<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
WESTERN BANCORP
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 6712 95-3863296
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
4100 NEWPORT PLACE, SUITE 900
NEWPORT BEACH, CALIFORNIA 92660
(949) 863-2444
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
JULIUS G. CHRISTENSEN, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
WESTERN BANCORP
4100 NEWPORT PLACE, SUITE 900
NEWPORT BEACH, CALIFORNIA 92660
(949) 863-2459
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
STANLEY F. FARRAR, ESQ. BARNET REITNER, ESQ.
SULLIVAN & CROMWELL REITNER & STUART
1888 CENTURY PARK EAST, SUITE 2100 1319 MARSH STREET
LOS ANGELES, CA 90067 SAN LUIS OBISPO, CA 93401
(310) 712-6600 (805) 545-8590
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after the effective date of this Registration Statement
and the satisfaction or waiver of all other conditions to the Merger described
in the Proxy Statement-Prospectus.
--------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT OFFERING PRICE(2) REGISTRATION FEE(2)
<S> <C> <C> <C> <C>
Common Stock, no par value...... 2,932,002 shares $32.625 $81,133,643.13 $23,935
</TABLE>
(1) Represents the estimated maximum number of shares of common stock, no par
value, of Western Bancorp ("Western Common Stock") that may be issued upon
consummation of the merger (the "Merger") of Portola Merger Sub ("Merger
Sub"), a wholly owned subsidiary of Western Bancorp ("Western"), with and
into Peninsula Bank of San Diego ("Peninsula"). The number of shares to be
registered pursuant to this Registration Statement is based upon the
aggregate number of shares of common stock, no par value, of Peninsula
("Peninsula Common Stock"), currently outstanding, multiplied by the
estimated number of shares of Western Common Stock into which one share of
Peninsula Common Stock will be converted upon consummation of the Merger
based on the highest possible exchange ratio.
(2) Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act of 1933, as
amended, the registration fee is based on the average of the bid and asked
price of Peninsula Common Stock on September 24, 1998 multiplied by the
estimated maximum number of shares of Peninsula Common Stock that may be
converted into the shares of Western Common Stock being registered.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PENINSULA BANK OF SAN DIEGO
, 1998
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Peninsula Bank of San Diego ("Peninsula") to be held on , 1998, at
(the "Special Meeting"). At such time you will be asked to consider and
vote on a proposal to approve the principal terms of a proposed merger (the
"Merger") of Portola Merger Sub ("Merger Sub"), a wholly owned subsidiary of
Western Bancorp ("Western"), with and into Peninsula, pursuant to an Agreement
and Plan of Merger (the "Merger Agreement"), dated as of July 24, 1998, by and
among Western, Merger Sub and Peninsula. Upon the Merger becoming effective,
each outstanding share of common stock, no par value, of Peninsula ("Peninsula
Common Stock") (other than as provided in the Merger Agreement) will be
converted into between 1.179 and 0.964 shares of common stock, no par value per
share (the "Western Common Stock"), of Western (the "Consideration"). The exact
number of shares of Western Common Stock into which each share of Peninsula
Common Stock will be converted will be determined by dividing $45.75 by the
volume-weighted average sales price per share of Western Common Stock for a 20
trading day period ending on the fourth trading day prior to the effective date
of the Merger, subject to both a specified maximum average and a specified
minimum average. Thus, the value to be received per share of Peninsula Common
Stock in the Merger is dependent on the price per share of Western Common Stock.
The table on page 8 of the accompanying Proxy-Statement Prospectus illustrates
the exact number of shares of Western Common Stock that would be issued at
different assumed volume-weighted average sales prices of Western Common Stock.
For a more detailed description of the terms and conditions of the Merger, see
"THE MERGER AGREEMENT" in the attached Proxy Statement-Prospectus and a copy of
the Merger Agreement, which is reproduced as Appendix A thereto. Additional
information about the Merger, Merger Sub and Western are contained in the
accompanying Proxy Statement-Prospectus and the appendices thereto, all of which
should be carefully reviewed.
THE BOARD OF DIRECTORS OF PENINSULA HAS CONCLUDED THAT THE MERGER IS IN THE
BEST INTERESTS OF PENINSULA AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" THE APPROVAL OF THE PRINCIPAL TERMS OF THE MERGER.
NationsBanc Montgomery Securities LLC ("NationsBanc Montgomery"),
Peninsula's financial advisor, has delivered to the Peninsula Board of Directors
its opinion, dated July 23, 1998, that the Consideration to be received by the
Peninsula shareholders pursuant to the Merger was fair to such shareholders from
a financial point of view, as of such date. The opinion of NationsBanc
Montgomery dated (and certain assumptions and qualifications therein)
is described in the accompanying Proxy Statement-Prospectus and reproduced as
Appendix B thereto.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE SPECIAL
MEETING REGARDLESS OF THE NUMBER OF SHARES YOU OWN AND WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING. THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY
OF SHARES OF PENINSULA COMMON STOCK ENTITLED TO VOTE AT THE SPECIAL MEETING IS
REQUIRED FOR APPROVAL OF THE PRINCIPAL TERMS OF THE MERGER. YOUR FAILURE TO VOTE
FOR APPROVAL OF THE PRINCIPAL TERMS OF THE MERGER HAS THE SAME EFFECT AS VOTING
AGAINST THE MERGER. THEREFORE, WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED
PROXY. IF YOU DECIDE TO ATTEND THE SPECIAL MEETING AND WISH TO VOTE IN PERSON,
YOU MAY WITHDRAW YOUR PROXY AT THAT TIME.
YOU SHOULD NOT SEND IN SHARE CERTIFICATES AT THIS TIME.
John G. Rebelo, Jr.,
CHAIRMAN OF THE BOARD
CHIEF EXECUTIVE OFFICER
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF PENINSULA BANK OF SAN DIEGO
TO BE HELD AT SAN DIEGO, CALIFORNIA, ON , 1998
TO THE SHAREHOLDERS
OF PENINSULA BANK OF SAN DIEGO:
Notice is hereby given that a special meeting ("Special Meeting") of
shareholders of Peninsula Bank of San Diego ("Peninsula") will be held at
, San Diego, California , on , ,
1998, at for the following purposes:
1. To consider and vote on a proposal to approve the principal terms of the
proposed merger of Portola Merger Sub ("Merger Sub"), a wholly owned
subsidiary of Western Bancorp ("Western"), with and into Peninsula
pursuant to the Agreement and Plan of Merger, dated as of July 24, 1998
(the "Merger Agreement"), by and among Peninsula, Merger Sub and Western;
and
2. To transact such other business as may properly come before the Special
Meeting or any postponement or adjournment thereof.
The Board of Directors has fixed the close of business on , 1998
as the record date for determination of the shareholders entitled to notice of
and to vote at the Special Meeting or any adjournment thereof. Approval of the
matters to be voted upon in connection with the Merger requires the affirmative
vote of a majority of the outstanding shares of common stock, no par value (the
"Peninsula Common Stock"), of Peninsula.
THE BOARD OF DIRECTORS HAS CONCLUDED THAT THE MERGER IS IN THE BEST
INTERESTS OF PENINSULA AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" THE PRINCIPAL TERMS OF THE MERGER.
Shareholders may exercise dissenters' rights as provided in the California
General Corporation Law (the "CGCL"). If all requirements of the CGCL are met,
shareholders may receive cash in the amount equal to the fair market value (as
determined by Peninsula or, if required, by a court of law) of their shares of
Peninsula Common Stock as of July 23, 1998, excluding any appreciation as a
result of the Merger, in lieu of receiving the consideration provided in the
Merger Agreement by complying with certain procedures specified by the CGCL. See
"THE MERGER--Dissenters' Rights" in the accompanying Proxy Statement-Prospectus.
The accompanying Proxy Statement-Prospectus and the Appendices thereto
(including the Merger Agreement attached as Appendix A thereto) form a part of
this Notice.
By Order of the Board of Directors
--------------------------------------
Barbara A. Hosaka,
SECRETARY
Dated: , 1998
YOUR VOTE IS IMPORTANT. THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING, YOU SHOULD DATE, SIGN AND RETURN THE ENCLOSED PROXY. IF YOU
ATTEND THE SPECIAL MEETING, YOU WILL BE ENTITLED TO VOTE IN PERSON, IF YOU WISH.
YOU SHOULD NOT FORWARD SHARE CERTIFICATES AT THIS TIME.
<PAGE>
PENINSULA BANK OF SAN DIEGO
PROXY STATEMENT
------------------
WESTERN BANCORP
PROSPECTUS
------------------
This Proxy Statement-Prospectus is being furnished to the shareholders of
Peninsula Bank of San Diego ("Peninsula"), a California corporation, in
connection with the solicitation of proxies by the Board of Directors of
Peninsula (the "Peninsula Board") from holders of outstanding shares of common
stock, no par value ("Peninsula Common Stock"), of Peninsula, for use at the
special meeting of shareholders of Peninsula ("Peninsula Shareholders") to be
held on , 1998, at (the "Special Meeting" or the "Peninsula
Meeting") and at any adjournments and postponements thereof.
At the Peninsula Meeting, the Peninsula Shareholders will be asked to
consider and vote upon, among other things, a proposal to approve the principal
terms of the merger (the "Merger") of Portola Merger Sub ("Merger Sub"), a
wholly owned subsidiary of Western Bancorp ("Western"), with Peninsula, pursuant
to an Agreement and Plan of Merger, dated as of July 24, 1998 (the "Merger
Agreement"), by and among Western, Merger Sub and Peninsula, which is attached
as Appendix A to this Proxy Statement-Prospectus and is incorporated herein in
its entirety by this reference. Pursuant to the Merger Agreement, Merger Sub
will merge with and into Peninsula, with Peninsula being the surviving bank (the
"Surviving Bank") and operating under the name "Peninsula Bank of San Diego" as
a wholly owned subsidiary of Western. Upon the Merger becoming effective, each
share of Peninsula Common Stock issued and outstanding at the Effective Time (as
defined herein) (other than (a) shares with respect to which Dissenters' Rights
(as defined herein) shall have been perfected in accordance with the California
General Corporation Law ("CGCL") and (b) shares held directly or indirectly by
Western, or any of its subsidiaries, in each case other than in a fiduciary
(including custodial or agency) capacity or as a result of debts previously
contracted in good faith) will be converted automatically into, subject to
certain limitations set forth in the Merger Agreement with respect to proration
and fractional shares, between 0.964 and 1.179 shares of common stock, no par
value, of Western ("Western Common Stock"). The exact number of shares of
Western Common Stock into which each share of Peninsula Common Stock will be
converted will be determined by dividing $45.75 by the volume-weighted average
sales price per share of Western Common Stock for each of the 20 consecutive
days on which shares of Western Common Stock are actually traded immediately
preceding the fourth trading day prior to the Effective Date (as defined
herein); provided, however, that if such average price would be less than
$38.813, then such average price will be set at $38.813 (resulting in a maximum
exchange ratio of 1.179 (the "Maximum Exchange Ratio") and that if such average
price would be greater than $47.438, then such average will be set at $47.438
(resulting in a minimum exchange ratio of 0.964 (the "Minimum Exchange Ratio")).
The table on page 8 illustrates the exact number of shares of Western Common
Stock that would be issued at different assumed volume-weighted average sales
prices of Western Common Stock. See "RISK FACTORS--Limited Market for Western
Common Stock", "INFORMATION REGARDING WESTERN" and "SUMMARY--Markets and Market
Prices".
Based upon the 2,486,855 shares of Peninsula Common Stock outstanding on the
Peninsula Record Date (as defined herein) and assuming an exchange ratio of
1.179 (which is the Maximum Exchange Ratio and the exchange ratio that would
result if the volume-weighted average sales price used to calculate the exchange
ratio were calculated based on the 20 trading day period immediately preceding
the fourth trading day prior to the date hereof), it is expected that 2,932,002
shares of Western Common Stock would be issued in the Merger, assuming (i) no
Dissenters' Rights are perfected by Peninsula Shareholders and (ii) no cash is
paid in lieu of fractional shares.
In order for any Peninsula Shareholder to exercise Dissenters' Rights, such
Shareholder must not vote in favor of the principal terms of the Merger and must
fully comply with other applicable provisions of the CGCL. See "THE MERGER--
Dissenters' Rights".
Western Common Stock is designated for quotation on the Nasdaq National
Market-Registered Trademark- ("Nasdaq") under the symbol "WEBC".
SEE "RISK FACTORS" ON PAGE 35 FOR A DISCUSSION OF CERTAIN FACTORS THAT
PENINSULA SHAREHOLDERS SHOULD CONSIDER WITH RESPECT TO THE MERGER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
THE SHARES OF WESTERN COMMON STOCK OFFERED HEREBY ARE NOT DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION. WESTERN AND
PENINSULA DO NOT GUARANTEE THE INVESTMENT VALUE OF THE TRANSACTION
DESCRIBED IN THIS PROXY STATEMENT-PROSPECTUS. AN INVESTMENT IN
WESTERN COMMON STOCK MAY LOSE VALUE BEFORE OR AFTER THE
EFFECTIVE DATE OF THE MERGER.
--------------------------
THE SECURITIES ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL INVESTED.
--------------------------
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS , 1998.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT-PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS PROXY STATEMENT-PROSPECTUS, OR THE SOLICITATION OF A
PROXY, BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER, OR SOLICITATION OF AN OFFER, OR PROXY SOLICITATION. NEITHER DELIVERY OF
THIS PROXY STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES BEING
OFFERED PURSUANT TO THIS PROXY STATEMENT-PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN SINCE THE DATE OF THIS PROXY STATEMENT-PROSPECTUS.
AVAILABLE INFORMATION
Western is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance therewith,
Western files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Western with the Commission may be
inspected and copied at the public reference facilities of the Commission
located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 7 World Trade Center, New York, New York 10048,
and Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661, at
prescribed rates. Information regarding the Commission can be obtained by
calling 1-800-SEC-0330. Such reports, proxy statements and other information may
also be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov. Shares of Western Common Stock are designated
for quotation on Nasdaq. Material filed by Western can be inspected at the
offices of the National Association of Securities Dealers, Inc., Reports
Section, 1735 K Street, N.W., Washington, D.C. 20006.
Western has filed with the Commission a registration statement on Form S-4
(including exhibits thereto, the "Registration Statement") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), covering the shares
of Western Common Stock issuable in the Merger. This Proxy Statement-Prospectus
does not contain all the information set forth in the Registration Statement.
Such additional information may be obtained from the Commission's principal
office in Washington, D.C. Statements contained in this Proxy
Statement-Prospectus as to the contents of any contract or other document
referred to herein are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
This Proxy Statement-Prospectus constitutes the proxy statement of Peninsula
relating to the solicitation of proxies for its use at the Peninsula Meeting as
well as the Prospectus of Western filed as part of the Registration Statement.
This Proxy Statement-Prospectus and the related proxy and other materials are
first being provided to the Peninsula Shareholders on or about ,
1998.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES CERTAIN WESTERN DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS
ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM JULIUS G. CHRISTENSEN, EXECUTIVE
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY, WESTERN BANCORP, 4100 NEWPORT
PLACE, SUITE 900, NEWPORT BEACH, CALIFORNIA 92660. TELEPHONE REQUESTS MAY BE
DIRECTED TO JULIUS G. CHRISTENSEN, AT (949) 863-2459.
2
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission are incorporated herein by
reference:
(a) Western's Annual Report on Form 10-K for the year ended December 31,
1997 (the "Western Annual Report");
(b) Western's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998;
(c) Western's Current Reports on Form 8-K filed February 11, 1998, April
30, 1998, June 18, 1998, June 26, 1998, August 6, 1998, August 7, 1998 and
September 11, 1998 and on Form 8-K/A filed April 9, 1998; and
(d) The description of Western's Common Stock contained in Western's
Current Report on Form 8-K filed June 19, 1997.
Such incorporation by reference shall not be deemed to incorporate by
reference the information referred to in Item 402(a)(8) of Regulation S-K.
All documents and reports filed by Western pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
Peninsula Meeting shall be deemed to be incorporated herein by reference and to
be a part hereof from the date of such filing, and any statement contained
herein or in a document incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes hereof to
the extent that a statement contained herein or in any other subsequently filed
document that also is, or is deemed to be, incorporated herein by reference,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed to constitute a part hereof, except as so
modified or superseded.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................................................... 3
COMMON QUESTIONS AND ANSWERS ABOUT THE MERGER.............................................................. 7
SUMMARY.................................................................................................... 11
The Companies............................................................................................ 11
Additional Information................................................................................... 12
The Merger............................................................................................... 12
The Peninsula Meeting.................................................................................... 13
Votes Required........................................................................................... 13
Revocability of Proxies.................................................................................. 13
Recommendation of the Board of Directors................................................................. 13
Opinion of NationsBanc Montgomery........................................................................ 14
Effective Time........................................................................................... 14
Conditions to the Merger................................................................................. 14
Waiver and Amendment..................................................................................... 15
Termination and Termination Payment...................................................................... 15
Stock Option Agreement................................................................................... 16
Regulatory Approvals..................................................................................... 16
Operations and Management After the Merger............................................................... 16
Interests of Certain Persons in the Merger............................................................... 16
Certain Federal Income Tax Consequences.................................................................. 17
Accounting Treatment..................................................................................... 17
Dissenters' Rights....................................................................................... 17
Risk Factors............................................................................................. 18
Markets and Market Prices................................................................................ 18
Summary Historical Financial Data........................................................................ 20
Summary Unaudited Pro Forma Combined Financial Data--Assuming Consummation of the BKLA Acquisition and
the Merger............................................................................................. 26
Selected Historical and Pro Forma per Share Data--Assuming Consummation of the BKLA Acquisition and the
Merger................................................................................................. 29
Summary Unaudited Pro Forma Combined Financial Data--Assuming the BKLA Acquisition is not Consummated.... 31
Selected Historical and Pro Forma per Share Data--Assuming the BKLA Acquisition is not Consummated....... 33
RISK FACTORS............................................................................................... 35
Forward-Looking Statements May Not Prove Accurate........................................................ 35
Competition.............................................................................................. 35
Ability to Integrate the Operations of Western and Peninsula; Rapid Growth............................... 35
General Business Risk.................................................................................... 36
Concentration of Operations; Recessionary Environments; Decline in Real Estate Values.................... 37
Interest Rate Risk....................................................................................... 37
Shares Eligible for Future Sale; Dilution................................................................ 37
Regulation............................................................................................... 38
Limited Market for Western Common Stock.................................................................. 38
Year 2000 Risks and Preparedness......................................................................... 39
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INFORMATION REGARDING WESTERN.............................................................................. 41
Business of Western...................................................................................... 41
Incorporation of Certain Information By Reference........................................................ 41
INFORMATION REGARDING PENINSULA............................................................................ 42
Business of Peninsula.................................................................................... 42
Banking Services......................................................................................... 42
Employees................................................................................................ 43
Competition.............................................................................................. 43
Effect of Governmental Policies and Recent Legislation................................................... 43
Properties............................................................................................... 44
Legal Proceedings........................................................................................ 44
WESTERN--BKLA--PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA............................. 45
Pro Forma Effect of the Peninsula Merger Assuming Consummation of the BKLA
Acquisition............................................................................................ 45
NOTES TO WESTERN--BKLA--PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA ASSUMING
CONSUMMATION OF THE BKLA ACQUISITION..................................................................... 53
WESTERN AND PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA................................ 56
Pro Forma Effect of the Peninsula Merger Assuming the BKLA Acquisition is not Consummated................ 56
NOTES TO WESTERN AND PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA ASSUMING THE BKLA
ACQUISITION IS NOT CONSUMMATED........................................................................... 64
THE SPECIAL MEETING OF PENINSULA SHAREHOLDERS.............................................................. 66
General.................................................................................................. 66
Matters To Be Considered at the Peninsula Special Meeting................................................ 66
The Peninsula Record Date................................................................................ 66
Votes Required and Voting of Proxies..................................................................... 66
Solicitation of Proxies.................................................................................. 67
Revocability of Proxies.................................................................................. 67
Security Ownership of Certain Beneficial Owners and Management of Peninsula.............................. 68
Dissenters' Rights....................................................................................... 68
THE MERGER................................................................................................. 69
Background and Reasons for the Merger.................................................................... 69
Structure of the Merger.................................................................................. 70
Recommendation of the Peninsula Board of Directors....................................................... 71
Opinion of NationsBanc Montgomery........................................................................ 72
Certain Federal Income Tax Consequences.................................................................. 77
Regulatory Approvals..................................................................................... 78
Resale of Western Common Stock........................................................................... 80
Certain Effects of the Merger............................................................................ 80
Interests of Certain Persons in the Merger............................................................... 81
Submission of Shareholders' Proposals for Peninsula's 1999 Annual Meeting................................ 82
Dissenters' Rights....................................................................................... 82
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Accounting Treatment..................................................................................... 85
THE MERGER AGREEMENT....................................................................................... 86
The Merger............................................................................................... 86
Effective Time and Effective Date........................................................................ 87
Exchange of Stock Certificates; Dividends................................................................ 88
No Fractional Shares..................................................................................... 88
Conduct of the Business of Peninsula and Western Prior to the Merger..................................... 88
Representations and Warranties........................................................................... 89
Certain Covenants........................................................................................ 90
Conditions............................................................................................... 92
Termination.............................................................................................. 93
Termination Payment...................................................................................... 94
Waiver and Amendment..................................................................................... 94
THE STOCK OPTION AGREEMENT................................................................................. 94
General.................................................................................................. 94
The Stock Option......................................................................................... 94
Termination.............................................................................................. 96
THE SHAREHOLDER AGREEMENTS................................................................................. 96
COMPARISON OF SHAREHOLDER RIGHTS........................................................................... 97
Comparison of Corporate Structure........................................................................ 97
Dividends and Dividend Policy............................................................................ 97
Number of Directors...................................................................................... 97
Indemnification of Directors and Officers................................................................ 98
VALIDITY OF WESTERN COMMON STOCK........................................................................... 98
EXPERTS.................................................................................................... 98
INDEX TO PENINSULA FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION.................................... F-1
</TABLE>
LIST OF APPENDICES
Appendix A-- Agreement and Plan of Merger, dated as of July 24, 1998, by and
among Western, Merger Sub and Peninsula.
Appendix B-- Fairness Opinion of NationsBanc Montgomery Securities LLC.
Appendix C-- Chapter 13 of the CGCL.
6
<PAGE>
COMMON QUESTIONS AND ANSWERS ABOUT THE MERGER
THIS QUESTION AND ANSWER SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS
DOCUMENT AND MAY NOT CONTAIN ALL OR ANY INFORMATION THAT IS IMPORTANT TO YOU.
FOR A MORE COMPLETE UNDERSTANDING OF THE MERGER AND FOR A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ THIS ENTIRE
DOCUMENT CAREFULLY, AS WELL AS ANY ADDITIONAL DOCUMENTS TO WHICH WE REFER IN
THIS DOCUMENT.
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Q: WHO ARE THE PARTIES TO THIS MERGER?
A: Portola Merger Sub, which we sometimes call "Merger Sub", will merge into Peninsula
Bank of San Diego. The combined corporation's name will be "Peninsula Bank of San
Diego", which we sometimes refer to as "Peninsula". Portola Merger Sub is owned by
Western Bancorp, which we sometimes call "Western".
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: You are being asked to vote on a proposal to merge Portola Merger Sub (a wholly
owned subsidiary of Western) into Peninsula, which will result in Peninsula becoming
a wholly owned subsidiary of Western. If the merger is successful, each share of
common stock of Peninsula will be converted into between 0.964 and 1.179 shares of
common stock of Western. Therefore, after the merger, each shareholder of Peninsula
will become a shareholder of Western. The exact number of shares of common stock of
Western into which each share of common stock of Peninsula will be converted will
not be determinable until four days prior to consummation of the merger.
Q: WHAT IS THE RECOMMENDATION OF PENINSULA'S BOARD OF DIRECTORS?
A: The Board of Directors of Peninsula recommends that you vote for this merger because
the Board members believe that it:
- allows the combined company to compete more effectively with the larger
financial institutions that currently exist or will likely result from the various
consolidations and mergers in the industry nationwide and locally;
- provides shareholders with potential benefits of ownership interests in a
larger organization with greater resources, increased operating efficiencies,
increased lending limits and a stronger market position in San Diego County;
and
- offers increased long-term value and liquidity to current Peninsula
shareholders by converting their shares into shares of common stock of Western.
More information regarding the Peninsula Board's recommendations is available
beginning on page 71.
Q: HOW WILL I BE AFFECTED IN THE MERGER?
A: Each shareholder of Peninsula will have each of their shares converted into between
0.964 and 1.179 shares of Western common stock. Any remaining fractional share will
be converted into cash.
In the proposed merger, using an assumed exchange ratio of 1.179, current Peninsula
shareholders will receive shares representing ownership of [14.2]% of Western and
the shares held by Western's current shareholders will represent ownership of
[85.8]% of Western after the proposed merger is completed. Each share owned by
existing shareholders of Peninsula will represent an ownership interest in a much
larger company.
Q: HOW IS THE EXCHANGE RATIO ESTABLISHED AND HOW DOES WESTERN'S STOCK PRICE AFFECT THE
EXCHANGE RATIO?
A: On the date the merger agreement was executed, the last sales price of common stock
of Western was $43.125, and the parties used that price as the midpoint of a 10% up
and 10% down range of prices to be used in establishing the exchange ratio. The
actual price to be used in establishing the
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exchange ratio will be the volume-weighted average sales price per share of Western
Common Stock for the 20 trading days immediately preceding the fourth trading day
prior to the date the proposed merger is consummated. If the volume-weighted average
sales price for that period is more than 10% below $43.125 (which equals $38.813),
then the price used to establish the exchange ratio will be $38.813. If the
volume-weighted average sales price for that period is more than 10% above $43.125
(which equals $47.438), then the price used to establish the conversion number will
be $47.438. The following chart shows the affect of different assumed volume-
weighted average sales prices of Western Common Stock on the exchange ratio, per
share equivalent value of Peninsula Common Stock and the aggregate number of shares
to be issued in the proposed merger based upon the 2,486,855 shares of Peninsula
Common Stock outstanding on the record date for the special meeting.
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<CAPTION>
ASSUMED VOLUME-WEIGHTED PER SHARE
AVERAGE SALES PRICE OF EQUIVALENT
WESTERN EXCHANGE RATIO VALUE (1) SHARES ISSUED
----------------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
$ 52.000 0.964 $ 50.15 2,397,323
51.000 0.964 49.18 2,397,323
50.000 0.964 48.22 2,397,323
49.000 0.964 47.26 2,397,323
48.000 0.964 46.29 2,397,323
10% Increase in Western share
price......................... 47.438 0.964 45.75 2,398,323
47.000 0.973 45.75 2,420,705
46.000 0.995 45.75 2,473,426
45.000 1.017 45.75 2,528,385
44.000 1.040 45.75 2,585,832
Midpoint........................ 43.125 1.061 45.75 2,638,304
43.000 1.064 45.75 2,646,014
42.000 1.089 45.75 2,708,931
41.000 1.116 45.75 2,775,081
40.000 1.144 45.75 2,844,465
39.000 1.173 45.75 2,917,330
10% Decrease in Western share
price......................... 38.813 1.179 45.76 2,932,002
38.000 1.179 44.80 2,932,002
37.000 1.179 43.62 2,932,002
36.000 1.179 42.44 2,932,002
35.000 1.179 41.27 2,932,002
34.000 1.179 40.09 2,932,002
33.000 1.179 38.91 2,932,002
32.000 1.179 37.73 2,932,002
31.000 1.179 36.55 2,932,002
30.000 1.179 35.37 2,932,002
29.000 1.179 34.19 2,932,002
28.000 1.179 33.01 2,932,002
</TABLE>
- ------------------------
(1) Per share equivalent value on any given day is calculated by multiplying the
last sales price of common stock of Western on such date by the applicable
exchange ratio. For purposes of simplicity, this table assumes that the last
sales price on such date is equal to the assumed volume-weighted average
sales price of common stock of Western used to calculate the exchange ratio
for such date.
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<S> <C>
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: We expect that the exchange of shares will be a tax-free transaction for federal
income tax purposes for Peninsula shareholders. However, Peninsula shareholders will
have to pay taxes on any cash received either for fractional shares or dissenters'
shares. To review the tax consequences to shareholders in greater detail, see the
section on tax consequences beginning on page 77. The tax consequences of the merger
to you will depend on your own situation. You should consult your tax advisors for a
full understanding of the tax consequences of the merger to you.
Q: WHY IS MERGER SUB, WHICH IS A WHOLLY OWNED SUBSIDIARY OF WESTERN, MERGING INTO
PENINSULA?
A: The merger was structured so that Peninsula will survive as a subsidiary of Western
and Merger Sub was formed solely for that purpose.
Q: WHO IS THE BANK OF LOS ANGELES AND WHAT EFFECT DOES IT HAVE ON THE MERGER?
A: On April 16, 1998, Western first entered into a merger agreement with the Bank of
Los Angeles, which we sometimes refer to as "BKLA". BKLA shareholders approved the
merger on September 23, 1998, with no dissenters, and all regulatory approvals have
been obtained. However, the closing of the merger has been rescheduled from
September 30, 1998 to October 30, 1998 or sooner to allow the parties to more fully
evaluate a lawsuit pending against BKLA. Since the acquisition of BKLA has not yet
been consummated by Western, pro forma financial statements have been provided
showing possible effects resulting from the acquisition of BKLA or the termination
of that deal.
Q: WILL PENINSULA BE ALLOWED TO KEEP ITS CURRENT MANAGEMENT TEAM?
A: Most likely. The executive officers of Peninsula and Peninsula and Western have
agreed to use their reasonable best efforts to enter into employment agreements with
Peninsula in order to continue their current employment, although there can be no
assurances that any such agreements will be entered into. Further, John G. Rebelo,
Jr., who is currently the Chief Executive Officer and Chairman of the Board of
Directors for Peninsula, will be appointed to the Board of Directors of Western,
effective immediately following the merger.
Q: WHAT REGULATORY APPROVALS ARE REQUIRED?
A: The merger must be approved by the California Commissioner of Financial
Institutions, the Federal Deposit Insurance Corporation and the Board of Governors
of the Federal Reserve System. Further information on the required regulatory
approvals can be found beginning on page 78.
Q: WHAT RISKS SHOULD I CONSIDER WHEN VOTING FOR THE MERGER?
A: You should review the "RISK FACTORS" section beginning on page 35.
Q: WHEN WILL THE MERGER TAKE EFFECT?
A: We expect the merger to become effective late in the fourth quarter of 1998 or early
in the first quarter of 1999.
Q: WHAT DO I NEED TO DO NOW?
A: Please read this document carefully and then mail your signed proxy card approving
or disapproving the merger in the enclosed return envelope as soon as possible so
that your shares may be represented at the special meeting of Peninsula
shareholders. A failure to vote or turn in a proxy card has the same effect as
voting against the merger. The special meeting is scheduled to take place on
, 1998.
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9
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<S> <C>
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY CARD?
A: Yes. After you have marked your signed proxy card, you can change your vote at any
time before we vote your proxy at the special meeting. You can do so in one of three
ways prior to the special meeting. First, you can send a written notice stating that
you would like to revoke your proxy to the Secretary of Peninsula at the address
given below. Second, you can complete a new proxy card and send it to the Secretary
of Peninsula at the address given below. Third, you can attend the special meeting
and vote in person. You should send any written notice or new proxy card to the
Secretary of Peninsula at 1322 Scott Street, Suite 203, San Diego, California 92106.
You may request a new proxy card by calling Barbara A. Hosaka, the Secretary of
Peninsula, at (619) 226-5451.
Q: WHAT IF I DO NOT APPROVE OF THE PROPOSED MERGER AND DO NOT WANT MY SHARES CONVERTED
IF THE MERGER IS APPROVED?
A: You may obtain dissenting shareholders' rights by complying with the requirements of
Chapter 13 of the California General Corporation Law. If all of the requirements of
Chapter 13 are met and the merger is approved, you will receive cash for the fair
market value (as determined by Peninsula or, if required, by a court of law) of your
shares in lieu of Western common stock. However, any cash received in exercising
dissenters' rights will be subject to individual income taxation. Further, if too
many shareholders dissent, certain pooling-of-interests accounting conditions will
not be met, which could cause the merger deal to fail. For details, look to the
section on dissenters' rights beginning on page 82.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If the merger is completed, we will send you written instructions for exchanging
your Peninsula stock certificates for Western stock certificates.
Q: WHERE CAN I FIND MORE INFORMATION?
A: You may obtain more information in this document and in other sources which are
listed under "AVAILABLE INFORMATION" on page 2.
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SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ALL
RESPECTS BY THE MORE DETAILED INFORMATION INCLUDED IN THIS PROXY
STATEMENT-PROSPECTUS, THE APPENDICES HERETO AND THE DOCUMENTS INCORPORATED
HEREIN BY REFERENCE. SHAREHOLDERS ARE URGED TO READ CAREFULLY THIS PROXY
STATEMENT-PROSPECTUS, INCLUDING THE APPENDICES HERETO AND THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE, IN THEIR ENTIRETY.
ALL INFORMATION CONCERNING WESTERN AND MERGER SUB INCLUDED IN THIS PROXY
STATEMENT-PROSPECTUS, THE APPENDICES HERETO AND THE DOCUMENTS INCORPORATED
HEREIN BY REFERENCE HAS BEEN FURNISHED BY WESTERN, AND ALL INFORMATION
CONCERNING PENINSULA INCLUDED IN THIS PROXY STATEMENT-PROSPECTUS, THE APPENDICES
HERETO AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE HAS BEEN FURNISHED BY
PENINSULA. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES TO "WESTERN" HEREIN
SHALL BE TO WESTERN, ITS PREDECESSOR ENTITIES AND ITS SUBSIDIARIES, INCLUDING
MERGER SUB.
THIS PROXY STATEMENT-PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE
ACT. ALTHOUGH EACH OF WESTERN AND PENINSULA BELIEVES THAT ITS PLANS, INTENTIONS
AND EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE,
NEITHER CAN GIVE ANY ASSURANCE THAT SUCH PLANS, INTENTIONS OR EXPECTATIONS WILL
BE ACHIEVED. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM WESTERN'S AND PENINSULA'S FORWARD-LOOKING STATEMENTS ARE SET
FORTH BELOW AND ELSEWHERE IN THIS PROXY STATEMENT-PROSPECTUS. SEE "RISK
FACTORS--FORWARD-LOOKING STATEMENTS MAY NOT PROVE ACCURATE". FURTHERMORE,
WESTERN AND PENINSULA DO NOT INTEND TO UPDATE OR REVISE THE FORWARD-LOOKING
STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO
REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. SHAREHOLDERS ARE CAUTIONED NOT
TO PLACE UNDUE RELIANCE ON ANY OF THE FORWARD-LOOKING STATEMENTS INCLUDED
HEREIN. ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO WESTERN, PENINSULA OR
PERSONS ACTING ON EITHER OF THEIR BEHALVES ARE QUALIFIED IN THEIR ENTIRETY BY
THE CAUTIONARY STATEMENTS SET FORTH HEREIN.
THE COMPANIES
WESTERN
Western is a bank holding company registered under the Bank Holding Company
Act of 1956, as amended (the "BHCA"), and its principal business is to serve as
a holding company for its banking subsidiaries, Southern California Bank ("SCB")
and Santa Monica Bank ("SMB"). Western was organized on May 20, 1983 as a
California corporation and commenced operation as a holding company on June 18,
1984. In September 1996, Western acquired Western Bank. In June 1997, Western
consummated its merger (the "CCB Merger") with California Commercial Bankshares
("CCB") pursuant to which CCB merged with and into Western. Also in June 1997,
Monarch Bank, a wholly owned subsidiary of Western prior to the CCB Merger,
merged with and into National Bank of Southern California ("NBSC"), a wholly
owned subsidiary of CCB prior to the CCB Merger. In October 1997, Western
consummated its merger with SC Bancorp (the "SCB Merger") pursuant to which SC
Bancorp merged with and into Western. In December 1997, Western merged NBSC with
and into SCB, a wholly-owned subsidiary of SC Bancorp prior to the SCB Merger,
with SCB being the surviving bank. The operations of NBSC and SCB were combined
in March 1998. In January 1998, Western acquired SMB through the merger of SMB
with and into Western Bank (the "SMB Merger"). On April 16, 1998, Western
entered into a definitive agreement with the Bank of Los Angeles ("BKLA")
pursuant to which BKLA will merge with and into SMB (the "BKLA Acquisition").
The closing of the BKLA Acquisition has been rescheduled from September 30, 1998
to October 30, 1998 or sooner to allow the parties involved to more fully
evaluate a lawsuit pending against BKLA.
Western, through its subsidiaries, SMB and SCB, primarily serves the Los
Angeles County, Orange County and surrounding markets. SMB's primary market area
is the western part of Los Angeles County. As of June 30, 1998, SMB had 13
branch offices, including branch offices in Santa Monica, Westwood, Malibu,
Pacific Palisades, Marina Del Rey, Beverly Hills, Century City and Encino. If
the BKLA
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Acquisition is consummated, SMB will have three additional branch offices in
West Hollywood, Culver City, and Glendale under the name "Santa Monica Bank". If
the BKLA Acquisition is consummated, SMB intends to consolidate three of BKLA's
current six branches into three existing SMB branches.
SCB's primary market area includes southern Los Angeles County, Orange
County and northern San Diego County. As of June 30, 1998, SCB had six branch
offices in southern Los Angeles County, nine branch offices throughout Orange
County and one in northern San Diego County. SMB and SCB each offer a broad
range of banking products and services, including many types of business and
personal savings and checking accounts and other consumer banking services. In
addition, SMB offers trust services.
At June 30, 1998, Western had consolidated total assets, total deposits and
shareholders' equity of $2.0 billion, $1.7 billion and $289 million,
respectively. Western's principal executive offices are located at 4100 Newport
Place, Suite 900, Newport Beach, California 92660, and its telephone number is
(949) 863-2444.
PENINSULA
Peninsula is a California state-chartered bank headquartered in San Diego,
California, which commenced operations on March 7, 1975. At June 30, 1998,
Peninsula had total assets of $428.3 million, total deposits of $397.1 million
and shareholders' equity of $27.3 million. Peninsula's primary market is San
Diego County which it principally serves from its 10 offices which are located
primarily along the coastal region. Peninsula offers a broad range of banking
products and services, including many types of business and personal savings and
checking accounts, loans and other banking services. See "INFORMATION REGARDING
PENINSULA--Business of Peninsula".
Peninsula, which currently operates 10 banking offices, has its principal
executive offices at 1322 Scott Street, Suite 203, San Diego, California 92106.
Its telephone number is (619) 226-5451.
ADDITIONAL INFORMATION
For additional information regarding the business of Western and Peninsula,
see "AVAILABLE INFORMATION", "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE", "INFORMATION REGARDING WESTERN", "INFORMATION REGARDING PENINSULA",
"WESTERN--BKLA--PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA"
and "WESTERN AND PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
DATA".
THE MERGER
On July 23, 1998 the Peninsula Board, on July 21, 1998 the Board of
Directors of Western (the "Western Board") and on July 24, 1998 the Board of
Directors of Merger Sub (the "Merger Sub Board"), each respectively approved the
Merger Agreement. The Merger Agreement was executed and delivered on July 24,
1998. The Merger Agreement provides that if the Peninsula Shareholders approve
the principal terms of the Merger, and subject to receipt of regulatory
approvals and other customary closing conditions as more fully set forth below,
then Merger Sub will merge with and into Peninsula, with Peninsula being the
Surviving Bank. In connection with the Merger, assuming a volume-weighted
average sales price of Western Common Stock over the relevant 20-day period of
$38.813 (which is what the volume-weighted average sales price would be deemed
to be if the relevant 20-day period were the 20-day period ending on the fourth
day prior to the date hereof) or lower, each share of Peninsula Common Stock
issued and outstanding at the Effective Time (other than (a) shares that have
not been voted in favor of approval of the principal terms of the Merger and
with respect to which Dissenters' Rights have been perfected in accordance with
the CGCL and (b) shares held by any of Peninsula's subsidiaries or by Western or
any of its subsidiaries, in each case other than in a fiduciary (including
custodial or agency) capacity or as a result of debts previously contracted in
good faith) will be converted automatically into, subject to the limitations set
forth in the Merger Agreement with respect to proration and fractional shares
and elsewhere herein,
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1.179 shares of Western Common Stock (the "Consideration"). See "THE
MERGER--Background and Reasons for the Merger", "--Recommendation of the
Peninsula Board of Directors", "--Dissenters' Rights" and "THE MERGER
AGREEMENT--The Merger".
THE PENINSULA MEETING
The Peninsula Meeting to consider and vote on, among other things, approval
of the principal terms of the Merger will be held on , 1998 at
local time, at , San Diego, California. Only holders of
record of Peninsula Common Stock at the close of business on , 1998
(the "Peninsula Record Date") will be entitled to vote at the Peninsula Meeting.
At such date, there were outstanding and entitled to vote 2,486,855 shares of
Peninsula Common Stock. Each share of Peninsula Common Stock is entitled to one
vote for each share held of record upon each matter properly submitted at the
Peninsula Meeting. For additional information relating to the Peninsula Meeting,
see "THE SPECIAL MEETING OF PENINSULA SHAREHOLDERS".
VOTES REQUIRED
Approval of the matters to be voted upon in connection with the Merger by
the Peninsula Shareholders requires the affirmative vote of the holders of a
majority of the outstanding shares of Peninsula Common Stock entitled to vote.
As a result, the failure to vote in person or by proxy on any such proposal at
the Peninsula Meeting or abstaining on any proposal has the same effect as
voting against the applicable proposal. See "THE SPECIAL MEETING OF PENINSULA
SHAREHOLDERS--Votes Required and Voting of Proxies".
As of the Peninsula Record Date, Peninsula's directors and officers
beneficially held, in the aggregate, (with the ability to direct voting) 891,607
shares or 35.8% of the 2,486,855 shares of Peninsula Common Stock entitled to
vote at the Peninsula Meeting, and have entered into agreements (the
"Shareholder Agreements") pursuant to which they have agreed, among other
things, to vote "FOR" the adoption and approval of the Merger Agreement and the
Merger. See "THE SHAREHOLDER AGREEMENTS".
REVOCABILITY OF PROXIES
The presence of a Peninsula Shareholder at the Peninsula Meeting (or at any
postponement or adjournment thereof) will not automatically revoke such
shareholder's proxy. However, a Peninsula Shareholder may revoke a proxy at any
time prior to its exercise by (a) delivery to the Secretary of Peninsula of a
written notice of revocation prior to the vote with respect thereto; (b)
delivery to the Secretary of Peninsula prior to the vote with respect thereto of
a duly executed proxy bearing a later date; or (c) attending the Peninsula
Meeting (or, if such Peninsula Meeting is adjourned or postponed, by attending
the adjourned or postponed meeting) and voting in person thereat. Any written
revocation of proxy or other related communications should be addressed to
Barbara A. Hosaka, Secretary of Peninsula Bank of San Diego, 1322 Scott Street,
Suite 203, San Diego, California 92106.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Peninsula Board has unanimously approved the Merger Agreement and the
transactions contemplated thereby. The members of the Peninsula Board
unanimously believe that the Merger and the transactions contemplated by the
Merger Agreement are fair to, and in the best interests of, the Peninsula
Shareholders and unanimously recommend a vote "FOR" the matters to be voted upon
by the Peninsula Shareholders in connection with the Merger. The conclusions of
the Peninsula Board with respect to the Merger are based upon a number of
factors. See "THE MERGER--Background and Reasons for the Merger",
"--Recommendation of the Peninsula Board of Directors" and "--Opinion of
NationsBanc Montgomery".
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OPINION OF NATIONSBANC MONTGOMERY
NationsBanc Montgomery Securities LLC ("NationsBanc Montgomery") has
delivered to the Peninsula Board its opinions, dated July 23, 1998 and
, to the effect that, as of each of such dates, the Consideration
to be received by Peninsula Shareholders in the Merger was fair to the Peninsula
Shareholders from a financial point of view. The written opinion of NationsBanc
Montgomery, dated , is attached to this Proxy
Statement-Prospectus as Appendix B and should be read in its entirety. See "THE
MERGER--Opinion of NationsBanc Montgomery".
EFFECTIVE TIME
The Merger will become effective on the date (the "Effective Date") and at
the time (the "Effective Time") that an agreement of merger and related
documents are filed with the California Commissioner of Financial Institutions
(the "State Commissioner") in accordance with the California Financial Code
after filing with the California Secretary of State, provided that the State
Commissioner accepts such agreement and documents for filing as of such date, or
such later date as may be specified in such agreement of merger or as may be
required by the State Commissioner. Subject to conditions specified in the
Merger Agreement, the parties expect the Merger to become effective late in the
fourth quarter of 1998 or early in the first quarter of 1999, although there can
be no assurance as to whether or when the Merger will become effective. See "THE
MERGER AGREEMENT--Effective Time and Effective Date" and "--Conditions".
CONDITIONS TO THE MERGER
The respective obligations of Western and Peninsula to consummate the Merger
are subject to certain conditions, including: (a) the approval by the Peninsula
Shareholders of the principal terms of the Merger; (b) receipt of approvals or
waivers required to consummate the transactions contemplated by the Merger
Agreement, including approval or waiver by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"), the Federal Deposit Insurance
Corporation (the "FDIC") and the State Commissioner; (c) the absence of any
statute, rule, regulation, judgment, decree, injunction or other order being in
effect and prohibiting the consummation of the Merger or any other transactions
contemplated by the Merger Agreement; (d) the Registration Statement having
become effective and there having been issued no stop order suspending the
effectiveness of the Registration Statement and no proceedings for that purpose
initiated or threatened by the Commission; (e) the receipt and continued
effectiveness of all permits and other authorizations under state securities
laws necessary to consummate the transactions contemplated by the Merger
Agreement and to issue the shares of Western Common Stock to be issued in the
Merger; and (f) the approval for listing on Nasdaq, subject to official notice
of issuance, of the shares of Western Common Stock to be issued in the Merger.
See "THE MERGER AGREEMENT-- Conditions".
The obligation of Western to consummate the Merger also is subject to the
fulfillment or waiver by Western prior to the Effective Time of certain
conditions, including the following: (a) the representations and warranties of
Peninsula being true and correct unless the failure to be true and correct is
not likely to have a material adverse effect on Peninsula; (b) the performance
by Peninsula in all material respects of all obligations contained in the Merger
Agreement required to be performed by Peninsula before the Effective Time; (c)
the receipt by Western of an opinion of Sullivan & Cromwell that the Merger will
be treated as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); (d) the receipt by
Western of a customary "cold comfort" letter from Deloitte & Touche LLP with
respect to certain financial statements and data of Peninsula; and (e) the
receipt by Western from KPMG Peat Marwick LLP ("KPMG") of an opinion stating
that the Merger will qualify for pooling-of-interests accounting treatment. See
"THE MERGER AGREEMENT--Conditions".
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In addition, the obligation of Peninsula to consummate the Merger also is
subject to the fulfillment or waiver by Peninsula prior to the Effective Time of
certain conditions, including the following: (a) the representations and
warranties of Western being true and correct unless the failure to be true and
correct is not likely to have a material adverse effect on Western; (b) the
performance by Western in all material respects of all obligations contained in
the Merger Agreement required to be performed before the Effective Time; (c) the
receipt by Peninsula of an opinion of Deloitte & Touche LLP stating that (i) the
Merger constitutes a reorganization within the meaning of Section 368(a) of the
Code and (ii) no gain or loss will be recognized by Peninsula Shareholders who
receive shares of Western Common Stock in exchange for shares of Peninsula
Common Stock, except with respect to cash received in lieu of fractional share
interests; (d) the receipt by Peninsula of a customary "cold comfort" letter
from KPMG with respect to certain financial statements and data of Western; (e)
the receipt by Peninsula from Deloitte & Touche LLP of an opinion stating that
the Merger will qualify for pooling-of-interests accounting treatment; and (f)
the receipt by Peninsula from NationsBanc Montgomery of an opinion stating that,
as of a date within five days prior to the mailing of the Proxy
Statement-Prospectus to the Peninsula Shareholders, the Consideration to be
received by the Peninsula Shareholders is fair from a financial point of view to
the Peninsula Shareholders. See "THE MERGER AGREEMENT--Conditions".
WAIVER AND AMENDMENT
Prior to the Effective Time, the conditions to each party's obligation to
consummate the Merger may be waived by such party in whole or in part to the
extent permitted by applicable law. In addition, Western and Peninsula may amend
the Merger Agreement at any time prior to the Effective Time by written
agreement, approved by their respective Boards, so long as after approval by the
Peninsula Shareholders the consideration to be received by Peninsula
Shareholders is not reduced and the amendments do not violate the CGCL. See "THE
MERGER AGREEMENT--Waiver and Amendment".
TERMINATION AND TERMINATION PAYMENT
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Merger, either prior to or subsequent to its approval by the
Peninsula Shareholders: (a) by mutual consent of Western and Peninsula, if so
determined by their respective Boards; (b) by either Western or Peninsula, if so
determined by its Board, if (i) the shareholders of Peninsula fail to approve
the principal terms of the Merger; (ii) the other party materially breaches any
representation, warranty, covenant or agreement contained in the Merger
Agreement and such breach is not cured or curable within a specified grace
period; (iii) the Merger is not consummated by March 31, 1999; or (iv) the
approval of a governmental authority required for consummation of the Merger is
not obtained; (c) by Peninsula, if the volume-weighted average price per share
of Western Common Stock over a 10-day period is less than $36.656 per share and,
over the same 10-day period, such volume-weighted average price per share
expressed as a percentage of the price per share of Western Common Stock as of
July 24, 1998 is less than the product of 0.9 and the average Keefe Bank Index
over the same 10-day period expressed as a percentage of the Keefe Bank Index as
of July 24, 1998; (d) by Western, if the Peninsula Board shall fail to recommend
the Merger for approval by the Peninsula Shareholders; or (e) by Peninsula, if
the Peninsula Board receives an Acquisition Proposal (as defined herein) and
determines, based upon the advice of counsel that to proceed with the Merger
would violate the fiduciary duties of the Peninsula Board to the Peninsula
Shareholders, to accept such proposal. See "THE MERGER AGREEMENT--Termination".
If the Merger Agreement is terminated by Peninsula pursuant to a material
breach of any representation, warranty, covenant or agreement of Western therein
that is not cured or curable within 30 days after written notice of such breach,
Western will pay to Peninsula all costs and expenses incurred by Peninsula in
connection with the Merger, up to $500,000. If the Merger Agreement is
terminated by Western under the circumstances described in clauses b(ii), (d) or
(e) of the preceding paragraph, Peninsula will pay to
15
<PAGE>
Western all costs and expenses incurred by Western in connection with the
Merger, up to $500,000. See "THE MERGER AGREEMENT--Termination Payment".
STOCK OPTION AGREEMENT
As an inducement and condition to Western's entering into the Merger
Agreement, Peninsula has entered into a Stock Option Agreement with Western,
dated as of July 24, 1998 (the "Stock Option Agreement"). Pursuant to the Stock
Option Agreement, Peninsula granted to Western an unconditional, irrevocable
option (the "Option"), exercisable only under certain limited and specifically
defined circumstances, none of which, to the best of Peninsula's and Western's
knowledge, has occurred as of the date hereof, to purchase up to 494,930
authorized but theretofore unissued shares of Peninsula Common Stock (but in no
event more than 19.9% of the shares of Peninsula Common Stock outstanding at the
time of exercise), for a purchase price per share of $41.00, subject to
adjustment in certain circumstances. The purchase of Peninsula Common Stock
pursuant to the Stock Option Agreement is subject to compliance with applicable
law, including receipt of any necessary approvals under the BHCA. See "THE STOCK
OPTION AGREEMENT".
The Stock Option Agreement and the Option are intended to increase the
likelihood that the Merger will be consummated on the terms set forth in the
Merger Agreement, and may be expected to discourage offers by third parties to
acquire Peninsula prior to the Merger.
REGULATORY APPROVALS
The Merger is subject to prior approval by the Federal Reserve Board under
Section 3 of the BHCA, the FDIC under the Bank Merger Act and the State
Commissioner pursuant to the California Financial Code. Western and Peninsula
submitted a notice and applications, as applicable, seeking approval of the
Merger and related matters to the Federal Reserve Board on or about September
16, 1998, to the FDIC on or about September 11, 1998 and to the State
Commissioner on or about September 22, 1998. See "THE MERGER--Regulatory
Approvals" and "THE MERGER AGREEMENT--Conditions". It is expected that the
approvals will be received prior to the Peninsula Meeting, but there can be no
assurance that such approvals will be obtained.
OPERATIONS AND MANAGEMENT AFTER THE MERGER
Pursuant to the Merger Agreement, Western has agreed to operate the business
currently operated by Peninsula as a separate division or business unit under
the name of Peninsula for a period of two years, subject to a merger,
acquisition or consolidation of Western with, by or into another entity. It is
expected that the executive management of Peninsula ("Peninsula Management")
will remain the same. The executive officers of Peninsula and Peninsula and
Western have each agreed to use their reasonable best efforts to enter into
employment agreements with Peninsula in order to continue their current
employment, although there can be no assurance that they will enter into such
agreements. Western has further agreed to appoint, as of the Effective Time,
John G. Rebelo, Jr. to serve as a director of Western and of Peninsula. See "THE
MERGER AGREEMENT--Conditions".
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Peninsula Board, Peninsula
Shareholders should be aware that certain members of Peninsula Management and of
each of the Peninsula and Western Boards have certain interests in the
transactions contemplated by the Merger Agreement that are in addition to the
interests of shareholders generally and that may create potential conflicts of
interest.
These interests include, among others, provisions in the Merger Agreement
relating to the indemnification of Peninsula officers and directors, directors'
and officers' liability insurance and certain employee benefit plans. In
addition, agreements are being negotiated with John G. Rebelo, Jr., Chairman of
the
16
<PAGE>
Board and Chief Executive Officer, Larry L. Willette, President and Chief
Administrative Officer, Barbara A. Hosaka, Executive Vice President, Chief
Operating Officer and Secretary, and Lawrence G. Alameda, Executive Vice
President and Chief Lending Officer. Western, Peninsula and such officers have
agreed that under the terms of their existing employment agreements and other
benefit plans with Peninsula, such officers will be entitled to receive,
beginning 60 days after termination of such officers' employment with Peninsula,
the substantial severance benefits provided for thereunder as a result of the
Merger being deemed "good reason" thereunder. Such benefits will be limited to
an amount such that the aggregate of all payments to any officer would not be
"excess parachute payments" within the meaning of the Code. Finally, Mr. Rebelo
will be appointed to the Western Board and the Peninsula Board as of the
Effective Time. See "THE MERGER--Interests of Certain Persons in the Merger" and
"THE MERGER AGREEMENT--Certain Covenants--INDEMNIFICATION; DIRECTORS' AND
OFFICERS' INSURANCE".
Additionally, John M. Eggemeyer, a director of Western, beneficially owns
80% of Belle Plaine Partners, Inc. ("BPI"), which provided financial advisory
and consulting services in connection with the Merger. See "THE
MERGER--Interests of Certain Persons in the Merger".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Merger will be treated as a reorganization under
Section 368(a) of the Code (a "Reorganization"), so that Peninsula Shareholders
will not recognize any gain or loss for tax purposes on the receipt of Western
Common Stock in exchange for their shares of Peninsula Common Stock in the
Merger (except to the extent such shareholders receive cash in lieu of a
fractional share interest in Western Common Stock). Consummation of the Merger
as a Reorganization is conditioned upon receipt by Western of the opinion of
Sullivan & Cromwell and receipt by Peninsula of the opinion of Deloitte & Touche
LLP, which opinions will be dated as of the Effective Date (the "Tax Opinions"),
stating substantially that, for federal income tax purposes: (i) the Merger will
be treated as a Reorganization and (ii) each of Western, Merger Sub and
Peninsula will be a party to that Reorganization. See "THE MERGER--Certain
Federal Income Tax Consequences".
Because of the complexity of the tax laws and the individual nature of
certain tax consequences of the Merger to each Peninsula Shareholder, each
Peninsula Shareholder should consult his or her own tax advisor concerning all
federal, state, local and foreign tax consequences of the Merger that may be
applicable.
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, the Merger is expected to
be accounted for as a pooling of interests in accordance with generally accepted
accounting principles ("GAAP"). Confirmation by the independent auditors of each
of Western and Peninsula of the ability to use the pooling-of-interests method
of accounting to account for the Merger is a condition (the "Pooling Condition")
to consummation of the Merger. See "THE MERGER--Accounting Treatment".
DISSENTERS' RIGHTS
In connection with the Merger, the Peninsula Shareholders may be entitled to
dissenters' rights under Chapter 13 of the CGCL ("Dissenters' Rights"), the text
of which is attached hereto as Appendix C. IN ORDER FOR ANY PENINSULA
SHAREHOLDER TO EXERCISE DISSENTERS' RIGHTS, SUCH SHAREHOLDER MUST NOT VOTE IN
FAVOR OF THE PRINCIPAL TERMS OF THE MERGER, MUST SEND A NOTICE OF SUCH
SHAREHOLDER'S INTENTION TO EXERCISE HIS OR HER DISSENTERS' RIGHTS AND DEMAND
PAYMENT FOR HIS OR HER SHARES AS PROVIDED IN THE CGCL TO BE RECEIVED BY
PENINSULA WITHIN 30 DAYS AFTER THE DATE ON WHICH PENINSULA MAILS TO SUCH
SHAREHOLDER A NOTICE OF THE APPROVAL OF THE PRINCIPAL TERMS OF THE MERGER BY THE
PENINSULA SHAREHOLDERS AND MUST OTHERWISE COMPLY WITH THE REQUIREMENTS OF
CHAPTER 13 OF THE CGCL. EXERCISING DISSENTERS' RIGHTS MAY CAUSE A TAXABLE EVENT
TO INDIVIDUALS AND MAY UNFAVORABLY IMPACT THE CONSUMMATION OF THE MERGER BY
PRECLUDING THE USE OF THE
17
<PAGE>
POOLING-OF-INTERESTS ACCOUNTING METHOD. VOTING IN FAVOR OF THE PRINCIPAL TERMS
OF THE MERGER, OR FAILING TO TIMELY SEND SUCH NOTICE TO PENINSULA, 1322 SCOTT
STREET, SUITE 203, SAN DIEGO, CALIFORNIA 92106, ATTN: CORPORATE SECRETARY, WILL
RESULT IN A WAIVER OF SUCH SHAREHOLDER'S DISSENTERS' RIGHTS. SEE "THE
MERGER--DISSENTERS' RIGHTS".
RISK FACTORS
In deciding whether to vote for the approval of the principal terms of the
Merger, Peninsula Shareholders should carefully evaluate the matters set forth
under "Risk Factors" herein in addition to the other matters described herein.
MARKETS AND MARKET PRICES
As of the Peninsula Record Date, there were approximately [2,050] holders of
record of Western Common Stock. No shares of Western preferred stock have been
issued or are outstanding. Western Common Stock is designated for quotation on
Nasdaq under the symbol "WEBC".
As of the Peninsula Record Date, there were approximately [485] holders of
record of Peninsula Common Stock.
The following table summarizes the approximate high and low sales prices on
a per share basis for the Western Common Stock and Peninsula Common Stock for
the periods indicated.
<TABLE>
<CAPTION>
PENINSULA COMMON
WESTERN COMMON
STOCK(1) STOCK(2)
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996
First Quarter............................................................ $ 11.05 $ 8.93 $ 16.63 $ 14.25
Second Quarter........................................................... 17.00 8.50 14.90 14.47
Third Quarter............................................................ 14.88 8.50 16.78 15.54
Fourth Quarter........................................................... 29.75 13.86 16.33 15.87
1997
First Quarter............................................................ 34.00 19.13 16.55 15.87
Second Quarter........................................................... 37.19 28.63 18.03 16.33
Third Quarter............................................................ 33.25 28.63 24.89 18.57
Fourth Quarter........................................................... 33.88 29.88 27.14 21.67
1998
First Quarter............................................................ 43.50 30.75 36.19 22.86
Second Quarter........................................................... 47.88 39.50 38.10 29.89
Third Quarter (through September 29)..................................... 43.00 28.48 47.00 31.00
</TABLE>
- ------------------------
(1) Prior to June 3, 1997, Western Common Stock was traded solely "over the
counter". Consequently, the prices listed before that date represent
quotations by dealers making a market in Western Common Stock and reflect
inter-dealer prices, without adjustments for mark-ups, mark-downs or
commissions, and may not necessarily represent actual transactions. Prior to
June 3, 1997, trading in Western Common Stock was limited in volume and may
not be a reliable indicator of its market value. On June 3, 1997, Western
Common Stock was designated for quotation on Nasdaq and on that date Western
effected a 1.0 for 8.5 reverse stock split. The prices of Western Common
Stock prior to June 3, 1997 in the preceding table have been adjusted for
the reverse stock split. The prices listed above for periods subsequent to
June 3, 1997 are as reported by Nasdaq.
(2) Peninsula Common Stock is traded solely "over the counter". Consequently,
the prices listed represent quotations by dealers making a market in
Peninsula Common Stock and reflect inter-dealer
18
<PAGE>
prices, without adjustment for mark-ups, mark-downs or commissions, and may
not necessarily represent actual transactions. Trading in Peninsula Common
Stock is limited in volume and may not be a reliable indication of its
value. The prices of Peninsula Common Stock in the preceding table have been
adjusted for a two for one stock split effected in March 1998, and a 5%
stock dividend paid in July of 1996, 1997 and 1998.
The following table sets forth the closing price per share of Western Common
Stock as reported by Nasdaq, the closing price per share of Peninsula Common
Stock as reported on the "over the counter" market and the "Equivalent Per Share
Price" (as explained below) of Peninsula Common Stock as of July 24, 1998, the
last trading day before the date on which Western and Peninsula announced the
execution of the Merger Agreement, and as of , 1998, the last
practicable date prior to the date of this Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
EQUIVALENT
PER
WESTERN PENINSULA SHARE
MARKET PRICE PER SHARE AS OF COMMON STOCK COMMON STOCK PRICE(1)
- ------------------------------------------------------------------ -------------- -------------- -------------
<S> <C> <C> <C>
July 24, 1998..................................................... $ 43.125 $ 46.00 $ 45.75
September 29, 1998................................................ $ 33.00 $ 32.00 $ 38.91
</TABLE>
- ------------------------
(1) Represents the equivalent of one share of Western Common Stock calculated by
multiplying the last sales price of Western Common Stock on such date by an
implied exchange ratio calculated based on the volume-weighted average sales
price for Western Common Stock for a 20-day trading day period ending on the
fourth trading day prior to such date. The actual exchange ratio will be
subject to a minimum and a maximum level. See the table on page 8 for
information concerning the "equivalent per share prices" (the "per share
equivalent value") that would result from different assumed volume-weighted
average sales prices of Western Common Stock.
THERE CAN BE NO ASSURANCE AS TO THE MARKET PRICE OF WESTERN COMMON STOCK AT
ANY TIME BEFORE, AT OR AFTER THE EFFECTIVE TIME. PENINSULA SHAREHOLDERS ARE
URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR WESTERN COMMON STOCK AND PENINSULA
COMMON STOCK.
