SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1995 Commission File Number 1-9383
WESTAMERICA BANCORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2156203
(State of incorporation) (I.R.S. Employer
Identification Number)
1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA 94901
(Address of principal executive offices and zip code)
(415) 257-8000
Registrant's area code and telephone number
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO ___
Aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the closing price of such stock,
as of March 22, 1996: $423,623,000
Number of shares outstanding of each of the registrant's classes of
common stock, as of March 20, 1996
Title of Class Shares Outstanding
Common Stock, no par value 9,760,650
Documents Incorporated by Reference
Document* Incorporated Into:
Proxy Statement dated March 20, 1996
for Annual Meeting of Shareholders
to be held on April 23, 1996 Part III
* Only selected portions of the documents specified are incorporated by
reference into this report, as more particularly described herein. Except to
the extent expressly incorporated herein by reference, such documents shall
not be deemed to be filed as part of this Annual Report on Form 10-K.
<PAGE>
TABLE OF CONTENTS
Page
PART-I
Item 1 Business. . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2 Description of Property . . . . . . . . . . . . . . . . . 11
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . 12
Item 4 Submission of Matters to a Vote of Security Holders . . . 12
PART-II
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . 13
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . 14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 16
Item 8 Financial Statements and Supplementary Data . . . . . . . 39
Item 9 Disagreements on Accounting and Financial Disclosure. . . 74
PART-III
Item 10 Directors and Executive Officers of the Registrant. . . . 74
Item 11 Executive Compensation. . . . . . . . . . . . . . . . . . 74
Item 12 Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . . 74
Item 13 Certain Relationships and Related Transactions. . . . . . 74
PART-IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 74
<PAGE>
PART I
ITEM I. Business
WESTAMERICA BANCORPORATION (the "Company") is a bank holding company
registered under the Bank Holding Company Act of 1956 ("BHC"), as amended.
It was incorporated under the laws of the State of California as
"Independent Bankshares Corporation" on February 11, 1972. Its principal
executive offices are located at 1108 Fifth Avenue, San Rafael, California
94901, and its telephone number is (415) 257-8000. The Company provides a
full range of banking services to individual and corporate customers in
Northern California through its subsidiary banks (the "Banks"), Westamerica
Bank, Bank of Lake County and Napa Valley Bank. The Banks are subject to
competition from other financial institutions and regulations of certain
agencies and undergo periodic examinations by those regulatory authorities.
In addition, the Company also owns all the capital stock of Westcore, a newly
formed company engaged in performing certain administrative functions for the
Company.
The Company was originally formed pursuant to a plan of reorganization
among three previously unaffiliated banks: Bank of Marin, Bank of Sonoma
County and First National Bank of Mendocino County (formerly First National
Bank of Cloverdale). The reorganization was consummated on December 31,
1972, and, on January 1, 1973, the Company began operations as a bank
holding company. Subsequently, the Company acquired Bank of Lake County
(a California chartered bank) in 1974, Gold Country Bank in 1979 and Vaca
Valley Bank in 1981, in each case by the exchange of the Company's Common
Stock for the outstanding shares of the acquired banks.
In mid-1983, the Company consolidated the six subsidiary banks into a
single subsidiary bank. The consolidation was accomplished by the merger
of the five state chartered banks (Bank of Marin, Bank of Sonoma County,
Bank of Lake County, Gold Country Bank and Vaca Valley Bank) into First
National Bank of Mendocino County which subsequently changed its name to
Westamerica Bank ("WAB"), a national banking association organized and
existing under the laws of the United States.
On February 28, 1992 the Company acquired John Muir National Bank
through a merger of such bank into WAB in exchange for the issuance of the
Company's Common Stock for all of the outstanding shares of John Muir
National Bank. This business transaction was accounted for as a
pooling-of-interests basis.
On April 15, 1993, the Company acquired Napa Valley Bancorp, a bank
holding company, whose subsidiaries included Napa Valley Bank, 88 percent
interest in Bank of Lake County, 50 percent interest in Sonoma Valley Bank,
Suisun Valley Bank and Napa Valley Bancorp Services Association, established
to provide data processing and other services to Napa Valley Bancorp's
subsidiaries. This business transaction (the "Merger") was accounted for as
a pooling-of-interests combination. Shortly after the Merger Suisun Valley
bank was merged into Westamerica Bank, the name of Napa Valley Bancorp
Services Corporation was changed to Community Banker Services Corporation
and the Company sold its 50 percent interest in Sonoma Valley Bank.
In June, 1993, the Company accepted from Westamerica Bank a dividend in
the form of all outstanding shares of capital stock of that bank's
subsidiary, Weststar Mortgage Corporation, a California corporation
<PAGE>
established to conduct mortgage banking activities. Immediately after the
receipt of this dividend, the Company contributed all of the capital stock of
Weststar Mortgage Corporation to its subsidiary, Community Banker Services
Corporation.
Westamerica Bank and Bank of Lake County became state chartered banks in
June 1993 and December 1993, respectively.
In December 1994, the Company completed the purchase of the remaining 12
percent investment in Bank of Lake County from outside investors, becoming
the sole owner of the Bank of Lake County.
On January 31, 1995, the Company acquired PV Financial, parent company
of PV National Bank, through a merger of such bank into WAB in exchange for
the issuance of the Company's Common Stock for all the outstanding shares of
PV Financial. The business combination was accounted for using the
pooling-of-interests method of accounting.
On June 6, 1995, the merger of CapitolBank Sacramento with and into WAB
became effective. Under the terms of the merger, the Company issued shares of
its Common Stock in exchange for all of CapitolBank Sacramento's common
stock. This acquisition was accounted for as a pooling-of-interests business
combination.
On July 17, 1995, Company acquired North Bay Bancorp, parent company of
Novato National Bank. Under the terms of the merger agreement, the Company
issued shares of its Common Stock in exchange for all of the outstanding
common stock of North Bay Bancorp. The subsidiary bank was merged with and
into WAB. The business combination was accounted for as a
pooling-of-interests business combination.
At December 31, 1995, the Company had consolidated assets of
approximately $2.49 billion, deposits of approximately $2.05 billion and
shareholders' equity of approximately $223.9 million.
SERVICE AREA
The Banks serve the following eleven major markets:
Marin County. Marin County is one of the most affluent counties in
California and has a population of approximately 235,540. San Rafael and
Novato are the largest communities in the county, with populations of
approximately 53,250 and 49,070, respectively. Both are in close proximity to
the city of San Francisco. The area served by WAB is a relatively dense
populated area whose economic make-up is primarily residential, commercial
and light industrial.
Sonoma-Mendocino Counties. Of the eight San Francisco-Bay Area
counties, Sonoma County is geographically the largest. The population of the
county is approximately 432,220. The city of Santa Rosa is the largest
population center in Sonoma County with an estimated population of 128,260.
Light industry, agriculture and food processing are the primary industries in
Sonoma County, with tourism and recreational activities growing steadily. In
1995, WAB added one branch in the city of Point Arena to its two-branch
network in the southern part of Mendocino County, population 86,230, where
the major business is agriculture.
<PAGE>
Solano County. WAB serves all of Solano County, with an estimated
population of 377,570. Vallejo is the largest city in the county, with a
population of approximately 114,690. While light industry and the service
sector is growing steadily, the federal government is the largest employer in
the county.
Stanislaus County. In January 1995, three new branches were added to
WAB's branch network in this county, following the acquisition of PV
Financial, parent company of Pacific Valley National Bank with headquarters
in the city of Modesto, with a population of approximately 181,780. The
county, whose major industry is agriculture, has a population of
approximately 419,970.
Contra Costa County. During 1984, WAB opened an office in the city of
Walnut Creek, with a population of approximately 63,390, to serve Contra
Costa's growing commercial and industrial construction industry. In 1992, the
Company acquired John Muir National Bank, serving individuals and businesses
in this county, and merged with and into WAB. During 1995, WAB opened a new
branch in the city of Concord. The population of the county is approximately
883,390.
Sacramento County. In 1982, WAB established an office in Sacramento,
the state capital of California. The county has a population of approximately
1,139,187. Major industries include agriculture, government, manufacturing
and wholesale and retail trade. Sacramento is also a major transportation
center for the state.
Nevada County. WAB is currently serving most of Nevada County, an area
generally known as the "Gold Country". The population of the entire county,
where tourism, agriculture and wood product manufacturing are the major
industries, is approximately 89,490.
Placer County. In 1991, WAB opened a new branch in Roseville, located
approximately 15 miles east of WAB's Sacramento office, to serve the growing
area of the Sierra Nevada foothills. The population of Placer County is
approximately 210,010.
San Francisco County. In 1987, WAB opened an office in the financial
center of the city of San Francisco, with a focus on commercial lending and
deposit relationships in that city.
Lake County. Bank of Lake County, ("Lake County's Bank"), ("BLC") has
4 office locations in Lake County, which has an estimated population of
approximately 57,510. In October 1995, BLC purchased a branch in Kelseyville
and merged it into the already existing Kelseyville branch. Agriculture is
the primary industry of the county, followed closely by recreation and
tourism.
Napa County. Napa Valley Bank ("NVB") has 7 office locations in Napa
County. The population of the county is approximately 120,600, with
agriculture being its major source of business, followed by tourism.
Neither the Company nor any of its subsidiaries have any foreign or
international activities or operations.
All population figures contained in the previous discussion are 1995
estimates as prepared by the California Department of Finance and are
exclusive of incorporated areas.
<PAGE>
COMPETITION
The Banks compete with other commercial banks, savings & loan
associations, credit unions, brokerage firms, money market mutual funds,
finance and insurance companies and mortgage banking firms.
According to information obtained by the Company through an independent
market research firm, WAB was the third largest financial institution in
terms of total deposits in Marin County at June 30, 1995, at which date it
had approximately 10 percent of total deposits held in federally insured
depository institutions in that county. The acquisition of Novato National
Bank added approximately 2 percent to WAB's market share in Marin County in
terms of total deposits. According to the same source of information and in
terms of total deposits, as of June 30, 1995 WAB ranked second in WAB's
Sonoma-Mendocino counties service area, with approximately an 8 percent share
of the market, and was third in the Solano-Contra Costa counties service area
with a market share of approximately 6 percent of the market. In addition,
WAB's market share in the Sacramento-Placer-Nevada counties service area was
approximately 7 percent, ranking fourth among its competitors. The
acquisition of Pacific Valley National Bank gave WAB a presence in Stanislaus
County: as of June 30, 1995, WAB's market share in WAB's Stanislaus County
service area was approximately 6 percent, ranking fourth when compared with
other financial institutions in terms of total deposits. The share of the
market for deposits and loans held by WAB in San Francisco County is not
significant.
According to the same source of information, NVB was the largest
financial institution in terms of total deposits in the Napa Valley service
area as of June 30, 1995, with approximately 18 percent market share. The
same source of data reports that BLC ranked third in market share in the Lake
County service area with 14 percent of the total.
The Banks provide checking and savings deposit services as well as
commercial, real estate and personal loans. In addition, most of the branches
offer safe deposit facilities, automated teller units, collection services
and other investment services.
The Banks believe that personal, prompt, professional service and
community identity are important in the banking business. To this end, each
of one the Banks has sought to retain its community identity and has
emphasized personalized services through "big bank resources with small bank
resourcefulness".
Competitive conditions continue to intensify as legislative enactments
dissolve historical barriers to limit participation in the financial markets.
Competition is expected to further increase in the state of California as a
result of legislation enacted in 1986 and 1989, which enabled bank holding
companies based outside the state to own and operate banks or bank holding
companies in California on a reciprocal basis as of January 1, 1991.
Legislative changes, as well as technological and economic factors, can
be expected to have an ongoing impact on competitive conditions within the
financial services industry. As an active participant in the financial
markets, the Company continually adapts to these changing competitive
conditions.
<PAGE>
EMPLOYEES
At December 31, 1995, the Company employed 1,169 people (841 full-time
equivalent staff). Employee relations are believed to be good.
SUPERVISION AND REGULATION
Regulation of Westamerica Bancorporation
The Company is a bank holding company registered under the BHC Act. As
such, it is subject to the supervision of the Federal Reserve Board ("FRB")
and is required to file with that agency an annual report and such other
additional information as the FRB may require pursuant to the BHC Act. The
FRB may also conduct examinations of the Company and its respective
subsidiaries.
Under the BHC Act, bank holding companies are generally required to
obtain the prior approval of the FRB before they may (i) acquire control of
or merge with another bank holding company; (ii) acquire direct ownership or
control of 5 percent or more of the voting shares of a bank; or (iii)
otherwise acquire control of another bank. Moreover, the BHC Act generally
prohibits the Company or any of its subsidiaries from acquiring the voting
shares of, interest in or assets of, any bank located outside of California
unless the laws of such state expressly authorize such an acquisition.
Under the BHC Act, the Company is prohibited from engaging in any business
other than managing or controlling banks, or furnishing services to its
subsidiaries, unless the business proposed to undertake has been deemed
by the FRB to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. With certain exceptions, the
Company is prohibited from acquiring direct or indirect ownership or
control of more than 5 percent of the voting securities or assets of any
company unless that company engages in activities which are permissible for
bank holding companies and the FRB is given notice thereof or approves the
acquisition in advance.
Holding companies and any of their subsidiary banks are prohibited from
engaging in certain tie-in arrangements in connection with the extension of
credit. For example, a subsidiary bank generally may not extend credit on
the condition that the customer obtain some additional service from such
bank or its holding company, or refrain from obtaining such service from a
competitor.
The Company is also a bank holding company within the meaning of Section
3700 of the California Financial Code. As such, the Company and its
subsidiaries are subject to examination by, and may be required to file
reports with, the Superintendent of California State Banking Department.
Regulations have not yet been proposed or adopted, nor have steps otherwise
been taken, to implement the Superintendent's powers under this statute.
Regulation of Bank Subsidiaries
The deposits of the Banks are insured by the FDIC in an amount up to
$100,000 per depositor and is therefore subject to applicable provisions of
the Federal Deposit Insurance Act and the regulations thereunder, including
the obligation to pay assessments for such insurance.
<PAGE>
Transactions with affiliates of a bank must be on substantially the same
terms as would be available for nonaffiliates. This restriction applies
to (i) a bank's sale of assets, payment of money or furnishing of services
to an affiliate; (ii) transactions with the bank in which an affiliate acts
as agent or broker; and (iii) transactions with the bank and a third party
in which an affiliate is also a participant or has a financial interest.
The FDIC has issued an advance notice of proposed rulemaking which would
prohibit insured banks from paying excessive fees for services provided by
their parent holding companies. The FDIC has also proposed rules which
would authorize to rescind contracts between depository institutions and
any person in connection with providing goods, products or services if the
performance of such contract would adversely affect the safety or soundness
of the institution.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
contains a "cross-guarantee" provision which could result in any insured
depository institution owned by a holding company (i.e., any bank subsidiary)
being assessed for losses incurred by the FDIC in connection with assistance
provided to, or the failure of, any other depository institution owned by
such holding company.
As a consequence of the extensive regulation of commercial banking
activities in the United States, the business of the Company and its
subsidiary banks is particularly susceptible to being affected by enactment
of federal and state legislation which may have the effect of increasing or
decreasing the cost of doing business, modifying permissible activities, or
enhancing the competitive position of other financial institutions. In
response to various business failures in the savings and loan industry and
more recently in the banking industry, in December 1991, Congress enacted
and the President signed significant banking legislation entitled the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA").
FDICIA substantially revises the bank regulatory and funding provisions of
the Federal Deposit Insurance Act and makes revisions to several other
federal banking statutes.
Among other things, FDICIA provides increased funding for the Bank
Insurance Fund (the "BIF") of the FDIC, primarily by increasing the
authority of the FDIC to borrow from the United States Treasury Department.
It also provides for expanded regulation of depository institutions and
their affiliates. A significant portion of the borrowings would be repaid
by insurance premiums assessed on BIF members, including the Banks and
their subsidiaries. In addition, FDICIA generally mandates that the FDIC
achieve a ratio of reserves to insured deposits of 1.25 percent within the
next 15 years, also to be financed by insurance premiums. The result of
these provisions could be a significant increase in the assessment rate on
deposits of BIF members. FDICIA also provides authority for special
assessments against insured deposits. No assurance can be given at this
time as to what the future level of premiums will be.
As required by FDICIA, the FDIC adopted a revised risk-based assessment
system for deposit insurance premiums which became effective January 1, 1996.
Under this system, depository institutions are charged anywhere from 0 cents
to 27 cents for every $100 in insured domestic deposits, based on such
institutions' capital levels and supervisory ratings.
FDICIA also restricts the acceptance of brokered deposits by insured
depository institutions and contains a number of consumer banking
provisions, including disclosure requirements and substantive contractual
limitations with respect to deposit accounts.
<PAGE>
FDICIA contains numerous other provisions, including new reporting,
examination and auditing requirements, termination of the "too big to fail"
doctrine except in special cases, limitations on the FDIC's payment of
deposits at foreign branches, and revised regulatory standards for, among
other things, real estate lending and capital adequacy.
Implementation of the various provisions of FDICIA are subject to the
adoption of regulations by the various banking agencies or to certain
phase-in periods. The effect of FDICIA on the Company and its subsidiary
banks cannot be determined until implementing regulations are adopted by
the agencies.
Regulations Applicable to Bank Subsidiaries. The Company's subsidiary
banks are state-chartered banks and subject to regulation, supervision and
regular examinations by the State of California Banking Department as well
as the FDIC. The regulations of these agencies and the FRB affect most
aspects of the banking business and prescribe permissible types of loans
and investments, requirements for branch offices, the permissible scope of
activities and various other requirements. As WAB is also a member of the
Federal Reserve System, it is subject to certain other regulations of the
FRB dealing primarily with check clearing activities, establishment of
banking reserves, truth-in-lending, truth-in-savings and equal credit
opportunity.
CAPITAL REQUIREMENTS
Risk-Based Capital Ratio. The agencies which regulate financial
institutions have adopted risk-based capital adequacy standards applicable
to financial institutions. These guidelines provide a measure of capital
adequacy and are intended to reflect the degree of risk associated with
both on and off balance sheet items, including residential loans sold with
recourse, legally binding loan commitments and standby letters of credit.
Under these regulations, financial institutions are required to maintain
capital to support activities which in the past did not require capital.
Failure to meet the minimum capital requirements established by the
regulators will result in an institution being classified as
"undercapitalized", "significantly undercapitalized", or "critically
undercapitalized".
A financial institution's risk-based capital ratio is calculated by
dividing its qualifying capital by its risk-weighted assets. Financial
institutions generally are expected to meet a minimum ratio of qualifying
total capital to risk-weighted assets of 8 percent, of which at least 4
percent of qualifying total capital must be in the form of core capital
(Tier 1), i.e., common stock, noncumulative perpetual preferred stock,
minority interests, retained earnings in equity capital accounts of
consolidated subsidiaries and allowed mortgage servicing rights less all
intangible assets other than allowed mortgage servicing rights.
Supplementary capital (Tier 2) consists of the allowance for loan losses up
to 1.25 percent of risk-weighted assets, cumulative preferred stock, term
preferred stock, hybrid capital instruments and term subordinated debt.
The maximum amount of Tier 2 capital which may be recognized for risk-based
capital purposes is limited to 100 percent of Tier 1 capital (after any
deductions for disallowed intangibles). Certain other limitations and
restrictions apply as well.
<PAGE>
The risk-based capital ratio analysis establishes minimum supervisory
guidelines and standards. The guidelines do not currently evaluate all
factors affecting an organization's financial condition. Factors which are
not evaluated include (i) overall interest rate exposure; (ii) liquidity,
funding and market risks; (iii) quality and level of earnings; (iv)
investment or loan portfolio concentrations; (v) quality of loans and
investments; (vi) the effectiveness of loan and investment policies; and
(vii) management's overall ability to monitor and control other financial
and operating risks. FDICIA also requires the guidelines to reflect the
actual performance and expected risk of loss of multifamily mortgages.
These provisions will affect the capital positions and capital standing of
all institutions and may result in the need for increased capital.
However, the ultimate effect of FDICIA risk-based capital provisions cannot
be determined until final regulations are adopted. Until such time,
however, the capital adequacy assessment of federal bank regulators will
continue to include analysis of the foregoing elements and, in particular,
the level and severity of problem and classified assets.
Minimum Leverage Ratio. The FDIC and the FRB have also adopted a 3
percent minimum leverage ratio which is intended to supplement risk-based
capital requirements and to ensure that all financial institutions, even
those that invest predominantly in low risk assets, continue to maintain a
minimum level of Tier 1 capital. A financial institution's minimum leverage
ratio is determined by dividing its Tier 1 capital by its quarterly average
total assets, less intangibles not includable in Tier 1 capital.
Under the guidelines, a minimum leverage ratio of 3 percent is required
for institutions which have been determined to be in the highest of five
categories used by regulators to rate financial institutions. All other
organizations are required to maintain leverage ratios of at least 100 to
200 basis points above the 3 percent minimum. It is improbable, however,
that an institution with a 3 percent leverage ratio would be rated in the
highest category since a strong capital position is also a requirement for
the highest rating. Therefore, the "minimum" leverage ratio is, for all
practical purposes, significantly above 3 percent.
The leverage ratio establishes a limit on the ability of banking
organizations, including the Company, to increase assets and liabilities
without increasing capital proportionately. The Company's Management
believes that conformance with the leverage ratio will not have an adverse
effect on the operations of the Company or require it to raise additional
capital in the foreseeable future.
New Capital Standards. FDICIA requires the federal banking regulators
to take "prompt corrective action" with respect to banks that do not meet
minimum capital requirements. In response to this requirement, the FDIC
and the FRB participated in the adoption of final rules based upon
FDICIA's five capital tiers. These rules provide that an institution is
"well capitalized" if its risk-based capital ratio is 10 percent or
greater; its Tier 1 risk-based capital ratio is 6 percent or greater; its
leverage ratio is 5 percent or greater; and the institution is not subject
to a capital directive. A bank is "adequately capitalized" if its
risk-based capital ratio is 8 percent or greater; its Tier 1 risk-based
capital ratio is 4 percent or greater; and its leverage ratio is 4 percent
or greater (3 percent or greater for one rated institutions). An
institution is considered "undercapitalized" if its risk-based capital
ratio is less than 8 percent; its Tier 1 risk-based capital ratio is less
than 4 percent; or its leverage ratio is 4 percent or less. An institution
is "significantly undercapitalized" if its risk-based capital ratio is less
than 6 percent; its Tier 1 risk-based capital ratio is less than 3 percent;
<PAGE>
or its leverage ratio is less than 3 percent. A bank is deemed to be
"critically undercapitalized" if its ratio of tangible equity (Tier 1
capital) to total assets is equal to or less than 2 percent. An
institution may be deemed to be in a capitalization category that is lower
than is indicated by its actual capital position if it engages in unsafe or
unsound banking practices.
No sanctions apply to institutions which are well capitalized.
Adequately capitalized institutions are prohibited from accepting brokered
deposits without the consent of the primary regulator. Undercapitalized
institutions are required to submit a capital restoration plan for
improving capital. In order to be accepted, such plan must include a
financial guaranty from the institution's holding company that the
institution will return to capital compliance. If such a guarantee were
deemed to be a commitment to maintain capital under the Federal Bankruptcy
Code, a claim for a subsequent breach of the obligations under such
guarantee in a bankruptcy proceeding involving the holding company would be
entitled to a priority over third party general unsecured creditors of the
holding company. Undercapitalized institutions are prohibited from making
capital distributions or paying management fees to controlling persons; may
be subject to limitations pertaining to growth; and are restricted from
acquisitions, branching and entering into new lines of business. Finally,
the institution's regulatory agency has discretion to impose certain of the
restrictions generally applicable to significantly undercapitalized
institutions.
In the event an institution is deemed to be significantly
undercapitalized, it may be required to: sell stock; merge or be acquired;
restrict transactions with affiliates including restrictions on payment of
dividends; restrict interest rates paid; divest a subsidiary; or dismiss
specified directors or officers. If the institution is a bank holding
company, it may be prohibited from making any capital distributions without
prior approval of the FRB and may be required to divest a subsidiary. A
critically undercapitalized institution is generally prohibited from making
payments on subordinated debt and may not, without the approval of the
FDIC, enter into a material transaction other than in the ordinary course
of business; engage in any covered transaction; or pay excessive
compensation or bonuses. Critically undercapitalized institutions are
subject to appointment of a receiver or conservator.
As of December 31, 1995, the Company was in compliance with applicable
capital and risk-based capital ratio requirements.
ITEM 2. Description of Property
BRANCH OFFICES AND FACILITIES
The Banks are engaged in the banking business through 55 offices in
twelve counties in Northern California, including eleven offices in Marin
County, nine in Sonoma County, seven in Napa County, six in Solano County,
five in Stanislaus County, four in Contra Costa County, four in Lake County,
three in Mendocino County, two in Nevada County, two in Sacramento County,
one in San Francisco County and one in Placer County. All offices are
constructed and equipped to meet prescribed security requirements.
The Banks own fifteen banking office locations and three administrative
buildings, including the Company's headquarters. Forty banking offices and
two support facilities are leased. Most of the leases contain multiple
<PAGE>
five-year renewal options and provisions for rental increase, principally for
changes in the cost of living index, property taxes and maintenance.
ITEM 3. Legal Proceedings
The Company and its subsidiaries are defendants in various legal actions
which, in the opinion of management based on discussions with independent
legal counsel, will be resolved with no material effect on the Company's
consolidated results of operations or financial position.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the shareholders during the fourth
quarter of 1995.
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is traded on the NASDAQ National Market
Exchange (NASDAQ) under the symbol "WABC". The following table shows the high
and low closing price for the common stock, for each quarter, as reported by
NASDAQ, previously reported on the American Stock Exchange.
Period
1995 High Low
--------------------------------------------------------------
First quarter ........................... $33.25 $29.50
Second quarter ........................... 37.50 33.00
Third quarter ........................... 38.50 36.50
Fourth quarter ........................... 43.25 38.50
1994 High Low
--------------------------------------------------------------
First quarter ........................... $29.25 $25.88
Second quarter ........................... 32.50 27.00
Third quarter ........................... 33.25 29.25
Fourth quarter ........................... 33.25 29.00
As of December 31, 1995, there were 6,832 holders of record of the
Company's common stock. This number does not include stockholders from
acquired companies that as of December 31, 1995 had not yet tendered their
shares for conversion to Company Common Stock.
The Company has paid cash dividends on its common stock in every quarter
since commencing operations on January 1, 1973, and it is currently the
intention of the Board of Directors of the Company to continue payment of
cash dividends on a quarterly basis. There is no assurance, however, that
any dividends will be paid since they are dependent upon the earnings,
financial condition and capital requirements of the Company and its
subsidiaries. As of December 31, 1995, $45.9 million was available for
payment of dividends by the Company to its shareholders, under the
restrictions imposed by regulatory agencies.
Additional information (required by Item 5) regarding the amount of cash
dividends declared on common stock for the two most recent fiscal years is
discussed in Note 17 to the consolidated financial statements on page 68
of this report.
As discussed in Note 7 of the notes to the consolidated financial
statements, in December 1986, the Company declared a dividend distribution
of one common share purchase right (a "Right") for each outstanding share
of common stock. The terms of the Rights were amended and restated on
September 28, 1989. On March 23, 1995, the Board of Directors of the
Company approved a further amendment and restatement of the Rights. Among
other things, the amendments provided that after an acquisition of 15 percent
of the Company's common stock without the prior consent of the Company, the
Board of Directors will have the power to cause each Right to be exchanged
for one share of common stock of the Company.
<PAGE>
ITEM 6. Selected Financial Data
Financial Summary
(In thousands, except per share data and number of shareholders)
<TABLE>
<CAPTION>
Financial Summary
(In thousands,
except per share data) 1995 1994* 1993* 1992* 1991*
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Years ended December 31
Interest income $ 174,377 $ 166,094 $ 165,975 $ 185,060 $ 212,811
Interest expense 58,612 49,860 51,158 69,951 103,233
- -------------------------------------------------------------------------------------------
Net interest income 115,765 116,234 114,817 115,109 109,578
Provision for loan losses 5,595 7,420 10,581 8,410 12,201
Non-interest income 21,533 25,999 33,806 30,646 28,485
Non-interest expense 86,340 94,341 121,441 111,662 103,358
- -------------------------------------------------------------------------------------------
Income before income taxes 45,363 40,472 16,601 25,683 22,504
Provision for income taxes 13,979 12,810 4,507 9,642 7,742
- -------------------------------------------------------------------------------------------
Net income $ 31,384 $ 27,662 $ 12,094 $ 16,041 $ 14,762
===========================================================================================
Per share:
Net income $ 3.18 $ 2.79 $ 1.22 $ 1.66 $ 1.54
Dividends declared .77 .64 .57 .51 .44
Book value at December 31 22.87 20.67 19.03 18.18 17.12
Average common shares outstanding 9,877 9,916 9,884 9,678 9,587
Shares outstanding at December 31 9,793 9,901 9,914 9,772 9,494
At December 31
Cash and cash equivalents $ 182,133 $ 180,957 $ 157,750 $ 198,011 $ 183,296
Investment securities and
money market assets 862,762 826,896 807,490 654,883 599,187
Loans, net 1,353,732 1,354,539 1,368,923 1,424,436 1,494,766
Other assets 92,317 95,035 94,685 99,385 89,456
- --------------------------------------------------------------------------------------------
Total assets $2,490,944 $2,457,427 $2,428,848 $2,376,715 $2,366,705
============================================================================================
Non-interest bearing deposits $ 497,489 $ 472,301 $ 462,636 $ 397,185 $ 357,295
Interest bearing deposits 1,552,032 1,599,391 1,647,395 1,744,900 1,788,136
Other liabilities 217,486 181,074 130,173 56,990 58,691
Shareholders' equity 223,937 204,661 188,644 177,640 162,583
- --------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $2,490,944 $2,457,427 $2,428,848 $2,376,715 $2,366,705
============================================================================================
<FN>
* Restated on an historical basis to reflect the January 31, 1995
acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp, on a
pooling-of-interests basis.
** Fully taxable equivalent
</TABLE>
<PAGE>
Financial Summary
Continued
<TABLE>
<CAPTION>
(In thousands,
except per share data) 1995 1994* 1993* 1992* 1991*
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Ratios
For the year:
Return on assets 1.30% 1.13% .51% .68% .64%
Return on equity 14.61 14.13 6.73 9.49 9.33
Net interest margin (FTE)** 5.56 5.45 5.50 5.51 5.34
Net loan losses to average loans .33 .37 .65 .50 .44
At December 31:
Equity to assets 8.99 8.33 7.77 7.47 6.87
Total capital to
risk-adjusted assets 15.18 15.01 14.13 12.25 11.12
Loan loss reserve to loans 2.42 2.34 2.15 2.03 1.85
<FN>
* Restated on an historical basis to reflect the January 31, 1995
acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp, on a
pooling-of-interests basis.
** Fully taxable equivalent
</TABLE>
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion addresses information pertaining to the
financial condition and results of operations of Westamerica Bancorporation
(the "Company") that may not be otherwise apparent from a review of the
consolidated financial statements and related footnotes. It should be read in
conjunction with those statements and notes found on pages 40 through 69, as
well as with the other information presented throughout the report.
All financial information has been restated on an historical basis to
reflect the PV Financial acquisition on January 31, 1995, the CapitolBank
Sacramento acquisition on June 6, 1995, and the North Bay Bancorp acquisition
on July 17, 1995, (the "Mergers") using the pooling-of-interests method of
accounting.
The Company achieved record earnings of $31.4 million in 1995,
representing a 13 percent increase from the $27.7 million earned in 1994 and
160 percent higher than 1993 earnings of $12.1 million. The reduced level of
earnings in 1993 was mostly due to $10.5 million in after-tax charges
resulting from the April 15, 1993 merger with Napa Valley Bancorp that were
taken in the form of asset write-downs, a special loan loss provision and
other merger-related charges.
Components of Net Income
(Percent of average earning assets) 1995 1994 1993
- ---------------------------------------------------------------------
Net interest income* 5.56% 5.45% 5.50%
Provision for loan losses (.25) (.33) (.49)
Non-interest income .98 1.17 1.58
Non-interest expense (3.92) (4.23) (5.67)
Taxes* (.94) (.82) (.35)
- ---------------------------------------------------------------------
Net income 1.43% 1.24% .57%
=====================================================================
Net income as a percentage of
average total assets 1.30% 1.13% .51%
* Fully taxable equivalent (FTE)
On a per share basis, 1995 net income was $3.18, compared to $2.79 and
$1.22 in 1994 and 1993, respectively. During 1995, the Company benefited from
increases in earning assets yields and continuing expense controls which were
partially offset by increases in cost of funds and declines in non-interest
income. Earnings in 1994 were favorably affected compared to 1993 by
reductions in cost of funds and expense controls which were partially offset
by declines in non-interest income.
The Company's return on average total assets was 1.30 percent in 1995,
compared to 1.13 percent and .51 percent in 1994 and 1993, respectively.
Return on average equity in 1995 was 14.61 percent, compared to 14.13 percent
and 6.73 percent, respectively, in the two previous years.
Net Interest Income
The Company was able to increase net interest income levels from 1994,
due to increases in earning assets yields that more than offset the lower
<PAGE>
level of average earning assets and a more unfavorable composition of
deposits. Comparing 1994 to 1993, due to increases in the average earning
assets, including increases in the tax-free investment securities portfolio
which resulted in a higher fully taxable equivalent adjustment, and a more
favorable composition of deposits, the Company was able to generate higher
net interest income on a fully taxable equivalent basis.
Components of Net Interest Income
(In millions) 1995 1994 1993
- -------------------------------------------------------------
Interest income $ 174.4 $ 166.1 $ 166.0
Interest expense (58.6) (49.9) (51.1)
FTE adjustment 6.5 5.4 2.8
- -------------------------------------------------------------
Net interest income (FTE) $ 122.3 $ 121.6 $ 117.7
=============================================================
Average earning assets $ 2,200.9 $2,232.6 $2,146.0
Net interest margin (FTE) 5.56% 5.45% 5.50%
Net interest income (FTE) in 1995 increased $700,000 from 1994 to $122.3
million. Interest income increased $8.3 million from 1994, the combined
effect of a 53 basis point increase in earning-asset yields partially offset
by a $29.2 million decrease in average balances. The effect was offset by an
$8.7 million increase in interest expense, the result of an increase of 62
basis points in rates paid combined with a $69.2 million decrease in the
average balance of interest-bearing liabilities. In addition, the FTE
adjustment increased $1.1 million due to increases in tax-free earning
assets. Comparing 1994 to 1993, net interest income increased $3.9 million. A
decrease in interest expense of $1.2 million and a $2.6 million increase in
the fully taxable equivalent adjustment due to increases in the tax-free
investment securities portfolio account for the majority of the variance.
Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present, for the periods indicated, information
regarding the consolidated average assets, liabilities and shareholders'
equity, the amounts of interest income from average earning assets and the
resulting yields, and the amount of interest expense paid on
interest-bearing liabilities.
Average loan balances include non-performing loans. Interest income
includes proceeds from loans on non-accrual status only to the extent cash
payments have been received and applied as interest income. Yields on
securities and certain loans have been adjusted upward to reflect the effect
of income thereon exempt from federal income taxation at the current
statutory tax rate. Amortized loan fees, which are included in interest and
fee income on loans were $1.3 million lower in 1995 than in 1994 and $1.8
million lower in 1994 than in 1993.
