UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from .....to.......
Commission File Number 1-9383
WESTAMERICA BANCORPORATION
(Exact name of the registrant as specified in its charter)
CALIFORNIA
(State of incorporation)
94-2156203
(I.R.S. Employer Identification Number)
1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA 94901
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (415) 257-8000
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 [ ]
Indicate by check mark if disclosure of delinquent files pursuant to item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by
non-affiliates of the registrant, computed by reference to
the closing price of the stock, as of March 20, 1998:
$1,374,172,000
Number of shares outstanding of each of the registrant's classes of common stock, as of March 20, 1998
Title of Class
Common Stock, no par value
Shares Outstanding
42,652,768
DOCUMENTS INCORPORATED BY REFERENCE
Document *
Proxy Statement dated March 19, 1998
for Annual Meeting of Shareholders
to be held on April 21, 1998
Incorporated into:
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
PART I Page
Item 1 Business 2
Item 2 Description of Properties 26
Item 3 Legal Proceedings 27
Item 4 Submission of Matters to a Vote of Security Holders 27
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 27
Item 6 Selected Financial Data 29
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 30
Item 8 Financial Statements and Supplementary Data 56
Item 9 Changes in and Disagreements on Accounting and Financial Disclosure 99
PART III
Item 10 Directors and Executive Officers of the Registrant 99
Item 11 Executive Compensation 99
Item 12 Security Ownership of Certain Beneficial Owners and Management 99
Item 13 Certain Relationships and Related Transactions 99
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 100
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PART I
ITEM I. Business
Certain statements in this Annual Report on Form 10-K include forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject of the "safe harbor" created by those sections. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. Such risks and uncertainties include, but are not limited to, the following factors: competitive pressure in the banking industry significantly increasing; changes in the interest rate environment reduce margins; general economic conditions, either nationally or regionally, are less favorable than expected, resulting in, among other things, a deterioration in credit quality and an increase in the provision for possible loan losses; changes in the regulatory environment, changes in business conditions; volatility of rate sensitive deposits; operational risks including data processing system failures or fraud; asset/liability matching risks and liquidity risks; and changes in the securities markets. See also "Certain Additional Business Risks" herein and other risk factors discussed elsewhere in this Report.
WESTAMERICA BANCORPORATION (the "Company") is a bank holding company registered under the Bank Holding Company Act of 1956 ("BHC"), as amended. The Company 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 and Central California through its subsidiary banks, Westamerica Bank and Bank of Lake County (the "Banks"). The Banks are subject to competition from other financial institutions and regulations from certain agencies and undergo periodic examinations by those regulatory authorities. In addition, the Company also owns 100 percent of the capital stock of Westamerica Commercial Credit, Inc., a company engaged in financing accounts receivable and inventory lines of credit and term business loans and 100 percent of Community Banker Services Corporation, a company engaged in providing the Company and its subsidiaries data processing services and other support functions.
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.
In August, 1988, the Company formed a new bank, but named it Bank of Lake County, National Association, and effected the sale of WAB's assets and liabilities of its three Lake County branches to the newly formed bank.
In August, 1988, the sale of Bank of Lake County, National Association to Napa Valley Bancorp was consummated.
On February 28, 1992, the Company acquired John Muir National Bank through a merger of such bank with and into WAB in exchange for the issuance of the Company's Common Stock for all the outstanding shares of John Muir National Bank. The business transaction was accounted for on 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 Corporation, which was established to provide data processing and other services to Napa Valley Bancorp's subsidiaries. This business transaction was accounted for on a pooling-of-interests basis. Shortly after, 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. The Company retained its 88 percent interest in Bank of Lake County.
In June 1993, the Company accepted from WAB a dividend in the form of all outstanding shares of capital stock of WAB'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.
WAB 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 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 with and into WAB in exchange for the issuance of shares of the Company's common stock for all the outstanding shares of PV Financial. The business combination was accounted for on a pooling-of-interests basis.
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. The business combination was accounted for on a pooling-of-interests basis.
On July 17, 1995, the 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 shares of common stock of North Bay Bancorp. The subsidiary bank was merged with and into WAB. The business combination was accounted for on a pooling-of-interests basis.
On April 12, 1996 Napa Valley Bank was merged into WAB.
In November 1996, the Company finalized the formation of a new subsidiary, Westamerica Commercial Credit, Inc. which engages in financing accounts receivable and inventory lines of credit and term business loans.
On April 12, 1997, the Company acquired ValliCorp Holdings, Inc., parent company of ValliWide Bank, the largest independent bank holding company headquartered in Central California. The acquisition became effective through the issuance of shares of the Company's common stock in exchange for all of the outstanding shares of ValliCorp Holdings, Inc. The business combination was accounted for on a pooling-of-interests basis. ValliWide Bank remained as a separate subsidiary bank of the Company.
On June 20, 1997, ValliWide Bank ceased to exist as a subsidiary of the Company, when it was merged with and into WAB.
On January 22, 1998, the Board of Directors of the Company authorized a three-to-one split of the Company's common stock in which each share of the Company's common stock is converted into three shares, with record and effective dates of February 10 and February 25, 1998, respectively.
At December 31, 1997, the Company had consolidated assets of approximately $3.85 billion, deposits of approximately $3.08 billion and shareholders' equity of approximately $407.2 million.
General
Westamerica Bancorporation is a community oriented bank holding company headquartered in San Rafael, California. The principal communities served are located in Northern and Central California, from Mendocino, Lake and Nevada Counties in the North, to Kern and San Luis Obispo counties in the South. The Company's strategic focus is on the banking needs of small businesses. The Company chose this particular focus in the late 1980's as it recognized that concentrating on a few niche markets was going to be the key to the Company's profitable survival in the consolidating banking business.
Certain Additional Business Risks
The Company's business, financial condition and operating results can be impacted by a number of factors, including but not limited to those set forth below, any one of which could cause the Company's actual results to vary materially from recent results or from the Company's anticipated future results.
Shares of Company Common Stock eligible for future sale could have a dilutive effect on the market for Company Common Stock and could adversely affect the market price. The Articles of Incorporation of the Company authorize the issuance of 150,000,000 shares of common stock (and two classes of 1,000,000 shares each, denominated "Class B Common Stock" and "Preferred Stock", respectively) of which approximately 42,799,020 were outstanding at December 31, 1997. Pursuant to its stock option plans, at December 31, 1997, the Company had exercisable options outstanding of 1,147,920. As of December 31, 1997, 191,118 shares of Company Common Stock remained available for grants under the Company's stock option plans (and stock purchase plan). Sales of substantial amounts of Company Common Stock in the public market could adversely affect the market price of Common Stock.
A portion of the loan portfolio of the Company is dependent on real estate. At December 31, 1997, real estate served as the principal source of collateral with respect to approximately 53 percent of the Company's loan portfolio. A worsening of current economic conditions or rising interest rates could have an adverse effect on the demand for new loans, the ability of borrowers to repay outstanding loans, the value of real estate and other collateral securing loans and the value of the available-for-sale securities portfolio, as well as the Company's financial condition and results of operations in general and the market value of the Company's common stock. Acts of nature, including earthquakes and floods, which may cause uninsured damage and other loss of value to real estate that secures these loans, may also negatively impact the Company's financial condition.
The Company is subject to certain operations risks, including, but not limited to, data processing system failures and errors and customers or employee fraud. The Company maintains a system of internal controls to mitigate against such occurrences and maintains insurance coverage for such risks, but should such event occur that is not prevented or detected by the Company's internal controls, uninsured or in excess of applicable insurance limits, it could have a significant adverse impact on the Company's business, financial condition or results of operations. See also the section "Year 2000 Compliance" in the Management's Discussion and Analysis contained in this report.
Employees
At December 31, 1997, the Company and its subsidiaries employed 1,144 full-time equivalent staff. Employee relations are believed to be good.
The Effect of Government Policy on Banking
The earnings and growth of the Company are affected not only by local market area factors and general economic conditions, but also by government monetary and fiscal policies. For example, the Board of Governors of the Federal Reserve System ("FRB") influences the supply of money through its open market operations in U.S. Government securities and adjustments to the discount rates applicable to borrowings by depository institutions and others. Such actions influence the growth of loans, investments and deposits and also affect interest rates charged on loans and paid on deposits. The nature and impact of future changes in such policies on the business and earnings of the Company cannot be predicted. Additionally, state and federal tax policies can impact banking organizations. Effective January 1, 1997, applicable California law and corporation tax rates were reduced by 5% in order to keep California competitive with other western states.
As a consequence of the extensive regulation of commercial banking activities in the United States, the business of the Company is particularly susceptible to being affected by the 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. Any change in applicable laws or regulations may have a material adverse effect on the business and prospects of the Company. In response to various business failures in the savings and loan industry and in the banking industry, in December 1991, Congress enacted, and the President signed into law, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). FDICIA substantially revised the bank regulatory framework and deposit insurance funding provisions of the Federal Deposit Insurance Act and made revisions to several other federal banking statutes.
Implementation of the various provisions of FDICIA is subject to the adoption of regulations by the various regulatory agencies, the manner in which the regulatory agencies implement those regulations and certain phase-in periods.
Regulation and Supervision of Bank Holding Companies
The Company is a bank holding company subject to the Bank Holding Company Act of 1956, as amended ("BHCA"). The Company reports to, registers with, and may be examined by, the FRB. The FRB also has the authority to examine the Company's subsidiaries. The costs of any such examination by the FRB are payable by the Company.
The Company is a bank holding company within the meaning of Section 3700 of the California Financial Code. As such the Company and the Banks are subject to examination by, and may be required to file reports with, the California Commissioner of Financial Institutions (the "Commissioner).
The FRB has significant supervisory and regulatory authority over the Company and its affiliates. The FRB requires the Company to maintain certain levels of capital. See "Capital Standards". The FRB also has the authority to take enforcement action against any bank holding company that commits any unsafe or unsound practice, or violates certain laws, regulations or conditions imposed in writing by the FRB. See section entitled "Prompt Corrective Action and Other Enforcement Mechanisms".
Under the BHCA, a company generally must obtain the prior approval of the FRB before it exercises a controlling influence over a bank, or acquires directly or indirectly, more than 5% of the voting shares or substantially all of the assets of any bank or bank holding company. Thus, the Company is required to obtain the prior approval of the FRB before they acquire, merge or consolidate with any bank or bank holding company; any company seeking to acquire, merge or consolidate with the Company also would be required to obtain the approval of the FRB.
The Company is generally prohibited under the BHCA from acquiring ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than banking, managing banks or providing services to affiliates of the holding company. A bank holding company, with the approval of the FRB, may engage, or acquire the voting shares of companies engaged, in activities that the FRB has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. A bank holding company must demonstrate that the benefits to the public of the proposed activity will outweigh the possible adverse effects associated with such activity.
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking and Branching Act"), a bank holding company became able to acquire banks in states other than its home state beginning September 29, 1995 without regard to the permissibility of such acquisitions under state law, but subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company, prior to or following the proposed acquisition, controls no more than 10% of the total amount of deposits of insured depository institutions in the United States and no more than 30% of such deposits in that state (or such lesser or greater amount set by law).
The Interstate Banking and Branching Act also authorizes banks to merge across state lines, therefore creating interstate branches, beginning June 1, 1997. Under such legislation, each state has the opportunity to "opt out" of this provision, thereby prohibiting interstate branching in such states, or to "opt in" at an earlier time, thereby allowing interstate branching within that state prior to June 1, 1997. Furthermore, pursuant to such act, a bank is now able to open new branches in a state in which it does not already have banking operations, if the laws of such state permit such de novo branching.
California "opted in" to the Interstate Banking and Branching Act provisions regarding interstate branching by enacting the Caldera, Weggeland, and Killea California Interstate Banking and Branching Act of 1995 ("IBBA"). Under the IBBA, (a) out-of-state banks that wish to establish a California branch office to conduct core banking business must first acquire an existing 5 year old California bank or industrial loan company by merger or purchase; (b) California state-chartered banks will be empowered to conduct various authorized branch-like activities on an agency basis through affiliated and unaffiliated insured depository institutions in California and other states and (c) the Commissioner will be authorized to approve an interstate acquisition or merger which would result in a deposit concentration exceeding 30% if the Commissioner finds that the transaction is consistent with public convenience and advantage. However, the IBBA prohibits a state bank chartered in a state other than California from entering California by purchasing a California branch office of a California bank or industrial loan company without purchasing the entire entity or by establishing a de novo California branch office. The legislation also contains extensive provisions governing intrastate and interstate (a) intra-industry sales, mergers and conversions between banks and between industrial loan companies and (b) inter-industry transactions involving banks, savings associations and industrial loan companies.
Proposals to change the laws and regulations governing the banking industry are frequently introduced in Congress, in the state legislatures and before the various bank regulatory agencies.
The FRB generally prohibits a bank holding company from declaring or paying a cash dividend which would impose undue pressure on the capital of subsidiary banks or would be funded only through borrowing or other arrangements that might adversely affect a bank holding company's financial position. The FRB's policy is that a bank holding company should not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of earnings retention appears consistent with its capital needs, asset quality and overall financial condition. See section entitled "Restrictions on Dividends and other Distributions" for additional restrictions.
Transactions between the Company and the Banks are subject to a number of other restrictions. FRB policies forbid the payment by bank subsidiaries of management fees which are unreasonable in amount or exceed the fair market value of the services rendered (or, if no market exists, actual costs plus a reasonable profit). Subject to certain limitations, depository institution subsidiaries of bank holding companies may extend credit to, invest in securities of, purchase assets from, or issue a guarantee, acceptance, or letter of credit on behalf of, an affiliate, provided that the aggregate of such transactions with affiliates may not exceed 10% of the capital stock and surplus of the institution, and the aggregate of such transactions with affiliates may not exceed 20% of the capital stock and surplus of such institution. The Company may only borrow from depository institution subsidiaries if the loan is secured by marketable obligations with a value of a designated amount in excess of the loan. Further, the Company may not sell a low-quality asset to a depository institution subsidiary.
The FRB has adopted comprehensive amendments to Regulation
Y which became effective April 21, 1997, and are intended
to improve the competitiveness of bank holding companies
by, among other things: (i) expanding the list of
permissible nonbanking activities in which well-run bank
holding companies may engage without prior FRB approval,
(ii) streamlining the procedures for well-run bank holding
companies to obtain approval to engage in other nonbanking
activities and (iii) eliminating most of the anti-tying
restrictions imposed upon bank holding companies and their
nonbank subsidiaries. Amended Regulation Y also provides
for a streamlining and expedited review process for bank
acquisition proposals submitted by well-run bank holding
companies and eliminates certain duplicative reporting
requirements when there has been a further change in bank
control or in bank directors or officers after an earlier
approved change.
In order for a bank holding company to qualify as well-run, both it and the insured depository institutions that it controls must meet the "well-capitalized" and "well-managed" criteria set forth in Regulation Y.
To qualify as "well-capitalized," the bank holding company
must, on a consolidated basis: (i) maintain a total
risk-based capital ratio of 10% or greater; (ii) maintain
a Tier 1 risk-based capital ratio of 6% or greater; and
(iii) not be subject to any order by the FRB to meet a
specified capital level. Its lead insured depository
institution must be well-capitalized as that term is
defined in the capital adequacy regulations of the
applicable bank regulator, 80% of the total risk-weighted
assets held by its insured depository institutions must be
held by institutions that are well-capitalized, and none
of its insured depository institutions may be
undercapitalized.
To qualify as "well-managed": (i) the bank holding
company, its lead depository institution and its
depository institutions holding 80% of the total
risk-weighted assets of all its depository institutions at
their most recent examination or review, must have received
a composite rating, rating for management and rating for
compliance which were at least satisfactory; (ii) none of
the bank holding company's depository institutions may
have received one of the two lowest composite ratings; and
(iii) neither the bank holding company nor any of its
depository institutions during the previous 12 months may
have been subject to a formal enforcement order or action.
The permissible non-banking activities in which bank
holding companies may engage include: (i) extending credit
and servicing loans; (ii) real estate and personal
property appraising; (iii) arranging commercial real
estate equity financing; (iv) check-guaranty services; (v)
collection agency services; (vi) credit bureau services;
(vii) asset management, servicing and collection; (viii)
acquiring debt in default; (ix) real estate settlement
services; (x) leasing personal or real property; (xi)
operating nonbank depository institutions; (xii) trust
company functions; (xiii) financial and investment
advisory activities; (xiv) riskless principal
transactions; (xv) private placement services; (xvi)
foreign exchange trading for a bank holding company's own
account; (xvii) dealing and related activities in gold,
silver, platinum and palladium; (xviii) employee benefits
consulting; (xix) career counseling services; (xx)
printing and selling checks; (xxi) insurance agency and
underwriting services; (xxii) community development
activities; (xxiii) data processing; and (xxiv) money
order, savings bond and traveler's checks services. A bank
holding company's provision of these services is subject
to numerous qualifications, limitations and restrictions.
Bank Supervision and Regulation
The Banks are California chartered banks insured by the Federal Deposit Insurance Corporation (the "FDIC"), and as such are subject to regulation, supervision and regular examination by the California Department of Financial Institutions ("DFI") and the FDIC. As members of the Federal Reserve System, the Banks' primary federal regulator is the FRB. The regulations of these agencies affect most aspects of the Banks' business and prescribe permissible types of loans and investments, the amount of required reserves, requirements for branch offices, the permissible scope of the Banks' activities and various other requirements. The DFI was created pursuant to AB 3351, effective July 1, 1997, and combines the State Banking Department, the Department of Savings and Loan, and regulatory oversight over industrial loan companies and credit unions with the DFI. For the most part, the DFI is merely assuming the responsibilities and authorities previously held by the existing previous regulators.
The Banks are also subject to applicable provisions of California law, insofar as such provisions are not in conflict with or preempted by federal banking law. In addition, the Banks are subject to certain regulations of the FRB dealing primarily with check-clearing activities, establishment of banking reserves, Truth-in-Lending (Regulation Z), Truth in Savings (Regulation DD), and Equal Opportunity (Regulation B).
Under California law, a state chartered bank is subject to various restrictions on, and requirements regarding, its operations and administration including the maintenance of branch offices and automated teller machines, capital and reserve requirements, deposits and borrowings, stockholder rights and duties, and investments and lending activities. Whenever it appears that the contributed capital of a California bank is impaired, the Commissioner shall order the bank to correct such impairment. If a bank is unable to correct the impairment, such bank is required to levy and collect an assessment upon its common shares. If such assessment becomes delinquent, such common shares are to be sold by the bank. During 1996 the California Interstate Banking and Branching Cleanup Act was enacted, which revised the DFI's assessment methodology for state-chartered banks in order to provide a better basis of comparison to the method used by the Office of the Comptroller of the Currency ("OCC"). Under the revised methodology, the average assessment for state banks will be approximately 39% of the OCC's annual charges for national bank supervision.
California law permits a state chartered bank to invest in the stock and securities of other corporations, subject to a state-chartered bank receiving either general authorization or, depending on the amount of the proposed investment, specific authorization from the Commissioner. FDICIA, however, imposes limitations on the activities and equity investments of state chartered, federally insured banks. The limitations on equity investments were effective December 19, 1991, and the limitations on activities became effective December 19, 1992. The FDIC rules on investments prohibit a state bank from acquiring an equity investment of a type, or in an amount, not permissible for a national bank. Non-permissible investments must have been divested by state banks no later than December 19, 1996. FDICIA prohibits a state bank from engaging as a principal in any activity that is not permissible for a national bank, unless the bank is adequately capitalized and the FDIC approves the activity after determining that such activity does not pose a significant risk to the deposit insurance fund. The FDIC rules on activities generally permit subsidiaries of banks, without prior specific FDIC authorization, to engage in those that have been approved by the FRB for bank holding companies because such activities are so closely related to banking to be a proper incident thereto. Other activities generally require specific FDIC prior approval, and the FDIC may impose additional restrictions on such activities on a case-by-case basis in approving applications to engage in otherwise impermissible activities.
During 1996, the OCC adopted a regulation to revise and streamline its procedures with respect to corporate activities of national banks, to be effective December 31, 1996. These revised standards allow the OCC to approve, on a case-by-case basis, the entry of bank operating subsidiaries into a business incidental to banking, including activities in which the parent bank is not permitted to engage. Such a standard allows a national bank to conduct an activity approved for a bank holding company through a bank operating subsidiary such as acting as an investment or financial advisor, leasing personal property and providing financial advice to customers. In general, these revised standards will be available to well-capitalized or adequately-capitalized national banks. Since state banks may only make equity investments if of a type permissible for national banks, this revised regulation might result in some liberalization of the types of investments permissible for state banks.
Capital Standards
The federal banking agencies have risk-based capital adequacy guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit and recourse agreements, which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. Government securities, to 100% for assets with relatively higher credit risk, such as certain loans.
In determining the capital level a bank is required to maintain, the federal banking agencies do not, in all respects, follow generally accepted accounting principles ("GAAP") and have special rules which have the effect of reducing the amount of capital it will recognize for purposes of determining the capital adequacy of a bank. These rules are called Regulatory Accounting Principles ("RAP"). In December 1993, the federal banking agencies issued an interagency policy statement on the allowance for loan and lease losses which, among other things, establishes certain benchmark ratios of the allowance for loan losses to classified assets. Future changes in the regulations or practices of the federal banking agencies could further reduce the amount of capital recognized for purposes of capital adequacy. Such a change could affect the ability of the Company to grow and could restrict the amounts of profits, if any, available for the payment of dividends.
A banking organization's risk-based capital ratios are obtained by dividing its qualifying capital by its total risk-adjusted assets and off balance sheet items. The regulators measure risk-adjusted assets and off balance sheet items against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of common stock, retained earnings, noncumulative perpetual preferred stock, other types of qualifying common stock and minority interests in certain subsidiaries, less most other intangible assets and other adjustments. Net unrealized gains/losses on available-for-sale equity securities with readily determinable fair values must be deducted in determining Tier 1 capital. Additionally, as of April 1, 1995, for Tier 1 capital purposes, deferred tax assets that can only be realized if the institution earns sufficient taxable income in the future will be limited to the amount that the institution is expected to realize within one year, or ten percent of Tier 1 capital, whichever is less. Tier 2 capital may consist of a limited amount of the allowance for loan losses, term preferred stock and other types of preferred stock not qualifying as Tier 1 capital, term subordinated debt and certain other instruments with some characteristics of equity. The inclusion of elements of Tier 2 capital are subject to certain other requirements and limitations of the federal banking agencies. Since December 31, 1992, the federal banking agencies have required a minimum ratio of qualifying total capital to risk-adjusted assets and off balance sheet items of 8%, and a minimum ratio of Tier 1 capital to adjusted average risk-adjusted assets and off balance sheet items of 4%.
On September 16, 1997, the FDIC adopted a final rule lowering the risk-based capital requirements for certain small business loans and leases sold with recourse. The final rule on small business loans and leases sold with recourse essentially makes permanent an interim interagency rule in effect since 1995 that reduced the minimum capital levels that institutions must maintain for those transactions. Under the final rule, a qualifying institution that sells small business loans and leases with recourse must hold capital only against the amount of recourse retained. In general, a qualifying institution is one that is well-capitalized under the FDIC's prompt corrective action rules. The amount of recourse that can receive the preferential capital treatment cannot exceed 15% of the institution's total risk-based capital.
In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to adjusted average total assets, referred to as the leverage capital ratio. For banking organizations rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets must be 3%. It is improbable, however, that an institution with a 3% leverage ratio would receive the highest rating by the regulators since a strong capital position is a significant part of the regulators' rating. For all banking organizations not rated in the highest category, the minimum leverage ratio must be at least 100 to 200 basis points above the 3% minimum. Thus, the effective minimum leverage ratio, for all practical purposes, must be at least 4% or 5%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios. See Note 8 to the consolidated financial statements for capital ratios for the Company and the Banks compared to the standards for well-capitalized depository institutions and for minimum capital requirements.
Banking agencies have recently adopted final regulations which mandate that regulators take into consideration concentrations of credit risk and risks from non-traditional activities, as well as an institution's ability to manage those risks, when determining the adequacy of an institution's capital. This evaluation will be made as a part of the institution's regular safety and soundness examination. Banking agencies also have recently adopted final regulations requiring regulators to consider interest rate risk (when the interest rate sensitivity of an institution's assets does not match the sensitivity of its liabilities or its off balance sheet position) in evaluating a bank's capital adequacy. This final rule does not codify a measurement framework for assessing the level of a bank's interest rate risk exposure. The information and exposure estimates collected through a new proposed supervisory measurement process, described in the banking agencies' joint policy statement on interest rate risk, would be one quantitative factor used to determine the adequacy of an individual bank's capital for interest rate risk. The focus of that proposed process is on a bank's economic value exposure. Other quantitative factors include the bank's historical financial performance and its earnings exposure to interest rate movements. Examiners also will consider qualitative factors, including the adequacy of the bank's internal interest rate risk management. The banking agencies intend for this case-by-case approach for assessing a bank's capital adequacy for interest rate risk to be a transitional arrangement.
The second step will consist of a proposed rule that would establish an explicit minimum capital charge for interest rate risk, based on the level of a bank's measured interest rate risk exposure. The banking agencies intend to implement this second step at some future date, after the banking agencies and the banking industry have gained more experience with the proposed supervisory measurement and assessment process.
Prompt Corrective Action and Other Enforcement Mechanisms
FDICIA requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including but no limited to those that fall below one or more prescribed minimum capital ratios. The law required each federal banking agency to promulgate regulators defining the following five categories in which an insured institution will be placed, based on the level of its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.
Under the prompt corrective action provisions of FDICIA, an insured depository institution generally will be classified in the following categories based on the capital measures indicated below:
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Total Tier 1
risk-based risk-based Leverage
capital capital ratio
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Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized less than: 8% 4% 4%
Significantly undercapitalized less than: 6% 3% 3%
Critically undercapitalized Tangible equity/total assets less than 2%
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An institution that, based upon its capital levels, is classified as "well capitalized", "adequately capitalized" or "undercapitalized" may be treated as though it were in the next lower category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat an institution as "critically undercapitalized" unless its capital ratio actually warrants such treatment.
If an insured depository institution is undercapitalized, it will be closely monitored by the appropriate federal banking agency. Undercapitalized institutions must submit an acceptable capital restoration plan with a guarantee of performance issued by the holding company. Further restrictions and sanctions are required to be imposed on insured depository institutions that are critically undercapitalized. The most important additional measure is that the appropriate federal banking agency is required to either appoint a receiver for the institution within 90 days, or obtain the concurrence of the FDIC in another form of action.
In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their business or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease-and-desist order that can be judicially enforced, the termination of insurance of deposits (in the case of a depository institution), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the issuance of removal and prohibition orders against institution-affiliated parties and the enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the agency would be harmed if such equitable relief was not granted. Additionally, a holding company's inability to serve as a source of strength to its subsidiary banking organizations could serve as an additional basis for a regulatory action against the holding company.
Safety and Soundness Standards
FDICIA also implemented certain specific restrictions and required federal banking regulators to adopt overall safety and soundness standards for depository institutions related to internal control, loan underwriting and documentation and asset growth. Among other things, FDICIA limits the interest rates paid on deposits by undercapitalized institutions, restricts the use of brokered deposits, limits the aggregate extensions of credit by a depository institution to an executive officer, director, principal shareholder or related interest, and reduces deposit insurance coverage for deposits offered by undercapitalized institutions for deposits by certain employee benefits accounts.
In addition to the statutory limitations, FDICIA originally required the federal banking agencies to prescribe, by regulation, standards for all insured depository institutions for such things as classified loans and asset growth. In 1994, FDICIA was amended to (a) authorize the agencies to establish safety and soundness standards by regulation or by guideline for all insured depository institutions; (b) give the agencies greater flexibility in prescribing asset quality and earnings standards; and eliminate the requirement that such standards apply to depository institution holding companies.
On July 10, 1995 the federal banking agencies published Interagency Guidelines Establishing Standards for Safety and Soundness. By adopting the standards as guidelines, the agencies retained the authority to require an institution to submit to an acceptable compliance plan as well as the flexibility to pursue other more appropriate or effective courses of action given the specific circumstances and severity of an institution's noncompliance with one or more standards.
Restrictions on Dividends and Other Distributions
The power of the board of directors of an insured depository institution to declare a cash dividend or other distribution with respect to capital is subject to statutory and regulatory restrictions which limit the amount available for such distribution depending upon the earnings, financial condition and cash needs of the institution, as well as general business conditions. FDICIA prohibits insured depository institutions from paying management fees to any controlling persons or, with certain limited exceptions, making capital distributions, including dividends, if, after such transaction, the institution would be undercapitalized.
In addition to the restrictions imposed under federal law, banks chartered under California law generally may only pay cash dividends to the extent such payments do not exceed the lesser of retained earnings of the bank or the bank's net income for its last three fiscal years (less any distributions to shareholders during that period). In the event a bank desires to pay cash dividends in excess of such amount, the bank may pay a cash dividend with the prior approval of the Superintendent in an amount not exceeding the greatest of the bank's retained earnings, the bank's net income for its last fiscal year, or the bank's net income for its current fiscal year.
Regulators also have authority to prohibit a depository institution from engaging in business practices which are considered to be unsafe or unsound, possibly including payment of dividends or other payments under certain circumstances even if such payments are not expressly prohibited by statute.
Premiums for Deposit Insurance and Assessments for Examinations
All of the bank subsidiaries of the Company have their deposits insured by the Bank Insurance Fund ("BIF") administered by the FDIC. The FDIC also administers the Savings Association Insurance Fund ("SAIF"), which insures deposits in thrift institutions. The FDIC is authorized to borrow up to $30 billion from the United States Treasury; up to 90% of the fair market value of assets of institutions acquired by the FDIC as receiver from the Federal Financing Bank; and from depository institutions that are members of the BIF. Any borrowings not repaid by asset sales are to be repaid through insurance premiums assessed to member institutions. Such premiums must be sufficient to repay any borrowed funds within 15 years and provide insurance fund reserves of $1.25 for each $100 of insured deposits. FDICIA also provides authority for special assessments against insured deposits. No assurance can be given at this time as to what the future level of premiums will be.
