure; (ii) liquidity,
funding and market risks; (iii) quality and level of earnings; (iv)
investment or loan portfolio concentrations; (v) quality of loans and
investments; (vi) the effectiveness of loan and investment policies; and
(vii) management's overall ability to monitor and control other financial
and operating risks. FDICIA also requires the guidelines to reflect the
actual performance and expected risk of loss of multifamily mortgages.
These provisions will affect the capital positions and capital standing of
all institutions and may result in the need for increased capital.
However, the ultimate effect of FDICIA risk-based capital provisions cannot
be determined until final regulations are adopted. Until such time,
however, the capital adequacy assessment of federal bank regulators will
continue to include analysis of the foregoing elements and, in particular,
the level and severity of problem and classified assets.
Minimum Leverage Ratio. The FDIC and the FRB have also adopted a 3
percent minimum leverage ratio which is intended to supplement risk-based
capital requirements and to ensure that all financial institutions, even
those that invest predominantly in low risk assets, continue to maintain a
minimum level of Tier 1 capital. A financial institution's minimum leverage
ratio is determined by dividing its Tier 1 capital by its quarterly average
total assets, less intangibles not includable in Tier 1 capital.
Under the guidelines, a minimum leverage ratio of 3 percent is required
for institutions which have been determined to be in the highest of five
categories used by regulators to rate financial institutions. All other
organizations are required to maintain leverage ratios of at least 100 to
200 basis points above the 3 percent minimum. It is improbable, however,
that an institution with a 3 percent leverage ratio would be rated in the
highest category since a strong capital position is also a requirement for
the highest rating. Therefore, the "minimum" leverage ratio is, for all
practical purposes, significantly above 3 percent.
The leverage ratio establishes a limit on the ability of banking
organizations, including the Company, to increase assets and liabilities
without increasing capital proportionately. The Company's Management
believes that conformance with the leverage ratio will not have an adverse
effect on the operations of the Company or require it to raise additional
capital in the foreseeable future.
New Capital Standards. FDICIA requires the federal banking regulators
to take "prompt corrective action" with respect to banks that do not meet
minimum capital requirements. In response to this requirement, the FDIC
and the FRB participated in the adoption of final rules based upon
FDICIA's five capital tiers. These rules provide that an institution is
"well capitalized" if its risk-based capital ratio is 10 percent or
greater; its Tier 1 risk-based capital ratio is 6 percent or greater; its
leverage ratio is 5 percent or greater; and the institution is not subject
to a capital directive. A bank is "adequately capitalized" if its
risk-based capital ratio is 8 percent or greater; its Tier 1 risk-based
capital ratio is 4 percent or greater; and its leverage ratio is 4 percent
or greater (3 percent or greater for one rated institutions). An
institution is considered "undercapitalized" if its risk-based capital
ratio is less than 8 percent; its Tier 1 risk-based capital ratio is less
than 4 percent; or its leverage ratio is 4 percent or less. An institution
is "significantly undercapitalized" if its risk-based capital ratio is less
than 6 percent; its Tier 1 risk-based capital ratio is less than 3 percent;
or its leverage ratio is less than 3 percent. A bank is deemed to be
"critically undercapitalized" if its ratio of tangible equity (Tier 1
capital) to total assets is equal to or less than 2 percent. An
institution may be deemed to be in a capitalization category that is lower
than is indicated by its actual capital position if it engages in unsafe or
unsound banking practices.
No sanctions apply to institutions which are well capitalized.
Adequately capitalized institutions are prohibited from accepting brokered
deposits without the consent of the primary regulator. Undercapitalized
institutions are required to submit a capital restoration plan for
improving capital. In order to be accepted, such plan must include a
financial guaranty from the institution's holding company that the
institution will return to capital compliance. If such a guarantee were
deemed to be a commitment to maintain capital under the Federal Bankruptcy
Code, a claim for a subsequent breach of the obligations under such
guarantee in a bankruptcy proceeding involving the holding company would be
entitled to a priority over third party general unsecured creditors of the
holding company. Undercapitalized institutions are prohibited from making
capital distributions or paying management fees to controlling persons; may
be subject to limitations pertaining to growth; and are restricted from
acquisitions, branching and entering into new lines of business. Finally,
the institution's regulatory agency has discretion to impose certain of the
restrictions generally applicable to significantly undercapitalized
institutions.
In the event an institution is deemed to be significantly
undercapitalized, it may be required to: sell stock; merge or be acquired;
restrict transactions with affiliates including restrictions on payment of
dividends; restrict interest rates paid; divest a subsidiary; or dismiss
specified directors or officers. If the institution is a bank holding
company, it may be prohibited from making any capital distributions without
prior approval of the FRB and may be required to divest a subsidiary. A
critically undercapitalized institution is generally prohibited from making
payments on subordinated debt and may not, without the approval of the
FDIC, enter into a material transaction other than in the ordinary course
of business; engage in any covered transaction; or pay excessive
compensation or bonuses. Critically undercapitalized institutions are
subject to appointment of a receiver or conservator.
As of December 31, 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
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.
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.
ITEM 6. Selected Financial Data
Financial Summary
(In thousands, except per share data and number of shareholders)
Financial Summary
(In thousands,
except per share data) 1995 1994* 1993* 1992* 1991*
- --------------------------------------------------------------------------------------------
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
============================================================================================
* 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
Financial Summary
Continued
(In thousands,
except per share data) 1995 1994* 1993* 1992* 1991*
- --------------------------------------------------------------------------------------------
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
* 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
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
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.
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.
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.
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.
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.
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.
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
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.
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
- -----------------------------------------------------------------------------------------
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%
=========================================================================================
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
- ----------------------------------------------------------------------------------------
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%
=========================================================================================
Loan Portfolio
The following table shows the composition of loans of the Company
by type of loan or type of borrower, on the dates indicated.
Composition of the Loan Portfolio
(In thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------
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
============================================================================================
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.*
Within One to After
one year five years five years Total
- ----------------------------------------------------------------------------------
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
==================================================================================
* 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
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.
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.
Non-performing assets
(in millions) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
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%
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.
Summary of Non-Accrual Loans
(In thousands)
- --------------------------------------------------------------------------------
December 31, 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
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
================================================================================
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.
The following table summarizes the loan loss experience of the Company
for the periods indicated:
Loan Loss Experience
(In thousands)
- --------------------------------------------------------------------------------------------
December 31, 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------
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%
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%
==============================================================
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.
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.
Interest Rate Sensitivity Analysis
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
- -----------------------------------------------------------------------------------------------
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 $ --
======================================================================================
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.
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
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
==============================================
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%
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
=================================================================
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.
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
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