<PAGE>
Distribution of Average Assets, Liabilities and Shareholders' Equity
Yields/Rates and Interest Margin
(Dollars in thousands) Full Year 1995
- --------------------------------------------------------------------------
Interest Rates
Average income/ earned/
balance expense paid
- --------------------------------------------------------------------------
Assets
Money market assets and funds sold $ 4,886 $ 276 5.65 %
Trading account securities 11 1 6.35
Investment securities 826,329 51,289 6.21
Loans:
Commercial 806,103 79,010 9.80
Real estate construction 62,562 7,178 11.47
Real estate residential 213,967 15,919 7.44
Consumer 287,032 27,249 9.49
- ------------------------------------------------------------------
Earning assets 2,200,890 180,922 8.22
Other assets 215,973
- ---------------------------------------------------------
Total assets $2,416,863
=========================================================
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $ 451,560
Savings and interest-bearing
transaction 1,087,169 24,519 2.26 %
Time less than $100,000 305,507 15,066 4.93
Time $100,000 or more 166,241 8,895 5.35
- ------------------------------------------------------------------
Total interest-bearing deposits 1,558,917 48,480 3.11
Funds purchased 149,902 8,403 5.61
Notes and mortgages payable 22,667 1,729 7.63
- ------------------------------------------------------------------
Total interest-bearing liabilities 1,731,486 58,612 3.39
Other liabilities 18,961
Shareholders' equity 214,856
- ---------------------------------------------------------
Total liabilities and shareholders' equity $2,416,863
=========================================================
Net interest spread (1) 4.83 %
Net interest income and interest margin (2) $122,310 5.56 %
==========================================================================
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on
interest-bearing liabilities.
(2) Net interest margin is computed by dividing net interest
income by total average earning assets.
<PAGE>
Distribution of Average Assets, Liabilities and Shareholders' Equity
Yields/Rates and Interest Margin
(Dollars in thousands) Full Year 1994
- ---------------------------------------------------------------------------
Interest Rates
Average income/ earned/
balance expense paid
- --------------------------------------------------------------------------
Assets
Money market assets and funds sold $ 35,514 $ 1,367 3.85 %
Trading account securities 37 2 4.24
Investment securities 831,478 49,272 5.93
Loans:
Commercial 798,894 72,894 9.12
Real estate construction 76,875 7,695 10.01
Real estate residential 197,675 14,236 7.20
Consumer 292,080 25,959 8.89
- ------------------------------------------------------------------
Earning assets 2,232,553 171,425 7.68
Other assets 221,555
- ---------------------------------------------------------
Total assets $2,454,108
=========================================================
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $ 439,881 $ -- -- %
Savings and interest-bearing
transaction 1,166,249 23,672 2.03
Time less than $100,000 320,915 12,533 3.91
Time $100,000 or more 153,504 5,762 3.75
- ------------------------------------------------------------------
Total interest-bearing deposits 1,640,668 41,967 2.56
Funds purchased 130,299 5,281 4.05
Notes and mortgages payable 29,690 2,612 8.80
- ------------------------------------------------------------------
Total interest-bearing liabilities 1,800,657 49,860 2.77
Other liabilities 17,780
Shareholders' equity 195,790
- ---------------------------------------------------------
Total liabilities and shareholders' equity $2,454,108
=========================================================
Net interest spread (1) 4.91 %
Net interest income and interest margin (2) $121,565 5.45 %
==========================================================================
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on
interest-bearing liabilities.
(2) Net interest margin is computed by dividing net interest
income by total average earning assets.
<PAGE>
Distribution of Average Assets, Liabilities and Shareholders' Equity
Yields/Rates and Interest Margin
(Dollars in thousands) Full Year 1993
- ---------------------------------------------------------------------------
Interest Rates
Average income/ earned/
balance expense paid
- --------------------------------------------------------------------------
Assets
Money market assets and funds sold $ 36,348 $ 1,159 3.19 %
Trading account securities 183 6 3.14
Investment securities 698,961 43,328 6.20
Loans:
Commercial 807,878 71,201 8.81
Real estate construction 87,080 7,854 9.02
Real estate residential 196,346 16,039 8.17
Consumer 319,182 29,226 9.16
- ------------------------------------------------------------------
Earning assets 2,145,978 168,813 7.87
Other assets 231,498
- ---------------------------------------------------------
Total assets $2,377,476
=========================================================
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $ 405,200 $ -- -- %
Savings and interest-bearing
transaction 1,121,004 24,130 2.15
Time less than $100,000 382,608 15,852 4.14
Time $100,000 or more 194,072 7,141 3.68
- ------------------------------------------------------------------
Total interest-bearing deposits 1,697,684 47,123 2.78
Funds purchased 60,136 2,018 3.36
Notes and mortgages payable 17,986 2,017 11.21
- ------------------------------------------------------------------
Total interest-bearing liabilities 1,775,806 51,158 2.88
Other liabilities 16,757
Shareholders' equity 179,713
- ---------------------------------------------------------
Total liabilities and shareholders' equity $2,377,476
=========================================================
Net interest spread (1) 4.99 %
Net interest income and interest margin (2) $117,655 5.50 %
===========================================================================
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on
interest-bearing liabilities.
(2) Net interest margin is computed by dividing net interest
income by total average earning assets.
<PAGE>
Rate and volume variances
The following table sets forth a summary of the changes in interest
income and interest expense from changes in average assets and liability
balances (volume) and changes in average interest rates for the periods
indicated. Changes not solely attributable to volume or rates have been
allocated in proportion to the respective volume and rate components.
For the years
(In thousands) ended December 31,
- -------------------------------------------------------------------
1995 compared with 1994
---------------------------
Volume Rate Total
- ------------------------------------------------------------------
Increase (decrease) in
interest and fee income:
MMkt. assets and funds sold $(2,386) $1,295 $(1,091)
Trading account securities (3) 2 (1)
Investment securities (303) 2,320 2,017
Loans:
Commercial 663 5,453 6,116
Real estate construction (2,407) 1,890 (517)
Real estate residential 1,201 482 1,683
Consumer (438) 1,728 1,290
- ------------------------------------------------------------------
Total loans (981) 9,553 8,572
- ------------------------------------------------------------------
Total increase (decrease) in
interest and fee income (3,673) 13,170 9,497
- ------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (1,326) 2,173 847
Time less than $ 100,000 (566) 3,099 2,533
Time $ 100,000 or more 511 2,622 3,133
- ------------------------------------------------------------------
Total interest-bearing (1,381) 7,894 6,513
Funds purchased 880 2,242 3,122
Notes and mortgages payable (565) (318) (883)
- ------------------------------------------------------------------
Total increase (decrease) in
interest expense (1,066) 9,818 8,752
- ------------------------------------------------------------------
Increase (decrease) in
net interest income $(2,607) $3,352 $ 745
==================================================================
(1) Amounts calculated on a fully taxable equivalent basis using the
current statutory federal tax rate.
<PAGE>
For the years
(In thousands) ended December 31,
- ------------------------------------------------------------------
1994 compared with 1993
---------------------------
Volume Rate Total
- ------------------------------------------------------------------
Increase (decrease) in
interest and fee income:
MMkt. assets and funds sold $ (26) $ 234 $ 208
Trading account securities (7) 3 (4)
Investment securities 7,743 (1,799) 5,944
Loans:
Commercial (779) 2,472 1,693
Real estate construction (2,539) 2,380 (159)
Real estate residential 109 (1,912) (1,803)
Consumer (2,427) (840) (3,267)
- ------------------------------------------------------------------
Total loans (5,636) 2,100 (3,536)
- ------------------------------------------------------------------
Total increase (decrease) in
interest and fee income 2,074 (538) 2,612
- ------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing 1,108 (1,566) (458)
Time less than $ 100,000 (2,448) (871) (3,319)
Time $ 100,000 or more (1,526) 147 (1,379)
- ------------------------------------------------------------------
Total interest-bearing (2,866) (2,290) (5,156)
Funds purchased 2,770 493 3,263
Notes and mortgages payable 890 (295) 595
- ------------------------------------------------------------------
Total increase (decrease) in
interest expense 794 (2,092) (1,298)
- ------------------------------------------------------------------
Increase in net
interest income $1,280 $2,630 $3,910
==================================================================
(1) Amounts calculated on a fully taxable equivalent basis using the
current statutory federal tax rate.
Provision for Loan Losses
The level of the provision for loan losses reflects the Company's
continuing efforts to improve loan quality by enforcing strict underwriting
and administration procedures and aggressively pursuing collection efforts
with troubled debtors. The provision for loan losses was $5.6 million for
1995, compared to $7.4 million in 1994 and $10.6 million in 1993. The
reduction in the provision in 1995 was due to improved asset quality. The
1993 provision included a $3.1 million merger-related provision, reflecting
an aggressive workout strategy for loans and properties acquired in the Napa
Valley Bancorp merger. For further information regarding net credit losses
and the reserve for loan losses, see the "Reserve for Loan Losses" section of
this report.
<PAGE>
Investment Portfolio
The Company maintains a securities portfolio consisting of U.S.
Treasury, U.S. Government agencies and corporations, state and political
subdivisions, asset-backed and other securities. Investment securities are
held in safekeeping by an independent custodian. In November 1995, the
Financial Accounting Standards Board issued a special report, "A Guide to
Implementation to Statement No. 115, on Accounting for Certain Investments in
Debt and Equity Securities - Questions and Answers" (the "Special Report").
The Special Report allowed companies to reassess the appropriateness of the
classifications of all securities and account for any reclassification at
fair value. The Company adopted the reclassification provision stated in the
Special Report prior to December 31, 1995 and transferred $329.4 million
of securities held to maturity into available for sale. The unrealized pretax
gain upon transfer was $1.1 million as of December 31, 1995.
The objective of the investment securities held to maturity is to
strengthen the portfolio yield, and to provide collateral to pledge for
federal, state and local government deposits and other borrowing facilities.
The investments held to maturity had an average term to maturity of 64 months
at December 31, 1995 and, on the same date, those investments included $241.2
million in fixed rate and $1.0 million in adjustable rate securities.
Investment securities available for sale are generally used to
supplement the Banks' liquidity. Unrealized net gains and losses on these
securities are recorded as an adjustment to equity net of taxes, and are not
reflected in the current earnings of the Company. If a security is sold, any
gain or loss is recorded as a charge to earnings and the equity adjustment is
reversed. At December 31, 1995, the Banks held $620.3 million classified as
investments available for sale. At December 31, 1995, a net unrealized gain
of $1.7 million, related to these securities was held in stockholders'
equity.
The Company had no trading securities at December 31, 1995.
For more information on investment securities, see Notes 1 and 2
to the consolidated financial statements found on pages 47 and 50.
The following table shows the amortized cost of the Company's investment
securities as of the dates indicated:
(In thousands) 1995 1994 1993
- ------------------------------------------------------------------------
U.S. Treasury $240,832 $279,014 $286,300
U.S. Government agencies and corporations 248,964 275,221 269,004
States and political subdivisions 228,068 198,135 128,758
Asset backed securities 83,636 37,162 65,433
Other securities 58,079 40,785 45,701
- ------------------------------------------------------------------------
Total $859,579 $830,317 $795,196
========================================================================
The following table is a summary of the relative maturities and yields
of the Company's investment securities as of December 31, 1995. Weighted
average yields have been computed by dividing annual interest income,
adjusted for amortization of premium and accretion of discount, by the
<PAGE>
amortized cost of the related security. Yields on state and political
subdivision securities have been calculated on a fully taxable equivalent
basis using the current statutory rate.
<TABLE>
<CAPTION>
Held to Maturity
- -----------------------------------------------------------------------------------------
Within After One After Five
One But Within But Within After Ten Mortgage
(Dollars in thousands) Year Five Years Ten Years Years Backed Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ -- $ -- $ -- $ -- $ -- $ --
Interest rate --% --% --% --% --% --%
U.S. Government agencies
and corporations -- -- -- -- -- --
Interest rate --% --% --% --% --% --%
States and political
subdivisions 997 4,020 47,286 57,451 -- 109,754
Interest rate 7.97% 10.81% 8.11% 8.31% --% 8.31%
Asset backed -- 3,264 -- -- -- 3,264
Interest rate --% 5.53% --% --% --% 5.53%
Other securities 1,896 -- -- 2,198 -- 4,094
Interest rate 6.70% --% --% 6.00% --% 6.32%
- -----------------------------------------------------------------------------------------
Subtotal $2,893 $7,284 $47,286 $59,649 $ -- $117,112
Interest rate 7.14% 8.44% 8.11% 8.23% --% 8.16%
Mortgage backed -- -- -- -- 125,063 125,063
Interest rate --% --% --% --% 5.20% 5.20%
- -----------------------------------------------------------------------------------------
Total $2,893 $7,284 $47,286 $59,649 $125,063 $242,175
Interest rate 7.14% 8.44% 8.11% 8.23% 5.20% 6.63%
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Available for Sale
- -----------------------------------------------------------------------------------------
Within After One After Five
One But Within But Within After Ten Mortgage
(Dollars in thousands) Year Five Years Ten Years Years Backed Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $121,547 $119,284 $ -- $ -- $ -- $240,831
Interest rate 5.80% 5.27% --% --% --% 5.54%
U.S. Government agencies
and corporations 13,000 20,349 -- -- -- 33,349
Interest rate 4.93% 5.82% --% --% --% 5.47%
States and political
subdivisions 8,452 24,038 26,205 59,618 -- 118,313
Interest rate 7.98% 9.36% 7.85% 8.17% --% 8.32%
Asset backed -- 33,879 46,493 -- -- 80,372
Interest rate --% 5.60% 6.09% --% --% 5.88%
Other securities 1,010 47,470 -- 5,505 -- 53,985
Interest rate 7.00% 6.26% --% 10.22% --% 6.68%
- -----------------------------------------------------------------------------------------
Subtotal $144,009 $245,020 $72,698 $65,124 $-- $526,850
Interest rate 5.86% 5.95% 6.72% 8.34% --% 6.33%
Mortgage backed -- -- -- -- 90,554 90,554
Interest rate --% --% --% --% 6.10% 6.10%
- -----------------------------------------------------------------------------------------
Total $144,009 $245,020 $72,698 $65,124 $90,553 $617,404
Interest rate 5.86% 5.95% 6.72% 8.34% 6.10% 6.30%
=========================================================================================
</TABLE>
<PAGE>
Loan Portfolio
The following table shows the composition of loans of the Company
by type of loan or type of borrower, on the dates indicated.
<TABLE>
Composition of the Loan Portfolio
<CAPTION>
(In thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and commercial
real estate $ 816,422 $ 813,589 $ 812,630 $ 820,666 $ 844,870
Real estate construction 54,181 73,492 76,330 99,924 131,450
Real estate residential 237,535 207,477 206,264 201,080 181,216
Consumer 291,350 308,812 319,545 350,919 384,642
Unearned income (12,248) (16,381) (15,801) (18,899) (19,301)
- --------------------------------------------------------------------------------------------
Gross loans $1,387,240 $1,386,989 $1,398,968 $1,453,690 $1,522,877
Reserve for loan losses (33,508) (32,450) (30,045) (29,254) (28,111)
- --------------------------------------------------------------------------------------------
Net loans $1,353,732 $1,354,539 $1,368,923 $1,424,436 $1,494,766
============================================================================================
</TABLE>
Maturities and Sensitivity of Selected Loans to Changes in Interest Rates
The following table shows the maturity distribution and interest rate
sensitivity of Commercial and Real estate construction loans at December 31,
1995.*
<TABLE>
<CAPTION>
Within One to After
one year five years five years Total
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and Commercial
real estate** $540,942 $132,501 $142,979 $816,422
Real estate construction 52,445 1,736 -- 54,181
- ----------------------------------------------------------------------------------
Total $593,387 $134,237 $142,979 $870,603
==================================================================================
Loans with fixed interest rates $ 31,065 $134,237 $142,979 $308,281
Loans with floating interest rates 562,322 -- -- 562,322
- ----------------------------------------------------------------------------------
Total $593,387 $134,237 $142,979 $870,603
==================================================================================
<FN>
* Excludes loans to individuals and residential mortgages totaling $516.6
million. These types of loans are typically paid in monthly installments
over a number of years.
** Incudes demand loans
</TABLE>
Commitments and Lines of Credit
It is not the policy of the Company to issue formal commitments on lines
of credit except to a limited number of well established and financially
responsible local commercial enterprises. Such commitments can be either
secured or unsecured and are typically in the form of revolving lines of
credit for seasonal working capital needs. Occasionally, such commitments
are in the form of Letters of Credit to facilitate the customer's
particular business transaction. Commitment fees generally are not charged
except where Letters of Credit are involved. Commitments and lines of
credit typically mature within one year. See also Note 12 of the
consolidated notes to the financial statements found on page 61.
<PAGE>
Asset Quality
The Company closely monitors the markets in which it conducts its
lending operations. The Company continues its strategy to control its
exposure to loans with higher credit risk and increase diversification of
earning assets into less risky investments. Asset reviews are performed using
grading standards and criteria similar to those employed by bank regulatory
agencies. Assets receiving lesser grades fall under the "classified assets"
category, which includes all non-performing assets and potential problem
loans, and receive an elevated level of attention to ensure collection.
The following is a summary of classified assets on the dates indicated:
(In millions)
At December 31, 1995 1994
- ------------------------------------------------------
Classified loans $44.9 $49.7
Other classified assets 5.1 8.0
- ------------------------------------------------------
Total classified assets $50.0 $57.7
======================================================
Classified loans at December 31, 1995 decreased $4.8 million or 10
percent to $44.9 million from December 31, 1994, reflecting improvements in
the borrowers' financial condition and satisfaction of debt. The improvement
is primarily due to the repayment of classified loans with real estate
collateral. Other classified assets, which decreased $2.9 million from the
prior year, were due to sales and write-downs of properties classified as
other real estate owned.
Non-Performing Assets
Non-performing assets include non-accrual loans, loans 90 or more days
past due and still accruing and other real estate owned. Loans are placed on
non- accrual status upon reaching 90 days or more delinquent, unless the loan
is well secured and in the process of collection. Interest previously accrued
on loans placed on non-accrual status is charged against interest income.
Generally, loans secured by real estate with temporarily impaired values and
commercial loans to borrowers experiencing financial difficulties are placed
on non-accrual status even though the borrowers continue to repay the loans
as scheduled. Such loans are classified by Management as "performing non-
accrual" and are included in total non-performing assets. Performing non-
accrual loans are reinstated to accrual status when improvements in credit
quality eliminate the doubt as to the full collectibility of both interest
and principal. When the ability to fully collect non-accrual loan principal
is in doubt, cash payments received are applied against the principal balance
of the loan until such time as full collection of the remaining recorded
balance is expected. Any additional payments received after that point are
recorded as interest income on a cash basis.
<PAGE>
<TABLE>
Non-performing assets
<CAPTION>
(in millions) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Performing non-accrual loans $ 2.4 $ 2.0 $ 1.9 $ 1.2 $ 2.2
Non-performing non-accrual loans 7.5 8.3 13.9 36.2 50.1
- ---------------------------------------------------------------------------------
Total non-accrual loans 9.9 10.3 15.8 37.4 52.3
Loans 90 or more days past due
and still accruing .3 1.8 1.7 .6 1.6
- ---------------------------------------------------------------------------------
Total non-performing loans 10.2 12.1 17.5 38.0 53.9
Other real estate owned 5.1 8.0 14.0 18.6 5.8
- ---------------------------------------------------------------------------------
Total non-performing assets $15.3 $20.1 $31.5 $56.6 $59.7
=================================================================================
Reserve for loan losses as a percentage of
non-performing loans 329% 268% 172% 77% 52%
</TABLE>
Performing non-accrual loans increased $400,000 to $2.4 million at
December 31, 1995 while non-performing non-accrual loans decreased $800,000
to $7.5 million at December 31, 1995, due to loan collections, write-downs
and payoffs.
The declining other real estate balance during 1995 and 1994 was due to
asset write-downs and liquidations. The overall credit quality of the loan
portfolio has improved, resulting in an increase in the ratio of loan loss
reserve as a percentage of total non-accrual loans and loans 90 or more days
past due and still accruing. The performance of any individual loan can be
impacted by external factors such as the interest rate environment or factors
particular to the borrower. The amount of gross interest income that would
have been recorded for non-accrual loans if all such loans had been current
in accordance with their original terms was $817,000, $1.2 million and $1.4
million in 1995, 1994 and 1993, respectively. The amount of interest income
that was recognized on non-accrual loans from cash payments made in 1995,
1994 and 1993 was $237,000, $413,000 and $372,000, respectively. Cash
payments received which were applied against the book balance of performing
and non-performing non-accrual loans were immaterial for all three years.
<PAGE>
<TABLE>
<CAPTION>
Summary of Non-Accrual Loans
(In thousands)
- --------------------------------------------------------------------------------
December 31, 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Performing non-accrual loans $2,464 $ 1,943 $ 1,927 $ 1,199 $ 2,227
Non-performing non-accrual loans 7,486 8,347 13,852 36,182 50,074
- --------------------------------------------------------------------------------
Total non-accrual loans 9,950 10,290 15,779 37,381 52,301
- --------------------------------------------------------------------------------
Performing non-accrual loans
Commercial 1,367 1,761 1,198 1,125 2,227
Real estate construction 1,097 156 729 -- --
Real estate residential -- -- -- 74 --
Consumer -- 26 -- -- --
- --------------------------------------------------------------------------------
Total performing
non-accrual loans 2,464 1,943 1,927 1,199 2,227
- --------------------------------------------------------------------------------
Non-performing non-accrual loans
Commercial 3,641 4,201 9,143 22,671 25,237
Real estate construction 2,927 2,229 3,887 1,078 22,032
Real estate residential 645 1,774 197 2,142 2,491
Consumer 272 143 625 291 314
- --------------------------------------------------------------------------------
Total non-performing
non-accrual loans 7,486 8,347 13,852 36,182 50,074
- --------------------------------------------------------------------------------
Total non-accrual loans $9,950 $10,290 $15,779 $37,381 $52,301
================================================================================
</TABLE>
It is the position of the Company that, even though the strategy to
improve credit quality is reflected in the declining balances of non-
performing assets during the past five years, the increased levels of the
loan loss reserve is adequate to provide for losses that can be estimated
based on anticipated specific and general conditions as determined by
Management. These include credit loss experience, the amount of past due and
non-performing loans, recommendations of regulatory authorities and
prevailing economic conditions. The reserve is allocated to segments of the
loan portfolio based in part on a quantitative analysis of historical credit
loss experience. Criticized and classified loans balances are analyzed using
a linear regression model or standard allocation percentages. The results of
this analysis are applied to current criticized and classified loan balances
to allocate the reserve to the respective segments of the loan portfolio. In
addition, loans with similar characteristics not usually criticized using
regulatory guidelines due to their small balances and homogeneous nature, are
analyzed based on the historical rate of net losses and delinquency trends
grouped by the number of days the payments on those loans are delinquent.
While these factors are essentially judgemental and may not be reduced to a
mathematical formula, management considers the reserve for loan losses, for
the periods presented, to be adequate as a reserve against inherent losses.
Management continues to evaluate the loan portfolio and assess current
economic conditions that will dictate future reserve levels.
<PAGE>
The following table summarizes the loan loss experience of the Company
for the periods indicated:
<TABLE>
Loan Loss Experience
<CAPTION>
(In thousands)
- --------------------------------------------------------------------------------------------
December 31, 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total loans outstanding $1,387,240 $1,386,989 $1,398,968 $1,453,690 $1,522,877
Average loans outstanding
during the period 1,369,663 1,363,109 1,410,485 1,471,777 1,536,926
Analysis of the reserve:
Balance, beginning of period $32,450 $30,045 $29,254 $28,111 $22,592
Credit losses:
Commercial (3,033) (4,004) (6,469) (5,286) (6,118)
Real estate construction (1,292) (750) (2,274) (1,657) (50)
Real estate residential (167) -- (114) (80) --
Consumer (2,278) (2,663) (2,657) (3,178) (4,336)
- --------------------------------------------------------------------------------------------
Total (6,770) (7,417) (11,514) (10,201) (10,504)
Credit loss recoveries:
Commercial 1,117 1,088 1,193 1,360 1,118
Real estate construction 3 65 -- -- --
Real estate residential -- -- 5 18 --
Consumer 1,113 1,249 1,210 1,556 2,704
- --------------------------------------------------------------------------------------------
Total 2,233 2,402 2,408 2,934 3,822
- --------------------------------------------------------------------------------------------
Net credit losses (4,537) (5,015) (9,106) (7,267) (6,682)
- --------------------------------------------------------------------------------------------
Sale of Sonoma Valley Bank -- -- (684) -- --
Additions to the reserve charged
to operating expense 5,595 7,420 10,581 8,410 12,201
- --------------------------------------------------------------------------------------------
Balance, end of period $33,508 $32,450 $30,045 $29,254 $28,111
============================================================================================
Net credit losses to average loans .33% .37% .65% .49% .43%
Reserve for loans losses as a
percentage of loans outstanding 2.42% 2.34% 2.15% 2.01% 1.85%
</TABLE>
<PAGE>
The following table present the allocation of the loan loss reserve
balance on the dates indicated:
Allocation of the Loan Loss Reserve
(Dollars in thousands)
- ----------------------------------------------------------------------------
At December 31, 1995 1994
- ------------------------------------------------ -----------------------
Allocation Loans as Allocation Loans as
of Percent of of Percent of
Type of loan Reserve Total Reserve Total
- ------------ Balance Loans Balance Loans
------- ------- ------- -------
Commercial $13,519 58.9% $11,596 58.6%
Real estate construction 3,586 3.9 2,108 5.3
Real estate residential 57 17.1 47 15.0
Consumer 3,588 20.1 3,765 21.1
Unallocated portion
of the reserve 12,758 14,934
------- ------- ------- -------
Total $33,508 100.0% $32,450 100.0%
======= ======= ======= =======
At December 31, 1993 1992
- ------------------------------------------------- ---------------------
Allocation Loans as Allocation Loans as
of Percent of of Percent of
Type of loan Reserve Total Reserve Total
- ------------ Balance Loans Balance Loans
------- ------- ------- -------
Commercial $15,454 58.1% $16,610 56.5%
Real estate construction 2,592 5.5 964 6.9
Real estate residential 85 14.7 545 13.8
Consumer 3,921 21.7 3,872 22.8
Unallocated portion
of the reserve 7,993 7,263
- --------------------------------------------------------------------------
Total $30,045 100.0% $29,254 100.0%
==========================================================================
At December 31, 1991
- --------------------------------------------------------------
Allocation Loans as
of Percent of
Type of loan Reserve Total
- ------------ Balance Loans
------- -------
Commercial $11,041 55.5%
Real estate construction 2,390 8.6
Real estate residential 50 11.9
Consumer 2,363 24.0
Unallocated portion of the reserve 12,267
- --------------------------------------------------------------
Total $28,111 100.0%
==============================================================
<PAGE>
The increase in the allocation to commercial loans from December 1994 to
December 1995 is primarily due to the inclusion of reserves allocated to
certain loans acquired through the 1995 mergers. The reduced allocation to
commercial loans during prior years is primarily due to fluctuations in the
balance of criticized loans. The increased allocation to construction loans
in attributable to increases in criticized loans due to the recessionary
environment and the level of credit loss recoveries. The unallocated
component includes Management's judgemental determination of the amounts
necessary for concentrations, economic uncertainties and other subjective
factors.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" ("SFAS 114"), as amended by Statement of Financial Accounting Standards
No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures" ("SFAS 118"). Under SFAS 114 a loan is
considered impaired when, based on current information and events, it is
"probable" that a creditor will be unable to collect all amounts due
(principal and interest) according to the contractual terms of the loan
agreement. The measurement of impairment may be based on (i) the present
value of the expected cash flows of the impaired loan discounted at the
loan's original effective interest rate, (ii) the observable market price of
the impaired loans or (iii) the fair value of the collateral of a collateral-
dependent loan. SFAS 114, as amended by SFAS 118, does not apply to large
groups of smaller balance homogeneous loans that are collectively evaluated
for impairment. The Company generally identifies loans to be reported as
impaired when such loans are in non-accrual status or are considered troubled
debt restructurings due to the granting of a below-market rate of interest or
a partial forgiveness of indebtedness on an existing loan.
In measuring impairment for the purpose of establishing specific loan
loss reserves, the Company reviews all impaired commercial and construction
loans classified "Substandard" and "Doubtful" that meet materiality
thresholds of $250,000 and $100,000, respectively. The Company considers
classified loans below the established thresholds to represent immaterial
loss risk. All "Loss" classified loans are fully reserved under the Company's
standard loan loss reserve methodology and subsequently charged-off.
Commercial and construction loans that are not classified, and large groups
of smaller balance homogeneous loans such as installment, personal revolving
credit, residential real estate and student loans, are evaluated collectively
for impairment under the Company's standard loan loss reserve methodology and
are, therefore, excluded from the specific evaluation using SFAS 114.
The following summarizes the Company's impaired loans at December 31, 1995:
Troubled Total
Non-accrual Debt Impaired Specific
(In thousands) Loans Restructurings Other Loans Reserves
- ------------------------------------------------------------------------
$9,950 $-- $251 $10,201 $850
The average balances of the Company's impaired loans for the year
ended December 31, 1995 were $10.3 million.
<PAGE>
Asset and Liability Management
The fundamental objective of the Company's management of assets and
liabilities is to maximize its economic value while maintaining adequate
liquidity and a conservative level of interest rate risk. In evaluating the
exposure to interest rate risk, the Company considers the effects of various
factors in implementing interest rate risk management activities, including
interest rate swaps, utilized to hedge the impact of interest rate
fluctuations on interest-bearing assets and liabilities in the current
interest rate environment. Interest rate swaps are agreements to exchange
interest payments computed on notional amounts, which are used as a basis for
the calculations only and do not represent exposure to risk for the Company.
The risk to the Company is associated with fluctuations of interest rates and
with the counterparty's ability to meet its interest payment obligations. The
Company minimizes this credit risk by entering into contracts with well-
capitalized money-center banks and by requiring settlement of only the net
difference between the exchanged interest payments. During 1994, the Company
was a party in four interest rate swaps, with notional amounts totaling
$110.0 million. In August 1995, the last two of these contracts, with
notional amounts totaling $60.0 million, expired. The Company paid a variable
rate based on three-month LIBOR and received an average fixed rate of 4.11
percent. The other two swaps, with notional amounts totaling $50.0 million,
expired in November and December 1994. The effect of entering into these
contracts resulted in reductions of net interest income of $763,000 and
$604,000 in 1995 and 1994, respectively.
The primary analytical tool used by the Company to gauge interest rate
sensitivity is a simulation model used by many major banks and bank
regulators. This industry standard model is used to simulate, based on the
current and projected portfolio mix, the effects on net interest income of
changes in market interest rates. Under the Company's policy and practice,
the projected amount of net interest income over the ensuing twelve months is
not allowed to fluctuate more than ten percent even under alternate assumed
interest rate changes of plus or minus 200 basis points. The results of the
model indicate that the mix of interest rate sensitive assets and liabilities
at December 31, 1995 did not expose the Company to an unacceptable level of
interest rate risk.
<PAGE>
<TABLE>
Interest Rate Sensitivity Analysis
<CAPTION>
At December 31, 1995
-------------------------------------------------------------------
Repricing within:
-----------------
0-30 31-90 91-180 180-365 Over One Non-
(In millions) Days Days Days Days Year Repricing Total
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investment securities $ 21 $ 32 $ 68 $ 138 $ 604 $ -- $ 863
Loans 686 42 62 66 531 -- 1,387
Other assets -- -- -- -- -- 241 241
- ------------------------------------------------------------------------------------------------
Total assets $ 707 $ 74 $ 130 $ 204 $1,135 $ 241 $2,491
================================================================================================
Liabilities
Non-interest bearing $ -- $ -- $ -- $ -- $ -- $ 497 $ 497
Interest bearing:
Transaction 356 -- -- -- -- -- 356
Money market savings 477 -- -- -- -- -- 477
Passbook savings 240 -- -- -- -- -- 240
Time 104 111 105 75 84 -- 479
Short-term borrowings 176 -- -- -- -- -- 176
Long-term debt -- -- -- -- 20 -- 20
Other liabilities -- -- -- -- -- 22 22
Shareholders' equity -- -- -- -- -- 224 224
- ------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,353 $ 111 $ 105 $ 75 $ 104 $ 743 $2,491
================================================================================================
Net assets (liabilities)
subject to repricing $ (646) $ (37) $ 25 $ 129 $1,031 $(502)
- --------------------------------------------------------------------------------------
Cumulative net assets
(liabilities) subject
to repricing $ (646) $(683) $(658) $(529) $ 502 $ --
======================================================================================
</TABLE>
The repricing terms of the table above do not represent contractual
principal maturity but rather principal cash flows available for repricing.
The interest rate sensitivity report shown above categorize interest-bearing
transaction deposits and savings deposits as repricing within 30 days.
However, it is the experience of Management that the historical interest rate
volatility of these interest-bearing transaction and savings deposits can be
similar to liabilities with longer repricing dates, depending on market
conditions. Moreover, the degree to which these interest-bearing transaction
and savings deposits respond to changes in money market rates usually is less
than the response of interest rate sensitive loans. These factors cause the
cumulative net liability position shown above to indicate a much greater
degree of liability sensitivity than Management believes really exists based
on the additional analysis previously discussed.
Liquidity
The principal sources of asset liquidity are marketable investment and
money market securities available for sale.
At December 31, 1995, investment securities available for sale totaled
$620.3 million. This represents an increase of $432.2 million from December
31, 1994. The increase from prior year is, in large part, the result of a
one-time reclassification, at December 31, 1995, of $329.4 million of
securities held to maturity to available for sale, that will provide greater
flexibility for managing the securities portfolio. (See Note 2 to the
consolidated financial statements regarding this one-time reclassification.)
In addition, and as in previous years, growth in deposits and purchased funds
exceeded loan growth, resulting in an increase in the overall size of the
securities portfolio.
<PAGE>
The Company generates significant liquidity from its operating
activities. The Company's profitability in 1995, 1994 and 1993 generated
substantial cash flows provided from operations of $40.1 million, $64.7
million and $27.8 million, respectively.
Additional cash flow may be provided by financing activities, primarily
the acceptance of customer deposits and short-term borrowings from banks.
Deposit balances declined $22.2 million, $38.3 million and $32.1 million
during 1995, 1994 and 1993, respectively. The decline in 1993 included the
effect of the sale of Sonoma Valley Bank. During 1994, the Company paid off
$10.8 million of its high-rate long-term debt. To compensate for decreases in
deposits and long-term debt, the Company increased its short-term borrowings,
which grew $40.2 million, $59.1 million and $57.2 million in 1995, 1994 and
1993, respectively. In addition, in December 1993, Westamerica Bank issued a
ten-year, $20.0 million subordinated capital note that qualified as Tier II
Capital, to be used as a source of working capital.
The Company uses cash flow from operating and financing activities to
make investments in loans, money market assets and investment securities. The
Company's strategy to reduce its exposure to high-risk loans was partially
offset by the risk level of loan portfolios acquired through the Mergers in
1995. The combination resulted in loan volume increases of $4.9 million and
$19.6 million in 1995 and 1994, respectively. It is the intention of the
Company to moderately increase loan volume without jeopardizing credit
quality. The investment securities portfolio increased by $29.3 million and
$27.4 million, in 1995 and 1994, respectively. The Company anticipates
increasing its cash levels through the end of 1996 mainly due to increased
profitability and retained earnings. For the same period, it is anticipated
that the investment securities portfolio and demand for loans will moderately
increase. The growth in deposit balances is expected to follow the
anticipated growth in loan and investment balances through the end of 1996.
Capital Resources
The current and projected capital position of the Company and the impact
of capital plans and long-term strategies is reviewed regularly by
Management. The Company's capital position represents the level of capital
available to support continued operations and expansion. The Company's
primary capital resource is shareholders' equity, which increased $19.3
million or 9 percent from the previous year end and increased $35.3 million
or 19 percent from December 31, 1993. The ratio of total risk-based capital
to risk-adjusted assets increased to 15.18 percent at December 31, 1995, from
15.01 percent at December 31, 1994. Tier I risk-based capital to
risk-adjusted assets increased to 12.77 percent at December 31, 1995, from
12.53 percent at year end 1994.