As required by FDICIA, the FDIC adopted a transitional risk-based assessment system for deposit insurance premiums which became effective January 1, 1993. On November 14, 1995 the Board of Directors of the FDIC adopted a resolution to reduce to a range of 0 to 27 basis points the assessment rates applicable to deposits assessable by the BIF for semiannual assessment periods beginning January 1, 1996. The revised assessment schedule would retain the risk based characteristics of the current system. On November 26, 1996 the FDIC decided to continue in effect the current BIF assessment rate schedule.
The FDIC may make limited adjustments to the above rate schedule not to exceed an increase or decrease of 5 basis points without public notice and comment rulemaking. The amount of an adjustment adopted by the Board is to be determined by the following considerations: (a) the amount of assessment revenue necessary to maintain the reserve ratio at the designated reserve ratio and (b) the assessment schedule that would generate such amount of assessment revenue considering the risk profile of BIF members. In determining the relevant amount of assessment revenue, the Board is to consider the BIF's expected operating expenses, case resolution expenditures and income, the effect of assessments on BIF members' earnings and capital, and any other factors the Board may deem appropriate.
In 1996 Congress enacted the Deposit Insurance Funds Act ("Funds Act") in order to raise the level of SAIF reserves, and to reduce the possibility that bonds issued by the Financing Corporation ("FICO") would go into default. The FICO was a special purpose government corporation that issued $8.2 billion in bonds to recapitalize the Federal Savings and Loan Insurance Corporation. Interest on the FICO bonds was paid from the proceeds of assessment made on the deposits of SAIF members. Because of the almost $800 million needed to pay for the annual interest on the FICO bonds, the payments of SAIF members were not increasing the SAIF reserve to a sufficient level to allow the FDIC to reduce assessment rates (as had been done for BIF deposits), and SAIF members were employing certain strategies to either exit the system or transfer deposits to BIF coverage.
Pursuant to the Funds Act, the FDIC imposed a special one-time assessment on all institutions that held SAIF assessable deposits as of March 31, 1995 of an estimated 65.7 cents per $100 of SAIF assessable deposits. Certain discounts and exemptions from the assessment were available. For example, BIF-member banks that had acquired SAIF-insured deposits from thrifts were generally entitled to a 20% discount on the special assessment if the bank satisfied certain statutory thresholds (the bank's acquired SAIF deposits, as adjusted, must be less than half of its total domestic deposits). Furthermore, beginning January 1, 1997, all FDIC-insured institutions were to be assessed to cover the interest payments due on FICO bonds. For calendar years 1997 through 1999, BIF members will pay one-fifth the rate SAIF members will pay, and beginning in 2000 both types of institutions will pay the same rate. BIF members were required to pay a FICO assessment of approximately 1.3 basis points for the semiannual FICO assessment in 1997.
The Funds Act also authorized the FDIC to rebate assessments paid by BIF members if the BIF has reserves exceeding its designated reserve ratio of 1.25% of total estimated insured deposits. The FDIC has expressed its view that the long-term needs of the BIF are a factor in setting the effective average BIF assessment rate, and that the FDIC is uncertain whether the current favorable conditions represent a long-term trend.
Community Reinvestment Act and Fair Lending Developments
The Banks are subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act ("CRA") activities. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of their local communities, including low and moderate income neighborhoods. In addition to substantive penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other activities.
On March 8, 1994, the federal Interagency Task Force on Fair Lending issued a policy statement on discrimination in lending. The policy statement describes the three methods that federal agencies will use to prove discrimination: overt evidence of discrimination, evidence of disparate treatment, and evidence of disparate impact.
In 1996, new compliance and examination guidelines for the CRA were promulgated by each of the federal banking regulatory agencies, fully replacing the prior rules and regulatory expectations with new ones, ostensibly more performance based than before, to be fully phased in as of July 1, 1997. The guidelines provide for streamlined examinations of smaller institutions.
Recently Enacted Legislation
The Taxpayer Relief Act of 1997 provides for Education Individual Retirement Accounts ("Education IRA"), a new type of tax-free savings vehicle to pay qualified higher education expenses. A maximum of $500 per year may be contributed to Education IRAs for any beneficiary under the age of 18 years, provided the contributor has adjusted gross income for the year not exceeding $95,000 ($150,000 for joint returns). No income tax deduction is provided for a contribution to an Education IRA. Until a distribution is made from an Education IRA, earnings on contributions to the account are not subject to tax. In addition, distributions from an Education IRA are excludable from gross income to the extent that the distribution does not exceed qualified higher education expenses incurred by the beneficiary during the year the distribution is made. The trustee or custodian of an Education IRA must be a bank or another person approved by the Internal Revenue Service ("IRS"), including an entity already approved by the IRS to be a nonbank trustee or custodian of an Individual Retirement Account.
During 1996, new federal legislation amended the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") and the underground storage tank provisions of the Resource Conversation and Recovery Act ("RCRA") to provide lenders and fiduciaries with greater protections from environmental liability. The definition of "owner or operator" under CERCLA has been amended to exclude a lender who: (I) holds indicia of ownership in a property primarily to protect its security interest, but does not participate in the property's management or (ii) forecloses on a property, or, after foreclosure, sells, re-leases (in the case of a lease finance transaction), or liquidates the property, maintains business activities, winds up operations, undertakes a response under CERCLA, or takes measures to preserve, protect or prepare property prior to sale or disposition, so long as the lender did not participate in the property's management prior to sale. In order to preserve these protections, a lender who forecloses on property must seek to sell, re-lease, or otherwise divest itself of the property at the earliest practicable, commercially reasonable time, and on reasonable terms. "Participation in management" is defined as actual participation in the management or operational affairs of the facility, not merely having the capacity to influence or the unexercised right to control operations. Similar changes have been made in RCRA.
The California legislature adopted a similar bill to provide that, subject to numerous exceptions, a lender acting in the capacity of a lender shall not be liable under any state or local statute, regulation or ordinance, other than the California Hazardous Waste Control Law, to undertake a cleanup, pay damages, penalties or fines, or forfeit property as a result of the release of hazardous materials at or from the property. Under this bill a lender which had not participated in the management of the property prior to foreclosure may take actions similar to those set forth in the CERCLA and RCRA amendments without losing its immunity from liability. To preserve that immunity, after foreclosure, the lender must take commercially reasonable steps to divest itself of the property in a reasonably expeditious manner.
In June 1997, the U.S. Environmental Protection Agency ("EPA") issued its official policy with regard to the liability of lenders under CERCLA as a result of the enactment of the Asset Conservation, Lender Liability and Deposit Insurance Protection Act of 1996 (the "Asset Conservation Act"). By way of background, in 1992 the EPA issued its CERCLA Lender Liability Rule which was intended to be a regulation for the enforcement of CERCLA as to lenders. In 1994 the Lender Liability Rule was stricken by the U.S. Court of Appeals for the District of Columbia in Kelley v. EPA. The EPA retained the Lender Liability Rule, characterizing it as its internal enforcement policy. The Asset Conservation Act adopted language similar to the EPA's Lender Liability Rule. In its June 1997 announcement, the EPA indicated that it will treat those provisions of the Lender Liability Rule that are similar to the Asset Conservation Act "as guidance in interpreting" the lender liability exemption under the Act.
In 1997, California adopted the Environmental Responsibility Acceptance Act (Cal. Civil Code Sections 850-855)(the "Act"). The main purposes of the Act are to facilitate (I) the notification of government agencies and potentially responsible parties (e.g., for cleanup) of the existence of contamination and (ii) the cleanup or other remediation of contamination by the potentially responsible parties. The Act requires owners of sites who have actual awareness of a release of a hazardous material that exceeds a specified notification threshold to take all reasonable steps to identify the potentially responsible parties and to send a notice of potential liability to the parties and the appropriate oversight agency. Potentially responsible parties that receive such notice must respond with either a "commitment statement" to conduct certain response actions (as defined in the Act) or a "negative response." Potentially responsible parties who become aware of a release must provide the owner with a report of the release and either a "commitment statement" or a "negative response." Persons failing to provide the requisite notice lose certain rights to damages. Neither the failure to issue a "commitment statement" nor its issuance is to be construed as an admission of liability for the release. Commitment statements that are accepted run with the land, thereby binding future owners. The notification requirements of the Act do not take effect until July 31, 1998. However, the Act's notification requirements apply to past releases, if they occurred after January 1, 1995. Notices for such past releases must be given by December 31, 1998.
Pending Legislation and Regulations
There are pending legislative proposals to reform the Glass-Steagall Act to allow affiliations between banks and other firms engaged in "financial activities", including insurance companies and securities firms.
On September 16, 1997, the FDIC proposed two new rules governing minimum capital levels that FDIC-supervised banks must maintain against the risks to which they are exposed. The proposed rules were developed in consultation with the OCC, the FRB, and the Office of Thrift Supervision ("OTS").
The first proposed rule would make risk-based capital standards consistent for two types of credit enhancements (i.e., recourse arrangements and direct credit substitutes) and would require different amounts of capital for different risk positions in asset securitization transactions. Similar proposals are being considered by the other federal banking agencies as well. Under the proposed rule, banks holding the riskiest part of a securitization would have higher capital requirements than those holding less risky sections.
The second proposed rule would permit limited amounts of unrealized gains on equity securities to be recognized for risk-based capital purposes. The proposal on equity securities would permit institutions to include in Tier 2 capital 45% of the net unrealized pre-tax gains on available-for-sale equity securities. The proposal would increase the amount of regulatory capital for some institutions.
Certain other pending legislative proposals include bills to let banks pay interest on business checking accounts, to cap consumer liability for stolen debit cards, and to give judges the authority to force high-income borrowers to repay their debts rather than cancel them through bankruptcy.
While the effect of such proposed legislation and regulatory reform on the business of financial institutions cannot be accurately predicted at this time, it seems likely that a significant amount of consolidating in the banking industry will continue to occur throughout the remainder of the decade.
Competition
In the past, an independent bank's principal competitors for deposits and loans have been other banks (particularly major banks), savings and loan associations and credit unions. To a lesser extent, competition was also provided by thrift and loans, mortgage brokerage companies and insurance companies. Other institutions, such as brokerage houses, mutual fund companies, credit card companies, and even retail establishments have offered new investment vehicles which also compete with banks for deposit business. The direction of federal legislation in recent years seems to favor competition between different types of financial institutions and to foster new entrants into the financial services market, and it is anticipated that this trend will continue.
The enactment of the IBBA in 1994 as well as the California Interstate Banking and Branching Act of 1995 will likely increase competition within California. See the "Regulation and Supervision of Bank Holding Companies" section discussed earlier in this report. Regulatory reform, as well as other changes in federal and California law will also affect competition. While the impact of these changes, and of other proposed changes, cannot be predicted with certainty, it is clear that the business of banking in California will remain highly competitive.
According to information obtained by the Company through an independent market research firm, WAB was the second largest financial institution in terms of total deposits in Marin County at June 30, 1997, at which date it had approximately 12 percent of total deposits held in federally insured depository institutions in that county. According to the same source of information and in terms of total deposits, as of June 30, 1997 WAB ranked fourth in WAB's Sonoma-Mendocino counties service area, with approximately a 9 percent share of the market, third in the Fresno service area with approximately 11 percent of total deposits, and was fifth in the Solano-Contra Costa-Alameda counties service area, with a market share of approximately 5 percent. Completion of the merger with ValliWide bank in 1997 resulted in the formation of the "South Valley Region" encompassing portions of Kern, San Luis Obispo, Tulare and Kings counties. In terms of total deposits, WAB ranked, as of June 30, 1997, fifth among all financial institutions servicing the area with approximately 9 percent of the market. In addition, WAB's market share in the Sacramento-Placer-Nevada-Yolo counties service area was approximately 6 percent, ranking sixth among its competitors. The share of the market for deposits and loans held by WAB in San Francisco and Alameda Counties is not significant. According to the same source of information, WAB ranked second in terms of total deposits in the Napa Valley service area as of June 30, 1997, with approximately 16 percent market share. The same source of data reports that BLC ranked third, in terms of total deposits, in market share in the Lake County service area with 16 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 one of 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 various legislative enactments have continued to dissolve historical barriers to the financial markets. Competition is expected to further increase in the state of California as a result of legislation enacted in 1994 and 1995.
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 believes that it continually adapts to these changing competitive conditions.
ITEM 3. Legal Proceedings
Neither the Company or its subsidiaries is a party to any material pending legal proceeding, nor is their property the subject of any material pending legal proceeding, except ordinary routine legal proceedings arising in the ordinary course of the Company's business, none of which are expected to have a material adverse impact upon the Company's business, financial position or results of operations.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the shareholders during the fourth quarter of 1997.
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 the low prices for the common stock, for each quarter, as reported by NASDAQ:
(Restated for a three-to-one stock split authorized January 22, 1998 and effective February 25, 1998)
Period
1997: High Low
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First quarter $24.17 $18.83
Second quarter 25.83 19.27
Third quarter 29.33 24.58
Fourth quarter 35.00 28.54
1996:
First quarter $15.75 $14.42
Second quarter 16.75 15.33
Third quarter 17.00 15.50
Fourth quarter 19.58 16.50
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As of December 31, 1997, there were 8,611 shareholders of record of the Company's 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 earnings, financial condition and capital requirements of the Company and its subsidiaries. As of December 31, 1997, $98.4 million was available for payment of dividends by the Company to its shareholders, under applicable laws and regulations.
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 18 to the consolidated financial statements included in this report.
As discussed in Note 7 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 Rights.
The Amended and Restated Rights Agreement entitles the holders of
each share of the Company Common Stock to the right (each, a
"Westamerica Right"), when exercisable, to purchase from the
Company one share of its Common Stock at a price of $21.667 per
share, subject to adjustment in certain circumstances. A
Westamerica Right is attached to each share of the Company Common
Stock. The Westamerica Rights only become exercisable and trade
separately from the Company Common Stock following the earlier of
(I) a public announcement that a person or a group of affiliated or
associated persons has become the beneficial owner of the Company
securities having 15 percent or more of the Company's voting power
(an "Acquiring Person") or (ii) 10 days following the commencement
of, or a public announcement of an intention to make, a tender or
exchange offer which would result in any person having beneficial
ownership of securities having 15 percent or more of such voting
power. Upon becoming exercisable, each holder of a Westamerica
Right (other than an Acquiring Person whose rights will become null
and void) will, for at least a 60-day period thereafter, have the
right (subject to the following sentence), upon payment of the
exercise price of $21.667, to receive upon exercise that number of
shares of the Company Common Stock having a market value of twice
the exercise price of the Westamerica Right, to the extent
available. Subject to applicable law, the Board of Directors, at
its option, may at any time after a Person becomes an Acquiring
Person (but not after the acquisition by such Person of 50 percent
or more of the outstanding Company Common Stock), exchange all or
part of the then outstanding and exercisable Westamerica Rights
(except for Westamerica Rights which have become void) for shares
of the Company Common Stock equivalent to one share of the Company
Common Stock per Westamerica Right or, alternatively, for
substitute consideration consisting of cash, securities of the
Company or other assets (or any combination thereof).
Item 6. Selected Financial Data
WESTAMERICA BANCORPORATION
FINANCIAL SUMMARY
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(In thousands, except per share data) 1997 1996 * 1995 * 1994 * 1993 *
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Year ended December 31
Interest income $270,670 $274,182 $283,704 $256,638 $237,165
Interest expense 88,054 91,700 95,627 73,321 72,251
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Net interest income 182,616 182,482 188,077 183,317 164,914
Provision for loan losses 7,645 12,306 15,229 11,378 13,503
Non-interest income 37,013 36,307 34,227 36,929 44,249
Non-interest expense 137,878 136,051 141,960 150,128 161,227
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Income before income taxes 74,106 70,432 65,115 58,740 34,433
Provision for income taxes 25,990 23,605 21,930 20,627 11,103
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Net income $48,116 $46,827 $43,185 $38,113 $23,330
=============================================================================================
Earnings per share: **
Basic $1.12 $1.10 $0.99 $0.87 $0.58
Diluted 1.10 1.08 0.98 0.87 0.57
Per share: **
Dividends paid $0.36 $0.30 $0.25 $0.21 $0.19
Book value at December 31 9.51 8.84 8.12 7.41 7.01
Average common shares outstanding ** 43,040 42,759 43,747 43,732 40,510
Average diluted common shares outstand ** 43,827 43,358 44,274 44,061 40,924
Shares outstanding at December 31 ** 42,799 42,889 43,228 43,351 42,879
At December 31
Loans, net $2,211,307 $2,236,319 $2,209,653 $2,220,122 $2,071,405
Total assets 3,848,444 3,866,774 3,880,299 3,793,196 3,641,984
Total deposits 3,078,501 3,228,700 3,270,907 3,249,823 3,194,395
Funds purchased 264,848 167,447 186,032 135,426 76,298
Debt financing and notes payable 52,500 58,865 40,932 51,647 37,614
Shareholders' equity 407,152 379,279 351,058 321,169 300,670
Financial Ratios:
For the year:
Return on assets 1.28% 1.24% 1.14% 1.04% 0.70%
Return on equity 12.71% 13.22% 12.73% 12.24% 8.96%
Net interest margin *** 5.63% 5.54% 5.68% 5.67% 5.59%
Net loan losses to average loans 0.35% 0.51% 0.59% 0.43% 0.56%
Non-interest expense/revenues *** 60.15% 60.08% 63.86% 68.16% 77.08%
At December 31:
Equity to assets 10.58% 9.81% 9.05% 8.47% 8.26%
Total capital to risk-adjusted as 14.76% 14.95% 14.39% 13.58% 12.99%
Loan loss reserve to loans 2.24% 2.23% 2.15% 2.05% 2.01%
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* Restated on a historical basis to reflect the April 12, 1997 acquisition of ValliCorp Holdings, Inc. on a pooling-of-interests basis ** Restated for a three-to-one stock split authorized January 22, 1998 and effective February 25, 1998 *** Fully taxable equivalent
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in this Annual Report on Form 10-K include forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the "safe harbor" created by those sections. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors: competitive pressure in the banking industry increases significantly; changes in the interest rate environment reduce margins; general economic conditions, either nationally or regionally, are less favorable than expected resulting in, among other things, a deterioration in the credit quality and an in increase in the provision for possible loan losses; changes in the regulatory environment; changes in business conditions; volatility of rate sensitive deposits; operational risks including data processing system failures or fraud; asset/liability matching and liquidity risks; and changes in the securities markets. For further information on risks and uncertainties see also "Certain Additional Business Risks" and other risk factors discussed elsewhere in this Report.
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 as well as with the other information presented throughout the report.
All financial information has been restated on a historical basis to reflect the ValliCorp Holdings, Inc. ("ValliCorp") acquisition on April 12, 1997 (the "Merger") using the pooling-of-interests method of accounting.
On January 22, 1998, the Board of Directors of the Company authorized a three-for-one stock split of the Company's Common Stock, effective February 25, 1998, in which each share of the Company's Common Stock is converted into three shares. Consequently, all related information in this report has been restated to reflect the effect of the stock split.
The Company achieved earnings of $48.1 million in 1997, representing a 3 percent increase from the $46.8 million earned in 1996 and 11 percent higher than 1995 earnings of $43.2 million.
COMPONENTS OF NET INCOME
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1997 1996 1995
-----------------------------------------------------------------------------------------
(In millions)
Net interest income * $192.2 $190.1 $194.6
Provision for loan losses (7.6) (12.3) (15.2)
Non-interest income 37.0 36.3 34.2
Non-interest expense (137.9) (136.1) (142.0)
Taxes * (35.6) (31.2) (28.4)
-----------------------------------------------------------------------------------------
Net income $48.1 $46.8 $43.2
=========================================================================================
Net income as a percentage of
average total assets 1.28% 1.24% 1.14%
=========================================================================================
|
* Fully taxable equivalent (FTE)
Basic earnings per share in 1997 were $1.12, compared to $1.10 and $.99 in 1996 and 1995, respectively. During 1997, the Company benefited from increased net interest income, primarily due to a decrease in short-term borrowed funds in part offset by a reduction in the average balance of earning assets. Also contributing to increased earnings, the Company lowered its loan loss provision in recognition of improved credit quality and lower net credit losses, and benefited from increased non-interest income. Higher non-interest expense included approximately $18.8 million ($12.8 million after tax) in charges associated with the Merger. Earnings in 1996 were favorably affected compared to 1995 by increases in earning asset yields, a lower loan loss provision, higher non-interest income and expense controls, which were partially offset by lower average balances of earning assets. The Company's return on average total assets was 1.28 percent in 1997, compared to 1.24 percent and 1.14 percent in 1996 and 1995, respectively. Return on average equity in 1997 was 12.71 percent, compared to 13.22 percent and 12.73 percent, respectively, in the two previous years.
NET INTEREST INCOME
The Company's primary source of revenue is net interest income, which is the difference between interest income on earning assets and interest expense on interest-bearing liabilities. Net interest income (FTE) in 1997 increased $2.1 million from 1996 to $192.2 million. Comparing 1996 to 1995, net interest income (FTE) decreased $4.5 million.
Components of Net Interest Income
-----------------------------------------------------------------------------------------
1997 1996 1995
-----------------------------------------------------------------------------------------
(In millions)
Interest income $270.7 $274.2 $283.7
Interest expense (88.1) (91.7) (95.6)
FTE adjustment 9.6 7.6 6.5
-----------------------------------------------------------------------------------------
Net interest income (FTE) $192.2 $190.1 $194.6
=========================================================================================
Average earning assets $3,414.6 $3,434.6 $3,426.7
Net interest margin (FTE) 5.63% 5.54% 5.68%
=========================================================================================
|
Interest income (FTE) decreased $1.5 million from 1996, primarily due to a $20.0 million decrease in average earning asset balances. Categories of earning assets that decreased included most types of consumer loans, partially offset by increases in targeted commercial credits. The average investment portfolio balances also decreased from 1996, as reductions in short-term funds sold, participation certificates and U.S. Treasury securities were in part offset by increases in tax-free and U.S. Agency securities. Comparing 1996 to 1995, interest income (FTE) decreased $8.4 million, principally due to a 26 basis point decrease in earning-asset yields in part offset by a $7.9 million increase in average balances.
The revenue decrease in 1997 was more than offset by a $3.6 million decrease in interest expense, the result of a decrease of 2 basis points in rates paid on interest-bearing liabilities combined with a $92.5 million decrease in average balances, and a $31.0 million increase in the average balance of non-interest bearing demand deposits. Comparing 1996 to 1995, the Company experienced a $3.9 million reduction in interest expense, primarily due to a $34.6 million decrease in the average balance of interest-bearing liabilities and a 10 basis point decrease in the rates paid combined with an increase of $29.4 million in the average balance of non-interest bearing demand deposits.
In both periods, Company has consistently been successful at reducing high-rate time deposits while increasing the balances of more profitable, lower-cost transaction accounts.
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.
Distribution of assets, liabilities and shareholders' equity. Yields/rates and interest margin.
-----------------------------------------------------------------------------------------
Full Year 1997
-----------------------------------------------------------------------------------------
(Dollars in thousands)
Interest Rates
Average Income/ Earned/
Balance Expense Paid
-----------------------------------------------------------------------------------------
Assets
Money market assets and funds sold $30,125 $1,635 5.43 %
Trading account securities -- -- --
Investment securities 1,136,415 73,888 6.50
Loans:
Commercial 1,394,425 129,473 9.29
Real estate construction 85,409 9,386 10.99
Real estate residential 350,825 27,138 7.74
Consumer 417,389 38,756 9.29
-----------------------------------------------------------------------------
Earning assets 3,414,588 280,276 8.21
Other assets 335,063
-----------------------------------------------------------------
Total assets $3,749,651
=================================================================
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $781,001 $-- -- %
Savings and interest-bearing
transaction 1,533,939 34,743 2.26
Time less than $100,000 479,692 24,425 5.09
Time $100,000 or more 323,840 17,096 5.28
-----------------------------------------------------------------------------
Total interest-bearing deposits 2,337,471 76,264 3.26
Funds purchased 162,592 7,803 4.80
Debt financing and notes payable 57,483 3,987 6.94
-----------------------------------------------------------------------------
Total interest-bearing liabilities 2,557,546 88,054 3.44
Other liabilities 32,499
Shareholders' equity 378,605
-----------------------------------------------------------------
Total liabilities and shareholders' equity $3,749,651
=================================================================
Net interest spread (1) 4.77 %
Net interest income and interest margin (2) $192,222 5.63 %
=========================================================================================
|
(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 assets, liabilities and shareholders' equity. Yields/rates and interest margin.
-----------------------------------------------------------------------------------------
Full Year 1996
-----------------------------------------------------------------------------------------
(Dollars in thousands)
Interest Rates
Average Income/ Earned/
Balance Expense Paid
-----------------------------------------------------------------------------------------
Assets
Money market assets and funds sold $94,612 $5,218 5.52 %
Trading account securities 17 1 5.88
Investment securities 1,090,422 67,923 6.23
Loans:
Commercial 1,344,626 126,582 9.41
Real estate construction 118,893 12,515 10.53
Real estate residential 320,440 26,486 8.27
Consumer 465,561 43,116 9.26
-----------------------------------------------------------------------------
Earning assets 3,434,571 281,841 8.21
Other assets 346,613
-----------------------------------------------------------------
Total assets $3,781,184
=================================================================
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $750,204 $-- -- %
Savings and interest-bearing
transaction 1,559,531 34,936 2.24
Time less than $100,000 520,968 26,143 5.02
Time $100,000 or more 313,050 16,506 5.27
-----------------------------------------------------------------------------
Total interest-bearing deposits 2,393,549 77,585 3.24
Funds purchased 196,453 9,974 5.08
Debt financing and notes payable 60,045 4,141 6.90
-----------------------------------------------------------------------------
Total interest-bearing liabilities 2,650,047 91,700 3.46
Other liabilities 26,847
Shareholders' equity 354,086
-----------------------------------------------------------------
Total liabilities and shareholders' equity $3,781,184
=================================================================
Net interest spread (1) 4.75 %
Net interest income and interest margin (2) $190,141 5.54 %
=========================================================================================
|
(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 assets, liabilities and shareholders' equity. Yields/rates and interest margin.
-----------------------------------------------------------------------------------------
Full Year 1995
-----------------------------------------------------------------------------------------
(Dollars in thousands)
Interest Rates
Average Income/ Earned/
Balance Expense Paid
-----------------------------------------------------------------------------------------
Assets
Money market assets and funds sold $65,150 $3,880 5.96 %
Trading account securities 11 1 9.09
Investment securities 1,106,547 67,432 6.09
Loans:
Commercial 1,303,319 129,090 9.90
Real estate construction 151,242 15,626 10.33
Real estate residential 295,013 26,811 9.09
Consumer 505,373 47,408 9.38
-----------------------------------------------------------------------------
Earning assets 3,426,655 290,248 8.47
Other assets 346,673
-----------------------------------------------------------------
Total assets $3,773,328
=================================================================
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $720,799 $-- -- %
Savings and interest-bearing
transaction 1,617,469 37,456 2.32
Time less than $100,000 567,448 29,758 5.24
Time $100,000 or more 296,109 16,218 5.48
-----------------------------------------------------------------------------
Total interest-bearing deposits 2,481,026 83,432 3.36
Funds purchased 155,350 8,708 5.61
Debt financing and notes payable 48,241 3,487 7.23
-----------------------------------------------------------------------------
Total interest-bearing liabilities 2,684,617 95,627 3.56
Other liabilities 28,756
Shareholders' equity 339,156
-----------------------------------------------------------------
Total liabilities and shareholders' equity $3,773,328
=================================================================
Net interest spread (1) 4.91 %
Net interest income and interest margin (2) $194,621 5.68 %
=========================================================================================
|
(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 ended
December 31,
1997 compared with 1996
-----------------------------------------------------------------------------
Total
Increase/
Volume Rate (Decrease)
-----------------------------------------------------------------------------
Increase (decrease) in (In thousands)
interest and fee income:
Money market assets and funds sold ($3,501) ($82) ($3,583)
Trading account securities (1) -- (1)
Investment securities (1) 2,926 3,039 5,965
Loans:
Commercial (1) 4,586 (1,695) 2,891
Real estate construction (3,709) 580 (3,129)
Real estate residential 2,014 (1,362) 652
Consumer (4,473) 113 (4,360)
-----------------------------------------------------------------------------
Total loans (1) (1,582) (2,364) (3,946)
-----------------------------------------------------------------------------
Total (decrease) increase in
interest and fee income (1) (2,158) 593 (1,565)
-----------------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (593) 400 (193)
Time less than $ 100,000 (2,109) 391 (1,718)
Time $ 100,000 or more 570 20 590
-----------------------------------------------------------------------------
Total interest-bearing deposits (2,132) 811 (1,321)
Funds purchased (1,648) (523) (2,171)
Notes and mortgages payable (178) 24 (154)
-----------------------------------------------------------------------------
Total (decrease) increase in
interest expense (3,958) 312 (3,646)
-----------------------------------------------------------------------------
Increase in
net interest income (1) $1,800 $281 $2,081
=============================================================================
|
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
-----------------------------------------------------------------------------
For the years ended
December 31,
1996 compared with 1995
-----------------------------------------------------------------------------
Total
Increase/
Volume Rate (Decrease)
-----------------------------------------------------------------------------
Increase (decrease) in (In thousands)
interest and fee income:
Money market assets and funds sold $1,599 ($261) $1,338
Trading account securities -- -- --
Investment securities (1) (941) 1,432 491
Loans:
Commercial (1) 4,451 (6,959) (2,508)
Real estate construction (3,411) 300 (3,111)
Real estate residential 6,480 (6,805) (325)
Consumer (3,694) (598) (4,292)
-----------------------------------------------------------------------------
Total loans (1) 3,826 (14,062) (10,236)
-----------------------------------------------------------------------------
Total increase (decrease) in
interest and fee income (1) 4,484 (12,891) (8,407)
-----------------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (1,319) (1,201) (2,520)
Time less than $ 100,000 (2,369) (1,246) (3,615)
Time $ 100,000 or more 828 (540) 288
-----------------------------------------------------------------------------
Total interest-bearing deposits (2,860) (2,987) (5,847)
Funds purchased 1,967 (701) 1,266
Notes and mortgages payable 805 (151) 654
-----------------------------------------------------------------------------
Total decrease in
interest expense (88) (3,839) (3,927)
-----------------------------------------------------------------------------
Increase (decrease) in
net interest income (1) $4,572 ($9,052) ($4,480)
=============================================================================
|
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $7.6 million for 1997, compared to $12.3 million in 1996 and $15.2 million in 1995. The reductions in the provision in 1997 and 1996 reflect the results of the Company's continuing efforts to improve loan quality by enforcing strict underwriting and administration procedures and aggressively pursuing collection efforts with troubled debtors and positive economic conditions. For further information regarding net credit losses and the reserve for loan losses, see the "Asset Quality" section of this report.