19
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
WESTERN
The following summary historical financial data for the six months ended
June 30, 1998 and 1997 are derived from unaudited consolidated financial
statements of Western and include, in the opinion of the management of Western
("Western Management"), all adjustments (consisting only of normal accruals)
necessary to present fairly the data for such periods. The results for the six
month-period ended June 30, 1998 are not necessarily indicative of the results
to be expected for the full fiscal year. The following summary historical
financial data for the five years ended December 31, 1997 are derived from the
audited consolidated financial statements of Western. The data should be read in
conjunction with the consolidated financial statements, related notes and other
financial information incorporated by reference in this Proxy
Statement-Prospectus. See "WESTERN--BKLA--PENINSULA UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL DATA" and "WESTERN AND PENINSULA UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA".
<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTHS
ENDED JUNE 30,(1) AT OR FOR THE YEARS ENDED DECEMBER 31,
------------------------ ---------------------------------------------------------
1998 1997 1997 1996(2) 1995(3) 1994 1993
----------- ----------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
RESULTS OF OPERATIONS:
Interest income....................... $ 68,922 $ 48,758 $ 101,034 $ 74,237 $ 62,629 $ 53,079 $ 57,722
Interest expense...................... 18,318 14,330 29,358 22,311 19,804 13,388 18,677
----------- ----------- ----------- ----------- --------- --------- ---------
NET INTEREST INCOME................. 50,604 34,428 71,676 51,926 42,825 39,691 39,045
Provision for loan and lease losses... 300 1,400 2,800 1,018 8,564 3,510 17,919
----------- ----------- ----------- ----------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND LEASE LOSSES......... 50,304 33,028 68,876 50,908 34,261 36,181 21,126
Non-interest income................... 7,858 5,028 9,686 9,875 7,826 8,447 15,871
Non-interest expense.................. 35,513 29,800 65,757 48,138 45,609 41,235 45,825
----------- ----------- ----------- ----------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES... 22,649 8,256 12,805 12,645 (3,522) 3,393 (8,828)
Income tax expense (benefit).......... 11,142 4,811 9,643 3,656 (1,733) 1,680 (1,979)
----------- ----------- ----------- ----------- --------- --------- ---------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE......................... 11,507 3,445 3,162 8,989 (1,789) 1,713 (6,849)
Cumulative effect of change in
accounting principle................ -- -- -- -- -- -- (41)
----------- ----------- ----------- ----------- --------- --------- ---------
NET INCOME (LOSS)................... $ 11,507 $ 3,445 $ 3,162 $ 8,989 $ (1,789) $ 1,713 $ (6,890)
----------- ----------- ----------- ----------- --------- --------- ---------
----------- ----------- ----------- ----------- --------- --------- ---------
COMPREHENSIVE INCOME (LOSS)......... $ 11,671 $ 3,484 $ 3,930 $ 8,666 $ 2,876 $ (3,544) $ (6,837)
----------- ----------- ----------- ----------- --------- --------- ---------
----------- ----------- ----------- ----------- --------- --------- ---------
ENDING BALANCE SHEET DATA:
Assets................................ $ 2,016,749 $ 1,367,665 $ 1,383,510 $ 1,338,913 $ 866,385 $ 759,194 $ 799,558
Securities............................ 224,135 284,191 207,514 332,818 184,978 220,905 248,879
Loans and leases, net of deferred fees
and unearned income................. 1,274,611 849,141 880,734 817,358 543,042 439,241 460,975
Allowance for loan and lease losses... 24,681 15,345 15,894 15,757 13,130 12,115 19,077
Goodwill.............................. 145,525 31,699 30,430 32,968 4,131 2,464 2,616
Deposits.............................. 1,697,352 1,207,714 1,226,793 1,177,014 774,057 675,971 731,829
Borrowed funds........................ 15,756 18,194 12,751 20,290 7,366 15,161 10,168
Common shareholders' equity........... 289,146 131,642 129,655 129,047 77,628 62,274 51,572
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTHS
ENDED JUNE 30,(1) AT OR FOR THE YEARS ENDED DECEMBER 31,
------------------------ ---------------------------------------------------------
1998 1997 1997 1996(2) 1995(3) 1994 1993
----------- ----------- ----------- ----------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA AND OTHER SELECTED
RATIOS:
Earnings (loss) per share
Basic............................... $0.78 $0.33 $0.30 $1.11 $(0.28) $0.34 $(1.68)
Diluted............................. 0.77 0.32 0.29 1.09 (0.28) 0.33 (1.68)
Dividends declared per share(4)....... 0.15 -- 0.30 -- -- -- --
Book value per share.................. 18.41 12.40 12.18 12.36 10.64 10.52 12.59
Tangible book value per share......... 9.15 9.41 9.32 9.20 10.08 10.10 11.95
Shareholders' equity to assets at
period end.......................... 14.34% 9.63% 9.37% 9.64% 8.96% 8.20% 6.45%
Tangible shareholders' equity to
assets at period end................ 7.68 7.48 7.33 7.36 8.52 7.90 6.14
Return on average assets.............. 1.20 0.52 0.23 0.90 (0.21) 0.22 (0.79)
Return on average equity.............. 8.97 5.27 2.37 9.78 (2.59) 2.65 (12.54)
Average equity/average assets......... 13.38 9.90 9.82 9.25 8.31 8.20 6.26
Net interest margin................... 6.23 5.91 5.99 5.88 5.78 5.74 4.93
</TABLE>
- ------------------------------
(1) On January 27, 1998, Western acquired SMB in a transaction accounted for as
a purchase. At January 31, 1998, SMB had approximately $671 million in
assets, $388 million in net loans and $584 million in deposits. At the time
of the SMB Merger, Western issued approximately 2,653,000 shares of Western
Common Stock to certain former shareholders of SMB and also paid
approximately $114 million to the other former shareholders of SMB. Western
also raised approximately $65 million in additional equity in a private
placement by issuing 2,327,550 shares of Western Common Stock. SMB's results
of operations are included only since January 27, 1998. Due to the
relatively large size of this transaction, any comparison of data as of and
for the six months ended June 30, 1998 to data as of or for prior dates or
periods may not be meaningful.
(2) On September 30, 1996, Western acquired Western Bank in a transaction
accounted for as a purchase. At September 30, 1996, Western Bank had
approximately $410 million in assets, $198 million in net loans and $353
million in deposits. At the time of such acquisition, Western also raised
approximately $42 million in additional equity in a private placement by
issuing 3,076,045 shares of Western Common Stock. Western Bank's results of
operations are included only since the fourth quarter of fiscal 1996. Due to
the relatively large size of this transaction, any comparison of data as of
and for the year ended December 31, 1996 to data as of or for prior dates or
periods and to the year ended December 31, 1997 may not be meaningful.
(3) In 1995, Western, through a private placement and a separate shareholders'
rights and public offering, raised approximately $9 million in additional
equity, net of approximately $470,000 in offering costs, in connection with
the issuance of 874,589 shares of Western Common Stock. Also in 1995,
Western, through a private placement of 474,000 shares, raised approximately
$3 million in additional equity in connection with the issuance of shares of
Western Common Stock.
(4) In addition to a dividend of $0.15 per share declared in the third quarter
of 1997 and paid in the fourth quarter of 1997, a $0.15 per share dividend
was declared in the fourth quarter of 1997 and was paid in the first quarter
of 1998.
21
<PAGE>
PENINSULA
The following summary historical financial data for the six months ended
June 30, 1998 and 1997 are derived from unaudited financial statements of
Peninsula and include, in the opinion of Peninsula Management, all adjustments
(consisting only of normal accruals) necessary to present fairly the data for
such periods. The results for the six month period ended June 30, 1998 are not
necessarily indicative of the results to be expected for the full fiscal year.
The following summary historical financial data for the five years ended
December 31, 1997 are derived from the audited financial statements of
Peninsula. The data should be read in conjunction with the financial statements,
related notes and other financial information included in this Proxy
Statement-Prospectus. See "WESTERN--BKLA--PENINSULA UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL DATA" and "WESTERN AND PENINSULA UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA".
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED
JUNE 30, AT OR FOR THE YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
RESULTS OF OPERATIONS:
Interest Income..................... $ 14,734 $ 12,797 $ 27,265 $ 24,252 $ 21,909 $ 18,077 $ 17,069
Interest Expense.................... 4,428 3,992 8,600 7,766 7,095 5,009 5,274
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME............... 10,306 8,805 18,665 16,486 14,814 13,068 11,795
Provision for loan and lease
losses............................ 139 325 498 566 470 795 1,083
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN AND LEASE
LOSSES.......................... 10,167 8,480 18,167 15,920 14,344 12,273 10,712
Non-interest income................. 2,452 2,041 4,124 3,645 3,139 2,794 2,809
Non-interest expense................ 9,053 7,804 16,982 14,634 13,520 12,442 11,491
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INCOME BEFORE TAXES AND
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE............ 3,566 2,717 5,309 4,931 3,963 2,625 2,030
Income tax expense.................. 1,337 1,044 1,708 1,877 1,421 745 457
---------- ---------- ---------- ---------- ---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING
PRINCIPLE....................... 2,229 1,673 3,601 3,054 2,542 1,880 1,573
Cumulative effect of change in
accounting principle(1)........... -- -- -- -- -- -- (388)
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INCOME........................ $ 2,229 $ 1,673 $ 3,601 $ 3,054 $ 2,542 $ 1,880 $ 1,961
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
COMPREHENSIVE INCOME.............. $ 2,269 $ 1,678 $ 3,646 $ 3,059 $ 3,040 $ 1,264 $ 1,961
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
ENDING BALANCE SHEET DATA:
Assets.............................. $ 428,272 $ 368,435 $ 418,245 $ 343,820 $ 318,874 $ 267,850 $ 262,064
Securities.......................... 111,618 97,079 125,041 84,980 84,707 56,810 65,019
Loans and leases, net of deferred
fees and unearned income.......... 243,227 222,880 234,556 212,601 190,833 175,352 164,567
Allowance for loan and lease
losses............................ 2,442 2,235 2,358 2,150 1,853 1,898 1,585
Other intangible assets............. 108 60 98 13 11 -- --
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED
JUNE 30, AT OR FOR THE YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Deposits............................ 397,055 341,384 389,232 318,709 296,970 248,484 243,414
Borrowed funds...................... 600 600 600 600 466 600 600
Common shareholders' equity......... 27,258 23,754 25,356 22,414 19,998 17,551 16,954
PER SHARE DATA AND OTHER SELECTED
RATIOS:
Earnings per share
Basic............................. $0.90 $0.67 $1.45 $1.23 $1.02 $0.76 $0.79
Diluted........................... 0.90 0.67 1.45 1.23 1.02 0.76 0.79
Dividends declared per share........ 0.16 0.14 0.28 0.26 0.24 0.22 0.22
Dividend payout ratio............... 16.51 20.23 19.53 21.03 23.38 29.76 27.49
Book value per share................ 10.96 9.55 10.20 9.01 8.04 7.06 6.82
Tangible book value per share....... 10.92 9.53 10.16 9.01 8.04 7.06 6.82
Shareholders' equity to assets at
period end........................ 6.36% 6.45% 6.06% 6.52% 6.27% 6.55% 6.47%
Tangible shareholders' equity to
assets at period end.............. 6.34 6.43 6.04 6.52 6.27 6.55 6.47
Return on average assets............ 1.06 0.95 0.95 0.92 0.87 0.71 0.78
Return on average equity............ 17.09 14.62 15.08 14.40 13.54 10.90 12.07
Average equity/average assets....... 6.22 6.48 6.27 6.40 6.40 6.51 6.44
Net interest margin................. 5.54 5.66 5.64 5.69 5.79 5.51 5.20
</TABLE>
- ------------------------
(1) Due to adoption of FAS No. 109, "Accounting for Income Taxes".
23
<PAGE>
BKLA
The following summary historical financial data for the six months ended
June 30, 1998 and 1997 are derived from unaudited financial statements of BKLA
and include, in the opinion of the management of BKLA ("BKLA Management"), all
adjustments (consisting only of normal accruals) necessary to present fairly the
data for such periods. The results for the six-month period ended June 30, 1998
are not necessarily indicative of the results to be expected for the full fiscal
year. The following summary historical financial data for the five years ended
December 31, 1997 are derived from the audited financial statements of BKLA. The
data should be read in conjunction with the consolidated financial statements,
related notes and other financial information included or incorporated by
reference in this Proxy Statement-Prospectus. See "WESTERN--BKLA--PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA" and "WESTERN AND
PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA".
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED
JUNE 30,(1, 2) AT OR FOR THE YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1998 1997 1997(2) 1996 1995(3, 4) 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
RESULTS OF OPERATIONS:
Interest income..................... $ 10,505 $ 6,651 $ 14,854 $ 10,561 $ 6,819 $ 5,794 $ 7,092
Interest expense.................... 3,008 1,746 3,931 3,087 1,852 1,758 2,262
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME............... 7,497 4,905 10,923 7,474 4,967 4,036 4,830
Provision for (recovery of) loan and
lease losses...................... -- 410 410 750 (311) -- 1,953
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN AND LEASE
LOSSES.......................... 7,497 4,495 10,513 6,724 5,278 4,036 2,877
Non-interest income................. 1,030 629 1,388 1,037 878 923 1,725
Non-interest expense................ 5,274 4,089 8,542 6,760 5,510 6,171 6,915
---------- ---------- ---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES........................... 3,253 1,035 3,359 1,001 646 (1,212) (2,313)
Income tax expense (benefit)........ 1,216 -- (372) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS)................. $ 2,037 $ 1,035 $ 3,731 $ 1,001 $ 646 $ (1,212) $ (2,313)
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
COMPREHENSIVE INCOME (LOSS)....... $ 2,085 $ 1,030 $ 3,903 $ 641 $ 1,259 $ (1,685) $ (2,313)
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
ENDING BALANCE SHEET DATA:
Assets.............................. $ 289,768 $ 193,276 $ 272,033 $ 130,705 $ 129,745 $ 80,507 $ 98,992
Securities.......................... 88,679 49,493 60,433 22,126 33,322 30,602 28,420
Loans and leases, net of deferred
fees and unearned income.......... 153,645 110,409 142,633 72,266 66,021 38,114 50,760
Allowance for loan and lease
losses............................ 2,683 1,829 2,819 1,682 2,358 1,633 2,478
Goodwill............................ 5,504 2,129 5,939 1,662 1,733 -- --
Deposits............................ 242,552 171,308 238,012 115,596 114,850 74,471 91,388
Borrowed funds...................... 12,873 1,846 1,849 1,842 1,836 1,830 1,827
Common shareholders' equity......... 33,551 19,591 31,054 12,632 11,991 3,817 5,502
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED
JUNE 30,(1, 2) AT OR FOR THE YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1998 1997 1997(2) 1996 1995(3, 4) 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA AND OTHER SELECTED
RATIOS:
Earnings (loss) per share
Basic............................. $0.43 $0.36 $1.16 $0.46 $0.63 $(4.85) $(9.25)
Diluted........................... 0.38 0.32 1.00 0.40 0.51 (4.85) (9.25)
Dividends declared per share........ -- -- -- -- -- -- --
Book value per share................ 6.91 5.50 6.54 5.75 5.46 15.25 22.00
Tangible book value per share....... 5.78 4.90 5.29 5.00 4.67 15.25 22.00
Shareholders' equity to assets at
period end........................ 11.58% 10.14% 11.42% 9.66% 9.24% 4.74% 5.56%
Tangible shareholders' equity to
assets at period end.............. 9.87 9.14 9.44 8.50 8.01 4.74 5.56
Return on average assets............ 1.48 1.29 2.05 0.79 0.77 (1.36) (2.08)
Return on average equity............ 12.78 13.02 21.10 8.13 8.71 (26.01) (32.30)
Average equity/average assets....... 11.59 9.88 9.72 9.72 8.89 5.24 6.44
Net interest margin................. 6.19 6.77 6.67 6.47 6.63 5.04 4.82
</TABLE>
- ------------------------
(1) On December 31, 1997, BKLA acquired Culver National Bank ("CNB") in a
transaction accounted for as a purchase. At December 31, 1997, CNB had
approximately $60 million in assets, $26 million in net loans and $51
million in deposits. At the time of such acquisition, BKLA issued 1,155,326
shares of the common stock of BKLA, no par value ("BKLA Common Stock"), to
former shareholders of CNB. CNB's results of operations are included only
since January 1998. Due to the relatively large size of this transaction,
any comparison of data as of and for the six months ended June 30, 1998 to
data as of or for prior dates or periods may not be meaningful.
(2) On April 1, 1997, BKLA acquired American West Bank ("AWB") in a transaction
accounted for as a purchase. At April 1, 1997, AWB had approximately $67
million in assets, $37 million in net loans and $61 million in deposits. At
the time of such acquisition, BKLA issued 1,367,493 shares of BKLA Common
Stock to former shareholders of AWB. AWB's results of operations are
included only since April 1997. Due to the relatively large size of this
transaction, any comparison of data as of and for the six months ended June
30, 1998 and the year ended December 31, 1997 to data as of or for prior
dates or periods may not be meaningful.
(3) On November 15, 1995, BKLA acquired World Trade Bank ("WTB") in a
transaction accounted for as a purchase. At November 15, 1995, WTB had
approximately $42 million in assets, $21 million in net loans and $40
million in deposits. At the time of such acquisition, BKLA issued 346,325
shares of BKLA Common Stock to former shareholders of WTB. WTB's results of
operations are included only since November 1995.
(4) On March 31, 1995, BKLA received a capital infusion of approximately $3.4
million for 946,352 shares of BKLA Common Stock and 473,176 warrants. On
November 30, 1995 as a result of a rights offering to all shareholders of
record at October 24, 1995, 651,325 shares of BKLA Common Stock and 217,160
warrants were issued for net proceeds of approximately $2.1 million. Each
warrant issued in both the capital infusion and the rights offering entitled
the holder thereof to purchase one share of BKLA Common Stock for $3.75 and
will expire on December 1, 1998.
25
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA--ASSUMING CONSUMMATION OF
THE BKLA ACQUISITION AND THE MERGER
The following table sets forth certain summary unaudited pro forma combined
financial data for Western, BKLA and Peninsula after giving effect to the BKLA
Acquisition and the Merger, as if the BKLA Acquisition and the Merger had
occurred as of the beginning of each of the periods presented. This information
should be read in conjunction with the historical consolidated financial
statements of Western and the historical financial statements of BKLA and
Peninsula, including the notes thereto, appearing elsewhere in this Proxy
Statement-Prospectus or incorporated herein by reference. See "WESTERN--
BKLA--PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA", "WESTERN
AND PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA",
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "SUMMARY--Summary
Historical Financial Data--PENINSULA".
The unaudited pro forma combined condensed balance sheet data are not
necessarily indicative of the actual financial position that would have existed
had the BKLA Acquisition and the Merger been consummated on the dates indicated,
or that may exist in the future. The unaudited pro forma combined condensed
results of operations data are not necessarily indicative of the results that
would have occurred had the BKLA Acquisition and the Merger been consummated on
the dates indicated or that may be achieved in the future. Assuming the
consummation of the BKLA Acquisition and the Merger, the actual financial
position and results of operations will differ, perhaps significantly, from the
pro forma amounts reflected herein because of a variety of factors, including
changes in value and changes in operating results between the dates of the
unaudited pro forma financial data and the date on which the BKLA Acquisition
and the Merger take place. See "RISK FACTORS--Ability to Integrate the
Operations of Western and Peninsula; Rapid Growth".
<TABLE>
<CAPTION>
AT OR FOR THE YEARS
AT OR FOR THE SIX MONTHS ENDED DECEMBER 31,
ENDED JUNE 30,(1, 4, 5) ----------------------------------------
-------------------------- 1995(3, 6,
1998 1997 1997(5) 1996(2) 7)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
RESULTS OF OPERATIONS:
Interest Income.................................. $ 98,092 $ 90,614 $ 189,705 $ 109,050 $ 91,357
Interest Expense................................. 26,950 27,064 56,660 33,164 28,751
------------ ------------ ------------ ------------ ------------
NET INTEREST INCOME............................ 71,142 63,550 133,045 75,886 62,606
Provision for loan and lease losses.............. 519 2,135 3,708 2,334 8,723
------------ ------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
AND LEASE LOSSES............................. 70,623 61,415 129,337 73,552 53,883
Non-interest income.............................. 11,954 11,232 22,472 14,557 11,843
Non-interest expense............................. 52,867 57,439 124,460 69,532 64,639
------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES..................... 29,710 15,208 27,349 18,577 787
Income tax expense (benefit)..................... 14,056 8,245 15,656 5,533 (312)
------------ ------------ ------------ ------------ ------------
NET INCOME..................................... $ 15,654 $ 6,963 $ 11,693 $ 13,044 $ 1,399
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
COMPREHENSIVE INCOME........................... $ 16,025 $ 6,193 $ 11,479 $ 12,366 $ 7,175
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
ENDING BALANCE SHEET DATA:
Assets........................................... $ 2,738,869 $ 1,929,376 $ 2,077,868 $ 1,813,438 $ 1,315,004
Securities....................................... 424,432 430,763 392,988 439,924 303,007
Loans and leases, net of deferred fees and
unearned income................................ 1,671,483 1,182,430 1,257,923 1,102,225 799,896
Allowance for loan and lease losses.............. 29,806 19,409 21,071 19,589 17,341
Goodwill and other intangible assets............. 151,137 33,888 36,467 34,643 5,875
Deposits......................................... 2,336,959 1,720,406 1,854,037 1,611,319 1,185,877
Borrowed funds................................... 29,229 20,640 15,200 22,732 9,668
Common shareholders' equity...................... 338,440 174,987 174,550 164,093 109,617
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEARS
AT OR FOR THE SIX MONTHS ENDED DECEMBER 31,
ENDED JUNE 30,(1, 4, 5) ----------------------------------------
-------------------------- 1995(3, 6,
1998 1997 1997(5) 1996(2) 7)
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA AND OTHER SELECTED RATIOS:
Earnings per share
Basic.......................................... $0.76 $0.35 $0.59 $1.09 $0.14
Diluted........................................ 0.74 0.35 0.58 1.07 0.14
Dividends declared per share (8)................. 0.15 -- 0.30 -- --
Book value per share............................. 16.29 8.42 11.13 10.47 7.64
Tangible book value per share.................... 9.02 6.79 8.81 8.26 7.23
Shareholders' equity to assets at period end..... 12.36% 9.07% 8.40% 9.05% 8.34%
Tangible shareholders' equity to assets at period
end............................................ 7.24 7.44 6.76 7.28 7.92
Return on average assets......................... 1.15 0.55 0.44 0.90 0.12
Return on average equity......................... 9.23 4.38 3.60 10.40 1.47
Average equity/average assets.................... 12.41 12.53 12.24 8.64 7.89
Net interest margin.............................. 6.11 5.97 5.96 5.88 5.83
</TABLE>
- ------------------------
(1) On January 27, 1998, Western acquired SMB in a transaction accounted for as
a purchase. At January 31, 1998, SMB had approximately $671 million in
assets, $388 million in net loans and $584 million in deposits. At the time
of the SMB Merger, Western issued approximately 2,653,000 shares of Western
Common Stock to certain former shareholders of SMB and also paid
approximately $114 million to the other former shareholders of SMB. Western
also raised approximately $65 million in additional equity in a private
placement by issuing 2,327,550 shares of Western Common Stock. SMB's results
of operations are included only since January 27, 1998. Due to the
relatively large size of this transaction, any comparison of data as of and
for the six months ended June 30, 1998 to data as of or for prior dates or
periods may not be meaningful.
(2) On September 30, 1996, Western acquired Western Bank in a transaction
accounted for as a purchase. At September 30, 1996, Western Bank had
approximately $410 million in assets, $198 million in net loans and $353
million in deposits. At the time of such acquisition, Western also raised
approximately $42 million in additional equity in a private placement by
issuing 3,076,045 shares of Western Common Stock. Western Bank's results of
operations are included only since the fourth quarter of fiscal 1996. Due to
the relatively large size of this transaction, any comparison of data as of
and for the year ended December 31, 1996 to data as of or for prior dates or
periods and to the year ended December 31, 1997 may not be meaningful.
(3) In 1995, Western, through a private placement and a separate shareholders'
rights and public offering, raised approximately $9 million in additional
equity, net of approximately $470,000 in offering costs, in connection with
the issuance of 874,589 shares of Western Common Stock. Also in 1995
Western, through a private placement of 474,000 shares, raised approximately
$3 million in additional equity in connection with the issuance of shares of
Western Common Stock.
(4) On December 31, 1997, BKLA acquired CNB in a transaction accounted for as a
purchase. At December 31, 1997, CNB had approximately $60 million in assets,
$26 million in net loans and $51 million in deposits. At the time of such
acquisition, BKLA issued 1,155,326 shares of BKLA Common Stock to former
shareholders of CNB. CNB's results of operations are included only since
January of fiscal 1998. Due to the relatively large size of this
transaction, any comparison of data as of and for the six months ended June
30, 1998 to data as of or for prior dates or periods may not be meaningful.
(5) On April 1, 1997, BKLA acquired AWB in a transaction accounted for as a
purchase. At April 1, 1997, AWB had approximately $67 million in assets, $37
million in net loans and $61 million in deposits. At the time of such
acquisition, BKLA issued 1,367,493 shares of BKLA Common Stock to former
shareholders of AWB. AWB's results of operations are included only since
April 1997. Due to the relatively large size of this transaction, any
comparison of data as of and for the six months ended June 30, 1998 and the
year ended December 31, 1997 to data as of or for prior dates or periods may
not be meaningful.
(6) On November 15, 1995, BKLA acquired WTB in a transaction accounted for as a
purchase. At November 15, 1995, WTB had approximately $42 million in assets,
$21 million in net loans and $40 million in deposits. At the time of such
acquisition, BKLA issued 346,325 shares of BKLA Common
27
<PAGE>
Stock to former shareholders of WTB. WTB's results of operations are
included only since November of fiscal 1995.
(7) On March 31, 1995, BKLA received a capital infusion of approximately $3.4
million for 946,352 shares of BKLA Common Stock and 473,176 warrants. On
November 30, 1995 as a result of a rights offering to all shareholders of
record at October 24, 1995, 651,325 shares of BKLA Common Stock and 217,160
warrants were issued for net proceeds of approximately $2.1 million. Each
warrant issued in both the capital infusion and the rights offering entitled
the holder to purchase one share of BKLA Common Stock for $3.75 and will
expire on December 1, 1998.
(8) In addition to a dividend of $0.15 per share declared in the third quarter
of 1997 and paid in the fourth quarter of 1997, a $0.15 dividend was
declared in the fourth quarter of 1997 and was paid in the first quarter of
1998.
28
<PAGE>
SELECTED HISTORICAL AND PRO FORMA PER SHARE DATA--ASSUMING CONSUMMATION OF THE
BKLA ACQUISITION AND THE MERGER
The following table sets forth for Western Common Stock and Peninsula Common
Stock certain selected historical and unaudited pro forma equivalent per share
data at June 30, 1998 and 1997 and for the six months ended June 30, 1998 and
1997, and at the end of and for each of the three years ended December 31, 1997,
giving effect to the Merger and the BKLA Acquisition using the
pooling-of-interests method of accounting. The information is derived from the
historical consolidated financial statements of Western and the historical
financial statements of BKLA and Peninsula, including the related notes thereto,
and the pro forma combined financial information giving effect to the BKLA
Acquisition and the Merger, including the related notes thereto, appearing
elsewhere herein. The information below should be read in conjunction with the
historical and pro forma combined financial information of Western, BKLA and
Peninsula, including the notes thereto, appearing elsewhere in this Proxy
Statement-Prospectus or incorporated herein by reference. See
"WESTERN--BKLA--PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
DATA", "WESTERN AND PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
DATA", "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "SUMMARY--Summary
Historical Financial Data--PENINSULA".
<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTHS FOR THE YEARS
ENDED JUNE 30, ENDED DECEMBER 31,
-------------------------- -------------------------------
1998 1997 1997 1996 1995
------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE (1):
Western..................................................... $ 0.78 $ 0.33 $ 0.30 $ 1.11 $ (0.28)
Peninsula................................................... 0.90 0.67 1.45 1.23 1.02
Western combined pro forma with BKLA and Peninsula.......... 0.76 0.35 0.59 1.09 0.14
Peninsula equivalent pro forma.............................. 0.90 0.41 0.70 1.29 0.17
DILUTED EARNINGS (LOSS) PER SHARE (1):
Western..................................................... 0.77 0.32 0.29 1.09 (0.28)
Peninsula................................................... 0.90 0.67 1.45 1.23 1.02
Western combined pro forma with BKLA and Peninsula.......... 0.74 0.35 0.58 1.07 0.14
Peninsula equivalent pro forma.............................. 0.87 0.41 0.68 1.26 0.17
DIVIDENDS PER SHARE:
Western dividends declared per share (2).................... 0.15 -- 0.30 -- --
Peninsula dividends declared per share...................... 0.23 0.14 0.28 0.26 0.24
Peninsula equivalent pro forma dividends declared per share
(3)....................................................... $ 0.18 $ -- $ 0.35 $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, AT DEC. 31,
1998 1997
----------- -----------
<S> <C> <C> <C> <C> <C>
BOOK VALUE PER SHARE (4):
Western..................................................... $ 18.41 $ 12.18
Peninsula................................................... 10.96 10.20
Western combined pro forma with BKLA and Peninsula.......... 16.29 11.13
Peninsula equivalent pro forma.............................. 19.21 13.12
TANGIBLE BOOK VALUE PER SHARE (4):
Western..................................................... 9.15 9.32
Peninsula................................................... 10.92 10.16
Western combined pro forma with BKLA and Peninsula.......... 9.02 8.81
Peninsula equivalent pro forma.............................. 10.63 10.39
</TABLE>
29
<PAGE>
- ------------------------
(1) The Western combined pro forma earnings per share amounts were calculated by
using aggregate historical income information divided by the average pro
forma shares outstanding of the combined entity. The average pro forma
shares outstanding of the combined entity were calculated by combining the
Western historical shares outstanding with the historical shares outstanding
of BKLA as adjusted by the BKLA conversion number of 0.4224 and the
historical shares outstanding of Peninsula as adjusted by an assumed
exchange ratio of 1.179, which is the Maximum Exchange Ratio. The Peninsula
equivalent pro forma earnings per share amounts were computed by multiplying
the Western combined pro forma amounts by an assumed exchange ratio of
1.179.
(2) In addition to a dividend of $0.15 per share declared in the third quarter
of 1997 and paid in the fourth quarter of 1997, a $0.15 dividend was
declared in the fourth quarter of 1997 and was paid in the first quarter of
1998.
(3) The Peninsula equivalent pro forma dividends declared per share amounts were
computed by multiplying the Western dividends declared per share by an
assumed exchange ratio of 1.179.
(4) The Western combined pro forma book value per share and tangible book value
per share amounts are based on the aggregate historical common shareholders'
equity of BKLA, Peninsula and Western divided by the total pro forma common
shares outstanding of the combined entity based on the BKLA conversion
number of 0.4224 and an assumed exchange ratio of 1.179. The Peninsula
equivalent pro forma book value per share and tangible book value per share
amounts at period end represent the Western combined pro forma amounts
multiplied by an assumed exchange ratio of 1.179.
30
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA--ASSUMING THE BKLA
ACQUISITION IS NOT CONSUMMATED
The following table sets forth certain summary unaudited pro forma combined
financial data for Western and Peninsula after giving effect to the Merger, as
if the Merger had occurred as of the beginning of each of the periods presented
and assuming the BKLA Acquisition is not consummated. This information should be
read in conjunction with the historical consolidated financial statements of
Western and the historical financial statements of Peninsula, including the
notes thereto, appearing elsewhere in this Proxy Statement-Prospectus or
incorporated herein by reference. See "WESTERN AND PENINSULA UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA", "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE" and "SUMMARY--Summary Historical Financial Data--PENINSULA".
The unaudited pro forma combined condensed balance sheet data are not
necessarily indicative of the actual financial position that would have existed
had the Merger been consummated on the dates indicated, or that may exist in the
future. The unaudited pro forma combined condensed results of operations data
are not necessarily indicative of the results that would have occurred had the
Merger been consummated on the dates indicated or that may be achieved in the
future. Assuming the consummation of the Merger, the actual financial position
and results of operations will differ, perhaps significantly, from the pro forma
amounts reflected herein because of a variety of factors, including changes in
value and changes in operating results between the dates of the unaudited pro
forma financial data and the date on which the Merger takes place.
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED AT OR FOR THE YEARS
JUNE 30,(1) ENDED DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996(2) 1995(3)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE
DATA)
RESULTS OF OPERATIONS:
Interest Income..................................... $ 87,587 $ 83,963 $ 174,851 $ 98,489 $ 84,538
Interest Expense.................................... 23,943 25,318 52,729 30,077 26,899
--------- --------- --------- --------- ---------
NET INTEREST INCOME............................... 63,644 58,645 122,122 68,412 57,639
Provision for loan and lease losses................. 519 1,725 3,298 1,584 9,034
--------- --------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND
LEASE LOSSES.................................... 63,126 56,920 118,824 66,828 48,605
Non-interest income................................. 10,924 10,603 21,084 13,520 10,965
Non-interest expense................................ 47,593 53,350 115,918 62,772 59,129
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES........................ 26,457 14,173 23,990 17,576 441
Income tax expense (benefit)........................ 12,840 8,245 16,028 5,533 (312)
--------- --------- --------- --------- ---------
NET INCOME........................................ $ 13,617 $ 5,928 $ 7,962 $ 12,043 $ 753
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Comprehensive income................................ $ 13,940 $ 5,163 $ 7,576 $ 11,725 $ 5,916
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
ENDING BALANCE SHEET DATA:
Assets.............................................. $2,447,421 $1,736,100 $1,804,155 $1,682,733 $1,185,259
Securities.......................................... 335,753 381,270 332,555 417,798 269,685
Loans and leases, net of deferred fees and unearned
income............................................ 1,517,838 1,072,021 1,115,290 1,029,959 733,875
Allowance for loan and lease losses................. 27,123 17,580 18,252 17,907 14,983
Goodwill and other intangible assets................ 145,633 31,759 30,528 32,981 4,142
Deposits............................................ 2,094,407 1,549,098 1,616,025 1,495,723 1,071,027
Borrowed funds...................................... 16,356 18,794 13,351 20,890 7,832
Common shareholders' equity......................... 310,289 155,396 148,896 151,461 97,626
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED AT OR FOR THE YEARS
JUNE 30,(1) ENDED DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996(2) 1995(3)
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA AND OTHER SELECTED RATIOS:
Earnings per share
Basic............................................. $ 0.73 $ 0.32 $ 0.43 $ 1.09 $ 0.08
Diluted........................................... 0.72 0.32 0.43 1.08 0.08
Dividends declared per share (4).................... 0.15 -- 0.30 -- --
Book value per share................................ 16.65 11.47 10.96 11.33 9.55
Tangible book value per share....................... 8.84 9.12 8.72 8.86 9.14
Shareholders' equity to assets at period end........ 12.68% 8.95% 8.25% 9.00% 8.24%
Tangible shareholders' equity to assets at period
end............................................... 7.15 7.25 6.67 7.18 7.92
Return on average assets............................ 1.11 0.50 0.32 0.91 0.07
Return on average equity............................ 8.86 3.92 2.59 10.65 0.86
Average equity/average assets....................... 12.50 12.71 12.43 8.53 7.81
Net interest margin................................. 6.10 5.91 5.91 5.82 5.77
</TABLE>
- ------------------------
(1) On January 27, 1998, Western acquired SMB in a transaction accounted for as
a purchase. At January 31, 1998, SMB had approximately $671 million in
assets, $388 million in net loans and $584 million in deposits. At the time
of the SMB Merger, Western issued approximately 2,653,000 shares of Western
Common Stock to certain former shareholders of SMB and also paid
approximately $114 million to the other former shareholders of SMB. Western
also raised approximately $65 million in additional equity in a private
placement by issuing 2,327,550 shares of Western Common Stock. SMB's results
of operations are included only since January 27, 1998. Due to the
relatively large size of this transaction, any comparison of data as of and
for the six months ended June 30, 1998 to data as of or for prior dates or
periods may not be meaningful.
(2) On September 30, 1996, Western acquired Western Bank in a transaction
accounted for as a purchase. At September 30, 1996, Western Bank had
approximately $410 million in assets, $198 million in net loans and $353
million in deposits. At the time of such acquisition, Western also raised
approximately $42 million in additional equity in a private placement by
issuing 3,076,045 shares of Western Common Stock. Western Bank's results of
operations are included only since the fourth quarter of fiscal 1996. Due to
the relatively large size of this transaction, any comparison of data as of
and for the year ended December 31, 1996 to data as of or for prior dates or
periods and to the year ended December 31, 1997 may not be meaningful.
(3) In 1995, Western, through a private placement and a separate shareholders'
rights and public offering, raised approximately $9 million in additional
equity, net of approximately $470,000 in offering costs, in connection with
the issuance of 874,589 shares of Western Common Stock. Also in 1995
Western, through a private placement of 474,000 shares, raised approximately
$3 million in additional equity in connection with the issuance of shares of
Western Common Stock.
(4) In addition to a dividend of $0.15 per share declared in the third quarter
of 1997 and paid in the fourth quarter of 1997, a $0.15 dividend was
declared in the fourth quarter of 1997 and was paid in the first quarter of
1998.
32
<PAGE>
SELECTED HISTORICAL AND PRO FORMA PER SHARE DATA--ASSUMING THE BKLA ACQUISITION
IS NOT CONSUMMATED
The following table sets forth for Western Common Stock and Peninsula Common
Stock certain selected historical and unaudited pro forma equivalent per share
data at June 30, 1998 and 1997 and for the six months ended June 30, 1998 and
1997, and at the end of and for each of the three years ended December 31, 1997,
giving effect to the Merger using the pooling-of-interests method of accounting
and assuming the BKLA Acquisition is not consummated. The information is derived
from the historical consolidated financial statements of Western and the
historical financial statements of Peninsula, including the related notes
thereto, and the pro forma combined financial information giving effect to the
Merger, including the related notes thereto, appearing elsewhere herein. The
information below should be read in conjunction with the historical and pro
forma combined financial information of Western and Peninsula, including the
notes thereto, appearing elsewhere in this Proxy Statement-Prospectus or
incorporated herein by reference. See "WESTERN AND PENINSULA UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA", "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE" and "SUMMARY--Summary Historical Financial Data--PENINSULA".
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
-------------------------- -------------------------------
1998 1997 1997 1996 1995
------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE (1):
Western..................................................... $ 0.78 $ 0.33 $ 0.30 $ 1.11 $ (0.28)
Peninsula................................................... 0.90 0.67 1.45 1.23 1.02
Western combined pro forma.................................. 0.73 0.32 0.43 1.09 0.08
Peninsula equivalent pro forma.............................. 0.86 0.38 0.51 1.29 0.09
DILUTED EARNINGS (LOSS) PER SHARE (1):
Western..................................................... 0.77 0.32 0.29 1.09 (0.28)
Peninsula................................................... 0.90 0.67 1.45 1.23 1.02
Western combined pro forma.................................. 0.72 0.32 0.43 1.08 0.08
Peninsula equivalent pro forma.............................. 0.85 0.38 0.51 1.27 0.09
DIVIDENDS PER SHARE:
Western dividends declared per share (2).................... 0.15 -- 0.30 -- --
Peninsula dividends declared per share...................... 0.23 0.14 0.28 0.26 0.24
Peninsula equivalent pro forma dividends declared per share
(3)....................................................... 0.18 -- 0.35 -- --
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, AT DEC 31,
1998 1997
----------- -----------
<S> <C> <C> <C> <C> <C>
BOOK VALUE PER SHARE (4):
Western......................................................... $ 18.41 $ 12.18
Peninsula....................................................... 10.96 10.20
Western combined pro forma...................................... 16.65 10.96
Peninsula equivalent pro forma.................................. 19.63 12.92
TANGIBLE BOOK VALUE PER SHARE (4):
Western......................................................... 9.15 9.32
Peninsula....................................................... 10.92 10.16
Western combined pro forma...................................... 8.84 8.72
Peninsula equivalent pro forma.................................. 10.42 10.28
</TABLE>
- ------------------------
(1) The Western combined pro forma earnings per share amounts were calculated by
using aggregate historical income information divided by the average pro
forma shares outstanding of the combined entity. The average pro forma
shares outstanding of the combined entity were calculated by combining
33
<PAGE>
the Western historical shares outstanding with the historical shares
outstanding of Peninsula as adjusted by an assumed exchange ratio of 1.179,
which is the Maximum Exchange Ratio. The Peninsula equivalent pro forma
earnings per share amounts were computed by multiplying the Western combined
pro forma amounts by an assumed exchange ratio of 1.179.
(2) In addition to a dividend of $0.15 per share declared in the third quarter
of 1997, and paid in the fourth quarter of 1997, a $0.15 dividend was
declared in the fourth quarter of 1997 and was paid in the first quarter of
1998.
(3) The Peninsula equivalent pro forma dividends declared per share amounts were
computed by multiplying the Western dividends declared per share by an
assumed exchange ratio of 1.179.
(4) The Western combined pro forma book value per share and tangible book value
per share amounts are based on the aggregate historical common shareholders'
equity of Peninsula and Western divided by the total pro forma common shares
outstanding of the combined entity based on an assumed exchange ratio of
1.179. The Peninsula equivalent pro forma book value per share and tangible
book value per share amounts at period end represent the Western pro forma
amounts multiplied by an assumed exchange ratio of 1.179.
34
<PAGE>
RISK FACTORS
IN ADDITION TO THE INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT-PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE, PENINSULA SHAREHOLDERS
CONSIDERING THE PROPOSAL TO APPROVE THE PRINCIPAL TERMS OF THE MERGER SHOULD
CAREFULLY CONSIDER THE FOLLOWING FACTORS, AMONG OTHERS, BEFORE MAKING ANY FINAL
DECISION.
FORWARD-LOOKING STATEMENTS MAY NOT PROVE ACCURATE
When used or incorporated by reference in this Proxy Statement-Prospectus,
the words "anticipate", "estimate", "expect", "project", "believe" and similar
words or expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks, uncertainties and assumptions including
those set forth below. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated, expected or projected.
Several key factors that have a direct bearing on Western's ability to attain
its goals are discussed below.
COMPETITION
The banking business in California generally, and in Western's and
Peninsula's service areas in particular, is highly competitive with respect to
both loans and deposits and is dominated by a relatively small number of major
financial institutions that have many offices operating throughout wide
geographic areas.
Western and Peninsula compete with other commercial banks, thrift
institutions, insurance companies, credit unions, thrift and loan associations,
money market mutual funds and brokerage firms in attracting and retaining
deposits. Competition for deposits from large commercial banks is particularly
strong. Many of the nation's thrift institutions and many large commercial banks
have a significant number of branch offices in the areas in which Western and
Peninsula operate.
In addition, there is strong competition in originating and purchasing real
estate and consumer loans, principally from other savings and loan associations,
commercial banks, mortgage banking companies, insurance companies, consumer
finance companies, pension funds and commercial finance companies. The primary
factors in competing for loans are the quality and extent of service to
borrowers and brokers, economic factors such as interest rates, interest rate
caps, rate adjustment provisions, loan maturities, loan-to-value ratios, loan
fees, and the amount of time it takes to process a loan from receipt of the loan
application to date of funding. Western's and Peninsula's future performance is
dependent on its ability to originate a sufficient volume of loans in its local
market areas. There can be no assurance that Western and Peninsula will be able
to effect such actions on satisfactory terms. Furthermore, certain of Western's
and Peninsula's competitors may be better able to respond to changing capital
and other regulatory requirements and better able to maintain or improve market
share.
ABILITY TO INTEGRATE THE OPERATIONS OF WESTERN AND PENINSULA; RAPID GROWTH
Because the markets in which Western and Peninsula operate are highly
competitive and because of the inherent uncertainties associated with the
integration of an acquired company, there can be no assurance that the Surviving
Bank will be able to realize fully the operating efficiencies Western currently
expects to realize as a result of the Merger and the integration of the
administrative operations of Peninsula into Western's operational structure or
that such operating efficiencies will be realized in the time frame currently
anticipated. See "THE MERGER--Background and Reasons for the Merger".
Western has experienced rapid growth in total assets, primarily due to
several recent acquisitions. In the first of such acquisitions, Western acquired
Western Bank on September 30, 1996, thereby increasing its total assets as of
September 30, 1996, from approximately $80 million to approximately $490
million, an increase of 513%. In June 1997, Western merged with CCB, thereby
acquiring NBSC and increasing
35
<PAGE>
Western's total assets from approximately $512 million at December 31, 1996 to
approximately $860 million at June 30, 1997, an increase of 68%. As a result of
the SCB Merger, which was consummated on October 10, 1997, Western's total
assets increased from approximately $867 million at September 30, 1997 to $1.38
billion at December 31, 1997, an increase of 60%. Following the SMB Merger, as
of March 31, 1998, Western's total assets increased to $2.08 billion, an
increase of approximately $700 million or 51% from $1.38 billion at December 31,
1997. Following the consummation of the BKLA Acquisition, Western's total assets
would increase from approximately $2.02 billion at June 30, 1998 to
approximately $2.31 billion, an increase of approximately $291 million or 15%.
Assuming consummation of the Merger, Western's total assets would equal $2.74
billion, an increase of approximately $431 million or 19% over Western's assets,
assuming consummation of the BKLA Acquisition, of $2.31 billion at June 30,
1998. The ability of Western to operate effectively following this rapid growth
will depend in part on its ability to integrate the operations of the recently
acquired entities and its ability to attract and retain key personnel. If the
integration of Western Bank, CCB, SCB, SMB, BKLA and Peninsula does not proceed
as anticipated, the results of operations of Western could be adversely
affected. Also, there can be no assurance that Western will be able to realize
the operating efficiencies that Western Management expects to achieve through
the acquisition of Western Bank, the CCB Merger, the SCB Merger, the SMB Merger,
the BKLA Acquisition and the Merger. There can be no assurance that the BKLA
Acquisition will be consummated.
In addition, due to the substantial size of these acquisitions, any
comparison of financial data as of and for the time periods prior to such
acquisitions may not be meaningful.
GENERAL BUSINESS RISK
The businesses of Western and Peninsula are subject to various business
risks. The volume of loan originations is dependent upon demand for loans of the
type originated and serviced by Western and Peninsula and the competition in the
marketplace for such loans. The level of consumer confidence, fluctuations in
real estate values, fluctuations in prevailing interest rates and fluctuations
in investment returns expected by the financial community could combine to make
loans of the type originated by Western and Peninsula less attractive. In
addition, Western and Peninsula may be adversely affected by other factors that
could (a) increase the cost to the borrower of loans originated by Western and
Peninsula, (b) create alternative lending sources for such borrowers or (c)
increase the cost of funds of Western and Peninsula at rates faster than any
increase in interest income, thereby narrowing their net interest rate margins.
Although both Western and Peninsula also have seen continued improvement in loan
demand consistent with overall market growth during the continued recovery of
the Southern California economy, the increase in demand to date has not been
sufficient to permit either Western or Peninsula to utilize fully deposits to
fund loans, and accordingly each has maintained a significant portion of its
funds in securities and federal funds sold. In addition, the lending environment
is highly competitive, and some lenders have shown a willingness to lend on
terms that Western and Peninsula Managements are unwilling to match due to their
credit philosophies. Management of each of Western and Peninsula believe that
loan demand will remain robust, but there can be no assurance that there will be
sufficient loan demand in the future to keep pace with the level of deposits
such that the asset mix desired by Western and Peninsula can be achieved and
maintained. Governmental interventions through elimination of tax benefits for
home equity loans, regulation of an increased scope of loans or introduction of
additional regulations aimed at mortgage loans could also adversely affect the
business in which Western and Peninsula are engaged.
In the ordinary course of business, Western and Peninsula are subject to
claims made against them by borrowers, depositors and investors arising from,
among other things, losses that are claimed to have been incurred as a result of
(a) alleged breaches of fiduciary obligation, (b) alleged misrepresentations,
errors or omissions by employees and officers (including appraisers), (c)
alleged incomplete documentation or (d) alleged failure by Western or Peninsula
to comply with applicable laws and regulations. Western believes that any
liability with respect to any currently asserted claims or legal actions against
Western or
36
<PAGE>
Peninsula is not likely to be material to the consolidated financial position or
results of operations of Western or the financial position or results of
operations of the Surviving Bank; however, any claims asserted in the future may
result in legal expense or liabilities that could have a material adverse effect
on the financial positions and results of operations of Western or the Surviving
Bank.
CONCENTRATION OF OPERATIONS; RECESSIONARY ENVIRONMENTS; DECLINE IN REAL ESTATE
VALUES
The business activities of Western and Peninsula currently are focused in
Southern California, with the majority of their business concentrated in Los
Angeles, Orange and San Diego counties. The business of Western after the Merger
is expected to continue to be concentrated in Southern California for the
foreseeable future. Although Western intends to expand within Southern
California, there can be no assurance when or if such expansion will take place.
Consequently, the results of operations and financial condition of Western and
Peninsula are dependent upon general trends in Los Angeles, Orange and San Diego
counties and Southern California economies and residential and commercial real
estate markets. The risks to which the business of Western and Peninsula are
subject, and to which the business of Western after the Merger will be subject,
become more acute during an economic slow-down or recession such as that
experienced during the recent California recession. During such periods,
delinquencies and foreclosures generally increase and can result in increased
numbers of, and larger, claims and legal actions and in a decline in demand for
the services provided by Western and Peninsula. In addition, a significant
decline in market values of properties of the type that secure loans originated
by Western and Peninsula would reduce homeowners' equity in their homes and
businesses' equity in their properties, thereby reducing their borrowing power
and also weakening collateral coverage on loans made previously by Western and
Peninsula. Such a decline could also diminish the market for loans originated by
Western and Peninsula. Any of the foregoing could have a material adverse effect
on the financial position and results of operations of Western and the Surviving
Bank, and could have a greater adverse impact on Western and the Surviving Bank
than on certain competitors that may have greater resources and capital. In
addition, the concentration of Western's operations in Los Angeles, Orange and
San Diego counties exposes it to greater risk than other banking companies with
a wider geographic base in the event of catastrophes, such as earthquakes, fires
and floods, in this region.
INTEREST RATE RISK
It is expected that Western, through its subsidiaries, including the
Surviving Bank, will continue to realize income primarily from the differential
or "spread" between the interest earned on loans, securities and other
interest-earning assets, and interest paid on deposits, borrowings and other
interest-bearing liabilities. Net interest spreads are affected by the
difference between the maturities and repricing characteristics of
interest-earning assets and interest-bearing liabilities. In addition, loan
volume and yields are affected by market interest rates on loans, and rising
interest rates generally are associated with a lower volume of loan
originations. There can be no assurance that Western's interest rate risk will
be minimized or eliminated. In addition, an increase in the general level of
interest rates may adversely affect the ability of certain borrowers to pay the
interest on and principal of their obligations. Accordingly, changes in levels
of market interest rates could materially adversely affect Western's net
interest spread, asset quality, loan origination volume and overall results of
operation.
SHARES ELIGIBLE FOR FUTURE SALE; DILUTION
Shares of Western Common Stock eligible for future sale could have a
dilutive effect on the market for Western Common Stock and could adversely
affect market prices.
As of the Peninsula Record Date, the Restated Articles of Incorporation of
Western authorized 100,000,000 shares of Western Common Stock, of which
15,708,087 shares were outstanding. Assuming an exchange ratio of 1.179, which
is the Maximum Exchange Ratio, approximately 2,932,002 additional shares of
Western Common Stock will be issued in the Merger to Peninsula Shareholders,
assuming (i) no
37
<PAGE>
additional shares of Peninsula Common Stock reserved for issuance on the
Peninsula Record Date are issued on or prior to the Effective Date; (ii) no
Dissenters' Rights are perfected by Peninsula Shareholders; and (iii) no cash is
paid in lieu of fractional shares. Pursuant to its stock option plans, Western
had outstanding options to purchase an additional 412,289 shares of Western
Common Stock on the Peninsula Record Date with exercise prices of between $5.25
and $43.00. Western also had outstanding warrants to purchase an additional
140,675 shares of Western Common Stock with exercise prices of between $13.77
and $16.83. In addition, if the BKLA Acquisition is consummated, Western will
assume outstanding warrants of BKLA which will permit the holders of such
warrants to purchase an additional 214,146 shares of Western Common Stock with
an exercise price of $8.88. As of the Peninsula Record Date, Peninsula had no
outstanding securities or obligations convertible into or exercisable or
exchangeable for Peninsula Common Stock. See "THE MERGER AGREEMENT--The Merger".
It is Western's intention to pursue acquisitions of other financial
institutions from time to time where such acquisitions are believed by Western
to enhance shareholder value or satisfy other strategic objectives. Such
acquisitions, if any, could be accomplished by the issuance of additional shares
of Western Common Stock or other securities convertible into or exercisable for
Western Common Stock.
In addition, in an action pending in the United States District Court for
the Central District of California, Financial Institution Partners, L.P. and
Hovde Capital, Inc., as a purported assignee of Financial Institution Partners,
L.P. (collectively "FIP"), have asserted an alleged contractual right to
purchase 266,659 additional shares of common stock of CCB at a price of $6.75
per share and to an ongoing right of first refusal to maintain FIP's beneficial
ownership interest in CCB and/or Western. In an order dated June 30, 1998, the
Court dismissed FIP's claims to an ongoing right of first refusal in CCB and/ or
Western stock. Western Management considers FIP's remaining claims for damages
based upon the 266,659 additional shares of CCB common stock that FIP did not
purchase to be without merit.
REGULATION
The operations of Western and Peninsula are subject to extensive regulation
by federal, state and local governmental authorities and are subject to various
laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of their respective operations. Western and
Peninsula each believes that it is in substantial compliance in all material
respects with applicable federal, state and local laws, rules and regulations.
Because the business of each of Western and Peninsula is highly regulated, the
laws, rules and regulations applicable to Western and Peninsula are subject to
regular modification and change. There are currently proposed various laws,
rules and regulations that, if adopted, would impact Western and the Surviving
Bank. There can be no assurance that these proposed laws, rules and regulations,
or other such laws, rules or regulations, will not be adopted in the future,
which could make compliance much more difficult or expensive, restrict Western's
and Peninsula's ability to originate, broker or sell loans, further limit or
restrict the amount of commissions, interest or other charges earned on loans
originated or sold by Western or Peninsula or otherwise adversely affect the
business or prospects of Western or Peninsula.
LIMITED MARKET FOR WESTERN COMMON STOCK
There is currently only a limited trading market for Western Common Stock.
Western Common Stock was designated for quotation on Nasdaq on June 3, 1997.
There can be no assurance that an active trading market for Western Common Stock
will develop, or if developed, will continue, or that shareholders of Western
after the Merger will be able to resell their securities or otherwise liquidate
their investment, if at all, without considerable delay or considerable impact
on the sales price. See "SUMMARY--Markets and Market Prices".
There can be no assurance as to the market value of Western Common Stock,
which market value may be significantly affected by various factors, including
but not limited to announcements of expanded
38
<PAGE>
services by Western or its competitors, acquisitions of related companies and
variations in quarterly operating results, as well as by the dilutive effects of
the matters described above in "--Shares Eligible for Future Sale; Dilution".
The limited trading market for Western Common Stock may cause fluctuations in
the market value of Western Common Stock to be exaggerated, leading to price
volatility in excess of that which would occur in a more active trading market.
YEAR 2000 RISKS AND PREPAREDNESS
Many existing computer programs use only two digits to identify a year in a
data field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000 or
possibly earlier. The Year 2000 issue affects Western in that the financial
services business is highly dependent on computer applications in a variety of
ways, including the following: (i) Western relies on computer systems in almost
all aspects of its business, including the processing of deposits, loans and
other services and products offered to customers, the failure of which in
connection with the Year 2000 could cause systemic disruptions and failures in
the products and services offered by Western; (ii) other banks, clearing houses
and vendors whose products and services Western uses are at risk of systemic
disruptions and potential failures in the event that such entities have not
adequately addressed their Year 2000 issues prior to the Year 2000; (iii) the
creditworthiness of borrowers of Western might be diminished by significant
disruptions of their business as result of their own or others' failure to
address adequately the Year 2000 issue prior to the Year 2000; and (iv) federal
banking agencies have issued interagency guidance on the business-wide risk
posed to financial institutions by the Year 2000 problem pursuant to which the
federal banking agencies may take supervisory action against financial
institutions that fail to address appropriately Year 2000 issues prior to the
Year 2000, including formal and informal enforcement actions, denial of
applications to the federal banking agencies, civil money penalties and a
reduction in the management component rating of the institution's composite
rating.
In order to address the Year 2000 issues facing Western, Western Management
has initiated a program to prepare Western's computer systems and applications
for the Year 2000 (the "Year 2000 Plan"). The primary focus of the Year 2000
Plan is to convert each of Western's subsidiary banks to the target systems
identified and believed to be Year 2000 compliant. Western expects to incur
internal staff costs as well as consulting and other expenses related to
infrastructure and facilities enhancements necessary to prepare for conversion
and Year 2000 system preparations. Testing and conversion of primary system
applications and hardware is expected to cost approximately $1,100,000, to be
expended during fiscal years 1998 and 1999. This cost estimate does not include
costs associated with infrastructure and facilities enhancements required in
connection with operational consolidations due to the acquisition of Western
Bank, the CCB Merger, the SCB Merger, the SMB Merger, the BKLA Acquisition and
the Merger. A significant portion of the cost to Western in connection with
becoming Year 2000 compliant is expected to be the redeployment of existing
technology and operations resources rather than incremental costs to Western.
As a part of the Year 2000 Plan, Western is not only undertaking the
infrastructure and facilities enhancement and testing necessary to ensure that
Western is adequately prepared for the Year 2000, but Western is also
communicating with its vendors upon whose services Western relies to ensure Year
2000 compliance. Pursuant to the Year 2000 Plan, Western expects to
substantially complete testing of its mission-critical systems and the
computer-related interactive vendor systems by December 31, 1998 and to complete
all testing by June 1999. In addition, as part of the credit review process,
Western is communicating with its major borrowers in an effort to ensure that
such borrowers have taken appropriate steps to address their Year 2000 issues
and will not be materially affected by any Year 2000 problems. Western is
communicating with its major deposit customers as well. Western is also
preparing contingency plans to protect Western in the event that Western is
unable to attain Year 2000 compliance in certain applications according to the
Year 2000 Plan. The contingency plans being prepared are system and application
specific
39
<PAGE>
and are intended to ensure that in the event that one or more of such systems
and/or applications fails by or at the Year 2000, Western will be able to engage
in its core business functions in spite of such failure.
Although Western believes that its Year 2000 Plan and other steps being
taken are adequate to ensure that it will not be materially affected by the Year
2000 problem, there can be no assurance that the Year 2000 Plan and Western's
other Year 2000 remedial and contingency plans will fully protect Western from
the risks associated with the Year 2000. The analysis of, and preparation for,
the Year 2000 and related problems necessarily rely on a variety of assumptions
about future events, and there can be no assurance that Western Management has
accurately predicted such future events or that the remedial and contingency
plans of Western will adequately address such future events. In the event that
the business of Western, vendors of Western or customers of Western is disrupted
as a result of the Year 2000 problem, such disruption could have a material
adverse effect on Western.
40
<PAGE>
INFORMATION REGARDING WESTERN
BUSINESS OF WESTERN
Western is a bank holding company registered under the BHCA, and its
principal business is to serve as a holding company for its banking
subsidiaries, SCB and SMB. Western was organized on May 20, 1983 as a California
corporation and commenced operation as a bank holding company on June 18, 1984.
In September 1996, Western acquired Western Bank. In June 1997, Western
consummated the CCB Merger pursuant to which CCB merged with and into Western.
Also in June 1997, Monarch Bank, a wholly owned subsidiary of Western prior to
the CCB Merger, merged with and into NBSC, a wholly owned subsidiary of CCB
prior to the CCB Merger. In October 1997, Western consummated the SCB Merger
pursuant to which SCB merged with and into Western. In December 1997, Western
merged NBSC with and into SCB, a wholly-owned subsidiary of SC Bancorp prior to
the SCB Merger, with SCB being the surviving bank. In January 1998 Western
consummated the SMB Merger pursuant to which SMB merged with and into Western
Bank with Western Bank being the surviving bank. As part of the SMB Merger, the
name of Western Bank was changed to "Santa Monica Bank". On April 16, 1998
Western entered into a definitive agreement with BKLA in which BKLA will merge
with and into SMB. The closing of the BKLA Acquisition has been rescheduled from
September 30, 1998 to October 30, 1998 or sooner, to allow the parties involved
to more fully evaluate a lawsuit pending against BKLA.
Western, through its subsidiaries, SMB and SCB, primarily serves the Los
Angeles County, Orange County and surrounding markets. SMB's primary market area
is the western part of Los Angeles County. As of June 30, 1998 SMB had 13 branch
offices, including branch offices in Santa Monica, Westwood, Malibu, Pacific
Palisades, Marina Del Rey, Beverly Hills, Century City and Encino. If the BKLA
Acquisition is consummated, three additional branch offices will be maintained:
one in each of West Hollywood, Culver City, and Glendale under the name "Santa
Monica Bank". If the BKLA Acquisition is consummated, SMB intends to consolidate
three of BKLA's six branches into three existing SMB branches. SCB's primary
market area includes southern Los Angeles County, Orange County and northern San
Diego County. As of June 30, 1998, SCB had six branch offices in southern Los
Angeles County, nine branch offices throughout Orange County and one in northern
San Diego County. SMB and SCB each offer a broad range of banking products and
services, including many types of business and personal savings and checking
accounts and other consumer banking services. In addition, SMB offers trust
services.
At June 30, 1998, Western had consolidated total assets, total deposits and
shareholders' equity of $2.0 billion, $1.7 billion and $289 million,
respectively. Western's principal executive offices are located at 4100 Newport
Place, Suite 900, Newport Beach, California 92660, and its telephone number is
(949) 863-2444.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Additional information relating to Western, including information relating
to the business, management, properties, financial condition and results of
operations of Western, is included in documents incorporated by reference into
this Proxy Statement-Prospectus. See "AVAILABLE INFORMATION" and "INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE".
41
<PAGE>
INFORMATION REGARDING PENINSULA
BUSINESS OF PENINSULA
Peninsula is a California state chartered bank which was licensed by the
State Commissioner and commenced operation on March 7, 1975. Peninsula
originally opened for business at 1322 Scott Street in San Diego, California. In
February 1977, Peninsula opened its second branch in Ocean Beach. The current
main office location at 1331 Rosecrans Street was opened in December 1978. In
March 1980, Peninsula opened its third branch on Morena Boulevard. The fourth
branch was opened in September 1989 in Pt. Loma. On May 12, 1992, Peninsula
consummated the purchase of Citizens Western Bank and added $24.1 million in
total assets and deposits of $22.2 million. This gave Peninsula two more
branches, one in Pacific Beach and one in La Jolla. On April 15, 1993, Peninsula
acquired the deposits of First Western Bank from the FDIC. Deposits of First
Western Bank totaled $13.8 million. In August 1993, Peninsula opened a branch in
Fairbanks Ranch and followed in February 1994 with another branch in Mission
Hills. The Downtown branch was opened in March 1996 and the tenth branch in San
Marcos in July 1997.