Capital to Risk-Adjusted Assets
Minimum
Regulatory
Capital
At December 31, 1995 1994 Requirements
- -------------------------------------------------------------------
Tier I Capital 12.77% 12.53% 4.00%
Total Capital 15.18 15.01 8.00
Leverage ratio 9.12 8.37 4.00
<PAGE>
The risk-based capital ratios improved in 1995 due to a more rapid
growth in equity than total assets, in conjunction with an increase in
investment securities and a decrease in loan balances, which reduced the
level of risk- adjusted assets. Capital ratios are reviewed on a regular
basis to ensure that capital exceeds the prescribed regulatory minimums and
is adequate to meet the Company's future needs. All ratios are in excess of
regulatory definitions of well capitalized . During 1995 and 1994, the Board
of Directors of the Company authorized the repurchase and retirement of up to
313,450 shares of common stock from time to time, subject to appropriate
regulatory and other accounting requirements. These purchases were made
periodically in the open market and reduced the dilutive impact of issuing
new shares to meet stock performance, option plans and other requirements.
The Company also plans to issue a $22.5 million senior note in 1996. The
proceeds of this note will be used primarily for working capital and for the
Company's ongoing stock repurchase program.
In fact, as of February 16, 1996, the Company issued $22.5 million of
its 7.11 percent Senior Notes due February 1, 2006 pursuant to a note
agreement dated as of February 1, 1996.
Financial Ratios
The following table shows key financial ratios for the periods indicated:
- -------------------------------------------------------------------
For the Years Ended 1995 1994 1993
- -------------------------------------------------------------------
Return on average total assets 1.30% 1.13% .51%
Return on average shareholders equity 14.61 14.13 6.73
Average shareholders' equity as a
percent of:
Average total assets 8.89 7.98 7.56
Average total loans 15.69 14.36 12.79
Average total deposits 10.69 9.41 8.55
Dividend payout ratio 24% 23% 47%
Deposits
The following table sets forth, by time remaining to maturity, the Company's
domestic time deposits in amounts of $100,000 or more.
(In thousands)
- ----------------------------------------------
December 31, 1995
- ----------------------------------------------
Three months or less $109,112
Three to six months 25,979
Six to 12 months 21,858
Over twelve months 12,801
- ----------------------------------------------
Total $169,750
==============================================
<PAGE>
Short Term Borrowings
The following table sets forth the short-term borrowings of the Company.
(In thousands)
- ------------------------------------------------------------------
December 31, 1995 1994 1993
- ------------------------------------------------------------------
Federal funds purchased $ 45,000 $ 1,300 $25,000
Other borrowing funds:
Retail repurchased agreements 91,622 114,340 35,450
Other 39,000 19,786 15,847
- ------------------------------------------------------------------
Total other borrowing funds 130,622 134,126 51,297
- ------------------------------------------------------------------
Total funds purchased $175,622 $135,426 $76,297
==================================================================
Further detail of the other borrowed funds are:
(In thousands)
- ------------------------------------------------------------------
December 31, 1995 1994 1993
- ------------------------------------------------------------------
Outstanding:
Average for the year $140,083 $122,236 $40,154
Maximum during the year 154,022 173,201 74,818
Interest rates:
Average for the year 5.57% 4.09% 3.36%
Average at period end 5.31% 5.11% 3.20%
<PAGE>
Non-Interest Income
Components of Non-Interest Income
- --------------------------------------------------------------
(In millions) 1995 1994 1993
- --------------------------------------------------------------
Deposit account fees $12.7 $12.9 $13.9
Credit card merchant fees 2.4 2.4 2.3
Mortgage banking income 1.5 4.3 8.1
Brokerage commissions .6 .7 .8
Trust fees .6 .8 .7
Net investment
securities (loss) gain -- (.1) .4
Sale of Sonoma Valley Bank -- -- .7
Automobile receivable servicing -- -- 1.3
Other income 3.7 5.0 5.6
- --------------------------------------------------------------
Total $21.5 $26.0 $33.8
==============================================================
Non-interest income was $21.5 million in 1995, $4.5 million lower than
1994. Lower mortgage banking income, due to reduced refinancing volumes
resulting in lower income from sale of loans, lower deposit account fees and
lower trust fees, account for the majority of the variance. In 1994,
non-interest income decreased $7.8 million from 1993 due to lower mortgage
banking income, a deferred gain on an earlier sale of automobile receivables,
gain on the sale of the Company's 50 percent interest in Sonoma Valley Bank,
refunds from prior years' income tax returns and gain from the sale of credit
card holders' portfolios acquired through the merger with Napa Valley
Bancorp. In addition, lower service charges on deposit accounts and brokerage
commissions were partially offset by higher merchant credit card and trust
fees in 1994.
Non-Interest Expense
Components of Non-Interest Expense
- -----------------------------------------------------------------
(In millions, except
full-time equivalent staff) 1995 1994 1993
- -----------------------------------------------------------------
Salaries $32.6 $36.4 $ 40.4
Other personnel benefits 8.6 8.7 8.8
Occupancy 10.7 10.6 11.8
Equipment 6.3 6.1 7.5
Data processing 4.2 4.5 4.3
Professional fees 3.9 4.1 4.3
FDIC insurance assessment 2.4 4.7 5.0
Stationery and supplies 1.6 1.7 2.4
Advertising and public relations 1.6 1.6 2.3
Loan expense 1.1 3.0 5.7
Operational losses 1.0 1.3 2.0
Insurance 1.0 .9 1.2
Merchant credit card .8 .9 1.1
Other real estate owned .9 .6 11.6
Other expense 9.6 9.2 13.0
- -----------------------------------------------------------------
Total $86.3 $94.3 $121.4
=================================================================
<PAGE>
Components of Non-Interest Expense
Continued
- -----------------------------------------------------------------
(In millions, except
full-time equivalent staff) 1995 1994 1993
- -----------------------------------------------------------------
Average full-time equivalent staff 898 1,024 1,143
Average assets per full-time
equivalent staff $ 2.69 $ 2.40 $ 2.08
Non-interest expense decreased $8.0 million or 8 percent in 1995
compared with 1994. Lower expenses in 1995 reflect the Company's improved
efficiency and exercise of cost controls, plus the effect of consolidating
operations after the Mergers. The combination of these effects is the main
reason for the $3.9 million decrease in personnel related expenses, $1.9
million reduction in loan related expenses, and other reductions in most
non-interest expense categories. In addition, a $2.3 million reduction in
FDIC insurance expense resulting from reduced premiums, contributed to the
overall year-to-year decreases in this category.
Non-interest expense in 1994 was $27.1 million or 22 percent lower than
1993. This expense reduction is the direct result of efficiencies,
streamlining and consolidations of operations achieved after the 1993 merger
with Napa Valley Bancorp. These were the major reasons for the $4.1 million
reduction in employee related expenses and decreases in almost all other non-
interest expense categories. Further, 1993 included higher other real estate
owned expense, including a $10.0 million write-down of assets acquired in the
Napa Valley Bancorp merger to net realizable value, and chargeoffs of excess
fixed assets, which were the main reasons for the 1994 expense reductions in
equipment and occupancy of $1.4 million and $1.2 million, respectively.
The ratio of average assets per full-time equivalent staff was $2.7
million in 1995 compared to $2.4 million and $2.1 million in 1994 and 1993,
respectively. The Company's strategy to improve efficiency can be seen in the
reduction of the average number of full-time equivalent staff from 1,143 in
1993 to 1,024 and 898 in 1994 and 1995, respectively.
Provision for Income Tax
The provision for income tax increased by $1.2 million in 1995 mainly as
a direct result of higher pretax income partially offset by an increase in
tax- exempt interest income from municipal securities. The 1995 provision of
$14.0 million reflects an effective tax rate of 31 percent compared to
provisions of $12.8 million in 1994 and $4.5 million in 1993, reflecting
effective tax rates of 32 percent and 27 percent, respectively.
<PAGE>
ITEM 8. Financial Statements and Supplementary Data
Index to Financial Statements
Page
----
Consolidated Balance Sheets as of December 31, 1995 and 1994 40
Consolidated Statements of Income for the years ended
December 31. 1995, 1994 and 1993 42
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1995, 1994 and 1993 44
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 45
Notes to consolidated financial statements 47
Management's Letter of Financial Responsibility 70
Independent Auditors' Report 71
<PAGE>
Westamerica Bancorporation
Consolidated Balance Sheets
(In thousands)
December 31, 1995 1994*
- --------------------------------------------------------------------------
Assets
Cash and cash equivalents (Note 15) $ 182,133 $ 180,957
Money market assets 250 250
Trading account securities -- --
Investment securities available for sale;
fair value (Note 2) 620,337 188,187
Investment securities held to maturity;
market values of $244,303 in 1995
and $608,146 in 1994 (Note 2) 242,175 638,459
Loans, net of reserve for loan losses of
$33,508 in 1995 and $32,450 in 1994
(Notes 3, 4 and 14) 1,353,732 1,354,539
Other real estate owned 5,103 8,023
Premises and equipment,
net (Notes 5 and 6) 26,625 29,332
Interest receivable and
other assets (Note 8) 60,589 57,680
- --------------------------------------------------------------------------
Total assets $2,490,944 $2,457,427
==========================================================================
Liabilities
Deposits:
Non-interest bearing $ 497,489 $ 472,301
Interest bearing:
Transaction 356,099 357,682
Savings 716,871 784,933
Time (Notes 2 and 6) 479,062 456,776
Total deposits 2,049,521 2,071,692
Funds purchased (Note 6) 175,622 135,426
Liability for interest, taxes,
other expenses, minority interest
and other (Note 8) 21,864 20,124
Notes and mortgages payable (Note 6) 20,000 25,524
- --------------------------------------------------------------------------
Total liabilities 2,267,007 2,252,766
- --------------------------------------------------------------------------
Commitments and contingent
liabilities (Notes 4, 11 and 12) -- --
* Restated on an historical basis to reflect the January 31, 1995
acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp,
on a pooling-of-interests basis.
See accompanying notes to consolidated financial statements.
<PAGE>
Westamerica Bancorporation
Consolidated Balance Sheets
Continued
(In thousands)
December 31, 1995 1994*
- --------------------------------------------------------------------------
Shareholders' Equity (Notes 7 and 15)
Common stock (no par value)
Authorized 50,000 shares
Issued and outstanding
9,793 shares in 1995 and
9,901 shares in 1994 94,786 93,629
Unrealized gain (loss) on securities
available for sale, net of taxes 1,691 (2,270)
Retained earnings 127,460 113,302
- --------------------------------------------------------------------------
Total shareholders' equity 223,937 204,661
- --------------------------------------------------------------------------
Total liabilities and
shareholders' equity $2,490,944 $2,457,427
==========================================================================
* Restated on an historical basis to reflect the January 31, 1995
acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp,
on a pooling-of-interests basis.
See accompanying notes to consolidated financial statements.
<PAGE>
Westamerica Bancorporation
Consolidated Statements of Income
(In thousands, except per share amounts)
For the years ended December 31, 1995 1994* 1993*
- ----------------------------------------------------------------------------
Interest Income
Loans $128,264 $120,115 $124,060
Money market assets
and federal funds sold 276 1,367 1,159
Trading account securities 1 2 6
Investment securities available for sale:
Taxable 12,550 10,444 --
Non-taxable 270 174 --
Investment securities held to maturity:
Taxable 21,797 24,678 --
Non-taxable 11,219 9,314 --
Investment securities:
Taxable -- -- 34,891
Non-taxable -- -- 5,859
- ----------------------------------------------------------------------------
Total interest income 174,377 166,094 165,975
- ----------------------------------------------------------------------------
Interest Expense
Transaction deposits 3,802 3,669 5,189
Savings deposits 20,716 20,003 18,941
Time deposits (Note 6) 23,961 18,295 22,993
Funds purchased 8,403 5,281 2,018
Notes and mortgages payable (Note 6) 1,730 2,612 2,017
- ----------------------------------------------------------------------------
Total interest expense 58,612 49,860 51,158
- ----------------------------------------------------------------------------
Net Interest Income 115,765 116,234 114,817
Provision for loan losses (Note 3) 5,595 7,420 10,581
- ----------------------------------------------------------------------------
Net interest income
after provision for loan losses 110,170 108,814 104,236
- ----------------------------------------------------------------------------
Non-Interest Income
Service charges on deposit accounts 12,734 12,948 13,920
Merchant credit card 2,422 2,401 2,338
Mortgage banking 1,479 4,270 8,052
Trust fees 615 751 689
Brokerage commissions 611 673 839
Net investment securities gain (loss) 19 (60) 351
Other 3,653 5,016 7,617
- ----------------------------------------------------------------------------
Total non-interest income 21,533 25,999 33,806
- ----------------------------------------------------------------------------
* Restated on an historical basis to reflect the January 31, 1995
acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp, on a
pooling-of-interests basis.
See accompanying notes to consolidated financial statements.
<PAGE>
Westamerica Bancorporation
Consolidated Statements of Income
Continued
(In thousands, except per share amounts)
For the years ended December 31, 1995 1994* 1993*
- ----------------------------------------------------------------------------
Non-Interest Expense
Salaries and related
benefits (Note 13) 41,171 45,106 49,163
Occupancy (Notes 5 and 11) 10,684 10,632 11,822
Equipment (Notes 5 and 11) 6,255 6,149 7,514
Data processing 4,239 4,466 4,297
Professional fees 3,905 4,079 4,313
FDIC insurance assessment 2,375 4,683 4,952
Other real estate owned 890 623 11,589
Other 16,821 18,603 27,791
- ----------------------------------------------------------------------------
Total non-interest expense 86,340 94,341 121,441
- ----------------------------------------------------------------------------
Income Before Income Taxes 45,363 40,472 16,601
Provision for income
taxes (Note 8) 13,979 12,810 4,507
- ----------------------------------------------------------------------------
Net Income $ 31,384 $ 27,662 $ 12,094
============================================================================
Average common shares outstanding 9,877 9,916 9,884
Per Share Data (Notes 7 and 18)
Net income $ 3.18 $ 2.79 $ 1.22
Dividends declared .77 .64 .57
* Restated on an historical basis to reflect the January 31, 1995
acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp, on a
pooling-of-interests basis.
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Westamerica Bancorporation
Consolidated Statements of Changes in Shareholders' Equity
(In thousands)
<CAPITON>
Unrealized Unrealized
Gain (Loss) Decline in
on Securities Fair Value
Available for of Bond Retained
Common Stock Sale, net of taxes Mutual Funds Earnings Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1992* $ 90,793 $ -- $ (117) $ 86,962 $177,638
Net income for the year -- -- -- 12,094 12,094
Stock issued 1,521 -- -- -- 1,521
Retirement of stock -- -- -- -- --
Dividends 629 -- -- (5,735) (5,106)
Cash in lieu of
fractional shares -- -- -- (54) (54)
Net change in unrealized
decline in fair value
of bond mutual funds -- -- 117 -- 117
Adoption of SFAS No. 115
Unrealized gain on secur-
ities available for sale -- 2,434 -- -- 2,434
- --------------------------------------------------------------------------------------------
December 31, 1993* $ 92,943 $ 2,434 $ -- $ 93,267 $188,644
Net income for the year -- -- -- 27,662 27,662
Stock issued 1,242 -- -- -- 1,242
Retirement of stock (556) -- -- (1,932) (2,488)
Dividends -- -- -- (5,695) (5,695)
Unrealized loss on
securities available
for sale -- (4,704) -- -- (4,704)
- --------------------------------------------------------------------------------------------
December 31, 1994* $ 93,629 $ (2,270) $ -- $113,302 $204,661
Net income for the year -- -- -- 31,384 31,384
Stock issued 3,797 -- -- -- 3,797
Retirement of stock (2,640) -- -- (9,701) (12,341)
Dividends -- -- -- (7,489) (7,489)
Cash in lieu of
fractional shares -- -- -- (36) (36)
Unrealized gain on
securities available
for sale -- 3,961 -- -- 3,961
- --------------------------------------------------------------------------------------------
December 31, 1995 $ 94,786 $ 1,691 $ -- $127,460 $223,937
============================================================================================
<FN>
* Restated on an historical basis to reflect the January 31, 1995
acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp, on
a pooling-of-interests basis.
See accompanying notes to consolidated financial statements.
</TABLE>
Westamerica Bancorporation
Consolidated Statements of Cash Flows
(In thousands)
For the years ended December 31, 1995 1994* 1993*
- ----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 31,384 $ 27,662 $ 12,094
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 4,731 5,231 4,982
Loan loss provision 5,595 7,420 10,581
Amortization of deferred
net loan fees/costs (1,858) (1,143) 122
Increase in interest income receivable (1,170) (1,379) (2,385)
(Decrease) increase in other assets 2,438 (1,871) 962
Decrease in income taxes payable (2,129) (1,228) (1,642)
(Decrease) increase in other liabilities (1,331) 1,897 (3,202)
Net gain (loss) on sale of
investment securities (19) 60 (351)
Loss on sale/write-down of
premises and equipment 1,586 179 1,476
Originations of loans for resale (8,920) (134,221) (433,980)
Proceeds from sale of loans
originated for resale 9,254 161,887 430,106
Write-down/loss on sale of
other real estate owned 540 178 9,689
Net purchases of trading securities -- 10 (10)
Gain on sale of Sonoma Valley Bank -- -- (668)
- ----------------------------------------------------------------------------
Net cash provided by operating
activities 40,101 64,682 27,774
- ----------------------------------------------------------------------------
INVESTING ACTIVITIES
Net (disbursement) repayment of loans (4,878) (19,559) 35,157
Purchases of investment securities -- -- (471,142)
Purchases of investment securities
available for sale (140,160) (110,944) --
Purchases of investment securities
held to maturity (52,928) (412,652) --
Purchases of premises and equipment (3,662) (3,327) (4,951)
Proceeds from maturity of
investment securities -- -- 309,435
Proceeds from maturity of
securities available for sale 66,621 45,498 --
Proceeds from maturity of
securities held to maturity 91,592 346,380 --
Proceeds from sale of
investment securities -- -- 13,773
Proceeds from sale of
securities available for sale 4,310 104,294 --
Proceeds from sale of
securities held to maturity 1,316 -- --
Proceeds from sale of property,
plant and equipment 52 -- 5
Proceeds from property acquired
in satisfaction of debt 2,380 5,815 8,467
<PAGE>
Westamerica Bancorporation
Consolidated Statements of Cash Flows
Continued
(In thousands)
For the years ended December 31, 1995 1994* 1993*
- ----------------------------------------------------------------------------
Proceeds from sale of
Sonoma Valley Bank -- -- 2,733
- ----------------------------------------------------------------------------
Net cash used in investing activities (35,357) (44,495) (106,523)
- ----------------------------------------------------------------------------
FINANCING ACTIVITIES
Net decrease in deposits (22,171) (38,339) (32,054)
Net increase in funds purchased 40,196 59,128 57,241
Issuance of notes payable -- -- 20,000
Principal and interest payments
on long-term debt (5,524) (10,828) (3,060)
Issuance of shares of common stock 3,797 1,242 1,521
Cash in lieu of fractional shares (36) -- (54)
Retirement of common stock (12,341) (2,488) --
Dividends (7,489) (5,695) (5,106)
- ----------------------------------------------------------------------------
Net cash (used in) provided
by financing activities (3,568) 3,020 38,488
- ----------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 1,176 23,207 (40,261)
Cash and cash equivalents at
beginning of year 180,957 157,750 198,011
- ----------------------------------------------------------------------------
Cash and cash equivalents at end of year $182,133 $180,957 $157,750
============================================================================
Supplemental disclosures:
Loans transferred to other
real estate owned $ 4,095 $ 4,474 $ 5,853
Transfer of securities from
held to maturity to available
for sale 329,357 -- --
Unrealized gain (loss)
on securities available for sale 3,961 (4,704) 2,434
Interest paid for the period 58,581 50,156 51,915
Income tax payments for the period 15,394 14,016 7,511
* Restated on an historical basis to reflect the January 31, 1995
acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp,
on a pooling-of-interests basis.
See accompanying notes to consolidated financial statements.
<PAGE>
Westamerica Bancorporation
Notes to Consolidated Financial Statements
Note 1: Business and Accounting Policies
Westamerica Bancorporation, a registered bank holding company (the
"Company"), provides a full range of banking services to individual and
corporate customers in Northern California through its subsidiary banks (the
"Banks"), Westamerica Bank, Bank of Lake County and Napa Valley Bank. The
Banks are subject to competition from other financial institutions and to
regulations of certain agencies and undergo periodic examinations by those
regulatory authorities.
Summary of Significant Accounting Policies
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles and general practices within the
banking industry. The following is a summary of significant policies used in
the preparation of the accompanying financial statements. In preparing the
financial statements, Management has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of income and expenses for the periods presented in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
Principles of Consolidation. The financial statements include the
accounts of the Company, and all the Company's subsidiaries which include the
Banks, Community Banker Services Corporation and Subsidiary and Westcore, a
newly formed company engaged in performing certain administrative functions
for the Company. Significant intercompany transactions have been eliminated
in consolidation. All data for 1994 and 1993 have been restated to include
the acquisitions of PV Financial, CapitolBank Sacramento and North Bay
Bancorp on a pooling-of-interests basis. (Note 18)
Cash Equivalents. Cash equivalents include Due From Banks balances and
Federal Funds Sold which are both readily convertible to known amounts of
cash and are so near their maturity that they present insignificant risk of
changes in value because of interest rate volatility.
Securities. Investment securities consist of U.S. Treasury, federal
agencies, state, county and municipal securities, mortgage-backed, corporate
debt and equity securities. Under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", the Company classifies its debt and marketable
equity securities in one of three categories: trading, available for sale or
held to maturity. Trading securities are bought and held principally for the
purpose of selling them in the near term. Securities held to maturity are
those securities in which the Company has the ability and intent to hold the
security until maturity. All other securities not included in trading or held
to maturity are classified as available for sale. Trading securities and
securities available for sale are recorded at fair value. Securities held to
maturity are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized gains and losses on trading
securities are included in earnings. Unrealized gains and losses, net of the
related tax effect, on securities available for sale are excluded from
earnings and are reported as a separate component of shareholders' equity
until realized. Unrealized gains and losses associated with transfers of
securities from held to maturity to available for sale are recorded as a
<PAGE>
separate component of shareholders' equity. The unrealized gains and losses
included in the separate component of shareholders' equity for securities
transferred from available for sale to held to maturity are maintained and
amortized into earnings over the remaining life of the security as an
adjustment to yield in a manner consistent with the amortization or accretion
of premiums or discounts on the associated security.
A decline in the market value of any security available for sale or held
to maturity below cost that is deemed other than temporary, results in a
charge to earnings and the establishment of a new cost basis for the
security.
Premiums and discounts are amortized or accreted over the life of the
related investment security as an adjustment to yield using the effective
interest method. Dividend and interest income are recognized when earned.
Realized gains and losses from the sale of securities classified as available
for sale or held to maturity are included in earnings and are derived using
the specific identification method for determining the cost of securities
sold.
Loans and Reserve for Loan Losses. The reserve for loan losses is a
combination of specific and general reserves available to absorb estimated
future losses throughout the loan portfolio and is maintained at a level
considered adequate to provide for such losses. Credit reviews of the loan
portfolio, designed to identify problem loans and to monitor these estimates,
are conducted continually, taking into consideration market conditions,
current and anticipated developments applicable to the borrowers and the
economy, and the results of recent examinations by regulatory agencies.
Management approves the conclusions resulting from credit reviews. Ultimate
losses may vary from current estimates. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Company's reserve for loan losses. Such agencies may require the
Company to recognize additions to the reserve based on their judgment of
information available to them at the time of their examination. Adjustments
to previous estimates of loan losses are charged to income in the period
which they become known. Loans are stated at the principal amount
outstanding, net of unearned discount and deferred fees. Unearned interest on
discounted loans is amortized over the life of these loans, using the sum-of-
the-months digits formula for which the results are not materially different
from those obtained by using the interest method. For all other loans,
interest is accrued daily on the outstanding balances. Loans which are more
than 90 days delinquent with respect to interest or principal, unless they
are well secured and in the process of collection, and other loans on which
full recovery of principal or interest is in doubt, are placed on non-accrual
status. Non-refundable fees and certain costs associated with originating or
acquiring loans are deferred and amortized as an adjustment to interest
income over the estimated respective loan lives. Loans held for sale are
identified upon origination and are reported at the lower of cost or market
value on an individual loan basis.
Other Real Estate Owned. Other real estate owned is comprised of
property acquired through a foreclosure proceeding or acceptance of a
deed-in-lieu of foreclosure. Losses recognized at the time of acquiring
property in full or partial satisfaction of loans, are charged against the
reserve for loan losses. Other real estate owned is recorded at the lower of
the related loan balance or fair value of the collateral less estimated
disposition costs at the date acquired. Fair value is generally based upon an
independent property appraisal. Subsequently, other real estate owned is
<PAGE>
valued at the lower of the amount recorded at the date acquired or the then
current fair value less estimated disposition costs. Subsequent losses
incurred due to the declines in annual independent property appraisals are
recognized as non-interest expense. Routine holding costs, such as property
taxes, insurance, maintenance and losses from sales and dispositions are
recognized as non-interest expense.
Premises and Equipment. Premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation is computed
substantially on the straight-line method over the estimated useful life of
each type of asset. Estimated useful lives of premises and equipment range
from 20 to 50 years and from 3 to 20 years, respectively. Leasehold
improvements are amortized over the terms of the lease or their estimated
useful life, whichever is shorter. Fully depreciated and/or amortized assets
are removed from the Company's balance sheet.
Impairment of Long-Lived Assets. In 1995, the Financial Accounting
Standard Board issued the Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" ("SFAS 121"). Under the provisions of SFAS 121, long-lived
assets and certain identifiable intangibles to be held and used by an entity
are required to be reviewed for impairment whenever events or changes
indicate that the carrying amount of an asset may not be recoverable. The
Company will implement SFAS 121 in January 1996. Management believes that the
adoption of this statement will not have a material impact on the Company's
financial condition.
Interest Rate Swap Agreements. The Company uses interest rate swap
agreements as an asset/liability management strategy to reduce interest rate
risk. These agreements are exchanges of fixed and variable interest payments
based on a notional principal amount. The primary risk associated with swaps
is the exposure to movements in interest rates and the ability of the
counterparties to meet the terms of the contracts. The Company controls the
credit risk of these agreements through credit approvals, limits and
monitoring procedures.
The Company is not a dealer but an end user of these instruments and
does not use them for trading purposes. As a hedging mechanism, the
differential to be paid or received on such agreements is recognized over the
life of the agreements. Payments made and/or received in connection with
early termination of interest rate swap agreements are recognized over the
remaining term of the swap agreement.
Earnings Per Share. Earnings per share amounts are computed on the
basis of the weighted average of common and common equivalent shares
outstanding during each of the years presented. Fully diluted earnings per
share were approximately equal to primary earnings per share in each of the
years in the three-year period ended December 31, 1995.
Income Taxes. The Company and its subsidiaries file consolidated tax
returns. For financial reporting purposes, the income tax effects of
transactions are recognized in the year in which they enter into the
determination of recorded income, regardless of when they are recognized for
income tax purposes. Accordingly, the provisions for income taxes in the
consolidated statements of income include charges or credits for deferred
income taxes relating to temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial
statements.
<PAGE>
Other. Securities and other property held by the Banks in a fiduciary
or agency capacity are not included in the consolidated financial statements
since such items are not assets of the Company or its subsidiaries.
Certain amounts in prior years' financial statements have been
reclassified to conform with the current presentation. These
reclassifications have no effect on previously reported net income.
Note 2: Investment Securities
An analysis of investment securities available for sale portfolio as of
December 31, 1995, follows:
Amortized Unrealized Unrealized Estimated
(In thousands) Cost Gains Losses Market Value
- ----------------------------------------------------------------------------
U.S. Treasury securities $240,832 $ 992 $ (595) $241,229
Securities of U.S.
Government agencies
and corporations 123,902 177 (762) 123,317
Obligations of states and
political subdivisions 118,314 2,636 (580) 120,370
Asset backed
(Automobile receivables) 80,372 624 (73) 80,923
Other securities 53,984 549 (35) 54,498
- ----------------------------------------------------------------------------
Total $617,404 $4,978 $(2,045) $620,337
============================================================================
An analysis of investment securities held to maturity portfolio as of
December 31, 1995, follows:
Amortized Unrealized Unrealized Estimated
(In thousands) Cost Gains Losses Market Value
- ----------------------------------------------------------------------------
Securities of U.S.
Government agencies
and corporations $125,062 $ 508 $(1,102) $124,468
Obligations of states and
political subdivisions 109,754 3,330 (605) 112,479
Asset backed
(Automobile receivables) 3,264 3 (6) 3,261
Other securities 4,095 2 (2) 4,095
- ----------------------------------------------------------------------------
Total $242,175 $3,843 $(1,715) $244,303
============================================================================
<PAGE>
An analysis of investment securities available for sale portfolio as of
December 31, 1994, follows:
Amortized Unrealized Unrealized Estimated
(In thousands) Cost Gains Losses Market Value
- ----------------------------------------------------------------------------
U.S. Treasury securities $ 93,936 $ 26 $(2,078) $ 91,884
Securities of U.S. Government
agencies and corporations 59,971 140 (1,066) 59,045
Obligations of states and
political subdivisions 9,423 2 (29) 9,396
Other securities 28,528 19 (685) 27,862
- ----------------------------------------------------------------------------
Total $191,858 $187 $(3,858) $188,187
============================================================================
An analysis of investment securities held to maturity portfolio as of
December 31, 1994, follows:
Amortized Unrealized Unrealized Estimated
(In thousands) Cost Gains Losses Market Value
- ----------------------------------------------------------------------------
U.S. Treasury securities $185,078 $ -- $ (8,109) $176,969
Securities of U.S. Government
agencies and corporations 215,250 292 (11,424) 204,118
Obligations of states and
political subdivisions 188,712 365 (10,487) 178,590
Asset backed
(Automobile receivables) 37,162 -- (933) 36,229
Other securities 12,257 3 (20) 12,240
- ----------------------------------------------------------------------------
Total $638,459 $660 $(30,973) $608,146
============================================================================
The amortized cost and estimated market value of securities at December 31,
1995, by contractual maturity, are shown on the following table:
Securities Available for Sale Securities Held to Maturity
----------------------------- ---------------------------
Maturity in years Amortized Estimated Amortized Estimated
(In thousands) Cost Market Value Cost Market Value
- --------------------------------------------------------------------------
1 year or less $144,009 $144,099 $ 2,893 $ 2,898
1 to 5 years 245,020 246,180 7,284 7,579
5 to 10 years 72,698 73,801 47,286 48,264
Over 10 years 65,123 66,193 59,649 61,094
- --------------------------------------------------------------------------
$526,850 $530,273 $117,112 $119,835
Mortgage-backed 90,554 90,064 125,063 124,468
- --------------------------------------------------------------------------
Total $617,404 $620,337 $242,175 $244,303
==========================================================================
Expected maturities of mortgage-backed securities can differ from
contractual maturities because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties. In addition, such
factors as prepayments and interest rates may affect the yield and the
carrying value of mortgage-backed securities. At December 31, 1995 and 1994,
the Company had no high-risk collateralized mortgage obligations as defined
by regulatory agencies.
<PAGE>
Proceeds from the sale of securities during 1995, 1994 and 1993 were
$5.6 million. $104.3 million and $13.8 million, respectively. In 1995, the
Company realized gains from the sale of these securities in the amount of
$19,000, compared to losses of $60,000 in 1994 and gains of $351,000 in 1993.
Included in the sale of these securities in 1995 were securities classified
as held to maturity that had principal paydowns exceeding 85 percent of the
principal outstanding at the time of purchase. Proceeds from the sale were
$1.3 million in 1995. In November 1995, the Financial Accounting Standards
Board issued a special report, "A Guide to Implementation of Statement No.
115, on Accounting for Certain Investments in Debt and Equity Securities
Questions and Answers" (the "Special Report"). The Special Report allowed
companies to reassess the appropriateness of the classifications of all
securities and account for any reclassification at fair value. The Company
adopted the reclassification provision stated in the Special Report prior to
December 31, 1995 and transferred $329.4 million of securities held to
maturity into available for sale. The unrealized pretax gain upon transfer
was $1.1 million as of December 31, 1995. As of December 31, 1995 and 1994,
$321.0 million and $271.5 million, respectively, of investment securities
were pledged to secure public deposits.
Note 3: Loans and Reserve for Loan Losses
Loans at December 31, consisted of the following:
(In thousands) 1995 1994
- ----------------------------------------------------------------
Commercial $ 339,142 $ 386,330
Real estate-commercial 477,280 427,259
Real estate-construction 54,181 73,492
Real estate-residential 237,535 207,477
- ----------------------------------------------------------------
Total real estate loans 768,996 708,228
Installment and personal 291,350 308,812
Unearned income (12,248) (16,381)
- ----------------------------------------------------------------
Gross loans 1,387,240 1,386,989
Loan loss reserve (33,508) (32,450)
- ----------------------------------------------------------------
Net loans $1,353,732 $1,354,539
================================================================
Included in real estate-residential at December 31, 1995 and 1994 are
loans held for resale of $2.1 million and $3.0 million, respectively, the
cost of which approximates market value.
Changes in the loan loss reserve were:
(In thousands) 1995 1994 1993
- ------------------------------------------------------------------
Balance at January 1, $32,450 $30,045 $29,254
Provision for loan losses 5,595 7,420 10,581
Credit losses (6,770) (7,417) (11,514)
Credit loss recoveries 2,233 2,402 2,408
Sale of Sonoma Valley Bank -- -- (684)
- ------------------------------------------------------------------
Balance at December 31, $33,508 $32,450 $30,045
==================================================================
<PAGE>
The Company had no troubled debt restructurings at December 31, 1995 and
$4.4 million at December 31, 1994. The Company had $9.9 million and $10.3
million in non-accrual loans as of December 31, 1995 and 1994, respectively.
The following is a summary of interest foregone on non-accrual and
restructured loans for the years ended December 31:
(In thousands) 1995 1994 1993
- ---------------------------------------------------------------------
Interest income that would have
been recognized had the loans
performed in accordance
with their original terms $823 $1,538 $1,873
Less: Interest income
recognized on non-accrual
and restructured loans (242) (677) (590)
- ----------------------------------------------------------------------
Interest foregone on non-accrual
and restructured loans $581 $ 861 $1,283
======================================================================
There were no commitments to lend additional funds to borrowers whose
loans are included above. The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan" as amended by SFAS No. 118 (collectively referred to as
"SFAS 114") on January 1, 1995. SFAS 114 required entities to measure certain
impaired loans based on the present value of future cash flows discounted at
the loan's effective interest rate, or at the loan's market value or the fair
value of collateral if the loan is secured. A loan is considered impaired
when, based on current information and events, it is probable that the
Company will be unable to collect all amounts due according to the
contractual terms of the loan agreement, including scheduled interest
payments. If the measurement of the impaired loans is less than the recorded
investment in the loan, impairment is recognized by creating or adjusting an
existing allocation of the allowance for loan losses. The adoption of SFAS
114 did not have a material effect on the Company's financial statements, as
the Company's policy of measuring loan impairment was consistent with methods
prescribed in these standards. At December 31, 1995, the recorded investment
in loans for which impairment was recognized in accordance with SFAS 114
totaled $10.2 million, of which there was a related reserve for loan losses
of $850,000. For the year ended December 31, 1995, the average recorded net
investment in impaired loans was approximately $10.3 million. In general, the
Company does not recognize any interest income on loans that are classified
as impaired.
In May 1995, the Financial Accounting Standards Board issued Statement
No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS 122"), which
amends statement No. 65. SFAS 122 requires recognition as a separate asset
the right to service mortgage loans for others regardless of how the
servicing rights were acquired, whether by purchase of loans or by
origination of loans. SFAS 122 also requires the assessment of capitalized
mortgage servicing rights for impairment to be based on the current value of
those rights. The Company will implement SFAS 122 effective January 1, 1996.
Management believes that the adoption of this statement will not have a
material impact on the Company's financial condition.