INVESTMENT PORTFOLIO
The Company maintains a securities portfolio consisting of U.S. Treasury, U.S. Government agencies and corporations, state and political subdivisions, asset-backed and other securities. Investment securities are held in safekeeping by an independent custodian.
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 98 months at December 31, 1997 and, on the same date, those investments included $230.5 million in fixed rate and $500 thousand 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, 1997, the Banks held $1,003.2 million classified as investments available for sale. At December 31, 1997, an unrealized gain of $18.4 million, net of taxes of $13.4 million, related to these securities, was held in shareholders' equity.
The Company had no trading securities at December 31, 1997.
For more information on investment securities, see Notes 1 and 2 to the consolidated financial statements.
The following table shows the carrying amount (fair value) of the Company's investment securities available for sale as of the dates indicated:
-----------------------------------------------------------------------------------------
At December 31, 1997 1996 1995
-----------------------------------------------------------------------------------------
(In thousands)
U.S. Treasury $277,790 $299,739 $296,646
U.S. Government agencies and corporations 181,124 274,468 293,354
States and political subdivisions 203,405 128,631 136,866
Asset-backed securities 184,377 94,282 80,923
Other 156,538 95,341 62,134
-----------------------------------------------------------------------------------------
Total $1,003,234 $892,461 $869,923
=========================================================================================
|
The following table sets forth the relative maturities and yields of the Company's available-for-sale securities (stated at amortized cost) at December 31, 1997. Weighted average yields have been computed by dividing annual interest income, adjusted for amortization of premium and accretion of discount, by the amortized cost value 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.
Available for sale
-----------------------------------------------------------------------------------------------------------------------------
After One After Five
Within but Within but Within After Ten Mortgage-
One Year Five Years Ten Years Years backed Other Total
-----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
U.S. Treasury $90,484 $185,525 $-- $-- $-- $-- $276,009
Interest rate 6.02% 6.06% --% --% --% --% 6.05%
U.S. Government agencies
and corporations 37,608 81,903 6,280 -- -- -- 125,791
Interest rate 6.08% 6.12% --% --% --% --% 5.80%
States and political
subdivisions 8,784 37,499 44,408 106,120 -- -- 196,811
Interest rate 7.37% 7.61% 7.66% 7.55% --% --% 7.58%
Asset-backed securities 303 86,761 96,918 -- 183,982
Interest rate 5.83% 6.90% 6.15% --% --% --% 6.12%
Other securities 21,000 90,655 6,735 -- -- -- 118,390
Interest rate 6.17% 6.23% 7.13% --% --% --% 6.27%
-----------------------------------------------------------------------------------------------------------------------------
Subtotal 158,179 482,343 154,341 106,120 -- -- 900,983
Interest rate 6.13% 6.23% 6.38% 7.55% --% --% 6.39%
Mortgage-backed -- -- -- -- 55,001 -- 55,001
Interest rate --% --% --% --% 6.14% --% 6.14%
Other securities without
set maturities -- -- -- -- -- 15,447 15,447
Interest rate --% --% --% --% --% 9.15% 9.15%
-----------------------------------------------------------------------------------------------------------------------------
Total $158,179 $482,343 $154,341 $106,120 $55,001 $15,447 $971,431
Interest rate 6.13% 6.23% 6.38% 7.55% 6.14% 0.0915 6.42%
=============================================================================================================================
The following table shows the carrying amount (amortized cost) and
fair value of the Company's investment securities held to
maturity as of the dates indicated:
-----------------------------------------------------------------------------------------
At December 31, 1997 1996 1995
-----------------------------------------------------------------------------------------
(In thousands)
U.S. Treasury $-- $998 $982
U.S. Government agencies and corporations 83,656 79,743 175,898
States and political subdivisions 136,965 131,343 123,582
Asset-backed securities -- 191 3,264
Other 10,339 3,157 4,095
-----------------------------------------------------------------------------------------
Total $230,960 $215,432 $307,821
=========================================================================================
Fair value $236,896 $218,009 $310,377
=========================================================================================
|
The following table sets forth the relative maturities and yields of the Company's held-to-maturity securities at December 31, 1997. Weighted average yields have been computed by dividing annual interest income, adjusted for amortization of premium and accretion of discount, by the amortized value 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
-----------------------------------------------------------------------------------------------------------------------------
After One After Five
Within but Within but Within After Ten Mortgage-
One Year Five Years Ten Years Years backed Other Total
-----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
U.S. Treasury $-- $-- $-- $-- $-- $-- $--
Interest rate --% --% --% --% --% --% --%
U.S. Government Agencies
and Corporations $-- $-- $-- $-- $-- $-- $--
Interest rate --% --% --% --% --% --% --%
States and Political
Subdivisions 15 14,766 76,696 45,488 -- -- 136,965
Interest rate 9.65% 8.03% 7.61% 7.81% --% --% 7.72%
Asset-backed securities $-- $-- $-- $-- $-- $-- $--
Interest rate --% --% --% --% --% --% --%
Other securities $-- $-- $-- 10,339 -- -- 10,339
Interest rate --% --% --% 5.53% --% --% 5.53%
-----------------------------------------------------------------------------------------------------------------------------
Subtotal 15 14,766 76,696 55,827 -- -- 147,304
Interest rate 9.65% 8.03% 7.61% 7.39% --% --% 7.57%
Mortgage-backed -- -- -- -- 83,656 -- 83,656
Interest rate --% --% --% --% 6.05% --% 6.05%
-----------------------------------------------------------------------------------------------------------------------------
Total $15 $14,766 $76,696 $55,827 $83,656 $0 $230,960
Interest rate 9.65% 8.03% 7.61% 7.39% 6.05% --% 7.02%
=============================================================================================================================
|
LOAN PORTFOLIO
The following table shows the composition of the loan portfolio of
the Company by type of loan and type of borrower, on the dates
indicated:
-----------------------------------------------------------------------------------------------------------------
At December 31, 1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------------------------------------
(In thousands)
Commercial and commercial real estate $1,437,118 $1,455,984 $1,260,082 $1,244,561 $1,198,089
Real estate construction 66,782 101,136 128,901 175,962 176,337
Real estate residential 361,909 276,951 378,971 333,685 313,122
Consumer 404,382 462,734 502,441 528,875 442,071
Unearned income (8,254) (9,565) (12,248) (16,381) (15,801)
-----------------------------------------------------------------------------------------------------------------
Gross loans 2,261,937 2,287,240 2,258,147 2,266,702 2,113,818
Allowance for loan losses (50,630) (50,921) (48,494) (46,580) (42,413)
-----------------------------------------------------------------------------------------------------------------
Net loans $2,211,307 $2,236,319 $2,209,653 $2,220,122 $2,071,405
=================================================================================================================
|
Maturities and Sensitivities 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, 1997. Balances exclude loans to individuals and residential mortgages totaling $758.0 million. These types of loans are typically paid in monthly installments over a number of years.
-----------------------------------------------------------------------------------------------------
Within One to After
One Year Five Years Five Years Total
-----------------------------------------------------------------------------------------------------
(In thousands)
Commercial and commercial real estate* $914,831 $257,878 $264,409 $1,437,118
Real estate construction 65,540 1,242 -- 66,782
-----------------------------------------------------------------------------------------------------
Total $980,371 $259,120 $264,409 $1,503,900
=====================================================================================================
Loans with fixed interest rates $105,328 $259,120 $264,409 $628,857
Loans with floating interest rates 875,043 -- -- 875,043
-----------------------------------------------------------------------------------------------------
Total $980,371 $259,120 $264,409 $1,503,900
=====================================================================================================
|
* Includes demand loans
COMMITMENTS AND LETTERS 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 customers' particular business transactions. Commitment fees generally are not charged except where Letters of Credit are involved. Commitments and lines of credit typically mature within one year. For further information, see Note 13 to the consolidated financial statements.
ASSET QUALITY
The Company closely monitors the markets in which it conducts its lending operations and continues its strategy to control exposure to loans with higher credit risk and increase diversification of earning assets. 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.
At December 31, 1997 1996
-----------------------------------------------------------------------------
(In millions)
Classified loans $67.5 $62.9
Other classified assets 7.4 9.9
-----------------------------------------------------------------------------
Total classified assets $74.9 $72.8
=============================================================================
|
Classified loans at December 31, 1997 increased $4.6 million or 7 percent to $67.5 million from December 31, 1996, reflecting the implementation of the Company's strict standards for loans acquired through the Merger. Other classified assets decreased $2.5 million from prior year, due to sales and write-downs of properties acquired in satisfaction of debt ("other real estate owned") partially offset by new foreclosures on loans with real estate collateral.
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. In addition, some 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. When the ability to fully collect non-accrual loan principal is in doubt, cash payments received are applied against the principal balance of the loans until such time as full collection of the remaining recorded balance is expected. Any additional payments received after that point are recorded as interest income on a cash basis. 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.
The following table summarizes the non-performing assets of the Company for the periods indicated:
-----------------------------------------------------------------------------------------------------------------
December 31, 1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------------------------------------
(In millions)
Performing non-accrual loans $1.6 $4.3 $2.4 $2.0 $1.9
Non-performing non-accrual loans 16.5 12.5 25.0 15.6 20.0
-----------------------------------------------------------------------------------------------------------------
Non-accrual loans 18.1 16.8 27.4 17.6 21.9
-----------------------------------------------------------------------------------------------------------------
Restructured loans -- 0.2 0.3 0.6 0.9
Loans 90 or more days past due
and still accruing 1.0 1.8 1.7 4.8 2.9
-----------------------------------------------------------------------------------------------------------------
Total non-performing loans 19.1 18.8 29.4 23.0 25.7
Other real estate owned 7.4 9.9 7.6 11.7 17.5
-----------------------------------------------------------------------------------------------------------------
Total non-performing assets $26.5 $28.7 $37.0 $34.7 $43.2
=================================================================================================================
Allowance for loan losses as a
percentage of non-performing loans 265% 271% 165% 203% 165%
Allowance for loan losses as a percentage
of total non-performing assets 191% 177% 131% 134% 98%
=================================================================================================================
|
Performing non-accrual loans decreased $2.7 million to $1.6 million at December 31, 1997 while non-performing non-accrual loans increased $4.0 million to $16.5 million at December 31, 1997, primarily due to the addition of commercial real estate loans partially offset by loan collections, write-downs, payoffs and sales. The $2.5 million decrease in other real estate owned balances from December 31, 1996 was due to write-downs and liquidations net of additions from non-accrual loans on loans with real estate collateral. The increase in other real estate owned balances at December 31, 1996 from December 31, 1995 was due to new foreclosures and transfers of loans with real estate collateral net of sales and write-downs of properties acquired in satisfaction of debt.
The amount of gross interest income that would have been recorded for non-accrual loans for the year ended December 31, 1997, if all such loans had been current in accordance with their original terms while outstanding during the period, was $1.6 million in 1997 and 1996 and $3.0 million in 1995. The amount of interest income that was recognized on non-accrual loans from cash payments made in 1997, 1996 and 1995 was $462 thousand, $270 thousand and $242 thousand, respectively. Cash payments received, which were applied against the book balance of performing and non-performing non-accrual loans outstanding at December 31, 1997, totaled approximately $573 thousand, compared to $111 thousand and $299 thousand in 1996 and 1995, respectively.
The overall credit quality of the loan portfolio continues to be strong; however, the total non-performing assets could fluctuate from year to year. 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 Company expects to continue to reduce non-performing assets; however, the Company can give no assurance that additional increases in non-accrual loans will not occur in future periods.
Loan Loss Experience
The Company's allowance for loan losses is maintained at a level estimated to be adequate to provide for losses that can be reasonably anticipated based upon specific conditions, credit loss experience, the amount of past due, non-performing loans and classified loans, recommendations of regulatory authorities, prevailing economic conditions and other factors. The allowance is allocated to segments of the loan portfolio based in part on quantitative analyses of historical credit loss experience, in which criticized and classified loan balances are analyzed using a linear regression model to determine standard allocation percentages. The results of this analysis are applied to current criticized and classified loan balances to allocate the allowance to the respective segments of the loan portfolio. In addition, loans with similar characteristics not usually criticized using regulatory guidelines due to their small balances and numerous accounts are analyzed based on the historical rate of net losses and delinquency trends grouped by the number of days the payments on those loans are delinquent. A portion of the allowance is also allocated to impaired loans. Management considers the $50.6 million allowance for loan losses, which constituted 2.24 percent of total loans at December 31, 1997, to be adequate as a reserve against inherent losses. However, while the Company's policy is to charge off in the current period those loans on which the loss is considered probable, the risk exists of future losses which cannot be precisely quantified or attributed to particular loans or classes of loans. Management continues to evaluate the loan portfolio and assess current economic conditions that will dictate future allowance levels.
The following table summarizes the loan loss experience of the Company for the periods indicated:
-----------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------------------------------------
(In thousands)
Total loans outstanding $2,261,937 $2,287,240 $2,258,147 $2,266,702 $2,113,818
Average loans outstanding during the period 2,248,048 2,249,520 2,254,946 2,105,164 2,016,808
Analysis of the reserve:
Beginning balance $50,921 $48,494 $46,580 $42,413 $37,398
Additions to the reserve charged to
operating expense 7,645 12,306 15,229 11,378 13,503
Allowance acquired through merger -- 1,665 -- 1,755 3,430
Credit losses:
Commercial and commercial real estate (6,824) (7,998) (7,395) (5,752) (7,988)
Real estate construction (962) (781) (1,401) (790) (2,377)
Real estate residential (374) (1,862) (3,682) (2,069) (632)
Consumer (4,324) (5,376) (3,742) (3,207) (3,179)
-----------------------------------------------------------------------------------------------------------------
Total (12,484) (16,017) (16,220) (11,818) (14,176)
Credit loss recoveries:
Commercial and commercial real estate 2,499 2,227 1,518 1,417 1,600
Real estate construction 160 44 3 65 18
Real estate residential 34 72 26 -- 5
Consumer 1,855 2,130 1,358 1,370 1,319
-----------------------------------------------------------------------------------------------------------------
Total 4,548 4,473 2,905 2,852 2,942
Net credit losses (7,936) (11,544) (13,315) (8,966) (11,234)
Sale of Sonoma Valley Bank -- -- -- -- (684)
-----------------------------------------------------------------------------------------------------------------
Balance, end of period $50,630 $50,921 $48,494 $46,580 $42,413
=================================================================================================================
Net credit losses to average loans 0.35% 0.51% 0.59% 0.43% 0.56%
Allowance for loan losses as a percentage
of loans outstanding 2.24% 2.23% 2.15% 2.05% 2.01%
Allocation of the Allowance for Loan Losses
The following table presents the allocation of the allowance for loan losses
for the dates indicated: At December 31,
-----------------------------------------------------------------------------------------------------
1997 1996
Allocation Loans as Allocation Loans as
of the Percent of the Percent
Allowance of Total Allowance of Total
Balance Loans Balance Loans
-----------------------------------------------------------------------------------------------------
(Dollars in thousands)
Commercial $22,649 63% $22,743 64%
Real estate construction 4,374 3% 3,471 4%
Real estate residential 87 16% 2,489 12%
Consumer 4,356 18% 6,543 20%
Unallocated portion of the allowance 19,164 -- 15,675 --
-----------------------------------------------------------------------------------------------------
Total $50,630 100% $50,921 100%
=====================================================================================================
At December 31,
-----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
Allocation Loans as Allocation Loans as Allocation Loans as
of the Percent of the Percent of the Percent
Allowance of Total Allowance of Total Allowance of Total
Balance Loans Balance Loans Balance Loans
-----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Commercial $21,849 56% $19,202 55% $21,929 57%
Real estate construction 5,683 6% 3,852 8% 4,286 8%
Real estate residential 1,733 16% 2,021 15% 2,191 15%
Consumer 6,401 22% 6,513 22% 5,967 20%
Unallocated portion of the allowance 12,828 -- 14,992 -- 8,040 --
-----------------------------------------------------------------------------------------------------------------------------
Total $48,494 100% $46,580 100% $42,413 100%
=============================================================================================================================
|
The increase in the allocation of commercial loans from December 1996 to December 1997 is primarily due to fluctuations in the balance of criticized loans and reallocation of specific reserves prior to the Merger.
The Company considers a loan to be 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 loan or (iii) the fair value of the collateral of a collateral-dependent loan. The Company does not apply this definition to large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment. In measuring impairment, the Company reviews all impaired commercial and construction loans classified "Substandard" and "Doubtful" that meet materiality thresholds of $250 thousand and $100 thousand, respectively. All "Loss" classified loans are fully reserved under the Company's standard loan loss reserve methodology. The Company considers classified loans below the established thresholds to represent immaterial loss risk. 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. 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.
At December 31, 1997 1996
-----------------------------------------------------------------------------
(In thousands)
Non-accrual loans $18,146 $16,835
Other 4,333 3,785
-----------------------------------------------------------------------------
Total impaired loans $22,479 $20,620
=============================================================================
Specific reserves $2,238 $2,156
=============================================================================
|
The $4.3 million balance in loans classified as impaired as of December 31, 1997, other than non-accrual loans, is due to two commercial real estate loans, with collateral exposure that may preclude ultimate full repayment, and two credits classified as "Trouble Debt Restructured," after forgiveness of principal on one and rewriting the other into two notes, one of which was written off.
The average balance of the Company's impaired loans for the year ended December 31, 1997 was $22.0 million compared to $24.2 million in 1996. The amount of that recorded investment for which there is no related allowance for credit losses was $0. In general, the Company does not recognize any interest income on trouble debt restructurings or loans that are classified as non-accrual. For other impaired loans, interest income may be recorded as cash is received, provided that the Company's recorded investment in such loans is deemed collectible.
ASSET AND LIABILITY MANAGEMENT
The fundamental objective of the Company's management of assets and liabilities is to maximize its economic value while maintaining adequate liquidity and a conservative level of interest rate risk.
The 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 10 percent, even under alternate assumed interest rate changes of plus or minus 200 basis points. The results of the model indicated that the mix of interest rate sensitive assets and liabilities at December 31, 1997 did not result in a fluctuation of net interest income exceeding 10 percent.
In adjusting the Company's asset/liability position, Management attempts to manage interest rate risk while enhancing net interest margins. At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, Management may determine to increase the Company's interest rate risk position somewhat in order to increase its net interest margin. The Company's results of operations and net portfolio values remain vulnerable to increases in interest rates and to fluctuations in the difference between long- and short-term interest rates.
Interest Rate Risk
One approach to quantify interest rate risk is to use a simulation model to project changes in net interest income ("NII") that result from forecast changes in interest rates. This analysis calculates the difference between a NII forecast over a 12-month period using a flat interest rate scenario and a NII forecast using a rising (or falling) rate scenario, where the Fed Funds rate, serving as a "driver," is made to rise (or fall) evenly by 200 basis points over the 12-month forecast interval triggering a response in the other rates. According to the Company's Board policy, the simulated changes in NII should always be less than 10 percent or steps must be taken to reduce interest rate risk. According to the same policy, if the simulated changes in NII reach 7.5 percent, a closer inspection of the risk will be put in place to determine what steps could be taken to control risk should it grow worse. As can be seen from the results of the model illustrated as follows, the simulated change in NII, based on the 12-month period ending December 31, 1998, falls well within the 10 percent risk limits.
-----------------------------------------------------------------
Estimated Increase
Changes in (Decrease) in NII
Interest Estimated -----------------------
Rates NII Amount Amount Percent
-----------------------------------------------------------------
(Basis Points) (Dollars in millions)
+200 $201.4 $3.0 1.50%
-- 198.4 --
-200 194.8 (3.6) -1.80%
|
The Company does not currently engage in trading activities or use derivative instruments to control interest rate risk, even though such activities may be permitted with the approval of the Company's Board of Directors.
Interest rate risk is the most significant market risk affecting the Company. Other types of market risk, such as foreign currency exchange risk, equity price risk and commodity price risk, do not arise in the normal course of the Company's business activities.
Interest Rate Sensitivity Analysis
The following table summarizes the interest rate sensitivity gaps
inherent in the Company's asset and liability portfolios at
December 31, 1997:
-----------------------------------------------------------------------------------------------------------------
Repricing within:
-----------------------------------------------------------------------------------------
0-90 91-180 181-365 Over One Non-
(In millions) Days Days Days Year repricing Total
-----------------------------------------------------------------------------------------------------------------
Assets
Investment securities $216 $53 $133 $832 $-- $1,234
Loans 1,095 96 166 905 -- 2,262
Other assets -- -- -- -- 352 352
-----------------------------------------------------------------------------------------------------------------
Total assets $1,311 $149 $299 $1,737 $352 $3,848
-----------------------------------------------------------------------------------------------------------------
Liabilities
Non-interest bearing $-- $-- $-- $-- $852 $852
Interest bearing:
Transaction 555 -- -- -- -- 555
Money market savings 152 152 304 -- -- 608
Passbook savings 294 -- -- -- -- 294
Time 407 151 132 79 -- 769
Short-term borrowings 265 -- -- -- -- 265
Debt financing and notes payable -- -- 5 48 -- 53
Other liabilities -- -- -- -- 45 45
Shareholders' equity -- -- -- -- 407 407
-----------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,673 $303 $441 $127 $1,304 $3,848
-----------------------------------------------------------------------------------------------------------------
Net (liabilities) assets
subject to repricing ($362) ($154) ($142) $1,610 ($952)
-----------------------------------------------------------------------------------------------------
Cumulative net (liabilities)
assets subject
to repricing ($362) ($516) ($658) $952 $--
=====================================================================================================
|
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 categorizes 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 securities available for sale. At December 31, 1997, investment securities available for sale totaled $1,003.2 million. In addition, the Company generated significant liquidity from its operating activities. The Company's profitability in 1997, 1996 and 1995 generated substantial cash flows provided from operations totaling $78.5 million, $56.7 million and $64.0 million, respectively.
Additional cash flows may be provided by financing activities, primarily the acceptance of customer deposits and short- and long-term borrowings from banks. During 1997 and 1996, deposits decreased $150.2 million and $108.0 million, respectively, which, added to the cash used by the Company in its share repurchase program and other retirement of stock activities of $35.6 million and $27.6 million and dividends paid to the Company's shareholders, exceeded a $97.4 million increase in short-term borrowings in 1997 and the issuance of $22.5 million of the Company's Senior Notes in 1996. These were the major factors in the total cash flows used by financing activities of $91.3 million and $147.2 million, respectively, for 1997 and 1996. Comparatively, financing activities provided $35.3 million in cash flows during 1995, as a $21.1 million increase in deposits and a $45.1 million increase in short-term funding exceeded payments on debt financing and long-term notes payable, retirement of stock and dividends paid to shareholders.
The Company uses cash flows to make investments in loans and investment securities. Net repayments of loans were $9.1 million in 1997, compared to $22.3 million in 1996 and an increase in balances of $3.3 million 1995. It is the intention of the Company to increase loan volume without jeopardizing credit quality; this is the primary reason for investing excess cash flows in lower-risk investments securities which increased $106.2 million in 1997. This compares with a decrease in 1996 of $87.6 million, mostly due to premerger activity at ValliCorp and an increase of $39.0 million in 1995.
The Company anticipates increasing its cash levels through the end of 1998 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 continue to moderately increase. The growth in deposit balances is expected to follow the anticipated growth in loan and investment balances through the end of 1998.
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 $27.9 million or 7 percent from the previous year end and increased $56.8 million or 16 percent from December 31, 1995. The ratio of total risk-based capital to risk-adjusted assets was 14.76 percent at December 31, 1997, compared to 14.95 percent at December 31, 1996. Tier I risk-based capital to risk-adjusted assets was 12.82 percent at December 31, 1997, compared to 12.96 percent at December 31, 1996.
Capital to Risk-Adjusted Assets
-----------------------------------------------------------------------------------------
Minimum
Regulatory
Capital
At December 31, 1997 1996 Requirements
-----------------------------------------------------------------------------------------
Tier I Capital 12.82% 12.96% 4.00%
Total Capital 14.76% 14.95% 8.00%
Leverage ratio 9.97% 9.27% 4.00%
=========================================================================================
|
The risk-based capital ratios declined in 1997 as the increase in total assets outpaced the growth in equity. 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 the regulatory definition of "well capitalized." Adjusted for the three-to-one stock split, the Board of Directors of the Company authorized, beginning in 1994, the repurchase of 3,252,150 shares of common stock from time to time, subject to appropriate regulatory and other accounting requirements. These purchases are made periodically in the open market and reduce the dilutive impact of issuing new shares to meet stock performance, option plans, acquisitions and other requirements. During 1997, the Company acquired 1,040,886 shares of its common stock on the open market, compared to 1,207,800 in 1996, 721,350 in 1995 and 93,000 in 1994.
FINANCIAL RATIOS
The following table shows key financial ratios for the periods indicated:
----------------------------------------------------------------------------------------------------- At December 31, 1997 1996 1995 ----------------------------------------------------------------------------------------------------- Return on average total assets 1.28% 1.24% 1.14% Return on shareholders' equity 12.71% 13.22% 12.73% Average shareholders' equity as a percentage of: Average total assets 10.10% 9.36% 8.99% Average total loans 16.84% 15.74% 15.04% Average total deposits 12.14% 11.26% 10.59% Dividend payout ratio (diluted EPS) 33.00% 28.00% 26.00% ===================================================================================================== |
DEPOSIT CATEGORIES
The Company primarily attracts deposits from local businesses and professionals, as well as through retail certificates of deposit, savings and checking accounts.
The following table summarizes the Company's average daily amount of deposits and the rates paid for the periods indicated:
-----------------------------------------------------------------------------------------------------------------
1997 1996
Percentage Percentage
Average of Total Average of Total
Balance Deposits Rate * Balance Deposits Rate *
-----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Non-interest bearing demand $781,001 25.0% --% $750,204 23.9% --%
Interest bearing:
Transaction 548,139 17.6% 1.22% 523,973 16.7% 1.23%
Savings 985,800 31.6% 2.84% 1,035,559 32.9% 2.75%
Time less than $100,000 479,692 15.4% 5.09% 520,968 16.5% 5.02%
Time $100,000 or more 323,840 10.4% 5.28% 313,050 10.0% 5.27%
-----------------------------------------------------------------------------------------------------------------
Total $3,118,472 100.0% 3.26% $3,143,754 100.0% 3.24%
=================================================================================================================
|
*Rate is computed based on interest-bearing deposits
-----------------------------------------------------------------------------
1995
Percentage
Average of Total
Balance Deposits Rate *
-----------------------------------------------------------------------------
Non-interest bearing demand $720,799 22.5% --%
Interest bearing:
Transaction 495,249 15.5% 1.19%
Savings 1,122,220 35.0% 2.81%
Time less than $100,000 567,448 17.8% 5.24%
Time $100,000 or more 296,109 9.2% 5.48%
-----------------------------------------------------------------------------
Total $3,201,825 100.0% 3.36%
=============================================================================
|
*Rate is computed based on interest-bearing deposits
In 1997, total average deposits decreased 1 percent from 1996 primarily due to decreases in savings and retail certificates of deposits as a result of the runoff business that was anticipated from the Merger completed in 1997. However, to counteract this effect, aggressive policies in place resulted in a 4 percent increase in the average balance of non-interest bearing and transaction demand accounts.
In 1996, total average deposits decreased 2 percent primarily related to decreases in savings and retail certificates of deposit. A declining rate environment and the runoff of business after merger activity are the major reasons for this decline.
The following table sets forth, by time remaining to maturity, the Company's domestic time deposits in amounts of $100,000 or more:
-----------------------------------------------------------------
At December 31, 1997
-----------------------------------------------------------------
(In thousands)
Three months or less $218,592
Over three through six months 41,414
Over six through twelve months 40,110
Over twelve months 11,026
-----------------------------------------------------------------
Total $311,142
=================================================================
|
SHORT-TERM BORROWINGS
The following table sets forth the short-term borrowings of the Company for the periods indicated:
-----------------------------------------------------------------------------------------
At December 31, 1997 1996 1995
-----------------------------------------------------------------------------------------
(In thousands)
Federal funds purchased $50,000 $6,300 $55,410
Other borrowed funds:
Retail repurchase agreements 103,346 112,594 91,622
Other 111,502 48,553 39,000
-----------------------------------------------------------------------------------------
Total other borrowed funds $214,848 $161,147 $130,622
-----------------------------------------------------------------------------------------
Total funds purchased $264,848 $167,447 $186,032
=========================================================================================
Further detail of the other borrowed funds is as follows:
-----------------------------------------------------------------------------------------
At December 31, 1997 1996 1995
-----------------------------------------------------------------------------------------
(In thousands)
Outstanding:
Average for the year $153,013 $172,808 $140,083
Maximum during the year 227,463 217,589 154,022
Interest rates:
Average for the year 4.73% 5.07% 5.57%
Average at period end 4.76% 4.90% 5.31%
NON-INTEREST INCOME
Components of Non-Interest Income
-----------------------------------------------------------------------------------------
1997 1996 1995
-----------------------------------------------------------------------------------------
(In millions)
Deposit account fees $20.6 $21.0 $20.1
Credit card merchant fees 3.7 4.5 3.6
Mortgage banking income 1.5 2.0 2.2
Financial services commissions 1.2 0.8 0.6
Trust fees 0.5 0.4 0.6
Other 9.5 7.6 7.1
-----------------------------------------------------------------------------------------
Total $37.0 $36.3 $34.2
=========================================================================================
|
Non-interest income was $37.0 million in 1997, $700 thousand higher than 1996. Other non-interest income was $1.9 million higher, including higher gains on asset sales. In addition, financial services commissions were $400 thousand higher than 1996 primarily due to increased sales volume and additional services provided and trust fees were $100 thousand higher than 1996 including increased personal and retirement plan business. Partially offsetting these changes, credit card merchant fees were $800 thousand lower than prior year, mortgage banking income was $500 thousand lower due to lower refinancing volumes resulting in lower income from sales of loans and servicing fees, and deposit account fees were $400 thousand lower due to reduced volume partially offset by higher account analysis fees assessed. Non-interest income was $36.3 million in 1996, $2.1 million higher than 1995. Deposit account fees and merchant credit card income were $900 thousand, each, higher than 1996 due to increased volume. Other was $500 thousand higher, principally due to higher gains on asset sales and financial services commissions were $200 thousand higher due to increased sales volume. Partially offsetting these changes, mortgage banking income was $200 thousand lower than 1995 due to reduced servicing income and trust fees were $200 thousand lower than prior year primarily due to account runoff.