As a California state bank, Peninsula is subject to primary supervision,
examination and regulation by the State Commissioner and the FDIC. Peninsula is
also subject to certain other federal laws and regulations. The deposits of
Peninsula are insured by the FDIC up to the applicable limits thereof. Peninsula
is not a member of the Federal Reserve System. At June 30, 1998, Peninsula had
approximately $428.3 million in assets, $243.2 million in loans, net of deferred
fees and costs, $397.1 million in deposits and $27.3 million in shareholders'
equity.
Peninsula's principal executive offices are located at 1322 Scott Street,
Suite 203 in San Diego, California 92106, and its telephone number is (619)
226-5451.
BANKING SERVICES
Peninsula is engaged in substantially all of the business operations
customarily conducted by a California independent community bank. Peninsula's
primary market area is San Diego County, which it principally services from its
10 banking offices located in the coastal region. Peninsula's banking services
include the acceptance of checking and savings deposits and the making of
commercial, Small Business Administration guaranteed, real estate, consumer and
other installment loans. Peninsula also offers traveler's checks, as well as
notary public, trust, escrow, alternative investments, and a full range of
electronic and other customary banking services.
Peninsula's deposits consist primarily of individual and small and
medium-sized business-related accounts. Peninsula also attracts deposits from
several local governmental agencies. In connection with municipal deposits,
Peninsula must generally pledge securities to obtain such deposits, except for
the first $100,000 of such deposits which are insured by the FDIC.
The areas in which Peninsula has directed virtually all of its lending
activities are (i) commercial loans, (ii) consumer loans and (iii) real estate
loans or other commercial loans secured by real estate. As of June 30, 1998,
these three categories accounted for approximately 17%, 20% and 63%,
respectively, of Peninsula's loan portfolio. A significant portion of
Peninsula's lending is real estate related, including mortgage lending and
interim construction loans, as well as taking real estate as collateral for
loans for other purposes.
The principal sources of Peninsula's revenues are (i) interest and fees on
loans, (ii) interest on investments, (iii) service charges on deposit accounts
and other charges and fees and (iv) interest on federal funds sold (funds loaned
on a short-term basis to other banks). For the year ended June 30, 1998, these
sources comprised 63%, 20%, 14% and 3%, respectively, of Peninsula's total
operating income.
Peninsula has not engaged in any material research activities relating to
the development of new services or the improvement of existing Peninsula
services. Peninsula has no present plans regarding "a new line of business"
requiring the investment of a material amount of total assets.
Most of Peninsula's business originates from San Diego County and there is
no emphasis on foreign sources and application of funds. Peninsula's business,
based upon performance to date, does not appear
42
<PAGE>
to be seasonal. Except as described above, a material portion of Peninsula's
loans is not concentrated within a single industry or group of related
industries, nor is Peninsula dependent upon a single customer or group of
related customers for a material portion of its deposits. Management of
Peninsula is unaware of any material effect upon Peninsula's capital
expenditures, earnings or competitive position as a result of federal, state or
local environmental regulation.
EMPLOYEES
As of June 30, 1998, Peninsula had a total of 216 full-time employees and 17
part-time employees (or 225 full time equivalent employees). Peninsula
Management believes that its employee relations are satisfactory.
COMPETITION
The banking and financial services business in California generally, and in
Peninsula's market areas specifically, is highly competitive. The increasingly
competitive environment is a result primarily of changes in regulation, changes
in technology and product delivery systems, and the accelerating pace of
consolidation among financial service providers. Peninsula competes for loans
and deposits and customers for financial services with other commercial banks,
savings and loan associations, securities and brokerage companies, mortgage
companies, insurance companies, finance companies, money market funds, credit
unions and other nonbank financial service providers. Many of these competitors
are much larger in total assets and capitalization, have greater access to
capital markets and offer a broader array of financial services than Peninsula.
In order to compete with the other financial service providers, Peninsula
principally relies upon local promotional activities, personal relationships
established by officers, directors and employees with its customers and
specialized services tailored to meet its customers' needs. Peninsula maintains
10 full service-banking offices in San Diego County. See "RISK
FACTORS--Competition".
EFFECT OF GOVERNMENTAL POLICIES AND RECENT LEGISLATION
Banking is a business that depends on rate differentials. In general, the
difference between the interest rate paid by Peninsula on its deposits and its
other borrowings and the interest rate received by Peninsula on loans extended
to its customers and securities held in Peninsula's portfolio comprise the major
portion of Peninsula's earnings. These rates are highly sensitive to many
factors that are beyond the control of Peninsula. Accordingly, the earnings and
growth of Peninsula are subject to the influence of domestic and foreign
economic conditions, including inflation, recession and unemployment.
The commercial banking business is not only affected by general economic
conditions but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory agencies, particularly the
Federal Reserve Board. The Federal Reserve Board implements national monetary
policies (with objectives such as curbing inflation and combating recession) by
its open-market operations in U.S. Government securities, by adjusting the
required level of reserves for financial institutions subject to its reserve
requirements and by varying the discount rates applicable to borrowings by
depository institutions. The actions of the Federal Reserve Board in these areas
influence the growth of Peninsula's loans, investments and deposits and also
affect interest rates charged on loans and paid on deposits. The nature and
impact of any future changes in monetary policies cannot be predicted.
From time to time, legislation is enacted which has the effect of increasing
the cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
institutions. Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and other financial
institutions are frequently made in Congress, in the California legislature and
before various bank regulatory and other professional agencies. For example,
legislation has been introduced in Congress that would repeal the current
statutory restrictions on affiliations between commercial banks and securities
firms.
43
<PAGE>
PROPERTIES
Peninsula's principal executive offices are located at 1322 Scott Street,
San Diego, California. In total, as of June 30, 1998, Peninsula had 10 branch
offices and eight other properties. Of this total, seven of the properties were
owned and 11 were leased.
<TABLE>
<CAPTION>
OWNED PROPERTIES LEASED PROPERTIES
- ------------------------------------- ------------------------------------------------------
<S> <C>
1322 Scott Street 1331 Rosecrans Street
San Diego, CA* San Diego, CA (Ground Lease)
4827 Newport Street 4805 Newport Street
Ocean Beach, CA Ocean Beach, CA (Drive-up)*
4939 Newport Street 5330 Napa Street
Ocean Beach, CA* San Diego, CA
2170 Chatsworth 2150 Chatsworth
Loma Portal, CA* Loma Portal, CA
5280 Riley Street 1606 Grand Avenue
San Diego, CA* Pacific Beach, CA (Ground Lease)
2110 Hancock Street 16326 San Diequito
San Diego, CA* Fairbanks, CA
833 Pearl Street 550 W. "C" Street
LaJolla, CA San Diego, CA
2919 Camino Del Rio
San Diego, CA* (Ground Lease)
190 So. Rancho Santa Fe
San Marcos, CA
1313 Rosecrans St.
San Diego, CA*
610 W. Washington
Mission Hills, CA
</TABLE>
- ------------------------
* Non-branch property.
See the Notes to the Peninsula Financial Statements for the Years Ended
December 31, 1997, 1996 and 1995 appearing elsewhere herein for certain
additional information concerning the amount of Peninsula's lease commitments.
LEGAL PROCEEDINGS
Peninsula is, from time to time, subject to various pending and threatened
legal actions which arise out of the normal course of doing business. Peninsula
is not a party to any pending legal or administrative proceedings (other than
ordinary routine litigation incidental to Peninsula's business) and no such
proceedings are known to be contemplated.
There are no material proceedings adverse to Peninsula to which any
director, officer, affiliate or 5% shareholder of Peninsula, or any associate of
any such director, officer, affiliate or shareholder of Peninsula is a party,
and none of the above persons has a material interest adverse to Peninsula.
44
<PAGE>
WESTERN--BKLA--PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
PRO FORMA EFFECT OF THE PENINSULA MERGER ASSUMING CONSUMMATION OF THE BKLA
ACQUISITION
The following unaudited pro forma combined condensed financial data combines
the historical consolidated condensed financial statements of (i) Western and
BKLA after giving effect to the BKLA Acquisition and (ii) Western, BKLA and
Peninsula after giving effect to the BKLA Acquisition and the Merger, in each
case as if they had been effective on June 30, 1998 and December 31, 1997, with
respect to the Pro Forma Combined Condensed Balance Sheets, and as of the
beginning of the periods indicated, with respect to the Pro Forma Combined
Condensed Statements of Income. This information is presented under the
pooling-of-interests accounting method. The unaudited pro forma combined
condensed financial data also combines the historical condensed statements of
income of SMB acquired by Western on January 27, 1998, in a merger accounted for
under the purchase method of accounting, for the year ended December 31, 1997
and the six months ended June 30, 1998 and 1997, as if the SMB Merger occurred
at the beginning of such periods. The information for the six months ended June
30, 1998 and 1997 is derived from the unaudited financial statements of Western,
BKLA, SMB and Peninsula, which includes, in the opinion of the respective
managements of Western, BKLA, SMB and Peninsula, all adjustments (consisting
only of normal accruals) necessary to present fairly the data for such periods.
This information should be read in conjunction with the historical consolidated
financial statements of Western, BKLA, SMB and Peninsula, including their
respective notes thereto, which are included and/or incorporated by reference
into this Proxy Statement-Prospectus, and in conjunction with the combined
condensed historical selected financial data and other pro forma combined
financial information, including the notes thereto, appearing elsewhere in this
Proxy Statement-Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE". The effect of estimated merger and reorganization costs expected to
be incurred in connection with the BKLA Acquisition and the Merger have been
reflected in the Unaudited Pro Forma Combined Condensed Balance Sheets; however,
since the estimated costs are nonrecurring, they have not been reflected in the
Unaudited Pro Forma Combined Condensed Statements of Income. See "NOTES TO
WESTERN--BKLA--PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
ASSUMING CONSUMMATION OF THE BKLA ACQUISITION--NOTE 2". The unaudited pro forma
combined condensed financial data does not give effect to any anticipated
operating efficiencies which may occur in conjunction with the BKLA Acquisition
and the Merger. The Unaudited Pro Forma Combined Condensed Balance Sheets are
not necessarily indicative of the actual financial position that would have
existed had the BKLA Acquisition or the Merger been consummated on June 30, 1998
or December 31, 1997, or that may exist in the future. The Unaudited Pro Forma
Combined Condensed Statements of Income are not necessarily indicative of the
results that would have occurred had the BKLA Acquisition and the Merger been
consummated on the dates indicated or that may be achieved in the future.
Assuming the consummation of the BKLA Acquisition and the Merger, the actual
financial position and results of operations will differ, perhaps significantly,
from the pro forma amounts reflected herein because of a variety of factors,
including changes in value and changes in operating results between the dates of
the unaudited pro forma financial data and the dates on which the BKLA
Acquisition and the Merger take place. See "RISK FACTORS".
45
<PAGE>
WESTERN--BKLA--PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AT
JUNE 30, 1998
<TABLE>
<CAPTION>
WESTERN
WESTERN BKLA PRO FORMA AND BKLA
(HISTORICAL) (HISTORICAL)(1) ADJUSTMENTS(2) PRO FORMA
----------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS:
Cash and due from banks........................................ $ 155,940 $ 20,682 $ -- $ 176,622
Federal funds sold............................................. 177,329 14,000 -- 191,329
----------- ------------- -------------- -----------
TOTAL CASH AND CASH EQUIVALENTS.......................... 333,269 34,682 -- 367,951
Federal Reserve Bank and Federal Home Loan Bank stock, at
cost......................................................... 5,759 1,491 -- 7,250
Securities held to maturity.................................... -- 87,188 -- 87,188
Securities available for sale.................................. 218,376 -- -- 218,376
----------- ------------- -------------- -----------
TOTAL SECURITIES......................................... 224,135 88,679 -- 312,814
Net loans...................................................... 1,249,930 150,962 -- 1,400,892
Property, plant and equipment.................................. 32,034 2,519 -- 34,553
Other real estate owned........................................ 4,946 1,545 -- 6,491
Goodwill and other intangible assets........................... 145,525 5,504 -- 151,029
Other assets................................................... 26,910 5,877 1,680 34,467
----------- ------------- -------------- -----------
TOTAL ASSETS............................................. $2,016,749 $ 289,768 $ 1,680 $2,308,197
----------- ------------- -------------- -----------
----------- ------------- -------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing deposits.................................. $ 637,837 $ 86,876 $ -- $ 724,713
Interest bearing deposits...................................... 1,059,515 155,676 -- 1,215,191
----------- ------------- -------------- -----------
TOTAL DEPOSITS........................................... 1,697,352 242,552 -- 1,939,904
Borrowed funds................................................. 15,756 12,873 -- 28,629
Accrued interest payable and other liabilities................. 14,495 792 7,080 22,367
----------- ------------- -------------- -----------
TOTAL LIABILITIES........................................ 1,727,603 256,217 7,080 1,990,900
SHAREHOLDERS' EQUITY:
Preferred stock................................................ -- -- -- --
Common stock and additional paid in capital.................... 263,257 31,042 -- 294,299
Retained earnings.............................................. 25,819 2,509 (5,400) 22,928
Other comprehensive income (loss).............................. 70 -- -- 70
----------- ------------- -------------- -----------
TOTAL SHAREHOLDERS' EQUITY............................... 289,146 33,551 (5,400) 317,297
----------- ------------- -------------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $2,016,749 $ 289,768 $ 1,680 $2,308,197
----------- ------------- -------------- -----------
----------- ------------- -------------- -----------
Number of common shares outstanding (1)........................ 15,703.8 4,856.2 17,843.4
Common shareholders' equity per share (1)...................... $ 18.41 $ 6.91 $ 17.78
Tangible common shareholders' equity per share (1)............. $ 9.15 $ 5.78 $ 9.32
<CAPTION>
WESTERN,
BKLA AND
PENINSULA PRO FORMA PENINSULA
(HISTORICAL)(1) ADJUSTMENTS(2) PRO FORMA
------------- --------------- -----------
<S> <C> <C> <C>
ASSETS:
Cash and due from banks........................................ $ 33,093 $ -- $ 209,715
Federal funds sold............................................. 19,500 -- 210,829
------------- ------- -----------
TOTAL CASH AND CASH EQUIVALENTS.......................... 52,593 -- 420,544
Federal Reserve Bank and Federal Home Loan Bank stock, at
cost......................................................... 1,254 -- 8,504
Securities held to maturity.................................... 82,341 -- 169,529
Securities available for sale.................................. 28,023 -- 246,399
------------- ------- -----------
TOTAL SECURITIES......................................... 111,618 -- 424,432
Net loans...................................................... 240,785 -- 1,641,677
Property, plant and equipment.................................. 11,907 -- 46,460
Other real estate owned........................................ -- -- 6,491
Goodwill and other intangible assets........................... 108 -- 151,137
Other assets................................................... 11,261 2,400 48,128
------------- ------- -----------
TOTAL ASSETS............................................. $ 428,272 $ 2,400 $2,738,869
------------- ------- -----------
------------- ------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing deposits.................................. $ 143,342 $ -- $ 868,055
Interest bearing deposits...................................... 253,713 -- 1,468,904
------------- ------- -----------
TOTAL DEPOSITS........................................... 397,055 -- 2,336,959
Borrowed funds................................................. 600 -- 29,229
Accrued interest payable and other liabilities................. 3,359 8,515 34,241
------------- ------- -----------
TOTAL LIABILITIES........................................ 401,014 8,515 2,400,429
SHAREHOLDERS' EQUITY:
Preferred stock................................................ -- -- --
Common stock and additional paid in capital.................... 19,017 -- 313,316
Retained earnings.............................................. 8,269 (6,115) 25,082
Other comprehensive income (loss).............................. (28) -- 42
------------- ------- -----------
TOTAL SHAREHOLDERS' EQUITY............................... 27,258 (6,115) 338,440
------------- ------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $ 428,272 $ 2,400 $2,738,869
------------- ------- -----------
------------- ------- -----------
Number of common shares outstanding (1)........................ 2,486.9 20,775.5
Common shareholders' equity per share (1)...................... $ 10.96 $ 16.29
Tangible common shareholders' equity per share (1)............. $ 10.92 $ 9.02
</TABLE>
See "NOTES TO WESTERN--BKLA--PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL DATA ASSUMING CONSUMMATION OF THE BKLA ACQUISITION".
46
<PAGE>
WESTERN--BKLA--PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AT
DECEMBER 31, 1997
<TABLE>
<CAPTION>
WESTERN
WESTERN BKLA PRO FORMA AND BKLA
(HISTORICAL) (HISTORICAL)(1) ADJUSTMENTS(2) PRO FORMA
----------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS:
Cash and due from banks........................................ $ 97,456 $ 22,646 $ -- $ 120,102
Federal funds sold............................................. 138,702 29,555 -- 168,257
----------- ------------- -------------- -----------
TOTAL CASH AND CASH EQUIVALENTS.......................... 236,158 52,201 -- 288,359
Federal Reserve Bank and Federal Home Loan Bank stock, at
cost......................................................... 5,610 801 -- 6,411
Securities held to maturity.................................... -- 48,138 -- 48,138
Securities available for sale.................................. 201,904 11,494 -- 213,398
----------- ------------- -------------- -----------
TOTAL SECURITIES......................................... 207,514 60,433 -- 267,947
Net loans...................................................... 864,840 139,814 -- 1,004,654
Property, plant and equipment.................................. 13,685 2,650 -- 16,335
Other real estate owned........................................ 6,261 1,475 -- 7,736
Goodwill and other intangible assets........................... 30,430 5,939 -- 36,369
Other assets................................................... 24,622 9,521 1,680 35,823
----------- ------------- -------------- -----------
TOTAL ASSETS............................................. $1,383,510 $ 272,033 $ 1,680 $1,657,223
----------- ------------- -------------- -----------
----------- ------------- -------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing deposits.................................. $ 457,503 $ 85,222 $ -- $ 542,725
Interest bearing deposits...................................... 769,290 152,790 -- 922,080
----------- ------------- -------------- -----------
TOTAL DEPOSITS........................................... 1,226,793 238,012 -- 1,464,805
Borrowed funds................................................. 12,751 1,849 -- 14,600
Accrued interest payable and other liabilities................. 14,311 1,118 7,080 22,509
----------- ------------- -------------- -----------
TOTAL LIABILITIES........................................ 1,253,855 240,979 7,080 1,501,914
SHAREHOLDERS' EQUITY:
Preferred stock................................................ -- -- -- --
Common stock................................................... 112,947 30,630 -- 143,577
Retained earnings.............................................. 16,802 472 (5,400) 11,874
Other comprehensive income (loss).............................. (94) (48) -- (142)
----------- ------------- -------------- -----------
TOTAL SHAREHOLDERS' EQUITY............................... 129,655 31,054 (5,400) 155,309
----------- ------------- -------------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $1,383,510 $ 272,033 $ 1,680 $1,657,223
----------- ------------- -------------- -----------
----------- ------------- -------------- -----------
Number of common shares outstanding (1)........................ 10,648.3 4,751.7 12,744.4
Common shareholders' equity per share (1)...................... $ 12.18 $ 6.54 $ 12.19
Tangible common shareholders' equity per share (1)............. $ 9.32 $ 5.29 $ 9.33
<CAPTION>
WESTERN,
BKLA AND
PENINSULA PRO FORMA PENINSULA
(HISTORICAL)(1) ADJUSTMENTS(2) PRO FORMA
------------- --------------- -----------
<S> <C> <C> <C>
ASSETS:
Cash and due from banks........................................ $ 33,614 $ -- $ 153,716
Federal funds sold............................................. 6,000 -- 174,257
------------- ------- -----------
TOTAL CASH AND CASH EQUIVALENTS.......................... 39,614 -- 327,973
Federal Reserve Bank and Federal Home Loan Bank stock, at
cost......................................................... 1,032 -- 7,443
Securities held to maturity.................................... 86,050 -- 134,188
Securities available for sale.................................. 37,959 -- 251,357
------------- ------- -----------
TOTAL SECURITIES......................................... 125,041 -- 392,988
Net loans...................................................... 232,198 -- 1,236,852
Property, plant and equipment.................................. 11,514 -- 27,849
Other real estate owned........................................ 259 -- 7,995
Goodwill and other intangible assets........................... 98 -- 36,467
Other assets................................................... 9,521 2,400 47,744
------------- ------- -----------
TOTAL ASSETS............................................. $ 418,245 $ 2,400 $2,077,868
------------- ------- -----------
------------- ------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing deposits.................................. $ 121,657 $ -- $ 664,382
Interest bearing deposits...................................... 267,575 -- 1,189,655
------------- ------- -----------
TOTAL DEPOSITS........................................... 389,232 -- 1,854,037
Borrowed funds................................................. 600 -- 15,200
Accrued interest payable and other liabilities................. 3,057 8,515 34,081
------------- ------- -----------
TOTAL LIABILITIES........................................ 392,889 8,515 1,903,318
SHAREHOLDERS' EQUITY:
Preferred stock................................................ -- -- --
Common stock................................................... 19,017 -- 162,594
Retained earnings.............................................. 6,407 (6,115) 12,166
Other comprehensive income (loss).............................. (68) -- (210)
------------- ------- -----------
TOTAL SHAREHOLDERS' EQUITY............................... 25,356 (6,115) 174,550
------------- ------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $ 418,245 $ 2,400 $2,077,868
------------- ------- -----------
------------- ------- -----------
Number of common shares outstanding (1)........................ 2,486.9 15,676.5
Common shareholders' equity per share (1)...................... $ 10.20 $ 11.13
Tangible common shareholders' equity per share (1)............. $ 10.16 $ 8.81
</TABLE>
See "NOTES TO WESTERN--BKLA--PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL DATA ASSUMING CONSUMMATION OF THE BKLA ACQUISITION".
47
<PAGE>
WESTERN--BKLA--PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
WESTERN SMB
WESTERN BKLA AND BKLA JANUARY PRO FORMA
(HISTORICAL) (HISTORICAL)(1) PRO FORMA (HISTORICAL)(3) ADJUSTMENTS(3)
----------- ------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INTEREST INCOME:
Interest and fees on loans and leases............. $ 56,671 $ 7,667 $ 64,338 $ 3,185 $ --
Interest on interest bearing deposits in other
banks........................................... -- 38 38 -- --
Interest on investment securities................. 6,966 2,071 9,037 616 --
Interest on federal funds sold.................... 5,285 729 6,014 365 (235)
----------- ------------- ----------- ------------- --------------
TOTAL INTEREST INCOME......................... 68,922 10,505 79,427 4,166 (235)
INTEREST EXPENSE:
Interest expense on deposits...................... 17,762 2,718 20,480 1,180 --
Interest expense on borrowings.................... 556 290 846 16 --
----------- ------------- ----------- ------------- --------------
TOTAL INTEREST EXPENSE........................ 18,318 3,008 21,326 1,196 --
----------- ------------- ----------- ------------- --------------
NET INTEREST INCOME:................................ 50,604 7,497 58,101 2,970 (235)
Less: provision for loan and lease losses......... 300 -- 300 80 --
----------- ------------- ----------- ------------- --------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND
LEASE LOSSES...................................... 50,304 7,497 57,801 2,890 (235)
NON-INTEREST INCOME:
Service charges, commissions and fees............. 7,250 955 8,205 595 --
Securities gains.................................. 155 49 204 -- --
Other income...................................... 453 26 479 19 --
----------- ------------- ----------- ------------- --------------
TOTAL NON-INTEREST INCOME..................... 7,858 1,030 8,888 614 --
NON-INTEREST EXPENSE:
Salaries and benefits............................. 17,725 2,770 20,495 1,123 (11)
Occupancy, furniture and equipment................ 5,328 1,033 6,361 347 23
Advertising and business development.............. 566 98 664 58 --
Other real estate owned........................... (205) 12 (193) 9 --
Professional services............................. 1,657 362 2,019 73 --
Telephone, stationery and supplies................ 1,437 256 1,693 55 --
Goodwill amortization............................. 4,561 237 4,798 -- 665
Data processing................................... 1,126 -- 1,126 9 --
Customer services cost............................ 842 -- 842 8 --
Merger costs...................................... -- -- -- 429 --
Other............................................. 2,476 506 2,982 239 --
----------- ------------- ----------- ------------- --------------
TOTAL NON-INTEREST EXPENSE.................... 35,513 5,274 40,787 2,350 677
----------- ------------- ----------- ------------- --------------
Income before income taxes........................ 22,649 3,253 25,902 1,154 (912)
Income taxes...................................... 11,142 1,216 12,358 463 (102)
----------- ------------- ----------- ------------- --------------
Net income.................................... $ 11,507 $ 2,037 $ 13,544 $ 691 $ (810)
----------- ------------- ----------- ------------- --------------
----------- ------------- ----------- ------------- --------------
PER SHARE INFORMATION (1):
Number of shares (weighted average)
Basic........................................... 14,821.5 4,776.6 16,839.1 7,084.2
Diluted......................................... 15,040.0 5,368.8 17,307.8 7,084.2
Income per share
Basic........................................... $ 0.78 $ 0.43 $ 0.80 $ 0.10
Diluted......................................... $ 0.77 $ 0.38 $ 0.78 $ 0.10
<CAPTION>
WESTERN WESTERN
BKLA AND PENINSULA BKLA AND
SMB (HISTORICAL)(1) PENINSULA
----------- ------------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases............. $ 67,523 $ 10,885 $ 78,408
Interest on interest bearing deposits in other
banks........................................... 38 116 154
Interest on investment securities................. 9,653 3,355 13,008
Interest on federal funds sold.................... 6,144 378 6,522
----------- ------------- -----------
TOTAL INTEREST INCOME......................... 83,358 14,734 98,092
INTEREST EXPENSE:
Interest expense on deposits...................... 21,660 4,388 26,048
Interest expense on borrowings.................... 862 40 902
----------- ------------- -----------
TOTAL INTEREST EXPENSE........................ 22,522 4,428 26,950
----------- ------------- -----------
NET INTEREST INCOME:................................ 60,836 10,306 71,142
Less: provision for loan and lease losses......... 380 139 519
----------- ------------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND
LEASE LOSSES...................................... 60,456 10,167 70,623
NON-INTEREST INCOME:
Service charges, commissions and fees............. 8,800 1,994 10,794
Securities gains.................................. 204 30 234
Other income...................................... 498 428 926
----------- ------------- -----------
TOTAL NON-INTEREST INCOME..................... 9,502 2,452 11,954
NON-INTEREST EXPENSE:
Salaries and benefits............................. 21,607 5,289 26,896
Occupancy, furniture and equipment................ 6,731 1,301 8,032
Advertising and business development.............. 722 316 1,038
Other real estate owned........................... (184) 32 (152)
Professional services............................. 2,092 215 2,307
Telephone, stationery and supplies................ 1,748 369 2,117
Goodwill amortization............................. 5,463 -- 5,463
Data processing................................... 1,135 358 1,493
Customer services cost............................ 850 648 1,498
Merger costs...................................... 429 -- 429
Other............................................. 3,221 525 3,746
----------- ------------- -----------
TOTAL NON-INTEREST EXPENSE.................... 43,814 9,053 52,867
----------- ------------- -----------
Income before income taxes........................ 26,144 3,566 29,710
Income taxes...................................... 12,719 1,337 14,056
----------- ------------- -----------
Net income.................................... $ 13,425 $ 2,229 $ 15,654
----------- ------------- -----------
----------- ------------- -----------
PER SHARE INFORMATION (1):
Number of shares (weighted average)
Basic........................................... 17,668.1 2,486.9 20,600.2
Diluted......................................... 18,136.8 2,486.9 21,068.9
Income per share
Basic........................................... $ 0.76 $ 0.90 $ 0.76
Diluted......................................... $ 0.74 $ 0.90 $ 0.74
</TABLE>
See "NOTES TO WESTERN--BKLA--PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL DATA ASSUMING CONSUMMATION OF THE BKLA ACQUISITION".
48
<PAGE>
WESTERN--BKLA--PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
WESTERN
WESTERN BKLA AND BKLA SMB PRO FORMA
(HISTORICAL) (HISTORICAL)(1) PRO FORMA (HISTORICAL)(3) ADJUSTMENTS(3)
----------- ------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INTEREST INCOME:
Interest and fees on loans and leases............. $ 38,605 $ 5,021 $ 43,626 $ 18,106 $ --
Interest on interest bearing deposits in other
banks........................................... -- 1 1 -- --
Interest on investment securities................. 8,500 1,139 9,639 4,030 --
Interest on federal funds sold.................... 1,653 490 2,143 1,680 (1,408)
----------- ------------- ----------- ------------- --------------
TOTAL INTEREST INCOME......................... 48,758 6,651 55,409 23,816 (1,408)
INTEREST EXPENSE:
Interest expense on deposits...................... 13,736 1,617 15,353 6,898 --
Interest expense on borrowings.................... 594 129 723 98 --
----------- ------------- ----------- ------------- --------------
TOTAL INTEREST EXPENSE........................ 14,330 1,746 16,076 6,996 --
----------- ------------- ----------- ------------- --------------
NET INTEREST INCOME:................................ 34,428 4,905 39,333 16,820 (1,408)
Less: provision for loan and lease losses......... 1,400 410 1,810 -- --
----------- ------------- ----------- ------------- --------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND
LEASE LOSSES...................................... 33,028 4,495 37,523 16,820 (1,408)
NON-INTEREST INCOME:
Service charges and fees.......................... 3,838 602 4,440 3,416 --
Gain on sale of loans and other assets............ 78 -- 78 -- --
Securities gains.................................. 342 -- 342 -- --
Other income...................................... 770 27 797 118 --
----------- ------------- ----------- ------------- --------------
TOTAL NON-INTEREST INCOME..................... 5,028 629 5,657 3,534 --
NON-INTEREST EXPENSE:
Salaries and benefits............................. 12,715 2,269 14,984 7,064 (66)
Occupancy, furniture and equipment................ 3,889 810 4,699 2,068 137
Advertising and business development.............. 596 87 683 426 --
Other real estate owned........................... 69 12 81 (517) --
Professional services............................. 1,753 221 1,974 953 --
Telephone, stationery and supplies................ 1,420 166 1,586 327 --
Goodwill amortization............................. 1,270 102 1,372 -- 3,989
Data processing................................... 791 -- 791 61 --
Customer services cost............................ 559 -- 559 72 --
Merger costs...................................... 3,470 -- 3,470 -- --
Other............................................. 3,268 422 3,690 1,232 --
----------- ------------- ----------- ------------- --------------
TOTAL NON-INTEREST EXPENSE.................... 29,800 4,089 33,889 11,686 4,060
----------- ------------- ----------- ------------- --------------
Income before income taxes.......................... 8,256 1,035 9,291 8,668 (5,468)
Income taxes........................................ 4,811 -- 4,811 3,004 (614)
----------- ------------- ----------- ------------- --------------
NET INCOME.................................... $ 3,445 $ 1,035 $ 4,480 $ 5,664 $ (4,854)
----------- ------------- ----------- ------------- --------------
----------- ------------- ----------- ------------- --------------
PER SHARE INFORMATION(1):
Number of shares (weighted average)
Basic........................................... 10,492.5 2,878.8 11,708.5 7,084.2
Diluted......................................... 10,778.3 3,277.1 12,162.5 7,084.2
Income per share
Basic........................................... $ 0.33 $ 0.36 $ 0.38 $ 0.80
Diluted......................................... $ 0.32 $ 0.32 $ 0.37 $ 0.80
<CAPTION>
WESTERN WESTERN,
BKLA AND PENINSULA BKLA AND
SMB (HISTORICAL)(1) PENINSULA
----------- ------------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases............. $ 61,732 $ 9,984 $ 71,716
Interest on interest bearing deposits in other
banks........................................... 1 12 13
Interest on investment securities................. 13,669 2,636 16,305
Interest on federal funds sold.................... 2,415 165 2,580
----------- ------------- -----------
TOTAL INTEREST INCOME......................... 77,817 12,797 90,614
INTEREST EXPENSE:
Interest expense on deposits...................... 22,251 3,963 26,214
Interest expense on borrowings.................... 821 29 850
----------- ------------- -----------
TOTAL INTEREST EXPENSE........................ 23,072 3,992 27,064
----------- ------------- -----------
NET INTEREST INCOME:................................ 54,745 8,805 63,550
Less: provision for loan and lease losses......... 1,810 325 2,135
----------- ------------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND
LEASE LOSSES...................................... 52,935 8,480 61,415
NON-INTEREST INCOME:
Service charges and fees.......................... 7,856 1,602 9,458
Gain on sale of loans and other assets............ 78 -- 78
Securities gains.................................. 342 5 347
Other income...................................... 915 434 1,349
----------- ------------- -----------
TOTAL NON-INTEREST INCOME..................... 9,191 2,041 11,232
NON-INTEREST EXPENSE:
Salaries and benefits............................. 21,982 4,482 26,464
Occupancy, furniture and equipment................ 6,904 1,128 8,032
Advertising and business development.............. 1,109 296 1,405
Other real estate owned........................... (436) 61 (375)
Professional services............................. 2,927 230 3,157
Telephone, stationery and supplies................ 1,913 334 2,247
Goodwill amortization............................. 5,361 -- 5,361
Data processing................................... 852 343 1,195
Customer services cost............................ 631 427 1,058
Merger costs...................................... 3,470 -- 3,470
Other............................................. 4,922 503 5,425
----------- ------------- -----------
TOTAL NON-INTEREST EXPENSE.................... 49,635 7,804 57,439
----------- ------------- -----------
Income before income taxes.......................... 12,491 2,717 15,208
Income taxes........................................ 7,201 1,044 8,245
----------- ------------- -----------
NET INCOME.................................... $ 5,290 $ 1,673 $ 6,963
----------- ------------- -----------
----------- ------------- -----------
PER SHARE INFORMATION(1):
Number of shares (weighted average)
Basic........................................... 16,682.0 2,486.9 19,614.1
Diluted......................................... 17,136.0 2,486.9 20,068.1
Income per share
Basic........................................... $ 0.32 $ 0.67 $ 0.35
Diluted......................................... $ 0.31 $ 0.67 $ 0.35
</TABLE>
See "NOTES TO WESTERN--BKLA--PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL DATA ASSUMING CONSUMMATION OF THE BKLA ACQUISITION".
49
<PAGE>
WESTERN--BKLA--PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
WESTERN
WESTERN BKLA AND BKLA SMB PRO FORMA
(HISTORICAL) (HISTORICAL)(1) PRO FORMA (HISTORICAL)(3) ADJUSTMENTS(3)
----------- ------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INTEREST INCOME:
Interest and fees on loans and leases............. $ 80,639 $ 11,229 $ 91,868 $ 36,794 $ --
Interest on interest bearing deposits in other
banks........................................... -- 1 1 -- --
Interest on investment securities................. 15,714 2,731 18,445 8,922 --
Interest on federal funds sold.................... 4,681 893 5,574 3,652 (2,816)
----------- ------------- ----------- ------------- --------------
TOTAL INTEREST INCOME......................... 101,034 14,854 115,888 49,368 (2,816)
INTEREST EXPENSE:
Interest expense on deposits...................... 28,276 3,673 31,949 14,575 --
Interest expense on borrowings.................... 1,082 258 1,340 196 --
----------- ------------- ----------- ------------- --------------
TOTAL INTEREST EXPENSE........................ 29,358 3,931 33,289 14,771 --
----------- ------------- ----------- ------------- --------------
NET INTEREST INCOME:................................ 71,676 10,923 82,599 34,597 (2,816)
Less: provision for loan and lease losses......... 2,800 410 3,210 -- --
----------- ------------- ----------- ------------- --------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND
LEASE LOSSES...................................... 68,876 10,513 79,389 34,597 (2,816)
NON-INTEREST INCOME:
Service charges, commissions and fees............. 7,533 1,273 8,806 7,032 --
Gain on sale of loans and other assets............ 78 -- 78 -- --
Securities gains.................................. 342 -- 342 13 --
Other income...................................... 1,733 115 1,848 229 --
----------- ------------- ----------- ------------- --------------
TOTAL NON-INTEREST INCOME..................... 9,686 1,388 11,074 7,274 --
NON-INTEREST EXPENSE:
Salaries and benefits............................. 25,023 4,802 29,825 14,661 (131)
Occupancy, furniture and equipment................ 7,843 1,778 9,621 4,151 274
Advertising and business development.............. 1,225 155 1,380 844 --
Other real estate owned........................... 242 29 271 (547) --
Professional services............................. 3,706 382 4,088 1,444 --
Telephone, stationery and supplies................ 2,735 347 3,082 632 --
Goodwill amortization............................. 2,538 246 2,784 -- 7,977
Data processing................................... 1,667 -- 1,667 116 --
Customer services cost............................ 1,263 -- 1,263 265 --
Merger related costs.............................. 14,201 -- 14,201 1,052 --
Other............................................. 5,314 803 6,117 2,441 --
----------- ------------- ----------- ------------- --------------
TOTAL NON-INTEREST EXPENSE.................... 65,757 8,542 74,299 25,059 8,120
----------- ------------- ----------- ------------- --------------
Income before income taxes........................ 12,805 3,359 16,164 16,812 (10,936)
Income taxes (benefits)........................... 9,643 (372) 9,271 5,905 (1,228)
----------- ------------- ----------- ------------- --------------
NET INCOME.................................... $ 3,162 $ 3,731 $ 6,893 $ 10,907 $ (9,708)
----------- ------------- ----------- ------------- --------------
----------- ------------- ----------- ------------- --------------
PER SHARE INFORMATION (1):
Number of shares (weighted average)
Basic........................................... 10,523.9 3,226.0 11,886.6 7,084.2
Diluted......................................... 10,731.6 3,749.7 12,315.5 7,084.2
Income per share
Basic........................................... $ 0.30 $ 1.16 $ 0.58 $ 1.54
Diluted......................................... $ 0.29 $ 1.00 $ 0.56 $ 1.54
<CAPTION>
WESTERN WESTERN,
BKLA AND PENINSULA BKLA AND
SMB (HISTORICAL)(1) PENINSULA
----------- ------------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases............. $ 128,662 $ 20,682 $ 149,344
Interest on interest bearing deposits in other
banks........................................... 1 91 92
Interest on investment securities................. 27,367 6,011 33,378
Interest on federal funds sold.................... 6,410 481 6,891
----------- ------------- -----------
TOTAL INTEREST INCOME......................... 162,440 27,265 189,705
INTEREST EXPENSE:
Interest expense on deposits...................... 46,524 8,527 55,051
Interest expense on borrowings.................... 1,536 73 1,609
----------- ------------- -----------
TOTAL INTEREST EXPENSE........................ 48,060 8,600 56,660
----------- ------------- -----------
NET INTEREST INCOME:................................ 114,380 18,665 133,045
Less: provision for loan and lease losses......... 3,210 498 3,708
----------- ------------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND
LEASE LOSSES...................................... 111,170 18,167 129,337
NON-INTEREST INCOME:
Service charges, commissions and fees............. 15,838 3,266 19,104
Gain on sale of loans and other assets............ 78 247 325
Securities gains.................................. 355 60 415
Other income...................................... 2,077 551 2,628
----------- ------------- -----------
TOTAL NON-INTEREST INCOME..................... 18,348 4,124 22,472
NON-INTEREST EXPENSE:
Salaries and benefits............................. 44,355 9,630 53,985
Occupancy, furniture and equipment................ 14,046 2,557 16,603
Advertising and business development.............. 2,224 690 2,914
Other real estate owned........................... (276) 114 (162)
Professional services............................. 5,532 407 5,939
Telephone, stationery and supplies................ 3,714 685 4,399
Goodwill amortization............................. 10,761 -- 10,761
Data processing................................... 1,783 705 2,488
Customer services cost............................ 1,528 955 2,483
Merger related costs.............................. 15,253 -- 15,253
Other............................................. 8,558 1,239 9,797
----------- ------------- -----------
TOTAL NON-INTEREST EXPENSE.................... 107,478 16,982 124,460
----------- ------------- -----------
Income before income taxes........................ 22,040 5,309 27,349
Income taxes (benefits)........................... 13,948 1,708 15,656
----------- ------------- -----------
NET INCOME.................................... $ 8,092 $ 3,601 $ 11,693
----------- ------------- -----------
----------- ------------- -----------
PER SHARE INFORMATION (1):
Number of shares (weighted average)
Basic........................................... 16,860.1 2,486.9 19,792.2
Diluted......................................... 17,289.0 2,486.9 20,221.1
Income per share
Basic........................................... $ 0.48 $ 1.45 $ 0.59
Diluted......................................... $ 0.47 $ 1.45 $ 0.58
</TABLE>
See "NOTES TO WESTERN--BKLA--PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL DATA ASSUMING CONSUMMATION OF THE BKLA ACQUISITION".
50
<PAGE>
WESTERN--BKLA--PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
WESTERN
WESTERN BKLA AND BKLA
(HISTORICAL) (HISTORICAL)(1) PRO FORMA
----------- ------------- -----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INTEREST INCOME:
Interest and fees on loans and leases.............................................. $ 58,374 $ 7,702 $ 66,076
Interest on interest bearing deposits in other banks............................... 3 12 15
Interest on investment securities.................................................. 12,862 2,008 14,870
Interest on federal funds sold..................................................... 2,998 839 3,837
----------- ------------- -----------
TOTAL INTEREST INCOME.......................................................... 74,237 10,561 84,798
INTEREST EXPENSE:
Interest expense on deposits....................................................... 21,382 2,830 24,212
Interest expense on borrowings..................................................... 929 257 1,186
----------- ------------- -----------
TOTAL INTEREST EXPENSE......................................................... 22,311 3,087 25,398
----------- ------------- -----------
NET INTEREST INCOME:................................................................. 51,926 7,474 59,400
Less: provision for loan and lease losses.......................................... 1,018 750 1,768
----------- ------------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES........................ 50,908 6,724 57,632
NON-INTEREST INCOME:
Service charges, commissions and fees.............................................. 7,485 966 8,451
Gain on sale of loans and other assets............................................. 665 -- 665
Securities gains (losses).......................................................... 281 (5) 276
Other income....................................................................... 1,444 76 1,520
----------- ------------- -----------
TOTAL NON-INTEREST INCOME...................................................... 9,875 1,037 10,912
NON-INTEREST EXPENSE:
Salaries and benefits.............................................................. 23,016 3,408 26,424
Occupancy, furniture and equipment................................................. 7,649 1,306 8,955
Advertising and business development............................................... 1,342 137 1,479
Other real estate owned............................................................ (134) 68 (66)
Professional services.............................................................. 6,054 472 6,526
Telephone, stationery and supplies................................................. 2,201 346 2,547
Goodwill amortization.............................................................. 1,004 119 1,123
Data processing.................................................................... 1,064 -- 1,064
Customer services cost............................................................. 510 -- 510
Other.............................................................................. 5,432 904 6,336
----------- ------------- -----------
TOTAL NON-INTEREST EXPENSE..................................................... 48,138 6,760 54,898
----------- ------------- -----------
Income before income taxes........................................................... 12,645 1,001 13,646
Income taxes......................................................................... 3,656 -- 3,656
----------- ------------- -----------
NET INCOME..................................................................... $ 8,989 $ 1,001 $ 9,990
----------- ------------- -----------
----------- ------------- -----------
PER SHARE INFORMATION (1):
Number of shares (weighted average)
Basic 8,095.7 2,195.1 9,022.9
Diluted.......................................................................... 8,248.4 2,475.9 9,294.2
Income per share
Basic............................................................................ $ 1.11 $ 0.46 $ 1.11
Diluted.......................................................................... $ 1.09 $ 0.40 $ 1.07
<CAPTION>
WESTERN
PENINSULA BKLA AND
(HISTORICAL)(1) PENINSULA
------------- -----------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases.............................................. $ 19,286 $ 85,362
Interest on interest bearing deposits in other banks............................... 9 24
Interest on investment securities.................................................. 4,621 19,491
Interest on federal funds sold..................................................... 336 4,173
------------- -----------
TOTAL INTEREST INCOME.......................................................... 24,252 109,050
INTEREST EXPENSE:
Interest expense on deposits....................................................... 7,689 31,901
Interest expense on borrowings..................................................... 77 1,263
------------- -----------
TOTAL INTEREST EXPENSE......................................................... 7,766 33,164
------------- -----------
NET INTEREST INCOME:................................................................. 16,486 75,886
Less: provision for loan and lease losses.......................................... 566 2,334
------------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES........................ 15,920 73,552
NON-INTEREST INCOME:
Service charges, commissions and fees.............................................. 3,104 11,555
Gain on sale of loans and other assets............................................. 81 746
Securities gains (losses).......................................................... -- 276
Other income....................................................................... 460 1,980
------------- -----------
TOTAL NON-INTEREST INCOME...................................................... 3,645 14,557
NON-INTEREST EXPENSE:
Salaries and benefits.............................................................. 8,555 34,979
Occupancy, furniture and equipment................................................. 2,223 11,178
Advertising and business development............................................... 559 2,038
Other real estate owned............................................................ 144 78
Professional services.............................................................. 326 6,852
Telephone, stationery and supplies................................................. 629 3,176
Goodwill amortization.............................................................. -- 1,123
Data processing.................................................................... 634 1,698
Customer services cost............................................................. 894 1,404
Other.............................................................................. 670 7,006
------------- -----------
TOTAL NON-INTEREST EXPENSE..................................................... 14,634 69,532
------------- -----------
Income before income taxes........................................................... 4,931 18,577
Income taxes......................................................................... 1,877 5,533
------------- -----------
NET INCOME..................................................................... $ 3,054 $ 13,044
------------- -----------
------------- -----------
PER SHARE INFORMATION (1):
Number of shares (weighted average)
Basic 2,486.9 11,955.0
Diluted.......................................................................... 2,486.9 12,226.3
Income per share
Basic............................................................................ $ 1.23 $ 1.09
Diluted.......................................................................... $ 1.23 $ 1.07
</TABLE>
See "NOTES TO WESTERN--BKLA--PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL DATA ASSUMING CONSUMMATION OF THE BKLA ACQUISITION".
51
<PAGE>
WESTERN--BKLA--PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
WESTERN BKLA
(HISTORICAL) (HISTORICAL)(1)
----------- -------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
INTEREST INCOME:
Interest and fees on loans and leases..................................................... $ 49,014 $ 4,808
Interest on interest bearing deposits in other banks...................................... 43 2
Interest on investment securities......................................................... 10,726 1,575
Interest on federal funds sold............................................................ 2,846 434
----------- -------------
TOTAL INTEREST INCOME................................................................. 62,629 6,819
INTEREST EXPENSE:
Interest expense on deposits.............................................................. 19,167 1,542
Interest expense on borrowings............................................................ 637 310
----------- -------------
TOTAL INTEREST EXPENSE................................................................ 19,804 1,852
----------- -------------
NET INTEREST INCOME:........................................................................ 42,825 4,967
Less: provision for (recovery of) loan and lease losses................................... 8,564 (311)
----------- -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES............................... 34,261 5,278
NON-INTEREST INCOME:
Service charges, commissions and fees..................................................... 6,551 757
Gain on sale of loans and other assets.................................................... 145 118
Securities gains (losses)................................................................. (692) (46)
Other income.............................................................................. 1,822 49
----------- -------------
TOTAL NON-INTEREST INCOME............................................................. 7,826 878
NON-INTEREST EXPENSE:
Salaries and benefits..................................................................... 19,575 2,798
Occupancy, furniture and equipment........................................................ 7,878 941
Advertising and business development...................................................... 1,199 128
Other real estate owned................................................................... 3,080 24
Professional services..................................................................... 3,176 547
Telephone, stationery and supplies........................................................ 2,337 254
Goodwill amortization..................................................................... 821 20
Lower of cost or market adjustment on loans available for sale............................ 756 --
Data processing........................................................................... 822 --
Customer services cost.................................................................... 184 --
Other..................................................................................... 5,781 798
----------- -------------
TOTAL NON-INTEREST EXPENSE............................................................ 45,609 5,510
----------- -------------
Income (loss) before income taxes........................................................... (3,522) 646
Income taxes (benefits)..................................................................... (1,733) --
----------- -------------
NET INCOME (LOSS)..................................................................... $ (1,789) $ 646
----------- -------------
----------- -------------
PER SHARE INFORMATION (1):
Number of shares (weighted average)
Basic................................................................................... 6,486.9 1,017.5
Diluted................................................................................. 6,598.5 1,268.8
Income (loss) per share
Basic................................................................................... $ (0.28) $ 0.63
Diluted................................................................................. $ (0.28) $ 0.51
<CAPTION>
WESTERN
AND BKLA PENINSULA
PRO FORMA (HISTORICAL)(1)
----------- -------------
<S> <C>
INTEREST INCOME:
Interest and fees on loans and leases..................................................... $ 53,822 $ 17,671
Interest on interest bearing deposits in other banks...................................... 45 41
Interest on investment securities......................................................... 12,301 3,849
Interest on federal funds sold............................................................ 3,280 348
----------- -------------
TOTAL INTEREST INCOME................................................................. 69,448 21,909
INTEREST EXPENSE:
Interest expense on deposits.............................................................. 20,709 7,025
Interest expense on borrowings............................................................ 947 70
----------- -------------
TOTAL INTEREST EXPENSE................................................................ 21,656 7,095
----------- -------------
NET INTEREST INCOME:........................................................................ 47,792 14,814
Less: provision for (recovery of) loan and lease losses................................... 8,253 470
----------- -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES............................... 39,539 14,344
NON-INTEREST INCOME:
Service charges, commissions and fees..................................................... 7,308 2,630
Gain on sale of loans and other assets.................................................... 263 82
Securities gains (losses)................................................................. (738) 32
Other income.............................................................................. 1,871 395
----------- -------------
TOTAL NON-INTEREST INCOME............................................................. 8,704 3,139
NON-INTEREST EXPENSE:
Salaries and benefits..................................................................... 22,373 7,528
Occupancy, furniture and equipment........................................................ 8,819 2,005
Advertising and business development...................................................... 1,327 452
Other real estate owned................................................................... 3,104 450
Professional services..................................................................... 3,723 378
Telephone, stationery and supplies........................................................ 2,591 512
Goodwill amortization..................................................................... 841 --
Lower of cost or market adjustment on loans available for sale............................ 756 --
Data processing........................................................................... 822 499
Customer services cost.................................................................... 184 690
Other..................................................................................... 6,579 1,006
----------- -------------
TOTAL NON-INTEREST EXPENSE............................................................ 51,119 13,520
----------- -------------
Income (loss) before income taxes........................................................... (2,876) 3,963
Income taxes (benefits)..................................................................... (1,733) 1,421
----------- -------------
NET INCOME (LOSS)..................................................................... $ (1,143) $ 2,542
----------- -------------
----------- -------------
PER SHARE INFORMATION (1):
Number of shares (weighted average)
Basic................................................................................... 6,916.7 2,486.9
Diluted................................................................................. 7,134.4 2,486.9
Income (loss) per share
Basic................................................................................... $ (0.17) $ 1.02
Diluted................................................................................. $ (0.17) $ 1.02
<CAPTION>
WESTERN,
BKLA AND
PENINSULA
-----------
INTEREST INCOME:
Interest and fees on loans and leases..................................................... $ 71,493
Interest on interest bearing deposits in other banks...................................... 86
Interest on investment securities......................................................... 16,150
Interest on federal funds sold............................................................ 3,628
-----------
TOTAL INTEREST INCOME................................................................. 91,357
INTEREST EXPENSE:
Interest expense on deposits.............................................................. 27,734
Interest expense on borrowings............................................................ 1,017
-----------
TOTAL INTEREST EXPENSE................................................................ 28,751
-----------
NET INTEREST INCOME:........................................................................ 62,606
Less: provision for (recovery of) loan and lease losses................................... 8,723
-----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES............................... 53,883
NON-INTEREST INCOME:
Service charges, commissions and fees..................................................... 9,938
Gain on sale of loans and other assets.................................................... 345
Securities gains (losses)................................................................. (706)
Other income.............................................................................. 2,266
-----------
TOTAL NON-INTEREST INCOME............................................................. 11,843
NON-INTEREST EXPENSE:
Salaries and benefits..................................................................... 29,901
Occupancy, furniture and equipment........................................................ 10,824
Advertising and business development...................................................... 1,779
Other real estate owned................................................................... 3,554
Professional services..................................................................... 4,101
Telephone, stationery and supplies........................................................ 3,103
Goodwill amortization..................................................................... 841
Lower of cost or market adjustment on loans available for sale............................ 756
Data processing........................................................................... 1,321
Customer services cost.................................................................... 874
Other..................................................................................... 7,585
-----------
TOTAL NON-INTEREST EXPENSE............................................................ 64,639
-----------
Income (loss) before income taxes........................................................... 1,087
Income taxes (benefits)..................................................................... (312)
-----------
NET INCOME (LOSS)..................................................................... $ 1,399
-----------
-----------
PER SHARE INFORMATION (1):
Number of shares (weighted average)
Basic................................................................................... 9,848.8
Diluted................................................................................. 10,066.5
Income (loss) per share
Basic................................................................................... $ 0.14
Diluted................................................................................. $ 0.14
</TABLE>
See "NOTES TO WESTERN--BKLA--PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL DATA ASSUMING CONSUMMATION OF THE BKLA ACQUISITION".
52
<PAGE>
NOTES TO WESTERN--BKLA--PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL DATA ASSUMING CONSUMMATION OF THE BKLA ACQUISITION
NOTE 1: BASIS OF PRESENTATION
PENINSULA
Certain historical data of Peninsula have been reclassified to conform to
Western's classifications. Transactions between Western and Peninsula are not
material in relation to the unaudited pro forma combined condensed financial
statements, and have not been eliminated from the pro forma combined amounts.
The unaudited pro forma number of common shares outstanding, common
shareholders' equity per share, number of shares (basic and diluted) and income
(loss) per share (basic and diluted) are based on the share amounts for Western
plus the historical share amounts for Peninsula multiplied by an assumed
exchange ratio of 1.179.
BKLA ACQUISITION
Certain historical data of BKLA have been reclassified to conform to
Western's classifications. Transactions between Western and BKLA are not
material in relation to the unaudited pro forma combined condensed financial
statements, and have not been eliminated from the pro forma combined amounts.
The unaudited pro forma number of common shares outstanding, common
shareholders' equity per share, number of shares (basic and diluted) and income
(loss) per share (basic and diluted) are based on the share amounts for Western
plus the historical share amounts for BKLA multiplied by 0.4224. In addition, at
the effective time of the BKLA Acquisition, all outstanding options to purchase
shares of BKLA Common Stock under BKLA's stock option plan (each, a "BKLA Stock
Option"), unless otherwise exercised pursuant to BKLA's stock option plan, shall
be converted into the right to receive for each share of BKLA Common Stock
otherwise issuable upon exercise thereof a number of shares of Western Common
Stock equal to the quotient obtained by dividing the Spread by $42.61
("Replacement Shares"). As used herein, "Spread" means the difference, if
positive, obtained by subtracting the exercise price of such BKLA Stock Option
from $18.00. After accumulating all such Replacement Shares issuable to any
holder of BKLA Stock Options, any fractional Replacement Shares issuable to any
holder of BKLA Stock Options of 0.2 or above shall be rounded upwards. Further,
at the effective time of the BKLA Acquisition, each outstanding warrant to
purchase shares of BKLA Common Stock under BKLA's warrant agreement (each, a
"BKLA Warrant") shall be converted into a warrant to acquire, on the same terms
and conditions as were applicable under such BKLA warrant agreement, the number
of shares of Western Common Stock equal to (a) the number of shares of BKLA
Common Stock subject to the BKLA Warrant, multiplied by (b) 0.4224 (such product
rounded down to the nearest whole number) (a "Replacement Warrant"), at an
exercise price per share (rounded up to the nearest whole cent) equal to (y) the
aggregate exercise price for the shares of BKLA Common Stock which were
purchasable pursuant to such BKLA Warrant divided by (z) the number of full
shares of Western Common Stock subject to such Replacement Warrant in accordance
with the foregoing.
NOTE 2: MERGER COSTS
BKLA ACQUISITION
The unaudited pro forma combined condensed financial data reflects Western
Management's current estimate, for purposes of pro forma presentation, of the
aggregate estimated merger costs of $7,080,000 ($5,400,000 net of taxes,
computed using the combined federal and state tax rate of 41.5%) expected to be
incurred in connection with the BKLA Acquisition. While a portion of these costs
may be required to be recognized over time, the current estimate of these costs
has been recorded in the pro forma combined
53
<PAGE>
balance sheets in order to disclose the aggregate effect of these activities on
Western's pro forma combined financial position. The estimated aggregate costs
include the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Employee costs.................................................................................... $ 1,500
Conversion costs.................................................................................. 500
Other costs....................................................................................... 2,050
-------
4,050
Tax effects....................................................................................... (1,680)
-------
2,370
Investment banking and other professional fees.................................................... 3,030
-------
TOTAL ESTIMATED AGGREGATE COSTS............................................................... $ 5,400
-------
-------
</TABLE>
PENINSULA
The unaudited pro forma combined condensed financial data reflects Western
Management's current estimate, for purposes of pro forma presentation, of the
aggregate estimated merger costs of $8,515,000 ($6,115,000 net of taxes,
computed using the combined federal and state tax rate of 41.5%) expected to be
incurred in connection with the Merger. While a portion of these costs may be
required to be recognized over time, the current estimate of these costs has
been recorded in the pro forma combined balance sheets in order to disclose the
aggregate effect of these activities on Western's pro forma combined financial
position. The estimated aggregate costs include the following:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Employee costs........................................................................................ $ 1,500
Conversion costs...................................................................................... 1,000
Other costs........................................................................................... 3,300
-----------
5,800
Tax effects........................................................................................... (2,400)
-----------
3,400
Investment banking and other professional fees........................................................ 2,715
-----------
TOTAL ESTIMATED AGGREGATE COSTS................................................................... $ 6,115
-----------
-----------
</TABLE>
Western Management's cost estimates are forward-looking. While the costs
represent Western Management's current estimate of merger costs that will be
incurred, the ultimate level and timing of recognition of such costs will be
based on the final merger and integration plan to be completed prior to
consummation of the BKLA Acquisition and the Merger, which will be developed by
various of Western's, BKLA's and Peninsula's task forces and integration
committees. Readers are cautioned that the completion of the merger and
integration plan and the resulting management plans detailing actions to be
undertaken to effect the Merger and resultant integration of operations will
impact these estimates; the type and amount of actual costs incurred could vary
materially from these estimates if future developments differ from the
underlying assumptions used by management in determining the current estimate of
these costs. See "RISK FACTORS".
NOTE 3: PRO FORMA ADJUSTMENTS RELATED TO THE SMB MERGER
The SMB Merger was accounted for as a purchase effective on January 27,
1998. Accordingly, Western's balance sheet as of June 30, 1998 reflects such
acquisition. Under this method of accounting, assets and liabilities of SMB were
adjusted to their estimated fair values and combined with the recorded book
values of the assets and liabilities of Western. Applicable income tax effects
of such adjustments are included as a component of Western's net deferred tax
asset with a corresponding offset to goodwill.
54
<PAGE>
The unaudited pro forma combined condensed statements of income for the six
month periods ending June 30, 1998 and June 30, 1997 and for the year ended
December 31, 1997 are presented as if the SMB Merger was consummated at the
beginning of each period. The pro forma combined condensed statements of income
for these periods combine the individual pro forma results of operations of
Western, BKLA and SMB for each period after giving effect to the amortization of
purchase accounting adjustments, the additional equity which was raised by
Western and the reduced interest income resulting from the cash payments made as
part of the SMB Merger. The pro forma purchase accounting adjustments for each
period represent the amortization that would have taken place from the beginning
of the period.
For the purposes of the unaudited pro forma combined condensed statement of
income, it is estimated that Western would have earned 5.50% on the $51.2
million cash portion of the SMB Merger purchase price during each period,
resulting in approximately $235,000 less interest income for the six month
period ended June 30, 1998, $1,408,000 less interest income for the six month
period ended June 30, 1997 and $2.8 million less interest income for the year
ended December 31, 1997.
Salaries and benefits expense is estimated to be reduced by approximately
$11,000, $66,000 and $131,000 for the six month period ended June 30, 1998, the
six month period ended June 30, 1997 and for the year ended December 31, 1997,
respectively, as a result of the write-off of the unrecognized transition
obligation related to post-retirement health care benefits.
For the year ended December 31, 1997, occupancy, furniture and equipment
expense increased by an estimated $194,000 of depreciation expense related to
the fair market value adjustment of SMB's property, plant and equipment and by
approximately $80,000 related to the amortization of favorable lease assets,
resulting in an approximate $274,000 additional expense. For the six month
periods ended June 30, 1998 and June 30, 1997, this additional expense is
$23,000 and $137,000, respectively.
Goodwill of approximately $119.7 million is amortized on a straight line
basis over 15 years.
Income taxes are estimated to be at a rate of 41.5% of pretax income before
goodwill amortization.
55
<PAGE>
WESTERN AND PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
PRO FORMA EFFECT OF THE PENINSULA MERGER ASSUMING THE BKLA ACQUISITION IS NOT
CONSUMMATED
The following unaudited pro forma combined condensed financial data combines
the historical consolidated condensed financial statements of Western and
Peninsula, giving effect to the Merger as if it had been effective on June 30,
1998 and December 31, 1997, with respect to the Pro Forma Combined Condensed
Balance Sheets, and as of the beginning of the periods indicated, with respect
to the Pro Forma Combined Condensed Statements of Income. This information is
presented using the pooling-of-interests method of accounting. The unaudited pro
forma combined condensed financial data also combines the historical condensed
statements of income of SMB, acquired by Western on January 27, 1998, in a
merger accounted for under the purchase method of accounting, for the year ended
December 31, 1997 and the six months ended June 30, 1998 and 1997, as if the SMB
Merger occurred at the beginning of such periods. The information for the six
months ended June 30, 1998 and 1997 is derived from the unaudited financial
statements of each of Western, SMB and Peninsula, which includes, in the opinion
of the management of each of Western, SMB and Peninsula, all adjustments
(consisting only of normal accruals) necessary to present fairly the data for
such periods. This information should be read in conjunction with the historical
consolidated financial statements of Western, SMB and Peninsula, including their
respective notes thereto, which are included and/or incorporated by reference
into this Proxy Statement-Prospectus, and in conjunction with the combined
condensed historical selected financial data and other pro forma combined
financial information, including the notes thereto, appearing elsewhere in this
Proxy Statement-Prospectus. See "SUMMARY--Summary Historical Financial Data" and
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE". The effect of estimated
merger and reorganization costs expected to be incurred in connection with the
Merger have been reflected in the Unaudited Pro Forma Combined Condensed Balance
Sheets; however, since the estimated costs are nonrecurring, they have not been
reflected in the Unaudited Pro Forma Combined Condensed Statements of Income.