<PAGE>
Note 4: Concentration of Credit Risk
The Company's business activity is with customers in Northern
California. The loan portfolio is well diversified with no industry
comprising greater than ten percent of total loans outstanding as of December
31, 1995 and 1994.
The Company has a significant amount of credit arrangements that are
secured by real estate collateral. In addition to real estate loans
outstanding as disclosed in Note 3, the Company had loan commitments and
standby letters of credit related to real estate loans of $29.3 million at
December 31, 1995. The Company requires collateral on all real estate loans
and generally attempts to maintain loan-to-value ratios no greater than 75
percent on commercial real estate loans and no greater than 80 percent on
residential real estate loans.
Note 5: Premises and Equipment
Premises and equipment at December 31 consisted of the following:
Accumulated Net
Depreciation and Book
(In thousands) Cost Amortization Value
- ---------------------------------------------------------------------------
1995
Land $ 4,212 $ -- $ 4,212
Buildings and improvements 18,634 (7,061) 11,573
Leasehold improvements 4,499 (2,848) 1,651
Furniture and equipment 18,130 (8,941) 9,189
- ---------------------------------------------------------------------------
Total $45,475 $(18,850) $26,625
===========================================================================
1994
Land $ 4,412 $ -- $ 4,412
Buildings and improvements 21,581 (7,613) 13,968
Leasehold improvements 6,100 (3,370) 2,730
Furniture and equipment 20,018 (11,796) 8,222
- ---------------------------------------------------------------------------
Total $52,111 $(22,779) $29,332
===========================================================================
Depreciation and amortization included in operating expenses amount to
$4.7 million in 1995, $5.2 million in 1994 and $5.0 million in 1993.
<PAGE>
Note 6: Borrowed Funds
Notes payable include the unsecured obligations of the Company as of
December 31, 1995 and 1994, as follows:
(In thousands) 1995 1994
- -------------------------------------------------------------------------
Senior notes, originated in May 1988 and
maturing on June 30, 1995. Interest payable
semiannually at 10.87% and principal
payment due at maturity. $ -- $ 5,000
Subordinated note, issued by Westamerica Bank,
originated in December 1993 and maturing
September 30, 2003. Interest of 6.99% per
annum is payable semiannually on March 31
and September 30, with principal due at
maturity. 20,000 20,000
- -------------------------------------------------------------------------
Total notes payable $20,000 $25,000
=========================================================================
At December 31, 1994, mortgages payable of $524,000 consisted of a note
of Westamerica Bank secured by a deed of trust on premises having a net book
value of $756,000. The note, which had an effective interest rate of 10
percent, matured in April 1995.
At December 31, 1995 and 1994, the Company had unused lines of credit
amounting to $2.5 million. Compensating balance arrangements are not
significant to the operations of the Company.
At December 31, 1995 and 1994, the Banks had $169.8 million and $137.2
million, respectively, in time deposit accounts in excess of $100,000.
Interest on these accounts in 1995, 1994 and 1993 was $8.9 million, $5.8
million and $7.1 million, respectively.
Funds purchased include federal funds purchased and securities sold with
repurchase agreements. Securities sold with repurchase agreements were $91.6
million and $112.1 million in 1995 and 1994, respectively. Securities sold
under these repurchase arrangements are held in the custody of independent
securities brokers.
Note 7: Shareholders' Equity
Under the Stock Option Plan adopted by the Company in 1985, 750,000
shares were reserved for issuance. Stock appreciation rights, incentive stock
options and non-qualified stock options are available under this plan.
Options are granted at fair market value and are generally exercisable in
equal installments over a three-year period with the first installment
exercisable one year after the date of the grant. Each incentive stock option
has a maximum ten-year term while non-qualified stock options may have a
longer term. The 1985 plan was amended in 1990 to provide for restricted
performance share ("RPS") grants. An RPS grant becomes fully vested after
three years of being awarded, provided that the Company has attained its
performance goals for such three-year period. RPSs granted were 32,350,
33,900 and 24,700, for the years ended December 31, 1995, 1994 and 1993,
respectively. The related amounts charged to non-interest expense for those
years were $1.2 million, $960,000 and $740,000, respectively. In 1995, the
Company adopted the 1995 Stock Option Plan. Stock appreciation rights,
restricted performance shares, incentive stock options and non-qualified
stock options are available under this plan. Under the terms of this plan, on
January 1 of each year beginning in 1995, 2 percent of the Company's issued
and outstanding shares of common stock will be reserved for granting. At
December 31, 1995, 160,951 shares were reserved for issuance.
Information with respect to options outstanding and options exercised
under the plans is summarized in the following table:
Number Option Price
of shares $ Per share $ Total
- ----------------------------------------------------------------------
Shares under option at December 31:
1995 562,764 6.85- 30.75 12,537,900
1994 665,386 6.84- 28.06 11,610,977
1993 580,760 6.84- 24.50 9,100,508
Options exercised during:
1995 202,940 6.97- 24.50 2,867,547
1994 51,008 6.84- 24.93 673,663
1993 58,335 6.84- 24.50 767,157
At December 31, 1995 and 1994 options to acquire 286,818 and 373,812
shares of common stock, respectively, were exercisable.
PV Financial, CapitolBank Sacramento, and North Bay Bancorp had separate
stock option plans (the "Option Plans") whereby options were granted to
certain officers, directors, and employees. Following the effective dates of
the mergers, the Option Plans were terminated. All outstanding options were
substituted for the Company's options, adjusted for the exchange ratios as
defined in the merger agreements.
Shareholders have authorized issuance of two new classes of 1,000,000
shares each, to be denominated "Class B Common Stock" and "Preferred Stock",
respectively, in addition to the 50,000,000 shares of Common Stock presently
authorized. At December 31, 1995, no shares of Class B or Preferred Stock had
been issued.
In December 1986, the Company declared a dividend distribution of one
common share purchase right (the "Right") for each outstanding share of
common stock. The Rights are exercisable only in the event of an acquisition
of, or announcement of a tender offer to acquire, 15 percent or more of the
Company's stock without the prior consent of the Board of Directors. If the
Rights become exercisable, the holder may purchase one share of the Company's
common stock for $65. Following an acquisition of 15 percent of the
Company's common stock or 50 percent or more of its assets without prior
consent of the Company, each Right will also entitle the holder to purchase
$130 worth of common stock of the Company for $65. Under certain
circumstances, the Rights may be redeemed by the Company at a price of $.05
per Right prior to becoming exercisable and in certain circumstances
thereafter. The Rights expire on December 31, 1999, or earlier, in connection
with certain Board approved transactions.
On October 23, 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
The recognition provisions and disclosure requirements of SFAS 123 are
effective January 1, 1996. SFAS 123 allows an entity to either (i) retain the
current method of accounting for stock compensation (principally APB Opinion
<PAGE>
No. 25) for purposes of preparing its basic financial statements or (ii)
adopt a new fair value based method that is established by the provisions of
SFAS 123. Companies may continue to apply the accounting provisions of APB
Opinion No. 25 in determining net income; however, they must apply the
disclosure requirements of SFAS 123. The Company plans to retain its current
method of accounting for stock compensation when it adopts this statement in
1996 and thus does not expect the statement to have an impact on the
Company's results of operations.
Note 8: Income Taxes
The Company accounts for income taxes in accordance with the provisions
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the amounts reported in the financial statements of existing assets
and liabilities and their respective tax bases and net operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
The components of the net deferred tax asset as of December 31, are as
follows:
(In thousands) 1995 1994
- ------------------------------------------------------------------
Deferred tax asset
Reserve for loan losses $13,715 $12,868
State franchise taxes 1,690 1,582
Securities available for sale -- 1,401
Deferred compensation 1,533 1,309
Real estate owned 1,800 2,451
Other 1,109 1,388
Net operating loss carryforwards 916 1,190
General tax credit carryforwards 160 160
- ------------------------------------------------------------------
20,923 22,349
Valuation allowance (486) (1,409)
- ------------------------------------------------------------------
Total deferred tax asset 20,437 20,940
Deferred tax liability
Net deferred loan costs 600 416
Fixed assets 958 1,567
Securities available for sale 1,242 --
Other 341 277
- ------------------------------------------------------------------
Total deferred tax liability 3,141 2,260
- ------------------------------------------------------------------
Net deferred tax asset $17,296 $18,680
==================================================================
A valuation allowance has been provided to reduce the deferred tax asset
to an amount which is more likely than not to be realized. The valuation
allowance relates to the deferred tax asset acquired through the merger with
CapitolBank Sacramento. Prior to this merger, CapitolBank reduced the
valuation allowance because of its improved earnings performance during 1995.
The reduction in the valuation allowance resulted in a decrease in the
provision for income tax for the year ended December 31, 1995 of $923,000.
<PAGE>
The provision for federal and state income taxes consists of amounts
currently payable and amounts deferred which, for the years ended December
31, are as follows:
(In thousands) 1995 1994 1993
- -------------------------------------------------------------------------
Current income tax expense:
Federal $10,195 $10,087 $3,624
State 5,043 4,642 2,609
- -------------------------------------------------------------------------
Total current 15,238 14,729 6,233
- -------------------------------------------------------------------------
Deferred income tax (benefit) expense:
Federal (1,374) (1,605) (614)
State 115 (314) (718)
- -------------------------------------------------------------------------
Total deferred (1,259) (1,919) (1,332)
- -------------------------------------------------------------------------
Adjustment of net deferred tax asset
for enacted changes in tax rates:
Federal -- -- (304)
State -- -- (90)
- -------------------------------------------------------------------------
Provision for income taxes $13,979 $12,810 $4,507
=========================================================================
The provision for income taxes differs from the provision computed by
applying the statutory federal income tax rate to income before taxes, as
follows:
(In thousands) 1995 1994 1993
- -------------------------------------------------------------------------
Federal income taxes due
at statutory rate $15,877 $14,110 $5,644
(Reductions) increases in
income taxes resulting from:
Interest on state and municipal
securities not taxable for
federal income tax purposes (4,494) (3,392) (1,931)
Reduction in the valuation
allowance (923) -- --
State franchise taxes, net of
federal income tax benefit 3,353 2,791 1,271
Other 166 (699) (477)
- -------------------------------------------------------------------------
Provision for income taxes $13,979 $12,810 $4,507
=========================================================================
<PAGE>
At December 31, 1995, the Company had the following net operating loss and
the general tax credit carryforwards for tax return purposes:
Expires December 31, Net Operating Tax Credit
(In thousands) Loss Carryforwards Carryforwards
- ------------------------------------------------------------------
2003 $ -- $160
2007 2,603 --
2008 14 --
- ------------------------------------------------------------------
Total $2,617 $160
==================================================================
Note 9: Fair Value of Financial Instruments
The fair value of financial instruments does not represent actual
amounts that may be realized upon any sale or liquidation of the related
assets or liabilities. In addition, these values do not give effect to
discounts to fair value which may occur when financial instruments are sold
in larger quantities. The fair values presented represent the Company's best
estimate of fair value using the methodologies discussed below. The fair
value of financial instruments which have a relative short period of time
between their origination and their expected realization were valued using
historical cost. Such financial instruments and their estimated fair value at
December 31, were:
(In thousands) 1995 1994
- -------------------------------------------------------------------
Cash and cash equivalents $ 182,133 $ 180,957
Money market assets 250 250
Interest and taxes receivable 39,060 40,468
Non-interest bearing and interest-bearing
transaction and savings deposits 1,570,459 1,614,916
Funds purchased 175,622 135,426
Interest payable 5,118 4,009
The fair value at December 31, of the following financial instruments was
estimated using quoted market prices:
(In thousands) 1995 1994
- -------------------------------------------------------------------
Investment securities available for sale $ 620,337 $ 188,187
Investment securities held to maturity 244,303 608,146
Loans were separated into two groups for valuation. Variable rate loans,
except for those having reached their maximum contractual rates, which
reprice frequently with changes in market rates, were valued using the
outstanding principal balance. Fixed rate loans were valued by discounting
the future cash flows expected to be received from the loans using current
interest rates charged on loans with similar characteristics. Additionally,
the reserve for loan losses was applied against the estimated fair value to
recognize future defaults of contractual cash flows.
<PAGE>
The estimated fair values of loans at December 31, 1995 and 1994 were:
(In thousands) 1995 1994
- -------------------------------------------------------------------
Loans $1,351,732 $1,336,366
The fair value of time deposits and notes and mortgages payable was
estimated by discounting future cash flows related to these financial
instruments using current market rates for financial instruments with similar
characteristics. The estimated fair values at December 31, were:
(In thousands) 1995 1994
- -------------------------------------------------------------------
Time deposits $480,401 $460,227
Notes and mortgages payable 20,000 22,898
The estimated fair value of the Company's interest rate swaps
outstanding as of December 31, 1994, determined by dealer quotes and
generally representing the amount that the Company would pay to terminate
its swap contracts was $1.1 million. There were no interest rate swaps
outstanding at December 31, 1995.
Note 10: Interest Rate Risk Management
Interest rate risk is influenced by market forces. However, that risk
may be controlled by monitoring and managing the repricing characteristics of
interest-bearing assets and liabilities. The primary analytical tool used by
Management to gauge interest rate sensitivity is a simulation model used by
many major banks and bank regulators. This industry standard model is used to
simulate the effects on net interest income of changes in market interest
rates that are up to 2 percent higher or 2 percent lower than current levels.
The results of the model indicate that the mix of interest rate sensitive
assets and liabilities at December 31, 1995 and 1994 would not, in the view
of Management, expose the Company to an unacceptable level of interest rate
risk.
In evaluating exposure to interest rate risk, the Company considers the
effects of various factors in implementing interest rate risk management
activities, including the utilization of interest rate swaps. The notional
amounts of interest rate swaps outstanding were:
(In thousands) 1995 1994
- ---------------------------------------------------------
Balance, January 1, $60,000 $110,000
Contracts entered
Contracts matured (60,000) (50,000)
- ---------------------------------------------------------
Balance, December 31, $ -- $ 60,000
=========================================================
Fair value, December 31, $ -- $ (1,071)
Under interest rate swaps, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed-rate and
floating-rate interest amounts calculated by reference to the notional
amounts. For the $60 million of interest rate swaps outstanding at December
31, 1994, the Company paid a floating rate, based on the three-month London
Interbank Offering Rate (LIBOR), and received a weighted average fixed rate
of 4.11 percent. These contracts matured in August 1995. The Company was
<PAGE>
exposed to credit-related losses in the event of non-performance by the
counterparty; however, the Company deals only with highly rated
counterparties. At December 31, 1994 due to the unrealized loss position, no
credit exposure existed in connection with the interest rate swaps.
Note 11: Lease Commitments
Fifteen banking offices and three administrative service centers are
owned and forty banking offices and two support facilities are leased.
Substantially all the leases contain multiple renewal options and provisions
for rental increases, principally for cost of living index, property taxes
and maintenance. The Company also leases certain pieces of equipment. Minimum
future rental payments, net of sublease income, at December 31, 1995, are as
follows:
(In thousands)
- ----------------------------------------
1996 $ 4,911
1997 3,775
1998 3,032
1999 2,718
2000 1,245
Thereafter 2,311
- ----------------------------------------
Total minimum lease payments $17,992
========================================
Total rental expense for premises and equipment net of sublease income
included in non-interest expense was $5.6 million in 1995, $5.5 million in
1994 and $6.2 million in 1993.
Note 12: Commitments and Contingent Liabilities
Loan commitments are agreements to lend to a customer provided there is
no violation of any condition established in the agreement. Commitments
generally have fixed expiration dates or other termination clauses. Since
many of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future funding
requirements. Loan commitments are subject to the Company's normal credit
policies and collateral requirements. Unfunded loan commitments were $221.2
million and $239.5 million at December 31, 1995 and 1994, respectively.
Standby letters of credit commit the Company to make payments on behalf
of customers when certain specified future events occur. Standby letters of
credit are primarily issued to support customers' short-term financing
requirements and must meet the Company's normal credit policies and
collateral requirements. Standby letters of credit outstanding totaled $7.7
million and $9.2 million at December 31, 1995 and 1994, respectively.
The Company, because of the nature of its business, is subject to
various threatened or filed legal cases. The Company, based on the advice of
legal counsel, does not expect the outcome of such cases to have a material,
adverse effect on its financial position or results of operations.
<PAGE>
Note 13: Retirement Benefit Plans
The Company sponsors a defined benefit Retirement Plan covering
substantially all of its salaried employees with one or more years of
service. The Company's policy is to expense costs as they accrue as
determined by the Projected Unit Cost method. The Company's funding policy is
to contribute annually the maximum amount that can be deducted for federal
income tax purposes.
The following table sets forth the Retirement Plan's funded status as of
December 31 and the pension cost for the years ended December 31:
(In thousands) 1995 1994
- -----------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $(10,657) $ (8,870)
Non-vested benefit obligation (63) (1,250)
- ------------------------------------------------------------------------
Accumulated benefit obligation $(10,720) $(10,120)
Additional benefits related to
projected salary increases (1,231) (211)
- -----------------------------------------------------------------------
Projected benefit obligation $(11,951) $(10,331)
Plan assets at fair market value 12,369 10,430
- -----------------------------------------------------------------------
Funded status-projected benefit obligation
less than plan assets $ 418 $ 99
Comprised of:
Prepaid pension cost $ 117 $ 69
Unrecognized net gain 338 27
Unrecognized prior service cost 271 362
Unrecognized net obligation, net
of amortization (308) (359)
- -----------------------------------------------------------------------
Total $ 418 $ 99
=======================================================================
Net pension cost included in the
following components:
Service cost during the period $ 117 $ 372
Interest cost on projected
benefit obligation 697 777
Actual return on plan assets (2,864) (66)
Net amortization and deferral 2,125 (778)
- -----------------------------------------------------------------------
Net periodic pension cost $ 75 $ 305
=======================================================================
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligation were 5.50 percent and 4.50 percent, respectively, at December 31,
1995 and 7.25 percent and 4.50 percent, respectively, at December 31, 1994.
The expected long-term rate of return on plan assets was 7 percent for both
years.
Effective January 1, 1992, the Company adopted a defined contribution
Deferred Profit-Sharing Plan covering substantially all of its salaried
<PAGE>
employees with one or more years of service. Participant deferred profit-
sharing account balances offset benefits accrued under the Retirement Plan,
which was amended effective January 1, 1992 to coordinate benefits with the
Deferred Profit-Sharing Plan. The coordination of benefits results in the
Retirement Plan benefit formula establishing the minimum value of participant
retirement benefits which, if not provided by the Deferred Profit-Sharing
Plan, are guaranteed by the Retirement Plan.
The costs charged to non-interest expense related to benefits provided
by the Retirement Plan and the Deferred Profit-Sharing Plan were $1.4 million
in 1995, $1.3 million in 1994 and $1.2 million in 1993.
In addition to the Retirement Plan and the Deferred Profit-Sharing Plan,
all salaried employees are eligible to participate in the voluntary Tax
Deferred Savings/Retirement Plan (ESOP) upon completion of a 90-day
introductory period. This plan allows employees to defer, on a pretax basis,
a portion of their salaries as contributions to the plan. Participants may
invest in five funds, including a Westamerica Bancorporation Common Stock
fund. The matching contributions charged to operating expense were $1.2
million in 1995, $710,000 in 1994 and $640,000 in 1993.
Effective December 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions" ("SFAS 106"). Adoption of SFAS 106 required a
change from the cash method to an actuarial based accrual method of
accounting for postretirement benefits other than pensions. The Company
offers continuation of group insurance coverage to employees electing early
retirement, as defined by the Retirement Plan, for the period from the date
of early retirement until age sixty-five. The Company contributes an amount
toward early retirees insurance premiums which is fixed at the time of early
retirement. The Company reimburses Medicare Part B premiums for all retirees
over age sixty five, as defined by the Retirement Plan.
The following table sets forth the net periodic postretirement benefit
cost for the years ended December 31, and the funded status of the plan at
December 31:
(In thousands) 1995 1994
- ---------------------------------------------------------------------
Service cost $ 155 $ --
Interest cost 86 105
Actual return on plan assets -- --
Amortization of unrecognized
transition obligation 61 61
Other, net -- --
- ---------------------------------------------------------------------
Net periodic cost $ 302 $ 166
=====================================================================
<PAGE>
(In thousands) 1995 1994
- ---------------------------------------------------------------------
Accumulated postretirement benefit
obligation attributable to:
Retirees $1,240 $1,140
Fully eligible participants 307 239
Other 159 188
- ---------------------------------------------------------------------
Total $1,706 $1,567
=====================================================================
Fair value of plan assets -- --
- ---------------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan assets $1,706 $1,567
=====================================================================
Comprised of:
Unrecognized prior service cost $ -- $ --
Unrecognized net gain (loss) -- --
Unrecognized transition obligation 1,346 1,407
Recognized postretirement obligation 360 160
- ---------------------------------------------------------------------
Total $1,706 $1,567
=====================================================================
The discount rate used in measuring the accumulated postretirement
benefit obligation was 5.5 percent at December 31, 1995 and 7.25 percent at
December 31, 1994. The assumed health care cost trend rate used to measure
the expected cost of benefits covered by the plan was 2 percent for 1996 and
beyond. The effect of a one percentage point increase on the assumed health
care cost trend for each future year would increase the aggregate of the
service cost components of the 1995 and 1994 net periodic cost by $82,000 and
$87,000, respectively, and increase the accumulated postretirement benefit
obligation at December 31, 1995 and 1994 by $287,000 and $255,000,
respectively.
Note 14: Related Party Transactions
Certain directors and executive officers of the Company and/or its
subsidiaries were loan customers of the Banks during 1995 and 1994. All such
loans were made in the ordinary course of business on normal credit terms,
including interest rate and collateral requirements. In the opinion of
Management, these credit transactions did not involve, at the time they were
contracted, more than the normal risk of collectibility or present other
unfavorable features.
<PAGE>
The table below reflects information concerning loans to certain directors
and executive officers and/or family members during 1995 and 1994:
(In thousands) 1995 1994
- -------------------------------------------------------------------
Beginning balance $4,041 $6,181
Payoffs/principal payments (767) (2,231)
Originations 973 91
- -------------------------------------------------------------------
At December 31, $4,247 $4,041
===================================================================
Percent of total loans outstanding .31% .29%
Note 15: Regulatory Matters
Payment of dividends to the Company by Westamerica Bank, the largest
subsidiary bank, is limited under regulations for Federal Reserve member
banks. The amount that can be paid in any calendar year, without prior
approval from regulatory agencies, cannot exceed the net profits (as defined)
for that year plus the net profits of the preceding two calendar years less
dividends declared. Under this regulation, Westamerica Bank was not
restricted as to the payment of $28.0 million in dividends to the Company as
of December 31, 1995. During 1993, Napa Valley Bank was operating under a
regulatory order which disallowed payment of dividends to the Company unless
it reduced the level of problem loans, liquidated or reserved adequately
against the real estate investment in its subsidiary company, and
strengthened its loan loss reserve. Napa Valley Bank complied with all
conditions of the regulatory order, which was removed by the regulators early
in 1994. Napa Valley Bank began to pay dividends to the Company in the fourth
quarter of 1994, a decision further approved by the State Banking Department,
given the bank's strong capital position and despite the net losses it
incurred in 1993. Bank of Lake County started to pay dividends to the Company
in the third quarter of 1994. The Company continuously has paid quarterly
dividends to its shareholders since its formation in 1972 and, generally, has
increased them regularly on a yearly basis. As of December 31, 1995, $45.9
million was available for payment of dividends by the Company to its
shareholders.
The Banks are required to maintain reserves with the Federal Reserve
Bank equal to a percentage of its reservable deposits. The Banks' daily
average on deposit at the Federal Reserve Bank was $47.3 million in 1995 and
$43.9 million in 1994.
At December 31, 1995, the Company's Tier I Capital was $222.0 million
and Total Capital was $263.9 million or 12.77 percent and 15.18 percent,
respectively, of risk-adjusted assets.
<PAGE>
Note 16: Westamerica Bancorporation (Parent Company Only)
Statements of Income (In thousands)
For the years ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------
Dividends from subsidiaries $22,262 $19,680 $16,671
Interest from subsidiaries 381 200 457
Other income 4,224 4,552 3,392
- -----------------------------------------------------------------------------
Total income 26,867 24,432 20,520
Interest on borrowings 324 1,029 1,958
Salaries and benefits 5,768 5,529 4,526
Other non-interest expense 5,552 3,951 6,091
- -----------------------------------------------------------------------------
Total expenses 11,644 10,509 12,575
- -----------------------------------------------------------------------------
Income before income tax benefit
and equity in undistributed
income of subsidiaries 15,223 13,923 7,945
Income tax benefit 2,663 2,386 3,445
Equity in undistributed
income from subsidiaries 13,498 11,353 704
- -----------------------------------------------------------------------------
Net income $31,384 $27,662 $12,094
=============================================================================
Balance Sheets (In thousands)
December 31, 1995 1994
- -----------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 6,077 $ 6,411
Money market assets and investment
securities held to maturity 250 6,761
Loans 148
Investment in subsidiaries 211,605 194,269
Premises and equipment 1,972 55
Accounts receivable from affiliates 251 156
Other assets 10,390 6,671
- -----------------------------------------------------------------------------
Total assets $230,545 $214,471
=============================================================================
Liabilities
Long-term debt $ $ 5,000
Notes payable to affiliates 506 --
Other liabilities 6,102 4,810
Total liabilities 6,608 9,810
Shareholders' equity 223,937 204,661
- -----------------------------------------------------------------------------
Total liabilities and shareholders' equity $230,545 $214,471
=============================================================================
<PAGE>
Note 16: Westamerica Bancorporation (Parent Company Only)
Continued
Statements of Cash Flows (In thousands)
For the years ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 31,384 $ 27,662 $ 12,094
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 61 83 109
Undistributed earnings of affiliates (13,498) (11,353) (1,886)
(Increase) decrease in
receivables from affiliates (95) (91) 197
(Increase) decrease in other assets (3,565) (4,016) 1,318
Increase in other liabilities 1,181 1,607 1,536
Gain on sale of Sonoma Valley Bank -- -- (668)
Net loss (gain) on real estate venture -- 22 (49)
- ----------------------------------------------------------------------------
Net cash provided by operating activities 15,468 13,914 12,651
INVESTING ACTIVITIES
Purchases of premises and equipment (1,978) (92) (19)
Net change in land held for sale 80 -- (800)
Net decrease in loan balances 148 921 346
Investment in subsidiaries -- (140) (8,639)
Purchase of investment securities -- (4,500) (9,700)
Proceeds from maturities of
investment securities 6,511 7,000 14,341
Proceeds from sale of
premises and equipment -- -- 2,369
Proceeds from sale of Sonoma Valley Bank -- -- 2,733
- ----------------------------------------------------------------------------
Net cash provided by investing activities 4,761 3,189 631
FINANCING ACTIVITIES
Principal and interest payments
on long-term debt (4,494) (9,796) (6,260)
Issuance of shares of common stock 3,797 1,242 1,521
Cash in lieu of fractional shares (36) -- (54)
Retirement of common stock (12,341) (2,488) --
Dividends (7,489) (5,695) (5,106)
- ----------------------------------------------------------------------------
Net cash used in financing activities (20,563) (16,737) (9,899)
- ----------------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents (334) 366 3,383
Cash and cash equivalents at beginning of year 6,411 6,045 2,662
- ----------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 6,077 $ 6,411 $ 6,045
============================================================================
<PAGE>
Note 17: Quarterly Financial Information (Unaudited)
(In thousands except per share and price range of common stock)
March 31, June 30, Sept. 30, Dec. 31,
- -----------------------------------------------------------------------------
1995
Interest income $43,659 $43,662 $43,396 $43,660
Net interest income 29,660 28,977 28,363 28,765
Provision for loan losses 1,335 1,835 1,150 1,275
Non-interest income 5,119 5,434 5,537 5,443
Non-interest expense 22,404 23,730 20,386 19,820
Income before taxes 11,040 8,846 12,364 13,113
Net income 7,550 6,538 8,388 8,908
Earnings per share .76 .66 .85 .91
Dividends declared per share .17 .20 .20 .20
Price range, common stock
Low 29.50 33.00 36.50 38.50
High 33.25 37.50 38.50 43.25
1994
Interest income $39,544 $40,982 $42,267 $43,301
Net interest income 27,825 28,806 29,497 30,106
Provision for loan losses 2,072 2,004 1,597 1,747
Non-interest income 8,083 6,597 5,618 5,701
Non-interest expense 23,725 23,624 23,042 23,950
Income before taxes 10,111 9,775 10,476 10,111
Net income 6,852 6,472 7,244 7,094
Earnings per share .69 .65 .73 .72
Dividends declared per share .15 .15 .17 .17
Price range, common stock
Low 25.88 27.00 29.25 29.00
High 29.25 32.50 33.25 33.25
Note 18: Acquisitions
On January 31, 1995, the merger with PV Financial, parent company of PV
National Bank, became effective. At that time, the Company issued
approximately 1,174,000 shares of its common stock in exchange for all of the
outstanding common stock of PV Financial. The business combination was
accounted for as a pooling-of-interests business combination and,
accordingly, the consolidated financial statements and the financial data for
the periods prior to the combination have been restated to include the
accounts and results of operations of PV Financial.
On June 6, 1995, the merger of CapitolBank Sacramento with and into the
Company became effective. Following the terms of the merger, the Company
issued approximately 360,000 shares of the Company's common stock to
CapitolBank Sacramento shareholders. The merger was accounted for as a
pooling-of-interests business combination and, accordingly, the consolidated
financial statements and the financial data for the periods prior to the
merger have been restated to include the accounts and results of operations
of CapitolBank Sacramento.
On July 17, 1995, the merger between the Company and North Bay Bancorp,
parent company of Novato National Bank, became effective. Under the terms of
the merger agreement, the Company issued approximately 341,000 shares of its
common stock in exchange for all of the outstanding common stock of North Bay
Bancorp. This business combination was accounted for as a pooling-of-
<PAGE>
interests business combination and, accordingly, the consolidated financial
statements and financial data for the periods prior to the merger have been
restated to include the accounts and results of operations of North Bay
Bancorp.
In all mergers, certain reclassifications have been made to conform to
the Company's presentation.
The results of operations previously reported by the separate enterprises and
the combined amounts presented in the accompanying consolidated financial
statements are summarized as follows:
Three Six
months ended months ended
March 31, June 30,
1995 1995
(In thousands) (unaudited) (unaudited) 1994 1993
- ---------------------------------------------------------------------------
Net Interest Income:
Westamerica
Bancorporation $26,297 $56,095 $ 93,123 $ 94,645
PV Financial -- -- 10,630 8,559
CapitolBank 2,067 -- 7,785 6,269
North Bay Bancorp 1,296 2,542 4,696 5,344
- ---------------------------------------------------------------------------
Combined $29,660 $58,637 $116,234 $114,817
===========================================================================
Net Income (Loss):
Westamerica
Bancorporation $ 7,238 $15,192 $ 24,673 $ 9,455
PV Financial -- -- 2,364 1,958
CapitolBank 322 -- 458 315
North Bay Bancorp (10) (1,104) 167 366
- ---------------------------------------------------------------------------
Combined $ 7,550 $14,088 $ 27,662 $ 12,094
===========================================================================
There were no significant transactions between the Company and PV
Financial, CapitolBank Sacramento and North Bay Bancorp prior to the
combination. PV National Bank, CapitolBank and Novato National Bank were
engaged in the sale of overnight funds to Westamerica Bank, to meet immediate
funding requirements.
<PAGE>
Management's Letter of Financial Responsibility
To Our Shareholders:
The Management of Westamerica Bancorporation is responsible for the
preparation, integrity, reliability and consistency of the information
contained in this annual report. The financial statements, which necessarily
include amounts based on judgments and estimates, were prepared in conformity
with generally accepted accounting principles and prevailing practices in the
banking industry. All other financial information appearing throughout this
annual report is presented in a manner consistent with the financial
statements.
Management has established and maintains a system of internal controls that
provides reasonable assurance that the underlying financial records are
reliable for preparing the financial statements, and that assets are
safeguarded from unauthorized use or loss. This system includes extensive
written policies and operating procedures and a comprehensive internal audit
function, and is supported by the careful selection and training of staff, an
organizational structure providing for division of responsibility, and a Code
of Ethics covering standards of personal and business conduct. Management
believes that, as of December 31, 1995 the Corporation's internal control
environment is adequate to provide reasonable assurance as to the integrity
and reliability of the financial statements and related financial information
contained in the annual report.
The system of internal controls is under the general oversight of the Board
of Directors acting through its Audit Committee, which is comprised entirely
of outside directors.
The Audit Committee monitors the effectiveness of and compliance with
internal controls through a continuous program of internal audit and credit
examinations. This is accomplished through periodic meetings with Management,
internal auditors, loan quality examiners, regulatory examiners and
independent auditors to assure that each is carrying out their
responsibilities.
The Corporation's financial statements have been audited by KPMG Peat Marwick
LLP, independent certified public accountants elected by the shareholders.
All financial records and related data, as well as the minutes of
shareholders and directors meetings, have been made available to them.
Management believes that all representations made to the independent auditors
during their audit were valid and appropriate.
/s/ David L. Payne
-------------------------
David L. Payne
Chairman, President and CEO
/s/ James M. Barnes
--------------------------
James M. Barnes
Executive Vice President and CFO
/s/ Dennis R. Hansen
---------------------------
Dennis R. Hansen
Senior Vice President and Controller
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders of Westamerica Bancorporation:
We have audited the accompanying consolidated balance sheets of Westamerica
Bancorporation and subsidiaries (the Company) as of December 31, 1995 and
1994, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the years in the three year
period ended December 31, 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. As discussed in Note 1 to the consolidated financial statements, the
consolidated balance sheet of the Company as of December 31, 1994 and the
related statements of income, changes in shareholders' equity, and cash flows
for the years ended December 31, 1994 and 1993, have been restated on an
historical basis to reflect the January 31, 1995 acquisition of PV Financial,
the June 6, 1995 acquisition of CapitolBank Sacramento, and the July 17, 1995
acquisition of North Bay Bancorp, on a pooling-of-interests basis. We did not
audit the financial statements of PV Financial and North Bay Bancorp as of
and for the years ended December 31, 1994 and 1993, which statements reflect
total assets constituting 12 percent in 1994 and net income constituting 9
percent and 19 percent in 1994 and 1993, respectively, of the related and
restated consolidated totals. Those statements included in the 1994 and 1993
restated consolidated totals were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to the
amounts included for PV Financial and North Bay Bancorp, is based solely on
the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and the
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports
of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in
all material respects, the financial position of Westamerica Bancorporation
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three year
period ended December 31, 1995 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
---------------------
KPMG Peat Marwick LLP
San Francisco, California
January 18, 1996
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
PV Financial
We have audited the accompanying consolidated balance sheets of PV Financial
and Subsidiary as of December 31, 1994 and 1993, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the period ended December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of PV Financial
and Subsidiary as of December 31, 1994 and 1993, and the consolidated results
of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As described in Note 1, Securities, the Company changed its method of
accounting for securities as of December 31, 1993.
/s/ Grant Thornton LLP
------------------
Grant Thornton LLP
Stockton, California
January 13, 1995
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of North Bay Bancorp:
We have audited the accompanying balance sheets of North Bay Bancorp (a
California corporation) and subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of North Bay
Bancorp and Subsidiaries as of December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 10, certain arbitration and litigation matters are
pending against the Bank and the outcome is uncertain at this time.
Accordingly, no provisions for any liabilities that may result upon the final
settlement of these matters have been made in the accompanying financial
statements.
/s/ Arthur Andersen LLP
-------------------
Arthur Andersen LLP
San Francisco, California
February 17, 1995
<PAGE>
ITEM 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information required by this Item 10 is incorporated herein by
reference from the "Election of Directors" and "Executive Officers" section
on Pages 2 through 9 of the Company's Proxy Statement dated March 20,
1996, which has been filed with the Commission pursuant to Regulation 14A.