NON-INTEREST EXPENSE
Components of Non-Interest Expense
-----------------------------------------------------------------------------------------
1997 1996 1995
-----------------------------------------------------------------------------------------
(In millions)
Salaries $50.4 $47.6 $52.9
Other personnel benefits 12.1 13.4 13.3
Occupancy 22.2 17.5 16.4
Equipment 10.8 10.1 10.9
Professional fees 9.2 6.0 5.9
Data processing 6.2 6.0 5.1
Stationery and supplies 2.5 1.5 3.1
Advertising and public relations 1.9 3.3 2.9
Merchant credit card 1.7 2.3 1.3
Loan expense 1.7 1.8 1.8
Operational losses 1.2 1.5 1.0
Other real estate owned 1.0 1.0 1.8
Insurance 0.5 0.8 1.5
FDIC insurance assessment 0.4 0.1 3.8
Other 16.1 23.2 20.3
-----------------------------------------------------------------------------------------
Total $137.9 $136.1 $142.0
=========================================================================================
Average full-time equivalent staff 1,288 1,569 1,586
Average assets per full-time equivalent staff
staff (millions) $2.91 $2.41 $2.38
=========================================================================================
|
Non-interest expense increased $1.8 million in 1997 compared to 1996. Major increases from 1996 relate to costs of approximately $18.8 million in connection with the Merger, which are included in employee-related expenses, occupancy and equipment, stationery and supplies, professional fees and data processing expenses. Partially offsetting these changes, other non-interest expense decreased $7.1 million, principally due to merger integration and branch restructuring costs recognized at ValliCorp during 1996, in connection with its three acquisitions effected in February, March and September of that year, and its planned branch sales in the first and second quarters of 1997 that were approved by the Board of Directors of ValliCorp Holdings, Inc. at the end of 1996. In addition, expenses were reduced in 1997 in advertising and public relations, merchant credit card, insurance and other costs, primarily due to merger efficiencies.
Comparing 1996 and 1995, non-interest expense decreased $5.9 million. Lower expense in 1996 was in part due to one-time costs, included in 1995 related to merger activity in that year and the Company's continuing efforts to realize efficiencies through streamlining and consolidations of operations and strict cost controls. These were the major reasons for the decreases in employee related, equipment, stationery and supplies, other real estate owned and insurance expenses. In addition, the Company benefited from the elimination of FDIC premiums. Occupancy expenses increased from 1995, as part of ValliCorp's growth and expansion plans to consolidate various support and administrative functions in a centralized headquarters office. Data processing costs increased mostly due to ValliCorp outsourcing certain data processing functions. Other non-interest expenses increased from 1995, reflecting merger integration and branch restructuring costs. Merger-related activity accounted for the increases in advertising and public relations expenses and operational losses. Completing the total change, merchant credit card expenses also increased from 1995, commensurate with the revenue growth in services provided to merchant customers.
The ratio of average assets per full-time equivalent staff was $2.91 million in 1997 compared to $2.41 million and $2.38 million in 1996 and 1995, respectively. The Company's strategy to improve efficiency and consolidate operations after merger activity can be seen in the reduction of the average number of full-time equivalent staff from 1,586 in 1995 to 1,569 and 1,288 in 1996 and 1997, respectively.
PROVISION FOR INCOME TAX
The provision for income tax increased by $2.4 million in 1997 mainly as a direct result of higher pretax income partially offset by an increase in tax-exempt interest income from municipal securities and loans. The 1997 provision of $26.0 million reflects an effective tax rate of 35.1 percent compared to provisions of $23.6 million in 1996 and $21.9 million in 1995, representing effective tax rates of 33.5 percent and 33.7 percent, respectively. The increase in the effective tax rate in 1997 was primarily due to increases in non-tax-deductible merger related expenses.
YEAR 2000 COMPLIANCE
The Company has undertaken a major project to ensure that its internal operating systems, as well as those of its major customers and suppliers, will be fully capable of processing Year 2000 transactions. The initial phase of the project was to assess and identify all internal business processes requiring modification and to develop comprehensive renovation plans as needed. This phase was largely completed in late 1997. The second phase, expected to be accomplished by the end of 1998, will be to execute those renovation plans and begin testing systems by simulating Year 2000 data conditions. Testing and implementation is planned to be completed during the first half of 1999.
The primary cost of the project has been and will continue to be the reallocation of internal resources, and therefore does not represent incremental expense to the Company. The estimated value of internal resources allocated to Year 2000 compliance efforts in 1997 was approximately $300 thousand. The Company estimates the total such cost of compliance will be approximately $3.0 million. It is not expected that Year 2000 compliance expenditures will have a material effect on the Company's results of operations, liquidity and capital resources. The Company relies upon third-party software vendors and service providers for substantially all of its electronic data processing and does not operate any proprietary programs which are critical to the Company's operations. Thus, the focus of the Company is to monitor the progress of its primary software providers towards compliance with Year 2000 issues and prepare to test actual data of the Company in simulated processing of future sensitive dates.
ITEM 8. Financial Statements and Supplementary Data
Index to Financial Statements Page
Consolidated Balance Sheets as of December 31, 1997 and 1996 57 Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995 58 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1997, 1996 and 1995 59 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 60 Notes to Consolidated Financial Statements 61 Independent Auditors' Report 95 Management's Letter of Financial Responsibility 96 Other Independent Auditors' Reports 97 |
Cash and cash equivalents (Note 16) $250,824 $355,177
Money market assets 250 250
Investment securities available for sale (Note 2) 1,003,234 892,461
Investment securities held to maturity;
market values of
$236,896 in 1997 and $218,009 in 1996 (Note 2) 230,960 215,432
Loans, net of an allowance for loan losses of:
$50,630 in 1997 and $50,921 in 1996
(Notes 3, 4 and 15) 2,211,307 2,236,319
Other real estate owned 7,381 9,912
Premises and equipment, net (Notes 5 and 6) 48,412 63,968
Interest receivable and other assets (Note 9) 96,076 93,255
---------------------------------------------------------------------------
Total assets $3,848,444 $3,866,774
===========================================================================
|
LIABILITIES
Deposits:
Non-interest bearing $852,153 $834,964
Interest bearing:
Transaction 554,825 379,468
Savings 902,381 1,189,554
Time (Notes 2 and 6) 769,142 824,714
---------------------------------------------------------------------------
Total deposits 3,078,501 3,228,700
Short-term borrowed funds (Note 6) 264,848 167,447
Liability for interest, taxes and
other expenses (Note 9) 45,443 32,483
Debt financing and notes payable (Note 6) 52,500 58,865
---------------------------------------------------------------------------
Total liabilities 3,441,292 3,487,495
---------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (Notes 7 and 16)
Common Stock (no par value)
Authorized** - 150,000 shares
Issued and outstanding** -
42,799 in 1997 and 42,889 in 1996 198,517 187,210
Unrealized gain on securities
available for sale, net 17,923 6,019
Retained earnings 190,712 186,050
---------------------------------------------------------------------------
Total shareholders' equity 407,152 379,279
---------------------------------------------------------------------------
|
* Restated on a historical basis to reflect the April 12, 1997 acquisition of ValliCorp Holdings, Inc. on a pooling-of-interests basis ** Restated for a three-to-one stock split authorized January 22, 1998 and effective February 25, 1998 See accompanying notes to consolidated financial statements.
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
-------------------------------------------------------------------------------------
For the years ended December 31, 1997 1996 * 1995 *
-------------------------------------------------------------------------------------
INTEREST INCOME
Loans $201,999 $206,887 $217,826
Money market assets and funds sold 1,635 5,219 3,881
Investment securities:
Available for sale
Taxable 46,620 41,416 16,464
Tax-exempt 7,957 7,353 283
Held to maturity
Taxable 5,199 6,233 32,005
Tax-exempt 7,260 7,074 13,245
-------------------------------------------------------------------------------------
Total interest income 270,670 274,182 283,704
-------------------------------------------------------------------------------------
INTEREST EXPENSE
Transaction deposits 6,706 6,462 5,876
Savings deposits 28,036 28,474 31,580
Time deposits (Note 6) 41,522 42,649 45,976
Funds purchased (Note 6) 7,803 9,974 8,708
Debt financing and notes payable (Note 6) 3,987 4,141 3,487
-------------------------------------------------------------------------------------
Total interest expense 88,054 91,700 95,627
-------------------------------------------------------------------------------------
NET INTEREST INCOME 182,616 182,482 188,077
Provision for loan losses (Note 3) 7,645 12,306 15,229
-------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 174,971 170,176 172,848
-------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts 20,624 20,984 20,053
Merchant credit card 3,737 4,549 3,594
Mortgage banking 1,521 1,986 2,225
Financial services commissions 1,153 788 611
Trust fees 504 386 615
Securities gain (loss) 198 45 (74)
Other 9,276 7,569 7,203
-------------------------------------------------------------------------------------
Total non-interest income 37,013 36,307 34,227
-------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and related benefits (Note 14) 62,485 61,033 66,232
Occupancy (Notes 5 and 12) 22,166 17,466 16,390
Furniture and equipment (Notes 5 and 12) 10,799 10,075 10,917
Professional fees 9,185 5,997 5,872
Data processing 6,234 6,029 5,061
Other real estate owned
and property held for sale 1,121 955 1,762
Other 25,888 34,496 35,726
-------------------------------------------------------------------------------------
Total non-interest expense 137,878 136,051 141,960
-------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 74,106 70,432 65,115
Provision for income taxes (Note 9) 25,990 23,605 21,930
-------------------------------------------------------------------------------------
NET INCOME $48,116 $46,827 $43,185
=====================================================================================
Average shares outstanding** 43,040 42,759 43,747
Diluted average shares outstanding** 43,827 43,358 44,274
PER SHARE DATA** (Notes 7 and 19)
Basic earnings $1.12 $1.10 $0.99
Diluted earnings 1.10 1.08 0.98
Dividends paid 0.36 0.30 0.25
|
* Restated on a historical basis to reflect the April 12, 1997 acquisition of ValliCorp Holdings, Inc. on a pooling-of-interests basis ** Restated for a three-to-one stock split authorized January 22, 1998 and effective February 25, 1998 See accompanying notes to consolidated financial statements.
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
======================================================================================================
Unrealized
Gain (Loss)
on Securities
Available Retained
Common Stock for Sale Earnings Total
------------------------------------------------------------------------------------------------------
December 31, 1994 * $176,691 ($6,058) $150,536 $321,169
Net income for the year -- -- 43,185 43,185
Stock issued 4,323 -- -- 4,323
Purchase and retirement of stock (2,640) -- (9,701) (12,341)
Dividends -- -- (13,171) (13,171)
Unrealized gain on securities available for sale, net -- 7,213 -- 7,213
------------------------------------------------------------------------------------------------------
December 31, 1995 * $178,374 $1,155 $170,849 $350,378
Net income for the year -- -- 46,827 46,827
Stock issued 17,892 -- -- 17,892
Purchase of treasury stock (5,253) -- -- (5,253)
Purchase and retirement of stock (3,803) -- (18,505) (22,308)
Dividends -- -- (13,121) (13,121)
Unrealized gain on securities available for sale, net -- 4,864 -- 4,864
------------------------------------------------------------------------------------------------------
December 31, 1996 * $187,210 $6,019 $186,050 $379,279
Net income for the year -- -- 48,116 48,116
Stock issued 16,853 -- -- 16,853
Purchase and retirement of stock (5,546) -- (30,048) (35,594)
Dividends -- -- (13,406) (13,406)
Unrealized gain on securities available for sale, net -- 11,904 -- 11,904
------------------------------------------------------------------------------------------------------
December 31, 1997 $198,517 $17,923 $190,712 $407,152
======================================================================================================
|
* Restated on a historical basis to reflect the April 12, 1997 acquisition of ValliCorp Holdings, Inc. on a pooling-of-interests basis
See accompanying notes to consolidated financial statements.
WESTAMERICA BANCORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) --------------------------------------------------------------------------------------------------------------------- For the years ended December 31, 1997 1996 * 1995 * --------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $48,116 $46,827 $43,185 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,828 9,995 10,633 Loan loss provision 7,645 12,306 15,229 Amortization of deferred net loan (cost) fees (1,215) (1,105) (1,858) Decrease (increase) in interest income receivable 1,460 1,586 (1,353) Decrease (increase) in other assets 940 (14,735) 96 Increase (decrease) in income taxes payable 3,135 (1,224) (2,129) (Decrease) increase in interest expense payable (321) 559 82 Decrease in other liabilities (5,340) (4,309) (1,851) (Gain) loss on sales of investment securities (198) (45) 74 Gain on sales of branches (678) -- -- Net loss on sales/write-down of equipment 7,785 212 1,586 Originations of loans for resale (12,157) (56,988) (60,178) Net proceeds from sale of loans originated for resale 19,301 62,920 58,900 Net (gain) loss on sale of property acquired in satisfaction of debt (1,184) (173) 27 Write-down on property acquired in satisfaction of debt 1,422 834 1,515 --------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 78,539 56,660 63,958 --------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Net cash obtained in merger -- 4,391 -- Net repayments/(disbursements) of loans 9,102 22,290 (3,293) Purchases of investment securities available for sale (441,926) (339,666) (220,428) Purchases of investment securities held to maturity (73,115) (26,448) (92,810) Purchases of property, plant and equipment (5,036) (19,158) (9,106) Proceeds from maturity of securities available for sale 327,738 294,339 103,263 Proceeds from maturity of securities held to maturity 57,588 116,898 125,545 Proceeds from sale of securities available for sale 23,736 42,475 44,029 Proceeds from sale of securities held to maturity -- -- 1,316 Proceeds from sale of property and equipment 4,004 1,965 417 Proceeds from property acquired in satisfaction of debt 6,327 5,676 6,771 --------------------------------------------------------------------------------------------------------------------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (91,582) 102,762 (44,296) --------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net (decrease) increase in deposits (150,199) (108,027) 21,084 Net increase (decrease) in short-term borrowings 97,401 (18,585) 45,106 Additions net of principal payments on notes and mortgages payable -- (5,015) (5,007) (Repayments) additions to notes payable (6,365) 22,500 (5,524) Exercise of stock options/issuance of shares 16,853 4,541 4,139 Cash in lieu of fractional shares -- -- (36) Retirement of common stock (35,594) (27,561) (12,341) Dividends paid (13,406) (15,005) (12,101) --------------------------------------------------------------------------------------------------------------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (91,310) (147,152) 35,320 --------------------------------------------------------------------------------------------------------------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (104,353) 12,270 54,982 Cash and cash equivalents at beginning of year 355,177 342,907 287,925 --------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $250,824 $355,177 $342,907 ===================================================================================================================== SUPPLEMENTAL DISCLOSURES: Supplemental disclosure of non-cash activities Loans transferred to other real estate owned $2,604 $8,837 $8,140 Premises transferred to other real estate owned 1,430 -- -- Unrealized gain on securities available for sale, net 11,904 4,864 7,213 Supplemental disclosure of cash flow activity Interest paid for the period 88,168 89,999 96,810 Income tax payments for the period 24,297 26,086 22,713 Conversion of subordinated notes into common stock -- 84 184 Financing sales of premises and other real estate -- 345 333 Dividends declared but not yet paid -- -- 1,884 Common stock issued for Auburn Bancorp merger -- 13,267 -- |
* Restated on a historical basis to reflect the April 12, 1997 acquisition of ValliCorp Holdings, Inc. on a pooling-of-interests basis See accompanying notes to consolidated financial statements.
WESTAMERICA BANCORPORATION
Note 1: Business and Accounting Policies
Westamerica Bancorporation, a registered bank holding Company (the "Company"), provides a full range of banking services to individual and corporate customers in Northern California through its subsidiary banks, Westamerica Bank and Bank of Lake County (the "Banks"). The Banks are subject to competition from other financial institutions and to the regulations of certain agencies and undergo periodic examinations by those regulatory authorities.
Summary of Significant Accounting Policies
The consolidated financial statements are prepared in conformity with generally accepted accounting principles and general practices within the banking industry. The following is a summary of significant policies used in the preparation of the accompanying financial statements. In preparing the financial statements, Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the disclosure of income and expenses for the periods presented in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
Principles of Consolidation. The financial statements include the accounts of the Company, and all the Company's subsidiaries which include the Banks, Community Banker Services Corporation and Subsidiary, Westcore and Westamerica Commercial Credit, Inc., a company engaged in financing accounts receivable and inventory lines of credit and term business loans. Significant intercompany transactions have been eliminated in consolidation. All data for 1996 and 1995 have been restated to include the April 12, 1997 acquisition of ValliCorp Holdings, Inc., accounted for as a pooling of interests. (Note 19)
Business Combinations. In a business combination accounted for as a pooling of interests, the assets, liabilities and shareholders' equity of the acquired entity are carried forward at their historical amounts and its results of operations are combined with the Company's results of operations. Additionally, the Company's prior period financial statements are restated to give effect to the merger. In a business combination accounted for as a purchase, the results of operations of the acquired entity are included from the date of acquisition. Assets and liabilities of the entity acquired are recorded at fair value on the date of acquisition. Goodwill and identified intangibles are amortized over their estimated lives.
Cash Equivalents. Cash equivalents include Due From Banks balances and Federal Funds Sold which are both readily convertible to known amounts of cash and are so near their maturity that they present insignificant risk of changes in value because of interest rate volatility.
Securities. Investment securities consist of securities of the U.S. Treasury, federal agencies, states, counties and municipalities, and mortgage-backed, corporate debt and equity securities. The Company classifies its debt and marketable equity securities in one of three categories: trading, available for sale or held to maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Securities not included in trading or held to maturity are classified as available for sale. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized gains and losses on trading securities are included in earnings. Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are reported as a separate component of shareholders' equity until realized. Unrealized gains and losses associated with transfers of securities from held to maturity to available for sale are recorded as a separate component of shareholders' equity. The unrealized gains and losses included in the separate component of shareholders' equity for securities transferred from available for sale to held to maturity are maintained and amortized into earnings over the remaining life of the security as an adjustment to yield in a manner consistent with the amortization or accretion of premiums or discounts on the associated security.
A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary, results in a charge to earnings and the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related investment security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available for sale or held to maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold.
Loans and Allowance for Loan Losses. The allowance for loan losses is a combination of specific and general reserves available to absorb estimated future losses throughout the loan portfolio and is maintained at a level considered adequate to provide for such losses. Credit reviews of the loan portfolio, designed to identify problem loans and to monitor these estimates, are conducted continually, taking into consideration market conditions, current and anticipated developments applicable to the borrowers and the economy, and the results of recent examinations by regulatory agencies. Management approves the conclusions resulting from credit reviews. Ultimate losses may vary from current estimates. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for possible loan losses. Such agencies may require the Company to recognize additions to the reserve based on their judgment of information available to them at the time of their examination.
Loans are stated at the principal amount outstanding, net of unearned discount and deferred fees. Unearned interest on discounted loans is amortized over the life of these loans, using the sum-of-the-months digits formula for which the results are not materially different from those obtained by using the interest method. For all other loans, interest is accrued daily on the outstanding balances. Loans which are more than 90 days delinquent with respect to interest or principal, unless they are well secured and in the process of collection, and other loans on which full recovery of principal or interest is in doubt, are placed on non-accrual status. Non-refundable fees and certain costs associated with originating or acquiring loans are deferred and amortized as an adjustment to interest income over the estimated respective loan lives. Loans held for sale are identified upon origination and are reported at the lower of cost or market value on an individual loan basis. The Company recognizes a loan as impaired when based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. All amounts due according to the contractual terms means that both the contractual interest payments and the contractual principal payments of a loan will be collected as scheduled in the loan agreement.
Other Real Estate Owned. Other real estate owned is comprised of property acquired through foreclosure proceedings, acceptances of deeds-in-lieu of foreclosure and some vacated bank properties. Losses recognized at the time of acquiring property in full or partial satisfaction of debt are charged against the allowance for loan losses. Other real estate owned is recorded at the lower of the related loan balance or fair value of the collateral, generally based upon an independent property appraisal, less estimated disposition costs. Subsequently, other real estate owned is valued at the lower of the amount recorded at the date acquired or the then current fair value less estimated disposition costs. Subsequent losses incurred due to the declines in annual independent property appraisals are recognized as non-interest expense. Routine holding costs, such as property taxes, insurance, maintenance and losses from sales and dispositions are recognized as non-interest expense.
Premises and Equipment. Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed substantially on the straight-line method over the estimated useful life of each type of asset. Estimated useful lives of premises and equipment range from 20 to 50 years and from 3 to 20 years, respectively. Leasehold improvements are amortized over the terms of the lease or their estimated useful life, whichever is shorter. Fully depreciated or amortized assets are removed from the Company's balance sheet.
Intangible assets. Intangible assets (which are included in Other Assets) aggregating $14,391,000 and $16,506,000 (net of accumulated amortization of $10,654,000 and $8,335,800) at December 31, 1997 and 1996, respectively, are comprised of core deposit intangibles and goodwill acquired in business combinations. Core deposit intangibles are amortized over the estimated lives of the existing deposit bases (10 years) on a straight-line basis. Goodwill of $9,563,000 in 1997 and $10,384,000 in 1996 (net of accumulated depreciation of $3,257,000 and $2,367,000, respectively) is amortized on a straight-line basis over 15 years. Management periodically reviews the balances to determine if such balances have been impaired.
Impairment of Long-Lived Assets. The Company reviews for impairment of long-lived assets and certain intangibles to be held, whenever events or changes indicate that the carrying amount of an asset may not be recoverable.
Income taxes. The Company and its subsidiaries file consolidated tax returns. For financial reporting purposes, the income tax effects of transactions are recognized in the year in which they enter into the determination of recorded income, regardless of when they are recognized for income tax purposes. Accordingly, the provisions for income taxes in the consolidated statements of income include charges or credits for deferred income taxes relating to temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are reflected at currently enacted income tax rates in the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Accounting for Stock-Based Compensation. Prior to January 1, 1996, the Company accounted for its stock option plans in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation expense would be recorded on the date of grant generally if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"), which permits the Company to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS 123 also allows the Company to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure of SFAS 123.
Transfers and Servicing of Financial Assets and Extinguishing of Liabilities. In June 1996, the FASB issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishing of Liabilities" ("SFAS 125"). SFAS 125 provides guidance for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. In December 1996, the FASB issued the Financial Accounting Standard No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125" ("SFAS 127"), which defers certain provisions of SFAS 125 for one year. The provisions of SFAS 125 which were not deferred by SFAS 127 were effective January 1997 and were applied prospectively. The adoption of the applicable provisions of SFAS 125 did not have a material impact on the Company's financial condition and Management does not expect that the adoption of the remaining provisions of these Statements will have a material impact on the Company's financial condition.
Earnings Per Share ("EPS"). In February of 1997, the Financial Accounting Standards Board ("FASB") issued the Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). Under the provisions of SFAS 128, the presentation of primary and fully diluted EPS as previously required by APB Opinion No. 15 is replaced with basic and diluted EPS. SFAS 128 also requires dual presentation of basic and diluted EPS on the face of the income statement and a reconciliation of the amounts used in the diluted EPS to the amounts used in the basic EPS computation. Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would be shared in the earnings of the Company. The Company adopted the provisions of SFAS 128 on December 31, 1997 and, to conform with the statement's requirements, all prior period EPS data have been restated. The adoption of SFAS 128 did not have any effect on the reported net income of the Company. On January 27, 1998, the Board of Directors of the Company authorized a three-for-one stock split of the Company's Common Stock in which every one share of the Company's Common Stock is split and converted into three shares of the Company's Common Stock. All share and per share information has been restated for the three-to-one stock split effective February 25, 1998.
Comprehensive Income. In June of 1997, the Financial Accounting
Standards Board ("FASB") issued the Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). Under the provisions of SFAS 130, an entity that
provides a full set of financial statements is required to report
comprehensive income in the presentation of its financial
statements. The term "comprehensive income" describes the total of
all components of comprehensive income including net income. "Other
comprehensive income" refers to revenues, expenses, and gains and
losses that are included in comprehensive income but are excluded
from net income as they have been recorded directly in equity under
the provisions of other FASB statements. SFAS 130 provides three
approaches to reporting comprehensive income: (i) as part of the
statement of income; (ii) as a separate statement that starts with
net income and adds the other components of comprehensive income;
(iii) as a part of the statements of changes in equity, by
identifying all of the elements of other comprehensive income
including net income. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Comparative financial statements
provided for earlier periods are required to be reclassified to
reflect application of the provisions of SFAS 130. The Company
expects that the adoption of SFAS 130 will not have any effect on
the reported net income.
Segments of an Enterprise and Related Information. In June of 1997, the Financial Accounting Standards Board ("FASB") issued the Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). Under the provisions of SFAS 131, an entity is required to report selected information about operating segments in annual financial statements and interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Statement uses a "management approach" to identify operating segments and defines an operating segment as a component of an enterprise (i) for which discrete financial information is available; (ii) that engages in business activities that may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same enterprise) and (iii) whose operating results are regularly reviewed by the enterprise's chief operating decision maker. Reportable segments (aggregated if appropriate) are operating segments that meet specified quantitative thresholds based on revenues, profit or loss and assets, using a ten percent rule. SFAS 131 is effective for fiscal years beginning after December 15, 1997. Segment information that is presented for comparative purposes is to be restated to conform to the requirements of SFAS 131 unless it is impracticable to do so. The required interim disclosures are not required to be made in the initial year of application but the information for the interim periods for the initial year is required as comparative information in the second year of application.
Other. Securities and other property held by the Banks in a fiduciary or agency capacity are not included in the financial statements since such items are not assets of the Company or its subsidiaries.
Reclassifications. Certain amounts in prior years' financial statements have been reclassified to conform with the current presentation. These reclassifications have no effect on previously reported income.
Note 2: Investment Securities
An analysis of the available-for-sale investment securities
portfolio as of December 31, 1997, follows:
--------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
--------------------------------------------------------------------------------------
U.S. Treasury securities $276,009 $1,845 ($64) $277,790
Securities of U.S. Government
agencies and corporations 180,792 963 (631) 181,124
Obligations of States and
political subdivisions 196,811 6,653 (59) 203,405
Asset-backed securities 183,982 518 (123) 184,377
Other securities 133,837 22,834 (133) 156,538
--------------------------------------------------------------------------------------
Total $971,431 $32,813 ($1,010) $1,003,234
======================================================================================
An analysis of the held-to-maturity investment securities portfolio
as of December 31, 1997, follows:
--------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
--------------------------------------------------------------------------------------
Securities of U.S. Government
agencies and corporations $83,656 $460 ($611) $83,505
Obligations of States and
political subdivisions 136,965 6,126 (39) 143,052
Other securities 10,339 -- -- 10,339
--------------------------------------------------------------------------------------
Total $230,960 $6,586 ($650) $236,896
======================================================================================
An analysis of the available-for-sale investment securities
portfolio as of December 31, 1996, follows:
--------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
--------------------------------------------------------------------------------------
U.S. Treasury securities $299,213 $982 ($456) $299,739
Securities of U.S. Government
agencies and corporations 277,883 380 (3,795) 274,468
Obligations of States and
political subdivisions 126,130 2,995 (494) 128,631
Asset-backed securities 94,145 189 (52) 94,282
Other securities 84,644 10,729 (32) 95,341
--------------------------------------------------------------------------------------
Total $882,015 $15,275 ($4,829) $892,461
======================================================================================
An analysis of the held-to-maturity investment securities portfolio
as of December 31, 1996, follows:
--------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
--------------------------------------------------------------------------------------
U.S. Treasury securities $998 $-- ($4) $994
Securities of U.S. Government
agencies and corporations 79,743 485 (822) 79,406
Obligations of States and
political subdivisions 131,343 3,385 (467) 134,261
Asset-backed securities 191 -- -- 191
Other securities 3,157 -- -- 3,157
--------------------------------------------------------------------------------------
Total $215,432 $3,870 ($1,293) $218,009
======================================================================================
The amortized cost and estimated market value of securities at
December 31, 1997, by contractual maturity, are shown in the
following table:
--------------------------------------------------------------------------------------
Securities Available Securities Held
for Sale to Maturity
--------------------------------------------------------------------------------------
Estimated Estimated
Maturity in years Amortized Market Amortized Market
(In thousands) Cost Value Cost Value
--------------------------------------------------------------------------------------
1 year or less $158,232 $158,572 $15 $15
1 to 5 years 482,975 485,329 16,072 16,401
5 to 10 years 153,765 156,031 77,140 80,618
Over 10 years 106,011 109,893 54,077 56,357
--------------------------------------------------------------------------------------
Sub-total 900,983 909,825 147,304 153,391
Mortgage-backed 55,001 55,591 83,656 83,505
Other securities 15,447 37,818 -- --
--------------------------------------------------------------------------------------
Total $971,431 $1,003,234 $230,960 $236,896
======================================================================================
|
Expected maturities of mortgage-backed securities can differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. In addition, such factors as prepayments and interest rates may affect the yield on the carrying value of mortgage-backed securities. At December 31, 1997 and 1996, the Company had no high-risk collateralized mortgage obligations.
Proceeds from sales of securities during 1997, 1996 and 1995 were $23.7 million, $42.5 million and $45.4 million, respectively. In 1997, the Company realized gains from the sale of these securities in the amount of $198 thousand, compared to gains of $45 thousand and losses of $74 thousand in 1996 and 1995, respectively.
As of December 31, 1997, $515.3 million of investment securities were pledged to secure public deposits and short-term funding needs, compared to $430.4 million in 1996.