See "NOTES TO WESTERN AND PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL DATA ASSUMING THE BKLA ACQUISITION IS NOT CONSUMMATED--NOTE 2". The
unaudited pro forma combined condensed financial data does not give effect to
any anticipated operating efficiencies which may occur in conjunction with the
Merger. The Unaudited Pro Forma Combined Condensed Balance Sheets are not
necessarily indicative of the actual financial position that would have existed
had the Merger been consummated on June 30, 1998 or December 31, 1997, or that
may exist in the future. The Unaudited Pro Forma Combined Condensed Statements
of Income are not necessarily indicative of the results that would have occurred
had the Merger been consummated on the dates indicated or that may be achieved
in the future. Assuming the consummation of the Merger, the actual financial
position and results of operations will differ, perhaps significantly, from the
pro forma amounts reflected herein because of a variety of factors, including
changes in value and changes in operating results between the dates of the
unaudited pro forma financial data and the dates on which the Merger takes
place. See "RISK FACTORS".
56
<PAGE>
WESTERN AND PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AT
JUNE 30, 1998
<TABLE>
<CAPTION>
WESTERN AND
WESTERN PENINSULA PRO FORMA PENINSULA
(HISTORICAL) (HISTORICAL)(1) ADJUSTMENTS(2) PRO FORMA
----------- ------------- --------------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS:
Cash and due from banks................................ $ 155,940 $ 33,093 $ -- $ 189,033
Federal funds sold..................................... 177,329 19,500 -- 196,829
----------- ------------- ------- -----------
TOTAL CASH AND CASH EQUIVALENTS.................. 333,269 52,593 -- 385,862
Federal Reserve Bank and Federal Home Loan Bank stock,
at cost.............................................. 5,759 1,254 -- 7,013
Securities held to maturity............................ -- 82,341 -- 82,341
Securities available for sale.......................... 218,376 28,023 -- 246,399
----------- ------------- ------- -----------
TOTAL SECURITIES................................. 224,135 111,618 -- 335,753
Net loans.............................................. 1,249,930 240,785 -- 1,490,715
Property, plant and equipment.......................... 32,034 11,907 -- 43,941
Other real estate owned................................ 4,946 -- -- 4,946
Goodwill and other intangible assets................... 145,525 108 -- 145,633
Other assets........................................... 26,910 11,261 2,400 40,571
----------- ------------- ------- -----------
TOTAL ASSETS..................................... $2,016,749 $ 428,272 $ 2,400 $2,447,421
----------- ------------- ------- -----------
----------- ------------- ------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing deposits.......................... $ 637,837 $ 143,342 $ -- $ 781,179
Interest bearing deposits.............................. 1,059,515 253,713 -- 1,313,228
----------- ------------- ------- -----------
TOTAL DEPOSITS................................... 1,697,352 397,055 -- 2,094,407
Borrowed funds......................................... 15,756 600 -- 16,356
Accrued interest payable and other liabilities......... 14,495 3,359 8,515 26,369
----------- ------------- ------- -----------
TOTAL LIABILITIES................................ 1,727,603 401,014 8,515 2,137,132
SHAREHOLDERS' EQUITY:
Preferred stock........................................ -- -- -- --
Common stock and additional paid in capital............ 263,257 19,017 -- 282,274
Retained earnings...................................... 25,819 8,269 (6,115) 27,973
Other comprehensive income (loss)...................... 70 (28) -- 42
----------- ------------- ------- -----------
TOTAL SHAREHOLDERS' EQUITY....................... 289,146 27,258 (6,115) 310,289
----------- ------------- ------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....... $2,016,749 $ 428,272 $ 2,400 $2,447,421
----------- ------------- ------- -----------
----------- ------------- ------- -----------
Number of common shares outstanding (1)................ 15,703.8 2,486.9 18,635.9
Common shareholders' equity per share (1).............. $ 18.41 $ 10.96 $ 16.65
Tangible common shareholders' equity per share (1)..... $ 9.15 $ 10.92 $ 8.84
</TABLE>
See "NOTES TO WESTERN AND PENINSULA UNAUDITED
PRO FORMA COMBINED CONDENSED FINANCIAL DATA ASSUMING
THE BKLA ACQUISITION IS NOT CONSUMMATED".
57
<PAGE>
WESTERN AND PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AT
DECEMBER 31, 1997
<TABLE>
<CAPTION>
WESTERN AND
WESTERN PENINSULA PRO FORMA PENINSULA
(HISTORICAL) (HISTORICAL)(1) ADJUSTMENTS(2) PRO FORMA
----------- -------------- --------------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS:
Cash and due from banks............................................. $ 97,456 $ 33,614 $ -- $ 131,070
Federal funds sold.................................................. 138,702 6,000 -- 144,702
----------- -------------- ------- -----------
Total cash and cash equivalents................................. 236,158 39,614 -- 275,772
Federal Reserve Bank and Federal Home Loan Bank stock, at cost...... 5,610 1,032 -- 6,642
Securities held to maturity......................................... -- 86,050 -- 86,050
Securities available for sale....................................... 201,904 37,959 -- 239,863
----------- -------------- ------- -----------
Total securities................................................ 207,514 125,041 -- 332,555
Net loans........................................................... 864,840 232,198 -- 1,097,038
Property, plant and equipment....................................... 13,685 11,514 -- 25,199
Other real estate owned............................................. 6,261 259 -- 6,520
Goodwill and other intangible assets................................ 30,430 98 -- 30,528
Other assets........................................................ 24,622 9,521 2,400 36,543
----------- -------------- ------- -----------
Total assets.................................................... $ 1,383,510 $ 418,245 $ 2,400 $1,804,155
----------- -------------- ------- -----------
----------- -------------- ------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing deposits....................................... $ 457,503 $ 121,657 $ -- $ 579,160
Interest bearing deposits........................................... 769,290 267,575 -- 1,036,865
----------- -------------- ------- -----------
Total deposits.................................................. 1,226,793 389,232 -- 1,616,025
Borrowed funds...................................................... 12,751 600 -- 13,351
Accrued interest payable and other liabilities...................... 14,311 3,057 8,515 25,883
----------- -------------- ------- -----------
Total liabilities............................................... 1,253,855 392,889 8,515 1,655,259
SHAREHOLDERS' EQUITY:
Preferred stock..................................................... -- -- -- --
Common stock........................................................ 112,947 19,017 -- 131,964
Retained earnings................................................... 16,802 6,407 (6,115) 17,094
Other comprehensive income (loss)................................... (94) (68) -- (162)
----------- -------------- ------- -----------
TOTAL SHAREHOLDERS' EQUITY...................................... 129,655 25,356 (6,115) 148,896
----------- -------------- ------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................... $ 1,383,510 $ 418,245 $ 2,400 $1,804,155
----------- -------------- ------- -----------
----------- -------------- ------- -----------
Number of common shares outstanding (1)............................. 10,648.3 2,486.9 13,580.4
Common shareholders' equity per share (1)........................... $ 12.18 $ 10.20 $ 10.96
Tangible common shareholders' equity per share (1).................. $ 9.32 $ 10.16 $ 8.72
</TABLE>
See "NOTES TO WESTERN AND PENINSULA UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL DATA ASSUMING THE BKLA ACQUISITION IS NOT CONSUMMATED".
58
<PAGE>
WESTERN AND PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
SMR WESTERN,
WESTERN JANUARY PRO FORMA WESTERN AND PENINSULA SMB AND
(HISTORICAL) (HISTORICAL) ADJUSTMENTS(3) SMB (HISTORICAL)(1) PENINSULA
----------- ----------- ----------------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INTEREST INCOME:
Interest and fees on loans and leases... $ 56,671 $ 3,185 $ -- $ 59,856 $ 10,885 $ 70,741
Interest on interest bearing deposits in
other banks........................... -- -- -- -- 116 116
Interest on investment securities....... 6,966 616 -- 7,582 3,355 10,937
Interest on federal funds sold.......... 5,285 365 (235) 5,415 378 5,793
----------- ----------- ----- ----------- -------------- ----------
TOTAL INTEREST INCOME............... 68,922 4166 (235) 72853 14,734 87,587
INTEREST EXPENSE:
Interest expense on deposits............ 17,762 1,180 -- 18,942 4,388 23,330
Interest expense on borrowings.......... 556 16 -- 572 40 612
----------- ----------- ----- ----------- -------------- ----------
TOTAL INTEREST EXPENSE.............. 18,318 1,196 -- 19,514 4,428 23,942
----------- ----------- ----- ----------- -------------- ----------
NET INTEREST INCOME:...................... 50,604 2,970 (235) 53,339 10,306 63,645
Less: provision for loan and lease
losses................................ 300 80 -- 380 139 519
----------- ----------- ----- ----------- -------------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN AND LEASE LOSSES................... 50,304 2,890 (235) 52,959 10,167 63,126
NON-INTEREST INCOME:
Service charges, commissions and fees... 7,250 595 -- 7,845 1,994 9,839
Securities gains........................ 155 -- -- 155 30 185
Other income............................ 453 19 -- 472 428 900
----------- ----------- ----- ----------- -------------- ----------
TOTAL NON-INTEREST INCOME........... 7,858 614 -- 8,472 2,452 10,924
NON-INTEREST EXPENSE:
Salaries and benefits................... 17,725 1,123 (11) 18,837 5,289 24,126
Occupancy, furniture and equipment...... 5,328 347 23 5,698 1,301 6,999
Advertising and business development.... 566 58 -- 624 316 940
Other real estate owned................. (205) 9 -- (196) 32 (164)
Professional services................... 1,657 73 -- 1,730 215 1,945
Telephone, stationery and supplies...... 1,437 55 -- 1,492 369 1,861
Goodwill amortization................... 4,561 -- 665 5,226 -- 5,226
Data processing......................... 1,126 9 -- 1,135 358 1,493
Customer services cost.................. 842 8 -- 850 648 1,498
Merger costs............................ -- 429 -- 429 -- 429
Other................................... 2,476 239 -- 2,715 525 3,240
----------- ----------- ----- ----------- -------------- ----------
TOTAL NON-INTEREST EXPENSE.......... 35,513 2,350 677 38,540 9,053 47,593
----------- ----------- ----- ----------- -------------- ----------
Income before income taxes................ 22,649 1,154 (912) 22,891 3,566 26,457
Income taxes.............................. 11,142 463 (102) 11,503 1,337 12,840
----------- ----------- ----- ----------- -------------- ----------
NET INCOME.......................... $ 11,507 $ 691 $ (810) $ 11,388 $ 2,229 $ 13,617
----------- ----------- ----- ----------- -------------- ----------
----------- ----------- ----- ----------- -------------- ----------
PER SHARE INFORMATION (1):
Number of shares (weighted average)
Basic................................. 14,821.5 7,084.2 -- 15,650.5 2,486.9 18,582.6
Diluted............................... 15,040.0 7,084.2 -- 15,869.0 2,486.9 18,801.1
Income per share
Basic................................. $ 0.78 $ 0.10 -- $ 0.73 $ 0.90 $ 0.73
Diluted............................... $ 0.77 $ 0.10 -- $ 0.72 $ 0.90 $ 0.72
</TABLE>
See "NOTES TO WESTERN AND PENINSULA UNAUDITED
PRO FORMA COMBINED CONDENSED FINANCIAL DATA ASSUMING
THE BKLA ACQUISITION IS NOT CONSUMMATED".
59
<PAGE>
WESTERN AND PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
WESTERN,
WESTERN SMB PRO FORMA WESTERN PENINSULA SMB AND
(HISTORICAL) (HISTORICAL) ADJUSTMENTS(3) AND SMB (HISTORICAL)(1) PENINSULA
----------- ----------- --------------- ---------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases...... $ 38,605 $ 18,106 $ -- $ 56,711 $ 9,984 $ 66,695
Interest on interest bearing deposits in
other banks.............................. -- -- -- -- 12 12
Interest on investment securities.......... 8,500 4,030 -- 12,530 2,636 15,166
Interest on federal funds sold............. 1,653 1,680 (1,408) 1,925 165 2,090
----------- ----------- ------- ---------- ------------- -----------
TOTAL INTEREST INCOME.................. 48,758 23,816 (1,408) 71,166 12,797 83,963
INTEREST EXPENSE:
Interest expense on deposits............... 13,736 6,898 -- 20,634 3,963 24,597
Interest expense on borrowings............. 594 98 -- 692 29 721
----------- ----------- ------- ---------- ------------- -----------
TOTAL INTEREST EXPENSE................. 14,330 6,996 -- 21,326 3,992 25,318
----------- ----------- ------- ---------- ------------- -----------
NET INTEREST INCOME: 34,428 16,820 (1,408) 49,840 8,805 58,645
Less: provision for loan and lease losses.. 1,400 -- -- 1,400 325 1,725
----------- ----------- ------- ---------- ------------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
AND LEASE LOSSES........................... 33,028 16,820 (1,408) 48,440 8,480 56,920
NON--INTEREST INCOME:
Service charges and fees................... 3,838 3,416 -- 7,254 1,602 8,856
Gain on sale of loans and other assets..... 78 -- -- 78 -- 78
Securities gains........................... 342 -- -- 342 5 347
Other income............................... 770 118 -- 888 434 1,322
----------- ----------- ------- ---------- ------------- -----------
TOTAL NON--INTEREST INCOME............. 5,028 3,534 -- 8,562 2,041 10,603
NON--INTEREST EXPENSE:
Salaries and benefits...................... 12,715 7,064 (66) 19,713 4,482 24,195
Occupancy, furniture and equipment......... 3,889 2,068 137 6,094 1,128 7,222
Advertising and business development....... 596 426 -- 1,022 296 1,318
Other real estate owned.................... 69 (517) -- (448) 61 (387)
Professional services...................... 1,753 953 -- 2,706 230 2,936
Telephone, stationery and supplies......... 1,420 327 -- 1,747 334 2,081
Goodwill amortization...................... 1,270 -- 3,989 5,259 -- 5,259
Data processing............................ 791 61 -- 852 343 1,195
Customer services cost..................... 559 72 -- 631 427 1,058
Merger costs............................... 3,470 -- -- 3,470 -- 3,470
Other...................................... 3,268 1,232 -- 4,500 503 5,003
----------- ----------- ------- ---------- ------------- -----------
TOTAL NON--INTEREST EXPENSE............ 29,800 11,686 4,060 45,546 7,804 53,350
----------- ----------- ------- ---------- ------------- -----------
Income before income taxes................. 8,256 8,668 (5,468) 11,456 2,717 14,173
Income taxes............................... 4,811 3,004 (614) 7,201 1,044 8,245
----------- ----------- ------- ---------- ------------- -----------
NET INCOME............................. $ 3,445 $ 5,664 $ (4,854) $ 4,255 $ 1,673 $ 5,928
----------- ----------- ------- ---------- ------------- -----------
----------- ----------- ------- ---------- ------------- -----------
PER SHARE INFORMATION(1):
Number of shares (weighted average)
Basic.................................... 10,492.5 7,084.2 -- 15,466.0 2,486.9 18,398.1
Diluted.................................. 10,778.3 7,084.2 -- 15,751.8 2,486.9 18,683.9
Income per share
Basic.................................... $ 0.33 $ 0.80 -- $ 0.28 $ 0.67 $ 0.32
Diluted.................................. $ 0.32 $ 0.80 -- $ 0.27 $ 0.67 $ 0.32
</TABLE>
See "NOTES TO WESTERN AND PENINSULA UNAUDITED
PRO FORMA COMBINED CONDENSED FINANCIAL DATA ASSUMING
THE BKLA ACQUISITION IS NOT CONSUMMATED".
60
<PAGE>
WESTERN AND PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
WESTERN,
WESTERN SMB PRO FORMA WESTERN PENINSULA SMB AND
(HISTORICAL) (HISTORICAL) ADJUSTMENTS(3) AND SMB (HISTORICAL)(1) PENINSULA
----------- ----------- -------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INTEREST INCOME:
Interest and fees on loans and leases...... $ 80,639 $ 36,794 $ -- $ 117,433 $ 20,682 $ 138,115
Interest on interest bearing deposits in
other banks.............................. -- -- -- -- 91 91
Interest on investment securities.......... 15,714 8,922 -- 24,636 6,011 30,647
Interest on federal funds sold............. 4,681 3,652 (2,816) 5,517 481 5,998
----------- ----------- -------------- ---------- ------------- ----------
TOTAL INTEREST INCOME.................. 101,034 49,368 (2,816) 147,586 27,265 174,851
INTEREST EXPENSE:
Interest expense on deposits............... 28,276 14,575 -- 42,851 8,527 51,378
Interest expense on borrowings............. 1,082 196 -- 1,278 73 1,351
----------- ----------- -------------- ---------- ------------- ----------
TOTAL INTEREST EXPENSE................. 29,358 14,771 -- 44,129 8,600 52,729
----------- ----------- -------------- ---------- ------------- ----------
NET INTEREST INCOME:......................... 71,676 34,597 (2,816) 103,457 18,665 122,122
Less: provision for loan and lease losses.. 2,800 -- -- 2,800 498 3,298
----------- ----------- -------------- ---------- ------------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
AND LEASE LOSSES........................... 68,876 34,597 (2,816) 100,657 18,167 118,824
NON-INTEREST INCOME:
Service charges, commissions and fees...... 7,533 7,032 -- 14,565 3,266 17,831
Gain on sale of loans and other assets..... 78 -- -- 78 247 325
Securities gains........................... 342 13 -- 355 60 415
Other income............................... 1,733 229 -- 1,962 551 2,513
----------- ----------- -------------- ---------- ------------- ----------
TOTAL NON-INTEREST INCOME.............. 9,686 7,274 -- 16,960 4,124 21,084
NON-INTEREST EXPENSE:
Salaries and benefits...................... 25,023 14,661 (131) 39,553 9,630 49,183
Occupancy, furniture and equipment......... 7,843 4,151 274 12,268 2,557 14,825
Advertising and business development....... 1,225 844 -- 2,069 690 2,759
Other real estate owned.................... 242 (547) -- (305) 114 (191)
Professional services...................... 3,706 1,444 -- 5,150 407 5,557
Telephone, stationery and supplies......... 2,735 632 -- 3,367 685 4,052
Goodwill amortization...................... 2,538 -- 7,977 10,515 -- 10,515
Data processing............................ 1,667 116 -- 1,783 705 2,488
Customer services cost..................... 1,263 265 -- 1,528 955 2,483
Merger related costs....................... 14,201 1,052 -- 15,253 -- 15,253
Other...................................... 5,314 2,441 -- 7,755 1,239 8,994
----------- ----------- -------------- ---------- ------------- ----------
TOTAL NON-INTEREST EXPENSE............. 65,757 25,059 8,120 98,936 16,982 115,918
----------- ----------- -------------- ---------- ------------- ----------
Income before income taxes................... 12,805 16,812 (10,936) 18,681 5,309 23,990
Income taxes................................. 9,643 5,905 (1,228) 14,320 1,708 16,028
----------- ----------- -------------- ---------- ------------- ----------
NET INCOME............................. $ 3,162 $ 10,907 $ (9,708) $ 4,361 $ 3,601 $ 7,962
----------- ----------- -------------- ---------- ------------- ----------
----------- ----------- -------------- ---------- ------------- ----------
PER SHARE INFORMATION(1):
Number of shares (weighted average)
Basic.................................... 10,523.9 7,084.2 15,497.4 2,486.9 18,429.5
Diluted.................................. 10,731.6 7,084.2 15,705.1 2,486.9 18,637.2
Income per share
Basic.................................... $ 0.30 $ 1.54 $ 0.28 $ 1.45 $ 0.43
Diluted.................................. $ 0.29 $ 1.54 $ 0.28 $ 1.45 $ 0.43
</TABLE>
See "NOTES TO WESTERN AND PENINSULA UNAUDITED
PRO FORMA COMBINED CONDENSED FINANCIAL DATA ASSUMING
THE BKLA ACQUISITION IS NOT CONSUMMATED".
61
<PAGE>
WESTERN AND PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
WESTERN
WESTERN PENINSULA AND
(HISTORICAL) (HISTORICAL) PENINSULA
----------- ----------- ----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
INTEREST INCOME:
Interest and fees on loans and leases.................................... $ 58,374 $ 19,286 $ 77,660
Interest on interest bearing deposits in other banks..................... 3 9 12
Interest on investment securities........................................ 12,862 4,621 17,483
Interest on federal funds sold........................................... 2,998 336 3,334
----------- ----------- ----------
TOTAL INTEREST INCOME................................................ 74,237 24,252 98,489
INTEREST EXPENSE:
Interest expense on deposits............................................. 21,382 7,689 29,071
Interest expense on borrowings........................................... 929 77 1,006
----------- ----------- ----------
TOTAL INTEREST EXPENSE............................................... 22,311 7,766 30,077
----------- ----------- ----------
NET INTEREST INCOME:....................................................... 51,926 16,486 68,412
Less: provision for loan and lease losses................................ 1,018 566 1,584
----------- ----------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES.............. 50,908 15,920 66,828
NON-INTEREST INCOME:
Service charges, commissions and fees.................................... 7,485 3,104 10,589
Gain on sale of loans and other assets................................... 665 81 746
Securities gains......................................................... 281 -- 281
Other income............................................................. 1,444 460 1,904
----------- ----------- ----------
TOTAL NON-INTEREST INCOME............................................ 9,875 3,645 13,520
NON-INTEREST EXPENSE:
Salaries and benefits.................................................... 23,016 8,555 31,571
Occupancy, furniture and equipment....................................... 7,649 2,223 9,872
Advertising and business development..................................... 1,342 559 1,901
Other real estate owned.................................................. (134) 144 10
Professional services.................................................... 6,054 326 6,380
Telephone, stationery and supplies....................................... 2,201 629 2,830
Goodwill amortization.................................................... 1,004 -- 1,004
Data processing.......................................................... 1,064 634 1,698
Customer services cost................................................... 510 894 1,404
Other.................................................................... 5,432 670 6,102
----------- ----------- ----------
TOTAL NON-INTEREST EXPENSE........................................... 48,138 14,634 62,772
----------- ----------- ----------
Income before income taxes................................................. 12,645 4,931 17,576
Income taxes............................................................... 3,656 1,877 5,533
----------- ----------- ----------
NET INCOME........................................................... $ 8,989 $ 3,054 $ 12,043
----------- ----------- ----------
----------- ----------- ----------
PER SHARE INFORMATION (1):
Number of shares (weighted average)
Basic.................................................................. 8,095.7 2,486.9 11,027.8
Diluted................................................................ 8,248.4 2,486.9 11,180.5
Income per share
Basic.................................................................. $ 1.11 $ 1.23 $ 1.09
Diluted................................................................ $ 1.09 $ 1.23 $ 1.08
</TABLE>
See "NOTES TO WESTERN AND PENINSULA UNAUDITED
PRO FORMA COMBINED CONDENSED FINANCIAL DATA ASSUMING
THE BKLA ACQUISITION IS NOT CONSUMMATED".
62
<PAGE>
WESTERN AND PENINSULA
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
WESTERN
WESTERN PENINSULA AND
(HISTORICAL) (HISTORICAL) PENINSULA
----------- ----------- ----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
INTEREST INCOME:
Interest and fees on loans and leases..................................... $ 49,014 $ 17,671 $ 66,685
Interest on interest bearing deposits in other banks...................... 43 41 84
Interest on investment securities......................................... 10,726 3,849 14,575
Interest on federal funds sold............................................ 2,846 348 3,194
----------- ----------- ----------
TOTAL INTEREST INCOME................................................. 62,629 21,909 84,538
INTEREST EXPENSE:
Interest expense on deposits.............................................. 19,167 7,025 26,192
Interest expense on borrowings............................................ 637 70 707
----------- ----------- ----------
TOTAL INTEREST EXPENSE................................................ 19,804 7,095 26,899
----------- ----------- ----------
NET INTEREST INCOME:........................................................ 42,825 14,814 57,639
Less: provision for loan and lease losses................................. 8,564 470 9,034
----------- ----------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES............... 34,261 14,344 48,605
NON-INTEREST INCOME:
Service charges, commissions and fees..................................... 6,551 2,630 9,181
Gain on sale of loans and other assets.................................... 145 82 227
Securities gains (losses)................................................. (692) 32 (660)
Other income.............................................................. 1,822 395 2,217
----------- ----------- ----------
TOTAL NON-INTEREST INCOME............................................. 7,826 3,139 10,965
NON-INTEREST EXPENSE:
Salaries and benefits..................................................... 19,575 7,528 27,103
Occupancy, furniture and equipment........................................ 7,878 2,005 9,883
Advertising and business development...................................... 1,199 452 1,651
Other real estate owned................................................... 3,080 450 3,530
Professional services..................................................... 3,176 378 3,554
Telephone, stationery and supplies........................................ 2,337 512 2,849
Goodwill amortization..................................................... 821 -- 821
Lower of cost or market adjustment on loans available for sale............ 756 -- 756
Data processing........................................................... 822 499 1,321
Customer services cost.................................................... 184 690 874
Other..................................................................... 5,781 1,006 6,787
----------- ----------- ----------
TOTAL NON-INTEREST EXPENSE............................................ 45,609 13,520 59,129
----------- ----------- ----------
Income (loss) before income taxes........................................... (3,522) 3,963 441
Income taxes (benefits)..................................................... (1,733) 1,421 (312)
----------- ----------- ----------
NET INCOME (LOSS)..................................................... $ (1,789) $ 2,542 $ 753
----------- ----------- ----------
----------- ----------- ----------
PER SHARE INFORMATION (1):
Number of shares (weighted average)
Basic................................................................... 6,486.9 2,486.9 9,419.0
Diluted................................................................. 6,598.5 2,486.9 9,530.6
Income (loss) per share
Basic................................................................... $ (0.28) $ 1.02 $ 0.08
Diluted................................................................. $ (0.28) $ 1.02 $ 0.08
</TABLE>
See "NOTES TO WESTERN AND PENINSULA UNAUDITED
PRO FORMA COMBINED CONDENSED FINANCIAL DATA ASSUMING
THE BKLA ACQUISITION IS NOT CONSUMMATED".
63
<PAGE>
NOTES TO WESTERN AND PENINSULA UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
DATA ASSUMING THE BKLA ACQUISITION IS NOT CONSUMMATED
NOTE 1: BASIS OF PRESENTATION
Certain historical data of Peninsula have been reclassified on a pro forma
basis to conform to Western's classifications. Transactions between Western and
Peninsula are not material in relation to the unaudited pro forma combined
financial statements, and have not been eliminated from the pro forma combined
amounts. The unaudited pro forma number of common shares outstanding, common
shareholders' equity per share, number of shares (basic and diluted) and income
(loss) per share (basic and diluted) are based on the share amounts for Western
plus the historical share amounts for Peninsula multiplied by an assumed
exchange ratio of 1.179.
NOTE 2: MERGER COSTS
The unaudited pro forma combined condensed financial data reflects Western
Management's current estimate, for purposes of pro forma presentation, of the
aggregate estimated merger costs of $8,515,000 ($6,115,000 net of taxes,
computed using the combined federal and state tax rate of 41.5%) expected to be
incurred in connection with the Merger. While a portion of these costs may be
required to be recognized over time, the current estimate of these costs has
been recorded in the pro forma combined balance sheets in order to disclose the
aggregate effect of these activities on Western's pro forma combined financial
position. The estimated aggregate costs include the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Employee costs................................................................ $ 1,500
Conversion costs.............................................................. 1,000
Other costs................................................................... 3,300
-------
5,800
Tax effects................................................................... (2,400)
-------
3,400
Investment banking and other professional fees................................ 2,715
-------
TOTAL ESTIMATED AGGREGATE COSTS........................................... $ 6,115
-------
-------
</TABLE>
Western Management's cost estimates are forward-looking. While the costs
represent Western Management's current estimate of merger costs that will be
incurred, the ultimate level and timing of recognition of such costs will be
based on the final merger and integration plan to be completed prior to
consummation of the Merger, which will be developed by various of Western's and
Peninsula's task forces and integration committees. Readers are cautioned that
the completion of the merger and integration plan and the resulting management
plans detailing actions to be undertaken to effect the Merger and resultant
integration of operations will impact these estimates; the type and amount of
actual costs incurred could vary materially from these estimates if future
developments differ from the underlying assumptions used by management in
determining the current estimate of these costs.
NOTE 3: PRO FORMA ADJUSTMENTS RELATED TO THE SMB MERGER
The SMB Merger was accounted for as a purchase effective on January 27,
1998. Accordingly, Western's balance sheet as of June 30, 1998, reflects such
acquisition. Under this method of accounting, assets and liabilities of SMB were
adjusted to their estimated fair values and combined with the recorded book
values of the assets and liabilities of Western. Applicable income tax effects
of such adjustments are included as a component of Western's net deferred tax
asset with a corresponding offset to goodwill.
The unaudited pro forma combined condensed statements of income for the six
month periods ending June 30, 1998 and June 30, 1997 and for the year ended
December 31, 1997 are presented as if the SMB
64
<PAGE>
Merger was consummated at the beginning of each period. The pro forma combined
statements of income for these periods combine the individual pro forma results
of operations of Western and SMB for each period after giving effect to the
amortization of purchase accounting adjustments, the additional equity which was
raised by Western and the reduced interest income resulting from the cash
payments made as part of the SMB Merger. The pro forma purchase accounting
adjustments for each period represent the amortization that would have taken
place from the beginning of the period.
For the purposes of the unaudited pro forma combined condensed statement of
income, it is estimated that Western would have earned 5.50% on the $51.2
million cash portion of the SMB Merger purchase price during each period,
resulting in approximately $235,000 less interest income for the six month
period ended June 30, 1998, $1,408,000 less interest income for the six month
period ended June 30, 1997 and $2.8 million less interest income for the year
ended December 31, 1997.
Salaries and benefits expense is estimated to be reduced by approximately
$11,000, $66,000 and $131,000 for the six month period ended June 30, 1998, the
six month period ended June 30, 1997 and for the year ended December 31, 1997,
respectively, as a result of the write-off of the unrecognized transition
obligation related to post-retirement health care benefits.
For the year ended December 31, 1997, occupancy, furniture and equipment
expense increased by an estimated $194,000 of depreciation expense related to
the fair market value adjustment of SMB's property, plant and equipment and by
approximately $80,000 related to the amortization of favorable lease assets,
resulting in an approximately $274,000 additional expense. For the six month
periods ended June 30, 1998 and June 30, 1997, this additional expense is
$23,000 and $137,000, respectively.
Goodwill of approximately $119.7 million is amortized on a straight line
basis over 15 years.
Income taxes are estimated to be at a rate of 41.5% of pretax income before
goodwill amortization.
65
<PAGE>
THE SPECIAL MEETING OF PENINSULA SHAREHOLDERS
GENERAL
This Proxy Statement-Prospectus is furnished in connection with the
solicitation by the Peninsula Board of proxies representing Peninsula Common
Stock to be voted at the Peninsula Meeting to be held on , 1998, and
at any postponement or adjournment thereof.
MATTERS TO BE CONSIDERED AT THE PENINSULA SPECIAL MEETING
The purpose of the Peninsula Meeting is to (a) consider and vote upon the
principal terms of the Merger and (b) transact such other business as may
properly come before the Peninsula Meeting or any adjournments or postponements
thereof.
Based upon the 2,486,855 shares of Peninsula Common Stock outstanding on the
Peninsula Record Date and an assumed exchange ratio of 1.179 (which is the
Maximum Exchange Ratio), and assuming no Dissenters' Rights are perfected by
Peninsula Shareholders and no cash is paid in lieu of fractional shares,
2,932,002 shares of Western Common Stock would be issued in the Merger. Based
upon the [15,708,087] shares of Western Common Stock outstanding on the
Peninsula Record Date and an assumed exchange ratio of 1.179, and assuming no
Dissenters' Rights are perfected by Peninsula Shareholders, and no cash is paid
in lieu of fractional shares, shares held by Peninsula Shareholders after
consummation of the Merger would represent [14.2%] of Western Common Stock.
Consummation of the Merger is subject to satisfaction of a number of conditions,
including the receipt of various regulatory approvals for the Merger and the
approval of the principal terms of the Merger by Peninsula Shareholders. See
"THE MERGER AGREEMENT--Conditions".
THE PENINSULA RECORD DATE
The Peninsula Board has fixed the close of business on , 1998 as
the Peninsula Record Date for the determination of the Peninsula Shareholders
entitled to receive notice of, and to vote at, the Peninsula Meeting. Only
holders of record of shares of Peninsula Common Stock at the close of business
on the Peninsula Record Date will be entitled to notice of, and to vote at, the
Peninsula Meeting and any postponements or adjournments thereof. On the
Peninsula Record Date, shares of Peninsula Common Stock were issued and
outstanding.
VOTES REQUIRED AND VOTING OF PROXIES
At the Peninsula Meeting, a majority of all shares of Peninsula Common Stock
entitled to vote, represented in person or by proxy, constitutes a quorum.
Abstentions will each be included in the determination of the number of shares
present; however, they will not be counted as votes in favor of the principal
terms of the Merger. Each share of Peninsula Common Stock held of record will be
entitled to one vote upon each matter properly submitted to the Peninsula
Shareholders at the Peninsula Meeting and any postponement or adjournment
thereof.
The affirmative vote of the holders of at least a majority of the total
number of outstanding shares of Peninsula Common Stock entitled to vote at the
Peninsula Meeting is required to approve the principal terms of the Merger.
Consequently, the failure to vote, an abstention or a broker non-vote would each
have the same effect as a vote against the principal terms of the Merger.
Each share of Peninsula Common Stock represented by a proxy properly
executed and received by Peninsula in time to be voted at the Peninsula Meeting
and not revoked will be voted in accordance with the instructions indicated on
such proxy and, if no instructions are indicated, will be voted "FOR" the
proposal to approve the principal terms of the Merger. All proxies voted "FOR"
such matters, including proxies on which no instructions are indicated, may, at
the discretion of the proxy-holder, be voted "FOR" a motion to adjourn or
postpone the Peninsula Meeting to another time and/or place for the purpose of
66
<PAGE>
soliciting additional proxies or otherwise. Any proxy that is voted against
approval of the principal terms of the Merger or on which the relevant Peninsula
Shareholder specifically abstains from voting with respect to such approval will
not be voted in favor of any such adjournment or postponement.
The Peninsula Board is not currently aware of any business to be acted upon
at the Peninsula Meeting other than as described herein. If, however, other
matters are properly brought before the Peninsula Meeting, persons appointed as
proxies will have discretion to vote or act thereon in their best judgment.
Certain Peninsula Shareholders, all of whom are officers or directors of
Peninsula, with the ability to direct the voting of approximately 35.8% of
Peninsula Common Stock outstanding on the Peninsula Record Date have agreed,
among other things, to vote "FOR" the adoption and approval of the Merger
Agreement and the Merger. However, the shareholders/directors or officers are
bound by the Shareholder Agreements to vote "FOR" the adoption and approval of
the Merger Agreement only in their capacity as shareholders. As directors or
officers, they are bound by their fiduciary duties to act in the best interest
of Peninsula. See "THE SHAREHOLDER AGREEMENTS".
If a quorum is not obtained, or fewer shares of Peninsula Common Stock are
voted in favor of the principal terms of the Merger than the number required for
approval of the principal terms of the Merger, in accordance with Section 602 of
the CGCL, it is expected that the Peninsula Meeting will be postponed or
adjourned for the purpose of allowing additional time to obtain additional
proxies or votes, and at any subsequent reconvening of the Peninsula Meeting,
all proxies will be voted in the same manner as such proxies would have been
voted at the original convening of the Peninsula Meeting (except for any proxies
that have theretofore effectively been revoked or withdrawn).
SOLICITATION OF PROXIES
The cost of soliciting proxies relating to the Peninsula Meeting will be
paid by Peninsula. In addition to solicitation of proxies by the use of mail,
directors, officers and employees of Peninsula and its subsidiaries may solicit
proxies from Peninsula Shareholders personally or by telephone or telegram
without additional remuneration therefor. Peninsula also will provide persons,
firms, banks and corporations holding shares in their names or in the names of
nominees, which in any case are beneficially owned by others, with proxy
materials for transmittal to such beneficial owners and will reimburse such
record owners for their expenses of doing so.
REVOCABILITY OF PROXIES
The presence of a Peninsula Shareholder at the Peninsula Meeting (or at any
postponement or adjournment thereof) will not automatically revoke such
Peninsula Shareholder's proxy. However, a Peninsula Shareholder may revoke a
proxy at any time prior to its exercise by (a) delivery to the Secretary of
Peninsula of a written notice of revocation prior to the vote with respect
thereto; (b) delivery to the Secretary of Peninsula prior to the vote with
respect thereto of a duly executed proxy bearing a later date; or (c) attending
the Peninsula Meeting (or, if the Peninsula Meeting is adjourned or postponed,
by attending the adjourned or postponed meeting) and voting in person thereat.
Any written revocation of proxy or other related communications should be
addressed to Barbara A. Hosaka, Secretary of Peninsula, 1322 Scott Street, Suite
203, San Diego, California 92106.
67
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PENINSULA
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED AT
YEAR FIRST ELECTED SEPTEMBER 14, 1998
OR APPOINTED A --------------------------------------
DIRECTOR OR CURRENT NUMBER OF PERCENTAGE OF
NAME AND POSITIONS PRINCIPAL OCCUPATION POSITION SHARES(1) SHARES OUTSTANDING
- ------------------------------ ------------------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Lawrence G. Alameda........... Executive Vice President 1983 31,542 1.27%
Executive Officer and Chief Lending
Officer
Grace Evans Cherashore........ CEO, Evans Hotels 1994 4,469 *
Director
William E. Cole............... Certified Public 1975 129,935 5.22%
Director Accountant
Arthur DeFever................ Naval Architect 1975 277,309 11.15%
Director
James E. Fink................. President, San Diego 1975 2,517 *
Director Aircraft Engineering,
Inc.
Brian Gowland................. Retired Banker 1996 2,376 *
Director
Daniel Herde.................. Retired Banker 1996 1,772 *
Director
Barbara A. Hosaka............. Executive Vice President 1990 9,933 *
Executive Officer and Chief Operating
Officer
Richard J. Lareau............. Architect; President 1975 28,593 1.15%
Director Richard John Lareau &
Associates
Anthony Mauricio, Jr.......... President, Mauricio and 1975 78,491 3.16%
Director Sons, Inc.
Michael Morton................ President, The Brigantine 1994 1,273 *
Director
John G. Rebelo, Jr............ Chairman of the Board and 1975 289,541 11.64%
Director and Executive Chief Executive Officer
Officer
Larry L. Willette............. President and Chief 1996 33,856 1.36%
Executive Officer Administrative Officer
------- -------
Directors and Executive
Officers as a group (13
persons).................... 891,607 35.80%
------- -------
------- -------
</TABLE>
- ------------------------------
* Less than 1%
(1) The term "beneficial owner" includes any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship, or otherwise
has or shares: (a) voting power, which includes the power to vote, or to
direct the voting power, of such security; and/or (b) investment power,
which includes the power to dispose, or to direct the disposition of, such
security.
DISSENTERS' RIGHTS
If the principal terms of the Merger are approved by the Peninsula
Shareholders, holders of Peninsula Common Stock who do not vote in favor of
approval of the principal terms of the Merger may be entitled to have their
shares purchased in accordance with Chapter 13 of the CGCL. IN ORDER FOR A
PENINSULA SHAREHOLDER TO EXERCISE DISSENTERS' RIGHTS, SUCH SHAREHOLDER MUST NOT
VOTE IN FAVOR OF THE PRINCIPAL TERMS OF THE MERGER, MUST SEND A NOTICE OF SUCH
SHAREHOLDER'S INTENTION TO EXERCISE HIS OR HER DISSENTERS' RIGHTS AND DEMAND
PAYMENT FOR HIS OR HER SHARES AS PROVIDED IN THE CGCL TO BE RECEIVED BY
PENINSULA WITHIN 30 DAYS AFTER THE DATE ON WHICH PENINSULA MAILS TO SUCH
SHAREHOLDER A NOTICE OF THE APPROVAL OF THE MERGER BY THE PENINSULA SHAREHOLDERS
AND SUCH SHAREHOLDER MUST COMPLY WITH SUCH OTHER PROCEDURES AS ARE REQUIRED BY
THE CGCL, AS MORE FULLY DESCRIBED BELOW IN "THE MERGER--DISSENTERS' RIGHTS".
VOTING IN FAVOR OF THE PRINCIPAL TERMS OF THE MERGER OR FAILING TO TIMELY SEND
SUCH NOTICE OR TO FOLLOW SUCH OTHER PROCEDURES WILL RESULT IN A WAIVER OF SUCH
SHAREHOLDER'S DISSENTERS' RIGHTS. See "THE MERGER--Dissenters' Rights" for a
discussion of Dissenters' Rights and a description of the procedures that must
be followed to perfect such rights.
68
<PAGE>
THE MERGER
THIS SECTION OF THE PROXY STATEMENT-PROSPECTUS DESCRIBES CERTAIN ASPECTS OF
THE PROPOSED MERGER, AND SUCH INFORMATION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT-PROSPECTUS, INCLUDING THE APPENDICES HERETO, AND THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE. A COPY OF THE MERGER AGREEMENT IS SET FORTH AS
APPENDIX A TO THIS PROXY STATEMENT-PROSPECTUS AND THE TEXT THEREOF IS
INCORPORATED HEREIN BY REFERENCE, AND REFERENCE IS MADE THERETO FOR A COMPLETE
DESCRIPTION OF THE TERMS OF THE MERGER. SHAREHOLDERS ARE URGED TO READ CAREFULLY
THE MERGER AGREEMENT AND EACH OF THE OTHER APPENDICES HERETO IN THEIR ENTIRETY.
BACKGROUND AND REASONS FOR THE MERGER
Western and Peninsula each conduct general banking operations in Southern
California. In serving individuals, small businesses and mid-market
corporations, each historically has focused on a community-based approach to
banking. Management of each of Western and Peninsula has been cognizant of the
rapidly changing structure of the banking market in Southern California, in part
as a result of the severe problems associated with the savings and loan industry
and the problems experienced by other independent banks within the region during
the recent recession. As is the case throughout the United States, the
managements of Western and Peninsula believe that a process of consolidation
will continue to occur in the Southern California financial services industry
resulting in, among other things, a reduction in the number of community and
independent banks.
In order to compete effectively with the larger financial institutions that
Western Management believed would result from the various consolidations and
mergers in the industry locally, Western Management saw a need to expand
prudently and recognized the opportunity to build a larger regional, independent
financial institution with operations in the Southern California market.
Accordingly, as a part of its effort to achieve long-term stable profitability,
Western has explored acquisition opportunities to achieve greater market share
in San Diego County, as well as in Los Angeles and Orange Counties.
Peninsula Management perceived the same challenges and opportunities. The
pace of financial institution consolidation in California, already rapid,
appeared to be accelerating and larger institutions were attempting to increase
their share of the market served by Peninsula. At the same time, community banks
were combining and providing greater competition. Peninsula Management examined
prospects for internal growth, growth by acquisition of one or more financial
institutions and the possibility of a combination with a strong partner that
shared a common vision and was focused on markets demographically similar to
those served by Peninsula.
By mid-1997, the economy in California had improved significantly, and along
with it the prices of California bank stocks had also risen. In August 1997,
John Eggemeyer, President of BPI, a company which provides financial and
consulting services to Western, requested a meeting with Peninsula's Chief
Executive Officer, John G. Rebelo, Jr. Mr. Eggemeyer expressed an interest on
behalf of Western in having Peninsula consider becoming part of Western. Mr.
Rebelo indicated that he would take the idea to the Peninsula Board for
discussion. In November 1997, Peninsula requested NationsBanc Montgomery to
deliver to the Peninsula Board an oral presentation that would compare
Peninsula's financial performance to its peers; assess the current economic
environment and the California bank merger environment; and summarize strategic
alternatives generally available to a bank. With the authority of the Peninsula
Board, Mr. Rebelo and Peninsula's outside counsel met with NationsBanc
Montgomery in the following two months to discuss valuation trends, potential
acquisition candidates and strategic alternatives.
In February 1998, Peninsula retained NationsBanc Montgomery as its
investment bank to perform general investment banking services, including
advising it on strategic alternatives. In this role, NationsBanc Montgomery
provided Peninsula with financial summaries and public information regarding
Western and other banks that had previously indicated an interest in merger
discussions. In addition, pro forma analyses were provided of Western and
Peninsula, as well as a profile of nine other potential
69
<PAGE>
partners. By mid-April 1998, Peninsula's Executive Committee was ready to
proceed further and asked NationsBanc Montgomery to prepare a summary
confidential memorandum on Peninsula. The Executive Committee decided that if a
sale of Peninsula were to take place, it would be in the best interest of the
shareholders, employees and customers of Peninsula if the potential acquirors
approached were limited to a select group of highly qualified banks selected
upon ability to pay, potential interest in the San Diego market and other
criteria the Executive Committee deemed appropriate. Consequently, NationsBanc
Montgomery approached six potential buyers. Four of the six potential buyers
contacted returned confidentiality agreements signaling interest in reviewing
the confidential memorandum and potentially proceeding further with possible
merger discussions. In May 1998, Peninsula engaged NationsBanc Montgomery to
identify opportunities including a potential sale of Peninsula.
In June 1998, Western and one of the other three potential buyers returned
preliminary indications of interest to NationsBanc Montgomery, and both
conducted due diligence of Peninsula. Western and the other bidder submitted
"binding" offers on July 6, 1998. On July 7, 1998, the Peninsula Board met to
discuss the two bids and authorized NationsBanc Montgomery to pursue negotiation
of a definitive agreement with Western.
Between July 7, 1998 and July 24, 1998, the date of the Merger Agreement,
the management of Western and Peninsula, together with their respective outside
counsel, negotiated the terms of the Merger Agreement, the Stock Option
Agreement and the Shareholder Agreements. On July 23, 1998, at a meeting of the
Peninsula Board, NationsBanc Montgomery delivered its oral opinion that the
Consideration to be received was fair to such shareholders, as of the date of
such opinion. NationsBanc Montgomery's oral opinion was subsequently confirmed
in writing as of such date. At that meeting, the Peninsula Board approved and
adopted the Merger Agreement and the transactions contemplated by the Merger
Agreement as in the best interests of Peninsula and its shareholders. The
Peninsula Board also authorized the Peninsula Management to finalize the terms
of the Merger Agreement and the Stock Option Agreement.
The Western Board held a meeting on July 21, 1998, at which Western's
directors discussed the proposed Merger in detail with Western Management,
including the consideration to be paid by Western and the related transactions.
At such meeting, the Western Board approved the Merger Agreement and the various
matters and related agreements contemplated thereby and authorized and directed
Western Management to take all action reasonably necessary to effect the Merger.
On July 24, 1998, representatives of the management of each of Peninsula and
Western together with their respective counsel, met to finalize the terms of the
Merger Agreement and the Stock Option Agreement. At this meeting, Peninsula and
Western finalized the terms of such agreements and executed and delivered to
each other copies of such agreements. After close of the market on July 24,
1998, Western and Peninsula sent out a joint press release publicly announcing
the Merger.
The managements of Western and Peninsula believe that the two institutions
complement each other in their community-based approaches to banking and in
terms of their markets, both geographic and demographic. Consequently both
managements perceive opportunities for increased operating efficiencies through
combination and believe that, by combining forces, they will be able more
effectively to compete and successfully to take advantage of banking
opportunities in the rapidly evolving Southern California markets. Further, they
believe that the continuation of the separate identity of Peninsula and, subject
to the execution of new employment agreements, its current executive management
coupled with the added resources of Western will greatly enhance its future
prospects. See "RISK FACTORS--Ability to Integrate the Operations of Western and
Peninsula; Rapid Growth".
STRUCTURE OF THE MERGER
The Merger Agreement provides for the merger of Merger Sub, a wholly owned
subsidiary of Western, with and into Peninsula, with Peninsula being the
Surviving Bank, operating under that name. As more fully described below in "THE
MERGER AGREEMENT", in connection with the Merger, each
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share of Peninsula Common Stock issued and outstanding at the Effective Time
(other than (a) shares that have not been voted in favor of approval of the
principal terms of the Merger and with respect to which Dissenters' Rights have
been perfected in accordance with the CGCL and (b) shares held directly or
indirectly by Western, other than shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted in good faith) will be converted
automatically into, subject to the limitations set forth in the Merger Agreement
with respect to proration and fractional shares, the Consideration. Each share
of Western Common Stock outstanding immediately prior to the Effective Time will
remain outstanding after the Merger as one share of Western Common Stock. See
"THE MERGER AGREEMENT--The Merger".
RECOMMENDATION OF THE PENINSULA BOARD OF DIRECTORS
The Peninsula Board has unanimously approved the Merger and the Merger
Agreement and unanimously recommends that Peninsula Shareholders vote "FOR" the
approval of the principal terms of the Merger. In reaching its determination to
approve the Merger, the Peninsula Board analyzed Peninsula's alternatives for
enhancement of Peninsula Shareholder value, including Peninsula's prospects
under several assumptions, so as to be able to compare the value of a share of
Peninsula Common Stock with the Consideration as well as with comparable
transactions. At the same time, the Peninsula Board also reviewed the history of
Western and the prospects of Western if the Merger were consummated. The factors
that were examined as part of this analysis, include, but were not limited to
the following:
(a) A review of Peninsula's business, operations, financial condition
and earnings on an historical and a prospective basis;
(b) The increasing competition in Peninsula's markets from both existing
and potential competitors, some of whom have far greater assets and
resources, in part as a result of the consolidation taking place in the
banking industry;
(c) The efficacy of Peninsula's strategic plan under current competitive
conditions and actions which would increase financial performance and
shareholder value over the period of its projection;
(d) The consolidation of the banking industry nationally and in
California;
(e) A review of potential benefits for shareholders of a larger
organization with greater resources, increased operating efficiencies, an
increased lending limit and a stronger market position in Southern
California;
(f) The belief of the Peninsula Board and Management that a business
combination with Western would offer increased long-term value and liquidity
to current Peninsula Shareholders;
(g) The ability to retain the Peninsula identity and name and to
continue operations with the same executive officers, which was perceived to
be a significant advantage to the shareholders, employees and customers of
Peninsula.
(h) A comparison of the Western offer with reported transactions,
nationally and in California, by financial institutions with similar
characteristics; and
(i) The opinion of NationsBanc Montgomery dated July 23, 1998 that,
based upon, and subject to, the matters stated in that opinion, the
Consideration to be received by Peninsula Shareholders in the Merger was
fair to such shareholders from a financial point of view.
The foregoing discussion of material factors considered by the Peninsula
Board is not intended to be exhaustive but does set forth the principal factors
considered by the Peninsula Board. The Peninsula Board collectively reached the
unanimous conclusion to approve the Merger in light not only of the factors
described above but of such other factors as each Board member felt were
appropriate. The Peninsula
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Board did not assign relative or specific weights to any of the factors
described above and individual directors may have weighed such factors
differently.
FOR THE REASONS SET FORTH ABOVE, THE PENINSULA BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AS IN THE BEST INTERESTS OF PENINSULA AND ITS SHAREHOLDERS
AND UNANIMOUSLY RECOMMENDS THAT PENINSULA SHAREHOLDERS APPROVE THE PRINCIPAL
TERMS OF THE MERGER.
OPINION OF NATIONSBANC MONTGOMERY
GENERAL
Pursuant to an engagement letter dated February 18, 1998, Peninsula engaged
NationsBanc Montgomery to perform general investment banking services, including
advising it on strategic alternatives. In a subsequent engagement letter dated
May 21, 1998 (the "Engagement Letter"), Peninsula specifically engaged
NationsBanc Montgomery to identify opportunities for maximizing shareholder
value, including, among other things, a potential sale of Peninsula. As part of
its engagement, NationsBanc Montgomery agreed to render to the Peninsula Board
an opinion with respect to the fairness from a financial point of view of the
Consideration to be received by holders of Peninsula Common Stock in a potential
sale of Peninsula. NationsBanc Montgomery is a nationally recognized investment
banking firm and, as part of its investment banking activities, is regularly
engaged in the valuation of businesses and their securities in connection with
merger transactions and other types of acquisitions, negotiated underwritings,
private placements and valuations for corporate and other purposes. Peninsula
selected NationsBanc Montgomery to render the opinion on the basis of its
experience and expertise and its reputation in the banking and investment
communities.
At a meeting of the Peninsula Board on July 23, 1998, NationsBanc Montgomery
delivered its oral opinion (subsequently confirmed in writing) that the
Consideration to be received by the holders of Peninsula Common Stock pursuant
to the Merger was fair to such shareholders from a financial point of view, as
of the date of such opinion. In addition, NationsBanc Montgomery has confirmed
its July 23, 1998 opinion with its written opinion dated .
THE FULL TEXT OF NATIONSBANC MONTGOMERY'S WRITTEN OPINION TO THE PENINSULA
BOARD, DATED , WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS OF THE REVIEW BY NATIONSBANC MONTGOMERY, IS ATTACHED
HERETO AS APPENDIX B AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING
SUMMARY OF NATIONSBANC MONTGOMERY'S OPINION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION, WHICH SHOULD BE READ CAREFULLY AND IN
ITS ENTIRETY. IN FURNISHING SUCH OPINION, NATIONSBANC MONTGOMERY DOES NOT ADMIT
THAT IT IS AN EXPERT WITH RESPECT TO THE REGISTRATION STATEMENT OF WHICH THIS
PROXY STATEMENT-PROSPECTUS IS PART WITHIN THE MEANING OF THE TERM "EXPERT" AS
USED IN THE SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER,
NOR DOES IT ADMIT THAT ITS OPINION CONSTITUTES A REPORT OR VALUATION WITHIN THE
MEANING OF SECTION 11 OF THE SECURITIES ACT. NATIONSBANC MONTGOMERY'S OPINION IS
DIRECTED TO THE PENINSULA BOARD, COVERS ONLY THE FAIRNESS FROM A FINANCIAL POINT
OF VIEW OF THE CONSIDERATION TO BE RECEIVED BY HOLDERS OF PENINSULA COMMON STOCK
AS OF THE DATE OF THE OPINION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
HOLDER OF PENINSULA COMMON STOCK AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE
SPECIAL MEETING, AND STATEMENTS TO SUCH EFFECT ARE INCLUDED IN NATIONSBANC
MONTGOMERY'S OPINION.
In connection with its opinions, NationsBanc Montgomery, among other things:
(i) reviewed certain publicly available financial and other data with respect to
Peninsula and Western, including the audited consolidated financial statements
for recent years and unaudited consolidated financial statements for interim
periods and certain other relevant financial and operating data relating to
Peninsula and Western made available to NationsBanc Montgomery from published
sources and from the internal records of Peninsula and Western; (ii) reviewed
the financial terms and conditions of the Merger Agreement; (iii) reviewed
certain publicly available information concerning the trading of, and the
trading market for,
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Peninsula Common Stock and Western Common Stock; (iv) compared Peninsula and
Western from a financial point of view with certain other companies in the
banking industry which NationsBanc Montgomery deemed to be relevant; (v)
considered the financial terms, to the extent publicly available, of selected
recent business combinations of companies in the banking industry which
NationsBanc Montgomery deemed to be comparable, in whole or in part, to the
Merger; (vi) reviewed and discussed with representatives of the Management of
Peninsula and Western certain information of a business and financial nature
regarding Peninsula and Western furnished to NationsBanc Montgomery by them,
including financial forecasts and related assumptions of Peninsula and Western;
(vii) made inquiries regarding and discussed the Merger and the Merger Agreement
and other matters related thereto with Peninsula's counsel; and (viii) performed
such other analyses and examinations as NationsBanc Montgomery deemed
appropriate.
In connection with NationsBanc Montgomery's review, NationsBanc Montgomery
did not assume any obligation independently to verify the foregoing information
and relied on its being accurate and complete in all material respects. With
respect to the financial forecasts for Peninsula and Western provided to
NationsBanc Montgomery by their respective management, upon their advice and
with Peninsula's consent, NationsBanc Montgomery assumed for purposes of its
opinions that the forecasts were reasonably prepared on bases reflecting the
best available estimates and judgments of their respective management at the
time of preparation as to the future financial performance of Peninsula and
Western and that they provided a reasonable basis upon which NationsBanc
Montgomery could form its opinion. NationsBanc Montgomery assumed that there
were no material changes in Peninsula's or Western's assets, financial
condition, results of operations, business or prospects since the respective
dates of their last financial statements made available to NationsBanc
Montgomery. NationsBanc Montgomery relied on advice of counsel and independent
accountants to Peninsula as to all legal and financial matters with respect to
Peninsula, the Merger and the Merger Agreement. NationsBanc Montgomery assumed
that the Merger will be consummated in a manner that complies in all respects
with the applicable provisions of the Securities Act, the Exchange Act and all
other applicable federal and state statutes, rules and regulations. In addition,
NationsBanc Montgomery did not assume responsibility for reviewing any
individual credit files, or making an independent evaluation, appraisal or
physical inspection of any of the assets or liabilities (contingent or
otherwise) of Peninsula or Western, nor was NationsBanc Montgomery furnished
with any such appraisals. NationsBanc Montgomery is not an expert in the
evaluation of loan portfolios for purposes of assessing the adequacy of the
allowances for losses with respect thereto and assumed, with Peninsula's
consent, that such allowances for each of Peninsula and Western were in the
aggregate adequate to cover such losses. Peninsula informed NationsBanc
Montgomery, and NationsBanc Montgomery assumed, that the Merger will be recorded
as a pooling of interests under GAAP. Finally, NationsBanc Montgomery's opinions
were based on economic, monetary and market and other conditions as in effect
on, and the information made available to NationsBanc Montgomery as of, the
respective dates of the opinions.
Set forth below is a brief summary of the information presented by
NationsBanc Montgomery at the meeting of the Peninsula Board on July 23, 1998.
All per share data in NationsBanc Montgomery's analysis was presented without
any adjustment for a 5% stock dividend that was paid to Peninsula's shareholders
on July 24, 1998. The analyses below assumed an exchange ratio of 1.121 based on
the assumed $48.04 per share value of the Merger divided by $42.875, the closing
price of Western Common Stock on July 21, 1998. The exchange ratio and the value
of the Western Common Stock to be received in the Merger will fluctuate, based
upon the trading price of Western Common Stock and the impact of the Maximum and
Minimum Exchange Ratios.
DISCOUNTED CASH FLOW ANALYSIS
Using a discounted cash flow analysis, NationsBanc Montgomery calculated a
range of theoretical per share values for Peninsula based on the net present
value of: (i) annual dividend income, defined as excess
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equity above a 6% tangible equity to assets ratio; and (ii) a terminal value for
Peninsula in 2002 calculated based upon a multiple of net income. The projected
financial data for Peninsula for 1997 through 2002 utilized by NationsBanc
Montgomery in this analysis was based on projections prepared by Peninsula
Management. NationsBanc Montgomery calculated the range of net present values
per share for Peninsula based on a range of discount rates of 12.5% to 17% and a
range of terminal value multiples of forecasted 2002 earnings of 15.0x to 19.0x.
Utilizing a more narrow range of discount rates of 12.5% and 15.0% and terminal
multiples of 16.0x to 18.0x, this analysis yielded a range of estimated present
values per share for Peninsula of approximately $28.19 to $34.53, with a median
value of $31.19. The assumed $48.04 per share value of the Merger exceeded the
range of values implied by this analysis.
COMPARABLE PUBLIC COMPANY ANALYSIS
NationsBanc Montgomery analyzed the trading multiples of a comparison group
of 20 publicly traded California banks (a group of banks published in the
NationsBanc Montgomery Western Bank Monitor) ("California Western Bank Group").
The multiples that were analyzed were price to book value, price to tangible
book value, price to latest 12 months ("LTM") earnings, price to 1998 estimated
earnings, price to deposits and the ratio of the premium (i.e., purchase price
in excess of tangible book value) to core deposits. The median values of these
multiples were then multiplied by Peninsula's current values. This analysis
indicated that the current Peninsula Common Stock price should range from $26.46
to $43.50 per share. Based on the most common measures of public market
valuation, price to book value and price to LTM earnings, the analysis indicated
the current Peninsula Common Stock price should range from $27.19 to $32.11 with
a median value of $30.93, as compared to the assumed $48.04 per share value of
the Merger.
ANALYSIS OF SELECTED MERGER TRANSACTIONS
NationsBanc Montgomery reviewed the Consideration paid in selected
categories of bank transactions. Specifically, NationsBanc Montgomery reviewed
selected bank transactions from January 1, 1996 to July 23, 1998 involving (i)
mergers in California with transaction values greater than $10 million and less
than $500 million and (ii) national mergers with transaction values greater than
$50 million and less than $250 million. For each transaction, NationsBanc
Montgomery analyzed data illustrating, among other things, purchase price to
book value, purchase price to "adjusted" book value (assuming a premium is paid
on a 6% "normalized" equity to assets level and dollar for dollar for equity
above 6%), purchase price to tangible book value, purchase price to LTM
earnings, purchase price to deposits, the ratio of the premium (I.E., purchase
price in excess of tangible book value) to core deposits, and the premium paid
to the seller's stock price 30 days prior to announcement. For the purposes of
this analysis, NationsBanc Montgomery specifically focused on bank transactions
that have been announced since January 1, 1998.
A summary of the median multiples in the analysis is as follows:
<TABLE>
<CAPTION>
PRICE TO PRICE TO PRICE TO PREMIUM TO
PRICE TO ADJ. BK. TANG. BK. LTM PRICE TO CORE
TRANSACTION CATEGORIES BOOK VALUE VALUE VALUE EARNINGS DEPOSITS DEPOSITS
- ------------------------------------------------ ----------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998 Year-to-Date Mergers in California with
Transaction Value Greater than$10 Million and
Less than $500 Million......................... 3.0x 3.9x 3.2x 20.9x 32.9% 26.9%
1998 Year-to-Date National Mergers with
Transaction Value Greater than $50 Million and
Less than $250 Million......................... 2.8x 4.1x 3.1x 23.9x 34.9% 26.4%
<CAPTION>
PREMIUM TO
PRICE 30
TRANSACTION CATEGORIES DAYS PRIOR
- ------------------------------------------------ -----------
<S> <C>
1998 Year-to-Date Mergers in California with
Transaction Value Greater than$10 Million and
Less than $500 Million......................... 27.4%
1998 Year-to-Date National Mergers with
Transaction Value Greater than $50 Million and
Less than $250 Million......................... 25.0%
</TABLE>
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A summary of the results of NationsBanc Montgomery's analysis of the
multiples paid in the Merger is as follows:
<TABLE>
<CAPTION>
PRICE TO PRICE TO PRICE TO PREMIUM TO
PRICE TO ADJ. BK. TANG. BK. LTM PRICE TO CORE
BOOK VALUE VALUE VALUE EARNINGS DEPOSITS DEPOSITS
----------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
4.3x 4.5x 4.3x 29.8x 29.7% 25.6%
<CAPTION>
PREMIUM TO
PRICE 30
DAYS PRIOR
-----------
<S> <C>
34.4%
</TABLE>
PREMIUM PAID ANALYSIS
NationsBanc Montgomery used a group of 22 California bank transactions since
January 1, 1996 with transaction values greater than $10 million and less than
$500 million where pricing information was available to analyze premiums paid
compared to the seller's stock price at various times prior to the announcement
of the acquisition. The figures produced (i) a median premium to the seller's
stock price one month prior to announcement of 30.6%; (ii) a median premium to
the seller's stock price six days prior to announcement of 21.0%; and (iii) a
median premium to the seller's stock price the day prior to announcement of
17.5%. NationsBanc Montgomery also used a group of 55 national bank transactions
since January 1, 1996 with transaction values greater than $50 million and less
than $250 million where pricing information was available to analyze premiums
paid compared to the seller's stock price at various times prior to the
announcement of the acquisition. The figures produced (i) a median premium to
the seller's stock price one month prior to announcement of 26.9%; (ii) a median
premium to the seller's stock price six days prior to announcement of 23.1%; and
(iii) a median premium to the seller's stock price the day prior to announcement
of 16.1%.