ITEM 11. Executive Compensation
The information required by this Item 11 is incorporated herein by
reference from the "Executive Compensation" and "Retirement
Benefits and Other Arrangements" section on Pages 9 through 12 of the
Company's Proxy Statement dated March 20, 1996, which has been filed with
the Commission pursuant to Regulation 14A.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item 12 is incorporated herein by
reference from the "Security Ownership of Certain Beneficial Owners and
Management" section on Pages 5 through 7 of the Company's Proxy Statement
dated March 20, 1996, which has been filed with the Commission pursuant
to Regulation 14A.
ITEM 13. Certain Relationships and Related Transactions
The information required by this Item 13 is incorporated herein by
reference from the "Indebtedness of Directors and Management" section on
Page 4 of the Company's Proxy Statement dated March 20, 1996, which has
been filed with the Commission pursuant to Regulation 14A.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. All Financial Statements
See Index to Financial Statements on page 39.
(a) 2. Financial statement schedules required.
None (Information included in Financial Statements).
(a) 3. Exhibits
The following documents are included or incorporated by
reference in this annual report on Form 10-K.
<PAGE>
Exhibit
Number Exhibit
- ------ ------- ------------
3(a) Restated Articles of
Incorporation (composite copy).
3(b)** By-laws.
4(a) Amended and Restated Rights
Agreement - March 23, 1995.
10 Material contracts:
(a) Incentive Stock Option Plan *
(b) James M. Barnes--
January 7, 1987 (Employment) ***
(c) E. Joseph Bowler--
January 7, 1987 (Employment) ***
(d) Robert W. Entwisle --
January 7, 1987 (Employment) ***
(e) Amended and Restated Agreement and Plan of
Reorganization by and between Westamerica
Bancorporation and John Muir National Bank,
proxy and prospectus dated November 27, 1991. ****
(f) Agreement and Plan of Merger by and between
Westamerica Bancorporation and Napa Valley
Bancorp, proxy and prospectus dated
November 12, 1992. *****
(g) Agreement and Plan of Merger by and between
Westamerica Bancorporation and PV Financial,
proxy and prospectus dated October 11, 1994. ******
(h) Agreement and Plan of Merger by and between
Westamerica Bancorporation and CapitolBank
Sacramento, proxy and prospectus dated
February 2, 1995. *******
(i) Agreement and Plan of Merger by and between
Westamerica Bancorporation and North Bay
Bancorp, proxy and prospectus dated
February 10, 1995. ********
(j) Senior Note Agreement dated February 1, 1996, of
$22,500,000 at 7.11 percent.
11 Computation of Earnings Per Share on common
and common equivalent shares and on
common shares assuming full dilution
21 Subsidiaries of the registrant.
23(a) Consent of KPMG Peat Marwick LLP
(b) Consent of Grant Thornton LLP
(c) Consent of Arthur Andersen LLP
<PAGE>
- --------------------------------------------
* Exhibit 10(a) is incorporated by reference from Exhibit A to
the Company's Proxy Statement dated March 22, 1983, which was
filed with the Commission pursuant to Regulation 14A.
** Exhibits 3(b), is incorporated by reference from Exhibit 3(b) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1986.
*** Exhibits 3(a), 10(b), 10(c) and 10(d) are incorporated herein
by reference from Exhibits 3(a), 10(n), 10(o), and 10(q) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1986.
**** Exhibit 10(e) is incorporated herein by reference from the
Form S-4 dated November 27, 1991.
***** Exhibit 10(f) is incorporated herein by reference from the
Form S-4 dated November 12, 1992.
****** Exhibit 10(g) is incorporated herein by reference from the
Form S-4 dated October 11, 1994.
******* Exhibit 10(h) is incorporated herein by reference from the
Form S-4 dated February 3, 1995.
******** Exhibit 10(i) is incorporated herein by reference from
the Form S-4 dated February 10, 1995.
The Corporation will furnish to shareholders a copy of any exhibit listed
above, but not contained herein, upon written request to Office of the
Corporate Secretary, Westamerica Bancorporation, P. O. Box 567, San
Rafael, California 94915, and payment to the Corporation of $.25 per page.
(b) Report on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
WESTAMERICA BANCORPORATION
By /s/ Dennis R. Hansen By /s/ James M. Barnes
----------------- ----------------
Dennis R. Hansen James M. Barnes
Senior Vice President and Controller Executive Vice President
Principal Accounting Officer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ David L. Payne Chairman of the Board and 3/28/96
--------------------------- Director and President and CEO
David L. Payne
/s/ E. Joseph Bowler Senior Vice President 3/28/96
--------------------------- and Treasurer
E. Joseph Bowler
/s/ Etta Allen Director 3/28/96
---------------------------
Etta Allen
/s/ Louis E. Bartolini Director 3/28/96
---------------------------
Louis E. Bartolini
/s/ Charles I. Daniels, Jr. Director 3/28/96
---------------------------
Charles I. Daniels, Jr.
/s/ Don Emerson Director 3/28/96
---------------------------
Don Emerson
/s/ Arthur C. Latno Director 3/28/96
---------------------------
Arthur C. Latno
/s/ Patrick D. Lynch Director 3/28/96
---------------------------
Patrick D. Lynch
/s/ Catherine Cope MacMillan Director 3/28/96
---------------------------
Catherine Cope MacMillan
/s/ Dwight H. Murray, Jr. M.D. Director 3/28/96
---------------------------
Dwight H. Murray, Jr., M.D.
/s/ Ronald A. Nelson Director 3/28/96
---------------------------
Ronald A. Nelson
/s/ Carl Otto Director 3/28/96
---------------------------
Carl Otto
/s/ Director 3/28/96
--------------------------
Edward B. Sylvester
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<CIK> 0000311094
<NAME> WESTAMERICA BANCORPORATION
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<PERIOD-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<CASH> 182133 145512 136930
<INT-BEARING-DEPOSITS> 1552032 1599391 1647395
<FED-FUNDS-SOLD> 0 35445 30820
<TRADING-ASSETS> 0 0 10
<INVESTMENTS-HELD-FOR-SALE> 620337 188187 185864
<INVESTMENTS-CARRYING> 242175 638459 620730
<INVESTMENTS-MARKET> 244303 608146 628216
<LOANS> 1387240 1386989 1393588
<ALLOWANCE> 33508 32450 30045
<TOTAL-ASSETS> 2490944 2457427 2428848
<DEPOSITS> 2049521 2074692 2110031
<SHORT-TERM> 175622 135426 76298
<LIABILITIES-OTHER> 21864 20124 17523
<LONG-TERM> 20000 25524 36352
0 0 0
0 0 0
<COMMON> 94786 93629 92943
<OTHER-SE> 129151 111032 95701
<TOTAL-LIABILITIES-AND-EQUITY> 2490944 2457427 2428848
<INTEREST-LOAN> 128264 120115 124060
<INTEREST-INVEST> 46113 45979 41915
<INTEREST-OTHER> 0 0 0
<INTEREST-TOTAL> 174377 166094 165975
<INTEREST-DEPOSIT> 48479 41967 47123
<INTEREST-EXPENSE> 58612 49860 51158
<INTEREST-INCOME-NET> 115765 116234 114817
<LOAN-LOSSES> 5595 7420 10581
<SECURITIES-GAINS> 19 (60) 351
<EXPENSE-OTHER> 86340 94341 121441
<INCOME-PRETAX> 45363 40472 16601
<INCOME-PRE-EXTRAORDINARY> 45363 40472 16601
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 31384 27662 12094
<EPS-PRIMARY> 3.18 2.79 1.22
<EPS-DILUTED> 3.18 2.79 1.22
<YIELD-ACTUAL> 5.56 5.45 5.5
<LOANS-NON> 9950 10290 15779
<LOANS-PAST> 264 1774 1753
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 32450 30045 29254
<CHARGE-OFFS> 6770 7417 11514
<RECOVERIES> 2233 2402 2408
<ALLOWANCE-CLOSE> 33508 32450 30045
<ALLOWANCE-DOMESTIC> 20750 17516 22052
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 12758 14934 7993
</TABLE>
EXHIBIT 10-j
CONFORMED COPY
WESTAMERICA BANCORPORATION
NOTE AGREEMENT
Dated as of February 1, 1996
Re: $22,500,000 7.11% Senior Notes
Due February 1, 2006
<PAGE>
TABLE OF CONTENTS
(Not a part of the Agreement)
Section Heading Page
Parties.......................................................1
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT............1
Section 1.1. Description of Notes......................1
Section 1.2. Commitment, Closing Date..................1
Section 1.3. Several Commitments.......................2
SECTION 2. PREPAYMENT OF NOTES............................2
Section 2.1. Required Prepayments......................2
Section 2.2. Optional Prepayment with Premium..........3
Section 2.3. Prepayment upon Restricted Event..........3
Section 2.4. Prepayment Upon Downgrade.................4
Section 2.5. Notice of Optional Prepayments............5
Section 2.6. Application of Prepayments................5
Section 2.7. Direct Payment............................5
SECTION 3. REPRESENTATIONS; COVENANTS OF THE PURCHASERS...5
Section 3.1. Representations of the Company............5
Section 3.2. Representations and Covenants of the
Purchasers...............................5
SECTION 4. CLOSING CONDITIONS.............................6
Section 4.1. Conditions................................6
Section 4.2. Waiver of Conditions......................7
SECTION 5. COMPANY COVENANTS..............................7
Section 5.1. Corporate Existence, Etc..................7
Section 5.2. Insurance.................................8
Section 5.3. Taxes, Claims for Labor and Materials,
Compliance with Laws.....................8
Section 5.4. Maintenance, Etc..........................8
Section 5.5. Nature of Business........................8
Section 5.6. Maintenance Ratios........................8
Section 5.7. Consolidated Tangible Net Worth...........9
Section 5.8. Limitation on Indebtedness...............10
Section 5.9. Fixed Charges Coverage Ratio.............10
Section 5.10. Liens and Encumbrances...................11
Section 5.11. Restricted Payments and Restricted
Investments.............................12
Section 5.12. Disposal of Shares of a Subsidiary.......14
Section 5.13. Merger and Sale of Assets................15
Section 5.14. Guaranties...............................16
Section 5.15. Repurchase of Notes......................17
Section 5.16. Transactions with Affiliates.............17
Section 5.17. Termination of Pension Plans.............17
Section 5.18. Designation of Restricted Subsidiaries...17
Section 5.19. Reports and Rights of Inspection.........18
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR.......22
Section 6.1. Events of Default........................22
Section 6.2. Notice to Holders........................23
Section 6.3. Acceleration of Maturities...............24
Section 6.4. Rescission of Acceleration...............24
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS..............25
Section 7.1. Consent Required.........................25
Section 7.2. Solicitation of Holders..................25
Section 7.3. Effect of Amendment or Waiver............25
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS......25
Section 8.1. Definitions..............................25
Section 8.2. Accounting Principles....................37
Section 8.3. Directly or Indirectly...................37
SECTION 9. MISCELLANEOUS.................................37
Section 9.1. Registered Notes.........................37
Section 9.2. Exchange of Notes........................38
Section 9.3. Loss, Theft, Etc. of Notes...............38
Section 9.4. Expenses, Stamp Tax Indemnity............38
Section 9.5. Powers and Rights Not Waived; Remedies
Cumulative..............................39
Section 9.6. Notices..................................39
Section 9.7. Successors and Assigns...................39
Section 9.8. Survival of Covenants and
Representations.........................39
Section 9.9. Severability.............................40
Section 9.10. Governing Law............................40
Section 9.11. Captions.................................40
Signature Page...............................................41
ATTACHMENTS TO NOTE AGREEMENT:
Schedule I -- Names of Note Purchasers and Amounts of Commitments
Exhibit A -- Form of 7.11% Senior Note due February 1, 2006
Exhibit B -- Representations and Warranties of the Company
Exhibit C -- Description of Special Counsel's Closing Opinion
Exhibit D -- Description of Closing Opinion of Counsel to the
Company
WESTAMERICA BANCORPORATION
1108 FIFTH AVENUE
SAN RAFAEL, CALIFORNIA 94901
NOTE AGREEMENT
Re: $22,500,000 7.11% Senior
Notes
Due February 1, 2006
Dated as of
February 1, 1996
To the Purchasers named on Schedule I
to this Agreement
The undersigned, Westamerica Bancorporation, a California
corporation (the "Company"), agrees with the Purchasers named on
Schedule I to this Agreement (the "Purchasers") as follows:
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT.
SECTION 1.1. DESCRIPTION OF NOTES. The Company has authorized the
issue and sale of $22,500,000 aggregate principal amount of its 7.11%
Senior Notes (the "Notes") to be dated the date of issue, to bear
interest from such date at the rate of 7.11% per annum, payable
semiannually on the first day of each February and August in each year
(commencing August 1, 1996) and at maturity and to bear interest on
overdue principal (including any overdue required or optional prepayment
of principal) and premium, if any, and (to the extent legally
enforceable) on any overdue installment of interest at the rate of 9.11%
per annum after the date due, whether by acceleration or otherwise,
until paid, to be expressed to mature on February 1, 2006, and to be
substantially in the form attached hereto as Exhibit A. Interest on the
Notes shall be computed on the basis of a 360-day year of twelve 30-day
months. The Notes are not subject to prepayment or redemption at the
option of the Company prior to their expressed maturity dates except on
the terms and conditions and in the amounts and with the premium, if
any, set forth in Section 2 of this Agreement. The term "Notes" as used
herein shall include each Note delivered pursuant to this Agreement.
SECTION 1.2. COMMITMENT, CLOSING DATE. Subject to the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth, the Company agrees to issue and sell to each
Purchaser, and such Purchaser agrees to purchase from the Company, Notes
in the respective aggregate principal amount or amounts set forth
opposite such Purchaser's name on Schedule I hereto at a purchase price
of 100% of the principal amount thereof on the Closing Date hereinafter
mentioned.
The closing of the purchase of the Notes will be made at the
offices of Pillsbury Madison & Sutro LLP, One Liberty Plaza, 165
Broadway, 51st Floor, New York, New York 10006, against payment therefor
of the purchase price in Federal Reserve or other funds current and
immediately available at the principal office of Westamerica Bank, San
Rafael, California, ABA #121140218 to the account of the Company,
account #522012566 (Attn: Investment Department) at 11:00 a.m. Chicago
time, on February 16, 1996, or such later date (not later than February
28, 1996) as shall mutually be agreed upon by the Company and the
Purchasers (the "CLOSING DATE"). The Notes delivered to each Purchaser
on the Closing Date will be delivered to such Purchaser in the form of a
single registered Note in the form attached hereto as Exhibit A for the
full amount of such Purchaser's purchase (unless different denominations
are specified by such Purchaser), registered in such Purchaser's name or
in the name of such Purchaser's nominee, all as such Purchaser may
specify at any time prior to the date fixed for delivery.
SECTION 1.3. SEVERAL COMMITMENTS . The obligations of the Purchasers
shall be several and not joint and no Purchaser shall be liable or
responsible for the acts or defaults of any other Purchaser.
SECTION 2. PREPAYMENT OF NOTES.
SECTION 2.1. REQUIRED PREPAYMENTS. The Company agrees that on
February 1 in each year, commencing February 1, 2000 and ending February
1,2005, both inclusive, it will prepay and apply and there shall become
due and payable on the principal indebtedness evidenced by the Notes an
amount equal to the lesser of (i) $3,214,286 or (ii) the principal
amount of the Notes then outstanding. The entire remaining principal
amount of the Notes shall become due and payable on February 1, 2006.
No premium shall be payable in connection with any required prepayment
made pursuant to this SECTION 2.1. Eor purposes of this SECTION 2.1, any
prepayment of less than all of the outstanding Notes pursuant to SECTION
2.2 shall be deemed to be applied first, to the amount of principal
scheduled to remain unpaid on February 1, 2006, and then to the
remaining scheduled principal payments in inverse chronological order.
In the event of any partial prepayment of Notes pursuant to SECTION
2.3 or SECTION 2.4, or in the event of any partial repurchase or
acquisition of Notes by the Company or any Subsidiary or Affiliate, each
scheduled prepayment of Notes pursuant to the provisions of this SECTION
2.1 coming due thereafter shall be reduced by an amount which bears the
same relationship to such scheduled prepayment as the aggregate amount
so applied pursuant to the prepayment under SECTION 2.3 or SECTION 2.4
or such repurchase or acquisition, as the case may be, bears to the
unpaid principal amount of Notes immediately prior to such application,
to the end that the amounts of the scheduled payments on each Note
remaining outstanding after such prepayment pursuant to SECTION 2.3 or
SECTION 2.4 or such repurchase or acquisition, shall be unchanged.
SECTION 2.2. OPTIONAL PREPAYMENT WITH PREMIUM;. In addition to the
payments required by SECTION 2.1, upon compliance with SECTION 2.5 the
Company shall have the right, at any time and from time to time, of
prepaying the outstanding Notes, either in whole or in part (but if in
part then in a minimum principal amount of $100,000) by payment of the
principal amount of the Notes, or portion thereof to be prepaid, and
accrued interest thereon to the date of such prepayment, together with a
premium equal to the Make-Whole Amount of each such Note, determined as
of three Business Days prior to the date of such prepayment pursuant to
this SECTION 2.2.
SECTION 2.3. PREPAYMENT UPON RESTRICTED EVENT. The Company will give
written notice (a "RESTRICTED EVENT NOTICE") to all Holders not more
than 15 days after any Restricted Event Date. The Restricted Event
Notice shall (i) describe the facts and circumstances of such Restricted
Event in reasonable detail, (ii) make reference to this SECTION 2.3 and
the rights of the Holders to require the Company to prepay their Notes
on the terms and conditions provided for herein, (iii) state that each
Holder must make an election to have the Notes held by it prepaid, (iv)
specify the date by which each Holder must respond to such Restricted
Event Notice pursuant to this SECTION 2.3 in order to make such election
(the "RESTRICTED EVENT NOTICE CUT-OFF DATE"), which Restricted Event
Notice Cut-Off Date shall be the first business day occurring 30 days
after the date of delivery of the Restricted Event Notice, (v) state the
prepayment date for the Notes, which date shall be the first business
day occurring 45 days after the date of delivery of the Restricted Event
Notice (such prepayment date being referred to as the "RESTRICTED EVENT
PREPAYMENT DATE"), and (vi) state that the Make-Whole Amount (which
shall be estimated as of the date of the Restricted Event Notice) may be
payable and state the date of determination of the Make-Whole Amount.
Upon the receipt of such Restricted Event Notice, any Holder shall
have the right, upon written notice (the "RESTRICTED EVENT PREPAYMENT
NOTICE") given by such Holder on or before the Restricted Event Notice
Cut-Off Date, of requiring prepayment in full of all Notes held on the
Restricted Event Date by such Holder serving such Restricted Event
Prepayment Notice. The Company covenants and agrees to prepay in full
on the Restricted Event Prepayment Date all Notes held by such Holder
serving such Restricted Event Prepayment Notice to the Company.
As used herein, the term "CHANGE OF CONTROL" shall mean each and
every issue, sale or other disposition of shares of stock of the Company
which results in any Person or related Persons constituting a group (as
defined in Rule 13d-3 promulgated by the Securities and Exchange
Commission under the Securities and Exchange Act of 1934, as amended
("RULE 13d-3")) having acquired beneficial ownership or control (as
defined in Rule 13d-3) of more than 50% (by number of votes) of the
Voting Stock of the Company.
As used herein, the term "RESTRICTED EVENT" shall mean and include
(i) the failure of the Company to maintain a current global issuer
rating by Thomson BankWatch, Inc. ("THOMSON") of at least ("C") (or the
equivalent under any successor rating system adopted by Thomson) for the
entire 180 day period following the effective date of the last event to
occur which constitutes a Change of Control or (ii) the Company or the
Bank or any Debt obligation of the Company or the Bank having a rating
of less than "C" by Thomson, BBB- by Standard & Poor's Corporation or
less than Baa3 by Moody's Inc. at any time during the 180 day period
following the effective date of the last event to occur which
constitutes a Change of Control.
As used herein, the term "RESTRICTED EVENT DATE" shall mean, with
respect to any Restricted Event, the first business day on which such
Restricted Event shall occur.
All prepayments on the Notes pursuant to this SECTION 2.3 shall be
made by the payment of the aggregate principal amount remaining unpaid
on such Notes and accrued interest thereon to the date of such
prepayment, together with a premium equal to the Make-Whole Amount, if
any, with respect to the Notes, determined as of five (5) Business Days
prior to the date of prepayment.
SECTION 2.4. PREPAYMENT UPON DOWNGRADE. The Company will give written
notice to all Holders no more than 5 Business Days after a Downgrade
(the "DOWNGRADE NOTICE" and the date of delivery thereof being referred
to as the "DOWNGRADE NOTICE DATE"). The Downgrade Notice shall (i)
describe the facts and circumstances of such Downgrade in reasonable
detail, (ii) make reference to this SECTION 2.4 and the rights of the
Holders to require the Company to prepay their Notes on the terms and
conditions provided for herein, (iii) state that each Holder must make
an election of its intent to have the Notes held by it prepaid, (iv)
specify the date by which each Holder must respond to such Downgrade
Notice pursuant to this SECTION 2.4 in order to make such election (the
"DOWNGRADE NOTICE CUT-OFF DATE"), which Downgrade Notice Cut-Off Date
shall be the first business day 30 days after the Downgrade Notice Date,
(v) state the prepayment date for the Notes which date shall be the
first business day 45 days after the Downgrade Notice Date (the
"DOWNGRADE PREPAYMENT DATE") and (vi) state that the Make-Whole Amount
(which shall be estimated as of the Downgrade Notice Date) may be
payable and state the date of determination of the Make-Whole Amount.
Upon the receipt of such Downgrade Notice, any Holder shall have
the right, upon written notice (the "DOWNGRADE PREPAYMENT NOTICE") given
by such Holder on or before the Downgrade Notice Cut-Off Date, of
requiring prepayment in full of all Notes held on the Downgrade
Prepayment Date by such Holder serving such Downgrade Prepayment Notice.
The Company covenants and agrees to prepay in full on the Downgrade
Prepayment Date all Notes held by such Holder serving such Downgrade
Prepayment Notice to the Company.
As used herein, the term "DOWNGRADE" shall mean the failure of the
Company to maintain a current global issuer rating by Thomson of at
least "C" (or the equivalent under any successor rating system adopted
by Thomson). If the current global issuer rating by Thomson of the
Company is more than one year old, the Company will at the Company's
expense, upon the request of the Holders of 66-2/3% in aggregate
principal amount of the Notes, require Thomson to confirm such rating to
the Holders of the Notes PROVIDED, that the Holders shall be entitled to
only one such request each fiscal year.
The definition of "DOWNGRADE DATE" shall mean any date upon which a
Downgrade shall occur.
All prepayments on the Notes pursuant to this SECTION 2.4 shall be
made by the payment of the aggregate principal amount remaining unpaid
on such Notes and accrued interest thereon to the date of such
prepayment, together with a premium equal to the Make-Whole Amount,
determined as of five (5) Business Days prior to the date of prepayment.
SECTION 2.5. NOTICE OF OPTIONAL PREPAYMENTS. The Company will give
notice of any prepayment of the Notes pursuant to SECTION 2.2 to each
Holder thereof not less than 30 days nor more than 60 days before the
date fixed for such optional prepayment specifying (i) such date, (ii)
the principal amount of the Holder's Notes to be prepaid on such date,
(iii) that a premium may be payable, (iv) the date when such premium
will be calculated, (v) the estimated premium, and (vi) the accrued
interest applicable to the prepayment. Such notice of prepayment shall
also certify all facts, if any, which are conditions precedent to any
such prepayment. Notice of prepayment having been so given, the
aggregate principal amount of the Notes specified in such notice,
together with accrued interest thereon and the premium, if any, payable
with respect thereto shall become due and payable on the prepayment date
specified in said notice. Not later than two Business Days prior to the
prepayment date specified in such notice, the Company shall provide each
Holder written notice of the premium, if any, payable in connection with
such prepayment and, whether or not any premium is payable, a reasonably
detailed computation of the Make-Whole Amount.
SECTION 2.6. APPLICATION OF PREPAYMENTS. All partial prepayments
pursuant to SECTION 2.1 and 2.2 shall be applied on all outstanding
Notes ratably in accordance with the unpaid principal amounts thereof.
SECTION 2.7. DIRECT PAYMENT. Notwithstanding anything to the
contrary contained in this Agreement or the Notes, in the case of any
Note owned by any Holder that is a Purchaser or any other Institutional
Holder which has given written notice to the Company requesting that the
provisions of this SECTION 2.7 shall apply, the Company will punctually
pay when due the principal thereof, interest thereon and premium, if
any, due with respect to said principal, without any presentment
thereof, directly to such Holder at its address set forth herein or such
other address as such Holder may from time to time designate in writing
to the Company or, if a bank account with a United States bank is so
designated for such Holder, the Company will make such payments in
immediately available funds to such bank account, marked for attention
as indicated, or in such other manner or to such other account in any
United States bank as such Holder may from time to time direct in
writing.
SECTION 3. REPRESENTATIONS; COVENANTS OF THE PURCHASERS.
SECTION 3.1. REPRESENTATIONS OF THE COMPANY. The Company represents
and warrants that all representations and warranties set forth in
Exhibit B are true and correct as of the date hereof and are
incorporated herein by reference with the same force and effect as
though herein set forth in full.
SECTION 3.2. REPRESENTATIONS AND COVENANTS OF THE PURCHASERS. (a)
Each Purchaser, severally, represents and agrees, and in entering into
this Agreement the Company understands, that (i) such Purchaser is
acquiring the Notes for such Purchaser's own account, and for the
purpose of investment and not with a view to the distribution thereof,
and that such Purchaser has no present intention of selling, negotiating
or otherwise disposing of the Notes; it being understood, however, that
the disposition of such Purchaser's property shall at all times be and
remain within its control and (ii) the Notes have not been registered
under Section 5 of the Securities Act and that each Purchaser will only
re-offer or resell the Notes purchased by such Purchaser under this
Agreement pursuant to an effective registration statement under the
Securities Act or in accordance with an available exemption from the
requirements of Section 5 of the Securities Act. The Notes shall bear
the following legend:
"This Note has not been registered under Section 5 of the
Securities Act of 1933, as amended (the "Securities Act"), or any
other applicable securities law and, accordingly, this Note may
not be resold, pledged, or otherwise transferred, except pursuant
to (i) an effective registration statement under, or in a
transaction exempt from registration under, the Securities Act
and in accordance with any other applicable securities laws and
(ii) the terms and provisions of the Note Agreement, a complete
and correct conformed copy of which Note Agreement is available
for inspection at the registered office of the Company and will
be furnished to the Holder of the Note upon written request and
without charge."
(b) Each Purchaser further represents that the source of funds to
be used by such Purchaser to pay the purchase price of the Notes is an
"insurance company general account" within the meaning of Department of
Labor Prohibited Transaction Exemption 95-60 ("PTE") (issued July 12,
1995) and the purchase of the Notes by such Purchaser is eligible for
and satisfies the requirements of PTE 95-60.
SECTION 4. CLOSING CONDITIONS.
SECTION 4.1. CONDITIONS. The obligation of each Purchaser to
purchase the Notes on the Closing Date shall be subject to the following
conditions precedent:
(a) CLOSING CERTIFICATE. Such Purchaser shall have received a
certificate dated the Closing Date, signed by the President or a Vice
President of the Company, the truth and accuracy of which shall be a
condition to such Purchaser's obligation to purchase the Notes proposed
to be sold to such Purchaser and to the effect that (i) the
representations and warranties of the Company set forth in Exhibit B
hereto are true and correct on and with respect to the Closing Date,
(ii) the Company has performed all of its obligations hereunder which
are to be performed on or prior to the Closing Date, and (iii) no
Default or Event of Default has occurred and is continuing.
(b) LEGAL OPINIONS. Each Purchaser shall have received from
Chapman and Cutler, who are acting as special counsel to the Purchasers
in this transaction, and from Pillsbury Madison & Sutro LLP, counsel for
the Company, their respective opinions dated the Closing Date, in form
and substance satisfactory to such Purchaser, and covering the matters
set forth in Exhibits C and D, respectively, hereto.
(c) CERTAIN EXPENSES. The Company shall have paid the
professional fees and separately charged items of Chapman and Cutler,
your special counsel, which have been incurred through the Closing Date.
(d) RELATED TRANSACTIONS. The Company and each other Purchaser
shall have consummated the sale of the entire principal amount of the
Notes scheduled to be sold on the Closing Date pursuant to this
Agreement.
(e) SATISFACTORY PROCEEDINGS. All proceedings taken in connection
with the transactions contemplated by this Agreement, and all documents
necessary to the consummation thereof, shall be satisfactory in form and
substance to such Purchaser and such Purchaser's special counsel, and
such Purchaser shall have received a copy (executed or certified as may
be appropriate) of all legal documents or proceedings taken in
connection with the consummation of said transactions.
SECTION 4.2. WAIVER OF CONDITIONS. If on the Closing Date the Company
fails to tender to any Purchaser the Notes to be issued to any Purchaser
on such date or if the conditions specified in SECTION 4.1 have not been
fulfilled, such Purchaser may thereupon elect to be relieved of all
further obligations under this Agreement. Without limiting the
foregoing, if the conditions specified in SECTION 4.1 have not been
fulfilled, such Purchaser may waive compliance by the Company with any
such condition to such extent as such Purchaser may in its sole
discretion determine. Nothing in this SECTION 4.2 shall operate to
relieve the Company of any of its obligations hereunder or to waive any
Purchaser's rights against the Company.
SECTION 5. COMPANY COVENANTS.
From and after the Closing Date and continuing so long as any
amount remains unpaid on any Note:
SECTION 5.1. CORPORATE EXISTENCE, ETC. The Company shall do or cause
to be done all things necessary to preserve and keep in full force and
effect the existence, rights and franchises of the Company and its
Subsidiaries including, in the case of the Company, its registration
under the Bank Holding Company Act and, in the case of the Bank, its
existence, franchise and right to do business as a national banking
association under the National Bank Act or a state banking corporation
organized under the laws of the State of California, except as
specifically permitted by the provisions of SECTION 5.13. The Company
will cause each Bank Subsidiary at all times to be insured under the
Federal Deposit Insurance Act. Without limiting the foregoing and
notwithstanding any provision of this Agreement, including SECTION 5.13,
the Company will at all times own and hold 100% of the shares of
outstanding capital stock of the Bank (or any successor to the Bank
permitted under this Agreement), free and clear of any Liens.
SECTION 5.2. INSURANCE. The Company will maintain, and will cause
each Subsidiary to maintain, insurance coverage by financially sound and
reputable insurers in such forms and amounts and against such risks as
are customary for corporations of established reputation engaged in the
same or a similar business and owning and operating similar properties.
SECTION 5.3. TAXES, CLAIMS FOR LABOR AND MATERIALS, COMPLIANCE WITH
LAWS;. The Company will promptly pay and discharge, and will cause each
Subsidiary promptly to pay and discharge, all lawful taxes, assessments
and governmental charges or levies imposed upon the Company or such
Subsidiary, respectively, or upon or in respect of all or any part of
the property or business of the Company or such Subsidiary, all trade
accounts payable in accordance with usual and customary business terms,
and all claims for work, labor or materials, which if unpaid might
become a Lien upon any property of the Company or such Subsidiary;
PROVIDED, HOWEVER, that the Company or such Subsidiary shall not be
required to pay any such tax, assessment, charge, levy, account payable
or claim if (i) the validity, applicability or amount thereof is being
contested in good faith by appropriate actions or proceedings which will
prevent the forfeiture or sale of any property of the Company or such
Subsidiary or any material interference with the use thereof by the
Company or such Subsidiary, and (ii) the Company or such Subsidiary
shall set aside, in accordance with GAAP, on its books, reserves deemed
by it to be adequate with respect thereto. The Company will promptly
comply and will cause each Subsidiary to comply with all laws,
ordinances or governmental rules and regulations to which it is subject
including, without limitation, the Occupational Safety and Health Act of
1970, as amended, ERISA and all laws, ordinances, governmental rules and
regulations relating to environmental protection in all applicable
jurisdictions, the violation of which could materially and adversely
affect the properties, business, prospects, profits or condition of the
Company and its Subsidiaries, taken as a whole or would result in any
Lien not permitted under SECTION 5.10.
SECTION 5.4. MAINTENANCE, ETC. The Company will maintain, preserve
and keep, and will cause each Subsidiary to maintain, preserve and keep,
its material properties which are used or useful in the conduct of its
business (whether owned in fee or a leasehold interest) in good repair
and working order and from time to time will make all necessary repairs,
replacements, renewals and additions so that at all times the efficiency
thereof shall be maintained in all material respects.
SECTION 5.5. NATURE OF BUSINESS. Neither the Company nor any
Restricted Subsidiary will engage in any business if, as a result, the
general nature of the business, taken on a consolidated basis, which
would then be engaged in by the Company and its Restricted Subsidiaries
would be substantially changed from the general nature of the business
engaged in by the Company and its Restricted Subsidiaries on the date of
this Agreement.
SECTION 5.6. MAINTENANCE RATIOS. (a) The Company will not at any
time permit Capital Debt to exceed an amount equal to 40% of the sum of
(i) Capital Debt of the Company plus (ii) Common Stock of the Company
plus (iii) Perpetual Preferred Stock of the Company.
(b) The Company shall at all times maintain, and shall at all
times during which Consolidated Tangible Net Worth is less than
$250,000,000 cause the Bank to maintain, their respective risk-based
capital ratios at or above the "Well capitalized" regulatory
requirements for both Tier 1 risk-based capital and total risk-based
capital as provided for in 12 C.F.R. part 208.33(b)(I) (excluding clause
(iii) thereof).
SECTION 5.7. CONSOLIDATED TANGIBLE NET WORTH. (a) The Company will
at all times keep and maintain Consolidated Tangible Net Worth at an
amount not less than the sum of (i) $215,000,000 PLUS (ii) 50% of the
net proceeds to the Company after expenses of any sale of common stock
of the Company pursuant to a registered public offering by the Company
effected after the Closing Date, plus (iii) the following respective
percentages of positive Consolidated Net Income for each of the
respective fiscal years described in the following table:
Percentage of
Fiscal year Positive Consolidated
ending December 31, Net Income
1996 10%
1997 10%
1998 25%
1999 35%
2000 and all Fiscal Years Thereafter 50%
determined on a cumulative basis for the fiscal years ending after
December 31, 1995, PROVIDED that, for the purposes of the foregoing
calculation, in the event that Consolidated Net Income is a deficit
figure for any such fiscal year, Consolidated Net Income for such fiscal
year shall be deemed to be zero and, accordingly, shall not reduce the
amount of ConsolidatedTangible Net Worth required to be maintained
pursuant to the requirements of this Section 5.7(a).
(b) In addition to and not in limitation of the provisions of
Section 5.7(a), from and after the end of the first fiscal quarter or
fiscal year on which the Consolidated Tangible Net Worth of the Company
is at least $300,000,000 (such date being referred to as the "MILESTONE
DATE"), the Company will at all times thereafter keep and maintain
Consolidated Tangible Net Worth at an amount not less than the sum of
(i) $300,000,000 PLUS (ii) 10% of positive Consolidated Net Income
determined on a cumulative basis for each fiscal year ending on and
after the fiscal year in which the Milestone Date was initially reached,
PROVIDED, THAT, for the purposes of the foregoing calculation, in the
event that Consolidated Net Income is a deficit figure for any such
fiscal year, Consolidated Net Income for such fiscal year shall
be deemed to be zero and, accordingly, shall not reduce the amount of
Consolidated Tangible Net Worth required to be maintained pursuant to
the requirements of this SECTION 5.7(b).