Note 3: Loans and Allowance for Loan Losses
Loans at December 31, consisted of the following:
--------------------------------------------------------------------------------------
(In thousands) 1997 1996
--------------------------------------------------------------------------------------
Commercial $744,382 $839,336
Real estate-commercial 692,736 616,648
Real estate-construction 66,782 101,136
Real estate-residential 361,909 276,951
--------------------------------------------------------------------------------------
Total real estate loans 1,121,427 994,735
Installment and personal 404,382 462,734
Unearned income (8,254) (9,565)
--------------------------------------------------------------------------------------
Gross loans 2,261,937 2,287,240
Allowance for loan losses (50,630) (50,921)
--------------------------------------------------------------------------------------
Net loans $2,211,307 $2,236,319
======================================================================================
Included in real estate-residential at December 31, 1997
and 1996 are loans held for resale of $3.3 million and
$1.3 million, respectively, the cost of which approximates
market value.
The following summarizes the allowance for loan losses of the
Company for the periods indicated:
--------------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
--------------------------------------------------------------------------------------
Balance at January 1, $50,921 $48,494 $46,580
Provision for loan losses 7,645 12,306 15,229
Loans charged off (12,484) (16,017) (16,220)
Recoveries of loans previously charged of 4,548 4,473 2,905
Allowance acquired through merger -- 1,665 --
--------------------------------------------------------------------------------------
Balance at December 31, $50,630 $50,921 $48,494
======================================================================================
The following is a summary of interest foregone on non-accrual
and restructured loans for the years ended December 31:
--------------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
--------------------------------------------------------------------------------------
Interest income that would have been
recognized had the loans performed
in accordance with their original terms $1,632 $1,642 $3,027
Less: Interest income recognized on
non-accrual and restructured loans (462) (270) (242)
--------------------------------------------------------------------------------------
Interest foregone on non-accrual
and restructured loans $1,170 $1,372 $2,785
--------------------------------------------------------------------------------------
|
There were no commitments to lend additional funds to borrowers whose loans are included above.
At December 31, 1997, the recorded investment in loans for which impairment was recognized totaled $22.5 million compared to $20.6 million at December 31, 1996. The specific reserves at December 31, 1997 and 1996 were $2.2 million and $2.2 million, respectively. The amount of that recorded investment for which there is no related allowance for credit losses was $0. For the year ended December 31, 1997, the average recorded net investment in impaired loans was approximately $22.0 million compared to $24.2 million and $21.5 million, respectively, at December 31, 1996 and 1995. In general, the Company does not recognize any interest income on trouble debt restructurings or loans that are classified as non-accrual. For other impaired loans, interest income may be recorded as cash is received, provided that the Company's recorded investment in such loans is deemed collectible.
Note 4: Concentration of Credit Risk
The Company's business activity is with customers in Northern and Central California. The loan portfolio is well diversified with no industry comprising greater than 10 percent of total loans outstanding as of December 31, 1997 and 1996.
The Company has a significant amount of credit arrangements that are secured by real estate collateral. In addition to real estate loans outstanding as disclosed in Note 3, the Company had loan commitments and standby letters of credit related to real estate loans of $69.8 million at December 31, 1997. The Company requires collateral on all real estate loans and generally attempts to maintain loan-to-value ratios no greater than 75 percent on commercial real estate loans and no greater than 80 percent on residential real estate loans.
Note 5: Premises and Equipment
Premises and equipment as of December 31 consisted of the following:
--------------------------------------------------------------------------------------
Accumulated
Depreciation
and Net Book
Cost Amortization Value
--------------------------------------------------------------------------------------
1997 (In thousands)
Land $10,365 $- $10,365
Buildings and improvements 34,756 (9,437) 25,319
Leasehold improvements 5,864 (3,413) 2,451
Furniture and equipment 19,650 (9,373) 10,277
--------------------------------------------------------------------------------------
Total $70,635 ($22,223) $48,412
======================================================================================
1996
Land $12,360 $ -- $12,360
Buildings and improvements 37,417 (9,646) 27,771
Leasehold improvements 13,916 (4,832) 9,084
Furniture and equipment 35,529 (20,776) 14,753
--------------------------------------------------------------------------------------
Total $99,222 ($35,254) $63,968
======================================================================================
|
Depreciation and amortization included in operating expenses amounted to $7.5 million in 1997, $8.5 million in 1996 and $8.6 million in 1995.
Note 6: Borrowed Funds
Debt financing and notes payable, including the unsecured obligations of the Company, as of December 31, 1997 and 1996, were as follows:
--------------------------------------------------------------------------------------
1997 1996
--------------------------------------------------------------------------------------
(In thousands)
Federal Home Loan Bank notes in increments
of $5,000,000 starting in 1994 and each
dated December 1. Interest payable quarterly
at prime minus 2.05% to 2.32%; principal
payable annually in $5,000,000 increments
collateralized by $30,000,000 of commercial
and mortgage loans. $10,000 $15,000
Subordinated note, issued by Westamerica
Bank, originated in December 1993 and
maturing September 30, 2003. Interest of
6.99% per annum is payable semiannually on
March 31 and September 30, with principal
payment due at maturity. 20,000 20,000
Senior notes, originated in February 1996
and maturing February 1, 2006. Interest of
7.11% per annum is payable semiannually on
February 1 and August 1, with certain required
payments commencing February 1, 2000 and
the remaining principal amount due at maturity. 22,500 22,500
Mandatory convertible subordinated debentures
dated April 1, 1986; interest payable quarterly
at prime plus 1.5%; principal mandatorily
convertible into common stock no later than
March 1998 or prior thereto at the option
of the holder, at $5.50 per share. -- 728
Optional convertible subordinated debentures
dated April 1, 1986; interest payable quarterly
at prime plus .75%; principal payable quarterly
at $22,734 with final payment due April 1998;
convertible, at the option of the holder into
common stock at $5.50 per share. -- 114
Two real property note obligations secured by
property and improvements; original principal amount
of $698,000 at 8.5% with monthly principal and
interest payments of $6,590 through June 2010. -- 523
--------------------------------------------------------------------------------------
Total debt financing and notes payable $52,500 $58,865
======================================================================================
|
The prime interest rate related to all financing arrangements was 8.50% and 8.25% at December 31, 1997 and 1996, respectively.
The senior notes are subject to financial covenants requiring the Company to maintain, at all times, certain minimum levels of consolidated tangible net worth and maximum levels of capital debt. The Company is currently in compliance with all of the covenants in the senior notes indenture.
At December 31, 1997 and 1996, the Company had unused lines of credit amounting to $2.5 million. Compensating balance arrangements are not significant to the operations of the Company. At December 31, 1997 and 1996, the Banks had $311.1 million and $328.2 million, respectively, in time deposit accounts in excess of $100 thousand; interest on these accounts in 1997, 1996 and 1995 was $17.1 million, $16.8 million and $16.2 million, respectively.
Funds purchased include federal funds purchased and securities sold with repurchase agreements. Fed funds purchased were $50.0 million and $0 at December 31, 1997 and 1996, respectively. Securities sold with repurchase agreements were $103.3 million at December 31, 1997 and $118.9 million at December 31, 1996. Securities under these repurchase agreements are held in the custody of independent securities brokers.
Note 7: Shareholders' Equity
In 1995, the Company adopted the 1995 Stock Option Plan. Stock appreciation rights, restricted performance shares, incentive stock options and non-qualified stock options are available under this plan. Under the terms of this plan, on January 1 of each year beginning in 1995, 2 percent of the Company's issued and outstanding shares of common stock will be reserved for granting. At December 31, 1997, 1996, and 1995, 566,091, 587,601 and 482,853 shares, respectively, were reserved for issuance. Options are granted at fair market value and are generally exercisable in equal installments over a three-year period with the first installment exercisable one year after the date of the grant. Each incentive stock option has a maximum ten-year term while non-qualified stock options may have a longer term. A Restricted Performance Share ("RPS") grant becomes fully vested after three years of being awarded, provided that the Company has attained its performance goals for such three-year period.
Under the Stock Option Plan adopted by the Company in 1985, 2,250,000 shares were reserved for issuance. Stock appreciation rights, incentive stock options and non-qualified stock options are available under this plan. Options are granted at fair market value and are generally exercisable in equal installments over a three-year period with the first installment exercisable one year after the date of the grant. Each incentive stock option has a maximum ten-year term while non-qualified stock options may have a longer term. The 1985 plan was amended in 1990 to provide for RPS grants. An RPS grant becomes fully vested after three years of being awarded, provided that the Company has attained its performance goals for such three-year period.
ValliCorp Holdings, Inc. also had separate stock options plans (the "Stock Option Plans") whereby options were granted to certain officers, directors and employees. Pursuant to the Merger, effective April 12, 1997, all Stock Option Plans were terminated. All outstanding options were substituted for the Company's stock options, adjusted for the exchange ratio as defined in the merger agreement. At December 31, 1996 and 1995, 1,327,470 and 1,387,194, respectively, were available for issuance under the Stock Option Plans. There were no options granted during 1997 under this plan, and there were 286,488 and 196,215 options granted in 1996 and 1995, respectively.
Stock Options. A summary of the status of the Company's stock options as of December 31, 1997, 1996 and 1995 and changes during the years ended on those dates, follows:
------------------------------------------------------------------------------------------------------
1997 1996
------------------------------------------------------------------------------------------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 2,703,450 $10 2,623,974 $9
Granted 522,150 19 783,589 14
Exercised (1,056,165) 11 (528,281) 7
Forfeited (75,048) 16 (175,832) 13
------------------------------------------------------------------------------------------------------
Outstanding at end of year 2,094,387 $12 2,703,450 $10
Options exercisable at end of year 1,147,920 1,322,049
======================================================================================================
----------------------------------------------------------------------
1995
----------------------------------------------------------------------
Weighted
Number Average
of Exercise
Shares Price
----------------------------------------------------------------------
Outstanding at beginning of year 2,982,585 $7
Granted 547,365 12
Exercised (778,245) 5
Forfeited (127,731) 10
----------------------------------------------------------------------
Outstanding at end of year 2,623,974 $8
Options exercisable at end of year 1,243,524
======================================================================
The following table summarizes information about options
outstanding at December 31, 1997 and 1996:
------------------------------------------------------------------------------------------------------
1997 Options outstanding Options exercisable
------------------------------------------------------------------------------------------------------
Weighted-
Average Weighted Weighted-
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Range of Exercise Prices at 12/31/97 Life Price at 12/31/97 Price
------------------------------------------------------------------------------------------------------
$3 - 5 126,894 3.5 years $4 85,017 $4
5 - 7 211,491 3.0 6 208,920 6
7 - 8 194,442 4.8 8 194,442 8
9 - 10 568,824 6.6 10 463,773 10
12 - 14 51,258 6.6 14 51,258 14
15 450,108 8.0 15 144,510 15
19 491,370 9.0 19 -- --
------------------------------------------------------------------------------------------------------
$3 - 19 2,094,387 6.7 years $12 1,147,920 $9
======================================================================================================
------------------------------------------------------------------------------------------------------
1996 Options Outstanding Options Exercisable
------------------------------------------------------------------------------------------------------
Weighted-
Average Weighted Weighted-
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Range of Exercise Prices at 12/31/96 Life Price at 12/31/96 Price
------------------------------------------------------------------------------------------------------
$3 - 5 227,217 4.4 years $4 138,609 $4
5 - 10 1,061,211 5.8 8 921,717 8
10 - 13 561,222 8.2 11 156,555 11
13 - 14 49,158 8.2 14 10,854 14
14 - 15 804,642 8.7 15 94,314 14
------------------------------------------------------------------------------------------------------
$3 - 15 2,703,450 7.1 years $10 1,322,049 $8
======================================================================================================
Restricted Performance Shares. A summary of the status of the
Company's RPSs as of December 31, 1997, 1996 and 1995, and
changes during the years ended on those dates, follows:
--------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------------------------------------------------------------
Outstanding at beginning of year 268,050 270,900 256,200
Granted 64,410 76,800 97,050
Exercised (99,750) (74,100) (82,350)
Forfeited (82,020) (5,550) --
--------------------------------------------------------------------------------------
Outstanding at end of year 150,690 268,050 270,900
======================================================================================
|
As of December 31, 1997, 1996 and 1995, the RPSs had a weighted-average contractual life of 1.1, 1.2 and 1.3 years, respectively. The Company expects that substantially all of the RPSs outstanding at December 31, 1997 will eventually vest based on projected performance.
On January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"). The Company applies APB Opinion No. 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its stock options. The compensation cost that has been charged against income for the Company's RPSs granted was $2.6 million, $1.6 million and $1.2 million for 1996 and 1995, respectively. There were no stock appreciation rights or incentive stock options granted in 1997, 1996 and 1995.
The fair value of each non-qualified stock option grant is estimated on the date of the grant using the Roll-Geske or the Black-Scholes option-pricing models with the following assumptions used for calculating weighted-average grants in 1997, 1996 and 1995:
1996
--------------------------------------------------------------------------------------
Westamerica ValliCorp
1997 Bancorporation Holdings, Inc.
--------------------------------------------------------------------------------------
Dividend yield 1.14% 1.80% 2.50%
Expected volatility 21.43% 17.00% 37.50%
Risk-free interest rate 6.35% 5.40% 6.20%
Expected lives 6 years 6 years 4.5 years
--------------------------------------------------------------------------------------
1995
--------------------------------------------------------------------------------------
Westamerica ValliCorp
Bancorporation Holdings, Inc.
--------------------------------------------------------------------------------------
Dividend yield 1.80% 2.00%
Expected volatility 19.00% 34.50%
Risk-free interest rate 5.75% 5.40%
Expected lives 6 years 4.5 years
--------------------------------------------------------------------------------------
|
The weighted average fair value of non-qualified stock options granted during 1997, 1996 and 1995 was $4.64, $4.06 and $3.47, respectively.
The fair value of each RPS grant is estimated on the date of grant using the Roll-Geske or the Black-Scholes option-pricing models with the following assumptions used for calculating weighted-average RPS grants in 1997, 1996 and 1995:
--------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------------------------------------------------------------
Dividend yield 1.14% 1.80% 1.80%
Expected volatility 21.43% 17.00% 19.00%
Risk-free interest rate 6.35% 5.15% 7.60%
Expected lives 3 years 3 years 3 years
======================================================================================
|
The weighted average fair value of RPSs granted during 1997, 1996 and 1995 was $19.25, $14.83 and $10.05, respectively.
Had compensation cost for the Company's 1995 and 1985 Stock Option Plans been determined consistent with SFAS 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
--------------------------------------------------------------------------------------
(In thousands, except per share data) 1997 1996 1995
--------------------------------------------------------------------------------------
Net income As reported $48,116 $46,827 $43,185
Pro forma 47,298 46,278 42,868
Weighted average shares (basic) 43,040 42,759 43,747
Weighted average shares (diluted) 43,827 43,358 44,274
Earnings per share: As reported (basic) $1.12 $1.10 $0.99
As reported (diluted) 1.10 1.08 0.98
Pro forma (basic) 1.10 1.08 0.98
Pro forma (diluted) 1.08 1.07 0.97
======================================================================================
|
(In thousands, except per share data)
At December 31, 1997
----------------------------------------------------------------------
Number of Per Share
Net Income Shares Amount
----------------------------------------------------------------------
Basic EPS: Income available
to common shareholders $48,116 43,040 $1.12
Effect of dilutive
securities:
Stock options outstanding -- 787
----------------------------------------------------------------------
Diluted EPS: Income available
to common shareholders
plus assumed conversions $48,116 43,827 $1.10
======================================================================
----------------------------------------------------------------------
(In thousands, except per share data)
At December 31, 1996
----------------------------------------------------------------------
Number of Per Share
Net Income Shares Amount
----------------------------------------------------------------------
Basic EPS: Income available
to common shareholders $46,827 42,759 $1.10
Effect of dilutive
securities:
Stock options outstanding -- 599
----------------------------------------------------------------------
Diluted EPS: Income available
to common shareholders
plus assumed conversions $46,827 43,358 $1.08
======================================================================
----------------------------------------------------------------------
(In thousands, except per share data)
At December 31, 1995
----------------------------------------------------------------------
Number of Per Share
Net Income Shares Amount
----------------------------------------------------------------------
Basic EPS: Income available
to common shareholders $43,185 43,747 $0.99
Effect of dilutive
securities:
Stock options outstanding -- 527
----------------------------------------------------------------------
Diluted EPS: Income available
to common shareholders
plus assumed conversions $43,185 44,274 $0.98
======================================================================
|
Shareholders have authorized issuance of two new classes of 1,000,000 shares each, to be denominated "Class B Common Stock" and "Preferred Stock", respectively, in addition to the 150,000,000 shares of Common Stock presently authorized. At December 31, 1997, no shares of Class B Common Stock or Preferred Stock had been issued.
In December 1986, the Company declared a dividend distribution of one common share purchase right (the "Right") for each outstanding share of common stock. The Rights are exercisable only in the event of an acquisition of, or announcement of a tender offer to acquire, 15 percent or more of the Company's stock without the prior consent of the Board of Directors. If the Rights become exercisable, the holder may purchase one share of the Company's common stock for $21.667. Following an acquisition of 15 percent of the Company's common stock or 50 percent or more of its assets without prior consent of the Company, each Right will also entitle the holder to purchase $43.333 worth of common stock of the Company for $21.667. Under certain circumstances, the Rights may be redeemed by the Company at a price of $.017 per Right prior to becoming exercisable and in certain circumstances thereafter. The Rights expire on December 31, 1999, or earlier, in connection with certain Board-approved transactions.
Note 8: Risk-Based Capital
The Company and the Banks are subject to various regulatory
capital adequacy requirements administered by federal and
state agencies. The Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) required that regulatory
agencies adopt regulations defining five capital tiers for banks:
well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized.
Failure to meet minimum capital requirements can initiate
discretionary actions by regulators that, if undertaken, could
have a direct, material effect on the Company's financial
statements. Quantitative measures, established by the
regulators to ensure capital adequacy, require that the Company
and the Banks maintain minimum ratios of capital to
risk-weighted assets. There are two categories of capital under
the guidelines. Tier 1 capital includes common shareholders'
equity and qualifying preferred stock less goodwill and other
deductions including the unrealized net gains and losses, after
taxes, of available-for-sale securities. Tier 2 capital includes
preferred stock not qualifying for Tier 1 capital, mandatory
convertible debt, subordinated debt, certain unsecured senior
debt issued by the Company and the allowance for loan losses,
subject to limitations by the guidelines. Under the guidelines,
capital is compared to the relative risk of the balance sheet,
derived from applying one of four risk weights (0%, 20%, 50% and
100%) to the different balance sheet and off-balance sheet assets,
primarily based on the credit risk of the counterparty. The capital
amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weighting and
other factors.
As of December 31, 1997, the Company and the Banks met all capital adequacy requirements to which they are subject.
The most recent notification from the Federal Reserve Board categorized the Company and the Banks as well capitalized under the FDICIA regulatory framework for prompt corrective action. To be well capitalized, the institution must maintain a total risk-based capital ratio as set forth in the following table and not be subject to a capital directive order. Since that notification, there are no conditions or events that Management believes have changed the risk-based capital category of the Company or the Banks.
The following table shows capital ratios for the Company and the Banks as of December 31, 1997 and 1996:
---------------------------------------------------------------------------------------------------------------------------------
To Be Well
Capitalized Under
the FDICIA
For Capital Prompt Corrective
1997 Actual Adequacy Purposes Action Provisions:
---------------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Total Capital (to risk-weighted assets)
Consolidated Company $431,552 14.76% $233,919 8.00% $292,398 10.00%
Westamerica Bank 383,447 13.68% 224,306 8.00% 280,383 10.00%
Bank of Lake County 9,208 14.37% 5,126 8.00% 6,408 10.00%
Tier 1 Capital (to risk weighted assets)
Consolidated Company 374,828 12.82% 116,959 4.00% 175,439 6.00%
Westamerica Bank 322,228 11.49% 112,153 4.00% 168,230 6.00%
Bank of Lake County 8,398 13.11% 2,563 4.00% 3,845 6.00%
Leverage Ratio *
Consolidated Company 374,828 9.97% 150,312 4.00% 187,890 5.00%
Westamerica Bank 322,228 8.86% 145,512 4.00% 181,890 5.00%
Bank of Lake County 8,398 9.24% 3,637 4.00% 4,547 5.00%
=================================================================================================================================
---------------------------------------------------------------------------------------------------------------------------------
To Be Well
Capitalized Under
the FDICIA
For Capital Prompt Corrective
1996 Actual Adequacy Purposes Action Provisions:
---------------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Total Capital (to risk-weighted assets)
Consolidated Company $411,622 14.95% $220,142 8.00% $275,178 10.00%
Westamerica Bank 365,409 13.79% 211,929 8.00% 264,911 10.00%
Bank of Lake County 10,474 17.63% 4,752 8.00% 5,940 10.00%
Tier 1 Capital (to risk weighted assets)
Consolidated Company 356,804 12.97% 110,071 4.00% 165,107 6.00%
Westamerica Bank 306,093 11.55% 105,964 4.00% 158,947 6.00%
Bank of Lake County 9,721 16.36% 2,376 4.00% 3,564 6.00%
Leverage Ratio *
Consolidated Company 356,804 9.30% 153,481 4.00% 191,851 5.00%
Westamerica Bank 306,093 8.26% 148,230 4.00% 185,288 5.00%
Bank of Lake County 9,721 10.79% 3,605 4.00% 4,507 5.00%
=================================================================================================================================
|
* The leverage ratio consists of Tier 1 capital divided by quarterly average assets. The minimum leverage ratio guideline is 3 percent for banking organizations that do not anticipate significant growth and that have well-diversified risk, excellent asset quality, high liquidity, good earnings and, in general, are considered top-rated, strong banking organizations.
Note 9: Income Taxes
(In thousands) 1997 1996
----------------------------------------------------------------------
Deferred tax asset
Reserve for loan losses $20,559 $20,687
State franchise taxes 2,878 2,759
Deferred compensation 2,299 1,908
Real estate owned 2,306 2,059
Interest on non-accrual loans 1,249 674
Reserve for long-term lease commitments 1,080 1,242
Other reserves 962 843
Other 625 745
Net operating loss carryfowards 584 842
General tax credit carryforwards 215 215
----------------------------------------------------------------------
Subtotal deferred tax asset 32,757 31,974
Valuation allowance -- (486)
----------------------------------------------------------------------
Total deferred tax asset 32,757 31,488
----------------------------------------------------------------------
Deferred tax liability
Net deferred loan costs 3,288 1,762
Fixed assets 2,190 1,928
Securities available for sale 13,523 4,723
Intangible assets 827 1,311
Leases 500 590
Other 239 581
----------------------------------------------------------------------
Total deferred tax liability 20,567 10,895
----------------------------------------------------------------------
Net deferred tax asset $12,190 $20,593
======================================================================
|
The valuation allowance, which relates to the deferred tax asset acquired through the merger with CapitolBank Sacramento in June of 1995, was eliminated as a result of operations making it more likely than not that all available deferred tax assets will be fully utilized.
The provision for federal and state income taxes consists of amounts currently payable and amounts deferred which, for the years ended December 31, are as follows:
--------------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
--------------------------------------------------------------------------------------
Current income tax expense:
Federal $18,164 $17,311 $16,666
State 8,223 7,805 7,032
--------------------------------------------------------------------------------------
Total current 26,387 25,116 23,698
--------------------------------------------------------------------------------------
Deferred income tax (benefit) expense:
Federal (594) (1,620) (2,106)
State 197 (75) 338
--------------------------------------------------------------------------------------
Total deferred (397) (1,695) (1,768)
Adjustment of net deferred tax asset for
enacted changes in tax rates:
Federal -- -- --
State -- 184 --
--------------------------------------------------------------------------------------
Provision for income taxes $25,990 $23,605 $21,930
======================================================================================
The provision for income taxes differs from the provision
computed by applying the statutory federal income tax rate
to income before taxes, as follows:
--------------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
--------------------------------------------------------------------------------------
Federal income taxes due at
statutory rate $25,937 $24,669 $22,790
(Reductions) increases in income
taxes resulting from:
Interest on state and municipal
securities not taxable for federal
income tax purposes (6,872) (5,906) (5,205)
Reduction in the valuation
allowance (486) -- (906)
State franchise taxes, net of
federal income tax benefit 5,473 5,198 4,795
Costs related to acquisitions 3,183 367 892
Other (1,245) (723) (436)
--------------------------------------------------------------------------------------
Provision for income taxes $25,990 $23,605 $21,930
======================================================================================
|
At December 31, 1997, the Company had the following net operating loss and the general tax credit carryforwards for tax return purposes:
--------------------------------------------------------------------------------------
Net
Expires December 31, Operating Loss Tax Credit
(In thousands) Carryforwards Carryforwards
--------------------------------------------------------------------------------------
2003 $-- $215
2007 1,655 --
2008 14 --
--------------------------------------------------------------------------------------
Total $1,669 $215
======================================================================================
|
Note 10: Fair Value of Financial Instruments
The fair value of financial instruments does not represent actual amounts that may be realized upon the sale or liquidation of the related assets or liabilities. In addition, these values do not give effect to discounts to fair value which may occur when financial instruments are sold in larger quantities. The fair values presented represent the Company's best estimate of fair value using the methodologies discussed below. The fair values of financial instruments which have a relatively short period of time between their origination and their expected realization were valued using historical cost. Such financial instruments and their estimated fair values at December 31, were:
-------------------------------------------------------------------------------------- (In thousands) 1997 1996 -------------------------------------------------------------------------------------- Cash and cash equivalents $250,824 $355,177 Money market assets 250 250 Interest and taxes receivable 59,384 55,602 Non-interest bearing and interest-bearing transaction and savings deposits 2,309,359 2,403,986 Funds purchased 264,848 167,447 Interest payable 6,569 7,009 ====================================================================================== The fair values at December 31, of the following financial instruments were estimated using quoted market prices: -------------------------------------------------------------------------------------- (In thousands) 1997 1996 -------------------------------------------------------------------------------------- Investment securities available for sale $1,003,234 $892,461 Investment securities held to maturity 236,896 218,009 ====================================================================================== |
Loans were separated into two groups for valuation. Variable rate loans, except for those described below which reprice frequently with changes in market rates, were valued using historical data. Fixed rate loans and variable rate loans that have reached their maximum rates were valued by discounting the future cash flows expected to be received from the loans using current interest rates charged on loans with similar characteristics. Additionally, the $50.6 million allowance for loan losses was applied against the estimated fair value to recognize future defaults of contractual cash flows. The estimated fair values of loans at December 31, were:
-------------------------------------------------------------------------------------- (In thousands) 1997 1996 -------------------------------------------------------------------------------------- Loans $2,210,087 $2,221,974 -------------------------------------------------------------------------------------- |
The fair values of time deposits and notes and mortgages payable were estimated by discounting future cash flows related to these financial instruments using current market rates for financial instruments with similar characteristics. The estimated fair values at December 31, were:
-------------------------------------------------------------------------------------- (In thousands) 1997 1996 -------------------------------------------------------------------------------------- Time deposits $768,881 $825,854 Debt financing and notes payable 52,724 61,100 -------------------------------------------------------------------------------------- |
The majority of the Company's commitments to extend credit carry current market interest rates if converted to loans. Because these commitments are generally unassignable by either the Company or the borrower, they only have value to the Company and the borrower.
Note 11: Interest Rate Risk Management
Interest rate risk is influenced by market forces. However, that risk may be controlled by monitoring and managing the repricing characteristics of interest-bearing assets and liabilities. The primary analytical tool used by Management to gauge interest rate sensitivity is a simulation model used by many major banks and bank regulators. This industry standard model is used to simulate the effects on net interest income of changes in market interest rates that are up to 2 percent higher or 2 percent lower than current levels. The results of the model indicated that the mix of interest-rate sensitive assets and liabilities at December 31, 1997 would not result in a fluctuation of net interest income exceeding 10 percent, even under alternate assumed interest rate changes of plus or minus 200 basis points. In evaluating exposure to interest rate risk, the Company considers the effects of various factors in implementing interest rate risk management activities, including the utilization of interest rate swaps to hedge interest rates paid on deposit accounts.
Note 12: Lease Commitments
Thirty-seven banking offices and a centralized administrative service center are owned and 52 banking offices are leased. Substantially all the leases contain multiple renewal options and provisions for rental increases, principally for cost of living index, property taxes and maintenance. The Company also leases certain pieces of equipment.
----------------------------------------------------------------------
1998 $6,455
1999 5,543
2000 3,335
2001 2,572
2002 1,693
Thereafter 9,254
----------------------------------------------------------------------
Total minimum lease payments $28,852
======================================================================
Total rentals for premises and equipment net of sublease
income included in non-interest expense were $6.3 million in
1997, $8.4 million in 1996 and $8.5 million in 1995.
|
Note 13: Commitments and Contingent Liabilities
Loan commitments are agreements to lend to a customer provided there is no violation of any condition established in the agreement. Commitments generally have fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future funding requirements. Loan commitments are subject to the Company's normal credit policies and collateral requirements. Unfunded loan commitments were $395.9 million and $462.3 million at December 31, 1997 and 1996, respectively. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. Standby letters of credit are primarily issued to support customers' short-term financing requirements and must meet the Company's normal credit policies and collateral requirements. Standby letters of credit outstanding totaled $13.1 million and $18.9 million at December 31, 1997 and 1996, respectively.
The Company, because of the nature of its business, is subject to various threatened or filed legal cases. The Company, based on the advice of legal counsel, does not expect such cases will have a material, adverse effect on its financial position or results of operations.
Note 14: Retirement Benefit Plans
As of February 28, 1997, the Company terminated its defined benefit Retirement Plan which covered substantially all of its salaried employees with one or more years of service. Pursuant to the Retirement Plan termination, the distribution of its assets was recognized as a settlement. A settlement is defined as "a transaction that (a) is an irrevocable action, (b) relieves the employer (or the plan) of primary responsibility for a pension benefit obligation, and (c) eliminates significant risks related to the obligation and the assets used to effect the settlement." The effect of the distribution of assets to settle all plan liabilities resulted in no net gain or loss for the year ended December 31, 1997.
The Company's policy was to expense costs as they accrued as determined by the Projected Unit Cost method. The Company's funding policy was to contribute annually the maximum amount that could be deducted for federal income tax purposes.