In comparison, the assumed $48.04 per share value of the Merger (without
giving effect to the 5% common stock dividend paid by Peninsula on July 24,
1998) exceeded the Peninsula Common Stock price one month prior to the
announcement by 34.4%, the Peninsula Common Stock price six days prior to the
announcement by 6.8% and the Peninsula Common Stock price one day prior to the
announcement by 9.2%.
CONTRIBUTION ANALYSIS
NationsBanc Montgomery analyzed the contribution of each of Peninsula and
Western to, among other things, assets, loans, deposits and total equity of the
pro forma combined companies for the period ending March 31, 1998 and projected
net income and cash net income for the calendar years ending December 31, 1998
and 1999. This analysis showed, among other things, that based on pro forma
combined balance sheets for Peninsula and Western at March 31, 1998, Peninsula
would have contributed approximately 15% of the assets, 14% of the loans, 8% of
the total equity and 16% of the deposits. The pro forma projected income
statements for the periods ending December 31, 1998 and 1999 showed that
Peninsula would contribute approximately 13% and 12% of the net income in 1998
and 1999, respectively, and 10% and 9% of the cash net income in 1998 and 1999,
respectively. Based on an assumed exchange ratio of 1.121 shares of Western
Common Stock for each share of Peninsula Common Stock, holders of Peninsula
Common Stock would own approximately 12.8% of the combined company based on
common shares outstanding at March 31, 1998.
DIVIDEND PICKUP ANALYSIS
In performing the dividend pickup analysis, NationsBanc Montgomery analyzed
the assumed exchange ratio of 1.121 shares of Western Common Stock for each
share of Peninsula Common Stock based on Peninsula's and Western's stock prices
and applied it to Western's current annualized dividend per share of $0.60. This
analysis showed, among other things, that holders of Peninsula Common Stock
would receive an annual dividend of $0.67 per share or a 124% increase from
Peninsula's current annualized dividend of $0.30 per share.
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PRO FORMA EARNINGS DILUTION ANALYSIS
Using earnings estimates and projected growth rates for Peninsula and
Western provided by their respective management, NationsBanc Montgomery compared
estimated reported earnings per share ("Reported EPS") and estimated cash
earnings per share ("Cash EPS") of Western Common Stock on a stand-alone basis
to the Reported EPS and Cash EPS of the Peninsula Common Stock for the pro forma
combined company for the calendar year ending December 31, 1999. NationsBanc
Montgomery noted that the Merger would result in dilution of (1.3%) and (3.9%)
to Western's Reported EPS and Cash EPS, respectively, for the year ending
December 31, 1999. These estimates were used for purposes of this analysis only
and are not necessarily indicative of expected results or plans of Western,
Peninsula or the combined institution. Additionally, this analysis did not
incorporate any anticipated cost savings or revenue enhancement. In order to
determine Peninsula's earnings pickup, NationsBanc Montgomery multiplied the
assumed exchange ratio of 1.121 by the 1999 pro forma combined earnings per
share ("EPS") and pro forma combined Cash EPS and compared it to Peninsula's
1999 stand-alone EPS and Cash EPS. This analysis determined that the transaction
would be 10.0% accretive to Peninsula's EPS and 38.1% accretive to Peninsula's
Cash EPS.
PRO FORMA BOOK VALUE/TANGIBLE BOOK VALUE DILUTION ANALYSIS
Using the book value and the tangible book value for the period ending March
31, 1998 and the assumed exchange ratio of 1.121 shares of Western Common Stock
for each share of Peninsula Common Stock, NationsBanc Montgomery compared the
book value and the tangible book value of Western on a stand-alone basis to the
pro forma book value and tangible book value for the combined company. This
analysis showed, among other things, that the Merger would be dilutive to
Western's book value and accretive to Western's tangible book value. In order to
determine Peninsula's book value per share pick-up, NationsBanc Montgomery
multiplied the assumed exchange ratio of 1.121 by the pro forma combined book
value per share and compared it to Peninsula's stand-alone book value per share.
This analysis determined that the transaction would be 66.9% accretive to
Peninsula's book value per share.
EARNINGS GROWTH ANALYSIS
Using a 18.1x terminal multiple (the median price to 1998 estimated earnings
multiple of NationsBanc Montgomery's California Western Bank Monitor Group) and
a 15% discount rate, NationsBanc Montgomery determined that Peninsula would have
to achieve an average annual earnings growth rate of 26.0% through the year 2002
in order to obtain a present value stock price of $48.04. Peninsula's estimated
stand-alone earnings growth rate through the year 2002 is 13.6%.
The summary set forth above does not purport to be a complete description of
the presentation by NationsBanc Montgomery to the Peninsula Board or of the
analyses performed by NationsBanc Montgomery. The preparation of a fairness
opinion is not necessarily susceptible to partial analysis or summary
description. NationsBanc Montgomery believes that its analyses and the summary
set forth above must be considered as a whole and that selecting a portion of
its analyses and factors, without considering all analyses and factors, would
create an incomplete view of the process underlying the analyses set forth in
its presentation to the Peninsula Board. In addition, NationsBanc Montgomery may
have given various analyses more or less weight than other analyses, and may
have deemed various assumptions more or less probable than other assumptions, so
that the ranges of valuations resulting from any particular analysis described
above should not be taken to be NationsBanc Montgomery's view of the actual
value of Peninsula or the combined companies. The fact that any specific
analysis has been referred to in the summary above is not meant to indicate that
such analysis was given greater weight than any other analysis.
In performing its analyses, NationsBanc Montgomery made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Peninsula or Western.
The analyses performed by NationsBanc Montgomery are not
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necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of NationsBanc Montgomery's analysis of
the fairness of the Consideration to be received by the holders of Peninsula
Common Stock in the Merger and were provided to the Peninsula Board in
connection with the delivery of NationsBanc Montgomery's opinion. The analyses
do not purport to be appraisals or to reflect the prices at which a company
might actually be sold or the prices at which any securities may trade at the
present time or any time in the future. The forecasts used by NationsBanc
Montgomery in certain of its analyses are based on numerous variables and
assumptions, which are inherently unpredictable and must be considered not
certain of occurrence as projected. Accordingly, actual results could vary
significantly from those contemplated in such forecasts.
As described above under "THE MERGER--Background and Reasons for the
Merger", NationsBanc Montgomery's opinion and presentation to the Peninsula
Board were among the many factors taken into consideration by the Peninsula
Board in making its determination to approve the Merger Agreement.
Pursuant to the Engagement Letter, Peninsula paid NationsBanc Montgomery a
retainer fee of $25,000 upon engagement and a fee of $150,000 upon the signing
of a definitive agreement. Based on the current transaction value, NationsBanc
Montgomery will receive an additional fee of approximately $1,250,000 upon the
closing of the Merger. Accordingly, a significant portion of NationsBanc
Montgomery's fee is contingent upon the closing of the Merger. Peninsula has
also agreed to reimburse NationsBanc Montgomery for its reasonable out-of-pocket
expenses, including reasonable fees and disbursements for NationsBanc
Montgomery's legal counsel and other experts retained by NationsBanc Montgomery.
Peninsula has agreed to indemnify NationsBanc Montgomery, its affiliates, and
their respective partners, directors, officers, agents, consultants, employees
and controlling persons against certain liabilities, including liabilities under
the federal securities laws.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW MAY NOT BE APPLICABLE TO
CERTAIN CLASSES OF TAXPAYERS, INCLUDING SECURITIES DEALERS AND OTHERS THAT USE A
"MARKET-TO-MARKET" METHOD OF ACCOUNTING FOR FEDERAL INCOME TAX PURPOSES, TAX
EXEMPT ORGANIZATIONS OR TRUSTS, FOREIGN PERSONS, PERSONS WHO HOLD SHARES OF
PENINSULA COMMON STOCK AS PART OF A STRADDLE OR CONVERSION TRANSACTION AND
PERSONS WHO ACQUIRED SHARES OF PENINSULA COMMON STOCK PURSUANT TO THE EXERCISE
OF EMPLOYEE STOCK OPTIONS OR RIGHTS OR OTHERWISE AS COMPENSATION. PENINSULA
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF
FEDERAL, STATE, LOCAL AND OTHER TAX LAWS.
TAX OPINIONS
It is intended that the Merger will be treated as a Reorganization.
Consummation of the Merger as a reorganization is conditioned upon receipt by
Western of the opinion of Sullivan & Cromwell and receipt by Peninsula of the
opinion of Deloitte & Touche LLP, which opinions will be dated as of the
Effective Date, stating substantially to the effect that, for federal income tax
purposes: (i) the Merger will be treated as a Reorganization and (ii) each of
Western, Merger Sub and Peninsula will be a party to that Reorganization.
The Tax Opinions will not be binding on the Internal Revenue Service (the
"IRS"), and there can be no assurance that the IRS will not contest the
conclusions expressed therein. The Tax Opinions will be based in part upon
certain factual assumptions and upon certain representations made, and
certificates delivered, by Western, Merger Sub and Peninsula, which
representations and certificates Sullivan & Cromwell and Deloitte & Touche LLP
will assume to be true, correct and complete. If such representations or
certificates are inaccurate, the Tax Opinions could be adversely affected.
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TAX CONSEQUENCES OF THE MERGER
GENERAL. The following summary sets forth certain anticipated material
federal income tax consequences of the Merger to Peninsula Shareholders. The tax
treatment of each Peninsula Shareholder will depend in part upon such
shareholder's particular situation. This summary is based on the provisions of
the Code, the Treasury Regulations promulgated thereunder and administrative and
judicial interpretations thereof, all as in effect as of the date hereof. Such
laws, regulations or interpretations may differ at the Effective Time, and
relevant facts also may differ.
No gain or loss will be recognized by a Peninsula Shareholder who receives
solely Western Common Stock for such Peninsula Shareholder's shares of Peninsula
Common Stock (except to the extent such shareholder receives cash in lieu of a
fractional share interest in Western Common Stock).
Such a Peninsula Shareholder's aggregate tax basis in the Western Common
Stock received pursuant to the Merger will equal such shareholder's aggregate
tax basis in the shares of Peninsula Common Stock exchanged therefor, reduced by
any amount allocable to a fractional share interest of Western Common Stock for
which cash is received. The holding period of Western Common Stock received
pursuant to the Merger (the "Holding Period" as described in the paragraph
below), will include the holding period of the shares of Peninsula Common Stock
exchanged therefor, provided that such shares were held as a capital asset as of
the Effective Date.
FRACTIONAL SHARES OF WESTERN COMMON STOCK. No fractional shares of Western
Common Stock will be issued in the Merger. A Peninsula Shareholder who receives
cash in lieu of such a fractional share will be treated as having received such
fractional share pursuant to the Merger and then as having exchanged such
fractional share for cash in a redemption by Western subject to Section 302 of
the Code. Such a deemed redemption will be treated as a sale of the fractional
share, provided that it is not "essentially equivalent to a dividend". If the
Western Common Stock represents a capital asset in the hands of the shareholder,
the shareholder will generally recognize capital gain or loss on such a deemed
redemption of the fractional share in an amount determined by the difference
between the amount of cash received therefor and the shareholder's tax basis in
the fractional share. The Holding Period of any such capital gain or loss will
be long-term if the Peninsula Common Stock exchanged was held for more than one
year. Effective as of January 1, 1998, long-term capital gain of a non-corporate
shareholder is generally subject to a maximum capital gains rate of 20% for
capital assets held for more than one year.
BACKUP WITHHOLDING
Unless an exemption applies under applicable law and regulations, the
Exchange Agent (as defined herein), will be required to withhold 31% of any cash
payments to which a non-corporate shareholder or the payee is entitled pursuant
to the Merger unless the shareholder or other payee provides its taxpayer
identification number (social security number, employer identification number or
individual taxpayer identification number) and certifies that such number is
correct. Each shareholder and, if applicable, each payee must provide the
information and certification necessary to avoid backup withholding, unless an
applicable exemption exists and is established in a manner satisfactory to
Western and the Exchange Agent.
REGULATORY APPROVALS
GENERAL
The Merger cannot proceed in the absence of the regulatory approvals
described below. Western and Peninsula are not aware of any material
governmental approvals or actions that are required for consummation of the
Merger, except as described below. Western and Peninsula have agreed in the
Merger Agreement to use reasonable best efforts to take promptly all actions
necessary, proper or advisable to consummate the transactions contemplated by
the Merger Agreement, including using efforts
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to obtain all necessary approvals from all applicable governmental entities,
making all necessary registrations, applications and filings and obtaining any
contractual consents and regulatory approvals. However, there can be no
assurance that such regulatory approvals will be obtained, nor can there be
assurance as to the date of any such approval. There can also be no assurance
that any such approval will not contain a condition or requirement that causes
such approvals to fail to satisfy the conditions set forth in the Merger
Agreement and described below under "THE MERGER AGREEMENT--Conditions".
FEDERAL DEPOSIT INSURANCE CORPORATION AND FEDERAL RESERVE BOARD APPROVALS
Consummation of the Merger is subject to receipt of the prior approval of
the FDIC under the Bank Merger Act, 12 U.S.C. Section 1828(c) (the "BMA"). The
BMA requires that the FDIC take into consideration, among other factors, the
financial and managerial resources and future prospects of the institutions and
the convenience and needs of the communities to be served. The BMA prohibits the
FDIC from approving the Merger (i) if such transaction would result in a
monopoly or be in furtherance of any combination or conspiracy to monopolize or
to attempt to monopolize the business of banking in any part of the United
States or (ii) if the effect of such transaction in any section of the country
may be substantially to lessen competition or to tend to create a monopoly, or
if it would in any other manner be a restraint of trade, unless the relevant
regulatory agency finds that the anti-competitive effects of such merger are
clearly outweighed by the public interest and by the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served.
The Merger is also subject to prior approval by the Federal Reserve Board
under Section 3 of the BHCA in accordance with regulations adopted by the
Federal Reserve Board under the BHCA. The Federal Reserve Board will take into
consideration, among other things, competition, the financial and managerial
resources and future prospects of the holding companies and banks concerned and
the convenience and needs of the communities to be served. The BHCA prohibits
the Federal Reserve Board from approving the Merger if (a) it would result in a
monopoly or would be in furtherance of any combination or conspiracy to
monopolize or attempt to monopolize the business of banking in any part of the
United States or (b) its effect in any section of the country may be
substantially to lessen competition or tend to create a monopoly, or it would in
any other manner be in restraint of trade, unless the Federal Reserve Board
finds that the anti-competitive effects of the Merger are clearly outweighed in
the public interest by the probable effect of the transaction in meeting the
convenience and needs of the communities to be served.
Each of the FDIC and the Federal Reserve Board has the authority to deny an
application if it concludes that the combined organization would have an
inadequate capital structure, taking into account, among other factors, the
nature of the business and operations and plans for expansion. Furthermore, the
FDIC and the Federal Reserve Board must also assess the records of the
depository institution subsidiaries of Western and Peninsula under the Community
Reinvestment Act of 1977, as amended (the "CRA"). The CRA requires that the FDIC
and the Federal Reserve Board assess, when evaluating an application, each
depository institution's record of meeting the credit needs of its local
communities, including low- and moderate-income neighborhoods, consistent with
safe and sound operation and take such record into account when evaluating
certain regulatory applications. Each of SMB, SCB, BKLA and Peninsula has a CRA
rating of "satisfactory".
Under the BMA and the BHCA, the Merger may not be consummated until the
thirtieth day following the later of the FDIC or Federal Reserve Board
approvals, as the case may be. If the FDIC and the Federal Reserve Board have
not received any adverse comments from the Department of Justice relating to
competitive factors, the waiting period may be reduced to no less than 15 days.
If the United States Department of Justice commenced an action challenging the
Merger on antitrust grounds during such waiting period, commencement of such
action would stay the effectiveness of the FDIC and Federal Reserve Board
approvals, unless a court specifically orders otherwise.
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Western and Peninsula submitted an application seeking approval of the
Merger and related matters to the FDIC on or about September 11, 1998. The
application was deemed informationally complete by the FDIC on , 1998
and processing of the same commenced. It is expected that an approval will be
received prior to the Peninsula Meeting, but there can be no assurance that such
approval will be obtained. Western submitted a notice seeking approval of the
Merger and related matters to the Federal Reserve Board on September 16, 1998.
It is expected that an approval will be received prior to the Peninsula Meeting,
but there can be no assurance that such an approval will be obtained.
STATE COMMISSIONER APPROVAL
Because Peninsula is a state-chartered bank, Western must obtain approval of
the State Commissioner pursuant to the California Financial Code prior to the
consummation of the Merger. Western sought such approval by filing an
application with the State Commissioner on or about September 22, 1998. The
application submitted to the State Commissioner for approval was accepted as
complete on , 1998. It is expected that an approval will be received
prior to the Peninsula Meeting, but there can be no assurance that such approval
will be obtained.
RESALE OF WESTERN COMMON STOCK
All shares of Western Common Stock received by Peninsula Shareholders in the
Merger will be freely transferrable, except that shares of Western Common Stock
received by Peninsula Shareholders who are deemed to be "affiliates" (as defined
for purposes of Rule 145 under the Securities Act or SEC Accounting Series
Releases 130 and 135) of Peninsula ("Peninsula Affiliates") as of the date of
the Peninsula Meeting may be resold by Peninsula Affiliates only pursuant to an
effective registration statement under the Securities Act covering resales of
such shares or in transactions permitted by the resale provisions of Rule 145 of
the Securities Act or as otherwise permitted under the Securities Act. Persons
who may be deemed to be affiliates of Peninsula or Western generally include
individuals or entities that control, are controlled by, or are under common
control with, such entities and may include certain officers and directors of
such entities as well as principal shareholders of such entities.
Peninsula has agreed in the Merger Agreement to use its best efforts to
obtain a written agreement from each officer or director of Peninsula who is
identified as a possible Peninsula Affiliate providing that each such person
will not sell, pledge, transfer or otherwise dispose of any shares of Western
Common Stock to be received by such person in the Merger, except in compliance
with the applicable provisions of the Securities Act. See "THE MERGER
AGREEMENT--Exchange of Stock Certificates; Dividends".
CERTAIN EFFECTS OF THE MERGER
Peninsula will be the Surviving Bank following the Merger. Once the Merger
is consummated, the trading of Peninsula Common Stock will cease. Peninsula has
agreed, subject to certain conditions, after the last of the regulatory
approvals to be obtained and before the Effective Time, to make such accounting
adjustments as Western requests in order to implement its plans regarding
Peninsula or to reflect merger-related expenses and costs incurred by Peninsula.
See "THE MERGER AGREEMENT--Certain Covenants--CERTAIN POLICIES OF PENINSULA".
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Certain historical regulatory capital ratios for Western, BKLA and Peninsula
as of June 30, 1998 are listed below. The pro forma columns reflect certain
effects that the Merger will have on Western's regulatory capital ratios.
<TABLE>
<CAPTION>
REQUIREMENT WESTERN,
------------------------ HISTORICAL BKLA AND WESTERN AND
ADEQUATELY WELL --------------------------------- PENINSULA PENINSULA
CAPITALIZED CAPITALIZED WESTERN BKLA PENINSULA PRO FORMA PRO FORMA
----------- ----------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(GREATER THAN OR EQUAL TO)
Tier I Leverage............... 4.00% 5.00% 7.63% 9.62% 6.59% 7.25% 7.17%
Tier I Risk-based............. 4.00 6.00 9.82 14.43 10.76 9.81 9.59
Total Risk-based.............. 8.00 10.00 11.07 15.68 11.73 11.06 10.84
</TABLE>
The capital ratios listed above are governed by guidelines created by the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA").
FIRREA's guidelines are intended to provide a systematic framework with which to
analyze banking organizations. In order to analyze a banking organization's
business, the guidelines split total capital into two components: Tier I capital
(core capital) and Tier II capital (supplementary capital). For Western, BKLA
and Peninsula, Tier I capital consists of common stock shareholders' equity
before gain or loss on securities available for sale, less goodwill and other
intangible assets. Tier II capital consists of loan loss reserves limited to
1.25% of risk-weighted assets. Total capital is Tier I plus Tier II capital.
The Tier I leverage ratio is Tier I capital divided by average total assets
less intangibles. For banks rated in the highest category of the five categories
used by the FDIC to rate banks, the minimum leverage ratio in such category is
3%. For all banks not rated in the highest category, the minimum leverage ratio
must be at least 100 to 200 base points above the 3% minimum, or 4% to 5%.
In addition to the Tier I leverage ratio, the FDIC takes into account
risk-based ratios as well. Tier I risk-based capital is Tier I capital divided
by net risk-weighted assets. Total capital to risk-based assets is total capital
divided by net risk-weighted assets. These risk-based guidelines are intended to
provide a measure of capital that reflects the degree of risk associated with a
banking organization's operations.
After the Merger, the Surviving Bank will be headquartered at 1322 Scott
Street, Suite 203, San Diego, California 92106. The telephone number at such
offices will be (619) 226-5451.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL
In considering the recommendation of the Peninsula Board, Peninsula
Shareholders should be aware that certain employees and members of Peninsula
Management and of the Peninsula Board have certain interests in the transactions
contemplated by the Merger Agreement that are in addition to the interests of
shareholders generally and that may create potential conflicts of interest.
These interests include, among others, provisions in the Merger Agreement
relating to the indemnification of Peninsula officers and directors, directors'
and officers' liability insurance, the appointment of John G. Rebelo, Jr. to the
Western Board and the Peninsula Board as of the Effective Time, and certain
employment agreements discussed below. In addition, John M. Eggemeyer is a
director and significant shareholder of Western, and owns 80% of BPI, which
provided financial advisory and consulting services to Western in connection
with the Merger.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
The Merger Agreement provides that for a period of six years after the
Effective Time, Western will indemnify each director and officer determined as
of the Effective Time, against certain liabilities arising out of matters
existing or occurring at or prior to the Effective Time to the extent to which
such
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indemnified parties were entitled under California law and Peninsula's articles
of incorporation or bylaws in effect on July 24, 1998. Western also will advance
expenses as incurred to the extent permitted under California law and
Peninsula's articles of incorporation and bylaws. In addition, for a period of
six years after the Effective Time, Western will use its reasonable best efforts
to cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by Peninsula, provided that Western may
substitute therefor policies of comparable coverage with respect to claims
arising from facts or events that occurred before the Effective Time.
APPOINTMENT OF DIRECTOR
Pursuant to the Merger Agreement, Western will take such actions necessary
to appoint John G. Rebelo, Jr., Chairman and Chief Executive Officer of
Peninsula, to the Western Board and the Peninsula Board as of the Effective
Time.
EMPLOYEE AGREEMENTS
Each of John G. Rebelo, Jr., Larry L. Willette, Lawrence G. Alameda, and
Barbara A. Hosaka (each an "Executive" and collectively, the "Executives"), have
agreed to certain modifications to such Executive's existing employment
agreement (the "Preliminary Employment Agreements") pursuant to which it was
agreed that consummation of the Merger constitutes "good reason" as defined
therein. Peninsula and the Executives have also agreed to use their reasonable
best efforts to enter into new employment agreements, on terms and conditions
mutually satisfactory to Peninsula and the Executives. While the parties are in
the process of negotiation of such new agreements, no assurance can be given
that all or any of such new agreements will be entered into. As a result of the
modifications to the Preliminary Employment Agreements agreed to by Western,
Peninsula and the Executives, under the terms of the Preliminary Employment
Agreements and other benefit plans with Peninsula, the Executives will be
entitled to receive, beginning 60 days after termination of their employment
with Peninsula, the substantial severance benefits provided for thereunder as a
result of the Merger being deemed "good reason" thereunder. Such benefits will
be limited to an amount such that the aggregate of all payments to any Executive
would not be "excess parachute payments" within the meaning of the Code.
RELATED TRANSACTIONS
Other than the Merger Agreement, the Shareholder Agreements, the Stock
Option Agreement, the Preliminary Employment Agreements and the transactions
contemplated by and described in this Proxy Statement-Prospectus, Western and
Peninsula do not know of any past, present or proposed material contracts,
arrangements or understandings between Western or its affiliates, on the one
hand, and Peninsula and its affiliates, on the other hand.
SUBMISSION OF SHAREHOLDERS' PROPOSALS FOR PENINSULA'S 1999 ANNUAL MEETING
Assuming the Merger is not consummated as contemplated in the Merger
Agreement, Peninsula Shareholders may submit proposals for shareholder action at
the 1999 Annual Meeting of Peninsula Shareholders by submitting such proposals
to Barbara A. Hosaka, the Secretary of Peninsula, no later than December 19,
1998, in order to be considered for inclusion in Peninsula's 1999 proxy
materials.
DISSENTERS' RIGHTS
In connection with the Merger, the Peninsula Shareholders may be entitled to
Dissenters' Rights under Chapter 13 of the CGCL. Chapter 13 of the CGCL is
attached hereto as Appendix C. The description of Dissenters' Rights contained
in this Proxy Statement-Prospectus is qualified in its entirety by reference to
Chapter 13 of the CGCL. IN ORDER FOR A PENINSULA SHAREHOLDER TO EXERCISE
DISSENTERS' RIGHTS, SUCH PENINSULA SHAREHOLDER MUST NOT VOTE IN FAVOR OF THE
PRINCIPAL TERMS OF THE MERGER, MUST SEND A NOTICE
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OF SUCH PENINSULA SHAREHOLDER'S INTENTION TO EXERCISE HIS OR HER DISSENTERS'
RIGHTS AND DEMAND PAYMENT FOR HIS OR HER SHARES AS PROVIDED IN THE CGCL TO BE
RECEIVED BY PENINSULA WITHIN 30 DAYS AFTER THE DATE ON WHICH PENINSULA MAILS TO
SUCH PENINSULA SHAREHOLDER A NOTICE OF THE APPROVAL OF THE MERGER BY THE
PENINSULA SHAREHOLDERS AND SUCH PENINSULA SHAREHOLDER MUST COMPLY WITH SUCH
OTHER PROCEDURES AS REQUIRED BY THE CGCL, AS MORE FULLY DESCRIBED BELOW. VOTING
IN FAVOR OF THE PRINCIPAL TERMS OF THE MERGER OR FAILING TO TIMELY SEND SUCH
NOTICE OR TO FOLLOW SUCH OTHER PROCEDURES WILL RESULT IN A WAIVER OF SUCH
PENINSULA SHAREHOLDER'S DISSENTERS' RIGHTS.
Any demands, notices, certificates or other documents delivered to Peninsula
before the Special Meeting may be sent to 1322 Scott Street, Suite 203, San
Diego, California 92106, Attn: Corporate Secretary.
Shares of Peninsula Common Stock must be purchased by Peninsula upon demand
from a dissenting shareholder if such shareholder has complied with all
applicable requirements. For a Peninsula Shareholder to exercise the right to
have Peninsula purchase his or her shares of Peninsula Common Stock, the
procedures to be followed under Chapter 13 of the CGCL include the following
requirements:
(a) The Peninsula Shareholder of record must not vote the shares in
favor of the Merger. The Peninsula Shareholder may vote part of his or her
shares for the Merger without losing the right to have purchased those
shares which were voted against the Merger or as to which the Peninsula
Shareholder has abstained from voting.
(b) Any Peninsula Shareholder who voted against the Merger or abstained
from voting, and who wishes to have purchased his or her shares which were
voted against the Merger or shares which were abstained from voting, must
make a written demand to have Peninsula purchase those shares for cash at
their fair market value. The demand must include the information specified
below under "--DEMAND FOR PURCHASE" and must be received by Peninsula not
later than 30 days after the date the Approval Notice (as defined below) is
mailed to such shareholder.
Within 10 days after the approval of the principal terms of the Merger by
the Peninsula Shareholders, the holders of shares of Peninsula Common Stock who
voted against the Merger or abstained from voting must be notified by Peninsula
of the approval (the "Approval Notice") and Peninsula must offer all of these
shareholders a cash price for their shares which Peninsula considers to be the
fair market value of the shares on the day before the terms of the Merger were
first announced, excluding any appreciation or depreciation because of the
proposed Merger. The statement of price will constitute an offer by Peninsula to
purchase at the price stated any dissenting shares, unless they lose their
status as dissenting shares. The Approval Notice also must contain a brief
description of the procedures to be followed under Chapter 13 of the CGCL in
order for a Peninsula Shareholder to exercise the right to have Peninsula
purchase his or her shares and attach a copy of the relevant provisions of the
CGCL.
DEMAND FOR PURCHASE
Merely voting or delivering a proxy directing a vote against the approval of
the Merger, or failing to deliver a proxy or vote as to approval of the Merger,
does not constitute a demand for purchase. A written demand is required. A
shareholder's written demand must be delivered to Peninsula within 30 days after
the date on which the Approval Notice was mailed to the Peninsula Shareholder.
In all cases, the written demand that the dissenting shareholder must
deliver to Peninsula must:
(a) be made by the person who was the Peninsula Shareholder of record on
the Peninsula Record Date set for voting on the Merger (or his or her duly
authorized representative) and not by someone who is merely a beneficial
owner of the shares and not by a Peninsula Shareholder who acquired the
shares subsequent to the Peninsula Record Date;
(b) state the number of dissenting shares; and
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(c) include a demand that Peninsula purchase the shares at what the
Peninsula Shareholder claims to be the fair market value of such shares on
the day before the terms of the Merger were first announced, excluding any
appreciation or depreciation because of the proposed Merger. Because the
proposed Merger was announced on July 24, 1998, it is Peninsula's position
that this day is July 23, 1998. A Peninsula Shareholder's statement of fair
market value constitutes an offer by such dissenting shareholder to sell the
shares of Peninsula Common Stock to Peninsula at the price for Peninsula
Common Stock specified in such statement.
In addition, it is recommended that the following be complied with to ensure
that the demand is properly executed and delivered:
(a) The demand should be sent by registered or certified mail, return
receipt requested.
(b) The demand should be signed by the Peninsula Shareholder of record
(or his or her duly authorized representative) exactly as his or her name
appears on the stock certificates evidencing the shares.
(c) A demand for the purchase of dissenting shares owned jointly by more
than one person should identify and be signed by all such holders.
(d) Any person signing a demand for purchase in any representative
capacity (such as attorney-in-fact, executor, administrator, trustee or
guardian) should indicate his or her title and, if Peninsula so requests,
furnish written proof of his or her capacity and authority to sign the
demand.
A Peninsula Shareholder may not withdraw a demand for payment without the
consent of Peninsula. Under the terms of the CGCL, a demand by a shareholder is
not effective for any purpose unless it is received by Peninsula within 30 days
after the date the Approval Notice is mailed to such shareholder.
OTHER REQUIREMENTS AND CONSIDERATIONS
Within 30 days after the date on which the Approval Notice is mailed by
Peninsula to Peninsula Shareholders, the shareholder's certificates representing
any shares of Peninsula Common Stock which the Peninsula Shareholder demands be
purchased must be submitted to Peninsula at its principal office, or at the
office of any transfer agent thereof, to be stamped with a statement that the
shares are dissenting shares. Upon subsequent transfer of these shares, the new
certificates will be similarly stamped and marked with the name of the original
dissenting shareholder.
If Peninsula and a dissenting Peninsula Shareholder agree that the shares
held by such Peninsula Shareholder are eligible for Dissenters' Rights and agree
upon the price of such shares, the dissenting Peninsula Shareholder is entitled
to receive from Peninsula the agreed price with interest thereon at the legal
rate on judgments from the date of such agreement. Any agreement fixing the fair
market value of dissenting shares as between Peninsula and the holders thereof
must be filed with the Secretary of Peninsula at the address set forth above.
Subject to certain provisions of Section 1306 and Chapter 5 of the CGCL, payment
of the fair market value of the dissenting shares shall be made within 30 days
after the amount thereof has been agreed upon or within 30 days after the
statutory or contractual conditions to the Merger are satisfied, whichever is
later. Cash dividends, if any, declared and paid by Peninsula upon the
dissenting shares after the date of approval of the principal terms of the
Merger by Peninsula Shareholders and prior to payment for the shares shall be
credited against the total amount to be paid to Peninsula Shareholders
exercising Dissenters' Rights.
If Peninsula and a dissenting Peninsula Shareholder fail to agree on either
the fair market value of the shares or on the eligibility of the shares to be
purchased, then the Peninsula Shareholder or Peninsula may file a complaint for
judicial resolution of the dispute in the superior court of the proper county.
The complaint must be filed within six months after the date on which the
Approval Notice is mailed to the Peninsula Shareholder. If a complaint is not
filed within six months, the shares will lose their status as
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<PAGE>
dissenting shares. Two or more dissenting Peninsula Shareholders may join as
plaintiffs or be joined as defendants in such an action. If the eligibility of
the shares is at issue, the court will first decide this issue. If the fair
market value of the shares is in dispute, the court will determine, or shall
appoint one or more impartial appraisers to assist in the determination of, the
fair market value. The costs of the action will be assessed or apportioned as
the court considers equitable, but if the appraisal exceeds the price offered to
the Peninsula Shareholder, Peninsula will be required to pay such costs,
including, in the discretion of the court, attorneys' fees, expert witnesses'
fees and interest if the value awarded by the court for the shares is more than
125% of the price offered by Peninsula to the Peninsula Shareholder.
Peninsula Shareholders who are contemplating their right to dissent should
take into consideration individual tax consequences and should consult an
independent tax advisor regarding the consequences of incurring a tax event on
exercise of their rights. In addition, if greater than 10% of Peninsula
Shareholders dissent, pooling-of-interests accounting treatment is disrupted,
which is a condition of the Merger, and risks the abandonment of the Merger.
FAILURE TO TAKE ANY NECESSARY STEP WILL RESULT IN A TERMINATION OR WAIVER OF
THE RIGHTS OF THE HOLDER UNDER CHAPTER 13 OF THE CGCL. A PERSON HAVING A
BENEFICIAL INTEREST IN PENINSULA COMMON STOCK THAT IS HELD OF RECORD IN THE NAME
OF ANOTHER PERSON, SUCH AS A TRUSTEE OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE
RECORD HOLDER TO FOLLOW THE REQUIREMENTS OF CHAPTER 13 OF THE CGCL IN A TIMELY
MANNER IF SUCH PERSON ELECTS TO DEMAND PAYMENT OF THE FAIR MARKET VALUE OF SUCH
SHARES.
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, it is currently expected
that the Merger will be accounted for as a pooling of interests in accordance
with GAAP, and receipt by each of Western and Peninsula of an opinion from their
respective independent auditors confirming the ability to use such accounting
treatment is one of the conditions to the consummation of the Merger. Under this
method of accounting, the previously recorded assets and liabilities of Western
and Peninsula would be carried forward to Western at their recorded amounts;
income and expenses of Western would include income and expenses of Western and
Peninsula for the entire fiscal year in which the Merger occurs; and the
reported results of the separate corporations for prior periods would be
combined and restated as the results of Western. The results of the pooling
treatment for accounting purposes would be reflected in historical consolidated
financial statements of Western.
Confirmation is to be delivered shortly prior to each of the mailing date of
this Proxy Statement-Prospectus and the Effective Date. In the event that the
Pooling Condition is not satisfied, each of Western and Peninsula may terminate
the Merger Agreement for failure of the Pooling Condition. However, if both
Western and Peninsula decide to waive in writing the Pooling Condition prior to
the Effective Time, the Merger will be consummated and will be accounted for
using the purchase method of accounting, provided that all other conditions to
consummation of the Merger are fulfilled or waived in writing.
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THE MERGER AGREEMENT
SET FORTH BELOW IS A DESCRIPTION OF CERTAIN OF THE TERMS AND CONDITIONS OF
THE MERGER AGREEMENT AND RELATED MATTERS. THIS SUMMARY OF THE TERMS AND
CONDITIONS OF THE MERGER AGREEMENT DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MERGER AGREEMENT
AS SET FORTH IN APPENDIX A HERETO AND THE TEXT THEREOF IS INCORPORATED BY
REFERENCE HEREIN.
THE MERGER
The Merger Agreement was entered into by and among Western, Merger Sub and
Peninsula on July 24, 1998. Pursuant to the Merger Agreement, at the Effective
Time, Merger Sub, a wholly owned subsidiary of Western, will merge with and into
Peninsula, with Peninsula being the Surviving Bank and operating under the name
"Peninsula Bank of San Diego". The separate corporate existence of Merger Sub
will then cease. Upon the Merger becoming effective, each share of Peninsula
Common Stock issued and outstanding at the Effective Time (other than (a) shares
with respect to which Dissenters' Rights shall have been perfected in accordance
with the CGCL and (b) shares held directly or indirectly by Western, or any of
its subsidiaries, in each case other than in a fiduciary (including custodial or
agency) capacity or as a result of debts previously contracted in good faith),
will be converted automatically into, subject to certain limitations set forth
in the Merger Agreement with respect to proration and fractional shares, between
0.964 and 1.179 shares of Western Common Stock. The exact number of shares of
Western Common Stock into which each share of Peninsula Common Stock will be
converted will be determined by dividing $45.75 by the volume-weighted average
sales price per share (the "Average Price") of Western Common Stock for each of
the 20 consecutive days on which shares of Western Common Stock are actually
traded (each, a "Trading Day") immediately preceding the fourth Trading Day
prior to the Effective Date; provided, however, that if such Average Price would
be less than $38.813, then such Average Price will be set at $38.813 (resulting
in a Maximum Exchange Ratio of 1.179) and that if such Average Price would be
greater than $47.438, then such average will be set at $47.438 (resulting in a
Minimum Exchange Ratio of 0.964). Each share of Western Common Stock outstanding
immediately prior to the Effective Time will remain outstanding after the Merger
as one share of Western Common Stock. The table below illustrates the exact
number of shares of Western Common Stock that would be issued at different
assumed volume-weighted average sales prices of Western Common Stock.
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<PAGE>
<TABLE>
<CAPTION>
ASSUMED VOLUME-WEIGHTED PER SHARE
AVERAGE SALES PRICE OF EQUIVALENT
WESTERN EXCHANGE RATIO VALUE (1) SHARES ISSUED
----------------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
$ 52.000 0.964 $ 50.15 2,397,323
51.000 0.964 49.18 2,397,323
50.000 0.964 48.22 2,397,323
49.000 0.964 47.26 2,397,323
48.000 0.964 46.29 2,397,323
10% Increase in Western share
price......................... 47.438 0.964 45.75 2,398,323
47.000 0.973 45.75 2,420,705
46.000 0.995 45.75 2,473,426
45.000 1.017 45.75 2,528,385
44.000 1.040 45.75 2,585,832
Midpoint........................ 43.125 1.061 45.75 2,638,304
43.000 1.064 45.75 2,646,014
42.000 1.089 45.75 2,708,931
41.000 1.116 45.75 2,775,081
40.000 1.144 45.75 2,844,465
39.000 1.173 45.75 2,917,330
10% Decrease in Western share
price......................... $ 38.813 1.179 $ 45.76 2,932,002
38.000 1.179 44.80 2,932,002
37.000 1.179 43.62 2,932,002
36.000 1.179 42.44 2,932,002
35.000 1.179 41.27 2,932,002
34.000 1.179 40.09 2,932,002
33.000 1.179 38.91 2,932,002
32.000 1.179 37.73 2,932,002
31.000 1.179 36.55 2,932,002
30.000 1.179 35.37 2,932,002
29.000 1.179 34.19 2,932,002
28.000 1.179 33.01 2,932,002
</TABLE>
- ------------------------
(1) Per share equivalent value on any given day is calulated by multiplying the
last sales price on such date by the applicable exchange ratio. For purposes
of simplicity, this table assumes that the last sales price on such date is
equal to the assumed volume-weighted average sales price of Western Common
Stock used to calculate the exchange ratio for such date.
EFFECTIVE TIME AND EFFECTIVE DATE
On a date to be selected by Western, which will be within 10 days after the
last to occur of the expiration of all applicable waiting periods in connection
with approvals of governmental authorities and the receipt of all approvals of
governmental authorities and all conditions to the consummation of the Merger
being satisfied or waived (or, at the election of Western, on the last business
day of the month in which such tenth day occurs or, if such tenth day occurs on
one of the last five business days of such month, on the last business day of
the succeeding month), or on such earlier or later date as may be agreed in
writing by Western, Merger Sub and Peninsula, an agreement of merger will be
executed in accordance with all appropriate legal requirements and will be filed
as required by law, and the Merger will become effective upon such filing or on
such date as may be specified in such agreement of merger. The date of
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such filing or such later effective date is herein called the "Effective Date".
The "Effective Time" of the Merger will be the time of such filing or as set
forth in such agreement of merger.
EXCHANGE OF STOCK CERTIFICATES; DIVIDENDS
At or prior to the Effective Time, Western will deposit, or will cause to be
deposited, with such bank or trust company as Western shall elect (which may
include a subsidiary of Western) (in such capacity, the "Exchange Agent"), for
the benefit of the holders of certificates formerly representing shares of
Peninsula Common Stock ("Old Certificates"), for exchange, certificates
representing the shares of Western Common Stock ("New Certificates") and an
estimated amount of cash to be paid in exchange for outstanding shares of
Peninsula Common Stock.
As soon as practicable after the Effective Date, Western will send or cause
to be sent to each former holder of record of shares of Peninsula Common Stock
immediately prior to the Effective Time transmittal materials (the "Letter of
Transmittal") for use in exchanging such shareholder's Old Certificates for the
Consideration. Western will cause the New Certificates into which shares of a
shareholder's Peninsula Common Stock are converted on the Effective Date and/or
any check in respect of any fractional share interests or dividends or
distributions which such person will be entitled to receive to be delivered to
such shareholder upon delivery to the Exchange Agent of Old Certificates
representing such shares of Peninsula Common Stock owned by such shareholder. No
interest will be paid on any such cash to be paid in lieu of fractional share
interests or in respect of dividends or distributions which any such person will
be entitled to receive upon such delivery.
At the election of Western, no dividends or other distributions with respect
to Western Common Stock with a record date occurring after the Effective Time
will be paid to the holder of any unsurrendered Old Certificate representing
shares of Peninsula Common Stock converted in the Merger into the right to
receive shares of such Western Common Stock until the holder thereof will be
entitled to receive New Certificates in exchange therefor in accordance with the
procedures set forth in the Merger Agreement, and no such shares of Peninsula
Common Stock will be eligible to vote until the holder of Old Certificates is
entitled to receive New Certificates in accordance with the procedures set forth
in the Merger Agreement. After becoming so entitled in accordance with the
Merger Agreement, the record holder thereof also will be entitled to receive any
such dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to shares of Western Common Stock
such holder had the right to receive upon surrender of the Old Certificate.
PENINSULA SHAREHOLDERS SHOULD NOT FORWARD PENINSULA COMMON STOCK
CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS.
PENINSULA SHAREHOLDERS SHOULD NOT RETURN CERTIFICATES WITH THE ENCLOSED PROXY.
NO FRACTIONAL SHARES
No fractional shares of Western Common Stock will be issued in the Merger.
In lieu of the issuance of any fractional share of Western Common Stock, a cash
adjustment will be paid to Peninsula Shareholders in an amount determined by
multiplying such fraction by the average of the closing prices for Western
Common Stock for the five trading days preceding the Effective Date.
CONDUCT OF THE BUSINESS OF PENINSULA AND WESTERN PRIOR TO THE MERGER
Pursuant to the Merger Agreement, each of Western and Peninsula has agreed
that, during the period from the date of the Merger Agreement until the
Effective Time, except as permitted by the Merger Agreement, each will not, and
will cause its subsidiaries not to, (a) take any action that would adversely
affect or delay the ability of Peninsula or Western to perform any of their
obligations on a timely basis under the Merger Agreement, or take any action
that is reasonably likely to have a material adverse effect
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on Peninsula or Western and its subsidiaries, taken as a whole; or (b) (i) take
any action while it knows that such action would, or is reasonably likely to,
prevent or impede the Merger from qualifying (A) for pooling-of-interests
accounting treatment or (B) as a Reorganization; or (ii) knowingly take any
action that is intended or is reasonably likely to result in (A) any of its
representations and warranties set forth in the Merger Agreement being or
becoming untrue in any material respect at any time at or prior to the Effective
Time, (B) any of the conditions to the Merger not being satisfied or (C) a
material violation of any provision of the Merger Agreement.
In addition, Peninsula has agreed that, during the same period, it will not,
subject to certain exceptions, without the prior consent of Western, (a) conduct
the business of Peninsula other than in the ordinary and usual course; (b) (i)
issue, sell or otherwise permit to become outstanding, or authorize the creation
of, any additional shares of Peninsula Common Stock or preferred stock or (ii)
enter into any agreement with respect to the foregoing; (c)(i) other than the
payment of a previously declared dividend on the Peninsula Common Stock and the
declaration and payment of regular quarterly cash dividends of $0.08 per share
of Peninsula Common Stock, make, declare, pay or set aside for payment any
dividend or declare or make any distribution or (ii) directly or indirectly
adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any
shares of its capital stock; (d) enter into, amend or renew any employment or
similar agreement or arrangement or increase salaries, wages or employee
benefits, other than (i) normal increases in compensation to employees, (ii) for
grants of awards to newly hired employees consistent with past practice, (iii)
other changes required by applicable law or (iv) to satisfy contractual
obligations existing as of July 24, 1998; (e) enter into, establish, adopt or
amend any pension, retirement, or similar plan or arrangement, or take any
action to accelerate the vesting or exercisability of any compensation or
benefits payable thereunder, except as may be required by applicable laws to
satisfy contractual obligations disclosed prior to July 24, 1998; (f) sell,
transfer, mortgage, encumber or otherwise dispose of or discontinue any of its
assets, deposits, business or properties except in the ordinary course of
business and in a transaction that is not material to Peninsula and its
subsidiaries, taken as a whole; (g) acquire all or any portion of, the assets,
business, deposits or properties of any other entity except in the ordinary
course of business in a transaction that is not material to Peninsula and its
subsidiaries, taken as a whole; (h) make any capital expenditures other than
those in the ordinary course of business in amounts not exceeding $50,000
individually or $100,000 in the aggregate; (i) amend the articles or by-laws of
Peninsula and its subsidiaries; (j) implement or adopt any change in its
accounting principles or practices or methods; (k) except in the ordinary course
of business, enter into or terminate any material contract or amend or modify in
any material respect any existing material contracts; (l) except in the ordinary
course of business, settle any claim, action or proceeding, except for those
involving solely money damages in an amount, individually or in the aggregate,
not material to Peninsula and its subsidiaries, taken as a whole; (m) (i)
implement or adopt any material change in its interest rate and other risk
management policies, procedures or practices; (ii) fail to follow its existing
policies or practices with respect to managing its exposure to interest rate and
other risk; or (iii) fail to use commercially reasonable means to avoid any
material increase in its aggregate exposure to interest rate risk; (n) incur any
indebtedness for borrowed money other than in the ordinary course of business;
or (o) agree or commit to do any of the foregoing.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things, (a) organization and similar
corporate matters; (b) the capital structure of each of Peninsula, Western and
Merger Sub; (c) authorization, execution, delivery, performance and
enforceability of the Merger Agreement and related matters; (d) conflicts under
articles or bylaws, required consents or approvals, and violations of any
agreements or law; (e) financial statements or documents filed with the
Commission or other regulator agencies and the accuracy of information contained
therein; (f) absence of certain material adverse events, changes, effects or
undisclosed liabilities; (g) retirement and other employee plans and matters
relating to the Employee Retirement Income Security Act of 1974, as amended; (h)
litigation; (i) compliance with law, including environmental compliance; (j) tax
returns and
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audits; (k) ownership of real property; (l) absence of regulatory actions; (m)
labor matters; (n) risk management instruments; (o) books and records; (p) trust
business; and (q) Year 2000 matters.
CERTAIN COVENANTS
ACQUISITION PROPOSALS
Pursuant to the Merger Agreement, Peninsula has agreed that it will not, and
will cause its subsidiaries, officers, directors, agents, advisors and
affiliates not to, solicit or encourage inquiries or proposals with respect to,
or engage in any negotiations concerning, or provide any confidential
information to, or have any discussions with, any person relating to, any tender
or exchange offer, proposal for a merger, consolidation or other business
combination involving Peninsula or any proposal or offer to acquire in any
manner a substantial equity interest in, or a substantial portion of the assets
or deposits of, Peninsula, other than the transactions contemplated by the
Merger Agreement (any such proposal or offer being referred to as an
"Acquisition Proposal"), except to the extent legally required for the discharge
by the Peninsula Board of its fiduciary duties as advised by counsel to the
Peninsula Board.
Peninsula has also agreed, as of the date of the Merger Agreement, to
immediately cease and cause to be terminated any activities, discussions or
negotiations conducted prior to the date of the Merger Agreement with any
parties other than Western with respect to any of the foregoing and to use its
reasonable best efforts to enforce any confidentiality or similar agreement
relating to an Acquisition Proposal. Peninsula will promptly (within 24 hours)
advise Western following the receipt by Peninsula of any Acquisition Proposal
and the substance thereof (including the identity of the person making such
Acquisition Proposal), and advise Western of any developments with respect to
such Acquisition Proposal immediately upon the occurrence thereof.
CERTAIN POLICIES OF PENINSULA
On or after the Effective Time, Peninsula will, consistent with GAAP and on
a basis mutually satisfactory to it and Western, modify and change its loan,
litigation and real estate valuation policies and practices (including loan
classifications and levels of reserves) so as to be applied on a basis that is
consistent with that of Western.
EMPLOYEE BENEFITS
From and after the Effective Date, Western will (i) provide former employees
of Peninsula who remain as employees of Western or any of Western's significant
subsidiaries with employee benefit plans no less favorable in the aggregate than
those provided to similarly situated employees of Western or its significant
subsidiaries, including, but not limited to, allowing such employees to
participate in Western's stock option plan, and (ii) with respect to former
employees of Peninsula who remain as employees of Western or any of its
significant subsidiaries, cause each employee benefit plan of Western or its
significant subsidiaries in which such employees are eligible to participate to
take into account for purposes of eligibility and vesting thereunder the service
of such employees with Peninsula as if such service were with Western or its
significant subsidiaries. In addition, Western agrees that all accrued bonuses
for 1998 will be paid to former employees of Peninsula in accordance with
Peninsula's past practices. Notwithstanding the foregoing, Peninsula consents
and covenants that from and after the Effective Date, Peninsula's benefit plans
will be governed, managed and/or terminated by Western, all within Western's
sole discretion.
BOARD ATTENDANCE
Each of Western and Peninsula has agreed, subject to certain exceptions, to
allow a representative of Peninsula and Western, respectively, to attend all
regular and special meetings of the Boards of Directors of Peninsula and Western
and the executive committee of such board, respectively, until the Effective
Date.
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INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
From and for a period of six years after the Effective Time, subject to
certain exceptions, Western has agreed to indemnify and hold harmless each
present and former director and officer of Peninsula or any of its subsidiaries,
determined as of the Effective Time (the "Indemnified Parties"), against any
costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages or liabilities (collectively, "Costs") incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of matters
existing or occurring at or prior to the Effective Time (including with respect
to the Merger Agreement or any of the transactions contemplated thereby),
whether asserted, claimed or arising prior to, at or after the Effective Time,
to the extent to which such Indemnified Parties were entitled under California
law and Peninsula's articles of incorporation or bylaws in effect on July 24,
1998, and Western also will advance expenses as incurred to the extent permitted
under California law and Peninsula's articles of incorporation and bylaws.
Any Indemnified Party wishing to claim indemnification under the Merger
Agreement, upon learning of any such claim, action, suit, proceeding or
investigation, must as promptly as possible notify Western thereof, but the
failure so to notify will not relieve Western of any liability it may have to
such Indemnified Party if such failure does not materially prejudice Western. In
the event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), (a) Western will have the right to
assume the defense thereof and Western will not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the defense
thereof, except that if Western elects not to assume such defense, or counsel
for the Indemnified Parties advises that there are issues that raise conflicts
of interest between Western and the Indemnified Parties, the Indemnified Parties
may retain counsel satisfactory to them, and Western will pay the reasonable
fees and expenses of one such counsel for the Indemnified Parties in any
jurisdiction promptly as statements thereof are received; (b) the Indemnified
Parties will cooperate in the defense of any such matter; and (c) Western will
not be liable for any settlement effected without its prior written consent.
Notwithstanding the foregoing, Western will not have any obligation under the
Merger Agreement to any Indemnified Party when and if a court of competent
jurisdiction ultimately determines, and such determination becomes final and
nonappealable, that the indemnification of such Indemnified Party in the manner
contemplated hereby is not permitted or is prohibited by applicable law.
Western also has agreed that for a period of six years after the Effective
Time, it will use its reasonable best efforts to cause to be maintained in
effect the current policies of directors' and officers' liability insurance
maintained by Peninsula as of July 24, 1998 (provided that Western may
substitute therefor policies of comparable coverage with respect to claims
arising from facts or events that occurred before the Effective Time); PROVIDED,
HOWEVER, that in no event will Western be obligated to expend, in order to
maintain or provide insurance coverage pursuant to the Merger Agreement, any
amount per annum in excess of 125% of the amount of the annual premiums paid as
of the date of the Merger Agreement by Peninsula for such insurance (the
"Maximum Amount"). If the amount of the annual premiums necessary to maintain or
procure such insurance coverage exceeds the Maximum Amount, Western will use all
reasonable efforts to maintain the most advantageous policies of directors' and
officers' insurance obtainable for an annual premium equal to the Maximum
Amount. Notwithstanding the foregoing, prior to the Effective Time, Western may
request Peninsula to, and Peninsula thereupon will, purchase insurance coverage,
on such terms and conditions as shall be acceptable to Western, extending for a
period of six years Peninsula's directors' and officers' liability insurance
coverage in effect as of the date of the Merger Agreement (covering past or
future claims with respect to periods before the Effective Time) and such
coverage will satisfy Western's obligations under this paragraph of the Merger
Agreement.
If Western or any of its successors or assigns (a) shall consolidate with or
merge into any other corporation or entity and shall not be the continuing or
Surviving Bank or entity of such consolidation or merger or (b) shall transfer
all or substantially all of its properties and assets to any individual,
corporation
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or other entity, then and in each such case, proper provision will be made to
ensure that the successors and assigns of Western assume the obligations
described above.
NOTIFICATION OF CERTAIN MATTERS
Western and Peninsula each has agreed to give prompt notice to the other of
any fact, event or circumstance known to it that (i) is reasonably likely,
individually or taken together with all other facts, events and circumstances
known to it, to result in any material adverse effect with respect to it or (ii)
would cause or constitute a material breach of any of its representations,
warranties, covenants or agreements contained in the Merger Agreement.
PENINSULA NAME
For a period of two years following the Effective Date, Western agrees to
operate the business currently operated by Peninsula as a separate division or
business unit under the name of Peninsula; PROVIDED, HOWEVER, that this covenant
will terminate automatically upon Western's merger, acquisition or consolidation
with, by or into any other person.
PENINSULA AFFILIATES
Peninsula has agreed to use its reasonable best efforts to cause each person
who may be deemed to be an affiliate of Peninsula as of the date of the
Peninsula Special Meeting to execute and deliver to Western on or before the
date of mailing of this Proxy Statement-Prospectus to Peninsula Shareholders an
agreement which provides that each such person will agree not to sell, pledge,
transfer or otherwise dispose of the shares of Western Common Stock to be
received by such person in the Merger except in compliance with the applicable
provisions of the Securities Act.
CONDITIONS
The respective obligations of Western and Peninsula to consummate the Merger
are subject to certain conditions, including (a) the approval by the Peninsula
Shareholders of the principal terms of the Merger; (b) receipt of approvals
required by law in connection with the Merger and the other transactions
contemplated by the Merger Agreement (the parties having agreed that no such
approval will be deemed to have been received if it includes any condition,
restriction or requirement that the Western Board reasonably determines would
result in a material adverse effect on the Surviving Bank and its subsidiaries,
taken as a whole, or would reduce the benefits of the Merger to such a degree
that Western would not have entered into the Merger Agreement had such
condition, restriction or requirement been known to it); (c) the absence of any
statute, rule, regulation, order, injunction or decree being in effect and
prohibiting the consummation of the Merger or any other transaction contemplated
by the Merger Agreement; (d) the Registration Statement having become effective
and there being issued no stop order suspending the effectiveness of the
Registration Statement and no proceedings for that purpose initiated or
threatened by the Commission; (e) the receipt and continued effectiveness of all
permits and other authorizations under state securities laws necessary to
consummate the transactions contemplated by the Merger Agreement and to issue
the shares of Western Common Stock to be issued in the Merger; and (f) the
approval for listing on Nasdaq, subject to official notice of issuance, of the
shares of Western Common Stock to be issued in the Merger.
The obligations of Western and Merger Sub to consummate the Merger also are
subject to the fulfillment or waiver by Western prior to the Effective Time of
certain conditions, including the following: (a) the representations and
warranties of Peninsula being true and correct unless the failure so to be true
and correct is not likely to have a material adverse effect on Peninsula; (b)
the performance by Peninsula in all material respects of all obligations
contained in the Merger Agreement required to be performed by Peninsula before
the Effective Time; (c) the receipt by Western of an opinion of Sullivan &
Cromwell that the Merger will be treated as a Reorganization; (d) the receipt by
Western of a customary "cold comfort"
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letter from Deloitte & Touche LLP, with respect to certain financial statements
and data of Peninsula; (e) the receipt by Western from KPMG of an opinion
stating that the Merger will qualify for pooling-of-interests accounting
treatment; (f) the receipt by Western of a certificate from Peninsula stating
that, as of the month end preceding the Effective Time, Peninsula's
shareholders' equity and allowance for credit losses will not be less than the
respective amounts set forth on Peninsula's call report as of June 30, 1998; and
(g) the receipt by Western of the written resignation of each director of
Peninsula.
In addition, the obligation of Peninsula to consummate the Merger also is
subject to the fulfillment or waiver by Peninsula prior to the Effective Time of
certain conditions, including the following: (a) the representations and
warranties of Western being true and correct unless the failure so to be true
and correct is not likely to have a material adverse effect on Western; (b) the
performance by Western in all material respects of all obligations contained in
the Merger Agreement required to be performed before the Effective Time; (c) the
receipt by Peninsula of an opinion of Deloitte & Touche LLP stating that (i) the
Merger constitutes a Reorganization and (ii) no gain or loss will be recognized
by Peninsula Shareholders who receive shares of Western Common Stock in exchange
for shares of Peninsula Common Stock, except with respect to cash received in
lieu of fractional share interests; (d) the receipt by Peninsula of a customary
"cold comfort" letter from KPMG with respect to certain financial statements and
data of Western; (e) the receipt by Peninsula from Deloitte & Touche LLP of an
opinion stating that the Merger will qualify for pooling-of-interests accounting
treatment; (f) the adoption by Western of resolutions sufficient to appoint and
cause John G. Rebelo, Jr. to become a director of Western and the appointment of
Mr. Rebelo as a director of Peninsula, in each case as of the Effective Time;
and (g) the receipt by Peninsula from NationsBanc Montgomery of an opinion
stating that as of a date within five days prior to the mailing of the Proxy
Statement-Prospectus to the shareholders of Peninsula, the Consideration to be
received by the holders of Peninsula Common Stock is fair from a financial point
of view.
TERMINATION
The Merger Agreement may be terminated, and the Merger abandoned, prior to
the Effective Date, either before or after its approval by the Peninsula
Shareholders: (a) by the mutual consent of Western and Peninsula, if so
determined by their respective Boards; (b) by either of Western or Peninsula, if
so determined by its Board, by written notice to the other, in the event of (i)
the failure of the Peninsula Shareholders to approve the principal terms of the
Merger at the Peninsula Meeting, (ii) a material breach by the other party of
any representation, warranty, covenant or agreement contained in the Merger
Agreement that is not cured or not curable within 30 days after written notice
of such breach is given to the party committing such breach, (iii) the Merger
not having been consummated by March 31, 1999, or (iv) the unappealable denial
of any approval of a governmental authority required to permit consummation of
the Merger or any transaction necessary to consummate the Merger; (c) by
Peninsula, if with respect to any Ten Day Period (as defined below), both (i)(A)
the Ten Day Average Price (as defined below) shall be less than $36.656 per
share and (B) the Western Common Stock Price Percentage (as defined below) shall
be less than the BKX Index Percentage (as defined below) and (ii) Peninsula has
delivered written notice to Western of its intention to terminate this Agreement
within forty-eight (48) hours following the date of such event; (d) by Western,
if the Peninsula Board shall fail to recommend the Merger for approval by the
Peninsula Shareholders; or (e) by Peninsula, if the Peninsula Board receives an
Acquisition Proposal and determines, based upon the advice of counsel, that to
proceed with the Merger would violate the fiduciary duties of the Peninsula
Board to the Peninsula Shareholders, to accept such proposal.
"Western Common Stock Price Percentage" is defined in the Merger Agreement
to mean the percentage determined by dividing the Ten Day Average Price by
$43.125. "BKX Index Percentage" means the percentage determined by dividing (i)
the product of (A) the Ten Day Average Keefe Bank Index times (B) 0.9 by (ii)
the Keefe Bank Index as of the date hereof. "Ten Day Average Price" means the
volume-weighted average sales price per share of Western Common Stock for a Ten
Day Period determined by averaging the last reported sales price on each trading
day. "Ten Day Period" means any period of 10
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consecutive trading days. The Keefe Bank Index is comprised of 24 banking
companies and is the basis for an option traded on the Philadelphia Stock
Exchange.
TERMINATION PAYMENT
If the Merger Agreement is terminated by Peninsula pursuant to a material
breach of any representation, warranty, covenant or agreement contained therein
by Western that is not cured or not curable within 30 days after written notice
of such breach is given to Western by Peninsula, Western will pay to Peninsula a
fee equal to Peninsula's out-of-pocket expenses in connection with the Merger,
up to $500,000. If the Merger Agreement is terminated by Western pursuant to a
material breach of any representation, warranty, covenant or agreement contained
therein by Peninsula that is not cured or not curable within 30 days after
written notice of such breach is given to Peninsula by Western, or under the
circumstances described in clause (d) under "--Termination" above, Peninsula
shall pay to Western a fee equal to Peninsula's out-of-pocket expenses in
connection with the Merger, up to $500,000. In the event that there is a
termination as a result of Peninsula entering into an Acquisition Proposal under
the circumstances described in clause (e) under "--Termination" above, Peninsula
shall pay Western up to $500,000 to cover out-of-pocket expenses in addition to
Western's rights under the Stock Option Agreement.