SECTION 5.8. LIMITATION ON INDEBTEDNESS. (a) Neither the Company nor
any Restricted Subsidiary will create, assume or incur or in any manner be or
become liable in respect of any Funded Debt except Funded Debt
outstanding on the Closing Date and described on Annex B to Exhibit B
hereto and;
(i) Funded Debt evidenced by the Notes;
(ii) Limited Life Preferred Stock or Tier II Capital of the Company
or any Restricted Subsidiary;
(iii) Funded Debt of any Restricted Subsidiary to the Company or to
any Wholly-owned Restricted Subsidiary;
(iv) additional Capital Debt incurred after the date hereof
PROVIDED, that at the time of issuance or incurrence thereof
and after giving effect thereto and to the application of the
proceeds thereof, Pro Forma Fixed Charges for the next
succeeding period of 12 full calendar months will not exceed
150% of the Net Income Available for Fixed Charges for the
immediately preceding fiscal year; and
(v) additional Funded Debt (excluding Capital Debt of the Company)
incurred after the Closing Date PROVIDED, that at the time of
issuance or occurrence thereof and after giving effect thereto
and to the application of the proceeds thereof, (A) the
Company or such Restricted Subsidiary would be permitted to
incur at least $1.00 of additional Capital Debt pursuant to
the provisions of SECTION 5.8(a)(iv) and (B) the ratio of
Consolidated Funded Debt (excluding Capital Debt of the
Company) to the sum of (w) Consolidated Funded Debt PLUS (x)
Common Stock of the Company plus (y) Perpetual Preferred Stock
of the Company, shall not exceed 40%.
(b) Any corporation which becomes a Restricted Subsidiary after
the date hereof shall for all purposes of this SECTION 5.8 be deemed to
have created, assumed or incurred at the time it becomes a Restricted
Subsidiary all Funded Debt of such corporation existing immediately
after it becomes a Restricted Subsidiary.
SECTION 5.9. FIXED CHARGES COVERAGE RATIO. The Company will keep and
maintain the ratio (determined as of the end of each fiscal quarter) of
Net Income Available for Fixed Charges to Fixed Charges for each period
of four consecutive fiscal quarters (taken as a single accounting
period) at not less than 1.50 to 1.00.
Section 5.10. Liens and Encumbrances;.
(a) NEGATIVE PLEDGE. Neither the Company nor any Restricted
Subsidiary will cause or permit any of its Property, whether now owned
or hereafter acquired, to be subject to a Lien, except:
(1) Liens securing taxes, assessments or governmental
charges or levies or the claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like
Persons, PROVIDED the payment thereof is not at the time required
by SECTION 5.3;
(2) Liens incurred or deposits made in the ordinary course
of business (i) in connection with workmen's compensation,
unemployed insurance, social security and other like laws, or
(ii) to secure the performance of letters of credit, bids,
tenders, sales contracts, leases, statutory obligations
(including in the case of Bank Subsidiaries, (x) the pledge of
Securities (excluding Securities issued by such Bank Subsidiary)
to secure deposits and to secure fiduciary obligations of Bank
Subsidiaries and (y) any Lien on Property of a Bank Subsidiary
required by applicable law or regulation as security for
liabilities of a Bank Subsidiary referred to in clause (iv) of
the definition of Indebtedness Incurred by a Bank Subsidiary in
the Ordinary Course of Business), surety, appeal and performance
bonds and other similar obligations not incurred in connection
with the borrowing of money, the obtaining of advances or the
payment of the deferred purchase price of Property, PROVIDED,
that in all cases, the obligation or liability secured is not
overdue or, if overdue, is being contested in good faith, by
appropriate proceedings and, if applicable, in accordance with
the provisions of SECTION 5.3;
(3) attachment, judgment and other similar Liens arising in
connection with court proceedings, PROVIDED the execution or
other enforcement of such Liens is effectively stayed and the
claims secured thereby are being actively contested in good faith
and by appropriate proceedings and the Company or such Restricted
Subsidiary shall have established on its books in accordance with
GAAP adequate reserves with respect thereto;
(4) Liens on Property of a Restricted Subsidiary, PROVIDED
such Liens secure only obligations owing to the Company or a
Wholly-owned Restricted Subsidiary;
(5) reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions, leases and
other similar title exceptions or encumbrances affecting real
Property, PROVIDED they do not in the aggregate materially
detract from the value of said real Properties or materially
interfere with their use in the ordinary conduct of the owning
company's business;
(6) in addition to any Liens described in SECTION
5.10(a)(2), the Lien of mortgages, pledges, conditional sale
contracts, security interests, Capitalized Leases and
arrangements for the retention of the title ("MORTGAGES")
existing as of the Closing Date and described on Annex B to
Exhibit B hereto securing Indebtedness of the Company or any
Restricted Subsidiary outstanding on such date;
(7) the Lien of Mortgages, incurred after the date hereof
given to secure the payment of the purchase price incurred in
connection with the acquisition of fixed assets useful and
intended to be used in carrying on the business of the Company or
a Restricted Subsidiary including liens existing on such fixed
assets at the time of acquisition thereof or at the time of
acquisition by the Company or a Restricted Subsidiary of any
business entity then owning such fixed assets, whether or not
such existing liens were given to secure the payment of the
purchase price of the fixed assets to which they attach,
PROVIDED, that (i) the Mortgage shall attach solely to the
Property acquired or purchased, and (ii) at the time of
acquisition of such fixed assets, the aggregate amount remaining
unpaid on all Indebtedness secured by liens on such fixed assets
whether or not assumed by the Company or a Restricted Subsidiary
shall not exceed an amount equal to 100% of the lesser of the
total purchase price or fair market value at the time of
acquisition of such fixed assets (as determined in good faith by
the Board of Directors of the Company);
(8) leases of real or personal Property entered into by the
Company or a Subsidiary; and
(9) Liens on Property acquired in satisfaction or
enforcement of Indebtedness for borrowed money or other
extensions of credit made in good faith in the ordinary course of
the banking business, PROVIDED that such Property shall be
disposed of within the period required by applicable law.
(b) LIENS ON BANK SUBSIDIARY STOCK PROHIBITED. Notwithstanding
anything contained in this SECTION 5.10 or in this Agreement to the
contrary, the Company will not at any time cause or permit the shares of
capital stock which the Company owns of any Bank Subsidiary to be
subject at any time to any Lien.
(c) EQUAL AND RATABLE LIEN; EQUITABLE LIEN. In case any Property
is subjected to a Lien or Liens in violation of this SECTION 5.10 and
the obligation or obligations secured by such Lien or Liens,
individually or in the aggregate, exceed $5,000,000, the Company will
make or cause to be made provisions whereby the Notes will be secured
equally and ratably with all other obligations secured thereby and in
any case the Notes shall have the benefit, to the full extent that the
holders may be entitled thereto under applicable law, of an equitable
Lien so equally and ratably securing the Notes. Such violation of
SECTION 5.10 shall constitute a default hereunder, whether or not any
such provision is made pursuant to this SECTION 5.10(c).
SECTION 5.11. RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS. The
Company will not and will not permit any Restricted Subsidiary to, make
any Restricted Payment or any Restricted Investment if:
(a) at the time thereof or after giving effect thereto, any
Event of Default shall exist hereunder, or
(b) at the time thereof or after giving effect thereto, the
Company could not incur at least $1.00 of additional Funded Debt
under SECTION 5.8(a), or
(c) after giving effect to such Restricted Payment or such
Restricted Investment, the sum of the aggregate amount of all
Restricted Payments and all Restricted Investments made during
the period from and after January 1, 1993 to and including the
date of the making of the Restricted Payment or Restricted
Investment in questions, would exceed the sum of (i) $7,000,000
PLUS (ii) the following respective percentages of Consolidated
Net Income for each of the respective fiscal years described in
the following table:
Percentage of
Fiscal year Consolidated
ending December 31, Net Income
1993 50%
1994 50%
1995 50%
1996 90%
1997 90%
1998 75%
1999 65%
2000 and all Fiscal Years thereafter 50%
(PROVIDED that, notwithstanding the above, the foregoing percentages
shall be deemed to be "90%" for each full fiscal year subsequent to the
fiscal year in which the Milestone Date occurs), computed on a
cumulative basis for said entire period (or if such Consolidated Net
Income is a deficit figure for any such fiscal year, then minus 100% of
such deficit) PLUS (iii) the net cash proceeds to the Company from the
sale of Common Stock or Perpetual Preferred Stock (or warrants therefor)
of the Company or from the conversion at any time from and after January
1, 1993 of Debt of the Company into Common Stock of the Company or
Perpetual Preferred Stock of the Company.
In valuing any Investments for the purpose of applying the
limitations set forth hereinabove, such Investments shall be taken at
the original cost thereof, without allowance for any subsequent
write-offs or appreciation or depreciation thereof, but less any amount
repaid or recovered on account of capital or principal.
The Company will not cause or prevent any Restricted Subsidiary to
be subject to any restrictions or limitations with respect to the
payment of dividends to the Company except, with respect to the Bank
Subsidiaries, such restrictions or limitations which are no more
restrictive than the restrictions or limitations, if any, which are
imposed on such Bank Subsidiary by governmental or regulatory
authorities having jurisdiction over such matters.
Neither the Company nor any Subsidiary will declare any dividend
which constitutes a Restricted Payment payable more than 60 days after
the date of declaration thereof.
For the purposes of this SECTION 5.11, the amount of any Restricted
Payment declared, paid or distributed in property shall be deemed to be
the greater of the book value or fair market value (as determined in
good faith by the Board of Directors of the Company or such Restricted
Subsidiary) of such property at the time of the making of the Restricted
Payment in question.
SECTION 5.12. DISPOSAL OF SHARES OF A SUBSIDIARY. Neither the Company
nor any Restricted Subsidiary will sell, pledge or otherwise dispose of
any shares of the stock (including as "stock" for the purposes of this
Section any options or warrants to purchase stock or other Securities
exchangeable for or convertible into stock) of a Restricted Subsidiary,
nor will any Restricted Subsidiary issue, sell, pledge, encumber or
otherwise dispose of any shares of its own stock, if the effect of the
transaction would be to reduce the proportionate interest of the
Company and its other Restricted Subsidiaries in the outstanding stock
of the Restricted Subsidiary whose shares are the subject of the
transaction, nor will any Restricted Subsidiary issue, sell, pledge,
encumber or dispose of any shares of its own Preferred Stock; PROVIDED
that the foregoing restrictions do not apply to:
(a) the issue of directors' qualifying shares; and
(b) the sale or other disposition at one time (or a series of
related times) to a Person (other than directly or indirectly to an
Affiliate) of the entire investment (whether represented by stock,
debt, claims or otherwise) of the Company and its other Restricted
Subsidiaries in any Restricted Subsidiary (other than the Bank)
provided that:
(1) the Board of Directors of the Company shall have
determined that the retention of such investment is no longer in
the best interests of the Company and that such sale or other
disposition is not adverse to the interests of the holders of the
Notes;
(2) such investment is sold or otherwise disposed of for a
consideration and upon terms deemed by the Board of Directors of
the Company to constitute the fair market value thereof and to be
otherwise adequate and satisfactory;
(3) immediately after the consummation of the transaction
and after giving effect thereto, such Restricted Subsidiary shall
have no continuing investment in the Company or any other
Restricted Subsidiary and the investment, if any, of such
Restricted Subsidiary in the Company or any other Restricted
Subsidiary shall have been acquired by the Company or a
Wholly-owned Restricted Subsidiary;
(4) such sale or disposition does not involve a
"substantial part" of the Property of the Company and its
Restricted Subsidiaries (determined in accordance with the
provisions of Section 5.13); and
(5) immediately after the consummation of the transaction
and after giving effect thereto, no Default or Event of Default
would exist and the Company would be permitted by the provisions
of Section 5.8 to incur at least $1.00 of additional Funded Debt;
and
(c) the issue of Preferred Stock of a Restricted Subsidiary to
the Company or a Wholly-owned Restricted Subsidiary.
SECTION 5.13. MERGER AND SALE OF ASSETS. Neither the Company nor any
Restricted Subsidiary will:
(a) sell, lease, transfer or otherwise dispose of, all or any
part of its Property if such transaction involves a substantial part
of the Property of the Company and its Restricted Subsidiaries (except
Property sold in the ordinary course of business including, without
limitation, dispositions of Securities in connection with the
liquidation or disposition of loans in the ordinary course of
business), PROVIDED that any Restricted Subsidiary may sell, lease or
transfer all or any part of its assets to the Company or to another
Wholly-owned Restricted Subsidiary; or
(b) consolidate with or merge into any other Person (except that
(i) a Restricted Subsidiary may consolidate with or merge into the
Company, provided that the Company is the surviving corporation, and
except that (ii) a Restricted Subsidiary may consolidate with or merge
into a Wholly-owned Restricted Subsidiary) or permit any other Person
to consolidate with or merge into it, PROVIDED that the foregoing
restriction does not apply to the merger or consolidation of the
Company or any Restricted Subsidiary with another corporation, if:
(1) the corporation which results from such merger or
consolidation (the "SURVIVING CORPORATION") is (i) in the case of
a merger or consolidation involving the Company, a registered
bank holding company under the Bank Holding Company Act or a
wholly-owned subsidiary thereof, and (ii) in the case of a merger
or consolidation involving a Bank Subsidiary, a national banking
association organized under the laws of the United States of
America or a state or federal bank or savings bank which, in each
case, is a member of the FDIC;
(2) in the case of a merger or consolidation involving the
Company, the due and punctual payment of the principal of and
premium, if any, and interest on all of the Notes, according to
their tenor, and the due and punctual performance and observance
of all the covenants in the Notes and this Agreement to be
performed or observed by the Company (the "OBLIGATIONS"), are
expressly assumed in writing by the surviving corporation and, if
the Company merges or consolidates with a subsidiary of a bank
holding company (such bank holding company being referred to as
the "PARENT") pursuant to SECTION 5.13(b)(1)(i), the Obligations
are expressly guaranteed in writing by the Parent pursuant to a
guarantee reasonably satisfactory to the holders of 66-2/3% in
aggregate principal amount of the Notes;
(3) in the case of a merger or consolidation involving a
Restricted Subsidiary, the Company shall retain at least the same
proportionate share of the capital stock of the resulting entity
as it had of such Restricted Subsidiary immediately preceding
such merger or consolidation, it being understood that the
provisions of this SECTION 5.13(b)(3) shall not restrict mergers
in the form of the sale of all or substantially all of the assets
of a Restricted Subsidiary (other than the Bank) wherein the
Company retains no interest in the resulting entity, so long as
such sale is permitted by the provisions of this Agreement,
including without limitation, SECTION 5.13(a); and
(4) immediately after the consummation of the transaction,
and after giving effect thereto, no Default or Event of Default
would exist and the Company would be permitted by the provisions
of Section 5.8 to incur at least $1.00 of additional Funded Debt.
As used in SECTION 5.12 and 5.13 a sale, lease, transfer or other
disposition of the Property of the Company or a Restricted Subsidiary
shall be deemed to be a substantial part of the Property of the Company
and its Restricted Subsidiaries if the Property proposed to be disposed
of when added to all other Property of the Company and its Restricted
Subsidiaries sold, leased, transferred or disposed of (other than such
Property sold, leased, transferred or disposed of in the ordinary course
of business) including, without limitation, a sale of all or
substantially all of the assets of a Restricted Subsidiary during any
one fiscal year has an aggregate book value in excess of 15% of
Consolidated Assets determined as of the end of the last preceding
fiscal quarter for which financial statements are available.
Notwithstanding anything to the contrary contained in the previous
sentence, no merger permitted under SECTION 5.13(b)(ii) hereof shall be
considered a sale, lease, transfer or other disposition of the Property
of the Company or a Restricted Subsidiary for purposes of determining
compliance with the 15% test described hereinabove. Nothing contained
in this SECTION 5.13 or in this Agreement shall prohibit any merger or
consolidation of any Restricted Subsidiary with any other Restricted
Subsidiary if (i) such merger or consolidation is undertaken solely in
connection with re-incorporating such Restricted Subsidiary as a
California state bank or as a national banking association and (ii)
after giving effect to such merger or consolidation, no Default or Event
of Default would exist hereunder.
SECTION 5.14. GUARANTIES. Neither the Company nor any Restricted
Subsidiary will become or be liable in respect of any Guaranty, except
(i) Guaranties of the Company or any Restricted Subsidiary which have a
maximum dollar exposure and constitute Funded Debt of the Company or
such Restricted Subsidiary and (ii) Guaranties by Bank Subsidiaries that
constitute Indebtedness Incurred by a Bank Subsidiary in the Ordinary
Course of Business.
SECTION 5.15. REPURCHASE OF NOTES. Neither the Company nor any
Restricted Subsidiary or Affiliate, directly or indirectly, may
repurchase or make any offer to repurchase any Notes unless an offer has
been made to repurchase Notes, pro rata, from all Holders at the same
time and upon the same terms. In case the Company or any Subsidiary
repurchases or otherwise acquires any Notes, such Notes shall
immediately thereafter be canceled and no Notes shall be issued in
substitution therefor. Without limiting the foregoing, upon the
repurchase or other acquisition of any Notes by any Affiliate (or upon
the agreement of Company, any Restricted Subsidiary or any Affiliate to
purchase or otherwise acquire any Notes), such Notes shall no longer be
outstanding for purposes of any section of this Agreement relating to
the taking by the Holders of any actions with respect hereto, including,
without limitation, SECTION 6.3, SECTION 6.4 and SECTION 7.1.
SECTION 5.16. TRANSACTIONS WITH AFFILIATES. The Company will not, and
will not permit any Restricted Subsidiary to, enter into or be a party
to any material transaction or arrangement with any Affiliate
(including, without limitation, the purchase from, sale to or exchange
of property with, or the rendering of any service by or for, any
Affiliate), except pursuant to the reasonable requirements of the
Company's or such Restricted Subsidiary's business and upon fair and
reasonable terms no less favorable to the Company or such Restricted
Subsidiary than would obtain in a comparable arm's-length transaction
with a Person other than an Affiliate.
SECTION 5.17. TERMINATION OF PENSION PLANS. The Company will not and
will not permit any Subsidiary to withdraw from any Multiemployer Plan
or permit any employee benefit plan maintained by it to be terminated if
such withdrawal or termination could result in withdrawal liability (as
described in Part 1 of Subtitle E of Title IV of ERISA) or the
imposition of a Lien on any property of the Company or any Subsidiary
pursuant to Section 4068 of ERISA.
SECTION 5.18. DESIGNATION OF RESTRICTED SUBSIDIARIES. The Company may,
by action of its Board of Directors, designate any Subsidiary to be a
Restricted Subsidiary if at the time of such designation and after
giving effect thereto, no Default or Event of Default would exist. Any
such designation shall be irrevocable and the Company shall furnish
prompt notice of such designation to each Holder.
SECTION 5.19. REPORTS AND RIGHTS OF INSPECTION. The Company will keep,
and will cause each Restricted Subsidiary to keep, proper books of
record and account in which full and correct entries will be made of all
material dealings or transactions of, or in relation to, the business
and affairs of the Company or such Restricted Subsidiary, in accordance
with GAAP consistently applied (except for changes disclosed in the
financial statements furnished to the Holders pursuant to this SECTION
5.19 and concurred in by the independent public accountants referred to
in SECTION 5.19(b) hereof), and will furnish to each Institutional
Holder (in duplicate if so specified below or otherwise requested):
(a) QUARTERLY STATEMENTS. As soon as available and in any event
within 60 days after the end of each quarterly fiscal period (except
the last) of each fiscal year, copies of:
(1) consolidated balance sheets of the Company and its
Restricted Subsidiaries as of the close of such quarterly fiscal
period, setting forth in comparative form the consolidated
figures for the fiscal year then most recently ended,
(2) consolidated statements of income of the Company and
its Restricted Subsidiaries for such quarterly fiscal period and
for the portion of the fiscal year ending with such quarterly
fiscal period, in each case setting forth in comparative form the
consolidated figures for the corresponding periods of the
preceding fiscal year, and
(3) consolidated statements of cash flows of the Company
and its Restricted Subsidiaries for the portion of the fiscal
year ending with such quarterly fiscal period, setting forth in
comparative form the consolidated figures for the corresponding
period of the preceding fiscal year,
all in reasonable detail and certified as complete and correct by an
authorized financial officer of the Company;
(b) ANNUAL STATEMENTS. As soon as available and in any event
within 90 days after the close of each fiscal year of the Company,
copies of:
(1) consolidated balance sheets of the Company and its
Restricted Subsidiaries as of the close of such fiscal year,
(2) consolidated statements of income and retained earnings
and cash flows of the Company and its Restricted Subsidiaries for
such fiscal year, and
(3) a consolidated statement of condition of the Company at
the end of such year and the related statements of income and
reconciliation of capital accounts for such year in the form
submitted to the Federal Reserve Board or any other federal or
state entity requiring such statements,
in each case setting forth in comparative form the consolidated figures
for the preceding fiscal year, all in reasonable detail and in the case
of the financial statements described in SECTION 5.19(b)(1) and (2)
accompanied by a copy of a report thereon of a firm of independent
public accountants of recognized national standing selected by the
Company to the effect that the consolidated financial statements present
fairly, in all material respects, the consolidated financial position of
the Company and its Subsidiaries as of the end of the fiscal year being
reported on and the consolidated results of their operations and cash
flows for said year in conformity with GAAP and that the examination of
such accountants in connection with such financial statements has been
conducted in accordance with generally accepted auditing standards and
included such tests of the accounting records and such other examining
procedures as said accountants needed to provide a reasonable basis for
their opinion;
(c) AUDIT REPORTS. Promptly upon receipt thereof, one copy of each
interim or special audit made by independent accountants of the books of
the Company or any Subsidiary which audit, in the good faith
determination of the Company, relates to an event or circumstances which
could materially and adversely affect the consolidated operations or
condition of the Company;
(d) SEC AND OTHER REPORTS. Promptly upon their becoming
available, one copy of each financial statement, report, notice or final
proxy statement sent by the Company to stockholders generally and of
each regular or periodic report, and any registration statement or
prospectus filed by the Company or any Subsidiary with any securities
exchange or the Securities and Exchange Commission or any successor
agency, and copies of any orders in any proceedings to which the Company
or any of its Subsidiaries is a party, issued by any governmental
agency, Federal or state, having jurisdiction over the Company or any of
its Subsidiaries;
(e) ERISA REPORTS. Promptly upon the occurrence thereof, written
notice of (i) a Reportable Event with respect to any Plan; (ii) the
institution of any steps by the Company, any ERISA Affiliate, the PBGC
or any other person to terminate any Plan; (iii) the institution of any
steps by the Company or any ERISA Affiliate to withdraw from any Plan;
(iv) a non-exempt "prohibited transaction" within the meaning of Section
406 of ERISA in connection with any Plan; (v) any material increase in
the contingent liability of the Company or any Restricted Subsidiary
with respect to any post-retirement welfare liability; or (vi) the
taking of any action by, or the threatening of the taking of any action
by, the Internal Revenue Service, the Department of Labor or the PBGC
with respect to any of the foregoing;
(f) OFFICER'S CERTIFICATES. Within the periods provided in paragraphs
(a) and (b) above, a certificate of an authorized financial officer of
the Company stating that such officer has reviewed the provisions of
this Agreement and setting forth: (i) the information and computations
(in sufficient detail) required in order to establish whether the
Company was in compliance with the requirements of SECTION 5.6 through
SECTION 5.14 at the end of the period covered by the financial
statements then being furnished, and (ii) whether there existed as of
the date of such financial statements and whether, to the best of such
officer's knowledge, there exists on the date of the certificate or
existed at any time during the period covered by such financial
statements any Default or Event of Default and, if any such condition or
event exists on the date of the certificate, specifying the nature and
period of existence thereof and the action the Company is taking and
proposes to take with respect thereto;
(g) ACCOUNTANT'S CERTIFICATES. Within the period provided in
paragraph (b) above, a certificate of the accountants who render an
opinion with respect to such financial statements, stating that they
have reviewed this Agreement and stating further whether, in making
their audit, such accountants have become aware of any Default or Event
of Default under any of the terms or provisions of this Agreement
insofar as any such terms or provisions pertain to or involve accounting
matters or determinations, and if any such condition or event then
exists, specifying the nature and period of existence thereof;
(h) CALL REPORTS. As soon as available and in any event within 60
days after the close of each quarterly fiscal period of each fiscal
year, one copy of each "CALL REPORT" in the form delivered by each Bank
Subsidiary which owns assets exceeding 10% of Consolidated Total Assets
to the Federal Reserve District Bank, the Comptroller of the Currency or
the FDIC, with such reports to include "Consolidated Reports of
Condition and Income" for such Bank Subsidiary and all schedules
thereto;
(i) NOTICE OF RESTRICTION OF RESTRICTED PAYMENTS. (1) Promptly
upon receipt thereof, notice by the Company that it or any of its
Subsidiaries has received a request or directive from any Federal or
state regulatory agency restricting the payment of dividends by any
Subsidiary of the Company and, (2) immediately upon entering into the
same, notice that the Company or any Subsidiary has entered into an
agreement with any Federal or state regulatory agency which restricts
the payment of dividends by any Subsidiary of the Company, together with
one copy of such agreement so restricting the payment of such dividends;
(j) LENDING GUIDELINES CIRCULAR. Within 90 days after the end of
each fiscal year, copies of the "Lending Guidelines Circular" for the
Company and each Bank Subsidiary, prepared and certified by the Chief
Credit Officer of the Company for the fiscal period ending on such
fiscal year-end date; and
(j) REQUESTED INFORMATION. With reasonable promptness, such other
data and information as such Institutional Holder may reasonably request
including, without limitation, the financial statements described in
SECTION 5.19(a) and 5.19(b)(1) and (2) prepared on a consolidating basis
for the Company and its Restricted Subsidiaries.
Without limiting the foregoing, the Company will permit each
Institutional Holder (or such Persons as such Institutional Holder may
designate), to visit and inspect, under the Company's guidance, any of
the properties of the Company or any Restricted Subsidiary, to examine
all of their books of account, records, reports and other papers, to
make copies and extracts therefrom and to discuss their respective
affairs, finances and accounts with their respective officers,
employees, and independent public accountants (and by this provision the
Company authorizes said accountants to discuss with any Institutional
Holder the finances and affairs of the Company and its Restricted
Subsidiaries) all at such reasonable times and as often as may be
reasonably requested. The Company shall not be required to pay or
reimburse any Holder for expenses which such Holder may incur in
connection with any such visitation or inspection, except that if such
visitation or inspection is made during any period when a Default or an
Event of Default shall have occurred and be continuing, the Company
agrees to reimburse such Holder for all such expenses promptly upon
demand.
Notwithstanding the foregoing, neither the Company nor any of the
Subsidiaries shall be required to disclose or permit the inspection,
discussion, examination or making of copies of that portion of materials
which may not be furnished or disclosed under applicable law or pursuant
to any regulatory restriction binding on the Company or any Subsidiary.
Notwithstanding anything else herein to the contrary, each Holder
agrees that all information received pursuant to this Agreement, that
was, at the time of its delivery, identified in writing by the Company
to such Holder as being confidential will be held by such Holder in
confidence to the extent of such Holder's customary procedures for
handling confidential information. It is understood that such Holder,
consistent with any such procedures, may only disclose such confidential
information, or portions thereof
(a) to any bona fide prospective transferee of the Notes or to
any bona fide prospective acquiror of the Holder of the Notes in
connection with the contemplated transfer of Notes or acquisition of
the Holder by another Person, provided that such transferee or
acquiror has agreed in writing (with a copy to the Company) to be
bound by the provisions of this
paragraph prior to any such disclosure;
(b) to the extent necessary to comply with the request of, or as
otherwise customarily disclosed to, any governmental or regulatory
body (including without limitation the United States National
Association of Insurance Commissioners or any successor thereto) or
representatives thereof or any rating agency in connection with the
rating of such Holder's securities or claims paying ability;
(c) to such Holder's officers, employees, trustees and
directors;
(d) to the extent necessary or appropriate to comply with any
subpoena or other court process or in connection with any litigation
or legal proceeding;
(e) such other Holder's independent auditors and accountants,
counsel and other professional advisers in the course of their
respective duties;
(f) to the extent such other Holder reasonably believes it
necessary to comply with any applicable law, statute, regulation,
ruling or order;
(g) in the enforcement of such Holder's rights hereunder and
under the Notes;
(h) which is, or after delivery to such Holder, becomes
otherwise publicly known or generally available to the public other
than as a result of a disclosure by such Holder; and
(i) to any other Holder.
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
SECTION 6.1. EVENTS OF DEFAULT. Any one or more of the following
shall constitute an "EVENT OF DEFAULT" as such term is used herein:
(a) Default shall occur in the payment of interest on any Note
when the same shall have become due; or
(b) Default shall occur in the making of any required prepayment
on any of the Notes as provided in SECTION 2.1; or
(c) Default shall occur in the making of any other payment of
the principal of any Note or premium, if any, thereon at the expressed
or any accelerated maturity date or at any date fixed for prepayment;
or
(d) Default shall be made in the payment when due (whether by
lapse of time, by declaration, by call for redemption or otherwise) of
the principal of or interest on Material Debt (other than the Notes)
of the Company or any Restricted Subsidiary and such default shall
continue beyond the period of grace, if any, allowed with respect
thereto; or
(e) Default or the happening of any event shall occur under any
indenture, agreement or other instrument under which any Material Debt
of the Company or any Restricted Subsidiary may be issued and such
default or event shall continue for a period of time sufficient to
permit (i) the acceleration of the maturity of any Material Debt of
the Company or any Restricted Subsidiary outstanding thereunder or
(ii) the election of any member of the Board of Directors of the
Company by the holders of any Security (other than Common Stock) of
the Company or by a Trustee; or
(f) Default shall occur in the observance or performance of any
covenant or agreement contained in SECTION 5.6 through SECTION 5.15;
or
(g) Default shall occur in the observance or performance of any
other provision of this Agreement which is not remedied within 30 days
after the earlier of (i) the day on which the Company first obtains
knowledge of such default, or (ii) the day on which written notice
thereof is given to the Company by any Holder; or
(h) Any representation or warranty made by the Company herein,
or made by the Company in any statement or certificate furnished by
the Company in connection with the consummation of the issuance and
delivery of the Notes or furnished by the Company pursuant hereto, is
untrue in any material respect as of the date of the issuance or
making thereof; or
(i) Final judgment or judgments for the payment of money
aggregating in excess of $5,000,000 is or are outstanding against the
Company or any Restricted Subsidiary or against any property or assets
of either and any one of such judgments has remained unpaid,
unvacated, unbonded or unstayed by appeal or otherwise for a period of
30 days from the date of its entry;
or
(j) The rights, privileges or franchises of any Bank Subsidiary
to do business as a bank or trust company, as the case may be, shall
be declared forfeited by any governmental authority or any court of
competent jurisdiction and not restored and the order, decree or
judgment related thereto effectively stayed by appropriate proceedings
within 60 days thereafter; or
(k) The Company or the Bank shall at any time fail to meet the
Minimum Capital Requirements; or
(l) any conservator or receiver shall be appointed for either
Company or any Bank Subsidiary under the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, as it may be amended or
supplement from time to time, or any Bank Subsidiary shall suspend
payment of its obligations; or
(m) A custodian, liquidator, trustee or receiver is appointed
for the Company or any Restricted Subsidiary or for the major part of
the property of either and is not discharged within 30 days after such
appointment; or
(n) The Company or any Restricted Subsidiary becomes insolvent
or bankrupt, is generally not paying its debts as they become due or
makes an assignment for the benefit of creditors, or the Company or
any Restricted Subsidiary applies for or consents to the appointment
of a custodian, liquidator, trustee or receiver for the Company or
such Restricted Subsidiary or for the major part of the property of
either; or
(o) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or
against the Company or any Restricted Subsidiary and, if instituted
against the Company or any Restricted Subsidiary, are consented to or
are not dismissed within 60 days after such institution.
SECTION 6.2. NOTICE TO HOLDERS. When any Event of Default described
in the foregoing SECTION 6.1 has occurred, or if any Holder or the
holder of any other evidence of Material Debt of the Company gives any
notice or takes any other action with respect to a claimed default, the
Company agrees to give notice within three Business Days of such event
to all Holders.
SECTION 6.3. ACCELERATION OF MATURITIES. When any Event of Default
described in paragraph (a), (b) or (c) of SECTION 6.1 has happened and
is continuing, any Holder may, and when any Event of Default described
in paragraphs (d) through (l), inclusive, of said SECTION 6.1 has
happened and is continuing, any Holder or Holders holding 33-1/3% or
more of the principal amount of Notes at the time outstanding may, by
notice to the Company, declare the entire principal and all interest
accrued on all Notes to be, and all Notes shall thereupon become,
forthwith due and payable, without any presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived.
When any Event of Default described in paragraph (m), (n) or (o) of
SECTION 6.1 has occurred, then all outstanding Notes shall immediately
become due and payable without presentment, demand or notice of any
kind. Upon the Notes becoming due and payable as a result of any Event
of Default as aforesaid, the Company will forthwith pay to the Holders,
the entire principal and interest accrued on the Notes and, to the
extent not prohibited by applicable law, an amount as liquidated damages
for the loss of the bargain evidenced hereby (and not as a penalty)
equal to the Make-Whole Amount, determined as of the date on which the
Notes shall so become due and payable. No course of dealing on the part
of the Holder or Holders nor any delay or failure on the part of any
Holder to exercise any right shall operate as a waiver of such right or
otherwise prejudice such Holder's rights, powers and remedies. The
Company further agrees, to the extent permitted by law, to pay to the
Holder or Holders all reasonable costs and expenses incurred by them in
the collection of any Notes upon any default hereunder or thereon,
including reasonable compensation to such Holder's or Holders' attorneys
for all services rendered in connection therewith.
SECTION 6.4. RESCISSION OF ACCELERATION. The provisions of SECTION
6.3 are subject to the condition that if the principal of and accrued
interest on all or any outstanding Notes have been declared immediately
due and payable by reason of the occurrence of any Event of Default
described in paragraphs (a) through (l), inclusive, of Section 6.1, the
Holders holding 66-2/3% in aggregate principal amount of the Notes then
outstanding may, by written instrument filed with the Company, rescind
and annul such declaration and the consequences thereof, provided that
at the time such declaration is annulled and rescinded:
(a) no judgment or decree has been entered for the payment of
any monies due pursuant to the Notes or this Agreement;
(b) all arrears of interest upon all the Notes and all other
sums payable under the Notes and under this Agreement (except any
principal, interest or premium on the Notes which has become due and
payable solely by reason of such declaration under SECTION 6.3) shall
have been duly paid; and
(c) each and every other Default and Event of Default shall have
been made good, cured or waived pursuant to SECTION 7.1;
and PROVIDED FURTHER, that no such rescission and annulment shall extend
to or affect any subsequent Default or Event of Default or impair any
right consequent thereto.
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS.
SECTION 7.1. CONSENT REQUIRED. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be
amended or compliance therewith may be waived (either generally or in a
particular instance and either retroactively or prospectively), if the
Company shall have obtained the consent in writing of the Holders
holding at least 66-2/3% in aggregate principal amount of outstanding
Notes; provided, however, that without the written consent of all of the
Holders, no such amendment or waiver shall be effective (i) which will
change the time of payment (including any prepayment required by Section
2.1) of the principal of or the interest on any Note or change the
principal amount thereof or change the rate of interest thereon or any
provisions with respect to premium, or (ii) which will change any of the
provisions with respect to prepayments, or (iii) which will change the
percentage of Holders required to consent to any such amendment or
waiver of any of the provisions of this SECTION 7 or SECTION 6.
SECTION 7.2. SOLICITATION OF HOLDERS. So long as there are any Notes
outstanding, the Company will not solicit, request or negotiate for or
with respect to any proposed waiver or amendment of any of the
provisions of this Agreement or the Notes unless each Holder
(irrespective of the amount of Notes then owned by it) shall be informed
thereof by the Company and shall be afforded the opportunity of
considering the same and shall be supplied by the Company with
sufficient information to enable it to make an informed decision with
respect thereto. The Company will not, directly or indirectly, pay or
cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, to any Holder as consideration
for or as an inducement to entering into by any Holder of any waiver or
amendment of any of the terms and provisions of this Agreement or the
Notes unless such remuneration is concurrently offered, on the same
terms, ratably to all Holders.