The following table sets forth the Retirement Plan's funded status at December 31, 1996, prior to settlement, with the effect of the settlement and the status at December 31, 1997:
------------------------------------------------------------------------------------------------------
After
Curtailment
Effect of and Before
Settlement Settlement
as of as of
December 31, October 1, October 1, December 31,
1997 1997 1997 1996
------------------------------------------------------------------------------------------------------
(In thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation $-- $12,650 ($12,650) ($11,040)
Non-vested benefit obligation -- -- -- (68)
------------------------------------------------------------------------------------------------------
Accumulated benefit obligation -- 12,650 (12,650) (11,108)
Additional benefits related to
projected salary increases -- -- -- (1,609)
------------------------------------------------------------------------------------------------------
Projected benefit obligation -- 12,650 (12,650) (12,717)
Plan assets at fair market value -- (12,650) 12,650 12,591
------------------------------------------------------------------------------------------------------
Funded status - projected benefit
obligation in excess of
plan assets $-- $-- $-- ($126)
======================================================================================================
Comprised of:
Prepaid pension cost $-- $-- $-- $143
Unrecognized net (gain)loss -- 143 (143) 192
Unrecognized prior service benefit -- -- -- (204)
Unrecognized net obligation,
net of amortization -- -- -- (257)
------------------------------------------------------------------------------------------------------
Total $-- $143 ($143) ($126)
======================================================================================================
|
1997 1996
----------------------------------------------------------------------
(In thousands)
Service cost during the period $-- $205
Interest cost on projected
benefit obligation 618 745
Actual return on plan assets (398) (1,304)
Net amortization and deferral (220) 394
Settlement loss 143 --
----------------------------------------------------------------------
Net periodic pension cost $143 $40
======================================================================
|
The discount rate used in determining the actuarial present value of the benefit obligation was 6.55 percent at October 1, 1997, and 6.00 percent at December 31, 1996. The expected long-term rate of return on plan assets was 7.50 percent as of October 1, 1997 and December 31, 1996.
The Company sponsors a defined contribution Deferred Profit-Sharing Plan covering substantially all of its salaried employees with one or more years of service. Prior to the Retirement Plan's settlement, participant deferred profit-sharing account balances were used to offset benefits accrued under the Retirement Plan. The coordination of benefits of the two plans resulted in the Retirement Plan benefit formula establishing the minimum value of participant retirement benefits which, if not provided by the Deferred Profit-Sharing Plan, were guaranteed by the Retirement Plan.
The costs charged to non-interest expense related to benefits provided by the Retirement Plan and the Deferred Profit-Sharing Plan were $1.0 million in 1997, $1.3 million in 1996 and $1.4 million in 1995.
In addition to the Retirement Plan and the Deferred Profit-Sharing Plan, all salaried employees are eligible to participate in the voluntary Tax Deferred Savings/Retirement Plan (ESOP) upon completion of a 90-day introductory period. The Tax Deferred Savings/Retirement Plan allows employees to defer, on a pretax basis, a portion of their salaries as contributions to this Plan. Participants may invest in 10 funds, including one fund that invests exclusively in Westamerica Bancorporation common stock. The matching contributions charged to compensation expense were $1.8 million in 1997, $1.8 million in 1996 and $1.9 million in 1995.
The Company uses an actuarial based accrual method of accounting for postretirement benefits other than pensions. The Company offers continuation of group insurance coverage to employees electing early retirement, for the period from the date of early retirement until age sixty-five. The Company contributes an amount toward early retirees' insurance premiums which is fixed at the time of early retirement. The Company reimburses Medicare Part B premiums for all qualified retirees over age 65.
1997 1996
----------------------------------------------------------------------
(In thousands)
Service cost $408 $245
Interest cost 127 102
Amortization of unrecognized
transition obligation 61 61
----------------------------------------------------------------------
Net periodic cost $596 $408
======================================================================
Accumulated postretirement benefit obligation
attributable to:
Retirees $1,180 $1,094
Fully eligible participants 622 462
Other 553 396
----------------------------------------------------------------------
Total 2,355 1,952
----------------------------------------------------------------------
Fair value of plan assets -- --
----------------------------------------------------------------------
Accumulated postretirement benefit obligation
in excess of plan assets $2,355 $1,952
======================================================================
Comprised of:
Unrecognized transition obligation $1,224 $1,285
Recognized postretirement obligation 1,131 667
----------------------------------------------------------------------
Total $2,355 $1,952
======================================================================
|
The discount rate used in measuring the accumulated post- retirement benefit obligation was 6.5 percent and 6.0 percent at December 31, 1997 and 1996, respectively. The assumed health care cost trend rate used to measure the expected cost of benefits covered by the plan was 2 percent for 1998 and beyond. The effect of a one percentage point increase on the assumed health care cost trend for each future year would increase the aggregate of the service cost components of the 1997 and 1996 net periodic cost by $205 thousand and $183 thousand, respectively, and increase the accumulated postretirement benefit obligation at December 31, 1997 and 1996 by $334 thousand and $302 thousand, respectively.
Note 15: Related Party Transactions
Certain directors and executive officers of the Company and/or its subsidiaries were loan customers of the Banks during 1997 and 1996. All such loans were made in the ordinary course of business on normal credit terms, including interest rate and collateral requirements. In the opinion of Management, these credit transactions did not involve, at the time they were contracted, more than the normal risk of collectibility or present other unfavorable features. The table below reflects information concerning loans to certain directors and executive officers and/or family
members during 1997 and 1996: ---------------------------------------------------------------------- (In thousands) 1997 1996 ---------------------------------------------------------------------- Beginning balance $5,390 $11,789 Originations 816 7,759 Payoffs/principal payments (1,068) (10,904) Other changes * (2,649) (3,254) ---------------------------------------------------------------------- At December 31, $2,489 $5,390 ====================================================================== Percent of total loans outstanding 0.11% 0.24% ---------------------------------------------------------------------- |
* Other changes in 1997 and 1996 represent loans to former directors and executive officers who are no longer related parties.
Note 16: Regulatory Matters
Payment of dividends to the Company by Westamerica Bank, the largest subsidiary bank, is limited under regulations for Federal Reserve member banks. The amount that can be paid in any calendar year, without prior approval from regulatory agencies, cannot exceed the net profits (as defined) for that year plus the net profits of the preceding two calendar years less dividends declared. Under this regulation, Westamerica Bank was not restricted as to the payment of up to $37.2 million in dividends to the Company as of December 31, 1997. The Company consistently has paid quarterly dividends to its shareholders since its formation in 1972. As of December 31, 1997, $98.4 million was available for payment of dividends by the Company to its shareholders. The Banks are required to maintain reserves with the Federal Reserve Bank equal to a percentage of its reservable deposits. The Banks' daily average on deposit at the Federal Reserve Bank was $31.5 million in 1997 and $66.7 million in 1996.
Note 17: Westamerica Bancorporation (Parent Company Only)
Statements of Income (In thousands)
------------------------------------------------------------------------------------------------------
For the years ended December 31, 1997 1996* 1995*
------------------------------------------------------------------------------------------------------
Dividends from subsidiaries $41,538 $44,467 $26,917
Interest income 1,903 1,851 430
Other income 5,317 4,248 4,452
------------------------------------------------------------------------------------------------------
Total income 48,758 50,566 31,799
------------------------------------------------------------------------------------------------------
Interest on borrowings 1,624 1,501 425
Salaries and benefits 6,634 5,911 5,768
Other expense 8,046 6,398 6,514
------------------------------------------------------------------------------------------------------
Total expenses 16,304 13,810 12,707
------------------------------------------------------------------------------------------------------
Income before taxes and equity in undistributed
income of subsidiaries 32,454 36,756 19,092
Income tax benefit 2,101 2,783 2,821
Equity in undistributed income from subsidiaries 13,561 7,288 21,272
------------------------------------------------------------------------------------------------------
Net income $48,116 $46,827 $43,185
======================================================================================================
|
* Restated on a historical basis to reflect the April 12, 1997 acquisition of ValliCorp Holdings, Inc. on a pooling-of-interests basis
Balance Sheets (In thousands) -------------------------------------------------------------------------------------- December 31, 1997 1996* -------------------------------------------------------------------------------------- Assets Cash and cash equivalents $29,897 $33,645 Money market assets and investment securities AFS 27,183 16,124 Line of credit from affiliates 3,776 -- Investment in subsidiaries 361,083 342,601 Premises and equipment 17,143 16,322 Accounts receivable from affiliates 1,253 347 Other assets 5,252 5,424 -------------------------------------------------------------------------------------- Total assets $445,587 $414,463 ====================================================================================== Liabilities Notes payable $22,500 $23,342 Other liabilities 15,935 11,842 -------------------------------------------------------------------------------------- Total liabilities 38,435 35,184 Shareholders' equity 407,152 379,279 -------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $445,587 $414,463 ====================================================================================== |
* Restated on a historical basis to reflect the April 12, 1997 acquisition of ValliCorp Holdings, Inc. on a pooling-of-interests basis
Statements of Cash Flows (In thousands)
------------------------------------------------------------------------------------------------------
For the years ended December 31, 1997 1996* 1995*
------------------------------------------------------------------------------------------------------
Operating Activities
Net income $48,116 $46,827 $43,185
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 684 450 202
Undistributed earnings of affiliates (13,561) (7,288) (21,272)
Increase in accounts receivable from affiliates (906) (96) (95)
Decrease (increase) in other assets 405 308 (4,732)
(Decrease)increase in other liabilities (885) 1,373 266
(Gain) loss on sales of assets (1,756) -- 44
------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 32,097 41,574 17,598
Investing Activities
Purchases of premises and equipment (1,505) (10,826) (1,978)
Net cash obtained in merger -- 218 --
Net change in land held for sale -- 721 80
Net change in loan balances (3,776) -- 148
Investment in subsidiaries -- (500) --
Purchase of investment securities available for sale -- (756) --
Proceeds from sale of other assets 2,260 -- 1,979
Proceeds from maturities of investment securities
available for sale -- -- 6,511
------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (3,021) (11,143) 6,740
Financing Activities
Net additions (reductions) in notes payable (677) 21,988 (4,501)
Exercise of stock options/issuance of shares 16,853 5,516 4,819
Cash in lieu of fractional shares -- -- (36)
Retirement of common stock (35,594) (27,561) (12,341)
Dividends (13,406) (7,904) (12,101)
------------------------------------------------------------------------------------------------------
Net cash used in financing activities (32,824) (7,961) (24,160)
------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (3,748) 22,470 178
Cash and cash equivalents at beginning of year 33,645 11,175 10,997
------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $29,897 $33,645 $11,175
======================================================================================================
Supplemental disclosure:
Non-cash dividend in the form of real property from
Westamerica Bank $-- $3,755 $ --
Unrealized gain on securities available for sale, net 11,904 6,126 --
Conversion of subordinated notes into common stock -- 84 184
Dividends declared, not yet paid -- -- 1,884
Capital contribution to subsidiary -- -- 741
Issuance of common stock for Auburn merger -- 13,267 --
|
* Restated on a historical basis to reflect the April 12, 1997 acquisition of ValliCorp Holdings, Inc. on a pooling-of-interests basis
Note 18: Quarterly Financial Information (Unaudited)
---------------------------------------------------------------------------------------------------------------------- (In thousands except per share data and price range of common stock) March 31,* June 30, Sept. 30, Dec. 31, ---------------------------------------------------------------------------------------------------------------------- 1997 Interest income $66,526 $67,417 $68,477 $68,250 Net interest income 44,423 45,501 46,307 46,385 Provision for loan losses 3,550 1,050 1,650 1,395 Non-interest income 9,789 9,477 8,776 8,971 Non-interest expense 36,572 49,174 26,202 25,930 Income before taxes 14,090 4,754 27,231 28,031 Net income 9,365 2,813 17,660 18,278 Basic earnings per share 0.21 0.07 0.41 0.43 Diluted earnings per share 0.21 0.07 0.40 0.42 Dividends paid per share 0.08 0.09 0.09 0.10 Price range, common stock $18.83-24.17 $19.27-25.83 $24.58-29.33 $28.54-35.00 ---------------------------------------------------------------------------------------------------------------------- 1996 * Interest income $68,596 $67,756 $67,643 $70,187 Net interest income 45,481 45,000 44,764 47,237 Provision for loan losses 3,200 2,802 3,152 3,152 Non-interest income 8,484 8,990 9,198 9,635 Non-interest expense 36,965 31,291 32,965 34,830 Income before taxes 13,800 19,897 17,845 18,890 Net income 9,360 13,108 11,903 12,456 Basic earnings per share $0.22 $0.31 $0.28 $0.29 Diluted earnings per share 0.21 0.30 0.28 0.29 Dividends paid per share 0.06 0.08 0.08 0.08 Price range, common stock $14.42-15.75 $15.33-16.75 $15.50-17.00 $16.50-19.58 ---------------------------------------------------------------------------------------------------------------------- |
* Restated on a historical basis to reflect the April 12, 1997 acquisition of ValliCorp Holdings, Inc. on a pooling-of-interest basis
On January 22, 1998, the Board of Directors of the Company authorized a three-for-one stock split of the Company's Common Stock in which every one share of the Company's Common Stock is split and converted into three shares of the Company's Common Stock. It was further resolved that the effective date of the stock split shall be February 25, 1998 with a record date of February 10, 1998. Consequently, all earnings per share and price ranges of common stock have been restated giving effect to the stock split.
NOTE 19: Acquisition
On April 12, 1997, the merger with ValliCorp Holdings, Inc. ("ValliCorp"), parent company of ValliWide Bank, became effective. At that time, the Company issued approximately 5.0 million shares of its common stock in exchange for all of the outstanding common stock of ValliCorp. The business combination was accounted for as a pooling-of-interests business combination and, accordingly, the consolidated financial statements and the financial data for the periods prior to the combination have been restated to include the accounts and results of operations of ValliCorp.
Three
months ended
March 31,
1997
(In thousands) (unaudited) 1996 1995
----------------------------------------------------------------------
Net Interest Income:
Westamerica
Bancorporation $28,787 $113,348 $115,765
ValliCorp
Holdings, Inc. 15,648 69,179 72,312
Intercompany adjustments (12) (45) --
----------------------------------------------------------------------
Combined $44,423 $182,482 $188,077
======================================================================
Net Income:
Westamerica
Bancorporation $9,954 $37,740 $31,384
ValliCorp
Holdings, Inc. (580) 9,128 11,801
Intercompany adjustments (9) (41) --
----------------------------------------------------------------------
Combined $9,365 $46,827 $43,185
======================================================================
|
On March 31, 1997 and December 31, 1996, the Company owned 115.5 thousand shares of ValliCorp Common Stock with a cost basis of approximately $1.7 million. At December 31, 1995, the Company owned 50 thousand shares with a cost basis of approximately $680 thousand. Amounts indicated have been adjusted to eliminate this investment as a result of the Merger.
There were no other significant transactions between the Company and ValliCorp prior to the combination. ValliWide Bank was engaged in the sale of overnight funds to Westamerica Bank to meet immediate funding requirements.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Westamerica Bancorporation:
We have audited the accompanying consolidated balance sheets of Westamerica Bancorporation and subsidiaries (the Company) as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. As discussed in Note 1 to the consolidated financial statements, the consolidated balance sheet of the Company as of December 31, 1996 and the related statements of income, changes in shareholders' equity, and cash flows for the years ended December 31, 1996 and 1995, and the related footnote disclosures have been restated on a historical basis to reflect the April 12, 1997 acquisition of ValliCorp Holdings, Inc. on a pooling-of-interests basis. We did not audit the financial statements of ValliCorp Holdings, Inc. as of December 31, 1996 and for the years ended December 31, 1996 and 1995, which statements reflect total assets constituting 34 percent at December 31, 1996 and net income constituting 19 percent and 27 percent for the years ended December 31, 1996 and 1995, respectively, of the related and restated consolidated totals. Those statements included in the 1996 and 1995 restated consolidated totals were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for ValliCorp Holdings, Inc., is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Westamerica Bancorporation and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1997 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP ------------------------- KPMG Peat Marwick LLP San Francisco, California January 22, 1998 |
MANAGEMENT'S LETTER OF FINANCIAL RESPONSIBILITY
To the Shareholders:
The Management of Westamerica Bancorporation is responsible for the preparation, integrity, reliability and consistency of the information contained in this annual report. The financial statements, which necessarily include amounts based on judgments and estimates, were prepared in conformity with generally accepted accounting principles and prevailing practices in the banking industry. All other financial information appearing throughout this annual report is presented in a manner consistent with the financial statements.
Management has established and maintains a system of internal controls that provides reasonable assurance that the underlying financial records are reliable for preparing the financial statements, and that assets are safeguarded from unauthorized use or loss. This system includes extensive written policies and operating procedures and a comprehensive internal audit function, and is supported by the careful selection and training of staff, an organizational structure providing for division of responsibility, and a Code of Ethics covering standards of personal and business conduct. Management believes that, as of December 31, 1997, the Corporation's internal control environment is adequate to provide reasonable assurance as to the integrity and reliability of the financial statements and related financial information contained in the annual report.
The system of internal controls is under the general oversight of the Board of Directors acting through its Audit Committee, which is comprised entirely of outside directors.
The Audit Committee monitors the effectiveness of and compliance with internal controls through a continuous program of internal audit and credit examinations. This is accomplished through periodic meetings with Management, internal auditors, loan quality examiners, regulatory examiners and independent auditors to assure that each is carrying out their responsibilities.
The Corporation's financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants elected by the shareholders. All financial records and related data, as well as the minutes of shareholders and directors meetings, have been made available to them. Management believes that all representations made to the independent auditors during their audit were valid and appropriate.
/s/ David L. Payne ------------------ David L. Payne Chairman, President and Chief Executive Officer /s/ Jennifer J. Finger ---------------------- Jennifer J. Finger Senior Vice President and Chief Financial Officer /s/ Dennis R. Hansen -------------------- Dennis R. Hansen Senior Vice President and Controller |
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Westamerica Bancorporation:
We have audited the consolidated balance sheet of ValliCorp Holdings, Inc. (the Company) and subsidiaries as of December 31, 1996, and the related consolidated statements of income, stockholders' equity, and cash flows (none of which are presented herein) for the years ended December 31, 1996 and 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. The consolidated financial statements give retroactive effect to the mergers of ValliCorp Holdings, Inc. and El Capitan Bancshares, Inc. on February 2, 1996, and ValliCorp Holdings, Inc. and CoBank Financial Corporation on March 22, 1996, which have been accounted for as poolings of interests as described in Notes A and B to the Company's consolidated financial statements. We did not audit the statements of earnings, stockholders' equity, and cash flows of El Capitan Bancshares, Inc. for the year ended December 31, 1995, which statements reflect net interest income of $6,849,000 and net earnings of $1,044,000 for the year ended December 31, 1995. Those statements were audited by other auditors whose report, dated January 19, 1996, has been furnished to us, and our opinion, insofar as it relates to the amounts included for El Capitan Bancshares, Inc. for 1995, is based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ValliCorp Holdings, Inc. and subsidiaries at December 31, 1996, and the results of their operations and their cash flows for the years ended December 31, 1996 and 1995 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP ------------------------- Deloitte & Touche LLP Fresno, California January 24, 1997 |
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors & Stockholders
El Capitan Bancshares, Inc.
We have audited the consolidated balance sheets of El Capitan Bancshares, Inc. (a California Corporation) and Subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the years then ended (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of El Capitan Bancshares, Inc. and Subsidiary as of December 31, 1995 and 1994, and the consolidated results of their operations and their consolidated cash flows for the years then ended, in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP ---------------------- Grant Thornton LLP Stockton, California January 19, 1996 |
ITEM 9. Changes in and Disagreements on Accounting and Financial Disclosure
Not applicable
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information required by this Item 10 is incorporated herein by reference from the "Election of Directors", "Executive Officers" and Section 16(a) "Beneficial Ownership Reporting Compliance" sections on Pages 2 through 7 of the Company's Proxy Statement dated March 19, 1998, which has been filed with the Commission pursuant Regulation 14A.
ITEM 11. Executive Compensation
The information required by this Item 11 is incorporated herein by reference from the "Executive Compensation" and "Other Arrangements" sections on Pages 8 through 11 of the Company's Proxy Statement dated March 19, 1998, which has been filed with the Commission pursuant to Regulation 14A.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item 12 is incorporated herein by reference from the "Security Ownership of Certain Beneficial Owners and Management" section on Pages 5 through 6 of the Company's Proxy Statement dated March 19, 1998, which has been filed with the Commission pursuant to Regulation 14A.
ITEM 13. Certain Relationships and Related Transactions
The information required by this Item 13 is incorporated herein by reference from the "Certain Information About the Board of Directors and Certain Committees of the Board - Indebtedness of Directors and Management" section on Page 4 of the Company's Proxy Statement dated March 19, 1998, which has been filed with the Commission pursuant to Regulation 14A.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. All Financial Statements
See Index to Financial Statements on page
(a) 2. Financial statement schedules required. None. (Information included in Financial Statements)
(a) 3. Exhibits The following documents are included or incorporated by reference in this annual report on Form 10-K:
Exhibit
Number
2(a) Agreement and Plan of reorganization, between and among
Westamerica Bancorporation, ValliCorp Holdings, Inc.,
and ValliWide Bank, incorporated herein by reference to
Exhibit 2.1 of Registrant's Registration Statement on
Form S-4, Commission File No. 333-17335, filed with the
Securities and Exchange Commission on December 5, 1996.
3(a) Restated Articles of Incorporation (composite copy)
3(b) By-laws *
4(a) Amended and Restated Rights Agreement - March 23, 1995
10(a) o 1995 Stock Option Plan **
10(b) o Employment Agreement with E. Joseph Bowler dated ***
January 7, 1987 (Employment)
10(c) o Employment Agreement with Robert W. Entwisle dated ***
January 7, 1987 (Employment)
10(d) Senior Note Agreement of Westamerica Bancorporation
dated February 1, 1996, of $22,000,000 at 7.11 percent
incorporated herein by reference to Exhibit 10-j of
Registrant's Annual Report of Form 10-K/A for the
fiscal year ended December 31, 1995, filed with the
Securities and Exchange Commission on May 1, 1996.
11 Computation of Earnings Per Share on common and common
equivalent shares and on common shares assuming full
dilution.
21 Subsidiaries of the registrant.
23(a) Consent of KPMG Peat Marwick LLP
23(b) Consent of Deloitte & Touche LLP
23(c) Consent of Grant Thornton LLP
(27) Financial Data Schedule
|
* Exhibit 3(b), is incorporated by reference from Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1986.
** Exhibit 10(a) is incorporated herein by reference from Form S-8 dated June 6, 1995
*** Exhibits 10(b) and 10(c) are incorporated herein by reference from Exhibits 10(n), 10(o), and 10(q) to the Company's Annual Report on Form 10-K for the year ended December 31, 1986.
o Indicates contract or compensatory plan or arrangement
The Company will furnish to shareholders a copy of any exhibit listed above, but not contained herein, upon written request to the Office of the Corporate Secretary, Westamerica Bancorporation, P.O. Box 567, San Rafael, California 94915, and payment to the Company of $.25 per page.
(b) 1. Report on Form 8-K None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WESTAMERICA BANCORPORATION
/s/ Dennis R. Hansen /s/ Jennifer J. Finger -------------------- ---------------------- Dennis R. Hansen Jennifer J. Finger Senior Vice President and Controller Senior Vice President and Principal Accounting Officer Chief Financial Officer Date: March 26, 1998 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date
indicated. Signature Title Date --------- ----- ---- /s/ David L. Payne Chairman of the Board, March 26, 1998 ---------------------------- Director, President David L. Payne and Chief Executive Officer /s/ E. Joseph Bowler Senior Vice President March 26, 1998 ---------------------------- and Treasurer E. Joseph Bowler /s/ Etta Allen Director March 26, 1998 ---------------------------- Etta Allen /s/ Louis E. Bartolini Director March 26, 1998 ---------------------------- Louis E. Bartolini /s/ Charles I. Daniels, Jr. Director March 26, 1998 ---------------------------- Charles I. Daniels, Jr. /s/ Don Emerson Director March 26, 1998 ---------------------------- Don Emerson /s/ Louis H. Herwaldt March 26, 1998 ---------------------------- Louis H. Herwaldt /s/ Arthur C. Latno Director March 26, 1998 ---------------------------- Arthur C. Latno /s/ Patrick D. Lynch Director March 26, 1998 ---------------------------- Patrick D. Lynch /s/ Catherine Cope MacMillan Director March 26, 1998 ---------------------------- Catherine Cope MacMillan /s/ Patrick J. Mon Pere Director March 26, 1998 ---------------------------- Patrick J. Mon Pere /s/ Ronald A. Nelson Director March 26, 1998 ---------------------------- Ronald A. Nelson /s/ Carl Otto Director March 26, 1998 ---------------------------- Carl Otto /s/ Michael J. Ryan, Jr. Director March 26, 1998 ---------------------------- Michael J. Ryan, Jr. /s/ Edward B. Sylvester Director March 26, 1998 ---------------------------- Edward B. Sylvester |
EXHIBIT 3(a)
RESTATED ARTICLES OF INCORPORATION
OF
WESTAMERICA BANCORPORATION
Richard N. Hall and M. Kitty Jones hereby certify that:
1. They are the President and the Secretary, respectively of Westamerica Bancorporation, a California corporation.
2. The articles of incorporation of this Corporation are restated to read in full as set forth in Exhibit A attached hereto and incorporated herein by this reference.
3. The foregoing restatement of articles of incorporation has been duly approved by the Board of Directors.
4. The foregoing restatement of articles of incorporation may be adopted with the approval of the Board of Directors alone, without the approval of the outstanding shares, pursuant to Sections 910 of the California Corporations Code since it does not itself alter or amend the articles in any respect.
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Executed in San Rafael, California on the date indicated below.
Dated: April 25, 1985
/s/ Richard N. Hall
Richard N. Hall, President
/s/ M. Kitty Jones
M. Kitty Jones, Secretary
|
EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
OF
WESTAMERICA BANCORPORATION
Article I. Name.
The name of the Corporation is WESTAMERICA BANCORPORATION.
Article II. Purposes.
The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated by the California Corporations Code.
Article III. Capital.
1. Capitalization. This Corporation is authorized to issue three classes of shares designated "Common Stock", "Class B Common Stock" and "Preferred Stock", respectively. The number of shares of Common Stock authorized to be issued is 4,000,000, the number of shares of Class B Common Stock authorized to be issued is 1,000,000, and the number of shares of preferred Stock authorized to be issued is 1,000,000. The Board of Directors may determine, fix, alter, or revoke by resolution the rights, preferences, privileges, and restrictions of any wholly unissued class or series of shares other than the Common Stock, and the series designation and number of shares to constitute any series (which number may thereafter in the same manner be increased or decreased, but not below the number of shares of such series then outstanding), and a certificate of determination shall then be filed with the California Secretary of State.
2. Voting Rights. Each holder of Common Stock shall be entitled to vote on all matters one vote for each share of Common Stock held by him, provided, that in all elections of Directors, each holder of Common Stock shall have the right to vote the votes allocated to the number of shares owned by him for as many persons as there are Directors to be elected, or to cumulate such votes and give one candidate as many votes as the number of Directors to be elected multiplied by the number of votes allocable to his shares shall equal, or to distribute such votes on the same principle among as many candidates as he shall think fit. Except as otherwise provided by law or by the Board of Directors pursuant to the provisions of paragraph 1 of this Article III, the holders of Class B Common Stock or Preferred Stock, or any series thereof, shall have no voting rights.
Article IV. Amended Corporations Code.
This Corporation elects to be governed by all of the provisions of the General Corporation Law effective January 1, 1977, not otherwise applicable to it under Chapter 23 thereof.
Article V. Special Shareholder Approval Requirements.
1. Definition of "Interested Person." For purposes of this Article, "Interested Person" means a person, firm, corporation, or other entity which is the beneficial owner of at least ten (10%) percent of the outstanding shares of this Corporation's Common Stock.
2. Greater Than Majority Vote Required For Certain Corporate Actions Involving Interested Persons. Subject to the exceptions set forth in Section 3 below, the affirmative vote of eighty (80%) percent of the outstanding shares of this Corporation's Common Stock will be required to authorize any of the following transactions between this Corporation and an Interested Person:
a. a merger or consolidation with an Interested Person; or
b. the sale or other disposition by this Corporation of all or any substantial part of its assets to an Interested person; or
c. the purchase or other acquisition by this Corporation of all or any substantial part of the assets of an Interested Person; or
d. any other transaction with an Interested Person which requires the approval of this Corporation's shareholders under the California Corporations Code.
3. Exceptions to Special Approval Requirements. The special approval requirements set forth in Section 2 above shall be inapplicable in the following cases:
a. the transaction was approved by the Board of Directors of this Corporation prior to the time that the person, firm, corporation, or other entity became an Interested Person; or
b. the transaction was approved by the Board of Directors of this Corporation after the time that the person, firm, corporation, or other entity became an Interested Person where both of the following conditions have been fulfilled:
(1) a majority of the directors at the time that the person, firm, corporation, or other entity became an Interested Person voted in favor of the transaction; and
(2) in such transaction the cash, or fair market value of other consideration as valued by the Board of Directors of this Corporation as of the date of its approval of the transaction, to be received by the shareholders of this Corporation is not less per share than the highest price per share (including brokerage commissions and/or soliciting dealers' fees) paid by the Interested Person for any shares of the same class of stock in this Corporation from the time that the Interested Person had obtained a beneficial ownership in excess of five (5%) percent of the outstanding shares of this Corporation's Common Stock.
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
RICHARD N. HALL and M. KITTY JONES hereby certify that:
1. They are the President and the Secretary, respectively, of WESTAMERICA BANCORPORATION, a California corporation;
2. Paragraph 1 of Article III of the Restated Articles of Incorporation of this Corporation is amended to read as follows:
1. Capitalization. This corporation is authorized to issue three classes of shares designated "Common Stock," "Class B Common Stock" and "Preferred Stock," respectively. The number of shares of Common Stock authorized to be issued is 10,000,000, the number of shares of Class B Common Stock authorized to be issued is 1,000,000, and the number of shares of Preferred Stock authorized to be issued is 1,000,000. The Board of Directors may determine, fix, alter, or revoke by resolution the rights, preferences, privileges, and restrictions of any wholly unissued class or series of shares other than the Common Stock, and the series designation and number of shares to constitute any series (which number may thereafter in the same manner be increased or decreased, but not below the number of shares of such series then outstanding), and a certificate of determination shall then be filed with the California Secretary of State.