WAIVER AND AMENDMENT
Prior to the Effective Time, any provision of the Merger Agreement may be
(i) waived by the party benefitted by the provision or (ii) amended or modified
at any time, by an agreement in writing between Western, Merger Sub and
Peninsula executed in the same manner as the Merger Agreement. However, after
the Peninsula Meeting, the Merger Agreement may not be amended so long as the
Consideration to be received by Peninsula Shareholders is not reduced and the
amendments do not violate the CGCL, after approval by the Peninsula Shareholders
pursuant to the Merger.
THE STOCK OPTION AGREEMENT
GENERAL
As an inducement and condition to Western's entering into the Merger
Agreement, Peninsula entered into the Stock Option Agreement with Western, dated
as of July 24, 1998. Pursuant to the Stock Option Agreement, Peninsula granted
to Western an unconditional, irrevocable Option, exercisable only under certain
limited and specifically defined circumstances, none of which, to the best of
Peninsula's and Western's knowledge, has occurred as of the date hereof, to
purchase up to 494,930 authorized but theretofore unissued shares of Peninsula
Common Stock (but in no event more than 19.9% of the shares of Peninsula Common
Stock outstanding at the time of exercise), for a purchase price per share of
$41.00, subject to adjustment in certain circumstances. The purchase of
Peninsula Common Stock pursuant to the Stock Option Agreement is subject to
compliance with applicable law, including receipt of any necessary approvals
under the BHCA.
The Stock Option Agreement and the Option are intended to increase the
likelihood that the Merger will be consummated according to the terms set forth
in the Merger Agreement, and may be expected to discourage offers by third
parties to acquire Peninsula prior to the Merger.
THE STOCK OPTION
Western may exercise the Option, in whole or in part, at any time and from
time to time following the occurrence of certain events (each a "Purchase
Event"), including (a) the acquisition by any person other than Western or any
subsidiary of Western of beneficial ownership of shares of Peninsula Common
Stock, such that, upon the consummation of such acquisition, such person would
have beneficial ownership, in the aggregate, of 25% or more of the then
outstanding shares of Peninsula Common Stock; or (b) the
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occurrence of a Preliminary Purchase Event described in sub-paragraph (i) or
sub-paragraph (ii) of the next paragraph, except the percentage referred to
therein will be 25%.
As defined in the Stock Option Agreement, a "Preliminary Purchase Event"
means the occurrence of any one of the following events:
(i) Peninsula or any of its subsidiaries (each a "Peninsula Subsidiary")
having entered into an agreement to engage in an Acquisition Transaction (as
defined herein) with any person other than Western or any of its
subsidiaries (each a "Western Subsidiary") or the Peninsula Board having
recommended that the Peninsula Shareholders approve or accept any
Acquisition Transaction with any person other than Western or any Western
Subsidiary; "Acquisition Transaction" is defined in the Stock Option
Agreement to mean (a) a merger or consolidation, or any similar transaction,
involving Peninsula or any Peninsula Subsidiary, (b) a purchase, lease or
other acquisition of all or substantially all of the assets of Peninsula or
any Peninsula Subsidiary or (c) a purchase or other acquisition of
securities representing 10% or more of the voting power of Peninsula or of
any Peninsula Subsidiary, provided that the term "Acquisition Transaction"
does not include any internal merger or consolidation involving only
Peninsula or any Peninsula Subsidiary;
(ii) Any person, other than Western or any Western Subsidiary, having
acquired beneficial ownership or the right to acquire beneficial ownership,
of shares of Peninsula Common Stock such that, upon the consummation of such
acquisition, such person would have beneficial ownership, in the aggregate,
of 10% or more of the then outstanding shares of Peninsula Common Stock;
(iii) Any person, other than Western or any Western Subsidiary, having
made a bona fide proposal to Peninsula or its shareholders, by public
announcement or written communication that is or becomes the subject of
public disclosure, to engage in an Acquisition Transaction;
(iv) After a proposal is made by a third party to Peninsula or Peninsula
Shareholders to engage in an Acquisition Transaction, or such third party
states its intention to make such a proposal if the Merger Agreement
terminates and/or the Option expires Peninsula having breached any covenant
or obligation contained in the Merger Agreement which breach would entitle
Western to terminate the Merger Agreement;
(v) The holders of Peninsula Common Stock not approving the Merger
Agreement at the Peninsula Special Meeting, or such meeting not having been
held or having been canceled prior to termination of the Merger Agreement,
in each case after it has been publicly announced that any person (other
than Western or a Western Subsidiary) has made a bona fide proposal to
engage in an Acquisition Transaction, has commenced a tender offer or
exchange offer with respect to at least 10% or more of the outstanding
Peninsula Common Stock or has filed an application with the appropriate
banking regulatory authority for approval to engage in an Acquisition
Transaction;
(vi) Any person, other than Western or any Western Subsidiary, without
Western's prior written consent having filed an application or notice with
the Federal Reserve Board or other governmental authority for approval to
engage in an Acquisition Transaction; or
(vii) The Peninsula Board having withdrawn or modified in a manner
adverse to Western the recommendation of the Peninsula Board with respect to
the Merger Agreement in anticipation of engaging in an Acquisition
Transaction, or Peninsula or any Peninsula Subsidiary having authorized or
recommended an agreement to engage in an Acquisition Transaction with any
person other than Western or a Western Subsidiary.
The Stock Option Agreement also provides for certain adjustments intended to
protect Western against dilution of its rights to acquire Peninsula Common
Stock. The Stock Option Agreement also grants certain registration rights to
Western with respect to the shares issuable upon exercise of the Option.
95
<PAGE>
TERMINATION
The Option will terminate upon the earliest to occur of (a) the time
immediately prior to the Effective Time; (b) 12 months after the first
occurrence of a Purchase Event; (c) 18 months after the termination of the
Merger Agreement following the occurrence of a Preliminary Purchase Event; (d)
termination of the Merger Agreement in accordance with the terms thereof prior
to the occurrence of a Purchase Event or a Preliminary Purchase Event (other
than a termination of the Merger Agreement upon the happening of certain events,
including termination by Western as a result of a material breach of the Merger
Agreement by Peninsula and a termination by Peninsula as a result of the
Peninsula Board's exercising its fiduciary duties to accept an Acquisition
Proposal); or (e) 18 months after the termination of the Merger Agreement upon
the happening of certain events, including termination by Western as a result of
a material breach of the Merger Agreement by Peninsula and a termination by
Peninsula as a result of the Peninsula Board's exercising its fiduciary duties
to accept an Acquisition Proposal.
THE SHAREHOLDER AGREEMENTS
Western has entered into Shareholder Agreements with Lawrence G. Alameda,
Grace Evans Cherashore, William E. Cole, Sr., Arthur DeFever, James E. Fink,
Brian H. Gowland, Daniel Herde, Barbara A. Hosaka, Richard J. Lareau, Anthony
Mauricio, Jr., Michael A. Morton, John G. Rebelo, Jr., and Larry L. Willette
(the "Party Shareholders"), each a Peninsula Shareholder and current director of
Peninsula. The Party Shareholders, holding in the aggregate shares representing
approximately 35.8% of the total voting power of Peninsula Common Stock as of
the Peninsula Record Date, each have agreed, in consideration of the substantial
expenses incurred by Western and Peninsula in connection with the Merger
Agreement and as a condition to Western and Peninsula entering into the Merger
Agreement, to vote or to cause to be voted, or to execute a written consent with
respect to, all of such Party Shareholder's shares of Peninsula Common Stock in
favor of adoption and approval of the Merger Agreement and the Merger at every
meeting of Peninsula Shareholders at which such matters are considered and at
every adjournment thereof and in connection with every proposal to take action
by written consent with respect thereto.
Each Shareholder Agreement also provides that the Party Shareholder will
not, and will not permit any entity under its control to, deposit any of such
Party Shareholder's shares of Peninsula Common Stock in a voting trust or
subject any such shares to any agreement, arrangement or understanding with
respect to the voting of such shares inconsistent with the Shareholder Agreement
entered into by that Party Shareholder. In addition, the Party Shareholders each
agreed not to sell, assign, transfer or dispose of any of his or her shares of
Peninsula Common Stock during the term of the relevant Shareholder Agreement.
The Shareholder Agreements will terminate upon the earlier to occur of the
Effective Time (except for certain provisions which will survive the Effective
Time) and the date on which the Merger Agreement is terminated in accordance
with its terms.
The Shareholder Agreements bind the actions of the signatories thereto only
in their capacity as Peninsula Shareholders. Those directors of Peninsula who
signed Shareholder Agreements are not and could not be contractually bound to
abrogate their fiduciary duties as directors of Peninsula. Accordingly, while
such shareholders/directors are, under the Shareholder Agreements executed by
them, contractually bound to vote as a Peninsula Shareholder in favor of the
Merger, their fiduciary duties as Peninsula directors nevertheless require them
to act in their capacity as directors in the best interest of Peninsula when
they decided to approve the Merger. In addition, such shareholders/directors
will continue to be bound by their fiduciary duties as Peninsula directors with
respect to any decisions they may take in connection with the Merger or
otherwise.
96
<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
COMPARISON OF CORPORATE STRUCTURE
Both Western and Peninsula are California corporations and as such are
governed by the CGCL. Listed below is a summary of the material differences in
the rights of the shareholders of Western Common Stock and Peninsula Common
Stock. Except as otherwise noted below, there are no material differences with
regard to electing members of the board of directors, amending the articles of
incorporation or bylaws, calling special meetings of shareholders, acting by
written consent of shareholders without a meeting, indemnifying directors and
other voting rights.
DIVIDENDS AND DIVIDEND POLICY
PENINSULA
As a California state bank, Peninsula may not without prior approval of the
State Commissioner make a distribution to the Peninsula Shareholders (including
a payment of dividends, but excluding stock dividends) which exceeds the lesser
of (i) its retained earnings and (ii) its net income for the last three fiscal
years, less the amount of any previous distributions during such period. With
the approval of the State Commissioner, Peninsula may make a distribution not
exceeding its retained earnings, its net income for the past fiscal year or its
net income for the current fiscal year.
Holders of Peninsula Common Stock are entitled to receive dividends declared
by the Peninsula Board out of funds legally available therefor. For the first
two quarters of 1998, Peninsula has paid a quarterly dividend of $0.08 per
share. The $0.08 cash dividend paid by Peninsula in August 1998 was
approximately 17% of second quarter diluted earnings per share of $0.47 for the
second quarter.
WESTERN
Holders of Western Common Stock are entitled to receive dividends declared
by the Western Board out of funds legally available therefor under the laws of
the State of California, subject to the rights of holders of any preferred stock
of Western that may be issued after the date hereof. On August 20, 1997, the
Western Board approved the institution of a quarterly dividend and thereafter
declared a dividend of $0.15 per common share which was paid in the fourth
quarter of 1997. Western also declared a dividend of $0.15 per common share paid
in the fourth quarter of 1997 which was paid in the first quarter of 1998, and
on May 20, 1998, the Western Board declared a dividend of $0.15 per common share
which was paid on June 26, 1998 to shareholders of record on June 5, 1998. The
$0.15 cash dividend paid by Western in September 1998 was approximately 39% of
second quarter diluted earnings per share of $0.39 and approximately 27% of
second quarter diluted earnings per share before goodwill amortization of $0.55.
Western Management believes that it will be able to continue paying
quarterly dividends. However, because Western must comply with the CGCL and
banking regulations when paying dividends, there can be no assurance that
Western will continue to pay dividends at this level, if at all. In addition,
Western's ability to pay dividends is limited by the credit agreement between
Western and The Northern Trust Company which provides that Western may not
declare or pay any dividend other than dividends payable in Western Common Stock
or in the ordinary course of business not to exceed 50% of net income per fiscal
quarter of Western before goodwill amortization and any restructuring charges
incurred in connection with any merger, consolidation or other restructuring
contemplated by transactions similar to the Merger. See "RISK
FACTORS--Regulation" and "INFORMATION REGARDING WESTERN".
NUMBER OF DIRECTORS
The Peninsula bylaws provide that the authorized number of directors of
Peninsula shall be not less than nine and not more than twelve. Currently, the
actual number of directors of Peninsula is ten.
97
<PAGE>
The Western Restated Bylaws provide that the authorized number of directors
of Western shall not be less than nine nor more than fifteen and that any
amendment to the Western Restated Bylaws affecting the authorized number of
directors must be approved by a majority of the Western Shareholders, provided
that an amendment to the bylaws reducing the number of directors to a number
less than five cannot be adopted if the votes cast against its adoption are
equal to more than 16 2/3% of the outstanding shares entitled to vote on such
amendment. Currently, the actual number of directors of Western is nine and will
increase to ten upon the consummation of the BKLA Acquisition. Upon consummation
of the Merger, the addition of John G. Rebelo, Jr. to the Western Board will
increase the actual number of directors to eleven assuming consummation of the
BKLA Acquisition.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the CGCL authorizes a court to award, or a corporation's
board of directors to grant, indemnity to directors, officers and employees in
terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act. Article Five of Western's restated articles of
incorporation provides for elimination of liability for monetary damages of its
directors, and Article Six of Western's Restated Articles of Incorporation and
Article VI of Western's Restated Bylaws provide for indemnification of its
directors, officers, employees and other agents to the fullest extent permitted
by the CGCL. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Western pursuant to the foregoing provisions, or otherwise, Western has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
VALIDITY OF WESTERN COMMON STOCK
The validity of the shares of Western Common Stock to be issued in the
Merger has been passed upon by Julius G. Christensen, Executive Vice President,
General Counsel and Secretary of Western.
EXPERTS
The consolidated financial statements of Western and subsidiaries as of
December 31, 1997 and 1996, and for the years then ended, have been incorporated
by reference herein and in the Registration Statement in reliance on the report
of KPMG Peat Marwick LLP, independent auditors, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. Such report indicates that: (i) KPMG Peat Marwick LLP did not audit
either the 1996 consolidated financial statements of CCB or the 1996
consolidated financial statements of SCB, both of which were acquired during
1997 in mergers accounted for as poolings of interests. Such financial
statements were audited by other auditors whose reports were furnished to KPMG
Peat Marwick LLP, and KPMG Peat Marwick LLP's opinion, insofar as it related to
CCB and SCB, is based solely on the reports of the other auditors; (ii) the 1995
consolidated statements of operations, changes in shareholders' equity, and cash
flows of Western, prior to their restatement for the 1997 poolings of interest,
were audited by other auditors; (iii) the separate 1995 consolidated financial
statements of CCB and SCB included in the 1995 consolidated financial statements
of Western were audited by other auditors; and (iv) the combination of the
consolidated statements of operations, changes in shareholders' equity and cash
flows for the year ended December 31, 1995, after restatement for the 1997
poolings of interest, has been audited by KPMG Peat Marwick LLP.
The consolidated financial statements of Western for the year ended December
31, 1995, prior to their restatement for the 1997 poolings of interests, have
been incorporated by reference herein in reliance upon the report given thereto
upon the authority of Vavrinek (the successor to Dayton & Associates) as experts
in accounting and auditing.
98
<PAGE>
The consolidated statement of financial condition of CCB and subsidiaries as
of December 31, 1996, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for each of the two years in the
period ended December 31, 1996, incorporated herein by reference from the Annual
Report on Form 10-K, for the year ended December 31, 1997, of Western have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and has been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The consolidated balance sheet of SCB and subsidiary as of December 31,
1996, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the two years in the period
ended December 31, 1996 herein by reference from the Annual Report on Form 10-K,
for the year ended December 31, 1997, of Western have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of SMB as of and for the years ended December 31,
1997 and 1996, incorporated by reference from the Current Report on Form 8-K/A,
dated April 9, 1998 of Western, have been audited by Arthur Andersen LLP, as
indicated in their report thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
The statements of operations, changes in shareholders' equity and cash flows
of SMB for the year ended December 31, 1995 incorporated herein by reference
from the Current Report on Form 8-K/A, dated April 9, 1998 of Western, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and has been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The balance sheets of BKLA as of December 31, 1997 and 1996, and the related
statements of operations, changes in shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997, incorporated
herein by reference from the Current Report on Form 8-K filed by Western on June
26, 1998, have been audited by Vavrinek, independent auditors, as indicated in
their report with respect thereto, and are incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The balance sheets of Peninsula Bank of San Diego as of December 31, 1997
and 1996, and the related statements of income, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31, 1997
included in this Proxy Statement-Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein,
and has been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
99
<PAGE>
INDEX TO PENINSULA FINANCIAL STATEMENTS
AND OTHER FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Unaudited Condensed Balance Sheet at June 30, 1998 and December 31, 1997................................... F-2
Unaudited Condensed Statement of Income for the six months ended June 30, 1998 and June 30, 1997........... F-3
Unaudited Statement of Cash Flows for the six months ended June 30, 1998 and June 30, 1997................. F-4
Notes to Unaudited Condensed Financial Statements.......................................................... F-5
Selected Financial Data of Peninsula....................................................................... F-6
Peninsula Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................................................... F-28
Independent Auditors' Report............................................................................... F-31
Balance Sheets at December 31, 1997 and 1996............................................................... F-32
Statements of Income for the years ended December 31, 1997, 1996 and 1995.................................. F-33
Statements of Shareholders' Equity for the years ended December 31, 1997, 1996 and 1995.................... F-34
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995.............................. F-35
Notes to Financial Statements.............................................................................. F-36
</TABLE>
F-1
<PAGE>
PENINSULA BANK OF SAN DIEGO
UNAUDITED CONDENSED BALANCE SHEETS FOR PENINSULA
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
AT JUNE 30, AT
1998 DECEMBER 31, 1997
------------ -----------------
(UNAUDITED) (AUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks.......................................................... $ 33,093 $ 33,614
Federal funds sold............................................................... 19,500 6,000
------------ -----------------
TOTAL CASH AND CASH EQUIVALENTS.............................................. 52,593 39,614
SECURITIES
FHLB and FNMA stock.............................................................. 1,254 1,032
Securities held to maturity (fair value of $82,980 and 86,734)................... 82,341 86,050
Securities available for sale (amortized cost of $29,178 and $37,871)............ 28,023 37,959
------------ -----------------
TOTAL SECURITIES............................................................. 111,618 125,041
Net loans and leases............................................................. 240,785 232,198
Premises and equipment........................................................... 11,907 11,514
Other assets..................................................................... 11,369 9,878
------------ -----------------
TOTAL ASSETS................................................................. $ 428,272 $ 418,245
------------ -----------------
------------ -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES
Non-interest bearing deposits.................................................... $ 143,342 $ 121,657
Interest bearing deposits........................................................ 253,713 267,575
------------ -----------------
TOTAL DEPOSITS............................................................... 397,055 389,232
Borrowed funds................................................................... 600 600
Accrued interest payable and other liabilities................................... 3,359 3,057
------------ -----------------
TOTAL LIABILITIES............................................................ 401,014 392,889
Commitments and Contingencies.................................................... -- --
SHAREHOLDERS' EQUITY
Common stock, no par value, 3,000,000 shares authorized December 1997 2,368,654
issued and outstanding and 3,000,000 shares authorized June 1998 2,486,855
issued and outstanding......................................................... 19,017 19,017
Retained earnings................................................................ 8,269 6,407
Accumulated other comprehensive income-unrealized net gains (losses) on
securities available for sale, net of tax...................................... (28) (68)
------------ -----------------
TOTAL SHAREHOLDERS' EQUITY................................................... 27,258 25,356
------------ -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................. $ 428,272 $ 418,245
------------ -----------------
------------ -----------------
Number of common shares outstanding.............................................. 2,486,855 2,486,855
Common shareholders' equity per share............................................ $ 10.96 $ 10.20
Tangible common shareholders' equity per share................................... 10.92 10.16
</TABLE>
See "NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS FOR PENINSULA".
F-2
<PAGE>
UNAUDITED CONDENSED STATEMENT OF INCOME FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND JUNE 30, 1997
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
INTEREST INCOME:
Interest and fees on loans and leases............................................. $ 10,885 $ 9,984
Interest on interest bearing deposits in other bank............................... 116 12
Interest on investment securities................................................. 3,355 2,636
Interest of federal funds sold.................................................... 378 165
------------- -------------
Total Interest income......................................................... 14,734 12,797
INTEREST EXPENSE:
Interest expense on deposits...................................................... 4,388 3,963
Interest expense on borrowing..................................................... 40 29
TOTAL INTEREST EXPENSE........................................................ 4,428 3,992
------------- -------------
NET INTEREST INCOME:................................................................ 10,306 8,805
Less: provision for loan and lease losses......................................... 139 325
------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES....................... 10,167 8,480
Non-interest income:
Service charges and fees on deposit accounts........................................ 1,994 1,602
Securities gains.................................................................... 30 5
Other income........................................................................ 428 434
------------- -------------
TOTAL NON-INTEREST INCOME..................................................... 2,452 2,041
NON-INTEREST EXPENSE:
Salaries and benefits............................................................... 5,289 4,482
Occupancy, furniture and equipment.................................................. 1,301 1,128
Advertising and business development................................................ 316 296
Other real estate owned............................................................. 32 61
Professional services............................................................... 215 230
Telephone, stationary and supplies.................................................. 369 334
Data processing..................................................................... 358 343
Customer service cost............................................................... 648 427
Other............................................................................... 525 503
------------- -------------
TOTAL NON-INTEREST EXPENSE.................................................... 9,053 7,804
------------- -------------
Income before income taxes.......................................................... 3,566 2,717
Provision for income taxes.......................................................... 1,337 1,044
------------- -------------
NET INCOME.................................................................... $ 2,229 $ 1,673
------------- -------------
------------- -------------
Weighted average common shares outstanding
<CAPTION>
Basic and diluted................................................................. 2,486,855 2,486,855
<S> <C> <C>
Net income per share:
Basic and diluted................................................................. $ 0.90 $ 0.67
</TABLE>
See "NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS".
F-3
<PAGE>
UNAUDITED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND JUNE 30, 1997
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1997
--------------
1998 (UNAUDITED)
--------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income...................................................................... $ 2,228,985 $ 1,673,474
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................. 600,084 535,194
Amortization of deferred loan fees............................................ (623,521) (499,057)
Net amortization of premium on investment securities.......................... 142,902 100,724
Provision of credit losses.................................................... 138,956 325,000
Gain on sale of investment securities......................................... (29,714) (5,000)
Loss on sale of premises and equipment........................................ 8,223
Deferred loan fees on new loans............................................... 656,429 437,007
Changes in other assets and liabilities:
Other assets................................................................ (1,459,473) (893,791)
Other liabilities........................................................... 302,240 599,379
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................. 1,956,888 2,281,153
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities on available for sale investment securities............ 12,000,000 --
Proceeds from maturities/principal paydowns on held to maturity investment
securities.................................................................... 15,809,485 3,498,484
Purchases of held to maturity investment securities............................. (12,509,047) (16,641,110)
Purchases of available for sale investment securities........................... (1,995,938) (3,987,188)
Proceeds from sales of available for sale investment securities................. 0 5,000,000
Purchases of premises and equipment............................................. (963,061) (413,800)
Net additions to loans.......................................................... (8,005,475) (11,426,426)
Net change in loans sold........................................................ (769,915) 835,946
-------------- --------------
NET CASH USED FOR INVESTING ACTIVITIES.................................... 3,566,051 (23,134,094)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts................................................ 7,822,878 22,675,010
Cash dividends.................................................................. (367,141) (338,444)
-------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES................................. 7,455,737 22,336,566
-------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS............................................. 12,978,676 1,483,625
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.................................... 39,614,388 28,483,548
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......................................... $ 52,593,064 $ 29,967,173
-------------- --------------
-------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for income taxes...................................... $ 985,000 $ 515,000
-------------- --------------
Cash paid during the year for interest.......................................... $ 4,427,722 $ 3,960,265
-------------- --------------
</TABLE>
See "NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS".
F-4
<PAGE>
NOTES TO PENINSULA'S UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The Unaudited Condensed Financial Statements of Peninsula Bank of San Diego
("Peninsula") included herein reflect all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management of Peninsula
("Peninsula Management"), necessary to present a fair statement of the results
for the interim periods indicated. Certain reclassifications have been made to
the condensed financial statements for 1997 to conform to the 1998 presentation.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission.
The preparation of Unaudited Condensed Financial Statements in conformity
with accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Material
estimates subject to change include the allowance for loan and lease losses, the
carrying value of OREO, and the deferred tax asset.
The accompanying Unaudited Condensed Financial Statements should be read in
conjunction with the financial statements and notes thereto for the year ended
December 31, 1997 included elsewhere herein.
NOTE 2: STATEMENT OF COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity during a period from
transactions and the events and circumstances from non-owner sources.
Comprehensive income generally includes net income, foreign currency items,
minimum pension liability adjustments and unrealized gains and losses on
investments in certain debt and equity securities (i.e., securities available
for sale). Peninsula's statement of comprehensive income for the periods
presented is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Net income........................................................................ $ 2,229 $ 1,673
Holding gains arising during the period........................................... 57 8
Less reclassification of realized gains included in net income.................... (17) (3)
--------- ---------
Comprehensive income.............................................................. $ 2,269 $ 1,678
--------- ---------
--------- ---------
</TABLE>
NOTE 3: NET INCOME PER SHARE
The following is a summary of the calculation of basic and diluted (adjusted
for a two for one split in March 1998 and a 5% stock divided in July 1998) net
income per share for the six month periods ended June 30, 1998 and 1997 in
thousands, except per share amounts:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net income..................................................... $2,229 $1,673
Weighted average shares outstanding............................ 2,486,855 2,486,855
Basic and diluted net income per share......................... $0.90 $0.67
------------ ------------
</TABLE>
F-5
<PAGE>
SELECTED FINANCIAL DATA OF PENINSULA
STATISTICAL INFORMATION
Statistical information relating to Peninsula in the six month periods ended
June 30, 1998 and 1997 and in the five-year period ended December 31, 1997 is
set forth in the following tables and data. This data should be read in
conjunction with the audited financial statements as of December 31, 1997 and
1996 and the related notes, located in Peninsula's Financial Statements for the
Years Ended December 31, 1997, 1996 and 1995. All share data has been adjusted
to reflect the two for one stock split in March 1998 and the 5% stock dividend
in July 1998.
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED JUNE AT OR FOR THE YEARS
30, ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
CONDENSED STATEMENT OF OPERATIONS DATA:
Interest income........................... $ 14,734 $ 12,797 $ 27,265 $ 24,252 $ 21,909 $ 18,077 $ 17,069
Interest expense.......................... 4,428 3,992 8,600 7,766 7,095 5,009 5,274
--------- --------- --------- --------- --------- --------- ---------
Net interest income....................... 10,306 8,805 18,665 16,486 14,814 13,068 11,795
Provision for loan and lease losses....... 139 325 498 566 470 795 1,083
Non-interest income (other than gains or
losses on securities and sale of loans
and other assets transactions).......... 2,345 1,870 3,817 3,564 3,025 2,634 2,326
Gains (losses) on securities
transactions............................ 30 5 60 -- 32 (6) 317
Gain on sale of loans and other assets,
net..................................... 77 166 247 81 82 166 166
Other non-interest expense................ 9,021 7,743 16,868 14,490 13,070 12,275 11,156
Other Real Estate Owned expense........... 32 61 114 144 450 167 335
INCOME BEFORE TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE........................... 3,566 2,717 5,309 4,931 3,963 2,625 2,030
Income tax expense (benefit)........ 1,337 1,044 1,708 1,877 1,421 745 457
Income before cumulative effect of a
change in accounting principle.......... 2,229 1,673 3,601 3,054 2,542 1,880 1,573
Cumulative effect of change in accounting
principle(1)............................ -- -- -- -- -- -- (388)
--------- --------- --------- --------- --------- --------- ---------
NET INCOME............................ $ 2,229 $ 1,673 $ 3,601 $ 3,054 $ 2,542 $ 1,880 $ 1,961
PER SHARE DATA:
Net income per share (Basic and
Diluted)................................ $ 0.90 $ 0.67 $ 1.45 $ 1.23 $ 1.02 $ 0.76 $ 0.79
Cash dividends declared................... 0.16 $ 0.14 0.28 0.26 0.24 0.22 0.22
Dividend payout ratio..................... 16.51% 20.26% 19.53% 21.03% 23.38% 29.76% 27.49%
Book value per share...................... $ 10.96 $ 9.55 $ 10.20 $ 9.01 $ 8.04 $ 7.06 $ 6.82
Shares used to compute share data......... 2,486,855 2,486,855 2,486,855 2,486,855 2,486,855 2,486,855 2,486,855
--------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Assets.................................... $ 428,272 $ 368,434 $ 418,245 $ 343,820 $ 318,874 $ 267,850 $ 262,064
Loans net of deferred fees and unearned
income.................................. 243,227 222,880 234,556 212,601 190,833 175,352 164,567
Allowance for loan losses................. 2,442 2,235 2,358 2,150 1,853 1,898 1,585
Securities................................ 111,618 97,079 125,041 84,980 84,707 56,810 65,019
Other intangible assets................... 108 60 98 13 11 -- --
Deposits.................................. 397,055 341,384 389,232 318,709 296,970 248,484 243,414
Borrowings................................ 600 600 600 600 466 600 600
Shareholders' equity...................... 27,258 23,754 25,356 22,414 19,998 17,551 16,954
ASSET QUALITY:
Nonaccrual loans.......................... $ 239 $ 497 $ -- $ 1,163 $ 52 $ 166 $ 173
Other real estate owned................... -- 760 259 485 1,019 -- 160
--------- --------- --------- --------- --------- --------- ---------
TOTAL NONACCRUAL LOANS AND OTHER REAL
ESTATE OWNED........................ $ 239 $ 1,257 $ 259 $ 1,648 $ 1,071 $ 166 $ 333
PERFORMANCE RATIOS:
Return on average assets(2)............... 1.06% 0.95% 0.95% 0.92% 0.87% 0.71% 0.78%
Return on average shareholders' equity.... 17.09 14.62 15.08 14.40 13.54 10.90 12.07
Net interest spread....................... 4.48 4.80 4.81 4.90 5.03 4.93 4.61
Net interest margin....................... 5.54 5.59 5.64 5.69 5.79 5.51 5.20
Average shareholders' equity to average
assets.................................. 6.22 6.48 6.27 6.40 6.40 6.51 6.44
ASSET QUALITY RATIOS:
Nonaccrual loans to gross loans........... 0.10 0.22 0.00 0.55 0.03 0.09 0.11
Nonaccrual loans and other real estate
owned to total assets................... 0.10 0.56 0.11 0.78 0.56 0.09 0.20
Allowance for loan losses to total
loans................................... 1.00 1.00 1.01 1.01 0.97 1.08 0.96
Allowance for loan losses to nonaccrual
loans................................... 1,021.76 449.70 -- 184.87 3,563.46 1,143.37 916.18
Net charge-offs to average loans.......... 0.02 0.11 0.13 0.13 0.28 0.28 0.64
</TABLE>
- ------------------------
(1) Due to adoption of FASB No. 109, "Accounting for Income Taxes".
(2) June amounts have been annualized to compute actual percentages.
F-6
<PAGE>
BALANCE SHEET ANALYSIS
OVERVIEW
Peninsula had total assets of approximately $418.2 million at December 31,
1997 as compared to total assets of approximately $343.8 million at December 31,
1996. Total deposits increased from approximately $318.7 million at December 31,
1996 to approximately $389.2 million at December 31, 1997. Loans net of deferred
fees and costs and unearned income increased to approximately $234.6 million at
December 31, 1997 from approximately $212.6 million at December 31, 1996.
Securities at December 31, 1997 were approximately $125.0 million compared to
December 31, 1996 approximately $85.0 million at December 31, 1996.
Shareholder's equity increased from approximately $22.4 million at December 31,
1996 to approximately $25.4 million at December 31, 1997.
Peninsula had total assets of approximately $318.9 million at December 31,
1995 as compared to total assets of approximately $343.8 million at December 31,
1996. Total deposits increased from approximately $297.0 million at December 31,
1995 to $318.7 million at December 31, 1996. Loans net of deferred fees and cost
and unearned income increased to $212.6 million at December 31, 1996 from $190.8
million at December 31, 1995. Securities remained relatively the same from $85.0
million at December 31, 1996 compared to $84.7 million at December 31, 1995.
Shareholder equity increased from $20.0 million at December 31, 1995 to 22.4
million at December 31, 1996.
CAPITAL ACTIVITIES
In February 1998, Peninsula declared a two for one stock split payable on
March 27, 1998 to shareholders of record on March 11, 1998.
In June 1998, Peninsula declared a 5% stock dividend per share payable on
July 24, 1998 to shareholders of record on July 10, 1998. In June 1997,
Peninsula declared a 5% stock dividend payable on July 25, 1997 to shareholders
of record on July 8, 1997. In June 1996, a 5% stock dividend was declared, and
paid on July 26, 1996 to shareholders of record on July 12, 1996. Peninsula
declared a 5% stock dividend in 1995, 1994 and 1993 along with quarterly cash
dividends totaling $0.24, $0.22 and $0.22 per year for the years ended December
31, 1995, 1994 and 1993, respectively.
In July 1998, Peninsula declared a cash dividend of $0.08 per share payable
on August 25, 1998 to shareholders of record on August 11, 1998. In April 1998,
Peninsula declared a $0.08 per share cash dividend payable on May 27, 1998 to
shareholders of record on May 13, 1998. In January 1998, Peninsula declared a
$0.075 per share cash dividend payable on February 25, 1998 to shareholders of
record on February 11, 1998.
In 1997, Peninsula declared total cash dividends for the year of $0.28 per
share payable on February 27, 1997, May 23, 1997, August 27, 1997 and November
26, 1997 to shareholders of record on February 12, 1997, May 9, 1997, August 13,
1997 and November 12, 1997, respectively.
In 1996, Peninsula declared total cash dividends for the year of $0.26 per
share payable in part on each of February 23, 1996, May 17, 1996, August 23,
1996 and November 22, 1996 to shareholders of record on February 9, 1996, May 7,
1996, August 9, 1996 and November 8, 1996, respectively. Cash dividend amounts
have been retroactively restated to reflect the increased number of shares
outstanding due to stock splits and stock dividends.
CASH LIQUIDITY
Cash liquidity consists of cash and cash equivalents and securities
available for sale less pledged securities and reserve requirements divided by
total deposits, treasury tax and loan borrowing less securities pledged for
deposit balances. During 1997, Peninsula consistently maintained cash liquidity
of approximately 36%, which was a product of low loan demand and the competition
in the marketplace for
F-7
<PAGE>
business. See "RISK FACTORS--General Business Risk". Peninsula also committed
liquid funds to short term investments during a period when the yield curve was
relatively flat. The average amount of reserve requirements for 1997 held in
balances at the Federal Reserve Bank was $8.4 million.
For June 30, 1998 the increase in net cash provided by operating activities
was due mainly from net income less changes in other assets. The increase of net
cash used for investing activities increased due to proceeds from maturities on
available for sale securities and net proceeds from maturities and principal
paydowns on held to maturity securities less purchases of available for sale
investment securities and net additions to loans. The increase in net cash
provided by financing activities is due to the increase of deposit accounts less
cash dividends paid.
For December 31, 1997 the increase in net cash provided by operating
activities was due mainly from net income, adding back of depreciation and
amortization less amortization of deferred loan less and additions in other
liabilities. The decrease in net cash value used for investing activities was
due to the purchase of held to maturity investment securities, available for
sale securities less proceeds from maturities on available for sale investment
securities, maturities/principal paydowns on held to maturity investment
securities and the net additions to loans. The increase of net cash provided by
financing activities is due to the net increase in deposit accounts less cash
dividends.
INVESTMENT PORTFOLIO. The fair value of securities available for sale
decreased approximately $2.1 million from $41.1 million at December 31, 1996 to
$38.0 million at December 31, 1997. This decrease is attributable to the
maturities of securities available for sale being reinvested in longer term
held-to-maturity securities with a higher yield. Currently, Peninsula's
investment policy requires that maturities of available for sale securities be a
maximum of three years or less. The fair value of securities for sale remained
the same from December 31, 1995 to December 31, 1996.
The fair value of securities available for sale at the dates indicated are
summarized in the table below:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------------
1998 1997 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
U.S. Government securities............................................ $ 26,028 $ 28,101 $ 36,130 $ 32,638
U.S. Agency securities................................................ 1,995 9,858 4,008 7,500
--------- --------- --------- ---------
TOTAL AVAILABLE FOR SALE SECURITIES............................. $ 28,023 $ 37,959 $ 40,138 $ 40,138
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The following table shows the maturities of securities available for sale as
of December 31, 1997:
<TABLE>
<CAPTION>
TOTAL 1 YEAR OR LESS 1 YEAR THROUGH 3 YEARS
---------------------- ---------------------- ----------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
U.S. Government securities......................... $ 28,101 5.88% $ 11,001 5.83% $ 17,100 5.92%
U.S. Agency securities............................. 9,858 5.57 9,858 5.57 -- --
--------- --------- ---------
TOTAL.......................................... $ 37,959 5.80 $ 20,859 5.71 $ 17,100 5.92
--------- --------- ---------
AMORTIZED COST................................. $ 37,871 $ 20,848 $ 17,023
--------- --------- ---------
</TABLE>
F-8
<PAGE>
The following table shows the carrying amounts of the securities held to
maturity at the dates indicated.
<TABLE>
<CAPTION>
AT THE YEARS ENDED DECEMBER 31,
JUNE 30, -------------------------------
1998 1997 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
U.S. Government securities............................................ $ 27,100 $ 29,108 $ 12,963 $ 6,885
U.S. Agency securities................................................ 23,601 23,213 10,164 11,031
Mortgage-backed securities............................................ 8,249 8,980 1,590 1,957
CMO's................................................................. 12,337 13,788 6,344 7,330
Obligations of state and political subdivisions....................... 11,055 10,961 12,823 16,455
--------- --------- --------- ---------
TOTAL........................................................... $ 82,342 $ 86,050 $ 43,884 $ 43,658
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The following table shows the maturities of securities held-to-maturity as
of December 31, 1997:
<TABLE>
<CAPTION>
5-10 OVER 10
TOTAL 0-1 YEAR 1-5 YEARS YEARS YEARS
--------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
U.S. Government securities................................. $ 29,108 $ 6,974 $ 22,134 $ -- $ --
Average yield............................................ 6.17% 5.97% 6.23%%%
U.S. Agency securities..................................... 23,213 4,461 18,752 -- --
Average yield............................................ 6.27% 4.99% 6.57%%%
Mortgage-backed securities................................. 8,980 428 384 1,237 6,931
Average yield............................................ 6.19% 7.39% 6.80% 6.96% 5.94%
CMOs....................................................... 13,788 -- 1,002 1,978 10,808
Average yield............................................ 6.22% -- 5.83% 6.55% 6.19%
Obligations of state & political subdivisions (1).......... 10,961 2,646 7,983 106 226
Average yield............................................ 4.37% 4.10% 4.38% 5.80% 6.25%
--------- --------- ----------- --------- ---------
TOTAL HELD-TO-MATURITY SECURITIES.................... $ 86,050 $ 14,509 $ 50,255 $ 3,321 $ 17,965
--------- --------- ----------- --------- ---------
AVERAGE YIELD........................................ 5.97% 5.37% 6.06% 6.68% 6.10%
--------- --------- ----------- --------- ---------
--------- --------- ----------- --------- ---------
</TABLE>
- ------------------------
(1) All of the obligations of state and political subdivision securities are
bank qualified tax exempt securities. There is no adjustment made to yield
calculations for this tax-exempt status. Weighted average tax equivalent
yield is 6.62% on the state and political subdivision obligations.
The amortized cost of securities held-to-maturity increased approximately
$42.2 million from $43.9 million at December 31, 1996 to $86.1 million at
December 31, 1997. This increase is largely due to the approximately 22% growth
in Peninsula's assets with an increase in loan volumes of only 10% during the
same period and the desire to receive a better rate of return than was available
on federal funds sold and other shorter term investments. The amortized cost of
securities held to maturity decreased approximately $4.0 million from December
31, 1997 to June 30, 1998. Maturities and prepayment on contingency mortgage
obligations ("CMO's") are the main factors.
At December 31, 1997, Peninsula did not have investments in securities
issued by a non-federal issuer which exceeded 10% of shareholders' equity.
At December 31, 1997, Peninsula held nine CMOs with an amortized cost of
approximately $13.8 million and a current market value of approximately $13.8
million. The weighted average yield of these investments was 6.22% and the
weighted average life was 2.4 years. All of the CMOs have been tested no less
than annually using the Federal Financial Institutions Examination Council "High
Risk Security Test" and each of the securities has passed the annual tests.
Peninsula does not have a securities trading account and does not intend to
trade securities.
F-9
<PAGE>
LOAN AND LEASE PORTFOLIO
Peninsula concentrates its lending activities in three principal areas: real
estate loans, commercial loans, and consumer loans and leases.
REAL ESTATE LOANS. Real estate loans are comprised of construction loans,
miniperm loans collateralized by first or junior trust deeds on specific
properties and equity lines of credit. The properties collateralizing real
estate loans are principally located in Peninsula's primary market area of San
Diego County. The construction loans are comprised of loans on residential and
income producing properties generally having terms of one year and typically
bear an interest rate that floats with the prime rate or other established
index. The miniperm loans finance the purchase and/or ownership of income
producing properties. Miniperm loans are generally made with an amortization
schedule ranging from fifteen to thirty years with a lump sum balloon payment
due in five to ten years. Equity lines of credit are revolving lines of credit
collateralized by junior trust deeds on real property. They bear a rate of
interest that floats with the prime rate and have a maturity of ten years.
Peninsula also makes a number of loans on one to four family residential
properties and five or more unit residential properties. From time to time,
Peninsula purchases participation interests in loans made by other institutions.
These loans are subject to the same underwriting criteria and approval process
as loans made directly by Peninsula. Peninsula's real estate portfolio is
subject to certain risks, including (i) a possible downturn in the Southern
California economy such as that which occurred during the early 1990's, (ii)
interest rate increases due to inflation, (iii) reduction in real estate values
in Southern California and (iv) continued increases in competitive pricing and
loan structure. Peninsula strives to reduce the exposure to such risks by
reviewing each loan request and renewal individually using a Loan Committee
process, and following written loan policies. Each loan request is reviewed on
the basis of Peninsula's ability to recover both principal and interest in view
of the inherent risks.
COMMERCIAL LOANS. Commercial loans are made to finance operations, to
provide working capital or for specific purposes, such as to finance the
purchase of assets, equipment or inventory. A borrower's cash flow from
operations is generally the prime source of repayment. Commercial loans include
lines of credit and commercial term loans. Lines of credit are extended to
businesses or individuals based on the financial strength and integrity of the
borrower and are generally (with some exceptions) collateralized by short term
assets such as accounts receivable and inventory, equipment or real estate and
generally have a maturity of one year or less. Such lines of credit bear an
interest rate that floats with Peninsula's base rate. Commercial term loans are
typically made to finance the acquisition of fixed assets, to refinance short
term debt originally used to purchase fixed assets or, in rare cases, to finance
the purchase of businesses. Commercial term loans generally have terms from one
to seven years. Commercial term loans may be collateralized by the asset being
acquired or other available assets and bear interest which either floats with
Peninsula's base rate or is fixed for the term of the loan. Peninsula's
portfolio of commercial loans is subject to certain risks, including (i) a
possible downturn in the Southern California economy, (ii) possible higher
interest rates, and (iii) the possible deterioration of customer's financial
capabilities over time. Peninsula strives to reduce the exposure to such risks
through the direct approval of loans over $100 thousand by Peninsula's Loan
Committee and following written loan policies. In general, Peninsula receives
and reviews financial statements of borrowing customers on an ongoing basis
during the term of the relationship and reacts to any deterioration noted.
CONSUMER LOANS AND LEASES. Consumer loans include personal loans, auto
loans, boat loans, home improvement loans, equipment loans, revolving lines of
credit and other loans typically made by banks to individual borrowers. Loans
are offered both on a fixed and variable rate basis. Peninsula's consumer loan
portfolio is subject to certain risks, including (i) the high amount of credit
offered to consumers in the market, (ii) the possibility of higher interest
rates due to possible inflation, and (iii) the consumer bankruptcy laws which
allow consumers to discharge certain debts. Peninsula strives to reduce the
exposure to such risks through the use of prudent underwriting criteria
emphasizing debt service capability, and the
F-10
<PAGE>
direct approval of loans in excess of $100,000 by Peninsula's Loan Committee and
adherence with written credit policies.
In addition to the dual signature method of loan approval and the adherence
to written lending policies, all major loan commitments are reviewed after
approval, on a monthly basis, by the full Board of Directors and quarterly by an
outside loan review team.
The following table sets forth the amount of loans outstanding at the end of
the following periods according to the type of loan. Peninsula's lending
activities are predominately in San Diego County and Peninsula has no foreign
loans.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------
JUNE 30,
1998 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Real estate construction....................... $ 10,646 $ 10,676 $ 10,274 $ 7,952 $ 6,793 $ 5,734
Real estate mortgage........................... 160,760 156,365 141,622 128,456 120,171 114,697
Commercial..................................... 41,256 39,297 34,060 27,384 22,940 20,086
Installment and other.......................... 31,458 29,067 27,453 27,765 26,156 24,693
--------- --------- --------- --------- --------- ---------
TOTAL LOANS.............................. 244,120 235,405 213,409 191,557 176,060 165,210
Less: Deferred Loan Origination Fees and
Costs........................................ (893) (849) (808) (724) (708) (643)
Less: Allowance for Loan Losses................ (2,442) (2,358) (2,150) (1,853) (1,898) (1,585)
--------- --------- --------- --------- --------- ---------
NET LOANS................................ $ 240,785 $ 232,198 $ 210,451 $ 188,980 $ 173,454 $ 162,982
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
There are no concentrations of loans exceeding 10% of total loans which were
not otherwise disclosed as a category of loans in the above table.
Gross loans increased $22.0 million from $212.6 million at December 31, 1996
to $234.6 million at December 31, 1997 and the allowance for loan losses
increased $208 thousand from $2.2 million at December 31, 1996 to $2.4 million
at December 31, 1997. Gross loans increased $22.0 million from $191.0 million at
December 31, 1995 to $213.0 million at December 31, 1996 and the allowance for
loan losses increased $297 thousand from $1.9 million at December 31, 1995 to
$2.2 million at December 31, 1996. The increase in loans is attributable
primarily to the continued growth of the Southern California economy and the
continued expansion of Peninsula's market area. That growth continued into the
first six months of 1998 with a $8.7 million increase in growth loans from
December 31, 1997 to June 30, 1998.
With certain exceptions, a bank is permitted under California law to make
loans to a single borrower in aggregate amounts up to 25% of the sum of
shareholders' equity (excluding the effect of the unrealized gain or loss on
securities available for sale included in shareholders' equity), allowance for
loan and lease losses, capital reserves, if any, and debentures, if any, for
"secured loans" (as defined for regulatory purposes), and up to 15% of such sum
for the aggregate of "unsecured loans" (as defined for regulatory purposes). As
of December 31, 1997, Peninsula's lending limit was approximately $6.9 million
for secured loans, and approximately $4.2 million for unsecured loans. At
December 31, 1997, there were no loans outstanding to a single borrower which
exceed these limits.
F-11
<PAGE>
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES. The
following tables shows the amount of loans outstanding as of December 31, 1997
which, based on the contracted maturities of principal are due in the period
indicated, and repricing opportunities by fixed or variable rate.
<TABLE>
<CAPTION>
ONE YEAR
ONE YEAR THROUGH 5 OVER 5
OR LESS YEARS YEARS TOTAL
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Real Estate Mortgage............................................... $ 15,300 $ 53,589 $ 87,476 $ 156,365
Construction....................................................... 10,676 -- -- 10,676
Commercial......................................................... 14,237 15,027 10,033 39,297
Installment and other.............................................. 3,216 12,891 12,960 29,067
--------- --------- ---------- ----------
TOTAL........................................................ $ 43,429 $ 81,507 $ 110,469 $ 235,405
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Loans maturing after one year with:
Fixed interest rates............................................. $ 51,593 $ 25,545
Variable interest rates 29,914 84,924
--------- ----------
TOTAL........................................................ $ 81,507 $ 110,469
--------- ----------
--------- ----------
</TABLE>
The rate index with which interest rate floats may be the prime rate posted
in the Wall Street Journal, three month average of T-Bill rate, one year T-Bill
rate, the 11th District Cost of Funds or Peninsula's base rate.
NONACCRUAL, PAST DUE, AND RESTRUCTURED LOANS. The following table reflects
Peninsula's nonaccrual, past due and restructured loans at each of the dates
indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
JUNE 30, -----------------------------------------------------
1998 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Nonaccrual loans:
Real estate construction............................. $ -- $ -- $ -- $ -- $ -- $ --
Real estate mortgage................................. 239 -- 1,163 52 24 21
Commercial........................................... -- -- -- -- -- 152
Installment and other................................ -- -- -- -- 142 0
--------- --- --------- --------- --------- ---------
TOTAL.......................................... $ 239 $ -- $ 1,163 $ 52 $ 166 $ 173
--------- --- --------- --------- --------- ---------
--------- --- --------- --------- --------- ---------
Total nonaccrual gross loans and leases as a
percentage of gross loans.......................... 0.10% N/A 0.55% 0.03% 0.09% 0.11%
Allowance for loan and lease losses to nonaccrual
loans.............................................. 1021.76% N/A 184.87% 3563.46% 1143.37% 916.18%
Loans past due 90 days or more on accrual status
Real estate mortgage............................... $ 427 $ -- $ -- $ 228 $ 389 $ 237
Commercial......................................... -- -- -- -- -- 64
Installment and other................................ -- 28 9 -- 9 --
--------- --- --------- --------- --------- ---------
TOTAL.......................................... 427 28 9 228 398 301
--------- --- --------- --------- --------- ---------
--------- --- --------- --------- --------- ---------
Restructured loans
On accrual status.................................. 30 30 99 211 532 1,273
On nonaccrual status (1)........................... -- -- 284 -- -- --
--------- --- --------- --------- --------- ---------
TOTAL.......................................... 30 30 383 211 532 1,273
--------- --- --------- --------- --------- ---------
--------- --- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Included in nonaccrual loans above.
Nonaccrual loans decreased from $1.2 million at December 31, 1996 to nothing
at December 31, 1997. The nonaccrual loans increased to $239 thousand as of June
30, 1998 from nothing on December 31, 1997.
F-12
<PAGE>
This consisted of three loans with reserves set aside of approximately $35
thousand. Loans past due 90 days or more increased to $427 thousand on June 30,
1998 from nothing in December 31, 1997. This consisted of three loans, with
reserves in the amount of approximately $22 thousand. There is no loss potential
on two of three loans. Payoffs are expected.
There are no commitments to lend additional funds to borrowers listed as
nonaccrual or past due 90 days or more.
Peninsula's policy concerning non-performing loans is to cease accruing
interest, and to charge off all accrued and unpaid interest on loans that are
past due as to principal and/or interest for at least 90 days, or at such
earlier time as management determines timely collection of the interest to be in
doubt. However, in certain circumstances loans which are past due 90 days or
more may continue accruing interest or interest may not be charged off when the
related loans are well secured or in the process of being collected. When
Peninsula receives cash on nonaccrual loans, Peninsula's policy is to record
such receipts first as a reduction to the principal and then as interest income.
POTENTIAL PROBLEM LOANS AND IMPAIRED LOANS. "Impaired loans" are loans for
which it is probable that Peninsula will not be able to collect all of the
amounts due according to the contractual terms of the loan agreement. The
category of "impaired loans" is not coextensive with the category of "nonaccrual
loans" although the two categories may overlap. "Nonaccrual loans" include
impaired loans and are those on which the accrual of interest is discontinued
when collectibility of principal and interest is uncertain or payments of
principal or interest have become contractually past due 90 days or more.
Peninsula may choose to place a loan on nonaccrual status due to payment
delinquency or uncertain collectibility, while not classifying the loan as
impaired, if it is probable that Peninsula will collect all amounts due in
accordance with the contractual terms of the loan. Factors considered by
management in determining the impairment include payment status and collateral
value. The amount of impairment for these types of impaired loans is determined
by the difference between the present value of the expected cash flows related
to the loan, using the original contractual interest rate, and its recorded
value, or, as a practical expedient in the case of collateralized loans, the
difference between the fair value of the collateral and the recorded amount of
the loans. When foreclosure is probable, impairment is measured based on the
fair value of the collateral. Small homogenous loans may be measured
collectively for impairment. Loans that experience insignificant payment delays
and insignificant shortfalls in payment amounts are not classified as impaired.
Peninsula Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
At December 31, 1997 and 1996, impaired loans and the related specific loan
allowances were as follows:
<TABLE>
<CAPTION>
ALLOWANCE FOR
RECORDED LOAN AND LEASE NET
INVESTMENT LOSSES INVESTMENT
------------- --------------- -------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
1997 with specific allowances............................................. $ 212 $ 62 $ 150
1996 with specific allowances............................................. $ 947 $ 450 $ 497
</TABLE>
Except as reflected above, Peninsula Management is not aware of any
borrowers who are experiencing severe financial difficulties, or who, in the
normal course of business, represent any identified loss potential. Peninsula
monitors all loans and completes an internal watch list report, which is
inclusive of both loans past due and borrowers that have been identified for
close monitoring.
LOAN CONCENTRATIONS. Peninsula's lending activities are predominantly in
San Diego County. Other than this geographical concentration and the fact that a
significant 63% of loans are real estate loans or commercial loans secured by
real estate, Peninsula considers the loan portfolio to be diverse, and there are
F-13
<PAGE>
no specific concentrations to any borrower or group of borrowers that are
engaged in similar activities which would cause them to be similarly impacted by
economic or other considerations.
SUMMARY OF LOAN LOSS EXPERIENCE AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The following table summarizes allowance for loan and lease losses, loans
charged off, the provision for loan losses charged to expense, the allowance,
and loan recoveries.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED JUNE -----------------------------------------------------
30, 1998 1997 1996 1995 1994 1993
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
Balance at the beginning of the period........... $ 2,358 $ 2,150 $ 1,853 $ 1,898 $ 1,585 $ 1,488
Loans and leases charged off
Real estate mortgage........................... 21 336 5 92 92 --
Real estate construction....................... -- -- -- -- -- 497
Commercial..................................... 32 80 240 139 221 419
Installment and others......................... 34 95 132 302 234 161
----------- --------- --------- --------- --------- ---------
TOTAL LOANS CHARGED OFF.................... 87 511 377 533 547 1,077
----------- --------- --------- --------- --------- ---------
Recoveries on loans and leases charged off:
Real estate mortgage........................... -- 18 -- -- 6 --
Real estate construction....................... -- -- -- -- -- --
Commercial..................................... 21 149 82 4 35 62
Installment and others......................... 11 54 26 14 24 29
----------- --------- --------- --------- --------- ---------
TOTAL RECOVERIES ON LOANS CHARGED OFF...... 32 220 108 18 65 91
----------- --------- --------- --------- --------- ---------
NET LOANS CHARGED OFF...................... 55 290 269 515 482 986
----------- --------- --------- --------- --------- ---------
Provision charged to operating expense........... 139 498 566 470 795 1,083
----------- --------- --------- --------- --------- ---------
Balance at the end of the year................... $ 2,442 $ 2,358 $ 2,150 $ 1,853 $ 1,898 $ 1,585
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
LOANS:
Average loans outstanding during period........ $ 235,127 $ 220,845 $ 203,358 $ 181,699 $ 170,516 $ 154,597
Gross loans at end of period................. 243,227 234,556 212,601 190,833 175,352 164,567
RATIOS:
Net loans charged off to average loans......... 0.02% 0.13% 0.13% 0.28% 0.28% 0.64%
Allowance as a percent of end of period
loans...................................... 1.00 1.01 1.01 0.97 1.08 0.96
</TABLE>
The allowance for loan and lease losses increased from $2.2 million at
December 31, 1996 to $2.4 million at December 31, 1997. Net loan and lease
charged-off remained constant at 0.13% for the years 1997 and 1996. The
provision charged to operating expense declined $68 thousand from $566 thousand
for 1996 to $498 thousand for 1997. Net loan and lease charged-off was 0.02% for
period ending June 30, 1998, down from 0.13% at December 31, 1997.
The allowance for loan and lease losses increased from $1.9 million at
December 31, 1995 to $2.2 million at December 31, 1996. Net loan and leases
charged-off decreased from 0.28% at December 31, 1995 to 0.13% at December 31,
1996. The provision charged to operating expenses increased $96 thousand from
$476 thousand for 1995 to $566 thousand in 1996.
Peninsula's local markets were severely affected by the recession in 1993
through 1995, and in several instances borrowers who had never reported
financial difficulties experienced insufficient cash flows for timely debt
service and many declared bankruptcy. During 1996 the economy started a slow
recovery which continued through 1997.
The allowance for loan and lease losses as a percentage of end of the year
loans and leases has remained constant at approximately 1.0% while net loans and
leases charged off to average loans and leases has declined from 0.64% at
December 31, 1993 to 0.13% at December 31, 1997 and to 0.02% at June 30, 1998.
F-14
<PAGE>
The following table reflects Peninsula Management's allocation of the
allowance for loan and lease losses by loan and lease type:
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN AND LEASE LOSSES FOR THE PERIODS
ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------
1998 1997 1996 1995 1994 1993
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Real estate construction............................... $ 92 $ 99 $ 83 $ 92 $ 98 (1)
Real estate mortgage................................... 667 714 790 827 871
Commercial............................................. 717 642 666 523 457
Installment and other.................................. 373 370 331 353 405
Not allocated.......................................... 593 533 280 58 67
----------- --------- --------- --------- --------- ---------
TOTAL............................................ $ 2,442 $ 2,358 $ 2,150 $ 1,853 $ 1,898 $ 1,585
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) The allowance for loan and lease losses was not allocated by loan category
until 1994.
<TABLE>
<CAPTION>
LOANS AND LEASES AS OF DECEMBER 31,
JUNE 30, ----------------------------------------------------------
1998 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Real estate construction................ $ 10,646 $ 10,676 $ 10,274 $ 7,952 $ 6,793 $ 5,734
Real estate mortgage.................... 160,760 156,365 141,622 128,456 120,171 114,697
Commercial.............................. 41,256 38,297 34,060 27,384 22,940 20,086
Installment and other................... 31,458 28,067 27,453 27,765 26,156 24,693
---------- ---------- ---------- ---------- ---------- ----------
TOTAL............................. $ 244,120 $ 235,405 $ 213,409 $ 191,557 $ 176,060 $ 165,210
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF TOTAL LOANS AS OF DECEMBER 31,
JUNE 30, -----------------------------------------------------
1998 1997 1996 1995 1994 1993
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Real estate construction............................... 4% 5% 5% 4% 4% 3%
Real estate mortgage................................... 66 66 66 67 68 70
Commercial............................................. 17 17 16 14 13 12
Installment and other.................................. 13 12 13 15 15 15
----------- --------- --------- --------- --------- ---------
TOTAL............................................ 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
</TABLE>
The allowance for loan and lease losses allocated to the loan and lease
categories shown above is based on previous loan and lease loss experience, the
level of nonaccrual loans, Peninsula Management's review of classified loans,
evaluation of the current loan portfolio, and anticipated economic conditions.
While the allowance for loan and lease losses is allocated to specific loans and
portfolio segments, the allowance is general in nature and is available for the
portfolio in its entirety.
Impaired loans, as defined by SFAS No.114, totaled approximately $212
thousand and $947 thousand at December 31, 1997 and 1996, respectively. These
loans have allowance for loan and lease losses of approximately $62 thousand and
$450 thousand at December 31, 1997 and 1996, respectively. Peninsula's average
investment in impaired loans was approximately $232 thousand and $971 thousand
during the years ended December 31, 1997 and 1996, respectively. Interest income
recognized on impaired loans was approximately $24 thousand and $62 thousand
during the years ended December 31, 1997 and 1996, respectively.
Peninsula has an established monitoring system for loans and leases in order
to identify impaired loans and leases and potential problem loans and leases and
to permit periodic evaluation of impairment and the adequacy of allowance for
loan and lease losses in a timely manner. All problem loans and leases are
monitored on a monthly basis making appropriate adjustments to grade
classifications where necessary. This monitoring system and allowance
methodology includes a loan-by-loan and lease-by-lease analysis for all
classified loans and leases as well as loss factors for the balance of the
portfolio that are based on migration analysis relative to both the classified
and the unclassified portion of the portfolio. This analysis
F-15
<PAGE>
includes such factors as historical loss experience, current portfolio
delinquencies, and risk levels of classified loans and leases and particular
loan and lease pool categories.
Peninsula is required under applicable law and regulations to review its
assets on a regular basis and to classify them as "pass", "special mention",
"substandard", "doubtful", or "loss". An asset which possesses no apparent
weakness or deficiency is designated "pass". An asset which possesses weaknesses
or deficiencies deserving close attention is designated as "special mention". An
asset, or a portion thereof, is generally classified as "substandard" if it
possesses a well-defined weakness which could jeopardize the timely liquidation
of the asset or realization of the collateral at the asset's book value.
Substandard assets are characterized by the possibility that the institution
will sustain some loss if deficiencies are not corrected. An asset, or portion
thereof, is classified as "doubtful" if a probable loss of principal and/or
interest exists but the amount of the loss, if any, is subject to the outcome of
future events, which are undeterminable at the time of classification. If an
asset, or portion thereof, is classified as "loss", Peninsula charges off such
amount.
On a quarterly basis, Peninsula Management and the Peninsula Board review
the adequacy of the allowance for loan and lease losses. A Loan Reserve Analysis
report is prepared and reviewed for each loan and lease on Peninsula's
classified asset listings. This report includes all pertinent details about the
loan or lease, a write-up of the current status, steps being taken to correct
any problems, a detailed workout plan and recommendations as to a classification
of the loan and leases. Loans and leases classified as "loss" are immediately
charged against the allowance for loan and lease losses.
Based on the foregoing discussion and all of the factors analyzed by
management in determining the adequacy of the allowance for loan and lease
losses, management believes that the allowance is adequate at December 31, 1997.
Peninsula Management utilizes its best judgement in providing for possible loan
and lease losses and establishing the allowance for loan and lease losses.
However, the allowance is an estimate which is inherently uncertain and depends
on the outcome of future events. Although Peninsula believes that its allowance
for loan and lease losses is adequate, there can be no assurance that the
allowance will be adequate to cover future loan and lease losses.
Other real estate owned is comprised of real estate acquired through
foreclosure or through the receipt of a deed in lieu of foreclosure. These
assets are recorded at the lower of the carrying value of the loan or the fair
value, based on a current appraisal, less selling costs of the related real
estate. The excess carrying value, if any, over the fair market value of the
asset received is charged to the allowance for loan and lease losses at the time
of acquisition. Any subsequent decline in the fair market value of the other
real estate owned is recognized as a charge to operations and a corresponding
decrease to the other real estate owned asset. Gains from sales and operating
expenses associated with other real estate owned assets are included in
operations when realized.