SECTION 7.3. EFFECT OF AMENDMENT OR WAIVER. Any such amendment or
waiver shall apply equally to all of the Holders and shall be binding
upon them, upon each future Holder and upon the Company, whether or not
any Note shall have been marked to indicate such amendment or waiver.
No such amendment or waiver shall extend to or affect any obligation not
expressly amended or waived or impair any right consequent thereon.
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS.
SECTION 8.1. DEFINITIONS. Unless the context otherwise requires, the
terms hereinafter set forth when used herein shall have the following
meanings and the following definitions shall be equally applicable to
both the singular and plural forms of any of the terms herein defined:
"AFFILIATE" shall mean any Person (other than a Restricted
Subsidiary) (i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control
with, the Company, (ii) which beneficially owns or holds 5% or more of
any class of the Voting Stock of the Company or (iii) 5% or more of the
Voting Stock (or in the case of a Person which is not a corporation, 5%
or more of the equity interest) of which is beneficially owned or held
by the Company or a Subsidiary. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through
the ownership of Voting Stock, by contract or otherwise.
"AGREEMENT" shall mean this Note Agreement.
"BANK" shall mean Westamerica Bank, a California corporation.
"BANK HOLDING COMPANY ACT" shall mean The Bank Holding Company Act
of 1956, as amended [12 U.C.A. Section 1841 et. seq.] and any successor
legislation.
"BANK SUBSIDIARY" shall mean the Bank and any Subsidiary:
(1) organized as a national banking association under the
laws of the United States of America, or which is organized as a
Federal or state bank or savings bank and is a member of the
FDIC; and
(2) which conducts substantially all of its business and has
substantially all of its Property in the United States of
America.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday,
legal holiday or other day on which commercial banks located in San
Francisco, California and New York, New York are not authorized or
required by law to be closed.
"CALIFORNIA BANK HOLDING COMPANY ACT" shall mean West's Ann Fin.
Code Section 3700 et. seq. of the Financial Code of the State of
California and any successor legislation.
"CAPITAL DEBT" shall mean and include all unsecured Debt of the
Company the proceeds of which, if issued as of the Closing Date, would
satisfy the then applicable regulatory requirements in order to be
treated as Tier II Capital by the Company.
"CAPITALIZED LEASE" shall mean any lease the obligation for Rentals
with respect to which is required to be capitalized on a consolidated
balance sheet of the lessee and its subsidiaries in accordance with
GAAP. "Capitalized Rentals" of any Person shall mean as of the date of
any determination thereof the amount at which the aggregate Rentals due
and to become due under all Capitalized Leases under which such Person
is a lessee would be reflected as a liability under GAAP on a
consolidated balance sheet of such Person.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" shall mean and include any class of capital stock of
the Company now or hereafter authorized, the right of which to share in
distributions either of earnings or assets of such corporation is
without limit as to any amount or percentage. For the purposes of any
determination under SECTION 5.6 or 5.8, Common Stock of the Company
shall be valued at the book value thereof.
"COMPANY" shall mean Westamerica Bancorporation, a California
corporation, and any Person who succeeds to all, or substantially all,
of the assets and business of Westamerica Bancorporation.
"COMPTROLLER" shall mean the Comptroller of the Currency of the
United States.
"CONSOLIDATED ASSETS" shall mean, as of the date of any
determination thereof, an amount equal to the assets of the Company and
its Restricted Subsidiaries determined on a consolidated basis in
accordance with GAAP. "Consolidated Funded Debt" shall mean all Funded
Debt of the Company and its Restricted Subsidiaries, determined on a
consolidated basis eliminating intercompany items.
"CONSOLIDATED NET INCOME" for any period shall mean the gross
revenues of the Company and its Restricted Subsidiaries for such period
less all expenses and other proper charges (including taxes on income),
determined on a consolidated basis after eliminating earnings
attributable to outstanding Minority Interests, but excluding in any
event:
(a) any gains or losses on the sale or other disposition of
fixed or capital assets, and any taxes on such excluded gains and any
tax deductions or credits on account of any such excluded losses;
(b) the proceeds of any life insurance policy;
(c) net earnings of any Restricted Subsidiary accrued prior to
the date it became a Restricted Subsidiary;
(d) net earnings of any corporation (other than a Restricted
Subsidiary), substantially all the assets of which have been acquired
in any manner by the Company or any Restricted Subsidiary, realized by
such corporation prior to the date of such acquisition;
(e) net earnings of any corporation (other than a Restricted
Subsidiary) with which the Company or a Restricted Subsidiary shall
have consolidated or which shall have merged into or with the Company
or a Restricted Subsidiary prior to the date of such consolidation or
merger;
(f) net earnings of any business entity (other than a Restricted
Subsidiary) in which the Company or any Restricted Subsidiary has an
ownership interest unless such net earnings shall have actually been
received by the Company or such Restricted Subsidiary in the form of
cash distributions;
(g) any portion of the net earnings of any Restricted Subsidiary
which for any reason is unavailable for payment of dividends to the
Company or any other Restricted Subsidiary;
(h) earnings resulting from any reappraisal, revaluation or
write-up of assets;
(i) any deferred or other credit representing any excess of the
equity in any Subsidiary at the date of acquisition thereof over the
amount invested in such Subsidiary;
(j) any gain arising from the acquisition of any Securities of
the Company or any Restricted Subsidiary; and
(k) any reversal of any contingency reserve, except to the
extent that provision for such contingency reserve shall have been
made from income arising during such period.
"CONSOLIDATED TANGIBLE NET WORTH" shall mean as of the date of any
determination thereof shareholders' equity of the Company and its
Restricted Subsidiaries minus (to the extent otherwise included therein)
assets of the Company and its Restricted Subsidiaries which constitute
intangible assets, all determined in accordance with GAAP.
"DEBT" of any Person shall mean, as of the date of any
determination
thereof:
(i) all obligations of such person for borrowed money
evidenced by notes, bonds, debentures or similar evidences of
indebtedness of such Person,
(ii) obligations secured by any Lien upon property or assets
owned by such Person, even though such Person has not assumed or
become liable for the payment of such obligation,
(iii) obligations created or arising under any conditional
sale or other title retention agreement with respect to property
acquired by such Person, notwithstanding the fact that the rights
and remedies of the seller, lender or lessor under such agreement
in the event of default are limited to repossession or sale of
property,
(iv) Capitalized Rentals,
(v) obligations of such Person representing the deferred
and unpaid purchase price of any property or business or
services, excluding accounts payable and accrued expenses
constituting current liabilities,
(vi) letters of credit issued for the account of such Person
(other than letters of credit in respect of accounts payable);
and
(vii) Guaranties of obligations of others of the character
referred to hereinabove in this definition.
PROVIDED, HOWEVER, that "DEBT" shall not include Indebtedness Incurred
by a Bank Subsidiary in the Ordinary Course of Business.
For the purpose of computing the Debt of any Person, there shall be
excluded any particular Indebtedness to the extent that, upon or prior
to the maturity thereof, there shall have been deposited with the proper
depositary in trust for the benefit of the holder of such Indebtedness
and unavailable to satisfy the claims of creditors other than the holder
of such Indebtedness the necessary funds (or evidences of Indebtedness,
if permitted by the instrument creating such Indebtedness) for the
payment, redemption or satisfaction of such Indebtedness; and thereafter
such funds and evidences of Indebtedness so deposited shall not be
included in any computation of the assets of such Person.
"DEFAULT" shall mean any event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both,
constitute an Event of Default.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together
with the regulations thereunder, in each case as in effect from time to
time. References to sections of ERISA shall be construed to also refer
to any successor sections.
"ERISA AFFILIATE" shall mean any corporation, trade or business
that is, along with the Company, a member of a controlled group of
corporations or a controlled group of trades or businesses, as described
in section 414(b) and 414(c), respectively, of the Code or Section 4001
of ERISA.
"EVENT OF DEFAULT" shall have the meaning set forth in SECTION 6.1.
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
successors thereto.
"FEDERAL DEPOSIT INSURANCE ACT" shall mean the Federal Deposit
Insurance Act 12 U.S.C.A. 1811 et. seq. and any successor legislation.
"FIXED CHARGES" for any period shall mean on a consolidated basis
the sum of (i) all Rentals (other than Rentals on Capitalized Leases)
payable during such period by the Company and its Restricted
Subsidiaries, and (ii) all Interest Charges on all Indebtedness
(including the interest component of Rentals on Capitalized Leases) of
the Company and its Restricted Subsidiaries. For purposes of any
determination of this definition, "FIXED CHARGES" shall be adjusted
retroactively to give effect to the Debt of any business entity
acquired or disposed of by the Company or any Restricted Subsidiary and
shall be computed as though such Debt of such business entity had been
owed by the Company or such business entity had been a Restricted
Subsidiary, as the case may be, throughout the applicable period
and as though the Debt then being satisfied, if any, had not been owed
by the Company or any Restricted Subsidiary without the applicable
period.
"FUNDED DEBT" of any Person shall mean (i) all Debt of such Person
having a final maturity of one or more than one year from the date of
origin thereof (or which is renewable or extendible at the option of the
obligor for a period or periods more than one year from the date of
origin),including all payments in respect thereof that are required to
be made within one year from the date of any determination of Funded
Debt, whether or not the obligation to make such payments shall
constitute a current liability of the obligor under GAAP, and (ii) all
Guaranties by such Person of Funded Debt of others.
"GAAP" shall mean generally accepted accounting principles at the
time in the United States.
"GUARANTIES" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing, or
in effect guaranteeing, any Indebtedness, dividend or other obligation
of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, all obligations
incurred through an agreement, contingent or otherwise, by such Person:
(i) to purchase such Indebtedness or obligation or any property or
assets constituting security therefor, (ii) to advance or supply funds
(x) for the purchase or payment of such Indebtedness or obligation, (y)
to maintain working capital or other balance sheet condition or
otherwise to advance or make available funds for the purchase or payment
of such Indebtedness or obligation, (iii) to lease property or to
purchase Securities or other property or services primarily for the
purpose of assuring the owner of such Indebtedness or obligation of the
ability of the primary obligor to make payment of the Indebtedness or
obligation, or (iv) otherwise to assure the owner of the Indebtedness or
obligation of the primary obligor against loss in respect thereof. For
the purposes of all computations made under this Agreement, a Guaranty
in respect of any Indebtedness for borrowed money shall be deemed to be
Indebtedness equal to the principal amount of such Indebtedness for
borrowed money which has been guaranteed, and a Guaranty in respect of
any other obligation or liability or any dividend shall be deemed to be
Indebtedness equal to the maximum aggregate amount of such obligation,
liability or dividend.
"HOLDER" shall mean any Person which is, at the time of reference,
the registered Holder of any Note.
"INDEBTEDNESS" of any Person shall mean and include all obligations
of such Person which in accordance with GAAP shall be classified upon a
balance sheet of such Person as liabilities of such Person, and in any
event shall include all Debt.
"INDEBTEDNESS INCURRED BY A BANK SUBSIDIARY IN THE ORDINARY COURSE
OF BUSINESS" shall mean and include any liability or obligation of such
Bank Subsidiary with respect to (i) any deposits with or funds collected
by it, (ii) any banker's acceptance or letter of credit, (iii) any
check, note, certificate of deposit, draft or bill of exchange, issued,
accepted or endorsed by it in the ordinary course of its business, (iv)
any discount with, borrowing from, or other obligation to, any Federal
Reserve Bank or Federal Home Loan Bank, (v) any agreement, made by it in
the ordinary course of its business, to purchase or repurchase
Securities or loans or to participate in loans, (vi) any transactions in
the nature of an extension of credit, whether in the form of a
commitment, Guaranty or otherwise, undertaken by it for account of a
third party with the application by it of the same banking
considerations and legal lending limits that would be applicable if the
transaction were a loan to such party, (vii) any transaction in which it
acts solely in a fiduciary or agency capacity, (viii) sale or purchases
of federal funds or (ix) service agreements entered into in the ordinary
course of business with respect to the administration of certain assets
of such Bank Subsidiary or which have been sold in the ordinary course
of business by such Bank Subsidiary.
"INSTITUTIONAL HOLDER" shall mean any Holder which is a Purchaser
or an insurance company, bank, savings and loan association, trust
company, investment company, charitable foundation, employee benefit
plan (as defined in ERISA) or other institutional investor or financial
institution and, for purposes of the direct payment provisions of this
Agreement, shall include any nominee of any such Holder.
"INTEREST CHARGES" for any period shall mean all interest and all
amortization of debt discount and expense on any particular Debt for
which such calculations are being made. Computations of Interest
Charges on a pro forma basis for Debt having a variable interest rate
shall be calculated at the rate in effect on the date of any
determination.
"INVESTMENTS" shall mean all investments, in cash or by delivery of
property made, directly or indirectly in any Person, whether by
acquisition of shares of capital stock, indebtedness or other
obligations or Securities or by loan, advance, capital contribution or
otherwise in accordance with GAAP; provided, however, that "Investments"
shall not mean or include routine investments in property to be used or
consumed in the ordinary course of business nor shall the term include
any lock-up options or similar agreements obtained by, or granted in
connection with, any acquisition or merger.
"LIEN" shall mean any interest in property securing an obligation
owed to, or a claim by, a Person other than the owner of the property,
whether such interest is based on the common law, statute or contract,
and including but not limited to the security interest lien arising from
a mortgage, encumbrance, pledge, conditional sale or trust receipt or a
lease, consignment or bailment for security purposes. The term "Lien"
shall include reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances (including, with respect to stock,
stockholder agreements, voting trust agreements, buy-back agreements and
all similar arrangements) affecting property. For the purposes of this
Agreement, the Company or a Restricted Subsidiary shall be deemed to be
the owner of any property which it has acquired or holds subject to a
conditional sale agreement, Capitalized Lease or other arrangement
pursuant to which title to the property has been retained by or vested
in some other Person for security purposes and such retention or vesting
shall constitute a Lien.
"MAKE-WHOLE AMOUNT" shall mean in connection with any prepayment or
acceleration of the Notes the excess, if any, of (i) the aggregate
present value as of the date of such prepayment of each dollar of
principal being prepaid (taking into account the application of such
prepayment required by SECTION 2.1) and the amount of interest
(exclusive of interest accrued to the date of prepayment) that would
have been payable on each date on which interest would have been
required to be paid in respect of such dollar if such prepayment had not
been made (assuming required prepayments pursuant to Section 2.1, the
principal balance of such Note payable upon maturity and interest
payments, were paid when due), determined by discounting such amounts at
the Reinvestment Rate from the respective dates on which they would have
been payable, over (ii) 100% of the principal amount of the outstanding
Notes being prepaid. If the Reinvestment Rate is equal to or higher
than 7.11%, the Make-Whole Amount shall be zero. For purposes of any
determination of the Make-Whole Amount:
"REINVESTMENT RATE" shall mean .50%, plus the arithmetic mean of
the yields for the two columns under the heading "Week Ending"
published in the Statistical Release under the caption "Treasury
Constant Maturities" (available at 11:00 A.M. New York City time, on
the third Business Day prior to the date of such prepayment) for the
maturity (rounded to the nearest month) corresponding to the Weighted
Average Life to Maturity of the principal being prepaid (taking into
account the application of such prepayment required by SECTION 2.1).
If no maturity exactly corresponds to such Weighted Average Life to
Maturity, yields for the published maturity next longer than the
Weighted Average Life to Maturity and for the published maturity next
shorter than the Weighted Average Life to Maturity shall be calculated
pursuant to the immediately preceding sentence and the reinvestment
Rate shall be interpolated from such yields on a straight-line
basis, rounding in each of such relevant periods to the nearest month.
"Statistical Release" shall mean the then most recently published
statistical release (available at 11:00 A.M. New York City time, on
the third Business Day prior to the date of such prepayment)
designated "H.15(519)" or any successor publication which is published
weekly by the Federal Reserve System and which establishes yields on
actively traded U.S. Government Securities adjusted to constant
maturities or, if such statistical release is not published at the
time of any determination hereunder, then such other reasonably
comparable index which shall be designated by the Holders holding
66-2/3% in aggregate principal amount of the outstanding Notes.
"WEIGHTED AVERAGE LIFE TO MATURITY" of the principal amount of
the Notes being prepaid shall mean, as of the time of any
determination thereof, the number of years obtained by dividing the
then REMAINING DOLLAR-YEARS of such principal by the aggregate amount
of such principal. The term "Remaining Dollar-Years" of such
principal shall mean the amount obtained by (i) multiplying (x) the
remainder of (1) the amount of principal that would have become due on
each scheduled payment date if such prepayment had not been made, less
(2) the amount of principal on the Notes scheduled to become due on
such date after giving effect to such prepayment and the application
thereof in accordance with the provisions of Section 2.1, by (y) the
number of years (calculated to the nearest one-twelfth) which will
elapse between the date of determination and such scheduled payment
date, and (ii) totalling the products obtained in (i).
"MATERIAL DEBT" shall mean, as of the date of any determination
thereof, one or more obligations of the Company or any Restricted
Subsidiary constituting Debt which is outstanding in an aggregate
principal amount in excess of $5,000,000.
"MINIMUM CAPITAL REQUIREMENT" shall mean any minimum capital
guideline or requirement in effect from time to time under any published
rule or regulation issued by the Federal Reserve Board, the FDIC or any
other applicable Federal or state regulatory authority having
jurisdiction over the Company or any Bank Subsidiary including, without
limitation, pursuant to 12 C.F.R. pt. 225.
"MINORITY INTERESTS" shall mean any shares of stock of any class of
a Restricted Subsidiary (other than directors' qualifying shares as
required by law) that are not owned by the Company and/or one or more of
its Restricted Subsidiaries. Minority Interests shall be valued by
valuing Minority Interests constituting preferred stock at the voluntary
or involuntary liquidating value of such preferred stock, whichever is
greater, and by valuing Minority Interests constituting common stock at
the book value of capital and surplus applicable thereto adjusted, if
necessary, to reflect any changes from the book value of such common
stock required by the foregoing method of valuing Minority Interests in
preferred stock.
"MULTIEMPLOYER PLAN" shall have the same meaning as in ERISA.
"NATIONAL BANK ACT" shall mean The National Bank Act [12 U.S.C.
Section 21 et. seq.] and any successor legislation.
"NET INCOME AVAILABLE FOR FIXED CHARGES" for any period shall mean
the sum of (i) Consolidated Net Income during such period plus (to the
extent deducted in determining Consolidated Net Income), (ii) all
provisions for any Federal, state or other income taxes made by the
Company and its Restricted Subsidiaries during such period and (iii)
Fixed Charges of the Company and its Restricted Subsidiaries during such
period. For the purposes of any determination of this definition, "NET
INCOME AVAILABLE FOR FIXED CHARGES" shall be adjusted retroactively to
give effect to the operations of any business entity (based on the
actual financial performance of such business entity) where the assets
and liabilities of such business entity were acquired or disposed of by
the Company or any Restricted Subsidiary during the applicable period.
"NET INCOME AVAILABLE FOR FIXED CHARGES" shall be computed as though
such business entity (or the assets and liabilities of such business
entity) had been owned (or owed) by the Company, or such business entity
had been a Restricted Subsidiary, as the case may be, throughout the
applicable period and as though the assets and liabilities so disposed
of had not been owned or owed, as the case may be, by the Company or any
Subsidiary throughout the applicable period.
"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"PERPETUAL PREFERRED STOCK" shall mean Preferred Stock of the
Company or any Restricted Subsidiary which is not subject to any
requirements for the mandatory retirement, redemption or purchase
thereof regardless of whether such Preferred Stock is convertible into
Common Stock. For the purposes of any determination pursuant to Section
5.6 or 5.8, Perpetual Preferred Stock shall be valued at the involuntary
liquidating value thereof (unless said Preferred Stock is convertible
into Common Stock, in which case the value thereof shall be determined
by reference to the conversion price).
"PERSON" shall mean an individual, partnership, corporation, trust
or unincorporated organization, and a government or agency or political
subdivision thereof.
"PLAN" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to
which the Company or any ERISA Affiliate contributed or is a member or
otherwise may have any liability.
"PREFERRED STOCK" shall mean stock of the Company or any Restricted
Subsidiary of any class or series ranking prior to any other class or
series of stock of the Company or such Restricted Subsidiary with
respect to whether the payment of dividends or the distribution of
assets upon the liquidation, dissolution or winding up of the Company or
such Restricted Subsidiary.
"PRO FORMA FIXED CHARGES" for any period shall mean, as of the date
of any determination thereof, the maximum aggregate amount of Fixed
Charges which would have become payable by the Company and its
Restricted Subsidiaries in such period determined on a PRO FORMA basis
giving effect as of the beginning of such period to the incurrence of
any Capital Debt and the concurrent retirement of outstanding Debt.
"PROPERTY" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"PURCHASERS" shall have the meaning set forth in SECTION 1.1.
"RENTALS" shall mean and include as of the date of any
determination thereof all fixed payments (including as such all payments
which the lessee is obligated to make to the lessor on termination of
the lease or surrender of the property) payable by the Company or a
Restricted Subsidiary, as lessee or sublessee under a lease of real or
personal property, but shall be exclusive of any amounts required to be
paid by the Company or a Restricted Subsidiary (whether or not
designated as rents or additional rents) on account of maintenance,
repairs, insurance, taxes and similar charges. Fixed rents under any
so-called "percentage leases" shall be computed solely on the basis of
the minimum rents, if any, required to be paid by the lessee regardless
of sales volume or gross revenues.
"REPORTABLE EVENT" shall have the same meaning as in ERISA.
"RESTRICTED INVESTMENTS" shall mean all Investments by the Company
and its Restricted Subsidiaries except for the following Investments:
(a) Investments by the Company and its Restricted Subsidiaries
in and to Restricted Subsidiaries, including any Investment in a
corporation or other Person which, after giving effect to such
Investment, will become a Restricted Subsidiary and, to the extent
necessary to permit the Company or any Restricted Subsidiary to become
a member of, and borrow funds from, a Federal Home Loan Bank, the
stock of such Federal Home Loan Bank or any successor thereof;
(b) Investments in commercial paper maturing in 270 days or less
from the date of issuance which, at the time of acquisition by the
Company or any Restricted Subsidiary, is accorded a rating of P2 or
better by Standard & Poor's Ratings Group or A2 or better by Moody's
Investors Service, Inc. or other nationally recognized credit rating
agency of similar standing;
(c) Investments in direct obligations of the United States of
America or any agency or instrumentality of the United States of
America, the payment or guarantee of which constitutes a full faith
and credit obligation of the United States of America, in either case,
maturing in twelve months or less from the date of acquisition
thereof;
(d) Investments in certificates of deposit maturing within one
year from the date of issuance thereof, issued by a bank or trust
company organized under the laws of the United States or any state
thereof, having capital, surplus and undivided profits aggregating at
least $100,000,000 and whose long-term certificates of deposit are, at
the time of acquisition thereof by the Company or a Restricted
Subsidiary, rated AA or better by Standard & Poor's Ratings Group or
Aa or better by Moody's Investors Service, Inc.;
(e) loans or advances in the usual and ordinary course of
business to officers, directors and employees for expenses (including
moving expenses related to a transfer) incidental to carrying on the
business of the Company or any Restricted Subsidiary; and
(f) receivables arising from the sale of goods and services in
the ordinary course of business of the Company and its Restricted
Subsidiaries.
For purposes of this definition (i) at any time when a corporation
becomes a Restricted Subsidiary, all Investments of such corporation at
such time shall be deemed to have been made by such corporation, as a
Restricted Subsidiary, at such time and (ii) the purchase or other
acquisition of shares of capital stock of the Company or any Restricted
Subsidiary shall not constitute a "Restricted Investment" but, rather,
such purchase or other acquisition shall constitute a "Restricted
Payment" as defined hereinafter.
"RESTRICTED PAYMENTS" shall mean and include, as of the date of any
determination thereof,
(a) any declaration or payment of any dividends either in cash or
property by the Company or any Restricted Subsidiary on any shares of
its capital stock of any class (except dividends or other
distributions of shares of capital stock of the Company or right(s) to
acquire or receive shares of capital stock of the Company, whether or
not pursuant to the Amended and Restated Rights Agreement dated as of
March 23, 1995, or any renewal, revision or replacement thereof);
(b) any direct or indirect purchase, redemption or retirement of
any shares of capital stock of the Company or any Restricted
Subsidiary or of any class of any warrants, rights or options to
purchase or acquire any shares of its capital stock; and
(c) any other payment or distributions, whether direct or
indirect, in respect of the capital stock of the Company or any
Restricted Subsidiary (except payments or distributions of shares of
capital stock of the Company or right(s) to acquire or receive shares
of capital stock of the Company, whether or not pursuant to the
Amended and Restated Rights Agreement dated as of March 23, 1995, or
any renewal, revision or replacement thereof);
PROVIDED, HOWEVER, that "RESTRICTED PAYMENTS" shall not include any
declaration or payment of any dividends or other distributions by any
Restricted Subsidiary to the Company or to a Wholly-owned Restricted
Subsidiary.
"RESTRICTED SUBSIDIARY" shall mean and include:
(i) any Bank Subsidiary; and
(ii) any Subsidiary (a) whose assets would exceed 5% of
Consolidated Assets or (b) whose earnings would
exceed 5% of Consolidated Net Income
(determined as of the end of the most recent fiscal
period), determined without including the assets or
earnings of such Subsidiary.
"SECURITY" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
The term "SUBSIDIARY" shall mean as to any particular parent
corporation any corporation or other Person of which more than 50% (by
number of votes) of the Voting Stock or equity interests shall be
beneficially owned, directly or indirectly, by such parent corporation.
The term "SUBSIDIARY" shall mean a subsidiary of the Company.
"TIER II CAPITAL" shall mean as of the date of any determination
thereof the items that are defined in clauses (i) through (iv) of
paragraph 2 of Section A entitled "THE COMPONENTS OF QUALIFYING CAPITAL"
of Appendix A to 12 C.F.R. part 225-Capital Adequacy Guidelines for Risk
Based Bank Holding Companies: Risk-Based Measure.
"VOTING STOCK" shall mean Securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies,
entitled to elect a majority of the corporate directors (or Persons
performing similar functions).
"WHOLLY-OWNED" when used in connection with any Subsidiary shall
mean a Subsidiary of which all of the issued and outstanding shares of
stock (except shares required as directors' qualifying shares) shall be
owned by the Company and/or one or more of its Wholly-owned
Subsidiaries.
SECTION 8.2. ACCOUNTING PRINCIPLES. Where the character or amount of
any asset or liability or item of income or expense is required to be
determined or any consolidation or other accounting computation is
required to be made for the purposes of this Agreement, the same shall
be done in accordance with GAAP, to the extent applicable, except where
such principles are inconsistent with the requirements of this
Agreement.
SECTION 8.3. DIRECTLY OR INDIRECTLY. Where any provision in this
Agreement refers to action to be taken by any Person, or which such
Person is prohibited from taking, such provision shall be applicable
whether the action in question is taken directly or indirectly by such
Person.
SECTION 9. MISCELLANEOUS.
SECTION 9.1. REGISTERED NOTES. (a) The Company shall cause to be
kept at its principal office a register for the registration and
transfer of the Notes (hereinafter called the "Note Register"), and the
Company will register or transfer or cause to be registered or
transferred as hereinafter provided any Note issued pursuant to this
Agreement.
At any time and from time to time any Holder of a Note which has
been duly registered as hereinabove provided may transfer (in compliance
with SECTION 3.2 and 9.1(b)) such Note upon surrender thereof at the
principal office of the Company duly endorsed or accompanied by a
written instrument of transfer duly executed by the Holder or its
attorney duly authorized in writing.
The Person in whose name any registered Note shall be registered
shall be deemed and treated as the owner and holder thereof and a Holder
for all purposes of this Agreement. Payment of or on account of the
principal, premium, if any, and interest on any registered Note shall be
made to or upon the written order of such Holder.
(b) In the event that a Holder determines in good faith to dispose
of all or any portion of its Notes to a Person other than an affiliated
financial institution of such Holder, such Holder shall give written
notice of such proposed sale to the Company stating the proposed sale
price (such notice being referred to as the "SECTION 9.1(b) NOTICE" and
the date of such Section 9.1(b) Notice being referred to as the "SECTION
9.1(b) NOTICE DATE") and the identity of the prospective purchaser. For
a period of five (5) Business Days after the Section 9.1(b) Notice Date,
such Holder agrees not to sell such Notes to any Person other than the
Company and to be deemed to have offered such Notes to the Company at
the price described in said Section 9.1(b) Notice. The Company may
accept or reject such offer in writing to the Holder at any time during
such five (5) Business Day period and failure to accept such offer
within said five (5) Business Day period shall be deemed a rejection
thereof. In the event the Company timely accepts such offer in writing
to the Company (the "NOTICE OF ACCEPTANCE"), the Company shall purchase
such Notes and the Holder shall sell such Notes to the Company at the
price designated in the Section 9.1(b) Notice and upon such other terms
and conditions as are described in the Section 9.1(b) Notice on the
first business day which is at least five (5) Business Days after the
Notice of Acceptance by the Company. If however, the Company rejects
such offer either by written rejection thereof or by failure to accept
such offer in writing within the aforementioned three Day Business
period, the Holder shall be free for a period of 120 days thereafter to
sell said Notes at the same price (or any higher price) as was set forth
in the Section 9.1(b) Notice to the prospective purchaser previously
identified to the Company. If such sale (at such price or a higher
price to such purchaser) is not so consummated within such time period,
the procedures specified herein shall be repeated should such Holder
thereafter determined to dispose Notes to any Person other than an
affiliated financial institution of such Holder.
SECTION 9.2. EXCHANGE OF NOTES. At any time and from time to time,
upon not less than ten days' notice to that effect given by the Holder
of any Note initially delivered or of any Note substituted therefor
pursuant to SECTION 9.1, this SECTION 9.2 or SECTION 9.3, and, upon
surrender of such Note at its office, the Company will deliver in
exchange therefor, without expense to such Holder, except as set forth
below, a Note for the same aggregate principal amount as the then unpaid
principal amount of the Note so surrendered, or Notes in the
denomination of $1,000,000 or any amount in excess thereof as such
Holder shall specify, dated as of the date to which interest has been
paid on the Note so surrendered or, if such surrender is prior to the
payment of any interest thereon, then dated as of the date of issue,
registered in the name of such Person or Persons as may be designated by
such Holder, and otherwise of the same form and tenor as the Notes so
surrendered for exchange. The Company may require the payment of a sum
sufficient to cover any stamp tax or governmental charge imposed upon
such exchange or transfer.
SECTION 9.3. LOSS, THEFT, ETC. OF NOTES. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or
destruction of any Note, and in the case of any such loss, theft or
destruction upon delivery of a bond of indemnity in such form and amount
as shall be reasonably satisfactory to the Company, or in the event of
such mutilation upon surrender and cancellation of the Note, the Company
will make and deliver without expense to the Holder thereof, a new Note,
of like tenor, in lieu of such lost, stolen, destroyed or mutilated
Note. If an Institutional Holder is the owner of any such lost, stolen
or destroyed Note, then the affidavit of an authorized officer of such
owner, setting forth the fact of loss, theft or destruction and of its
ownership of such Note at the time of such loss, theft or destruction
shall be accepted as satisfactory evidence thereof and no further
indemnity shall be required as a condition to the execution and delivery
of a new Note other than the written agreement of such owner to
indemnify the Company.
SECTION 9.4. EXPENSES, STAMP TAX INDEMNITY. Whether or not the
transactions herein contemplated shall be consummated, the Company
agrees to pay directly all of the Purchasers' reasonable out-of-pocket
expenses in connection with the preparation, execution and delivery of
this Agreement and the transactions contemplated hereby, including but
not limited to the reasonable charges and disbursements of Chapman and
Cutler, special counsel to the Purchasers, duplicating and printing
costs and charges for shipping the Notes, adequately insured to each
Purchaser's home office or at such other place as such Purchaser may
designate, and all reasonable expenses of the Holders (including,
without limitation, the reasonable fees and expenses of any financial
advisor to the Holders) relating to any proposed or actual amendment,
waivers or consents pursuant to the provisions hereof, including,
without limitation, any proposed or actual amendments, waivers,
or consents resulting from any work-out, renegotiation or restructuring
relating to the performance by the Company of its obligations under this
Agreement and the Notes. The Company also agrees that it will pay and
save each Purchaser harmless against any and all liability with respect
to stamp and other taxes, if any, which may be payable or which may be
determined to be payable in connection with the execution and delivery
of this Agreement or the Notes, whether or not any Notes are then
outstanding.
The Company agrees to protect and indemnify each Purchaser against any
liability for any and all brokerage fees and commissions payable or
claimed to be payable to any Person (other than any Person engaged by a
Purchaser) in connection with the transactions contemplated by this
Agreement.
SECTION 9.5. POWERS AND RIGHTS NOT WAIVED; REMEDIES CUMULATIVE. No
delay or failure on the part of any Holder in the exercise of any power
or right shall operate as a waiver thereof; nor shall any single or
partial exercise of the same preclude any other or further exercise
thereof, or the exercise of any other power or right, and the rights and
remedies of each Holder are cumulative to, and are not exclusive of, any
rights or remedies any such Holder would otherwise have.
SECTION 9.6. NOTICES. All communications provided for hereunder
shall be in writing and, if to a Holder, delivered or mailed prepaid by
registered or certified mail or overnight air courier, or by facsimile
communication, in each case addressed to such Holder at its address app
earing beneath its signature at the foot of this Agreement or such other
address as any Holder may designate to the Company in writing, and if to
the Company, delivered or mailed by registered or certified mail or
overnight air courier, or by facsimile communication, to the Company at
the address beneath its signature at the foot of this Agreement or to
such other address as the Company may in writing designate to the
Holders; PROVIDED, HOWEVER, that a notice to a Holder by overnight air
courier shall only be effective if delivered to such Holder at a street
address designated for such purpose in accordance with this SECTION 9.6,
and a notice to such Holder by facsimile communication shall only be
effective if made by confirmed transmission to such Holder at a
telephone number designated for such purpose in accordance with this
SECTION 9.6 and promptly followed by the delivery of such notice by
registered or certified mail or overnight air courier, as set forth
above.
SECTION 9.7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to the
benefit of each Purchaser and its successor and assigns, including each
successive Holder.
SECTION 9.8. SURVIVAL OF COVENANTS AND REPRESENTATIONS. All
covenants, representations and warranties made by the Company herein and
in any certificates delivered pursuant hereto, whether or not in
connection with the Closing Date, shall survive the closing and the
delivery of this Agreement and the Notes.
SECTION 9.9. SEVERABILITY. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not
affect the validity or enforceability of any remaining portion, which
remaining portion shall remain in force and effect as if this Agreement
had been executed with the invalid or unenforceable portion thereof
eliminated and it is hereby declared the intention of the parties hereto
that they would have executed the remaining portion of this Agreement
without including therein any such part, parts or portion which may, for
any reason, be hereafter declared invalid or unenforceable.
SECTION 9.10. GOVERNING LAW. This Agreement and the Notes issued and
sold hereunder shall be governed by and construed in accordance with New
York law.
SECTION 9.11. CAPTIONS. The descriptive headings of the various
Sections or parts of this Agreement are for convenience only and shall
not affect the meaning or construction of any of the provisions hereof.
The execution hereof by the Purchasers shall constitute a contract among
the Company and the Purchasers for the uses and purposes hereinabove set
forth. This Agreement may be executed in any number of counterparts,
each executed counterpart constituting an original but all together only
one agreement.
The execution hereof by the Purchasers shall constitute a contract
among the Company and the Purchasers for the uses and purposes
hereinabove set forth. This Agreement may be executed in any number of
counterparts, each executed counterpart constituting an original but all
together only one agreement.