3. The foregoing amendment of the Restated Articles of Incorporation has been duly approved by the Board of Directors.
4. The foregoing amendment of the Restated Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the California Corporations Code. The Corporation has only one class of shares, Common Stock, outstanding, and the total number of such outstanding shares is 2,506,165. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Executed in San Rafael, California on the date indicated below.
Dated: April 15, 1986
/s/ Richard N. Hall
Richard N. Hall, President
/s/ M. Kitty Jones
M. Kitty Jones, Secretary
|
CERTIFICATE OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
Richard N. Hall and M. Kitty Jones certify that:
1. They are the President and the Secretary, respectively, of WESTAMERICA BANCORPORATION (the "Corporation"), a California corporation;
2. So much of Article III of the Restated Articles of Incorporation of the Corporation as now reads "The number of shares of Common Stock authorized to be issued is 10,000,000, the number of shares of Class B Common Stock authorized to be issued is 1,000,000, and the number of shares of Preferred Stock authorized to be issued is 1,000,000," is amended to read: "The number of shares of Common Stock authorized to be issued is 20,000,000, the number of shares of Class B Common Stock authorized to be issued is 1,000,000, and the number of shares of Preferred Stock authorized to be issued is 1,000,000. Upon the effectiveness of this Amendment to read as herein set forth, each outstanding share of Common Stock is split and converted into (2) two shares of Common Stock."
3. The foregoing amendment of articles of incorporation has been duly approved by the board of directors.
4. The foregoing amendment of articles of incorporation effects only a stock split (including an increase in the authorized number of shares of Common Stock in proportion thereto) and the Corporation has only one class of shares outstanding. Accordingly, the foregoing amendment may be adopted by approval of the board alone pursuant to Section 902 of the California Corporations Code.
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.
Dated: May 12, 1987
/s/ Richard N. Hall
Richard N. Hall, President
/s/ M. Kitty Jones
M. Kitty Jones, Secretary
|
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
DAVID L. PAYNE and M. KITTY JONES hereby certify that:
1. They are the Chairman of the Board and the Secretary, respectively, of WESTAMERICA BANCORPORATION, a California corporation;
2. The Restated Articles of Incorporation of this Corporation are amended by the addition of Article VI, Article VII and Article VIII, which are set forth in full below:
Article VI. Director Liability
The liability of the directors of the Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law.
Article VII. Indemnification
The Corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject to the applicable limits as set forth in Section 204 of the California Corporations Code with respect to actions for breach of duty to the Corporation and its shareholders. The Corporation is further authorized to provide insurance for agents as set forth in Section 317 of the California Corporations Code provided that, in cases where the Corporation owns all or a portion of the shares of the company issuing the insurance policy, the company and/or the policy must meet one of the two sets of conditions set forth in Section 317, as amended.
Article VIII. Effect of Future Amendments.
Any repeal or modification of the foregoing provisions of Articles VI or VII by the shareholders of this Corporation shall not adversely affect any right or protection of an agent of this Corporation existing at the time of such repeal or modification.
3. The foregoing amendment of the Restated Articles of Incorporation has been duly approved by the Board of Directors.
4. The foregoing amendment of the Restated Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the California Corporations Code. The Corporation has only one class of shares, Common Stock outstanding, and the total number of such outstanding shares is 5,117,057. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Executed in San Rafael, California on the date indicated below.
Date: April 19, 1988
/s/ David L. Payne
David L. Payne, Chairman of the
Board
/s/ M. Kitty Jones
M. Kitty Jones, Secretary
|
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, dated as of April 15, 1993 (this "Agreement of Merger"), is made and entered into by and between NAPA VALLEY BANCORP, a California corporation ("Napa"), and WESTAMERICA BANCORPORATION, a California corporation ("Westamerica").
W I T N E S S E T H:
A. The Boards of Directors of Westamerica and Napa have approved, and deem it advisable and in the best interests of Westamerica, Napa and their respective shareholders, that Westamerica and Napa consummate the business transaction provided for herein in which Napa would merge with and into Westamerica (the "Merger").
B. Westamerica and Napa have entered into an Agreement and Plan of Merger, dated as of July 27, 1992 (the "Agreement"), providing, among other things, for the execution and filing of this Agreement of Merger and the consummation of the Merger.
NOW, THEREFORE, in consideration of the promises and mutual agreements contained in this Agreement of Merger, the parties to this Agreement of Merger hereby agree that Napa shall be merged with and into Westamerica in accordance with the provisions of the laws of the State of California upon the terms and subject to the conditions set forth as follows:
1. The Merger.
1.1 Effective Time. The Merger shall become effective as of 8:00 P.M. upon the date of filing (the "Effective Date") with the California Secretary of State of a duly executed counterpart of this Agreement of Merger with the officers' certificates prescribed by Section 1103 of the California General Corporation Law attached thereto.
1.2 Effect of the Merger. On the Effective Date, Napa shall be merged with and into Westamerica and the separate corporate existence of Napa shall cease. Westamerica shall be the surviving corporation (the "Surviving Corporation") in the Merger. It shall thereupon succeed, without other transfer, to all rights and properties of, and shall be subject to all the debts and liabilities of, Napa and the separate existence of Westamerica as a California corporation, with all its purposes, objects, rights, powers, privileges and franchises shall continue unaffected and unimpaired by the Merger.
2. Corporate Governance Matters.
2.1 From and after the Effective Date and until thereafter amended as provided by law: (a) the Articles of Incorporation of Westamerica as in effect immediately prior to the Effective Date shall be and continue to be the Articles of Incorporation of the Surviving Corporation; and (b) the Bylaws of Westamerica as in effect immediately prior to the Effective Date shall be and continue to be the Bylaws of the Surviving Corporation.
2.2 On the Effective Date: (a) the directors of the Surviving Corporation shall be those persons who are the directors of Westamerica immediately prior to the Effective Date; and (b) the officers of the Surviving Corporation shall be those persons who are the officers of Westamerica at the Effective Date. Additional members of the Board of Directors and officers of the Surviving Corporation may be elected or appointed subsequent to the Effective Date pursuant to the terms of the Agreement and in accordance with the Bylaws of the Surviving Corporation. Such directors and officers shall continue to hold office from and after the Effective Date until they shall have resigned or shall have been legally removed or until their respective successors shall have been elected and qualified. Removal and replacement of such directors and officers, subject to any contractual rights they may have, shall be governed by the Bylaws of the Surviving Corporation and the General Corporation Law of the State of California. If, at the Effective Date, a vacancy shall exist on the Board of Directors or in the officers of Westamerica, such vacancy may be filled in the manner provided in the Bylaws of the Surviving Corporation.
3. Manner of Converting Shares.
3.1 Conversion of Napa Shares. As of the Effective Date, by virtue of the Merger and without any action on the part of the holder of any shares of common stock, without par value, of Napa (a "Napa Share" or "Napa Common Stock"):
(a) Cancellation of Napa-Owned Stock. All shares of Napa Common Stock that are owned by Westamerica or any wholly-owned Subsidiary of Westamerica (other than shares in trust accounts, managed accounts, custodial accounts and the like that are beneficially owned by third parties (any such shares "trust account shares")) shall be cancelled and retired and shall cease to exist and no stock of Westamerica or other consideration shall be delivered in exchange therefore. As used in this Agreement of Merger, the word "Subsidiary" when used with respect to any party means any corporation or other organization, whether incorporated or unincorporated, of which such party or any other Subsidiary of such party is a general partner or of which at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party and/or by any one or more of its Subsidiaries.
(b) Each outstanding Napa Share (other than any fractional shares, Napa Common Stock to be cancelled in accordance with Section 3.1(a), and shares as to which dissenters' rights have been perfected) shall be converted into the right to receive .6323 shares of the common stock, without par value, of Westamerica ("Westamerica Common Stock" or a "Westamerica Share").
From and after the Effective Date, the holders of certificates formerly representing shares of Napa Common Stock shall cease to have any rights with respect thereto other than any dissenters' rights they have perfected pursuant to Chapter 13 of the California General Corporation Law.
3.2 Fractional Shares. Notwithstanding any other provision hereof, no fractional shares of Westamerica Common Stock shall be issued to holders of Napa Common Stock. In lieu thereof, each such holder entitled to a fraction of a share of Westamerica Common Stock shall receive, at the time of surrender of the certificate or certificates representing such holder's Napa Common Stock, an amount in cash equal to the market value per share of the Common Stock of Westamerica, calculated by taking the average of the closing price quoted on the American Stock Exchange, as reported in The Wall Street Journal, for each of the twenty-five trading days immediately preceding the Effective Date (whether or not there were any trades in Westamerica Common Stock on such days), multiplied by the fraction of a share of Westamerica Common Stock to which such holder otherwise would be entitled. No such holder shall be entitled to dividends, voting rights, interest on the value of, or any other rights in respect of, a fractional share.
3.3 Surrender of Napa Shares.
(a) Prior to the Effective Date, Westamerica shall appoint
Chemical Trust Company of California or its successor, or any other bank
or trust company (having capital of at least $50 million) mutually
acceptable to Napa and Westamerica, as exchange agent (the "Exchange
Agent") for the purpose of exchanging certificates representing the
Westamerica Common Stock and at and after the Effective Date,
Westamerica shall issue and deliver to the Exchange Agent certificates
representing the Westamerica Common Stock, as shall be required to be
delivered to holders of Napa Common Stock pursuant to Section 3.1 of
this Agreement of Merger. As soon as practicable after the Effective
Date, each holder of Napa Common Stock converted pursuant to
Section 3.1, upon surrender to the Exchange Agent of one or more
certificates for such Napa Common Stock for cancellation, will be
entitled to receive a certificate representing the number of shares of
Westamerica Common Stock determined in accordance with Section 3.1 and
a payment in cash with respect to fractional shares, if any, determined
in accordance with Section 3.2. Each certificate representing
Westamerica Common Stock will bear a notation incorporating the Amended
Rights Agreement (as that term is defined in Section 5(l) of the
Agreement) by reference and certificates representing the Westamerica
Common Stock will evidence and entitle the holders thereof to certain
Rights as set forth in and subject to the terms of the Amended Rights
Agreement ("Rights"). Certificates issued for the Westamerica Common
Stock shall be deemed to be certificates for the Rights.
(b) No dividends or other distributions of any kind which are declared payable to shareholders of record of the Westamerica Common Stock after the Effective Date will be paid to persons entitled to receive such certificates for Westamerica Common Stock until such persons surrender their certificates representing Napa Common Stock. Upon surrender of such certificates representing Napa Common Stock, the holder thereof shall be paid, without interest, any dividends or other distributions with respect to the Westamerica Common Stock as to which the record date and payment date occurred on or after the Effective Date and on or before the date of surrender.
(c) If any certificate for a Westamerica Share is to be issued in a name other than that in which the certificate for a Napa Share surrendered in exchange therefor is registered, it shall be a condition of such exchange that the person requesting such exchange shall pay to the Exchange Agent any transfer costs, taxes or other expenses required by reason of the issuance of certificates for such Westamerica Share in a name other than the registered holder of the certificate surrendered, or such persons shall establish to the satisfaction of Westamerica and the Exchange Agent that such costs, taxes or other expenses have been paid or are not applicable.
(d) All dividends or distributions, and any cash to be paid pursuant to Section 3.2 in lieu of fractional shares, if held by the Exchange Agent for payment or delivery to the holders of unsurrendered certificates representing Napa Common Stock and unclaimed at the end of one year from the Effective Date, shall (together with any interest earned thereon) at such time be paid or redelivered by the Exchange Agent to Westamerica, and after such time any holder of a certificate representing Napa Common Stock who has not surrendered such certificate to the Exchange Agent shall, subject to applicable law, look as a general creditor only to Westamerica for payment or delivery of such dividends or distributions or cash, as the case may be. Westamerica shall not be liable to any holder of shares of Napa Common Stock for such shares (or dividends or distributions with respect thereto) delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.
4. Termination and Amendment.
4.1 The obligations of the parties to effect the Merger shall be subject to all the terms and conditions contained in the Agreement. Notwithstanding the approval of this Agreement of Merger by the respective shareholders of Napa and Westamerica, this Agreement of Merger shall terminate forthwith in the event that the Agreement shall be terminated as therein provided.
4.2 This Agreement of Merger may be amended by Westamerica and Napa at any time prior to the Effective Date without the approval of the shareholders of Westamerica and the shareholders of Napa with respect to any of its terms except the terms relating to the form or amount of consideration to be delivered to the Napa shareholders in the Merger. This Agreement of Merger may not be amended, except by an instrument in writing signed on behalf of each of the parties hereto.
4.3 This Agreement of Merger may be signed in any number of counterparts, each of which shall be deemed an original, and all of which shall be deemed but one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement of Merger as of the date first written above.
WESTAMERICA BANCORPORATION
By /s/ David L. Payne DAVID L. PAYNE, President By /s/ M. Kitty Jones M. KITTY JONES, Secretary NAPA VALLEY BANCORP By /s/ Bryan C. Hansen BRYAN C. HANSEN, President By /s/ Robert H. Zeller ROBERT H. ZELLER, Secretary |
OFFICERS' CERTIFICATE
David L. Payne and M. Kitty Jones certify that:
1. They are the President and Secretary, respectively, of WESTAMERICA BANCORPORATION, a corporation organized under the laws of the State of California.
2. The Agreement of Merger in the form attached was duly approved by the Board of Directors and shareholders of the corporation.
3. The shareholder approval was by the holders of a number of outstanding shares of common stock which equaled or exceeded the vote required.
4. There are only two classes of shares, common stock and preferred stock, and the number of shares of common stock outstanding is 5,891,589 and there are no outstanding shares of preferred stock.
/s/ David L. Payne DAVID L. PAYNE, President /s/ M. Kitty Jones M. KITTY JONES, Secretary |
The undersigned declare under penalty of perjury under the laws of
the State of California that they have read the foregoing certificate
and know the contents thereof and that the same is true of their own
knowledge. Executed at San Rafael, Marin County, California on
April 14, 1993.
/s/ David L. Payne DAVID L. PAYNE /s/ M. Kitty Jones M. KITTY JONES |
OFFICERS' CERTIFICATE
Bryan C. Hansen and Robert H. Zeller certify that:
1. They are the President and Secretary, respectively, of NAPA VALLEY BANCORP, a corporation organized under the laws of the State of California.
2. The Agreement of Merger in the form attached was duly approved by the Board of Directors and shareholders of the corporation.
3. The shareholder approval was by the holders of a number of outstanding shares of common stock which equaled or exceeded the vote required.
4. There are only two classes of shares, common stock and preferred stock, and the number of shares of common stock outstanding is 3,520,226 and there are no outstanding shares of preferred stock.
/s/ Bryan C. Hansen BRYAN C. HANSEN, President /s/ Robert H. Zeller ROBERT H. ZELLER, Secretary |
The undersigned declare under penalty of perjury under the laws of the State of California that they have read the foregoing certificate and know the contents thereof and that the same is true of their own knowledge. Executed at Napa, Napa County, California on April 14, 1993.
/s/ Bryan C. Hansen BRYAN C. HANSEN /s/ Robert H. Zeller ROBERT H. ZELLER |
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, dated as of January 27, 1995 (this "Merger Agreement"), is made and entered into by and between PV FINANCIAL, a California corporation ("PV Financial") and WESTAMERICA BANCORPORATION, a California corporation ("Westamerica").
W I T N E S S E T H:
A. The Boards of Directors of Westamerica and PV Financial have approved, and deem it advisable and in the best interests of Westamerica, PV Financial and their respective shareholders, that Westamerica and PV Financial consummate the business transaction provided for herein in which PV Financial would merge with and into Westamerica (the "Merger").
B. Westamerica and PV Financial have entered into an Agreement and Plan of Reorganization, dated as of July 25, 1994 (the "Agreement"), providing, among other things, for the execution and filing of this Merger Agreement and the consummation of the Merger.
NOW, THEREFORE, in consideration of the promises and mutual agreements contained in this Merger Agreement, the parties to this Merger Agreement hereby agree that PV Financial shall be merged with and into Westamerica in accordance with the provisions of the laws of the State of California upon the terms and subject to the conditions set forth as follows:
1. The Merger.
1.1 Effective Time. On January 31, 1995 and upon the filing with the California Secretary of State of a duly executed counterpart of this Merger Agreement with the officers' certificates prescribed by Section 1103 of the California General Corporation Law attached thereto ("Effective Date") the Merger shall become effective. The effective time of the Merger on the Effective Date shall be 5:00 p.m.
1.2 Effect of the Merger. On the Effective Date, PV Financial shall be merged with and into Westamerica and the separate corporate existence of PV Financial shall cease. Westamerica shall be the surviving corporation (the "Surviving Corporation") in the Merger. It shall thereupon succeed, without other transfer, to all rights and properties of, and shall be subject to all the debts and liabilities of, PV Financial and the separate existence of Westamerica as a California corporation, with all its purposes, objects, rights, powers, privileges and franchises shall continue unaffected and unimpaired by the Merger.
2. Corporate Governance Matters.
2.1 From and after the Effective Date and until thereafter amended as provided by law: (a) the Articles of Incorporation of Westamerica as in effect immediately prior to the Effective Date shall be and continue to be the Articles of Incorporation of the Surviving Corporation; and (b) the Bylaws of Westamerica as in effect immediately prior to the Effective Date shall be and continue to be the Bylaws of the Surviving Corporation.
2.2 On the Effective Date: (a) the directors of the Surviving Corporation shall be those persons who are the directors of Westamerica immediately prior to the Effective Date; and (b) the officers of the Surviving Corporation shall be those persons who are the officers of Westamerica at the Effective Date. Additional members of the Board of Directors and officers of the Surviving Corporation may be elected or appointed subsequent to the Effective Date pursuant to the terms of the Agreement and in accordance with the Bylaws of the Surviving Corporation. Such directors and officers shall continue to hold office from and after the Effective Date until they shall have resigned or shall have been legally removed or until their respective successors shall have been elected and qualified. Removal and replacement of such directors and officers, subject to any contractual rights they may have, shall be governed by the Bylaws of the Surviving Corporation and the General Corporation Law of the State of California. If, at the Effective Date, a vacancy shall exist on the Board of Directors or in the officers of Westamerica, such vacancy may be filled in the manner provided in the Bylaws of the Surviving Corporation.
3. Conversion of Shares.
3.1 Conversion of PV Financial Shares. As of the Effective Date, by virtue of the Merger and without any action on the part of the holder of any common stock of PV Financial (a "PV Financial Share" or "PV Financial Common Stock"):
(a) Each issued and outstanding PV Financial Share (other than fractional shares, or any shares as to which dissenters' rights have been perfected) shall be converted into .5348 shares of the common stock, without par value, of Westamerica ("Westamerica Common Stock" or a "Westamerica Share").
(b) From and after the Effective Date, the holders of certificates formerly representing PV Financial Shares shall cease to have any rights with respect thereto other than any dissenters' rights they have perfected pursuant to Chapter 13 of the California General Corporation Law.
3.2 Fractional Shares. Notwithstanding any other provision hereof, no fractional shares of Westamerica Common Stock shall be issued to holders of PV Financial Shares. In lieu thereof, each such holder entitled to a fraction of a share of Westamerica Common Stock shall receive, at the time of surrender of the certificate or certificates representing such holder's PV Financial Shares, an amount in cash equal to the market value per share of the Common Stock of Westamerica, calculated by taking the average of the closing price quoted on the Nasdaq, as reported in The Wall Street Journal, for each of the twenty consecutive trading days prior to two business days prior to the Effective Date, rounded to 4 decimal places, (whether or not there were any trades in Westamerica Common Stock on such days), multiplied by the fraction of a share of Westamerica Common Stock to which such holder otherwise would be entitled. No such holder shall be entitled to dividends, voting rights, interest on the value of, or any other rights in respect of, a fractional share.
3.3 Surrender of PV Financial Shares.
(a) Prior to the Effective Date, Westamerica shall appoint
Chemical Trust Company of California or its successor, or any other bank
or trust company (having capital of at least $50 million) mutually
acceptable to PV Financial and Westamerica, as exchange agent (the
"Exchange Agent") for the purpose of exchanging certificates
representing the Westamerica Common Stock and at and after the Effective
Date, Westamerica shall issue and deliver to the Exchange Agent
certificates representing the Westamerica Common Stock, as shall be
required to be delivered to holders of PV Financial Shares pursuant to
Section 3.1 of this Merger Agreement. As soon as practicable after the
Effective Date, each holder of PV Financial Shares converted pursuant
to Section 3.1, upon surrender to the Exchange Agent of one or more
certificates for such PV Financial Shares for cancellation, will be
entitled to receive a certificate representing the number of shares of
Westamerica Common Stock determined in accordance with Section 3.1 and
a payment in cash with respect to fractional shares, if any, determined
in accordance with Section 3.2. Each certificate representing
Westamerica Common Stock will bear a notation incorporating the Amended
Rights Agreement (as that term is defined in Section 5(o) of the
Agreement) by reference and certificates representing the Westamerica
Common Stock will evidence and entitle the holders thereof to certain
rights as set forth in and subject to the terms of the Amended Rights
Agreement ("Rights"). Certificates issued for the Westamerica Common
Stock shall be deemed to be certificates for said Rights.
(b) No dividends or other distributions of any kind which are declared payable to shareholders of record of the Westamerica Common Stock after the Effective Date will be paid to persons entitled to receive such certificates for Westamerica Common Stock until such persons surrender their certificates representing PV Financial Shares. Upon surrender of such certificates representing PV Financial Shares, the holder thereof shall be paid, without interest, any dividends or other distributions with respect to the Westamerica Common Stock as to which the record date and payment date occurred on or after the Effective Date and on or before the date of surrender.
(c) If any certificate for a Westamerica Share is to be issued in a name other than that in which the certificate for a PV Financial Share surrendered in exchange therefor is registered, it shall be a condition of such exchange that the person requesting such exchange shall pay to the Exchange Agent any transfer costs, taxes or other expenses required by reason of the issuance of certificates for such Westamerica Share in a name other than the registered holder of the certificate surrendered, or such persons shall establish to the satisfaction of Westamerica and the Exchange Agent that such costs, taxes or other expenses have been paid or are not applicable.
(d) All dividends or distributions, and any cash to be paid pursuant to Section 3.2 in lieu of fractional shares, if held by the Exchange Agent for payment or delivery to the holders of unsurrendered certificates representing PV Financial Shares and unclaimed at the end of one year from the Effective Date, shall (together with any interest earned thereon) at such time be paid or redelivered by the Exchange Agent to Westamerica, and after such time any holder of a certificate representing a PV Financial Share who has not surrendered such certificate to the Exchange Agent shall, subject to applicable law, look as a general creditor only to Westamerica for payment or delivery of such dividends or distributions or cash, as the case may be. Westamerica shall not be liable to any holder of a share of PV Financial Common Stock for such share (or dividends or distributions with respect thereto) delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.
3.4 All shares of Westamerica Common Stock shall remain outstanding and unaffected by the Merger.
4. Termination and Amendment.
4.1 The obligations of the parties to effect the Merger shall be subject to all the terms and conditions contained in the Agreement. Notwithstanding the approval of this Merger Agreement by the shareholders of PV Financial, this Merger Agreement shall terminate forthwith in the event that the Agreement shall be terminated as therein provided.
4.2 This Merger Agreement may be amended by Westamerica and PV Financial at any time prior to the Effective Date without the approval the shareholders of PV Financial with respect to any of its terms except the terms relating to the form or amount of consideration to be delivered to the PV Financial shareholders in the Merger. This Merger Agreement may not be amended, except by an instrument in writing signed on behalf of each of the parties hereto.
4.3 This Merger Agreement may be signed in any number of counterparts, each of which shall be deemed an original, and all of which shall be deemed but one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Merger Agreement as of the date first written above.
JANUARY 27, 1995
WESTAMERICA BANCORPORATION
By /s/ David L. Payne DAVID L. PAYNE, President By /s/ Mary Ann Bell MARY ANN BELL, Assistant Corporate Secretary |
PV FINANCIAL
By /s/ Robert J. Cardoza ROBERT J. CARDOZA, President By /s/ Sylvia J. Rudy SYLVIA J. RUDY, Secretary |
OFFICERS' CERTIFICATE
Robert J. Cardoza and Sylvia J. Rudy hereby certify that:
1. They are the President and Secretary, respectively, of PV FINANCIAL, a corporation organized under the laws of the State of California.
2. The Merger Agreement in the form attached was duly approved by the Board of Directors and shareholders of the corporation.
3. The shareholder approval was by the holders of a number of outstanding shares which equaled or exceeded the vote required. The percentage vote required was more than 50% of the outstanding shares.
4. There is only one class of shares and the number of shares outstanding is 2,202,990.
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.
Date: January 19, 1995
/s/ Robert J. Cardoza
ROBERT J. CARDOZA, President
/s/ Sylvia J. Rudy
SYLVIA J. RUDY, Secretary
|
OFFICERS' CERTIFICATE
David L. Payne and Mary Ann Bell hereby certify that:
1. They are the President and Assistant Corporate Secretary, respectively, of WESTAMERICA BANCORPORATION, a corporation organized under the laws of the State of California.
2. The Merger Agreement in the form attached was duly approved by the Board of Directors of the corporation.
3. The Merger Agreement was entitled to be and was approved by the Board of Directors alone under the provisions of Section 1201 of the California General Corporation Law.
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.
Date: January 18, 1995
/s/ David. L. Payne
DAVID L. PAYNE, President
/s/ Mary Ann Bell
MARY ANN BELL, Assistant
Corporate Secretary
|
CERTIFICATE OF AMENDMENT
OF RESTATED ARTICLES OF INCORPORATION OF
WESTAMERICA BANCORPORATION
David L. Payne and Mary Anne Bell certify that:
1. They are the president and the assistant corporate secretary, respectively, of WESTAMERICA BANCORPORATION, a California corporation (the "Corporation").
2. Paragraph 1. of Article III of the Restated Articles of Incorporation is hereby amended to read as follows:
1. Capitalization. This corporation is authorized to issue three classes of shares designated "Common Stock", "Class B Common Stock" and "Preferred Stock", respectively. The number of shares of Common Stock authorized to be issued is 50,000,000, the number of shares of Class B Common Stock authorized to be issued is 1,000,000 and the number of shares of Preferred Stock authorized to be issued is 1,000,000. The Preferred Stock and Class B Common Stock may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and Class B Common Stock and to determine the designation of any such series. The Board of Directors is also authorized to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock or Class B Common Stock, and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series.
3. The amendment herein set forth has been duly approved by the unanimous written consent of the board of directors.
4. The amendment herein set forth has been duly approved by the required vote of the shareholders in accordance with Sections 902 and 903 of the Corporations Code. The total number of outstanding shares of Common Stock of the Corporation is 9,237,141. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required for the approval of the amendment herein set forth was more than 50%.
IN WITNESS WHEREOF, the undersigned have executed this certificate on May 26, 1995.
/s/ David L. Payne David L. Payne, President /s/ Mary Anne Bell Mary Anne Bell, Assistant Corporate Secretary |
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.
Dated: May 26, 1995.
/s/ David L. Payne
David L. Payne, President
/s/ Mary Anne Bell
Mary Anne Bell, Assistant
Corporate Secretary
|
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, dated as of June 28, 1995 (this "Merger Agreement"), is made and entered into by and between NORTH BAY BANCORP, a California corporation ("North Bay Bancorp") and WESTAMERICA BANCORPORATION, a California corporation ("Westamerica").
W I T N E S S E T H:
A. The Boards of Directors of Westamerica and North Bay Bancorp have approved, and deem it advisable and in the best interests of Westamerica, North Bay Bancorp and their respective shareholders, that Westamerica and North Bay Bancorp consummate the business transaction provided for herein in which North Bay Bancorp would merge with and into Westamerica (the "Merger").
B. Westamerica, North Bay Bancorp and Novato National Bank, a national banking association and a wholly owned subsidiary of North Bay Bancorp have entered into an Agreement and Plan of Reorganization, dated as of December 8, 1994 (the "Agreement"), providing, among other things, for the execution and filing of this Merger Agreement and the consummation of the Merger.
NOW, THEREFORE, in consideration of the promises and mutual agreements contained in this Merger Agreement, the parties to this Merger Agreement hereby agree that North Bay Bancorp shall be merged with and into Westamerica in accordance with the provisions of the laws of the State of California upon the terms and subject to the conditions set forth as follows:
1. The Merger.
1.1 Effective Time. On July 17, 1995 and upon the filing with the California Secretary of State of a duly executed counterpart of this Merger Agreement with the officers' certificates prescribed by Section 1103 of the California General Corporation Law attached thereto ("Effective Date") the Merger shall become effective. The effective time of the Merger on the Effective Date shall be 5:00 p.m.
1.2 Effect of the Merger. On the Effective Date, North Bay Bancorp shall be merged with and into Westamerica and the separate corporate existence of North Bay Bancorp shall cease. Westamerica shall be the surviving corporation (the "Surviving Corporation") in the Merger. It shall thereupon succeed, without other transfer, to all rights and properties of, and shall be subject to all the debts and liabilities of, North Bay Bancorp and the separate existence of Westamerica as a California corporation, with all its purposes, objects, rights, powers, privileges and franchises shall continue unaffected and unimpaired by the Merger.
2. Corporate Governance Matters.
2.1 From and after the Effective Date and until thereafter amended as provided by law: (a) the Articles of Incorporation of Westamerica as in effect immediately prior to the Effective Date shall be and continue to be the Articles of Incorporation of the Surviving Corporation; and (b) the Bylaws of Westamerica as in effect immediately prior to the Effective Date shall be and continue to be the Bylaws of the Surviving Corporation.
2.2 On the Effective Date: (a) the directors of the Surviving Corporation shall be those persons who are the directors of Westamerica immediately prior to the Effective Date; and (b) the officers of the Surviving Corporation shall be those persons who are the officers of Westamerica at the Effective Date. Additional members of the Board of Directors and officers of the Surviving Corporation may be elected or appointed subsequent to the Effective Date pursuant to the terms of the Agreement and in accordance with the Bylaws of the Surviving Corporation. Such directors and officers shall continue to hold office from and after the Effective Date until they shall have resigned or shall have been legally removed or until their respective successors shall have been elected and qualified. Removal and replacement of such directors and officers, subject to any contractual rights they may have, shall be governed by the Bylaws of the Surviving Corporation and the General Corporation Law of the State of California. If, at the Effective Date, a vacancy shall exist on the Board of Directors or in the officers of Westamerica, such vacancy may be filled in the manner provided in the Bylaws of the Surviving Corporation.