The following table summarizes Peninsula's net other real estate owned
portfolio:
<TABLE>
<CAPTION>
AT DECEMBER 31,
JUNE 30, -----------------------------------------------------
1998 1997 1996 1995 1994 1993
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Other real estate owned..................................... $ -- $ 259 $ 485 $ 1,019 $ -- $ 160
Percent of Total Assets..................................... 0.00% 0.06% 0.14% 0.32% 0.00% 0.06%
</TABLE>
DEPOSITS
In 1996 and 1997, Peninsula progressively increased deposit rates which had
been held low in years of 1993 through 1995 due to the lack of competition for
deposits at a time when banks were still operating with low or lower than normal
loan demand. Since 1995, Peninsula has generally become much more aggressive in
pricing time deposits, but has yet to make a significant increase in the rate
paid on interest-bearing transactional accounts.
F-16
<PAGE>
Peninsula provides a range of deposit types to meet the needs of the local
market. Time deposits, which are normally sensitive to competitive rate changes,
are generally used to expand and contract the overall liability position needed
to meet the various management ratios established for liquidity, capital, loans
to deposits, and other funding measurements. As a policy, Peninsula does not
accept or solicit brokered deposits.
The following table shows the average amount of interest bearing and
non-interest bearing deposits.
<TABLE>
<CAPTION>
JUNE 30, 1998 AVERAGE 1995
1997 AVERAGE 1996 AVERAGE AVERAGE
---------------------- ---------------------- ---------------------- ---------
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE
--------- ----- --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Noninterest-bearing deposits................ $ 133,727 0.00% $ 102,047 0.00% $ 83,107 0.00% $ 68,496
Interest-bearing demand deposits............ 108,094 2.22 114,674 2.09 101,072 2.21 85,825
Savings deposits............................ 38,313 2.20 33,427 2.15 31,589 2.14 32,435
Time deposits............................... 108,942 5.29 102,293 5.29 90,565 5.28 82,096
--------- --------- --------- ---------
TOTAL (1)............................. $ 389,076 2.31% $ 352,441 2.42% $ 306,333 2.51% $ 268,852
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
RATE
-----
<S> <C>
Noninterest-bearing deposits................ 0.00%
Interest-bearing demand deposits............ 2.27
Savings deposits............................ 2.50
Time deposits............................... 5.20
TOTAL (1)............................. 2.61%
</TABLE>
- ------------------------
(1) Includes noninterest-bearing deposits for both amounts and rates. Rate
represents weighted averages.
The following table shows the contractual maturity schedule of time
certificates of deposit of $100,000 as of the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 13,
1998 1997
--------- ------------
<S> <C> <C>
(IN THOUSANDS)
3 months or less..................................................... $ 27,805 $ 28,163
Over 3 months through 6 months....................................... 9,613 6,630
Over 6 months through 12 months...................................... 7,284 7,124
Over 1 year.......................................................... 1,698 2,119
--------- ------------
TOTAL.......................................................... $ 46,400 $ 44,036
--------- ------------
--------- ------------
</TABLE>
Deposits increased approximately $70.5 million, or 22.1%, from approximately
$318.7 million at December 31, 1996 to approximately $389.2 million at December
31, 1997. This growth was primarily attributed to the increase in economic
activity in San Diego County and the continued expansion of Peninsula's branch
system.
SHORT TERM BORROWINGS
Peninsula had short-term borrowings through the treasury tax and loan
program with the Federal Reserve Bank with a balance of $600 thousand as of
December 31, 1997 and 1996. The maximum borrowing for 1997, 1996 and 1995 was
$600 thousand. The average borrowing for 1997, 1996 and 1995 was $562 thousand,
$513 thousand and $500 thousand, respectively. The average rate of interest paid
for 1997, 1996 and 1995 was 4.80%, 7.21% and 7.20%, respectively.
On an infrequent basis, Peninsula has purchased overnight federal funds to
facilitate payment for incoming cash letters that are collected through the
Federal Reserve Bank. For the years ended 1997, 1996 and 1995, the average
Federal Funds purchased was $136 thousand, $309 thousand and $369 thousand,
respectively. To facilitate this requirement, Union Bank of California has
extended to Peninsula an overnight line of credit with a maximum credit limit of
$10 million. At December 31, 1997, 1996 and 1995, Peninsula had no outstanding
liability under this agreement. In addition, Peninsula has an agreement with the
Federal Home Loan Bank of San Francisco for extensions of credit to a maximum of
$31.1 million secured by qualifying first lien real estate mortgages. Peninsula
has not exercised this option during the years ended December 31, 1997, 1996 and
1995.
F-17
<PAGE>
LIQUIDITY, INTEREST RATE RISK AND MARKET RISK
Major sources of liquidity for Peninsula include deposits, maturities and
sales of securities, and loan repayments. Deposits are a volatile source of
funds because of changing conditions in the interest rate markets and
competition. The ability to sell securities without significant loss is subject
to changing market conditions. Loan repayments are dependent on the financial
abilities of Peninsula's borrowers.
Peninsula Management believes that current levels and sources of liquidity
are sufficient to meet Peninsula's commitments. Peninsula Management utilizes
its best judgment in determining levels and sources of liquidity. However,
liquidity requirements are inherently uncertain and depend on events in the
future. There can be no assurance that the current levels and sources of
liquidity will be sufficient to meet Peninsula's requirements.
In a rising interest rate environment, when rate sensitive assets ("RSA")
exceed rate sensitive liabilities ("RSL"), assets reprice to higher rates more
quickly than liabilities reprice, resulting in a net interest margin that tends
to rise. When RSL exceed RSA, net interest margin tends to fall in the same
interest rate environment. The opposite effect happens in a decreasing interest
rate environment. Peninsula works to keep the cumulative difference between RSA
and RSL as low as possible over a one year cycle. Based on historical reviews,
it appears that interest-bearing transactional accounts do not have the same
degree of short-term interest rate sensitivity associated with loans that are
tied to any immediate change in prime rate or to short-term investments such as
federal funds sold.
The following table breaks down RSA and RSL at December 31, 1997. The
following table makes certain assumptions as to interest rate sensitivity of
savings accounts that have limited rate of fluctuation during the past three
years, as to interest-bearing demand deposits (money market accounts and NOW
accounts) which are based on a tiered rate structure depending on the level of
the account balance.
<TABLE>
<CAPTION>
90 DAYS 90-365 OVER 5
OR LESS DAYS 1-5 YEARS YEARS TOTAL
--------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest-bearing due from banks........................ $ 252 $ -- $ -- $ -- $ 252
Federal funds sold..................................... 6,000 -- -- -- 6,000
Securities............................................. 8,294 27,071 79,992 8,652 124,009
FHLB and FNMA stocks................................... -- -- -- 1,032 1,032
Loans and leases....................................... 128,532 30,439 50,158 26,276 235,405
--------- ---------- ---------- --------- ----------
TOTAL RSA........................................ 143,078 57,510 130,150 35,960 366,698
Savings deposits....................................... -- -- 29,864 7,466 37,330
Interest-bearing demand deposits....................... -- 28,429 79,641 12,803 120,873
Time certificates of deposit of $100,000 or more....... 28,279 17,081 2,496 -- 47,856
Time certificates of deposit less than $100,000........ 30,375 26,544 4,596 -- 61,515
Short-term borrowings.................................. 600 -- -- -- 600
Other interest-bearing................................. -- -- 573 -- 573
--------- ---------- ---------- --------- ----------
TOTAL RSL........................................ 59,254 72,054 117,170 20,269 268,747
--------- ---------- ---------- --------- ----------
Net RSA-RSL...................................... $ 83,824 $ (14,544) $ 13,131 $ 15,540 $ 97,951
--------- ---------- ---------- --------- ----------
--------- ---------- ---------- --------- ----------
Cumulative RSA-RSL............................... $ 69,280 $ 82,411 $ 97,951
---------- ---------- ---------
---------- ---------- ---------
Cumulative as a percentage of total assets....... 20.04% 16.56% 19.70% 23.42% 23.42%
--------- ---------- ---------- --------- ----------
--------- ---------- ---------- --------- ----------
</TABLE>
F-18
<PAGE>
EXPECTED MATURITY DATA AT DECEMBER 31, 1997(1)
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE AT DECEMBER 31, 1997
-----------------------------------------------------------------------------
TOTAL
1998 1999 2000 2001 2002 THEREAFTER BALANCE
--------- --------- --------- --------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-SENSITIVE ASSETS:
Loans Receivable:
Fixed Rate:
Construction............................ 1,139 0 0 0 0 0 1,139
Average interest rate................. 9.09% 0.00% 0.00% 0.00% 0.00% 0.00% 9.09%
Real Estate--Residential................ 5,679 4,215 3,604 11,080 3,486 7,091 35,155
Average interest rate................. 6.79% 7.93% 7.96% 7.73% 7.81% 8.48% 7.79%
Real Estate--Commercial................. 7,558 4,536 2,824 1,921 5,857 10,517 33,213
Average interest rate................. 8.14% 9.18% 9.79% 8.90% 9.35% 8.62% 8.83%
Commercial.............................. 1,336 610 1,946 1,429 1,686 1,879 8,886
Average interest rate................. 6.41% 9.07% 9.51% 9.17% 9.65% 8.86% 8.85%
Installment and other................... 578 2,616 3,422 1,550 812 6,057 15,035
Average interest rate................. 8.54% 12.80% 9.65% 8.75% 7.00% 8.62% 9.51%
Variable Rate:
Construction............................ 9,538 0 0 0 0 0 9,538
Average interest rate................. 9.95% 0.00% 0.00% 0.00% 0.00% 0.00% 9.95%
Real Estate--Residential................ 689 2,030 1,272 1,968 5,669 40,537 52,165
Average interest rate................. 10.24% 9.51% 9.98% 9.73% 8.91% 8.13% 8.40%
Real Estate--Commercial................. 1,375 1,670 0 587 2,870 29,330 35,832
Average interest rate................. 9.66% 9.37% 0.00% 9.44% 9.17% 8.80% 8.90%
Commercial.............................. 12,901 1,573 2,320 2,600 2,863 8,154 30,411
Average interest rate................. 9.92% 10.17% 9.65% 10.09% 9.32% 9.96% 9.88%
Installment and other................... 2,638 856 1,227 1,026 1,383 6,902 14,032
Average interest rate................. 9.86% 10.38% 10.55% 9.92% 9.49% 9.07% 9.53%
Federal Funds Sold........................ 6,000 0 0 0 0 0 6,000
Average interest rate................. 4.95% 0.00% 0.00% 0.00% 0.00% 0.00% 4.95%
Due From Banks............................ 252 0 0 0 0 0 252
Average interest rate................. 5.21% 0.00% 0.00% 0.00% 0.00% 0.00% 5.21%
FHLB and FNMA Stock....................... 0 0 0 0 0 1,032 1,032
Average interest rate................. 0.00% 0.00% 0.00% 0.00% 0.00% 6.14% 6.14%
Investment Securities..................... 35,359 23,796 25,533 11,627 6,407 21,287 124,009
Average interest rate................. 5.57% 5.98% 6.05% 5.97% 6.14% 6.18% 5.92%
--------- --------- --------- --------- --------- ----------- ---------
Total interest-sensitive assets........... 83,041 41,902 42,148 33,788 31,033 132,768 368,698
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
INTEREST-SENSITIVE LIABILITIES:
Deposits:
NOW..................................... 0 19,205 19,205 6,402 6,402 12,803 64,016
Average interest rate................. 0.00% 0.98% 0.98% 0.98% 0.98% 0.98% 0.98%
Savings................................. 0 11,199 11,199 3,733 3,733 7,466 37,330
Average interest rate................. 0.00% 2.13% 2.13% 2.13% 2.13% 2.13% 2.13%
Money-market............................ 28,429 14,214 14,214 0 0 0 56,857
Average interest rate................. 2.97% 2.97% 2.97% 0.00% 0.00% 0.00% 2.97%
Certificates--Fixed..................... 96,457 3,802 2,340 646 305 0 103,550
Average interest rate................. 5.35% 5.72% 5.79% 5.70% 5.64% 0.00% 5.38%
Certificates--Variable.................. 5,821 0 0 0 0 0 5,821
Average interest rate................. 4.98% 0.00% 0.00% 0.00% 0.00% 0.00% 4.98%
BORROWINGS................................ 600 0 0 0 0 0 600
Average interest rate................. 4.20% 0.00% 0.00% 0.00% 0.00% 0.00% 4.20%
Other interest-bearing.................... 573 0 0 0 0 0 573
Average interest rate................. 8.50% 0.00% 0.00% 0.00% 0.00% 0.00% 8.50%
--------- --------- --------- --------- --------- ----------- ---------
Total interest-sensitive liabilities...... 131,879 48,420 46,958 10,781 10,440 20,269 268,747
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
</TABLE>
- ------------------------
(1) Expected maturities are based on contractual maturities.
F-19
<PAGE>
Market risk sensitive instruments are generally defined as on and off
balance sheet derivatives and other financial instruments. At December 31, 1997,
Peninsula had no material off balance sheet derivatives.
RESULTS OF OPERATIONS
Banking is a business that depends on rate differentials. In general, the
difference between the interest rate paid by Peninsula on its interest-bearing
liabilities and the interest rate received by Peninsula on loans extended to its
customers and securities held in Peninsula's portfolio comprise the major
portion of Peninsula's earnings. These rates are highly sensitive to many
factors that are beyond the control of Peninsula. Accordingly, the earnings and
growth of Peninsula are subject to, among others, the influence of local,
domestic and foreign economic conditions, including recession, unemployment and
inflation.
NET INCOME
Net income for the year ended December 31, 1997 was approximately $3.6
million, or $1.45 per share. This compares with net income of approximately $3.1
million or $1.23 per share for the year ended December 31, 1996 and net income
for the year ended December 31, 1995 of approximately $2.5 million or $1.02 per
share. All share data has been adjusted to reflect the two for one stock split
in March 1998 and the 5% stock dividend in July 1998. The progressive increase
in net income was primarily a result of continued growth in total assets.
NET INTEREST INCOME
Peninsula's earnings depend primarily upon the difference between the income
Peninsula receives from the loan portfolio and investment securities, and the
cost of funds, including principally interest paid on savings and time deposits.
Interest rates charged on Peninsula's loans are influenced principally by the
demand for such loans, the supply of money for lending purposes, and competitive
factors. These factors are, in turn, affected by general economic conditions and
other factors beyond Peninsula's control, such as federal economic and tax
policies, the general supply of money in the economy, governmental budgetary
actions, and the actions of the Federal Reserve Board.
F-20
<PAGE>
The following two tables provide information on net interest income for the
past three fiscal years, setting forth average balances of interest-earning
assets and interest-bearing liabilities, income earned and the expense recorded
thereon and the resulting average yield-cost ratios:
<TABLE>
<CAPTION>
INTEREST RATES AND INTEREST RATE DIFFERENTIAL
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996
------------------------------------- -------------------------------------
<CAPTION>
AVERAGE AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE(1) EXPENSE COST BALANCE(1) EXPENSE COST
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits with banks............ $ 1,748 $ 91 5.21% $ 139 $ 8 5.76%
Federal funds sold.............................. 9,229 481 5.21% 6,926 336 4.85
Securities...................................... 102,210 6,011 5.88% 81,740 4,621 5.65
Loans and leases (net)(2)....................... 218,607 20,682 9.46% 201,299 19,287 9.58
----------- ----------- --- ----------- ----------- ---
INTEREST-EARNING ASSETS..................... 331,794 $ 27,265 8.22% 290,104 $ 24,252 8.36%
NON INTEREST-EARNING ASSETS:
Cash and due from banks......................... 27,296 20,803
Premises and equipment (net).................... 11,075 11,158
Other real estate owned......................... 614 626
Other assets.................................... 8,821 7,828
----------- -----------
TOTAL ASSETS................................ $ 379,600 $ 330,519
----------- -----------
----------- -----------
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits................ $ 114,674 $ 2,401 2.09% $ 101,072 $ 2,232 2.21%
Savings deposits................................ 33,427 718 2.15% 31,589 677 2.14%
Time deposits................................... 102,293 5,409 5.29% 90,565 4,779 5.28%
Federal funds purchased......................... 136 8 5.88% 309 18 5.83%
Directors' deferred compensation plan........... 455 37 8.13% 277 23 8.14%
Other borrowings................................ 562 27 4.80% 513 37 7.21%
----------- ----------- --- ----------- ----------- ---
Interest-bearing liabilities................ $ 251,547 $ 8,600 3.42% $ 224,325 $ 7,766 3.46%
NON INTEREST-BEARING LIABILITIES AND EQUITY:
Non interest-bearing demand..................... 102,047 83,107
Non interest-bearing liabilities................ 2,118 1,942
Shareholders' equity............................ 23,888 21,145
----------- -----------
Total liabilities and shareholders' equity...... $ 379,600 $ 330,519
----------- -----------
----------- -----------
Net interest income............................. $ 18,665 $ 16,486
Net interest margin on interest-earning
assets(3)..................................... 5.63% 5.68%
--- ---
--- ---
Net interest spread............................. 4.80% 4.90%
--- ---
--- ---
</TABLE>
- ------------------------------
(1) Average balances include the effect of discounts and premiums on loans and
investment securities as well as deferred loan fees and costs, as well as
deferred loan fees and costs.
(2) Nonaccrual loans are included in the average balances for the periods. Loan
fees included for 1997 and 1996 are $701 thousand and $640 thousand,
respectively.
(3) The net interest margin on interest-bearing assets for a period is net
interest income divided by average interest-bearing assets.
F-21
<PAGE>
<TABLE>
<CAPTION>
INTEREST RATES AND INTEREST RATE
DIFFERENTIAL
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1995
-------------------------------------
<CAPTION>
AVERAGE AVERAGE
AVERAGE INCOME/ YIELD/
BALANCE(1) EXPENSE COST
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits with banks......................................... $ 817 $ 41 5.02%
Federal funds sold........................................................... 6,290 348 5.53
Securities................................................................... 69,309 3,849 5.55
Loans and leases (net)(2).................................................... 179,717 17,671 9.83
----------- ----------- ---
Interest-earning assets.................................................. 256,133 $ 21,909 8.55%
NON INTEREST-EARNING ASSETS:
Cash and due from banks...................................................... 16,314
Premises and equipment (net)................................................. 10,218
Other real estate owned...................................................... 352
Other assets................................................................. 7,369
-----------
Total assets................................................................. $ 290,386
-----------
-----------
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits............................................. 85,825 1,946 2.27%
Savings deposits............................................................. 32,435 809 2.49
Time deposits................................................................ 82,096 4,270 5.20
Federal funds purchased...................................................... 369 23 6.23
Directors' deferred compensation plan........................................ 131 11 9.25
Other borrowings............................................................. 500 36 7.20
----------- ----------- ---
Interest-bearing liabilities............................................. 201,356 $ 7,095 3.52%
NON INTEREST-BEARING LIABILITIES AND EQUITY:
Non interest-bearing demand.................................................. 68,496
Non interest-bearing liabilities............................................. 1,738
Shareholders' equity......................................................... 18,796
-----------
Total liabilities and shareholders' equity................................... $ 290,386
-----------
-----------
Net interest income.......................................................... $ 14,814
-----------
-----------
Net interest margin on interest-earning assets(3)............................ 5.78
---
---
Net interest spread.......................................................... 5.03%
---
---
</TABLE>
- ------------------------
(1) Average balances include the effect of discounts and premiums on loans and
investment securities as well as deferred loan fees and costs.
(2) Nonaccrual loans are included in the average balances for the periods. Loan
fees included for 1995 are $694 thousand.
(3) The net interest margin on interest-bearing assets for a period is net
interest income divided by average interest-bearing assets.
F-22
<PAGE>
The following table sets forth changes in interest income and interest
expense, and the amount of change attributable to variances in volume, rates and
the combination of volume and rates. There has been no adjustments made for
tax-exempt income.
<TABLE>
<CAPTION>
INTEREST RATE DIFFERENTIAL FOR THE
YEAR ENDED DECEMBER 31,
1997 COMPARED TO 1996
----------------------------------------------
CHANGE DUE TO
TOTAL ---------------------------------
INCREASE VOLUME &
(DECREASE) VOLUME RATE RATE
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
INTEREST INCOME
Interest and fees on loans............................................ $ 1,395 $ 1,658 $ (242) $ (21)
Interest-bearing deposits with banks.................................. 83 93 (1) (9)
Securities............................................................ 1,390 1,157 186 47
Federal funds sold.................................................... 145 112 25 8
----------- --------- --------- ---
TOTAL INTEREST INCOME............................................. 3,013 3,020 (32) 25
----------- --------- --------- ---
INTEREST EXPENSE
Interest-bearing demand deposits...................................... 169 300 (116) (16)
Savings deposits...................................................... 41 39 2 --
Time deposits......................................................... 630 619 10 1
Federal funds purchased............................................... (10) (10) -- --
Directors' deferred compensation plan................................. 14 10 3 1
Other borrowings...................................................... (10) 4 (13) (1)
----------- --------- --------- ---
TOTAL INTEREST EXPENSE............................................ 834 962 (113) (14)
----------- --------- --------- ---
NET INTEREST INCOME............................................. $ 2,179 $ 2,058 $ (81) $ 39
----------- --------- --------- ---
----------- --------- --------- ---
</TABLE>
<TABLE>
<CAPTION>
INTEREST RATE DIFFERENTIAL FOR THE
YEAR ENDED DECEMBER 31,
1996 COMPARED TO 1995
----------------------------------------------
CHANGE DUE TO
TOTAL ---------------------------------
INCREASE VOLUME &
(DECREASE) VOLUME RATE RATE
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
INTEREST INCOME
Interest and fees on loans............................................ $ 1,616 $ 2,122 $ (452) $ (54)
Interest-bearing deposits with banks.................................. (33) (34) 6 (5)
Securities............................................................ 772 690 70 12
Federal funds sold.................................................... (12) 35 (43) (4)
----------- --------- --------- ---
TOTAL INTEREST INCOME............................................. 2,343 2,813 (419) (51)
----------- --------- --------- ---
INTEREST EXPENSE
Interest-bearing demand deposits...................................... 285 346 (52) (9)
Savings deposits...................................................... (132) (21) (113) 2
Time deposits......................................................... 510 440 63 7
Federal funds purchased............................................... (5) (3) (2) --
Directors' deferred compensation plan................................. 12 12 -- --
Other borrowings...................................................... 1 1 -- --
----------- --------- --------- ---
TOTAL INTEREST EXPENSE............................................ 671 775 (104) --
----------- --------- --------- ---
NET INTEREST INCOME............................................. $ 1,672 $ 2,038 $ (315) $ (51)
----------- --------- --------- ---
----------- --------- --------- ---
</TABLE>
F-23
<PAGE>
INTEREST INCOME. Interest income increased by $3.0 million for the year
ended December 31, 1997 compared to 1996 and $2.3 million for the year ended
December 31, 1996 compared to 1995. The increase for 1997 is due largely to the
increase in average earning assets of approximately $41.7 million to $331.8
million from $290.1 million for 1997. The increase in interest income for 1996
is due largely to the increase in average earning assets of approximately $34.0
million from average earning assets of $256.1 million for 1996.
INTEREST EXPENSE. Interest expense increased by $834 thousand for the year
ended December 31, 1997 compared to 1996 and $671 thousand for the year ended
December 31, 1996 compared to 1995. The increase in interest expense is
primarily due to the increase of $27.2 million for 1997 and $23.0 million for
1996 in average interest-bearing liabilities. Interest expense totaled
approximately $8.6 million 1997 compared to approximately $7.8 million for 1996
and approximately $7.1 million for 1995.
NON-INTEREST INCOME. The following table sets forth the details of
non-interest income for the years ended December 31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------- INCREASE
1997 1996 (DECREASE)
--------- --------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Service charges on deposit accounts........................... $ 1,869 $ 1,675 $ 194
Escrow fees................................................... 686 548 138
Other fee income.............................................. 711 881 (170)
Other income.................................................. 551 460 91
--------- --------- -----
Operating non-interest income................................. 3,817 3,564 253
Gain on sale of loans......................................... 247 81 166
Gain on securities............................................ 60 -- 60
--------- --------- -----
TOTAL NON-INTEREST INCOME............................... $ 4,124 $ 3,645 $ 479
--------- --------- -----
--------- --------- -----
</TABLE>
Operating non-interest income increased $252 thousand to $3.8 million for
the year ended December 31, 1997 compared to $3.6 for the year ended December
31, 1996. A decrease in brokerage fees of $245 thousand from $388 thousand for
the year ended December 31, 1996 to $145 thousand for the year ended December
31, 1997 offset approximately half of the increase in service charges and
related fees paid by Peninsula's deposit customers. Gain on sale of loans
increased $166 thousand due primarily to increased volume of Small Business
Administration guaranteed loans and the sale of the guaranteed portion of these
loans.
The following table sets forth the details of non-interest income for the
years ended December 31, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------- INCREASE
1996 1995 (DECREASE)
--------- --------- -------------
<S> <C> <C> <C>
(IN THOUSANDS)
Service charges on deposit accounts........................... $ 1,675 $ 1,560 $ 115
Escrow fees................................................... 548 417 131
Other fee income.............................................. 881 653 228
Other income.................................................. 460 395 65
--------- --------- -----
Operating non-interest income................................. 3,564 3,025 539
Gain on sale of loans......................................... 81 82 (1)
Gain on securities............................................ -- 32 (32)
--------- --------- -----
TOTAL NON-INTEREST INCOME............................... $ 3,645 $ 3,139 $ 506
--------- --------- -----
--------- --------- -----
</TABLE>
F-24
<PAGE>
Operating non-interest income increased approximately $532 thousand to
approximately $3.6 million for the year ended December 31, 1996 compared to
approximately $3.1 million for the year ended December 31, 1995. An increase in
brokerage fees of approximately $252 thousand accounting for approximately half
of the increase in operating non-interest income with the balance due primarily
from the opening of new branches and the growing deposit customer base.
NON-INTEREST EXPENSE. The following table shows the detail of non-interest
expense for the years ended December 31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------- INCREASE
1997 1996 (DECREASE)
--------- --------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Salaries and benefits....................................... $ 9,630 $ 8,555 $ 1,075
Occupancy................................................... 2,557 2,223 334
Advertising and business development........................ 690 559 131
Other real estate owned..................................... 114 144 (30)
Other professional services................................. 407 326 81
Telephone, stationery and supplies.......................... 685 629 56
Data Processing............................................. 705 634 71
Customer service costs...................................... 955 894 61
Regulatory assessment....................................... 39 1 38
Operating losses............................................ 379 30 349
Other....................................................... 821 639 182
--------- --------- -----------
NON-INTEREST EXPENSE.................................. $ 16,982 $ 14,634 $ 2,348
--------- --------- -----------
--------- --------- -----------
</TABLE>
Non-interest expense increased approximately $2.3 million from approximately
$14.6 million for the year ended December 31, 1996 to approximately $17.0
million for the year ended December 31, 1997. The increase in salaries and
benefits accounted for approximately 44% or $1.1 million which is attributed to
the opening of a new branch in San Marcos in Northern San Diego County in July
1997 and the reorganization of the lending offices and marketing department
which included additional staffing. Other non-interest expense increased by
approximately $349 thousand, of which, $353 thousand was attributable to a fraud
loss related to Peninsula's credit cards.
F-25
<PAGE>
The following table shows the detail of non-interest expense for the years
ended December 31, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------- INCREASE
1996 1995 (DECREASE)
--------- --------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Salaries and benefits.......................................................... $ 8,555 $ 7,528 $ 1,027
Occupancy, furniture and equipment............................................. 2,223 2,005 218
Advertising and business development........................................... 559 452 107
Other real estate owned........................................................ 144 450 (306)
Other professional services.................................................... 326 378 (52)
Telephone, stationery and supplies............................................. 629 512 117
Data Processing................................................................ 634 499 135
Customer service costs......................................................... 894 690 204
Regulatory assessment.......................................................... 1 285 (284)
Operating losses............................................................... 30 32 (2)
Other.......................................................................... 639 689 (50)
--------- --------- -----------
Non-interest expense......................................................... $ 14,634 $ 13,520 $ 1,114
--------- --------- -----------
--------- --------- -----------
</TABLE>
Non-interest expense increased approximately $1.1 million from approximately
$13.5 million for the year ended December 31, 1995 to approximately $14.6
million for the year ended December 31, 1996. Due to the opening of the Downtown
San Diego branch in March 1996 and the relocation of the data processing and
operations center to a new location, such expenses such as salaries and
benefits, occupancy, telephone, stationery and supplies increased more rapidly
than normal. The large reductions in other real estate owned expense and
regulatory assessment expense offset a portion of this increase.
INCOME TAXES
Peninsula's effective tax rates were 32%, 38% and 36% for years ending
December 31, 1997, 1996, and 1995 respectively. The decrease from 38% in 1996 to
32% in 1997 was due to recognition of permanent differences not recognized in
prior years. The increase from 36% in 1995 to 38% in 1996 is due to the decrease
in the amount of municipal interest income. At December 1997 Peninsula had a net
deferred asset of approximately $1.1 million Peninsula Management had determined
that realization of the deferred tax asset is more likely than not based on
current and expected taxable income. For further information on income taxes,
See Note 6 of Peninsula's Financial Statements for the Years Ended December 31,
1997, 1996 and 1995.
YEAR 2000 RISKS AND PREPAREDNESS
Many existing computer programs use only two digits to identify a year in a
data field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000. The
Year 2000 issue affects Peninsula in that the financial services business is
highly dependent on computer applications in a variety of ways, including the
following: (i) Peninsula relies on computer systems in almost all aspects of its
business, including the processing of deposits, loans and other services and
products offered to customers of Peninsula, the failure of which in connection
with the Year 2000 could cause systemic disruption and failures in the products
and services offered by Peninsula; (ii) other banks, clearing houses and vendors
whose products and services Peninsula uses are at risk of systemic disruptions
and potential failures in the event that such entities have not adequately
addressed their Year 2000 issues prior to the Year 2000; (iii) the
creditworthiness of borrowers of Peninsula might be diminished by significant
disruptions of their business as a result of their own or others' failure to
address adequately the Year 2000 issue prior to the Year 2000; and (iv) Federal
Banking Agencies have issued interagency guidance on the business-wide risk
posed to financial institutions by the Year 2000 problem pursuant to which the
Federal
F-26
<PAGE>
Banking Agencies may take supervisory action against financial institutions that
fail to address appropriately Year 2000 issues prior to the Year 2000, including
formal and informal enforcement actions, the denial of applications to the
Federal Banking Agencies, civil money penalties, and a reduction in the
management component rating or the institution's composite rating.
In order to address the Year 2000 issues facing Peninsula, Peninsula
Management has initiated a program to prepare Peninsula's computer systems and
applications for the Year 2000 (the "Peninsula Year 2000 Plan"). The primary
focus of the Peninsula Year 2000 Plan is to identify, assess, and implement
mission critical systems to be Year 2000 compliant. Peninsula expects to incur
internal staff costs as well as consulting and other expenses related to
preparation for Year 2000 compliance. The estimated cost Peninsula will spend on
Year 2000 compliance is approximately $500,000, to be expended during fiscal
years 1998 and 1999.
As a part of the Peninsula Year 2000 Plan, Peninsula is not only undertaking
the enhancements and testing necessary to ensure that Peninsula is adequately
prepared for the Year 2000, but also Peninsula is communicating with its vendors
upon whose services Peninsula relies to ensure Year 2000 compliance. Pursuant to
the Peninsula Year 2000 Plan, Peninsula expects to complete substantially
testing its own systems and the computer related interactive vendor systems by
December 31, 1998, and to complete all testing by June 1999. In addition, as
part of the credit review process, Peninsula is communicating with its major
borrowers in an effort to ensure that such borrowers have taken appropriate
steps to address their Year 2000 issues and will not be materially affected by
any Year 2000 problems. Peninsula is also communicating with its major deposit
customers as well. Peninsula also is preparing contingency plans to protect
Peninsula in the event that Peninsula is unable to attain Year 2000 compliance
in certain applications according to the Peninsula Year 2000 Plan.
Although Peninsula believes that its Year 2000 Plan and other steps being
taken are adequate to ensure that Peninsula will not be materially affected by
the Year 2000 problem, there can be no assurance that the Peninsula Year 2000
plan and Peninsula's other Year 2000 remedial and contingency plans will protect
fully Peninsula from the risks associated with the Year 2000. The analysis of,
and preparation for, the Year 2000 and related problems necessarily rely on a
variety of assumptions about future events, and there can be no assurance that
Peninsula Management has accurately predicted such future events or that the
remedial and contingency plans of Peninsula will adequately address such future
events. In the event that the business of Peninsula, vendors of Peninsula or
customers of Peninsula is disrupted as a result of the Year 2000 problems, such
disruption could have a material adverse effect on Peninsula.
F-27
<PAGE>
PENINSULA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following tables and data set forth certain statistical information
relating to Peninsula as of June 30, 1998 and for the six month periods ended
June 30, 1998 and June 30, 1997. This discussion should be read in conjunction
with the Unaudited Condensed Financial Statements as of June 30, 1998 and
December 31, 1997 and for the six months period ended June 30, 1998 and June 30,
1997.
FINANCIAL CONDITION
Total assets increased $10 million from December 31, 1997 to June 30, 1998.
Total deposits increased $7.8 million for the same period. Net loans increased
$8.6 million from December 31, 1997 to June 30, 1998. Total equity increased
$1.9 million. The increases are due to a strong economy in San Diego County with
stable interest rates.
RESULTS OF OPERATIONS
Consolidated net income for the six months ending June 30, 1998 was
$2,228,985 or $0.90 per diluted share. This compares with earnings of
$1,673,474, or $0.67 per diluted share for the six months ended June 30, 1997.
Net income increased 33.1% due mainly to an increase in net interest income of
17%, and the quality of the loan portfolio required less provision for loan and
lease losses. Provision for loan loss for the six months of June 1997 was
$325,000 and for the six months ended June 1998 $138,956.
CREDIT QUALITY AND ANALYSIS
Peninsula's policy concerning non-performing loans is to cease accruing
interest, and to charge off all accrued and unpaid interest on loans that are
past due as to principal and/or interest for at least 90 days, or at such
earlier time as management determines timely collection of the interest to be in
doubt. However, in certain circumstances loans which are past due 90 days or
more may continue accruing interest or interest may not be charged off when the
related loans are well secured or in the process of being collected. When
Peninsula receives cash on nonaccrual loans, the Bank's policy to record such
receipts first as a reduction to the principal and then as interest income.
POTENTIAL PROBLEM LOANS AND IMPAIRED LOANS. "Impaired loans" are loans for
which it is probable that Peninsula will not be able to collect all of the
amounts due according to the contractual terms of the loan agreement. The
category of "impaired loans" is not coextensive with the category of "nonaccrual
loans" although the two categories may overlap. "Nonaccrual loans" include
impaired loans and are those on which the accrual of interest is discontinued
when collectibility of principal and interest is uncertain or payments of
principal or interest have become contractually past due 90 days or more.
Peninsula may chose to place a loan on nonaccrual status due to payment
delinquency or uncertain collectibility, while not classifying the loan as
impaired, if it is probable that Peninsula will collect all amounts due in
accordance with the contractual terms of the loan. Factors considered by
management in determining the impairment include payment status and collateral
value. The amount of impairment for these types of impaired loans is determined
by the difference between the present value of the expected cash flows related
to the loan, using the original contractual interest rate, and its recorded
value, or, as a practical expedient in the case of collateralized loans, the
difference between the fair value of the collateral and the recorded amount of
the loans. When foreclosure is probable, impairment is measured based on the
fair value of the collateral. Small homogenous loans may be measured
collectively for impairment. Loans that experience insignificant payment delays
and insignificant shortfalls in payment amounts are not classified as impaired.
Peninsula Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
F-28
<PAGE>
The following table shows the historical trends in nonperforming assets and
comparative credit ratio's for Peninsula:
<TABLE>
<CAPTION>
AT THE PERIODS ENDING
-----------------------------------------------
<S> <C> <C> <C>
JUNE 30, 1998 DECEMBER 31, 1997 JUNE 30, 1997
------------- ----------------- -------------
<CAPTION>
CREDIT QUALITY MEASURES (DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans past due 90 days and still accruing........................ 427 28 1
Nonaccrual loans and leases...................................... 239 0 497
Other real estate owned.......................................... 0 259 760
------------- ------- -------------
Nonperforming assets......................................... 666 287 1,258
Impaired loans gross............................................. 189 212 548
Allocated reserves............................................... 51 62 170
------------- ------- -------------
Net investment in impaired loans............................. 138 150 378
Charge-offs...................................................... 87 511 392
Recoveries....................................................... 32 220 151
------------- ------- -------------
Net charge-offs.............................................. 55 291 241
Allowance for loan and lease losses ("ALLL")..................... 2,242 2,358 2,235
Loans and leases, net of deferred fees and costs................. 243,227 234,556 222,880
Average loans and leases for the period net of deferred fees and
costs.......................................................... 235,127 220,845 216,257
ALLL to loans and leases......................................... 1.00% 1.01% 1.00%
ALLL to nonaccrual loans and leases.............................. 1021.76 0.00 449.70
ALLL to nonperforming assets..................................... 366.67 821.60 177.66
Nonperforming assets to loans, leases and other real estate
owned.......................................................... 0.03 0.12 0.56
Net charge-offs to average loans and leases...................... 0.02 0.13 0.11
</TABLE>
Peninsula has established a monitoring system for its loans in order to
identify impaired loans, potential problem loans and to permit periodic
evaluation of impairment and the adequacy of the ALLL in a timely manner. All
problem loans and leases are monitored on a monthly basis making appropriate
adjustments to grade classification when necessary. This monitoring system and
allowance methodology includes a loan by loan analysis for all classified loans
as well as loss factors for the balance of the portfolio that are based on
migrate analysis relative to both the classified and the unclassified portion of
the portfolio. This analysis includes such factors as historical loss
experience, current portfolio delinquency and risk levels of classified loans.
Loans past due 90 days and still accruing represent loans which are past due
90 days or more as to interest or principal, but not included in non-accrual or
restructured categories. For June 1998, three loans account for the $427
thousand; payoffs are expected on two of the loans with reserves set aside of
$22,260 for the remaining loan.
On June 30, 1998, Peninsula had approximately $189 thousand which were
considered impaired loans, a decrease from the $548 thousand for the same period
in 1997. Specific reserves of approximately $51 thousand have been established
for the impaired loans in June 1998 and $170 thousand were established for
impaired loans in June 1997.
Non-accrual loans increased from December 1997 from zero to three loans
totaling $239 thousand. Reserves set aside for these three loans are $35
thousand.
F-29
<PAGE>
REGULATORY MATTERS. The regulatory capital guidelines as well as the actual
regulatory capital as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
ACTUAL
---------
REGULATORY REQUIREMENTS
------------------------------
ADEQUATELY WELL
CAPITALIZED CAPITALIZED
--------------- -------------
<S> <C> <C> <C>
Detailed computations of
Tier 1 leverage capital ratio............................ 4.00% 5.00% 6.31%
Tier 1 risk-based capital ratio.......................... 4.00 6.00 10.76
Total risk-based capital................................... 8.00 10.00 11.73
</TABLE>
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Peninsula Bank of San Diego:
We have audited the accompanying balance sheets of Peninsula Bank of San
Diego (the "Bank") as of December 31, 1997 and 1996, and the related statements
of income, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Bank'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, such financial statements present fairly, in all material
respects, the financial position of Peninsula Bank of San Diego as of December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
January 24, 1998
(July 24, 1998 as to Note 12)
San Diego, California
F-31
<PAGE>
PENINSULA BANK OF SAN DIEGO
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks.......................................................... $ 33,362,449 $ 25,354,124
Interest bearing deposits in other banks......................................... 251,939 129,424
Federal funds sold............................................................... 6,000,000 3,000,000
-------------- --------------
TOTAL CASH AND CASH EQUIVALENTS.............................................. 39,614,388 28,483,548
Held to maturity investment securities, at cost (fair value of $86,733,818 and
$44,267,367, respectively)..................................................... 86,049,771 43,884,341
Available for sale investment securities, at fair value (amortized cost of
$37,871,622 and $39,994,762, respectively)..................................... 37,958,906 40,137,971
Non-debt investment securities (FHLB and FNMA, at cost).......................... 1,031,954 957,854
-------------- --------------
INVESTMENT SECURITIES--NET................................................... 125,040,631 84,980,166
Loans--net....................................................................... 232,198,194 210,451,351
Premises and equipment--net...................................................... 11,514,101 11,020,742
Accrued interest receivable...................................................... 2,932,578 2,617,769
Cash surrender value of life insurance........................................... 3,950,924 3,584,765
Other assets..................................................................... 1,918,724 2,111,759
Deferred tax asset............................................................... 1,075,159 569,536
-------------- --------------
TOTAL........................................................................ $ 418,244,699 $ 343,819,636
-------------- --------------
-------------- --------------
Commitments and contingencies (notes)............................................
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing......................................................... $ 121,657,119 $ 91,967,808
Interest bearing............................................................. 267,574,854 226,741,215
-------------- --------------
TOTAL DEPOSITS............................................................... 389,231,973 318,709,023
Other liabilities.............................................................. 3,656,732 2,696,552
-------------- --------------
TOTAL LIABILITIES............................................................ 392,888,705 321,405,575
SHAREHOLDERS' EQUITY
Common stock, no par value; 3,000,000 shares authorized, 2,368,654 shares
(1997) and 2,256,292 (1996) outstanding...................................... 1,973,879 1,880,242
Additional paid-in capital..................................................... 17,043,444 14,777,479
Retained earnings.............................................................. 6,407,068 5,869,166
-------------- --------------
25,424,391 22,526,887
Unrealized loss on available for sale securities, net of tax of $48,692 and
$80,316, respectively........................................................ (68,397) (112,826)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY................................................... 25,355,994 22,414,061
-------------- --------------
TOTAL............................................................................ $ 418,244,699 $ 343,819,636
-------------- --------------
-------------- --------------
</TABLE>
See "NOTES TO PENINSULA FINANCIAL STATEMENTS".
F-32
<PAGE>
PENINSULA BANK OF SAN DIEGO
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees............................................... $ 20,682,038 $ 19,286,237 $ 17,671,213
Investment securities:
U.S. Treasury securities.......................................... 3,290,018 2,577,120 1,467,481
U.S. Government agencies.......................................... 2,187,440 1,409,039 1,568,427
Municipal bonds................................................... 533,931 634,956 813,402
Federal funds sold, other....................................... 571,615 344,270 388,460
------------- ------------- -------------
TOTAL INTEREST INCOME......................................... 27,265,042 24,251,622 21,908,983
INTEREST EXPENSE ON DEPOSITS........................................ 8,600,373 7,765,597 7,094,794
------------- ------------- -------------
Net Interest Income................................................. 18,664,669 16,486,025 14,814,189
Provision for Credit Losses......................................... 498,139 566,304 470,478
------------- ------------- -------------
Net Interest Income after Provision for Credit Losses............... 18,166,530 15,919,721 14,343,711
------------- ------------- -------------
Service Charges and Other Income.................................... 4,064,109 3,644,860 3,106,987
------------- ------------- -------------
Gain on Sale of Investment Securities............................... 59,871 32,000
------------- -------------
NON-INTEREST EXPENSE
Salaries and wages................................................ 9,629,824 8,555,524 7,528,091
Occupancy, furniture and equipment................................ 2,556,846 2,222,955 2,005,020
Regulatory assessment............................................. 39,263 1,091 284,878
Advertising and business development.............................. 689,809 558,870 451,913
Other real estate owned........................................... 114,260 143,740 450,252
Other professional services....................................... 406,631 325,988 377,544
Telephone, stationery and supplies................................ 684,504 629,437 511,979
Data processing................................................... 705,199 634,059 499,395
Customer service costs............................................ 955,099 893,738 689,638
Operating Losses.................................................. 378,878 29,597 32,057
Other............................................................. 821,532 639,006 689,163
------------- ------------- -------------
TOTAL NON-INTEREST EXPENSE.................................... 16,981,845 14,634,005 13,519,930
------------- ------------- -------------
Income Before Provision For Income Taxes............................ 5,308,665 4,930,576 3,962,768
Provision For Income Taxes.......................................... 1,707,914 1,876,825 1,420,388
------------- ------------- -------------
NET INCOME.......................................................... $ 3,600,751 $ 3,053,751 $ 2,542,380
------------- ------------- -------------
------------- ------------- -------------
INCOME PER SHARE--BASIC AND DILUTED................................. $ 1.45 $ 1.23 $ 1.02
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See "NOTES TO PENINSULA FINANCIAL STATEMENTS".
F-33
<PAGE>
PENINSULA BANK OF SAN DIEGO
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
UNREALIZED LOSS
COMMON STOCK ADDITIONAL ON AVAILABLE
----------------------- PAID-IN FOR SALE
SHARES AMOUNT CAPITAL RETAINED EARNINGS SECURITIES
---------- ----------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995
5% stock dividend........................... 2,047,312 $ 1,706,093 $11,118,073 $ 5,343,197 $ (616,217)
Cash dividends ($.24 per share)............. 101,972 84,976 1,648,547 (1,733,523)
Net income.................................. (594,215)
Unrealized gain on available for sale 2,542,380
securities, net of tax.................... 498,625
---------- ----------- ------------- ----------------- ---------------
BALANCE AT DECEMBER 31, 1995
5% stock dividend........................... 2,149,284 1,791,069 12,766,620 5,557,839 (117,592)
Cash dividends ($.26 per share)............. 107,008 89,173 2,010,859 (2,100,032)
Net income.................................. (642,392)
Unrealized gain on available for sale 3,053,751
securities, net of tax.................... 4,766
---------- ----------- ------------- ----------------- ---------------
BALANCE AT DECEMBER 31, 1996
5% stock dividend........................... 2,256,292 1,880,242 14,777,479 5,869,166 (112,826)
Cash dividends ($.28 per share)............. 112,362 93,637 2,265,965 (2,359,602)
Net income.................................. (703,247)
Unrealized gain on available for sale....... 3,600,751
securities, net of tax.................... 44,429
---------- ----------- ------------- ----------------- ---------------
BALANCE AT DECEMBER 31, 1997 2,368,654 $ 1,973,879 $17,043,444 $ 6,407,068 $ (68,397)
---------- ----------- ------------- ----------------- ---------------
---------- ----------- ------------- ----------------- ---------------
<CAPTION>
TOTAL
------------
<S> <C>
BALANCE AT JANUARY 1, 1995
5% stock dividend........................... $ 17,551,146
Cash dividends ($.24 per share).............
Net income.................................. (594,215)
Unrealized gain on available for sale 2,542,380
securities, net of tax.................... 498,625
------------
BALANCE AT DECEMBER 31, 1995
5% stock dividend........................... 19,997,936
Cash dividends ($.26 per share).............
Net income.................................. (642,392)
Unrealized gain on available for sale 3,053,751
securities, net of tax.................... 4,766
------------
BALANCE AT DECEMBER 31, 1996
5% stock dividend........................... 22,414,061
Cash dividends ($.28 per share).............
Net income.................................. (703,247)
Unrealized gain on available for sale....... 3,600,751
securities, net of tax.................... 44,429
------------
BALANCE AT DECEMBER 31, 1997 $ 25,355,994
------------
------------
</TABLE>
See "NOTES TO PENINSULA FINANCIAL STATEMENTS".
F-34
<PAGE>
PENINSULA BANK OF SAN DIEGO
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................. $ 3,600,751 $ 3,053,751 $ 2,542,380
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 1,053,781 1,005,672 885,680
Amortization of deferred loan fees................................... (1,207,027) (1,115,203) (728,740)
Net amortization of premium on investment securities................. 159,050 413,232 280,812
Provision for credit losses.......................................... 498,139 566,304 470,478
Deferred taxes....................................................... (537,247) (44,525) 97,758
Gain on sale of investment securities................................ (59,871) (32,000)
Deferred loan fees on new loans...................................... 1,247,526 1,199,316 744,269
Changes in other assets and liabilities:
Accrued interest receivable........................................ (314,809) (138,136) (545,950)
Cash surrender value of life insurance............................. (366,159) (355,114) (573,146)
Other assets....................................................... 193,035 437,495 (694,539)
Other liabilities.................................................. 960,180 790,245 91,066
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................ 5,227,349 5,813,037 2,538,068
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities on available for sale investment securities... 22,054,871 23,500,000 3,500,000
Proceeds from maturities/principal paydowns on held to maturity
investment securities................................................ 8,243,321 7,988,868 4,074,488
Purchase of held to maturity investment securities..................... (50,428,961) (8,255,253) (22,874,038)
Purchase of available for sale securities.............................. (27,952,822) (23,912,254) (19,054,779)
Proceeds from sales of available for sale investment securities........ 8,000,000 7,062,735
Purchases of premises and equipment.................................... (1,547,140) (1,361,194) (1,506,684)
Net additions to loans................................................. (22,550,951) (22,422,479) (17,577,364)
Proceeds from loans sold............................................... 265,470 300,918 546,389
----------- ----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES........................... (63,916,212) (24,161,394) (45,829,253)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts....................................... 70,522,950 21,739,459 48,485,923
Cash dividends......................................................... (703,247) (642,392) (594,215)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES........................ 69,819,703 21,097,067 47,891,708
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................ 11,130,840 2,748,710 4,600,523
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................... 28,483,548 25,734,838 21,134,315
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR................................. $39,614,388 $28,483,548 $25,734,838
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for income taxes............................. $ 2,163,000 $ 2,049,151 $ 1,347,502
----------- ----------- -----------
----------- ----------- -----------
Cash paid during the year for interest................................. $ 8,546,971 $ 7,786,024 $ 7,013,460
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
During 1995, the Bank transferred $16,000,000 of held-to-maturity securities to available for sale
securities.
During 1995, the Bank acquired $1,661,425 of real estate through foreclosure.
</TABLE>
See "NOTES TO PENINSULA FINANCIAL STATEMENTS".
F-35
<PAGE>
PENINSULA BANK OF SAN DIEGO
NOTES TO PENINSULA FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Peninsula Bank of San Diego (the
"Bank") conform to generally accepted accounting principles and the prevailing
practices within the banking industry. The following is a description of the
more significant accounting policies:
INVESTMENT SECURITIES--Debt securities that the Bank has the positive intent
and ability to hold to maturity are classified as held to maturity and reported
at amortized cost; all other debt securities are reported at fair value, with
the related unrealized gains and losses excluded from earnings and reported net
of tax as a separate component of shareholders' equity until realized. The
specific identification method is used to compute gains or losses on the sale of
these assets. Interest earned on these assets is included in interest income.
PREMISES AND EQUIPMENT--Premises and equipment are carried at cost less
accumulated depreciation. Depreciation expense is computed using the
straight-line method over the estimated useful lives which range from 3 to 40
years, of the related assets.
LOANS AND LOAN FEES--Loans are stated at the principal amount of outstanding
loans, net of unearned discount and fees. Loan origination fees and certain
direct costs are deferred and recognized as an element of interest income over
the life of the related loans.
ALLOWANCE FOR LOAN AND LEASE LOSSES--The allowance for loan and lease losses
is maintained at a level believed by management to be adequate to meet
reasonably foreseeable loan and lease losses on the basis of many factors
including the risk characteristics of the portfolio, underlying collateral,
current and anticipated economic conditions that may affect the borrower's
ability to pay, specific problem loans and trends in loan delinquencies and
charge-offs. Losses on loans and leases are provided for under the allowance
method of accounting. The allowance is increased by provisions charged to income
and reduced by loan and lease charge-offs, net of recoveries. Loans and leases,
including impaired loans, are charged off in whole or in part when, in
management's opinion, collectibility is not probable.
While management uses available information to establish the allowance for
loan and lease losses, future additions to the allowance may be necessary if
economic developments differ substantially from the assumptions used in making
the evaluation. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Banks' allowances for loan
and lease losses. Such agencies may require the Banks to recognize additions to
the allowance based on judgments different from those of management.
The Bank's policy concerning non-performing loans is to cease accruing
interest, and to charge off all accrued and unpaid interest on loans which are
past due as to principal and/or interest for at least 90 days, or at such
earlier time as management determines timely collection of the interest to be in
doubt. However, in certain circumstances loans which are past due 90 days or
more may continue accruing interest or interest may not be charged off when the
related loans are well secured or in the process of being collected. When the
Bank receives cash on nonaccrual loans or leases, the Bank's policy is to record
such receipts first as a reduction to the principal and then as interest income.
A non-performing loan may be returned to accrual status if the loan or lease
performs for a period of at least six months.
Impaired loans are commercial, commercial real estate, and individually
significant mortgage and consumer loans for which it is probable that the Bank
will not be able to collect all amounts due according to contractual terms of
the loan agreement. The category of "impaired loans" is not coextensive with the
F-36
<PAGE>
PENINSULA BANK OF SAN DIEGO
NOTES TO PENINSULA FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
category of "nonaccrual loans," although the two categories overlap. Nonaccrual
loans include impaired loans and are those on which the accrual of interest is
discontinued when collectibility of principal or interest is uncertain or
payments of principal or interest have become contractually past due 90 days.
The Bank may choose to place a loan on nonaccrual status due to payment
delinquency or uncertain collectibility while not classifying the loan as
impaired if (i) it is probable that the Bank will collect all amounts due in
accordance with the contractual terms of the loan or (ii) the loan is not a
commercial, commercial real estate or an individually significant mortgage or
consumer loan. Factors considered by management in determining impairment
include payment status and collateral value. The amount of impairment for these
types of impaired loans is determined by the difference between the present
value of the expected cash flows related to the loan, using the original
contractual interest rate, and its recorded value, or, as a practical expedient
in the case of collateralized loans, the difference between the fair value of
the collateral and the recorded amount of the loan. When foreclosure is
probable, impairment is measured based on the fair value of the collateral.
Mortgage and consumer loans which are not individual significant are measured
for impairment collectively. Loans that experience insignificant payment delays
and insignificant shortfalls in payment amounts generally are not classified as
impaired. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
REAL ESTATE ACQUIRED THROUGH FORECLOSURE--The Bank records real estate
acquired through foreclosure at the lesser of the outstanding loan amount or
fair value, less estimated costs to sell, at the time of foreclosure. Any
resulting loss on foreclosure is charged to the valuation allowance for loan
losses and a new basis is established for the property. Declines in value
subsequent to acquisition, if any, below the new basis are charged to operations
in the period in which the decline occurred. Required developmental costs
associated with foreclosed property under construction are capitalized and
considered in determining the fair value of the property. Operating expenses of
such properties, net of related income, and gains and losses on the disposition
of the properties are included in other noninterest expenses.
INCOME TAXES--Deferred income taxes are provided by applying statutory tax
rates in effect at the balance sheet date to temporary differences between the
book bases and the tax bases of assets and liabilities. The resulting deferred
tax assets and liabilities are adjusted to reflect changes in tax laws or rates.
BASIC AND DILUTED EARNINGS PER SHARE--Basic and diluted earnings per share
is based on the weighted average number of common shares outstanding adjusted
retroactively for stock dividends and stock splits. The number of shares used in
the computation of basic earnings per share was 2,486,855 for 1997, 1996 and
1995. There were no potentially diluted securities at December 31, 1997, 1996
and 1995.
CASH AND CASH EQUIVALENTS--The Bank's policy is to treat all investments
with an original maturity date of less than 90 days as cash equivalents.
NEW ACCOUNTING PRONOUNCEMENTS--In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income". This
standard is effective for the Bank's year ending December 31, 1998. SFAS No. 130
requires that all components of comprehensive income, including net income, be
reported net of their related tax effect in the financial statements in the
period in which they
F-37
<PAGE>
PENINSULA BANK OF SAN DIEGO
NOTES TO PENINSULA FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are recognized. Other comprehensive income includes unrealized gains and losses
on investments. The Bank does not believe adoption of SFAS No. 131 will have a
material impact on its financial statements.
ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS--Certain reclassifications to prior year balances have
been made in order to conform to the current year presentation.
2. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET CARRYING
COST GAINS LOSSES VALUE VALUE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
HELD TO MATURITY
Municipal bonds...................................... $10,961,103 $ 109,950 $ (3,993) $11,067,060 $10,961,103
U.S. government agencies............................. 23,213,492 353,409 (40,156) 23,526,745 23,213,492
Collateralized mortgage obligations.................. 13,787,530 37,679 (31,789) 13,793,420 13,787,530
Mortgage-backed securities........................... 8,980,091 22,686 (611) 9,002,166 8,980,091
U.S. Treasury securities............................. 29,107,555 242,935 (6,063) 29,344,427 29,107,555
----------- ----------- ----------- ----------- -----------
TOTAL HELD TO MATURITY........................... 86,049,771 766,659 (82,612) 86,733,818 86,049,771
----------- ----------- ----------- ----------- -----------
AVAILABLE FOR SALE
U.S. Treasury securities............................. 28,006,466 95,541 (1,168) 28,100,839 28,100,839
U.S. government agencies............................. 9,865,156 -- (7,089) 9,858,067 9,858,067
----------- ----------- ----------- ----------- -----------
Total available for sale............................. 37,871,622 95,541 (8,257) 37,958,906 37,958,906
----------- ----------- ----------- ----------- -----------
Non-debt securities.................................. 1,031,954 -- -- 1,031,954 1,031,954
----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT SECURITIES...................... $124,953,347 $ 862,200 $ (90,869) $125,724,678 $125,040,631
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
F-38
<PAGE>
PENINSULA BANK OF SAN DIEGO
NOTES TO PENINSULA FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
2. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market value of investment securities at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET CARRYING
COST GAINS LOSSES VALUE VALUE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
HELD TO MATURITY
Municipal bonds...................................... $12,822,540 $ 79,838 $ (7,834) $12,894,544 $12,822,540
U.S. government agencies............................. 10,163,649 343,221 (83,405) 10,423,465 10,163,649
Collateralized mortgage obligations.................. 6,344,349 (79,539) 6,264,810 6,344,349
Mortgage-backed securities........................... 1,590,275 30,253 1,620,528 1,590,275
U.S. Treasury securities............................. 12,963,528 118,197 (17,705) 13,064,020 12,963,528
----------- ----------- ----------- ----------- -----------
TOTAL HELD TO MATURITY........................... 43,884,341 571,509 (188,483) 44,267,367 43,884,341
----------- ----------- ----------- ----------- -----------
AVAILABLE FOR SALE
U.S. Treasury securities............................. 35,991,949 157,478 (19,430) 36,129,997 36,129,997
U.S. government agencies............................. 4,002,813 5,791 (630) 4,007,974 4,007,974
----------- ----------- ----------- ----------- -----------
Total available for sale......................... 39,994,762 163,269 (20,060) 40,137,971 40,137,971
----------- ----------- ----------- ----------- -----------
Non-debt securities.................................. 957,854 -- -- 957,854 957,854
----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT SECURITIES...................... $84,836,957 $ 734,778 $(208,543) $85,363,192 $84,980,166
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The amortized cost and estimated market value of debt securities at December
31, 1997, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
---------------------------- ----------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Due in one year or less................................... $ 14,081,102 $ 14,101,738 $ 20,848,200 $ 20,859,897
Due after one year through five years..................... 48,868,520 49,500,411 17,023,422 17,099,009
Due after five years through ten years.................... 106,555 102,583 -- --
Due after ten years....................................... 225,972 233,500 -- --
------------- ------------- ------------- -------------
TOTAL................................................... 63,282,149 63,938,232 37,871,622 37,958,906
Collateralized mortgage obligations....................... 13,787,531 13,793,420 -- --
Mortgage-backed securities................................ 8,980,091 9,002,166 -- --
------------- ------------- ------------- -------------
TOTAL DEBT SECURITIES................................... $ 86,049,771 $ 86,733,818 $ 37,871,622 $ 37,958,906
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Included in the carrying value of held to maturity securities is $204,373 of
unrealized loss related to U.S. government agency securities that were
transferred to held to maturity in 1994.
During 1997, the Bank sold investment securities for a realized gain of
$59,871. There were no gains or losses on sales of investments during 1996 and
there was a $32,000 realized gain in 1995.
Except for the U.S. Treasury and certain U.S. government agency securities,
the Bank does not own any investment securities of any one issuer of which
aggregate adjusted cost exceeds 10% of shareholders' equity at December 31,
1997. Investment securities with an amortized cost of $5,040,219 and an
estimated
F-39
<PAGE>
PENINSULA BANK OF SAN DIEGO
NOTES TO PENINSULA FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
2. INVESTMENT SECURITIES (CONTINUED)
market value of $5,090,930 at December 31, 1997, were pledged to secure public
deposits and securities sold under repurchase agreements and for other purposes
required or permitted by law.
Income from mortgage-backed securities is included in interest from U.S.
government agencies in the statements of income.
3. LOANS
The loan portfolio consists of loans held for investment made principally to
borrowers located in the County of San Diego, California and is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Commercial....................................................................... $ 48,145,895 $ 43,156,520
Consumer....................................................................... 29,123,882 27,708,823
Real estate.................................................................... 166,328,105 152,940,790
Construction................................................................... 18,866,406 19,375,523
Business lease financing....................................................... 1,258,754 1,137,777
-------------- --------------
TOTAL........................................................................ 263,723,042 244,319,433
Less:
Undisbursed amounts.............................................................. (11,475,829) (14,277,872)
Loan participations sold......................................................... (16,842,898) (16,631,711)
Unamortized deferred loan fees................................................... (848,578) (808,079)
Allowance for credit losses...................................................... (2,357,543) (2,150,420)
-------------- --------------
Loans, Net....................................................................... $ 232,198,194 $ 210,451,351
-------------- --------------
-------------- --------------
</TABLE>
F-40
<PAGE>
PENINSULA BANK OF SAN DIEGO
NOTES TO PENINSULA FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3. LOANS (CONTINUED)
A summary of changes in the Bank's allowance for credit losses follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year............................................ $ 2,150,420 $ 1,853,146 $ 1,897,557
Loans and leases charged off:
Real estate mortgage.................................................. 335,692 5,000 92,238
Real estate construction..............................................
Commercial............................................................ 80,141 239,724 138,482
Installment and others.................................................. 95,774 132,758 301,778
------------ ------------ ------------
TOTAL LOANS CHARGED OFF............................................. 511,607 377,482 532,498
Recoveries on loans and leases charged off:
Real estate mortgage.................................................. 17,500 -- --
Real estate construction
Commercial............................................................ 149,479 81,663 3,664
Installment and others................................................ 53,612 26,789 13,945
------------ ------------ ------------
TOTAL RECOVERIES ON LOANS CHARGED OFF............................. 220,591 108,452 17,609
------------ ------------ ------------
Net loans charged off................................................. 291,016 269,030 514,889
------------ ------------ ------------
Provision charged to operating expense.................................. 498,139 566,304 470,478
------------ ------------ ------------
Balance at end of year.................................................. $ 2,357,543 $ 2,150,420 $ 1,853,146
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
At December 31, 1997 and 1996 the bank had approximately $27,834 and $9,000,
respectively, of loans that were ninety days or more past due on which interest
was still being accrued. There were no loans at December 31, 1997 and 4 real
estate mortgage loans at December 31, 1996 totaling $1,162,577 on which interest
was not being accrued. There were no loans included in the loan portfolio at
December 31, 1997 or 1996 which are considered troubled-debt restructurings.
Impaired loans, as defined by SFAS No. 114, totaled $211,596 and $946,951 at
December 31, 1997 and 1996, respectively. These loans have specific allowances
for possible losses of $62,048 and $450,238 at December 31, 1997 and 1996,
respectively. The Bank's average investment in impaired loans was $231,710 and
$971,454 during the years ended December 31, 1997 and 1996, respectively.