Westamerica Bancorporation
By /s/ David L. Payne
- ---------------------
Its Chairman, President and Chief
Executive Officer
Westamerica Bancorporation
1108 Fifth Avenue
San Rafael, California 94901
Attention: E. Joseph Bowler
Telefacsimile: (415) 257-8127
Confirmation: (415) 257-8040
<PAGE>
Accepted as of February 1, 1996:
The Penn Mutual Life Insurance Company
By /s/ Barbara B. Henderson
- ---------------------------
Its Assistant Vice President
The Penn Mutual Life Insurance Company
530 Walnut Street
Philadelphia, Pennsylvania 19172
Attention: Barbara B. Henderson
Assistant Vice President
Mailstop C1B
Telephone: (215) 956-8514
Facsimile: (215) 672-2760
Payments
All payments on or in respect of the Notes to be by bank wire transfer
of Federal or other immediately available funds (identifying each
payment as "Westamerica Bancorporation, 7.11% Senior Notes due 2006, PPN
957090 A# 0, principal or interest") to:
Bankers Trust Company
ABA #02100-1033
16 Wall Street
New York, New York 10005
Attention: Insurance Unit, Private Placements 01419540
for credit to: The Penn Mutual Life Insurance Company
Account Number 092497
Notices
All notices and communications with respect to payments and written
confirmation of each such payment to be addressed as first provided
above.
All other notices and communications to be sent by Express Mail
addressed to:
The Penn Mutual Life Insurance Company
600 Dresher Road
Horsham, Pennsylvania 19044
Attention: Barbara B. Henderson, Mailstop C1B
Name of Nominee in which Notes are to be issued: None
Tax I.D. Number: 23-0952300
<PAGE>
Accepted as of February 1, 1996:
Phoenix Home Life Mutual Insurance Company
By /s/ Keith D. Robbins
- -----------------------
Its Vice President
Phoenix Home Life Mutual Insurance Company
c/o Phoenix Duff & Phelps, Inc.
56 Prospect Street
P. O. Box 150480
Hartford, Connecticut 06105-0480
Attention: Private Placements Division
Telecopier Number: (860) 403-5451
Payments
All payments on or in respect of the Notes to be by bank wire transfer
of Federal or other immediately available funds (identifying each
payment as "Westamerica Bancorporation, 7.11% Senior Notes due 2006, PPN
957090 A# 0, principal or interest") to:
Chase Manhattan Bank (ABA #021 0000 21)
BNF-SSG Private Income Processing/AC-9009000200
for credit to: Phoenix Home Life Mutual Insurance Company
Account Number G-05143
Notices
All notices and communications, including notices with respect to
payments and written confirmation of each such payment, to be addressed
as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 06-0493340
<PAGE>
Accepted as of February 1, 1996:
The Penn Insurance and Annuity Company
By /s/ Barbara B. Henderson
- ---------------------------
Its Investment Officer
The Penn Insurance and Annuity Company
Independence Square
530 Walnut Street
Philadelphia, Pennsylvania 19172
Attention: Barbara B. Henderson
Assistant Vice President
Securities Investment Department
Mailstop C1B
Telephone: (215) 956-8514
Facsimile: (215) 672-2760
Payments
All payments on or in respect of the Notes to be by bank wire transfer
of Federal or other immediately available funds (identifying each
payment as "Westamerica Bancorporation, 7.11% Senior Notes due 2006, PPN
957090 A# 0, principal or interest") to:
Bankers Trust Company
ABA #02100-1033
16 Wall Street
New York, New York 10005
Attention: Insurance Unit, Private Placements 01419540
for credit to: The Penn Insurance and Annuity Company
Account Number 092506
Notices
All notices and communications by regular mail to be addressed as first
provided above.
All notices and communications to be sent by Express Mail to be
addressed to:
The Penn Mutual Life Insurance Company
600 Dresher Road
Horsham, Pennsylvania 19044
Attention: Barbara B. Henderson, Mailstop C1B
Securities Investment Department
Name of Nominee in which Notes are to be issued: None
Tax I.D. Number: 23-2142731
Principal Amount
Names of Purchasers of Notes to be
Purchased
Phoenix Home Life Mutual Insurance Company $14,000,000
The Penn Mutual Life Insurance Company $3,500,000
The Penn Insurance and Annuity Company $5,000,000
Total $22,500,000
Schedule I
(to Note Agreement)
<PAGE>
Exhibit A
(to Note Agreement)
"This Note has not been registered under Section 5 of the
Securities Act of 1933, as amended (the "Securities Act"), or any
other applicable securities law and, accordingly, this Note may
not be resold, pledged, or otherwise transferred, except pursuant
to (i) an effective registration statement under, or in a
transaction exempt from registration under, the Securities Act
and in accordance with any other applicable securities laws and (
ii) the terms and provisions of the Note Agreement, a complete
and correct conformed copy of which Note Agreement is available
for inspection at the registered office of the Company and will
be furnished to the Holder of the Note upon written request and
without charge."
Westamerica Bancorporation
7.11% Senior Note
Due February 1, 2006
PPN: 957090 A# 0
No. _________, 19__
$
Westamerica Bancorporation, a California corporation (the
"Company"), for value received, hereby promises to pay to
or registered assigns
on the first day of February, 2006
the principal amount of
Dollars ($____________)
and to pay interest (computed on the basis of a 360-day year of twelve
30-day months) on the principal amount from time to time remaining
unpaid hereon at the rate of 7.11% per annum from the date hereof until
maturity, payable semiannually on the first day of each February and
August in each year (commencing on the first of such dates after the
date hereof) and at maturity. The Company agrees to pay interest on
overdue principal (including any overdue required or optional prepayment
of principal) and premium, if any, and (to the extent legally
enforceable) on any overdue installment of interest, at the rate of
9.11% per annum after the due date, whether by acceleration or
otherwise, until paid. Both the principal hereof and interest hereon
are payable at the principal office of the Company in San Rafael,
California in coin or currency of the United States of America which at
the time of payment shall be legal tender for the payment of public and
private debts.
This Note is one of the 7.11% Senior Notes due February 1, 2006
(the "NOTES") of the Company in the aggregate principal amount of
$22,500,000 issued or to be issued under and pursuant to the terms and
provisions of the Note Agreement dated as of February 1, 1996 (the "Note
Agreement"), entered into by the Company with the original Purchasers
therein referred to, and this Note and the holder hereof are entitled
equally and ratably with the holders of all other Notes outstanding
under the Note Agreement to all the benefits provided for thereby or
referred to therein. Reference is hereby made to the Note Agreement for
a statement of such rights and benefits.
This Note and the other Notes outstanding under the Note Agreement
may be declared due prior to their expressed maturity dates and certain
prepayments are required to be made thereon, all in the events, on the
terms and in the manner and amounts as provided in the Note Agreement.
The Notes are not subject to prepayment or redemption at the option
of the Company prior to their expressed maturity dates except on the
terms and conditions and in the amounts and with the premium, if any,
set forth in the Note Agreement.
This Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the
Company duly endorsed or accompanied by a written instrument of transfer
duly executed by the registered holder of this Note or its attorney duly
authorized in writing. Payment of or on account of principal, premium,
if any, and interest on this Note shall be made only to or upon the
order in writing of the registered holder.
Westamerica Bancorporation
By
- --------------------------
Its
<PAGE>
Exhibit B
(to Note Argreement)
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to each Purchaser as follows:
1. SUBSIDIARIES. Annex A attached hereto states the name of each
of the Company's Subsidiaries, its jurisdiction of incorporation and the
percentage of its Voting Stock owned by the Company and/or its
Subsidiaries. Those Subsidiaries listed in Section 1 of said Annex A co
nstitute Restricted Subsidiaries. The Company and each Subsidiary has
good and marketable title to all of the shares it purports to own of the
stock of each Subsidiary, free and clear in each case of any Lien. All
such shares have been duly issued and are fully paid and, subject to
Section 662 of the Financial Code of the State of California with
respect to Bank Subsidiaries, non-assessable. The Company has no
corporate or joint venture Affiliates.
2. CORPORATE ORGANIZATION AND AUTHORITY. The Company, and each
Restricted Subsidiary,
(a) is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of
incorporation;
(b) has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to
carry on its business as now conducted and as presently proposed
to be conducted; and
(c) is duly licensed or qualified and is in good standing
as a foreign corporation in each jurisdiction wherein the nature
of the business transacted by it or the nature of the property
owned or leased by it makes such licensing or qualification
necessary.
The Company is a registered bank holding company under the Bank
Holding Company Act and is a bank holding company under the California
Bank Holding Company Act. Each Bank Subsidiary is a California
chartered banking corporation which is duly organized, validly existing
and in good standing. Each Bank Subsidiary is an insured bank under the
Federal Deposit Insurance Act.
3. FINANCIAL STATEMENTS. (a) The consolidated balance sheets of
the Company and its consolidated Subsidiaries as of December 31 in each
of the years 1990 to 1994, both inclusive, and the statements of income
and retained earnings and changes in financial position or cash flows
for the fiscal years ended on said dates, each accompanied by a report
thereon containing an opinion unqualified as to scope limitations
imposed by the Company and otherwise without qualification except as
therein noted, by KPMG Peat Marwick LLP, have been prepared in
accordance with GAAP consistently applied except as therein noted, are
correct and complete and present fairly the financial position of the
Company and its Subsidiaries as of such dates and the results of their
operations and changes in their financial position or cash flows for
such periods. The unaudited consolidated balance sheets of the Company
and its consolidated Subsidiaries as of September 30, 1995, and the
unaudited statements of income and retained earnings and cash flows for
the nine-month period ended on said date prepared by the Company have
been prepared in accordance with GAAP consistently applied, are correct
and complete and present fairly the financial position of the Company
and its consolidated Subsidiaries as of said date and the results of
their operations and changes in their financial position or cash flows
for such period.
(b) Since December 31, 1994, there has been no change in the
condition, financial or otherwise, of the Company and its consolidated
Subsidiaries, taken as a whole, as shown on the consolidated balance
sheet as of such date except changes in the ordinary course of business,
none of which individually or in the aggregate has been materially
adverse.
4. INDEBTEDNESS. Annex B attached hereto correctly describes all
Debt of the Company and its Restricted Subsidiaries outstanding on the
Closing Date.
5. FULL DISCLOSURE. Neither the financial statements referred to
in paragraph 3 hereof nor the Agreement, the Memorandum or any other
written statement furnished by the Company to such Purchaser in
connection with the negotiation of the sale of the Notes, contains any
untrue statement of a material fact or omits a material fact necessary
to make the statements contained therein or herein not misleading.
There is no fact peculiar to the Company or its Subsidiaries which the
Company has not disclosed to such Purchaser in writing which materially
affects adversely nor, so far as the Company can now foresee, will
materially affect adversely the properties, business, prospects, profits
or condition (financial or otherwise) of the Company and its Restricted
Subsidiaries, taken as a whole.
6. PENDING LITIGATION. There are no proceedings pending or, to
the knowledge of the Company, threatened against or affecting the
Company or any Restricted Subsidiary in any court or before any
governmental authority or arbitration board or tribunal which, if
adversely determined, could materially and adversely affect the
properties, business, profits or condition (financial or otherwise) of
the Company and its Restricted Subsidiaries.
7. TITLE TO PROPERTIES. The Company and each Restricted
Subsidiary has good and marketable title in fee simple (or its
equivalent under applicable law) to all material parcels of real
property and has good title to all the other material items of property
it purports to own, including that reflected in the most recent balance
sheet referred to in paragraph 4 hereof, except as sold or otherwise
disposed of in the ordinary course of business and except for Liens
permitted by the Agreement.
8. LICENSES, ETC. The Company and each Restricted Subsidiary
owns or possesses all the material trade names, service marks, licenses
and rights with respect to the foregoing necessary for the present and
planned future conduct of its business, without any known conflict with
the rights of others.
9. SALE IS LEGAL AND AUTHORIZED. The sale of the Notes and
compliance by the Company with all of the provisions of the Agreement
and the Notes --
(a) are within the corporate powers of the Company;
(b) will not violate any provisions of any law or any
order of any court or governmental authority or agency and will
not conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute a default under the
Articles of Incorporation or By-laws of the Company or any
indenture or other material agreement or instrument to which the
Company is a party or by which it may be bound or result in the
imposition of any Liens or encumbrances on any material property
of the Company; and
(c) have been duly authorized by proper corporate
action on the part of the Company (no action by the stockholders
of the Company being required by law, by the Articles of
Incorporation or By-laws of the Company or otherwise), executed
and delivered by the Company and the Agreement and the Notes
constitute the legal, valid and binding obligations, contracts
and agreements of the Company enforceable in accordance with
their respective terms.
10. NO DEFAULTS. No Default or Event of Default has occurred and
is continuing. Neither the Company nor any Restricted Subsidiary is in
default in the payment of principal or interest on any Debt or is in
default under any instrument or instruments or agreements under and
subject to which any Debt has been issued, and no event has occurred and
is continuing under the provisions of any such instrument or agreement
which with the lapse of time or the giving of notice, or both, would
constitute an event of default thereunder.
11. GOVERNMENTAL CONSENT. No approval, consent or withholding of
objection on the part of any regulatory body, state, Federal or local,
is necessary in connection with the execution and delivery by the
Company of the Agreement or the Notes or compliance by the Company with
any of the provisions of the Agreement or the Notes.
12. TAXES. All tax returns required to be filed by the Company or
any Restricted Subsidiary in any jurisdiction have, in fact, been filed,
and all taxes, assessments, fees and other governmental charges upon the
Company or any Restricted Subsidiary or upon any of their respective
properties, income or franchises, which are shown to be due and payable
in such returns have been paid. For all taxable years ending on or
before December 31, 1994, the Federal income tax liability of the
Company and its Restricted Subsidiaries has been satisfied and either
the period of limitations on assessment of additional Federal income tax
has expired or the Company and its Restricted Subsidiaries have entered
into an agreement with the Internal Revenue Service closing conclusively
the total tax liability for the taxable year. The Company does not know
of any proposed additional tax assessment against it for which adequate
provision has not been made on its accounts, and no material controversy
in respect of additional Federal or state income taxes due since said
date is pending or to the knowledge of the Company threatened. The
provisions for taxes on the books of the Company and each Restricted
Subsidiary are adequate in all material respects for all open years, and
for its current fiscal period.
13. USE OF PROCEEDS. The net proceeds from the sale of the Notes
will be used to repurchase outstanding shares of the Company's common
stock and for other corporate purposes. None of the transactions
contemplated in the Agreement (including, without limitation thereof,
the use of proceeds from the issuance of the Notes) will violate or
result in a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulation issued pursuant thereto, including,
without limitation, Regulations G, T and X of the Board of Governors of
the Federal Reserve System, 12 C.F.R., Chapter II. Neither the Company
nor any Subsidiary owns or intends to carry or purchase any "margin
stock" within the meaning of said Regulation G. None of the proceeds
from the sale of the Notes will be used to purchase, or refinance any
borrowing the proceeds of which were used to purchase, any "security"
within the meaning of the Securities Exchange Act of 1934, as amended.
14. PRIVATE OFFERING. Neither the Company, directly or
indirectly, nor any agent on its behalf has offered or will offer the
Notes or any similar Security or has solicited or will solicit an offer
to acquire the Notes or any similar Security from or has otherwise
approached or negotiated or will approach or negotiate in respect of the
Notes or any similar Security with any Person other than the Purchasers
and not more than thirty-five (35) other institutional investors, each
of whom was offered a portion of the Notes at private sale for
investment. Neither the Company, directly or indirectly, nor any agent
on its behalf has offered or will offer the Notes or any similar
Security or has solicited or will solicit an offer to acquire the Notes
or any similar Security from any Person so as to bring the issuance and
sale of the Notes within the provisions of Section 5 of the Securities
Act of 1933, as amended.
15. ERISA. The consummation of the transactions provided for in
the Agreement and compliance by the Company with the provisions thereof
and the Notes issued thereunder will not involve any non-exempt
prohibited transaction within the meaning of ERISA or Section 4975 of
the Internal Revenue Code of 1986, as amended. Each Plan complies in
all material respects with all applicable statutes and governmental
rules and regulations, and (a) no Reportable Event has occurred and is
continuing with respect to any Plan, (b) neither the Company nor any
ERISA Affiliate has incurred or will incur any withdrawal liability in
connection with any Multiemployer Plan, and (c) no steps have been
instituted to terminate any Plan. No condition exists or event or
transaction has occurred in connection with any Plan which could result
in the incurrence by the Company or any ERISA Affiliate of any material
liability, fine or penalty. No Plan maintained by the Company or any
ERISA Affiliate, nor any trust created thereunder, has incurred any
material "accumulated funding deficiency" as defined in Section 302 of
ERISA nor does the present value of all benefits vested under all Plans
exceed, as of the last annual valuation date, the value of the assets of
the Plans allocable to such vested benefits. Except as disclosed in the
consolidated financial statements of the Company previously provided to
the Purchasers, neither the Company nor any ERISA Affiliate has any
material contingent liability with respect to any post-retirement
"welfare benefit plan" (as such term is defined in ERISA).
16. COMPLIANCE WITH LAW. Neither the Company nor any Restricted
Subsidiary (a) is in violation of any law, ordinance, franchise,
governmental rule or regulation to which it is subject; or (b) has
failed to obtain any license, permit, franchise or other governmental
authorization necessary to the ownership of its property or to the
conduct of its business, which violation or failure to obtain would
materially adversely affect the business, prospects, profits, properties
or condition (financial or otherwise) of the Company and its Restricted
Subsidiaries, taken as a whole, or impair the ability of the Company to
perform its obligations contained in the Agreement or the Notes.
Neither the Company nor any Restricted Subsidiary is in default with
respect to any order of any court or governmental authority or
arbitration board or tribunal.
17. COMPLIANCE WITH ENVIRONMENTAL LAWS. Neither the Company nor
any Restricted Subsidiary is in violation of any applicable Federal,
state, or local laws, statutes, rules, regulations or ordinances
relating to public health, safety or the environment, including, without
limitation, relating to releases, discharges, emissions or disposals to
air, water, land or ground water, to the withdrawal or use of ground
water, to the use, handling or disposal of polychlorinated biphenyls
(PCBs), asbestos or ureaformaldehyde, to the treatment, storage,
disposal or management of hazardous substances (including, without
limitation, petroleum, crude oil or any fraction thereof, or other
hydrocarbons), pollutants or contaminants, to exposure to toxic,
hazardous or other controlled, prohibited or regulated substances which
violation could have a material adverse effect on the business,
prospects, profits, properties or condition (financial or otherwise) of
the Company and its Restricted Subsidiaries, taken as a whole. The
Company does not know of any liability or class of liability of the
Company or any Restricted Subsidiary under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. Section 9601 et seq.), or the Resource Conservation
and Recovery Act of 1976, as amended (42 U.S.C. Section 6901 et seq.).
18. INVESTMENT COMPANY ACT. Neither the Company nor any of its
Restricted Subsidiaries is an "investment company" or company
"controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
19. FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the Company
nor any Affiliate of the Company is, by reason of being a "national" of
"designated foreign country" or a "specially designated national" within
the meaning of the Regulations of the Office of Foreign Assets Control,
United States Treasury Department (31 C.F.R., Subtitle B, Chapter V), or
for any other reason, subject to any restriction or prohibition under,
or is in violation of, any Federal statue or Presidential Executive
Order, or any rules or regulations of any department, agency or
administrative body promulgated under any such statute or order,
concerning trade or other relations with any foreign country or any
citizen or national thereof or the ownership or operation of any
property.
<PAGE>
Annex A
(to Exhibit B)
SUBSIDIARIES OF THE COMPANY
1. Restricted Subsidiaries: *
Percentage of Voting Stock
Name of Jurisdiction of Owned by Company and
Subsidiary Incorporation each other Subsidiary
Westamerica Bank California 100% by Company
Bank of Lake County California 100% by Company
Napa Valley Bank California 100% by Company
2. Subsidiaries (other than Restricted Subsidiaries):
Percentage of Voting Stock
Name of Jurisdiction of Owned by Company and
Subsidiary Incorporation each other Subsidiary
Community Banker Services
Corporation California 100% by Company
Westcore California 100% by Company
Westamerica Bank
Properties California 100% by Westamerica Bank
Westar Mortgage
Corporation California 100% owned by Community
Banker Services Corporation
*Denotes Bank Subsidiaries
<PAGE>
Annex B
(to Exhibit B)
DESCRIPTION OF DEBT AND LIENS
1. Debt (and Liens relating thereto) of
the
Company and its Restricted
Subsidiaries outstanding on the Closing Date is as follows:
A. Westamerica Bank 6.99% Subordinated Capital Note due 2003
dated December 16, 1993 (principal amount: $17,000,000).*
B. Westamerica Bank 6.99% Subordinated Capital Note due 2003
dated December 16, 1993 (principal amount: $3,000,000).*
* These Notes were issued pursuant to the terms of that certain 6.99 %
Subordinated Capital Note Purchase Agreement dated as of December 16,
1993 by and between Westamerica Bank, Morgan Guaranty Trust Company of
New York, as Trustee of a Commingled Pension Trust Fund, and Xerox
Financial Services Life Insurance Company.
<PAGE>
Exhibit C
(to Note Agreement)
DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION
The closing opinion of Chapman and Cutler,
special counsel to the
Purchasers, called for by SECTION 4.1 of the Note Agreement, shall be dated
the Closing Date and addressed to the Purchasers, shall be satisfactory in
form and substance to the Purchasers and shall be to the effect that:
1. The Company is a corporation, validly existing and in
good standing under the laws of the State of California and has
the corporate power and the corporate authority to execute and
deliver the Note Agreement and to issue the Notes.
2. The Note Agreement has been duly authorized by all
necessary corporate action on the part of the Company, has been
duly executed and delivered by the Company and constitutes the
legal, valid and binding contract of the Company enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and similar laws affecting creditors'
rights generally, and general principles of equity (regardless of
whether the application of such principles is considered in a
proceeding in equity or at law).
3. The Notes have been duly authorized by all necessary
corporate action on the part of the Company, and the Notes being
delivered on the date hereof have been duly executed and
delivered by the Company and constitute the legal, valid and
binding obligations of the Company enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent
conveyance and similar laws affecting creditors' rights
generally, and general principles of equity (regardless of
whether the application of such principles is considered in a
proceeding in equity or at law).
4. The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Note Agreement do not, under
existing law, require the registration of the Notes under the
Securities Act of 1933, as amended, or the qualification of an
indenture under the Trust Indenture Act of 1939, as amended.
The opinion of Chapman and Cutler shall also state that the opinion of
Pillsbury Madison & Sutro LLP is satisfactory in scope and form to Chapman
and
Cutler and that, in their opinion, the Purchasers are justified in relying
thereon.
In rendering the opinion set forth in paragraph 1 above, Chapman and Cutler
may rely, as to matters referred to in paragraph 1, solely upon an
examination of the Articles of Incorporation certified by, and a certificate
of good standing of the Company from, the Secretary of State of the State of
California and the By-laws of the Company. The opinion of Chapman and Cutler
is limited to the laws of the State of New York and the Federal laws of the
United States.
With respect to matters of fact upon which such opinion is based, Chapman and
Cutler may rely on appropriate certificates of public officials and officers
of the Company and upon representations of the Company and the Purchasers
delivered in connection with the issuance and sale of the Notes.
Exhibit D
(to Note Agreement)
February 16, 1996
The Penn Mutual Life Insurance Company
530 Walnut Street
Philadelphia, Pennsylvania 19172
The Penn Insurance Life and Annuity Company
530 Walnut Street
Philadelphia, Pennsylvania 19712
Phoenix Home Life Mutual Insurance Company
c/o Phoenix Duff & Phelps
56 Prospect Street
P.O. Box 150480
Hartford, Connecticut 06105-0480
Re: Westamerica Bancorporation $22,500,000 7.11%
Senior Notes due 2006
Ladies and Gentlemen:
We have acted a special counsel to Westamerica
Bancorporation (the "Company") in connection with the Note
Agreement dated as of February 1, 1996 (the "Note Agreement") by
and between the Company and the Purchasers named on Schedule I
thereto. Except as otherwise defined, terms defined in the Note
Agreement have the same meaning herein. This opinion is
rendered pursuant to Section 4.1(b) of the Note Agreement.
We have examined the laws of the State of California, the
laws of the State of New York and the federal law of the United
States of America. We have examined executed copies of the Note
Agreement and the Notes. We have also examined such other
documents and certificates of public officials and
representatives of the Company as we have deemed necessary as a
basis for the opinions expressed herein. As to questions of
fact material to such opinions, we have, when relevant facts
were not independently established by us, relied upon
certificates of officers of the Company.
This opinion is subject to the following qualifications:
A. The Note Agreement specifically provides that it shall
be governed by the laws of New York. We do not intend to and we
do not express any opinion as to any laws other than the laws of
the State of California, the laws of the State of New York and
the federal law of the United States of America.
B. We have assumed (i) the genuineness of all signatures
and documents submitted as originals, (ii) that all copies
(including facsimile copies) and final drafts submitted to us
conform to the executed originals of the documents to which they
relate, (iii) the legal capacity of all natural persons, and
(iv) as to documents executed by entities other than the
Company, that each such entity had the power to enter into and
perform its obligations under such documents, and that such
documents have been duly authorized, executed and delivered by,
and are valid and binding obligations upon and enforceable
against, such entities.
C. We have assumed that all factual matters recited or
contained in the resolutions of the Board of Directors of the
Company approving the execution, delivery and performance of the
Note Agreement and the other documents contemplated by the Note
Agreement are true and correct, and we have made no independent
investigation of the facts expressed therein.
Based upon the foregoing and subject to the qualifications
set forth below, it is our opinion that:
1. The Company is a corporation, duly incorporated,
validly existing and in good standing under the laws of the
State of California, has the corporate power and the corporate
authority to execute and perform the Note Agreement and to issue
the Notes and has the full corporate power and the corporate
authority to conduct the activities in which it is now engaged
and is duly licensed or qualified and is in good standing
as a foreign corporation in each jurisdiction in which the character
of the properties owned or leased by it or the nature of the
business transacted by it makes such licensing or qualification
necessary.
2. Each Restricted Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and is duly licensed or
qualified and is in good standing in each jurisdiction in which
the character of the properties owned or leased by it or the
nature of the business transacted by it makes such licensing or
qualification necessary and, based solely on a review of stock
transfer books provided to counsel, to our knowledge all of the
issued and outstanding shares of capital stock of each such
Restricted Subsidiary have been duly issued, are fully paid and,
subject to Section 662 of the Financial Code of the State of
California, non-assessable and are held of record by the
Company, by one or more Restricted Subsidiaries, or by the
Company and one or more Restricted Subsidiaries.
3. The Note Agreement has been duly authorized by all
necessary corporate action on the part of the Company, has been
duly executed and delivered by the Company and constitutes the
legal, valid and binding contract of the Company enforceable in
accordance with its terms.
4. The Notes have been duly authorized by all necessary
corporate action on the part of the Company, have been duly
executed and delivered by the Company and constitute the legal,
valid and binding obligations of the Company enforceable in
accordance with their terms.
5. No approval, consent or withholding of objection on the
part of, or filing, registration or qualification with, any
governmental body, Federal, California or New York, is necessary
in connection with the execution and delivery of the Note
Agreement or the Notes.
6. The issuance and sale of the Notes and the execution,
delivery and performance by the Company of the Note Agreement do
not conflict with or result in any breach of any of the
provisions of or constitute a default under or result in the
creation or imposition of any Lien upon any of the property of
the Company pursuant to the provisions of the Articles of
Incorporation or By-laws of the Company or any material
agreement or other material instrument known to us to which the
Company is a party or by which the Company may be bound.
7. The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Note Agreement do not, under
existing law, require the registration of the Notes under the
Securities Act of 1933, as amended, or the qualification of an
indenture under the Trust Indenture Act of 1939, as amended.
8. To our knowledge after inquiry of officers of the
Company and its Subsidiaries (i) there are no proceedings
pending or threatened against or affecting the Company or its
Subsidiaries in any court or before any governmental authority or
arbitration board or tribunal which, if adversely determined,
could materially and adversely affect the business or condition
of the Company and its Subsidiaries taken as a whole or the
ability of the Company to perform the Note Agreement or the Notes,
with the exception of those set forth in Notes to the
Consolidated Financial Statements contained in the 1994 Annual
Report of the Company, and (ii) neither the Company nor any
Subsidiary is in default with respect to any material order of
any court or governmental authority or arbitration board or
tribunal.
9. The Company is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended, and Regulation
Y (12 C.F.R., Part 225), as amended.
Our opinions paragraphs 3 and 4 above are subject to and
may be limited by (i) the effect of bankruptcy, insolvency,
reorganization, conservatorship, receivership, arrangement,
moratorium, fraudulent transfer or other similar laws affecting
the enforcement of creditors' rights generally, (ii) the rules
governing the availability of specific performance, injunctive
relief or other equitable remedies and general principles of
equity, (iii) the effect of applicable court decisions, invoking
statues or principles of equity, which have held that certain
covenants or provisions of agreements are unenforceable where
the breach of such covenants or provisions imposes restrictions
or burdens upon a party thereto and it cannot be demonstrated
that the imposition of such restrictions or burdens is
reasonably necessary for the protection of the other party, or
where the enforcement of such covenants or provisions would
violate the covenant of good faith and fair dealing implied
under California law, and (iv) California Civil Code section
1698 (which provides that a contract in writing may be modified
by an oral agreement to the extent that the oral agreement is
performed by the parties).
Our opinions in paragraphs 3 and 4 above are subject to the
qualification that the designation of the laws of New York to
govern the Note Agreement will be given effect by a California
court if the court were to hold that the state of New York has a
substantial relationship to the parties to the Note Agreement or
their transaction or there is another reasonable basis for the
choice of the laws of the State of New York to govern the Note
Agreement, except with regard to matters of the law of the State
of New York which are contrary to a fundamental policy of the
State of California.
Our opinions in paragraphs 3 and 4 are further subject to
the qualifications that, notwithstanding the designation of the
laws of New York to govern and construe the Note Agreement, the
enforceability of such designation may be limited to the extent
that (i) the validity of the Note Agreement may be governed by
the corporate laws of the State of California, (ii) the
availability or enforceability of certain remedies may be
governed by the procedural or other similar laws of a state or
jurisdiction other than New York in which an action to enforce
the Note Agreement may be brought, and (iii) certain principles
of California law may be considered mandatory or may embody an
important public policy of the State of California and may be
deemed applicable to the Note Agreement irrespective of the
designation of the laws of New York to the Note Agreement. The
courts of New York will give effect to the designation of the
laws of New York to govern the Note Agreement and, in the event
that a final, conclusive and enforceable judgement in the courts
of New York that grants or denies recovery of a sum of money
were obtained, the same would be enforced by the courts of
California without a further review on the merits.
Subject to all of the assumptions, limitations and
qualifications contained herein (other than the qualifications
set forth in clauses (i) and (iii) of the foregoing paragraph),
it is our opinion that the Note Agreement and the Notes
constitute the legal, valid and binding obligations of the
Company enforceable in accordance with their respective terms if
Section 9.10 of the Note Agreement provided for California law as the
governing law.
Without limiting the application of the other qualifica-
tions set forth in this opinion, we express no opinion as to the
enforceability of any provision of the Note Agreement which
states that such party's notification, interpretation or
determination of any matter shall be conclusive proof of such
matter, shall be made in such party's sole judgment or shall
otherwise be determinative in any sense.
Whenever a statement herein is qualified by "known to us,"
"to our knowledge," or similar phrase, it indicates that in the
course of our representation of the Company no information that
would give us current actual knowledge of the inaccuracy of such
statement has come to the attention of the attorneys in this
firm who have rendered legal services in connection with this
transaction. We have not made any independent investigation to
determine the accuracy of such statement, except as expressly
described herein. No inference as to our knowledge of any
matters bearing on the accuracy of such statement should be
drawn from the fact of our representation of the Company in
other matters in which such attorneys are not involved.
This opinion is rendered solely for your information in
connection with the transaction described above and may not be
relied upon by any other person for any purpose without our
prior written consent, except that subsequent United States
domiciled institutional holders of the Notes may rely on this
opinion as of the date it was written as if they were original
addressees hereto (assuming said holders are not subject to any
legal or regulatory requirements which are not applicable to the
Purchasers as of the Closing Date and assuming further that said
holders do not own or control five percent or more of any class
of the Company's equity securities) provided, however, that our
opinions in paragraph 7 above shall not apply to any subsequent
United States domiciled institutional holders of the Notes.
Very truly yours,
/s/ Pillsbury Madison & Sutro LLP
---------------------------------
Pillsbury Madison & Sutro LLP
Exhibit 11
Westamerica Bancorporation
Computation of Earnings Per Share on Common
and Common Equivalent Shares and on Common
Shares Assuming Full Dilution
(In thousands)
For the years ended December 31, 1995 1994* 1993*
- ----------------------------------------------------------------------------
Weighted average number of common shares
outstanding 9,877 9,916 9,914
Add exercise of options reduced by the
number of shares that could have
been purchased with the proceeds
from such exercise 164 83 74
- ----------------------------------------------------------------------------
Total 10,041 9,999 9,988
============================================================================
Net income $31,384 $27,662 $12,094
Fully-diluted earnings per share $3.13 ** $2.77 ** $1.21
============================================================================
Primary earnings per share $3.18 $2.79 $1.22
============================================================================
* Data has been restated on an historical basis to reflect the January 31,
1995 acquisition of PV Financial, the June 6, 1995 acquisition of CapitolBank
Sacramento and the July 17, 1995 acquisition of North Bay Bancorp, all on a
pooling-of-interest basis.
**Anti-dilutive
<PAGE>
Exhibit 21
WESTAMERICA BANCORPORATION
SUBSIDIARIES AS OF DECEMBER 31, 1995
State of Incorporation
Westamerica Bank California
Napa Valley Bank California
Bank of Lake County California
Community Banker Services Corporation California
Westcore California
<PAGE>
Exhibit 23(a)
Consent of Independent Auditors
The Board of Directors
Westamerica Bancorporation
We consent to incorporation by reference in registration
statement (No. 33-60003) on Form S-8 of Westamerica
Bancorporation and subsidiaries (the Company) of our report dated
January 18, 1996, relating to the consolidated balance sheets of
Westamerica and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of income,
changes in shareholders' equity, and cash flows for each of the
years in the three year period ended December 31, 1995, which
report appears in the December 31, 1995, annual report on Form
10-K of Westamerica Bancorporation. On January 31, 1995 and July
17, 1995, the Company acquired PV Financial and North Bay
Bancorp, respectively, on a pooling-of-interests basis. We did
not audit the financial statements of PV Financial and North Bay
Bancorp as of and for the years ended December 31, 1994 and 1993.
Those statements, included in the 1994 and 1993 restated
consolidated totals were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it
relates to the amounts include for PV Financial and North Bay
Bancorp, is based solely on the reports of the other auditors.
/s/ KPMG Peat Marwick LLP
---------------------
KPMG Peat Marwick LLP
San Francisco, California
March 29, 1996
<PAGE>
Exhibit 23(b)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration
Statement on Form S-8 (File No. 33-60003) our report dated
January 13, 1995 (relating to the financial statements of PV
Financial not presented separately herein)
appearing in the Westamerica Bancorporation Form 10-K.
/s/ Grant Thornton LLP
------------------
Grant Thornton LLP
Stockton, California
March 21, 1996
<PAGE>
Exhibit 23(c)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated February 17, 1995, on our
audits of North Bay Bancorp's consolidated financial statements
for the years ended December 31, 1994 and 1993, included (or
incorporated by reference) in Westamerica Bancorporation's 10-K
for the year ended December 31, 1995 and to all references to our
Firm included in this Form 10-K. It should be noted that we have
performed no audit procedures subsequent to February 17, 1995,
the date of our report. Furthermore, we have not audited any
financial statements of North Bay Bancorp as of any date or for
any period subsequent to December 31, 1994.
/s/ Arthur Andersen LLP
-------------------
Arthur Andersen LLP
San Francisco, California
March 22, 1996