3. Manner of Common Stock of North Bay Bancorp.
3.1 Conversion of North Bay Bancorp Shares. As of the Effective Date, by virtue of the Merger and without any action on the part of the holder of any common stock of North Bay Bancorp (a "North Bay Bancorp Share" or "North Bay Bancorp Common Stock"):
(a) Each issued and outstanding North Bay Bancorp Share (other than any shares as to which dissenters' rights have been perfected) shall be converted into 0.2958 shares of the common stock, without par value, of Westamerica ("Westamerica Common Stock" or a "Westamerica Share").
(b) From and after the Effective Date, the holders of certificates formerly representing North Bay Bancorp Shares shall cease to have any rights with respect thereto other than any dissenters' rights they have perfected pursuant to Chapter 13 of the California General Corporation Law.
3.2 Fractional Shares. Notwithstanding any other provision hereof, no fractional shares of Westamerica Common Stock shall be issued to holders of North Bay Bancorp Shares. In lieu thereof, each such holder entitled to a fraction of a share of Westamerica Common Stock shall receive, at the time of surrender of the certificate or certificates representing such holder's North Bay Bancorp Shares, an amount in cash equal to the market value per share of the Westamerica Common Stock, calculated by taking the average of the closing price quoted on the Nasdaq, as reported in The Wall Street Journal, for each of the twenty consecutive trading days prior to two business days prior to the Effective Date, rounded to 4 decimal places, (whether or not there were any trades in Westamerica Common Stock on such days), multiplied by the fraction of a share of Westamerica Common Stock to which such holder otherwise would be entitled. No such holder shall be entitled to dividends, voting rights, interest on the value of, or any other rights in respect of, a fractional share.
3.3 Surrender of North Bay Bancorp Shares.
(a) Prior to the Effective Date, Westamerica shall appoint
Chemical Trust Company of California or its successor, or any other bank
or trust company (having capital of at least $50 million) mutually
acceptable to North Bay Bancorp and Westamerica, as exchange agent (the
"Exchange Agent") for the purpose of exchanging certificates
representing the Westamerica Common Stock, and at and after the
Effective Date Westamerica shall issue and deliver to the Exchange Agent
certificates representing the Westamerica Common Stock, as shall be
required to be delivered to holders of North Bay Bancorp Shares pursuant
to Section 3.1 of this Merger Agreement. As soon as practicable after
the Effective Date, each holder of North Bay Bancorp Shares converted
pursuant to Section 3.1, upon surrender to the Exchange Agent of one or
more certificates for such North Bay Bancorp Shares for cancellation,
will be entitled to receive a certificate representing the number of
shares of Westamerica Common Stock determined in accordance with
Section 3.1 and a payment in cash with respect to fractional shares, if
any, determined in accordance with Section 3.2. Each certificate
representing Westamerica Common Stock will bear a notation incorporating
the Amended Rights Agreement (as that term is defined in Section 5(j)
of the Agreement) by reference and certificates representing the
Westamerica Common Stock will evidence and entitle the holders thereof
to certain rights as set forth in and subject to the terms of the
Amended Rights Agreement ("Rights"). Certificates issued for the
Westamerica Common Stock shall be deemed to be certificates for said
Rights.
(b) No dividends or other distributions of any kind which are declared payable to shareholders of record of the Westamerica Common Stock after the Effective Date will be paid to persons entitled to receive such certificates for Westamerica Common Stock until such persons surrender their certificates representing North Bay Bancorp Shares. Upon surrender of such certificates representing North Bay Bancorp Shares, the holder thereof shall be paid, without interest, any dividends or other distributions with respect to the Westamerica Common Stock as to which the record date and payment date occurred on or after the Effective Date and on or before the date of surrender.
(c) If any certificate for a Westamerica Share is to be issued in a name other than that in which the certificate for a North Bay Bancorp Share surrendered in exchange therefor is registered, it shall be a condition of such exchange that the person requesting such exchange shall pay to the Exchange Agent any transfer costs, taxes or other expenses required by reason of the issuance of certificates for such Westamerica Share in a name other than the registered holder of the certificate surrendered, or such person shall establish to the satisfaction of Westamerica and the Exchange Agent that such costs, taxes or other expenses have been paid or are not applicable.
(d) All dividends or distributions, and any cash to be paid pursuant to Section 3.2 in lieu of fractional shares, if held by the Exchange Agent for payment or delivery to the holders of unsurrendered certificates representing North Bay Bancorp Shares and unclaimed at the end of one year from the Effective Date, shall (together with any interest earned thereon) at such time be paid or redelivered by the Exchange Agent to Westamerica, and after such time any holder of a certificate representing a North Bay Bancorp Share who has not surrendered such certificate to the Exchange Agent shall, subject to applicable law, look as a general creditor only to Westamerica for payment or delivery of such dividends or distributions or cash, as the case may be. Westamerica shall not be liable to any holder of a share of North Bay Bancorp Common Stock for such share (or dividends or distributions with respect thereto) delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.
3.4 All shares of Westamerica Common Stock shall remain outstanding and unaffected by the Merger.
4. Termination and Amendment.
4.1 The obligations of the parties to effect the Merger shall be subject to all the terms and conditions contained in the Agreement. Notwithstanding the approval of this Merger Agreement by the shareholders of North Bay Bancorp, this Merger Agreement shall terminate forthwith in the event that the Agreement shall be terminated as therein provided.
4.2 This Merger Agreement may be amended by Westamerica and North Bay Bancorp at any time prior to the Effective Date without the approval of the shareholders of North Bay Bancorp with respect to any of its terms except the terms relating to the form or amount of consideration to be delivered to the North Bay Bancorp shareholders in the Merger and any other principal terms. This Merger Agreement may not be amended, except by an instrument in writing signed on behalf of each of the parties hereto.
4.3 This Merger Agreement may be signed in any number of counterparts, each of which shall be deemed an original, and all of which shall be deemed but one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Merger Agreement as of the date first written above.
WESTAMERICA BANCORPORATION
By /s/ David L. Payne DAVID L. PAYNE, President By /s/ Mary Anne Bell MARY ANNE BELL, Assistant Secretary |
NORTH BAY BANCORP
By /s/ John G. Stuber JOHN G. STUBER, President By /s/ Nancy R. De Sousa NANCY R. DE SOUSA, Secretary |
OFFICERS' CERTIFICATE
JOHN G. STUBER and NANCY R. DE SOUSA hereby certify that:
1. They are the President and Secretary, respectively, of NORTH BAY BANCORP, a corporation organized under the laws of the State of California.
2. The Merger Agreement in the form attached was duly approved by the Board of Directors and shareholders of the corporation.
3. The shareholder approval was by the holders of a number of outstanding shares which equaled or exceeded the vote required. The percentage vote required was more than 50% of the outstanding shares.
4. There is only one class of shares and the number of shares outstanding is 1,147,747 shares of common stock.
/s/ Jonn G. Stuber JOHN G. STUBER, President /s/ Nancy R. De Sousa NANCY R. DE SOUSA, Secretary |
The undersigned declare under penalty of perjury under the laws of the State of California that they have read the foregoing certificate and know the contents thereof and that the same is true of their own knowledge. Executed at Novato, Marin County, California on June 28, 1995.
/s/ John G. Stuber JOHN G. STUBER /s/ Nancy R. De Sousa NANCY R. DE SOUSA |
OFFICERS' CERTIFICATE
David L. Payne and Mary Anne Bell hereby certify that:
1. They are the President and Assistant Secretary, respectively, of WESTAMERICA BANCORPORATION, a corporation organized under the laws of the State of California.
2. The Merger Agreement in the form attached was duly approved by the Board of Directors of the corporation.
3. The Merger Agreement was entitled to be and was approved by the Board of Directors alone under the provisions of Section 1201 of the California General Corporation Law.
/s/ David L. Payne DAVID L. PAYNE, President /s/ Mary Anne Bell MARY ANNE BELL, Assistant Secretary |
The undersigned declare under penalty of perjury under the laws of the State of California that they have read the foregoing certificate and know the contents thereof and that the same is true of their own knowledge. Executed at San Rafael, Marin County, California on June 28, 1995.
/s/ David L. Payne DAVID L. PAYNE /s/ Mary Anne Bell MARY ANNE BELL |
CERTIFICATE OF OWNERSHIP
DAVID L. PAYNE and MARY ANNE BELL certify that:
1. They are the President and Assistant Corporate Secretary, respectively, of WESTAMERICA BANCORPORATION, a California corporation.
2. This corporation owns all of the outstanding shares of NORTH BAY BANCORP PROPERTIES, a California corporation.
3. The Board of Directors of this corporation has duly adopted the following resolution:
RESOLVED, that this corporation merge NORTH BAY BANCORP PROPERTIES, its wholly-owned subsidiary corporation, into itself and assume all its obligations pursuant to Section 1110 of the California Corporations Code.
We further declare under the penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge.
Dated: December 20, 1995
/s/ David L. Payne
David L. Payne, President
/s/ Mary Anne Bell
Mary Anne Bell, Assistant
Corporate Secretary
|
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 11, 1997 (this "Merger Agreement"), is made and entered into by and between ValliCorp Holdings, Inc., a Delaware corporation ("Seller") and Westamerica Bancorporation, a California corporation ("Buyer").
W I T N E S S E T H:
A. The Boards of Directors of Buyer and Seller have approved, and deem it advisable and in the best interests of Buyer, Seller and their respective shareholders, that Buyer and Seller consummate the business transaction provided for herein in which Seller would merge with and into Buyer (the "Merger").
B. Buyer and Seller have entered into an Agreement and Plan of Reorganization dated as of November 11, 1996 (the "Agreement"), providing, among other things, for the execution and filing of this Merger Agreement and the consummation of the Merger.
NOW, THEREFORE, in consideration of the promises and mutual agreements contained in this Merger Agreement, the parties to this Merger Agreement hereby agree that Seller shall be merged with and into Buyer in accordance with the provisions of the laws of the State of California and the State of Delaware upon the terms and subject to the conditions set forth as follows:
1. The Merger.
1.1 Effective Time. On April 12, 1997, upon the filing with the California Secretary of State of a duly executed counterpart of this Merger Agreement with the officers' certificates prescribed by Section 1103 of the California General Corporation Law attached thereto, the Merger shall become effective. The effective time of the Merger on the Effective Date shall be 12:01 a.m., Pacific Daylight Time.
1.2 Effect of the Merger. On the Effective Date, Seller shall be merged with and into Buyer and the separate corporate existence of Seller shall cease. Buyer shall be the surviving corporation (the "Surviving Corporation") in the Merger. It shall thereupon succeed, without other transfer, to all rights and properties of, and shall be subject to all the debts and liabilities of, Seller and the separate existence of Buyer as a California corporation, with all its purposes, objects, rights, powers, privileges and franchises shall continue unaffected and unimpaired by the Merger.
2. Corporate Governance Matters.
2.1 From and after the Effective Date and until thereafter amended
as provided by law: (a) the Articles of Incorporation of Buyer as in
effect immediately prior to the Effective Date shall be and continue to
be the Articles of Incorporation of the Surviving Corporation; and
(b) the Bylaws of Buyer as in effect immediately prior to the Effective
Date shall be and continue to be the Bylaws of the Surviving
Corporation.
2.2 On the Effective Date: (a) the directors of the Surviving Corporation shall be those persons who are the directors of Buyer immediately prior to the Effective Date; and (b) the officers of the Surviving Corporation shall be those persons who are the officers of Buyer at the Effective Date.
3. Conversion of Shares.
3.1 Conversion of Seller Shares. As of the Effective Date, by virtue of the Merger and without any action on the part of the holder of the common stock of Seller, par value $.01 per share (a "Seller Share" or "Seller Common Stock"):
(a) Each issued and outstanding Seller Share (other than fractional shares, or any shares as to which dissenters' rights have been perfected), shall be converted into .3479 shares of the common stock, without par value, of Buyer ("Buyer Common Stock" or a "Buyer Share").
(b) From and after the Effective Date, the holders of
certificates formerly representing Seller Shares shall cease
to have any rights with respect thereto other than any
dissenters' rights they have perfected pursuant to
Section 262 of the General Corporation Law of the State of
Delaware.
(c) On the Effective Date, all shares of Seller Common Stock held in the treasury of Seller or owned beneficially by any subsidiary of Seller other than in a fiduciary capacity or in connection with a debt previously contracted and all shares of Seller Common Stock owned by Buyer or owned beneficially by any subsidiary of Buyer other than in a fiduciary capacity or in connection with a debt previously contracted shall be canceled and no cash, stock or other property shall be delivered in exchange therefor.
3.2 Fractional Shares. Notwithstanding any other provision hereof, no fractional shares of Buyer Common Stock shall be issued to holders of Seller Shares. In lieu thereof, each such holder entitled to a fraction of a share of Buyer Common Stock shall receive, at the time of surrender of the certificate or certificates representing such holder's Seller Shares, an amount in cash equal to the market value per share of the Common Stock of Buyer, calculated by taking the average of the closing price quoted on the Nasdaq, as reported in The Wall Street Journal, for each of the twenty consecutive trading days prior to five trading days prior to the Effective Date, rounded to 4 decimal places (whether or not there were any trades in Buyer Common Stock on such days), multiplied by the fraction of a share of Buyer Common Stock to which such holder otherwise would be entitled. No such holder shall be entitled to dividends, voting rights, interest on the value of, or any other rights in respect of, a fractional share.
3.3 Surrender of Seller Shares.
(a) Prior to the Effective Date, Buyer shall appoint Chemical
Trust Company of California or its successor, or any other bank or trust
company (having capital of at least $50 million) mutually acceptable to
Seller and Buyer, as exchange agent (the "Exchange Agent") for the
purpose of exchanging certificates representing the Buyer Common Stock,
and at and after the Effective Date, Buyer shall issue and deliver to
the Exchange Agent certificates representing the Buyer Common Stock, as
shall be required to be delivered to holders of Seller Shares pursuant
to Section 3.1 of this Merger Agreement. As soon as practicable after
the Effective Date, each holder of Seller Shares converted pursuant to
Section 3.1, upon surrender to the Exchange Agent of one or more
certificates for such Seller Shares for cancellation, along with duly
executed transmittal materials to be mailed after the Effective Date by
the Exchange Agent, will be entitled to receive a certificate
representing the number of shares of Buyer Common Stock determined in
accordance with Section 3.1 and a payment in cash with respect to
fractional shares, if any, determined in accordance with Section 3.2.
Each certificate representing Buyer Common Stock will bear a notation
incorporating the Amended Rights Agreement (as that term is defined in
Section 1.4 of the Agreement) by reference and certificates representing
the Buyer Common Stock will evidence and entitle the holders thereof to
certain rights as set forth in and subject to the terms of the Amended
Rights Agreement ("Rights"). Certificates issued for the Buyer Common
Stock shall be deemed to be certificates for said Rights.
(b) No dividends or other distributions of any kind which are declared payable to shareholders of record of the Buyer Common Stock after the Effective Date will be paid to persons entitled to receive such certificates for Buyer Common Stock until such persons surrender their certificates representing Seller Shares. Upon surrender of such certificates representing Seller Shares, the holder thereof shall be paid, without interest, any dividends or other distributions with respect to the Buyer Common Stock as to which the record date and payment date occurred on or after the Effective Date and on or before the date of surrender.
If any certificate for a Buyer Share is to be issued in a name other than that in which the certificate for a Seller Share surrendered in exchange therefor is registered, it shall be a condition of such exchange that the person requesting such exchange shall pay to the Exchange Agent any transfer costs, taxes or other expenses required by reason of the issuance of certificates for such Buyer Share in a name other than the registered holder of the certificate surrendered, or such persons shall establish to the satisfaction of Buyer and the Exchange Agent that such costs, taxes or other expenses have been paid or are not applicable.
(d) All dividends or distributions, and any cash to be paid pursuant to Section 3.2 in lieu of fractional shares, if held by the Exchange Agent for payment or delivery to the holders of unsurrendered certificates representing Seller Shares and unclaimed at the end of one year from the Effective Date, shall (together with any interest earned thereon) at such time be paid or redelivered by the Exchange Agent to Buyer, and after such time any holder of a certificate representing a Seller Share who has not surrendered such certificate to the Exchange Agent shall, subject to applicable law, look as a general creditor only to Buyer for payment or delivery of such dividends or distributions or cash, as the case may be. Buyer shall not be liable to any holder of a share of Seller Common Stock for such share (or dividends or distributions with respect thereto) delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.
(e) Upon the Effective Date, the stock transfer books of Seller shall be closed and no transfer of Seller Common Stock shall thereafter be made or recognized.
(f) In the event that prior to the Effective Date the outstanding shares of Buyer Common Stock or Seller Common Stock shall have been increased, decreased or changed into or exchanged for a different number or kind of shares or securities by recapitalization, reclassification, stock dividend, stock split or other like changes in Buyer's or Seller's capitalization, or a distribution shall be made on Buyer Common Stock or Seller Common Stock in any security convertible into Buyer Common Stock or Seller Common Stock, respectively (provided that no such action shall be taken by Seller without Buyer's prior written consent pursuant to Section 5.2 of the Agreement), then an appropriate and proportionate adjustment shall be made in the number and kind of shares of Buyer Common Stock to be thereafter delivered pursuant to this Merger Agreement.
3.4 All shares of Buyer Common Stock shall remain outstanding and unaffected by the Merger.
4. Termination and Amendment.
4.1 The obligations of the parties to effect the Merger shall be subject to all the terms and conditions contained in the Agreement. Notwithstanding the approval of this Merger Agreement by the shareholders of Seller or Buyer, this Merger Agreement shall terminate forthwith in the event that the Agreement shall be terminated as therein provided.
4.2 This Merger Agreement may be amended by Buyer and Seller at any time prior to the Effective Date without the approval of the share- holders of Seller or Buyer with respect to any of its terms except any change in its principal terms or in the terms relating to the form or amount of consideration to be delivered to the Seller shareholders in the Merger. This Merger Agreement may not be amended, except by an instrument in writing signed on behalf of each of the parties hereto.
4.3 This Merger Agreement may be signed in any number of counterparts, each of which shall be deemed an original, and all of which shall be deemed but one and the same instrument.
5. Miscellaneous.
5.1 The Agreement is and will be maintained on file at the principal place of business of the Surviving Corporation. The address of the principal place of business of the Surviving Corporation is 4550 Mangels Boulevard, Fairfield, California 94585.
5.2 A copy of the Agreement will be furnished by the Surviving Corporation, on request and without cost to any stockholder of Seller or Buyer.
5.3 The Agreement between the parties to the Merger has been approved, adopted, certified, executed and acknowledged by each of the Seller and Buyer pursuant to Section 252 of the General Corporation Law of the State of Delaware, and executed by the parties in accordance with the requirements of Chapter 12 of the California General Corporation Law.
5.4 The Surviving Corporation agrees that it may be served with
process in the State of Delaware in any proceeding for enforcement of
any obligation of Seller, as well as for enforcement of any obligation
of the Surviving Corporation arising from the Merger, including any suit
or other proceedings to enforce the right of any stockholders as
determined in appraisal proceedings pursuant to the provisions of
Section 262 of the General Corporation Law of the State of Delaware, and
irrevocably appoints the Secretary of State of the State of Delaware as
its agent to accept service of process in any such suit or other
proceedings and directs the Secretary of State of the State of Delaware
to mail copies of such process to the following address: 4550 Mangels
Boulevard, Fairfield, California 94585.
IN WITNESS WHEREOF, the parties have duly executed this Merger Agreement as of the date first written above.
BUYER
By /s/ David L. Payne
David L. Payne, President and
Chief Executive Officer
By /s/ Mary Anne Bell
Mary Anne Bell, Assistant
Corporate Secretary
|
SELLER
By /c/ Wolfgang T. N. Muelleck
Wolfgang T.N. Muelleck, President and
and Chief Executive Officer
By /s/ Edwin L. Herbert Edwin L. Herbert, Secretary |
OFFICERS' CERTIFICATE
David L. Payne and Mary Anne Bell hereby certify that:
1. They are the President and Chief Executive Officer and Assistant Corporate Secretary, respectively, of WESTAMERICA BANCORPORATION, a corporation organized under the laws of the State of California.
2. The Merger Agreement in the form attached was duly approved by the Board of Directors and shareholders of the corporation.
3. The shareholder approval was by the holders of a number of outstanding shares which equaled or exceeded the vote required. The percentage vote required was more than 50% of the outstanding shares.
4. There is only one class of shares and the number of shares outstanding is 9,465,721.
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.
Date: April 11, 1997
/s/ David L. Payne
DAVID L. PAYNE, President and
Chief Executive Officer
/s/ Mary Anne Bell
MARY ANNE BELL, Assistant Corporate
Secretary
|
OFFICERS' CERTIFICATE
Wolfgang T.N. Muelleck and Edwin L. Herbert hereby certify that:
1. They are the President and Chief Executive Officer and Secretary, respectively, of VALLICORP HOLDINGS, INC., a corporation organized under the laws of the State of Delaware.
2 The Merger Agreement in the form attached was duly approved by the Board of Directors and shareholders of the corporation.
3 The shareholder approval was by the holders of a number of outstanding shares which equaled or exceeded the vote required. The percentage vote required was more than 50% of the outstanding shares.
4. There is only one class of shares and the number of shares outstanding is 14,307,832.
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.
Date: April 11, 1997
/s/ Wolfgang T. N. Muelleck
WOLFGANG T.N. MUELLECK, President
and Chief Executive Officer
/s/ Edwin L. Herbert
EDWIN L. HERBERT, Secretary
|
CERTIFICATE OF AMENDMENT
OF RESTATED ARTICLES OF INCORPORATION OF
WESTAMERICA BANCORPORATION
David L. Payne and Kris Irvine certify that:
1. They are the President and the Assistant Corporate Secretary, respectively, of WESTAMERICA BANCORPORATION, a California corporation (the "Corporation").
2. Paragraph 1. of Article III of the Restated Articles of Incorporation is hereby amended to read as follows:
1. Capitalization. This corporation is authorized to issue three classes of shares designated "Common Stock", "Class B Common Stock" and "Preferred Stock", respectively. The number of shares of Common Stock authorized to be issued is 150,000,000, the number of shares of Class B Common Stock authorized to be issued is 1,000,000 and the number of shares of Preferred Stock authorized to be issued is 1,000,000. The Preferred Stock and Class B Common Stock may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and Class B Common Stock and to determine the designation of any such series. The Board of Directors is also authorized to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock or Class B Common Stock, and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. Upon effectiveness of the amendment of this article to read as herein set forth, each outstanding share of Common Stock is split and converted into three (3) shares of Common Stock.
4. The foregoing amendment of Restated Articles of Incorporation has been duly approved by the board of directors.
5. The foregoing amendment of Restated Articles of Incorporation effects only a stock split (including an increase in the authorized number of shares of Common Stock in proportion thereto), and the Corporation has only one class of shares outstanding. Accordingly, the foregoing amendment may be adopted by approval of the board alone pursuant to Section 902 of the California Corporations Code.
IN WITNESS WHEREOF, the undersigned have executed this certificate on January 29, 1998.
/s/ David L. Payne David L. Payne, President /s/ Kris Irvine Kris Irvine, Assistant Corporate Secretary |
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.
Dated: January 29, 1998.
/s/ David L. Payne
David L. Payne, President
/s/ Kris Irvine
Kris Irvine, Assistant
Corporate Secretary
|
Exhibit 11
WESTAMERICA BANCORPORATION Computation of Earnings Per Share on Common and Common Equivalent Shares and on Common Shares Assuming Full Dilution ---------------------------------------------------------------------------------------- (In thousands, except per share data) 1997 1996 1995 ---------------------------------------------------------------------------------------- Weighted average number of common shares outstanding - basic 43,040 42,759 43,747 Add exercise of options reduced by the number of shares that could have been purchased with the proceeds of such exercise 787 599 527 ---------------------------------------------------------------------------------------- Weighted average number of common shares outstanding - diluted 43,827 43,358 44,274 ======================================================================================== Net income $48,116 $46,827 $43,185 Basic earnings per share $1.12 $1.10 $0.99 Diluted earnings per share $1.10 $1.08 $0.98 |
Exhibit 21
WESTAMERICA BANCORPORATION
Subsidiaries as of December 31, 1997
State of
Incorporation
-------------
Westamerica Bank California
Bank of Lake County California
Community Banker Services Corporation California
Westcore California
Westamerica Commercial Credit, Inc. California
|
Exhibit 23(a)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Westamerica Bancorporation:
We consent to the incorporation by reference in Registration Statement (No. 33-60003) on Form S-8 of Westamerica Bancorporation and subsidiaries (the Company) of our report dated January 22, 1998, relating to the consolidated balance sheets of Westamerica Bancorporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for the years in the three-year period ended December 31, 1997, which report appears in the December 31, 1997 annual report on Form 10-K of Westamerica Bancorporation. On April 12, 1997, the Company acquired Vallicorp Holdings, Inc. on a pooling-of-interests basis. We did not audit the financial statements of Vallicorp Holdings, Inc. as of December 31, 1996 and for the years ended December 31, 1996 and 1995. Those statements, included in the 1996 and 1995 restated consolidated totals, were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for ValliCorp Holdings, Inc., is based solely on the reports of the other auditors.
/s/ KPMG Peat Marwick, LLP -------------------------- KPMG Peat Marwick, LLP San Francisco, California March 26, 1998 |
Exhibit 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 33-60003 of Westamerica Bancorporation on Form S-8 of our report dated January 24, 1997 (relating to the consolidated financial statements of ValliCorp Holdings, Inc. and subsidiaries not presented separately herein) appearing in the Annual Report on Form 10-K of Westamerica Bancorporation for the year ended December 31, 1997.
/s/ Deloitte & Touche LLP ------------------------- Deloitte & Touche LLP Fresno, California March 24, 1998 |
Exhibit 23(c)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements on Form S-8, File No. 33-60003, appearing in this Annual Report on Form 10-K of Westamerica Bancorporation for the year ended December 31, 1997, of our report dated January 19, 1996 with respect to the consolidated financial statements of El Capitan Bancshares, Inc. and Subsidiary for the years ended December 31, 1995 and 1994.
/s/ Grant Thornton LLP ---------------------- Grant Thornton LLP Stockton, California March 23, 1998 |
| ARTICLE 9 |
| RESTATED: |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | YEAR | YEAR | YEAR |
| FISCAL YEAR END | DEC 31 1997 | DEC 31 1996 | DEC 31 1995 |
| PERIOD START | JAN 01 1997 | JAN 01 1996 | JAN 01 1995 |
| PERIOD END | DEC 31 1997 | DEC 31 1996 | DEC 31 1995 |
| CASH | 250,824 | 263,177 | 285,137 |
| INT BEARING DEPOSITS | 0 | 0 | 0 |
| FED FUNDS SOLD | 0 | 92,000 | 57,770 |
| TRADING ASSETS | 0 | 0 | 0 |
| INVESTMENTS HELD FOR SALE | 1,003,234 | 892,461 | 869,923 |
| INVESTMENTS CARRYING | 230,960 | 215,432 | 307,821 |
| INVESTMENTS MARKET | 236,896 | 218,009 | 310,377 |
| LOANS | 2,261,937 | 2,287,240 | 2,258,147 |
| ALLOWANCE | 50,630 | 50,921 | 48,494 |
| TOTAL ASSETS | 3,848,444 | 3,866,774 | 3,880,299 |
| DEPOSITS | 3,078,501 | 3,228,700 | 3,270,907 |
| SHORT TERM | 264,848 | 167,447 | 186,032 |
| LIABILITIES OTHER | 45,443 | 32,483 | 32,050 |
| LONG TERM | 52,500 | 58,865 | 40,932 |
| PREFERRED MANDATORY | 0 | 0 | 0 |
| PREFERRED | 0 | 0 | 0 |
| COMMON | 198,517 | 187,210 | 178,374 |
| OTHER SE | 208,635 | 192,069 | 172,004 |
| TOTAL LIABILITIES AND EQUITY | 3,848,444 | 3,866,774 | 3,880,299 |
| INTEREST LOAN | 201,999 | 206,887 | 217,826 |
| INTEREST INVEST | 67,036 | 62,076 | 61,997 |
| INTEREST OTHER | 1,635 | 5,219 | 3,881 |
| INTEREST TOTAL | 270,670 | 274,182 | 283,704 |
| INTEREST DEPOSIT | 76,264 | 77,585 | 83,432 |
| INTEREST EXPENSE | 88,054 | 91,700 | 95,627 |
| INTEREST INCOME NET | 182,616 | 182,482 | 188,077 |
| LOAN LOSSES | 7,645 | 12,306 | 15,229 |
| SECURITIES GAINS | 198 | 45 | (74) |
| EXPENSE OTHER | 137,878 | 136,051 | 141,960 |
| INCOME PRETAX | 74,106 | 70,432 | 65,115 |
| INCOME PRE EXTRAORDINARY | 74,106 | 70,432 | 65,115 |
| EXTRAORDINARY | 0 | 0 | 0 |
| CHANGES | 0 | 0 | 0 |
| NET INCOME | 48,116 | 46,827 | 43,185 |
| EPS PRIMARY | 1.12 | 1.10 | 0.99 |
| EPS DILUTED | 1.10 | 1.08 | 0.98 |
| YIELD ACTUAL | 8.21 | 8.21 | 8.47 |
| LOANS NON | 18,146 | 16,835 | 27,430 |
| LOANS PAST | 1,009 | 1,735 | 1,715 |
| LOANS TROUBLED | 0 | 224 | 257 |
| LOANS PROBLEM | 0 | 0 | 0 |
| ALLOWANCE OPEN | 50,921 | 48,494 | 46,580 |
| CHARGE OFFS | 12,484 | 16,017 | 16,220 |
| RECOVERIES | 4,548 | 4,473 | 2,905 |
| ALLOWANCE CLOSE | 50,630 | 50,921 | 48,494 |
| ALLOWANCE DOMESTIC | 31,466 | 35,246 | 35,666 |
| ALLOWANCE FOREIGN | 0 | 0 | 0 |
| ALLOWANCE UNALLOCATED | 19,164 | 15,675 | 12,828 |