Interest income recognized on impaired loans was approximately $24,060, $61,740
and $89,044 during the years ended December 31, 1997, 1996 and 1995,
respectively.
At December 31, 1997 and 1996 impaired loans and the specific loan loss
allowance were as follows:
<TABLE>
<CAPTION>
RECORDED ALLOWANCE FOR LOAN
INVESTMENT AND LEASE LOSSES NET INVESTMENT
----------- ------------------ --------------
<S> <C> <C> <C>
1997 with specific allowances.................................... $ 211,596 $ 62,048 $ 149,548
----------- -------- --------------
----------- -------- --------------
1996 with specific allowances.................................... $ 946,951 $ 450,238 $ 496,613
----------- -------- --------------
----------- -------- --------------
</TABLE>
In the normal course of business, the Bank has made loans to certain
directors, officers and their affiliates under terms consistent with the Bank's
normal lending policies. Such loans aggregated approximately $8,254,000 and
$7,280,000 at December 31, 1997 and 1996, respectively.
F-41
<PAGE>
PENINSULA BANK OF SAN DIEGO
NOTES TO PENINSULA FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3. LOANS (CONTINUED)
An analysis of activity with respect to these related party loans is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
------------ ------------- ------------
<S> <C> <C> <C>
Beginning balance..................................................... $ 7,280,000 $ 7,408,000 $ 4,890,000
New loans............................................................. 3,979,000 1,249,000 3,308,000
Repayments/reductions................................................. (3,005,000) (1,377,000) (790,000)
------------ ------------- ------------
Ending balance........................................................ $ 8,254,000 $ 7,280,000 $ 7,408,000
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
The Bank has $38,457,920 in loans pledged and $1,031,600 of equity stock in
the Federal Home Loan Bank of San Francisco. There were no borrowings from the
Federal Home Loan Bank of San Francisco as of December 31, 1997 and 1996.
Included in other assets is $258,700 and $485,000 in real estate acquired in
the settlement of loans at December 31, 1997 and 1996, respectively.
F-42
<PAGE>
PENINSULA BANK OF SAN DIEGO
NOTES TO PENINSULA FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4. PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Land and improvements.............................................................. $ 4,213,351 $ 3,918,293
Buildings.......................................................................... 7,727,536 7,470,091
Furniture, fixtures and equipment.................................................. 6,439,884 5,978,130
Total.......................................................................... 18,380,771 17,366,514
Less accumulated depreciation and amortization..................................... (6,866,670) (6,345,772)
------------- -------------
Premises and equipment--net........................................................ $ 11,514,101 $ 11,020,742
------------- -------------
------------- -------------
</TABLE>
5. DEPOSITS
Deposits at December 31 are as follows:
<TABLE>
<CAPTION>
AMOUNT RATE* AMOUNT RATE*
-------------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Demand........................................................ $ 121,657,119 $ 91,967,808
Savings....................................................... 158,203,277 2.01% 136,780,883 2.01%
Time
Under $100,000.............................................. 53,911,764 5.13% 44,525,588 5.01%
$100,000 or more............................................ 44,036,352 5.41% 33,912,970 5.28%
Individual retirement accounts:
Under $100,000.............................................. 7,603,262 5.47% 7,954,507 5.28%
$100,000 or more............................................ 3,820,199 5.98% 3,567,267 5.65%
-------------- --------------
TOTAL....................................................... $ 389,231,973 $ 318,709,023
-------------- --------------
-------------- --------------
</TABLE>
- ------------------------
* Based on weighted average stated interest rates.
The maturities of certificates of deposit in amounts of $100,000 or more at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Three months or less............................................................... $ 28,163,550 $ 19,801,169
Four through six months............................................................ 6,629,620 6,584,796
Seven through twelve months........................................................ 7,124,376 6,272,198
Thereafter......................................................................... 2,118,806 1,254,807
------------- -------------
Total.......................................................................... $ 44,036,352 $ 33,912,970
------------- -------------
------------- -------------
</TABLE>
Interest expense for certificates of deposit in excess of $100,000 was
$2,243,000, $1,743,000 and $1,569,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
F-43
<PAGE>
PENINSULA BANK OF SAN DIEGO
NOTES TO PENINSULA FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
6. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Current
Federal............................................................... $ 1,625,191 $ 1,403,902 $ 852,349
State................................................................. 619,970 591,808 470,281
------------ ------------ ------------
2,245,161 1,995,710 1,322,630
Deferred
Federal............................................................... (396,537) (86,677) 111,451
State................................................................. (140,710) (32,208) (13,693)
------------ ------------ ------------
(537,247) (118,885) 97,758
------------ ------------ ------------
Total............................................................... $ 1,707,914 $ 1,876,825 $ 1,420,388
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Deferred taxes are provided for the temporary differences which caused them.
Deferred tax assets and liabilities at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets
Allowance for credit losses......................................................... $ 850,451 $ 733,758
Retirement accrual.................................................................. 711,462 190,911
State taxes......................................................................... 77,770 112,789
Unrealized loss on available for sale securities.................................... 48,692 80,316
Other............................................................................... 4,919 5,292
------------ ------------
TOTAL DEFERRED TAX ASSETS......................................................... 1,693,294 1,123,066
------------ ------------
Deferred tax liabilities
Depreciable assets.................................................................. 545,896 542,478
Prepaid insurance................................................................... 22,239 11,052
Other............................................................................... 50,000
------------ ------------
TOTAL DEFERRED TAX LIABILITIES.................................................... 618,135 553,530
------------ ------------
Net deferred tax asset................................................................ $ 1,075,159 $ 569,536
------------ ------------
------------ ------------
</TABLE>
F-44
<PAGE>
PENINSULA BANK OF SAN DIEGO
NOTES TO PENINSULA FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
6. INCOME TAXES (CONTINUED)
The provision for federal income taxes differs from the amount computed by
applying the federal income tax statutory rate on income as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Taxes calculated at statutory rate...................................... $ 1,804,943 $ 1,725,702 $ 1,347,341
Increase (decrease) resulting from
Tax-exempt interest................................................... (162,039) (185,404) (244,017)
State income tax, net of federal tax benefit.......................... 316,311 369,336 301,349
Other, net............................................................ (251,301) (32,809) 15,715
------------ ------------ ------------
TOTAL............................................................... $ 1,707,914 $ 1,876,825 $ 1,420,388
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
7. PENSION PLAN
The Bank has a defined contribution retirement plan covering substantially
all employees. Employees electing to participate in the plan contribute an
amount ranging from 2% to 6% of their compensation which is matched by the Bank.
Contributions are invested in individual accounts designated by the employee and
administered by an insurance company. In addition, the Bank has an executive
retirement plan which is partially unfunded and partially financed through an
insurance program. The costs for both of these plans were approximately
$404,000, $353,000 and $313,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
8. COMMITMENTS AND CONTINGENCIES
LEASES--The Bank has entered into operating leases for the rental of certain
of its premises. Minimum future rental commitments as of December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
RENT SUBLEASE
EXPENSE INCOME NET
------------ ------------ ------------
<S> <C> <C> <C>
1998.................................................................... $ 512,197 $ (57,444) $ 454,753
1999.................................................................... 506,290 (57,444) 448,846
2000.................................................................... 429,684 (29,236) 400,448
2001.................................................................... 377,004 (22,836) 354,168
2002.................................................................... 317,577 (7,612) 309,965
Thereafter (through 2021)............................................... 2,476,325 2,476,325
------------ ------------ ------------
TOTAL............................................................... $ 4,619,077 $ (174,572) $ 4,444,505
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Certain leases provide for renewal options and increases in rental amounts
based upon changes in the consumer price index. The Bank is also responsible for
taxes, insurance and maintenance.
Rent expense under all noncancellable operating lease obligations aggregated
$622,000, $631,000 and $563,000 for the years ended December 31, 1997, 1996 and
1995, respectively. Rents received on noncancellable sublease agreements
aggregated $288,000, $302,000 and $286,000 for these years, respectively.
F-45
<PAGE>
PENINSULA BANK OF SAN DIEGO
NOTES TO PENINSULA FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
On an infrequent basis, Peninsula has purchased overnight federal funds to
facilitate payment for incoming cash letters that are collected through the
Federal Reserve Bank. For the years ended 1997, 1996 and 1995, the average
Federal Funds purchased was $136 thousand, $309 thousand and $369 thousand,
respectively. To facilitate this requirement, Union Bank of California has
extended to Peninsula an overnight line of credit with a maximum credit limit of
$10 million. At December 31, 1997, 1996 and 1995, Peninsula had no outstanding
liability under this agreement. In addition, Peninsula has an agreement with the
Federal Home Loan Bank of San Francisco for extensions of credit to a maximum of
$31.1 million secured by qualifying first lien real estate mortgages. Peninsula
has not exercised this option during the years ended December 31, 1997, 1996 and
1995.
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include undisbursed commitments to lend and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the balance
sheet. The Bank's exposure to credit loss in the event of nonperformance by the
other party to standby letters of credit is represented by the contractual
amount of those instruments. At December 31, 1997, the Bank had obligations
under standby letters of credit of $1,594,483.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing agreements, including
commercial paper, bond financing, and similar transactions. Standby letters of
credit are generally written for a term of one year.
The Bank uses the same credit policies in making commitments and conditional
commitments as it does for extending loan facilities to customers. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The
agreements with the customers normally require collateral. Such collateral held
varies but may include cash on deposit, accounts receivable, inventory,
property, plant and equipment, and real estate.
10. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulatory about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets
F-46
<PAGE>
PENINSULA BANK OF SAN DIEGO
NOTES TO PENINSULA FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
10. REGULATORY MATTERS (CONTINUED)
(as defined). Management believes, as of December 31, 1997, that the Bank meets
all capital adequacy requirements to which it is subject.
As of December 31, 1997 and 1996, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as
set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
TO BE CATEGORIZED
AS WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------------ ------------------------ ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------- --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk Weighted Assets)... $ 27,684,044 11.58% $ 19,255,224 8.0% $ 24,069,031 10.0%
Tier I Capital (to Risk Weighted
Assets)................................. $ 25,326,502 10.60% $ 9,627,612 4.0% $ 14,441,418 6.0%
Tier I Capital (to Average Assets)........ $ 25,326,502 5.97% $ 16,974,560 4.0% $ 21,218,200 5.0%
As of December 31, 1996:
Total Capital (to Risk Weighted Assets)... $ 24,677,307 11.76% $ 16,777,440 8.0% $ 20,971,799 10.0%
Tier I Capital (to Risk Weighted
Assets)................................. $ 22,526,887 10.74% $ 8,388,720 4.0% $ 12,583,079 6.0%
Tier I Capital (to Average Assets)........ $ 22,526,887 6.51% $ 13,835,128 4.0% $ 17,293,910 5.0%
</TABLE>
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, 'Disclosures about Fair Value of Financial Instruments,'
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Bank.
The Bank had no derivative financial instruments at December 31, 1997 and
1996.
F-47
<PAGE>
PENINSULA BANK OF SAN DIEGO
NOTES TO PENINSULA FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used by the Bank in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance
sheet for cash and federal funds sold approximate those assets' fair values.
The Company's policy is to treat all investments with an original maturity
date of less than 90 days as cash equivalents.
INVESTMENT SECURITIES (INCLUDING MORTGAGE-BACKED AND NON-DEBT SECURITIES):
Fair values for investment securities are based on quoted market prices.
LOANS RECEIVABLE: For variable-rate loans that reprice frequently and with
no significant change in credit risk, fair values are based on carrying
values. The fair values for certain mortgage loans (e.g., one-to-four family
residential), credit card loans, and other consumer loans are based on
quoted market prices of similar loans, adjusted for differences in loan
characteristics. The fair values for other loans (e.g., commercial real
estate and rental property mortgage loans, commercial and industrial loans,
and financial institution loans) are estimated using discounted cash flow
analyses and using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. The carrying amount of
accrued interest approximates its fair value.
DEPOSIT LIABILITIES: The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, passbook savings, and certain types of
money market accounts) are, by definition, equal to the amount payable on
demand at the reporting date (i.e. their carrying amounts). The carrying
amounts for variable-rate, fixed-term money market accounts and certificates
of deposits approximate their fair values at the reporting date. Fair values
for fixed-rate certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on time
deposits.
The estimated fair values of the Bank's financial instruments are as
follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
CARRYING FAIR AMOUNT VALUE CARRYING FAIR AMOUNT VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents.......................... $ 39,614,388 $ 39,614,388 $ 28,483,548 $ 28,483,548
Investment securities.............................. 125,040,631 125,724,678 84,980,166 85,363,192
Loans, Net......................................... 232,198,194 229,383,938 210,451,351 209,809,135
-------------- -------------- -------------- --------------
Total............................................ $ 396,853,213 $ 394,723,004 $ 323,915,065 $ 323,655,875
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Financial liabilities:
Deposits........................................... $ 389,231,973 $ 389,979,306 $ 318,709,023 $ 319,157,367
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
Fair values of the Bank's commitments approximate cost.
The Bank has 52,712,000 and 49,974,000 in commitments as of December 31,
1997 and 1996, respectively.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1997 and 1996. Although management is
not aware of any factors that would
F-48
<PAGE>
PENINSULA BANK OF SAN DIEGO
NOTES TO PENINSULA FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
significantly affect the estimated fair value amounts, such amounts have not
been significantly reevaluated for purposes of these financial statements since
that date and, therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
12. SUBSEQUENT EVENT
On February 24, 1998, the Bank's Board of Directors declared a two for one
stock split which became effective March 27, 1998. On June 22, 1998, the Bank's
Board of Directors declared a 5% stock dividend which became effective July 24,
1998. All references to number of shares and per share amounts have been
retroactively restated to reflect the increased number of shares outstanding.
On July 24, 1998, the Bank executed and delivered an Agreement and Plan of
Merger with Western Bancorp ('Western') and Portola Merger Sub ('Sub'), pursuant
to which the Bank will merge with Sub and become a wholly owned subsidiary of
Western. Each outstanding share of common stock of the Bank is expected to be
converted into 1.179 shares of Western's common stock.
Western Bancorp is a bank holding company with primary market areas in the
Counties of Los Angeles, Orange and San Diego. The held banks are full-service
community banks. The merger is expected to be accounted for as a pooling of
interests. The merger is subject to shareholder and regulatory approval and is
expected to become effective late in the fourth quarter of 1998 or early in the
first quarter of 1999.
F-49
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF JULY 24, 1998
BY AND AMONG
WESTERN BANCORP
PORTOLA MERGER SUB
AND
PENINSULA BANK OF SAN DIEGO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C> <C>
RECITALS...................................................................................................... 3
ARTICLE I
Certain Definitions
1.01 CERTAIN DEFINITIONS................................................................................ 3
ARTICLE II
The Merger
2.01 THE MERGER......................................................................................... 7
2.02 EFFECTIVE DATE AND EFFECTIVE TIME.................................................................. 7
ARTICLE III
Consideration; Exchange Procedures
3.01 MERGER CONSIDERATION............................................................................... 8
3.02 RIGHTS AS SHAREHOLDERS; STOCK TRANSFERS............................................................ 9
3.03 FRACTIONAL SHARES.................................................................................. 9
3.04 EXCHANGE PROCEDURES................................................................................ 9
3.05 ANTI-DILUTION PROVISIONS........................................................................... 10
ARTICLE IV
Actions Pending Acquisition
4.01 FORBEARANCES OF PENINSULA.......................................................................... 10
4.02 FORBEARANCES OF WESTERN............................................................................ 12
ARTICLE V
Representations and Warranties
5.01 DISCLOSURE SCHEDULE................................................................................ 12
5.02 STANDARD........................................................................................... 13
5.03 REPRESENTATIONS AND WARRANTIES OF PENINSULA........................................................ 13
5.04 REPRESENTATIONS AND WARRANTIES OF WESTERN.......................................................... 20
ARTICLE VI
Covenants
6.01 REASONABLE BEST EFFORTS............................................................................ 23
6.02 SHAREHOLDER APPROVAL............................................................................... 23
6.03 REGISTRATION STATEMENT............................................................................. 23
6.04 PRESS RELEASES..................................................................................... 24
6.05 ACCESS; INFORMATION................................................................................ 24
6.06 ACQUISITION PROPOSALS.............................................................................. 24
6.07 AFFILIATE AGREEMENTS............................................................................... 25
6.08 BOARD ATTENDANCE................................................................................... 25
6.09 CERTAIN POLICIES................................................................................... 25
6.10 NASDAQ LISTING..................................................................................... 25
6.11 REGULATORY APPLICATIONS............................................................................ 25
6.12 INDEMNIFICATION; DIRECTOR AND OFFICERS' INSURANCE.................................................. 26
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C> <C>
6.13 BENEFIT PLAN....................................................................................... 27
6.14 ACCOUNTANTS' LETTERS............................................................................... 27
6.15 NOTIFICATION OF CERTAIN MATTERS.................................................................... 27
6.16 SHAREHOLDER AGREEMENTS............................................................................. 27
6.17 PENINSULA NAME..................................................................................... 27
6.18 EMPLOYEE AGREEMENTS................................................................................ 28
ARTICLE VII
Conditions to Consummation of the Merger
7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER......................................... 28
7.02 CONDITIONS TO OBLIGATION OF PENINSULA.............................................................. 28
7.03 CONDITIONS TO OBLIGATION OF WESTERN................................................................ 29
ARTICLE VIII
Termination
8.01 TERMINATION........................................................................................ 30
8.02 EFFECT OF TERMINATION AND ABANDONMENT.............................................................. 31
8.03 TERMINATION FEE.................................................................................... 31
ARTICLE IX
Miscellaneous
9.01 SURVIVAL........................................................................................... 32
9.02 WAIVER; AMENDMENT.................................................................................. 32
9.03 COUNTERPARTS....................................................................................... 32
9.04 GOVERNING LAW; WAIVER OF JURY TRIAL................................................................ 32
9.05 EXPENSES........................................................................................... 32
9.06 NOTICES............................................................................................ 32
9.07 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES................................................. 33
9.08 INTERPRETATION; EFFECT............................................................................. 33
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT A Form of Affiliate Agreement
EXHIBIT B Form of Directors' Shareholder Agreement
EXHIBIT C Form of Officers' Shareholder Agreement
</TABLE>
A-2
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of July 24, 1998 (this "AGREEMENT"),
by and among Peninsula Bank of San Diego ("PENINSULA"), Western Bancorp
("WESTERN") and Portola Merger Sub ("Merger Sub").
RECITALS
A. PENINSULA BANK OF SAN DIEGO. Peninsula is a California corporation,
having its principal place of business in San Diego, California.
B. WESTERN BANCORP. Western is a California corporation, having its
principal place of business in Newport Beach, California.
C. PORTOLA MERGER SUB. Merger Sub is a California corporation and a wholly
owned subsidiary of Western.
D. STOCK OPTION AGREEMENT. Concurrently herewith, Peninsula and Western
are entering into a stock option agreement (the "STOCK OPTION AGREEMENT"), to be
dated the date hereof, whereby Peninsula will grant to Western the option to
purchase up to 19.9% of the outstanding shares of the Peninsula Common Stock
upon the occurrence of certain events.
E. INTENTIONS OF THE PARTIES. It is the intention of the parties to this
Agreement that the business combination contemplated hereby be accounted for
under the "pooling-of-interests" accounting method and be treated as a
"reorganization" under Section 368 of the Internal Revenue Code of 1986 as
amended (the "CODE").
F. BOARD ACTION. The respective Boards of Directors of each of Western and
Peninsula have determined that it is in the best interests of their respective
companies and their shareholders to consummate the strategic business
combination transaction provided for herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01 CERTAIN DEFINITIONS. The following terms are used in this Agreement
with the meanings set forth below:
"ACQUISITION PROPOSAL" means any tender or exchange offer, proposal for
a merger, consolidation or other business combination involving Peninsula or
any of its Subsidiaries or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets or
deposits of, Peninsula or any of its Subsidiaries, other than the
transactions contemplated by this Agreement.
"AGREEMENT" means this Agreement, as amended or modified from time to
time in accordance with Section 9.02.
"AVERAGE PRICE" has the meaning set forth in Section 3.01(a).
"BENEFIT PLANS" has the meaning set forth in Section 5.03(m).
"BUSINESS COMBINATION" has the meaning set forth in Section 3.05.
"BKX INDEX PERCENTAGE" has the meaning set forth in Section 8.01(f).
"CGCL" means the California General Corporation law.
A-3
<PAGE>
"CALIFORNIA SECRETARY" means the California Secretary of State.
"CODE" has the meaning set forth in the recitals.
"COMMISSIONER" means the California Commissioner of Financial
Institutions.
"COMPUTER SYSTEM" has the meaning set forth in Section 5.03(o).
"COSTS" has the meaning set forth in Section 6.12(a).
"DAILY TRADES" has the meaning set forth in Section 3.01(a).
"DETERMINATION PERIOD" has the meaning set forth in Section 3.01(a).
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 5.01.
"DISSENTERS' SHARES" means shares of Peninsula Common Stock with
respect to which the holder or holders thereof perfect their rights to
dissent under Chapter 13 of the CGCL.
"DISSENTING SHAREHOLDERS" means holders of shares of Peninsula Common
Stock who perfect their rights to dissent under Chapter 13 of the CGCL.
"EFFECTIVE DATE" means the date on which the Effective Time occurs.
"EFFECTIVE TIME" means the effective time of the Merger, as provided
for in Section 2.02.
"EMPLOYEES" has the meaning set forth in Section 5.03(m).
"ENVIRONMENTAL LAW" has the meaning set forth in Section 5.03(p).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" has the meaning set forth in Section 5.03(m).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"EXCHANGE AGENT" has the meaning set forth in Section 3.04.
"EXCHANGE FUND" has the meaning set forth in Section 3.04.
"EXCHANGE RATIO" has the meaning set forth in Section 3.01.
"EXECUTIVES" has the meaning set forth in Section 6.18.
"FDIC" means the Federal Deposit Insurance Corporation.
"FEDERAL RESERVE" means the Board of Governors of the Federal Reserve
System.
"GAAP" has the meaning set forth in Section 5.03(g).
"GOVERNMENTAL AUTHORITY" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"HAZARDOUS SUBSTANCE" has the meaning set forth in Section 5.03(p).
"INDEMNIFIED PARTIES" has the meaning set forth in Section 6.12(a).
"INSURANCE POLICIES" has the meaning set forth in Section 5.03(t).
A-4
<PAGE>
"LIENS" means any charge, mortgage, pledge, security interest,
restriction, claim, lien or encumbrance.
"LOAN PROPERTY" has the meaning set forth in Section 5.03(p).
"MATERIAL ADVERSE EFFECT" means, with respect to Western or Peninsula,
any effect that (i) is material and adverse to the financial position,
results of operations or business of Western and its Subsidiaries taken as a
whole or Peninsula and its Subsidiaries taken as a whole, respectively, or
(ii) would materially impair the ability of either Western or Peninsula to
perform its obligations under this Agreement or otherwise materially
threaten or materially impede the consummation of the Merger and the other
transactions contemplated by this Agreement; PROVIDED, HOWEVER, that
Material Adverse Effect shall not be deemed to include the impact of (a)
changes in banking and similar laws of general applicability or
interpretations thereof by courts or governmental authorities, (b) changes
in generally accepted accounting principles or regulatory accounting
requirements applicable to banks and their holding companies generally and
(c) any modifications or changes to valuation policies and practices in
connection with the Merger or restructuring charges taken in connection with
the Merger, in each case in accordance with generally accepted accounting
principles.
"MAXIMUM AMOUNT" has the meaning set forth in Section 6.12(c).
"MERGER" has the meaning set forth in Section 2.01.
"MERGER CONSIDERATION" has the meaning set forth in Section 2.01.
"MERGER SUB" has the meaning set forth in the preamble to this
Agreement.
"MERGER SUB COMMON STOCK" means the common stock, par value $.01 per
share, of Merger Sub.
"MULTIEMPLOYER PLANS" has the meaning set forth in Section 5.03(m).
"NASDAQ" means The Nasdaq Stock Market, Inc.'s National Market.
"NEW CERTIFICATES" has the meaning set forth in Section 3.04.
"OLD CERTIFICATES" has the meaning set forth in Section 3.04.
"PENINSULA" has the meaning set forth in the preamble to this
Agreement.
"PENINSULA AFFILIATE" has the meaning set forth in Section 6.07(a).
"PENINSULA ARTICLES" means the Articles of Incorporation of Peninsula.
"PENINSULA BOARD" means the Board of Directors of Peninsula.
"PENINSULA BY-LAWS" means the By-laws of Peninsula.
"PENINSULA COMMON STOCK" means the common stock, no par value per
share, of Peninsula.
"PENINSULA MEETING" has the meaning set forth in Section 6.02.
"PENINSULA STOCK DIVIDEND" means the Previously Disclosed 5% dividend
on Peninsula Common Stock, declared by the Peninsula Board on June 23rd,
1998, payable on or about July 24, 1998.
"PENSION PLAN" has the meaning set forth in Section 5.03(m).
"PERSON" means any individual, bank, corporation, partnership,
association, joint-stock company, business trust or unincorporated
organization.
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"PLANS" has the meaning set forth in Section 5.03(m).
"PREVIOUSLY DISCLOSED" by a party shall mean information set forth in
its Disclosure Schedule.
"PROXY STATEMENT" has the meaning set forth in Section 6.03.
"REGISTRATION STATEMENT" has the meaning set forth in Section 6.03.
"REGULATORY AGENCIES" has the meaning set forth in Section 5.03(g).
"REGULATORY APPROVAL DATE" means the date which is the later to occur
of approval by (i) the FDIC pursuant to the Bank Merger Act, and (ii) the
Commissioner pursuant to Section 700 ET. SEQ. of the California Financial
Code.
"REGULATORY AUTHORITY" has the meaning set forth in Section 5.03(g)(2).
"REGULATORY DOCUMENTS" means documents filed with the SEC of the types
referred to in Section 5.04(g).
"REPRESENTATIVES" means, with respect to any Person, such Person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
"RIGHTS" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person
any right to subscribe for or acquire, or any options, calls or commitments
relating to, or any stock appreciation right or other instrument the value
of which is determined in whole or in part by reference to the market price
or value of, shares of capital stock of such Person.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
rules and regulations thereunder.
"SHAREHOLDER AGREEMENTS" has the meaning set forth in Section 6.16.
"STOCK OPTION AGREEMENT" has the meaning set forth in the Recitals.
"SUBSIDIARY" and "SIGNIFICANT SUBSIDIARY" have the meanings ascribed to
them in Rule 1-02 of Regulation S-X of the SEC.
"SURVIVING CORPORATION" has the meaning set forth in Section 2.01.
"TAX" and "TAXES" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gains, gross receipts,
sales, use, ad valorem, goods and services, capital, production, transfer,
franchise, windfall profits, license, withholding, payroll, employment,
disability, employer health, excise, estimated, severance, stamp,
occupation, property, environmental, unemployment or other taxes, custom
duties, fees, assessments or charges of any kind whatsoever, together with
any interest and any penalties, additions to tax or additional amounts
imposed by any taxing authority whether arising before, on or after the
Effective Date.
"TAX RETURNS" means any return, amended return or other report
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be filed with respect to any Tax.
"TEN DAY AVERAGE KEEFE BANK INDEX" has the meaning set forth in Section
8.01(f).
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"TEN DAY AVERAGE PRICE" has the meaning set forth in Section 8.01(f).
"TEN DAY PERIOD" has the meaning set forth in Section 8.01(f).
"TRADING DAY" has the meaning set forth in Section 3.01(a).
"TREASURY STOCK" shall mean shares of Peninsula Common Stock held by
Peninsula or any of its Subsidiaries or by Western or any of its
Subsidiaries, in each case other than in a fiduciary (including custodial or
agency) capacity or as a result of debts previously contracted in good
faith.
"WESTERN" has the meaning set forth in the preamble to this Agreement.
"WESTERN BOARD" means the Board of Directors of Western.
"WESTERN COMMON STOCK" means the common stock, no par value per share,
of Western.
"WESTERN COMMON STOCK PRICE PERCENTAGE" has the meaning set forth in
Section 8.01(f).
"YEAR 2000 COMPLIANT" has the meaning set forth in Section 5.03(o).
ARTICLE II
THE MERGER
2.01 THE MERGER. (a) At the Effective Time, Merger Sub shall merge with
and into Peninsula (the "MERGER"), the separate corporate existence of Merger
Sub shall cease and Peninsula shall survive and continue to exist as a
California corporation (Peninsula, as the surviving corporation in the Merger,
sometimes being referred to herein as the "SURVIVING CORPORATION"). Western may
at any time prior to the Effective Time change the method of effecting the
combination with Peninsula (including, without limitation, the provisions of
this Article II) if and to the extent it deems such change to be necessary,
appropriate or desirable; PROVIDED, HOWEVER, that no such change shall (i) alter
or change the amount or kind of consideration to be issued to holders of
Peninsula Common Stock as provided for in this Agreement (the "MERGER
CONSIDERATION"), (ii) adversely affect the tax treatment of Peninsula's
shareholders as a result of receiving the Merger Consideration or (iii)
materially impede or delay consummation of the transactions contemplated by this
Agreement.
(b) Subject to the satisfaction or waiver of the conditions set forth in
Article VII, the Merger shall become effective upon the occurrence of the filing
in the office of the California Secretary of an agreement of merger in
accordance with the CGCL or such later date and time as may be set forth in such
agreement. The Merger shall have the effects prescribed in the CGCL.
(c) ARTICLES OF INCORPORATION AND BY-LAWS. The articles of incorporation
and by-laws of Peninsula immediately after the Merger, including without
limitation the name of Peninsula, shall be those of Peninsula as in effect
immediately prior to the Effective Time.
(d) DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. At the Effective
Time, the directors of Merger Sub immediately prior to such Effective Time shall
be the directors of the Surviving Corporation and the officers of Peninsula
immediately prior to such Effective Time shall be the officers of the Surviving
Corporation, in each case, until such time as their successors shall be duly
elected or appointed and qualified.
2.02 EFFECTIVE DATE AND EFFECTIVE TIME. On such date as Western selects
(and promptly provides notice thereof to Peninsula), which shall be within ten
days after the last to occur of the expiration of all applicable waiting periods
in connection with approvals of governmental authorities and the receipt of all
approvals of governmental authorities and all conditions to the consummation of
the Merger are satisfied or waived (or, at the election of Western, on the last
business day of the month in which such tenth day occurs or, if such tenth day
occurs on one of the last five business days of such month, on the last business
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day of the succeeding month), or on such earlier or later date as may be agreed
in writing by the parties, an agreement of merger shall be executed in
accordance with all appropriate legal requirements and shall be filed as
required by law, and the Merger provided for herein shall become effective upon
such filing or on such date as may be specified in such agreement of merger. The
date of such filing or such later effective date is herein called the "Effective
Date". The "Effective Time" of the Merger shall be the time of such filing or as
set forth in such agreement of merger.
ARTICLE III
CONSIDERATION; EXCHANGE PROCEDURES
3.01 MERGER CONSIDERATION. Subject to the provisions of this Agreement, at
the Effective Time, automatically by virtue of the Merger and without any action
on the part of any Person:
(a) OUTSTANDING PENINSULA COMMON STOCK. Each share, excluding Treasury
Stock and Dissenters' Shares, of Peninsula Common Stock issued and
outstanding immediately prior to the Effective Time (which shall, at such
time, include shares of Peninsula Common Stock issued pursuant to the
Peninsula Stock Dividend) shall become and be converted into that number of
shares of Western Common Stock, equal to the quotient obtained by dividing
(i) $45.75 by (ii) the Average Price (the "EXCHANGE RATIO"). As used herein,
"AVERAGE PRICE" shall mean the volume weighted average sales price per share
of Western Common Stock for each of the twenty (20) consecutive days (the
"DETERMINATION PERIOD") on which shares of Western Common Stock are actually
traded (each, a "TRADING DAY") immediately preceding the fourth Trading Day
prior to the Effective Date; PROVIDED, HOWEVER, that if the Average Price as
so computed would be less than $38.813, then the Average Price shall be
$38.813; and PROVIDED, FURTHER, that if the Average Price as so computed
would be greater than $47.438, then the Average Price shall be $47.438. The
Exchange Ratio shall be subject to adjustment as set forth in Section 3.05.
For purposes of determining the "volume weighted average", the aggregate of
the Daily Sales for each of the twenty (20) consecutive Trading Days used in
the determination of Average Price shall be divided by the aggregate number
of shares traded during such twenty (20) consecutive Trading Days. As used
herein, "DAILY SALES" means the reported sales prices of Western Common
Stock traded on Nasdaq on a particular Trading Day.
(b) OUTSTANDING WESTERN COMMON STOCK. Each share of Western Common
Stock issued and outstanding immediately prior to the Effective Time shall
remain issued and outstanding and unaffected by the Merger.
(c) OUTSTANDING MERGER SUB COMMON STOCK. Each share of Merger Sub
Common Stock issued and outstanding immediately prior to the Effective Time
shall become and be converted into one share of Peninsula Common Stock.
(d) TREASURY SHARES. Each share of Peninsula Common Stock held as
Treasury Stock immediately prior to the Effective Time shall be canceled and
retired at the Effective Time and no consideration shall be issued in
exchange therefor.
(e) DISSENTING SHAREHOLDERS. Any Dissenting Shareholder who shall be
entitled to be paid the "fair value" of his or her Dissenters' Shares, as
provided in Chapter 13 of the CGCL, shall not be entitled to the Merger
Consideration as set forth in Section 3.01 in respect thereof unless and
until such Dissenting Shareholder shall have failed to perfect or shall have
effectively withdrawn or lost such Dissenting Shareholder's right to dissent
from the Merger under the CGCL, and shall be entitled to receive only the
payment provided for by Chapter 13 of the CGCL with respect to such
Dissenters' Shares. Upon the payment by the Surviving Corporation of the
"fair value" of any Dissenters' Shares in accordance with Chapter 13 of the
CGCL, such Dissenters' Shares shall be canceled and retired and shall cease
to exist, and no exchange or further payment shall be made with respect
thereto. If any Dissenting Shareholder shall fail to perfect or shall have
effectively withdrawn or lost such right to
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dissent, the Dissenters' Shares held by such Dissenting Shareholder shall
thereupon be treated as though such Dissenters' Shares had been converted
into the right to receive the Merger Consideration as set forth in Section
3.01(a) pursuant to such Section 3.01(a).
3.02 RIGHTS AS SHAREHOLDERS; STOCK TRANSFERS. At the Effective Time,
holders of Peninsula Common Stock shall cease to be, and shall have no rights
as, shareholders of Peninsula, other than to receive any dividend or other
distribution with respect to such Peninsula Common Stock with a record date
occurring prior to the Effective Time and the consideration provided under this
Article III. After the Effective Time, there shall be no transfers on the stock
transfer books of Peninsula or the Surviving Corporation of shares of Peninsula
Common Stock.
3.03 FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of Western Common Stock and no certificates or scrip therefor,
or other evidence of ownership thereof, will be issued in the Merger; instead,
Western shall pay to each holder of Peninsula Common Stock who would otherwise
be entitled to a fractional share of Western Common Stock (after taking into
account all Old Certificates delivered by such holder) an amount in cash
(without interest) determined by multiplying such fraction by the average of the
closing prices of Western Common Stock, as reported on Nasdaq (as reported in
THE WALL STREET JOURNAL or, if not reported therein, in another authoritative
source), for the five Nasdaq trading days immediately preceding the Effective
Date.
3.04 EXCHANGE PROCEDURES. (a) At or prior to the Effective Time, Western
shall deposit, or shall cause to be deposited, with such bank or trust company
as Western shall elect (which may include a subsidiary of Western) (in such
capacity, the "EXCHANGE AGENT"), for the benefit of the holders of certificates
formerly representing shares of Peninsula Common Stock ("OLD CERTIFICATES"), for
exchange in accordance with this Article III, certificates representing the
shares of Western Common Stock ("NEW CERTIFICATES") and an estimated amount of
cash (such cash and New Certificates, together with any dividends or
distributions with a record date occurring after the Effective Date with respect
thereto (without any interest on any such cash, dividends or distributions),
being hereinafter referred to as the "EXCHANGE FUND") to be paid pursuant to
this Article III in exchange for outstanding shares of Peninsula Common Stock.
(b) As soon as practicable after the Effective Date, Western shall send or
cause to be sent to each former holder of record of shares of Peninsula Common
Stock immediately prior to the Effective Time transmittal materials for use in
exchanging such shareholder's Old Certificates for the consideration set forth
in this Article III, which transmittal materials Peninsula shall have had the
opportunity to review prior to the Effective Date. Western shall cause the New
Certificates into which shares of a shareholder's Peninsula Common Stock are
converted on the Effective Date and/or any check in respect of any fractional
share interests or dividends or distributions which such person shall be
entitled to receive to be delivered to such shareholder upon delivery to the
Exchange Agent of Old Certificates representing such shares of Peninsula Common
Stock (or an affidavit of lost certificate and, if required by the Exchange
Agent, indemnity reasonably satisfactory to Western and the Exchange Agent, if
any of such certificates are lost, stolen or destroyed) owned by such
shareholder. No interest will be paid on any such cash to be paid in lieu of
fractional share interests or in respect of dividends or distributions which any
such person shall be entitled to receive pursuant to this Article III upon such
delivery. In the event of a transfer of ownership of any shares of Peninsula
Common Stock not registered in the transfer records of Peninsula, the exchange
described in this Section 3.04(b) may nonetheless be effected and a check for
the cash to be paid in lieu of fractional shares may be issued to the transferee
if the Old Certificate representing such Peninsula Common Stock is presented to
the Exchange Agent, accompanied by documents sufficient, in the discretion of
Western and the Exchange Agent, (i) to evidence and effect such transfer but for
the provisions of Section 3.02 hereof and (ii) to evidence that all applicable
stock transfer taxes have been paid.
(c) If Old Certificates are not surrendered or the consideration therefor is
not claimed prior to the date on which such consideration would otherwise
escheat to or become the property of any governmental
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unit or agency, the unclaimed consideration shall, to the extent permitted by
abandoned property and any other applicable law, become the property of the
Surviving Corporation (and to the extent not in its possession shall be paid
over to the Surviving Corporation), free and clear of all claims or interest of
any person previously entitled to such claims. Notwithstanding the foregoing,
neither the Exchange Agent nor any party hereto shall be liable to any former
holder of Peninsula Common Stock for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(d) At the election of Western, no dividends or other distributions with
respect to Western Common Stock with a record date occurring after the Effective
Time shall be paid to the holder of any unsurrendered Old Certificate
representing shares of Peninsula Common Stock converted in the Merger into the
right to receive shares of such Western Common Stock until the holder thereof
shall be entitled to receive New Certificates in exchange therefor in accordance
with the procedures set forth in this Section 3.04, and no such shares of
Peninsula Common Stock shall be eligible to vote until the holder of Old
Certificates is entitled to receive New Certificates in accordance with the
procedures set forth in this Section 3.04. After becoming so entitled in
accordance with this Section 3.04, the record holder thereof also shall be
entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares of
Western Common Stock such holder had the right to receive upon surrender of the
Old Certificate.
(e) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of Peninsula for six months after the Effective Time shall be
returned by the Exchange Agent to Western. Any shareholders of Peninsula who
have not theretofore complied with this Article III shall thereafter look only
to Western for payment of the shares of Western Common Stock, cash in lieu of
any fractional shares and unpaid dividends and distributions on Western Common
Stock deliverable in respect of each share of Peninsula Common Stock such
shareholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon.
3.05 ANTI-DILUTION PROVISIONS. In the event Western changes (or
establishes a record date for changing) the number of shares of Western Common
Stock issued and outstanding prior to the Effective Date as a result of a stock
split, stock dividend, recapitalization or similar transaction with respect to
the outstanding Western Common Stock and the record date therefor shall be prior
to the Effective Date, the Exchange Ratio shall be proportionately adjusted. If,
between the date hereof and the Effective Time, Western shall merge, be acquired
or consolidate with, by or into any other corporation (a "BUSINESS COMBINATION")
and the terms thereof shall provide that Western Common Stock shall be converted
into or exchanged for the shares of any other corporation or entity, then
provision shall be made as part of the terms of such Business Combination so
that shareholders of Peninsula who would be entitled to receive shares of
Western Common Stock pursuant to this Agreement shall be entitled to receive, in
lieu of each share of Western Common Stock issuable to such shareholders as
provided herein, the same kind and amount of securities or assets as shall be
distributable upon such Business Combination with respect to one share of
Western Common Stock (provided that nothing herein shall be construed so as to
release the acquiring entity in any such Business Combination from its
obligations under this Agreement as the successor to Western).
ARTICLE IV
ACTIONS PENDING ACQUISITION
4.01 FORBEARANCES OF PENINSULA. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of Western, Peninsula will not, and will cause each of its
Subsidiaries not to:
(a) ORDINARY COURSE. Conduct the business of Peninsula and its
Subsidiaries other than in the ordinary and usual course or fail to use
reasonable best efforts to preserve intact their business organizations and
assets and maintain their rights, franchises and existing relations with
customers, suppliers, employees and business associates, take any action
that would adversely affect or delay the
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ability of Peninsula or any of its Subsidiaries to perform any of their
obligations on a timely basis under this Agreement, or take any action that
is reasonably likely to have a Material Adverse Effect on Peninsula or its
Subsidiaries, taken as a whole.
(b) CAPITAL STOCK. Other than the payment of the Previously Disclosed
Peninsula Common Stock dividend (i) issue, sell or otherwise permit to
become outstanding, or authorize the creation of, any additional shares of
Peninsula Common Stock or any Rights or (ii) enter into any agreement with
respect to the foregoing.
(c) DIVIDENDS, ETC. (a) Other than the payment of the Peninsula Stock
Dividend and the declaration and payment of regular quarterly cash dividends
of $0.08 per share of Peninsula Common Stock, having declaration, record and
payment dates consistent with past practice, make, declare, pay or set aside
for payment any dividend on or in respect of, or declare or make any
distribution on any shares of Peninsula Common Stock or (b) directly or
indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise
acquire, any shares of its capital stock.
(d) COMPENSATION; EMPLOYMENT AGREEMENTS; ETC. Enter into or amend or
renew any employment, consulting, severance or similar agreements or
arrangements with any director, officer or employee of Peninsula or its
Subsidiaries, or grant any salary or wage increase or increase any employee
benefit (including incentive or bonus payments), except (i) for normal
individual increases in compensation to employees in the ordinary course of
business consistent with past practice, (ii) for other changes that are
required by applicable law, (iii) to satisfy Previously Disclosed
contractual obligations existing as of the date hereof or (iv) for grants of
awards to newly hired employees consistent with past practice.
(e) BENEFIT PLANS. Enter into, establish, adopt or amend (except (i)
as may be required by applicable law or (ii) to satisfy Previously Disclosed
contractual obligations existing as of the date hereof) any pension,
retirement, stock purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, or any trust agreement (or similar
arrangement) related thereto, in respect of any director, officer or
employee of Peninsula or its Subsidiaries, or take any action to accelerate
the vesting or exercisability of any compensation or benefits payable
thereunder.
(f) DISPOSITIONS. Except as Previously Disclosed, sell, transfer,
mortgage, encumber or otherwise dispose of or discontinue any of its assets,
deposits, business or properties except in the ordinary course of business
and in a transaction that is not material to it and its Subsidiaries taken
as a whole.
(g) ACQUISITIONS. Except as Previously Disclosed, acquire (other than
by way of foreclosures or acquisitions of control in a bona fide fiduciary
capacity or in satisfaction of debts previously contracted in good faith, in
each case in the ordinary and usual course of business consistent with past
practice) all or any portion of, the assets, business, deposits or
properties of any other entity except in the ordinary course of business
consistent with past practice and in a transaction that is not material to
Peninsula and its Subsidiaries, taken as a whole.
(h) CAPITAL EXPENDITURES. Except as Previously Disclosed, make any
capital expenditures other than capital expenditures in the ordinary course
of business consistent with past practice in amounts not exceeding $50,000
individually or $100,000 in the aggregate.
(i) GOVERNING DOCUMENTS. Amend the Peninsula Articles, Peninsula
By-Laws or the articles of incorporation or by-laws (or similar governing
documents) of any of Peninsula's Subsidiaries.
(j) ACCOUNTING METHODS. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required
by generally accepted accounting principles.
(k) CONTRACTS. Except in the ordinary course of business consistent
with past practice, enter into or terminate any material contract (as
defined in Section 5.03(k)) or amend or modify in any material respect any
of its existing material contracts.
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(l) CLAIMS. Except in the ordinary course of business consistent with
past practice, settle any claim, action or proceeding, except for any claim,
action or proceeding involving solely money damages in an amount,
individually or in the aggregate for all such settlements, that is not
material to Peninsula and its Subsidiaries, taken as a whole.
(m) ADVERSE ACTIONS. (a) Take any action while knowing that such
action would, or is reasonably likely to, prevent or impede the Merger from
qualifying (i) for "pooling-of-interests" accounting treatment or (ii) as a
reorganization within the meaning of Section 368 of the Code; or (b)
knowingly take any action that is intended or is reasonably likely to result
in (i) any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time at or prior to
the Effective Time, (ii) any of the conditions to the Merger set forth in
Article VII not being satisfied including, but not limited to, any action
which would reasonably be expected to adversely affect or delay the ability
of Western, Peninsula or Merger Sub to obtain any necessary approvals,
consents or waivers of any Regulatory Agencies required for the transactions
contemplated by this Agreement or (iii) a material violation of any
provision of this Agreement, except, in each case, as may be required by
applicable law or regulation .
(n) RISK MANAGEMENT. Except as required by applicable law or
regulation, (i) implement or adopt any material change in its interest rate
and other risk management policies, procedures or practices; (ii) fail to
follow its existing policies or practices with respect to managing its
exposure to interest rate and other risk; or (iii) fail to use commercially
reasonable means to avoid any material increase in its aggregate exposure to
interest rate risk.
(o) INDEBTEDNESS. Incur any indebtedness for borrowed money other than
in the ordinary course of business consistent with past practice.
(p) COMMITMENTS. Agree or commit to do any of the foregoing.
4.02 FORBEARANCES OF WESTERN. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of Peninsula, Western will not, and will cause each of its
Subsidiaries not to:
(a) ORDINARY COURSE. Take any action that would adversely affect or
delay the ability of Peninsula or Western to perform any of their
obligations on a timely basis under this Agreement, or take any action that
is reasonably likely to have a Material Adverse Effect on Western or its
Subsidiaries, taken as a whole.
(b) ADVERSE ACTIONS. (a) Take any action while knowing that such
action would, or is reasonably likely to, prevent or impede the Merger from
qualifying (i) for "pooling-of-interests" accounting treatment or (ii) as a
reorganization within the meaning of Section 368 of the Code; or (b)
knowingly take any action that is intended or is reasonably likely to result
in (i) any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time at or prior to
the Effective Time, (ii) any of the conditions to the Merger set forth in
Article VII not being satisfied including, but not limited to, any action
which would reasonably be expected to adversely affect or delay the ability
of Western, Peninsula or Merger Sub to obtain any necessary approvals,
consents or waivers of any Regulatory Agencies required for the transactions
contemplated by this Agreement or (iii) a material violation of any
provision of this Agreement, except, in each case, as may be required by
applicable law or regulation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 DISCLOSURE SCHEDULE. On or prior to the date hereof, Peninsula has
delivered to Western and Western has delivered to Peninsula a schedule
(respectively, its "DISCLOSURE SCHEDULE") setting forth, among other things,
items the disclosure of which is necessary or appropriate either in response to
an express
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disclosure requirement contained in a provision hereof or as an exception to one
or more representations or warranties contained in Section 5.03 or 5.04;
PROVIDED, that (a) no such item is required to be set forth in a Disclosure
Schedule as an exception to a representation or warranty if its absence would
not be reasonably likely to result in the related representation or warranty
being deemed untrue or incorrect under the standard established by Section 5.02,
and (b) the mere inclusion of an item in a Disclosure Schedule as an exception
to a representation or warranty shall not be deemed an admission by a party that
such item represents a material exception or fact, event or circumstance or that
such item is reasonably likely to result in a Material Adverse Effect.
5.02 STANDARD. No representation or warranty of Peninsula or Western
contained in Section 5.03 or 5.04 shall be deemed untrue or incorrect, and no
party hereto shall be deemed to have breached a representation or warranty, as a
consequence of the existence of any fact, event or circumstance unless such
fact, circumstance or event, individually or taken together with all other
facts, events or circumstances inconsistent with any representation or warranty
contained in Section 5.03 or 5.04 has had or is reasonably likely to have a
Material Adverse Effect on the party making such representation or warranty.
5.03 REPRESENTATIONS AND WARRANTIES OF PENINSULA. Subject to Sections 5.01
and 5.02 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, Peninsula hereby
represents and warrants to Western:
(a) ORGANIZATION, STANDING AND AUTHORITY. Peninsula is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. Peninsula is duly qualified to do business and is in
good standing in the states of the United States and any foreign
jurisdictions where its ownership or leasing of property or assets or the
conduct of its business requires it to be so qualified.
(b) PENINSULA COMMON STOCK. As of the date hereof, the authorized
capital stock of Peninsula consists solely of 10,000,000 shares of Peninsula
Common Stock, of which no more than 2,487,087 shares after giving effect to
the Previously Disclosed Peninsula Stock Dividend shares were outstanding as
of the date hereof. As of the date hereof, no shares of Peninsula Common
Stock were held in treasury by Peninsula or otherwise beneficially owned by
Peninsula or its Subsidiaries. The outstanding shares of Peninsula Common
Stock have been duly authorized and are validly issued and outstanding,
fully paid and nonassessable, subject to no preemptive rights and were not
issued in violation of any preemptive rights. As of the date hereof, there
are no shares of Peninsula Common Stock authorized and reserved for
issuance, Peninsula does not have any Rights issued or outstanding with
respect to Peninsula Common Stock, and Peninsula does not have any
commitment to authorize, issue or sell any Peninsula Common Stock or Rights,
except pursuant to this Agreement and the Stock Option Agreement.
(c) SUBSIDIARIES. (i)(A) Peninsula has Previously Disclosed a list of
all of its Subsidiaries together with the jurisdiction of organization of
each such Subsidiary, (B) Peninsula owns, directly or indirectly, all the
issued and outstanding equity securities of each of its Subsidiaries, (C) no
equity securities of any of its Subsidiaries are or may become required to
be issued (other than to it or its wholly owned Subsidiaries) by reason of
any Right or otherwise, (D) there are no contracts, commitments,
understandings or arrangements by which any of such Subsidiaries is or may
be bound to sell or otherwise transfer any equity securities of any such
Subsidiaries (other than to it or its wholly-owned Subsidiaries), (E) there
are no contracts, commitments, understandings, or arrangements relating to
its rights to vote or to dispose of such securities and (F) all the equity
securities of each Subsidiary held by Peninsula or its Subsidiaries are
fully paid and nonassessable and are owned by Peninsula or its Subsidiaries
free and clear of any Liens.
(ii) Peninsula does not own beneficially, directly or indirectly,
any equity securities or similar interests of any Person, or any interest
in a partnership or joint venture of any kind, other than its
Subsidiaries.
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(iii) Each of Peninsula's Subsidiaries has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of
its organization, and is duly qualified to do business and in good
standing in the jurisdictions where its ownership or leasing of property
or the conduct of its business requires it to be so qualified.
(d) CORPORATE POWER. Peninsula and each of its Subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and Peninsula has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the Stock Option Agreement and to
consummate the transactions contemplated hereby and thereby.
(e) CORPORATE AUTHORITY. Subject in the case of this Agreement to
receipt of the requisite approval of the agreement of merger set forth in
this Agreement by the holders of a majority of the outstanding shares of
Peninsula Common Stock entitled to vote thereon (which is the only
shareholder vote required thereon), this Agreement, the Stock Option
Agreement and the transactions contemplated hereby and thereby have been
authorized by all necessary corporate action of Peninsula and the Peninsula
Board on or prior to the date hereof. This Agreement is a valid and legally
binding obligation of Peninsula, enforceable in accordance with its terms
(except as enforceability may be limited by 12 U.S.C. 1818(b)(6)(D) or
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles). The Peninsula Board has
received the written opinion of NationsBanc Montgomery Securities LLC to the
effect that as of the date hereof the consideration to be received by the
holders of Peninsula Common Stock in the Merger is fair to the holders of
Peninsula Common Stock from a financial point of view.
(f) REGULATORY APPROVALS; NO DEFAULTS. (i) No consents or approvals
of, or filings or registrations with, any Governmental Authority or with any
third party are required to be made or obtained by Peninsula or any of its
Subsidiaries in connection with the execution, delivery or performance by
Peninsula of this Agreement or the Stock Option Agreement or to consummate
the Merger except for (A) filings of applications or notices with the
Commissioner, the FDIC and the Federal Reserve, (B) filings with the SEC and
state securities authorities and the approval of this Agreement by the
shareholders of Peninsula, (C) the filing of an agreement of merger with the
California Secretary pursuant to the CGCL and (D) the permit required under
Section 691 of the California Financial Code with respect to the Stock
Option Agreement. As of the date hereof, Peninsula is not aware of any
reason why the approvals set forth in Section 7.01(b) will not be received
without the imposition of a condition, restriction or requirement of the
type described in Section 7.01(b).
(ii) Subject to receipt of the regulatory approvals referred to in the
preceding paragraph, and the expiration of related waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the Stock Option Agreement
and the consummation of the transactions contemplated hereby and thereby do
not and will not (A) constitute a breach or violation of, or a default
under, or give rise to any Lien, any acceleration of remedies or any right
of termination under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, indenture or instrument
of Peninsula or of any of its Subsidiaries or to which Peninsula or any of
its Subsidiaries or properties is subject or bound, (B) constitute a breach
or violation of, or a default under, the Peninsula Articles or the Peninsula
By-Laws, or (C) require any consent or approval under any such law, rule,
regulation, judgment, decree, order, governmental permit or license,
agreement, indenture or instrument.
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(g) FINANCIAL REPORTS AND REGULATORY DOCUMENTS. (i) The balance sheet
of Peninsula as of December 31, 1997, and the related statements of income,
cash flow and changes in financial position of Peninsula for the year then
ended, audited by Deloitte & Touche LLP, and the call report of Peninsula as
of March 31, 1998 and for the three months then ended, fairly present,
subject in the case of the call report to recurring year-end audit
adjustments normal in nature and amount, the financial position of Peninsula
as of such dates and the results of the operations of Peninsula for the
periods then ended, all in accordance with generally accepted accounting
principles ("GAAP") consistently applied. The call reports to be filed by
Peninsula with the FDIC after the date hereof will comply with applicable
accounting requirements and with the published rules and regulations of the
FDIC with respect thereto; and each of such statements will be prepared in
accordance with GAAP consistently applied during the periods involved,
except as indicated in the notes thereto or as permitted by the call report
forms. The books and records of Peninsula have been, and are being,
maintained in accordance with GAAP and any other applicable legal and
accounting requirements.
(ii) Peninsula has timely filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that they were required to file since December 31, 1996 with (A)
the Federal Reserve, (B) the FDIC, (C) the State of California and (D) the
Commissioner (collectively, the "REGULATORY AGENCIES"), and all other
material reports and statements required to be filed by it since December
31, 1996, including, without limitation, any report or statement required to
be filed pursuant to the laws of the United States or the State of
California and the rules and regulations of the Federal Reserve, the FDIC or
the Commissioner, and has paid all fees and assessments due and payable in
connection therewith. As of their respective dates, such reports,
registrations and statements complied in all material respects with all the
laws, rules and regulations of the applicable Regulatory Agency with which
they were filed.
(iii) Since December 31, 1997, Peninsula and its Subsidiaries have not
incurred any liability other than in the ordinary course of business
consistent with past practice.
(iv) Since December 31, 1997, (A) Peninsula and its Subsidiaries have
conducted their respective businesses in the ordinary and usual course
consistent with past practice (excluding the incurrence of expenses related
to this Agreement and the transactions contemplated hereby) and (B) no event
has occurred or circumstance arisen that, individually or taken together
with all other facts, circumstances and events (described in any paragraph
of Section 5.03 or otherwise), is reasonably likely to have a Material
Adverse Effect with respect to Peninsula.
(v) Peninsula is not, and since December 31, 1996 was not, required to
register the Peninsula Common Stock with the FDIC pursuant to Section 12 of
the Exchange Act.
(h) LITIGATION. No litigation, claim or other proceeding before any
court or governmental agency is pending against Peninsula or any of its
Subsidiaries and, to Peninsula's knowledge, no such litigation, claim or
other proceeding has been threatened.
(i) REGULATORY MATTERS. (i) Neither Peninsula nor any of its
Subsidiaries or any of their properties is a party to or is subject to any
order, decree, agreement, memorandum of understanding or similar arrangement
with, or a commitment letter or similar submission to, or extraordinary
supervisory letter from, any federal or state governmental agency or
authority charged with the supervision or regulation of financial
institutions or issuers of securities or engaged in the insurance of
deposits (including, without limitation, the Commissioner and the FDIC) or
the supervision or regulation of it or any of its Subsidiaries.
(ii) Neither Peninsula nor any of its Subsidiaries has been advised by
any Regulatory Authority that such Regulatory Authority is contemplating
issuing or requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum of understanding,
commitment letter, supervisory letter or similar submission.
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(j) COMPLIANCE WITH LAWS. Peninsula and each of its Subsidiaries:
(i) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders
or decrees applicable thereto or to the employees conducting such
businesses, including, without limitation, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home
Mortgage Disclosure Act and all other applicable fair lending laws and
other laws relating to discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and approvals
of, and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to own
or lease their properties and to conduct their businesses as presently
conducted; all such permits, licenses, certificates of authority, orders
and approvals are in full force and effect and, to Peninsula's knowledge,
no suspension or cancellation of any of them is threatened; and
(iii) has received, since December 31, 1995, no notification or
communication from any Governmental Authority (A) asserting that
Peninsula or any of its Subsidiaries is not in compliance with any of the
statutes, regulations or ordinances which such Governmental Authority
enforces or (B) threatening to revoke any license, franchise, permit or
governmental authorization (nor, to Peninsula's knowledge, do any grounds
for any of the foregoing exist).
(k) MATERIAL CONTRACTS; DEFAULTS. Neither Peninsula nor any of its
Subsidiaries is a party to, bound by or subject to any agreement, contract,
arrangement, commitment or understanding (whether written or oral) (i) that
is a "material contract" within the meaning of Item 601(b)(10) of the SEC's
Regulation S-K or (ii) that materially restricts the conduct of business by
it or any of its Subsidiaries. Neither Peninsula nor any of its Subsidiaries
is in default under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a party, by which its
respective assets, business, or operations may be bound or affected, or
under which it or its respective assets, business, or operations receives
benefits, and there has not occurred any event that, with the lapse of time
or the giving of notice or both, would constitute such a default.
(l) NO BROKERS. No action has been taken by Peninsula that would give
rise to any valid claim against any party hereto for a brokerage commission,
finder's fee or other like payment with respect to the transactions
contemplated by this Agreement, excluding a Previously Disclosed fee to be
paid to NationsBanc Montgomery Securities LLC.
(m) EMPLOYEE BENEFIT PLANS.
(i) All benefit and compensation plans, contracts, policies or
arrangements covering current employees or former employees of Peninsula
and its subsidiaries (the "EMPLOYEES") and current or former directors of
Peninsula, including, but not limited to, "employee benefit plans" within
the meaning of Section 3(3) of ERISA, and deferred compensation, stock
option, stock purchase, stock appreciation rights, stock based, incentive
and bonus plans (the "BENEFIT PLANS"), are Previously Disclosed. True and
complete copies of all Benefit Plans, including, but not limited to, any
trust instruments and insurance contracts forming a part of any Benefit
Plans, and all amendments thereto have been provided or made available to
Western.
(ii) All employee benefit plans, other than "multiemployer plans"
within the meaning of Section 3(37) of ERISA, covering Employees (the
"PLANS"), to the extent subject to ERISA, are in substantial compliance
with ERISA. Peninsula is not a party to any "employee pension benefit
plan" within the meaning of Section 3(2) of ERISA ("PENSION PLAN") and
which is intended to be qualified under Section 401(a) of the Code. There
is no material pending or threatened litigation relating to the Plans.
Neither Peninsula nor any of its Subsidiaries has engaged in a
transaction with respect to any Plan that, assuming the taxable period of
such transaction expired as of the
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date hereof, could subject Peninsula or any Subsidiary to a tax or
penalty imposed by either Section 4975 of the Code or Section 502(i) of
ERISA in an amount which would be material.
(iii) No liability under Subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by Peninsula or any of its
Subsidiaries with respect to any ongoing, frozen or terminated
"single-employer plan", within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by any of them, or the
single-employer plan of any entity which is considered one employer with
Peninsula under Section 4001 of ERISA or Section 414 of the Code (an
"ERISA AFFILIATE"). Neither Peninsula, any of its Subsidiaries nor an
ERISA Affiliate has contributed to a "multiemployer plan", within the
meaning of Section 3(37) of ERISA. No notice of a "reportable event",
within the meaning of Section 4043 of ERISA for which the 30-day
reporting requirement has not been waived, has been required to be filed
for any Pension Plan or by any ERISA Affiliate within the 12-month period
ending on the date hereof or will be required to be filed in connection
with the transactions contemplated by this Agreement.
(iv) All contributions required to be made under the terms of any
Plan have been timely made or have been reflected on the consolidated
financial statements of Peninsula included in the Regulatory Documents.
Neither any Pension Plan nor any single-employer plan of an ERISA
Affiliate has an "accumulated funding deficiency" (whether or not waived)
within the meaning of Section 412 of the Code or Section 302 of ERISA and
no ERISA Affiliate has an outstanding funding waiver. Neither Peninsula
nor any of its Subsidiaries has provided, or is required to provide,
security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(v) Under each Pension Plan which is a single-employer plan, as of
the last day of the most recent plan year ended prior to the date hereof,
the actuarially determined present value of all "benefit liabilities",
within the meaning of Section 4001(a)(16) of ERISA (as determined on the
basis of the actuarial assumptions contained in the Plan's most recent
actuarial valuation), did not exceed the then current value of the assets
of such Plan, and there has been no material change in the financial
condition of such Plan since the last day of the most recent plan year.
(vi) Neither Peninsula nor any of its Subsidiaries has any
obligations for retiree health and life benefits under any Benefit Plan.
Peninsula or its Subsidiaries may amend or terminate any such Benefit
Plan at any time without incurring any liability thereunder.
(vii) The consummation of the transactions contemplated by this
Agreement will not (x) entitle any employees of Peninsula or any of its
Subsidiaries to severance pay, (y) accelerate the time of payment or
vesting or trigger any payment of compensation or benefits under,
increase the amount payable or trigger any other material obligation
pursuant to, any of the Benefit Plans or (z) result in any breach or
violation of, or a default under, any of the Benefit Plans. Without
limiting the foregoing, as a result of the consummation of the
transactions contemplated by this Agreement, neither Peninsula nor any of
its Subsidiaries will be obligated to make a payment to an individual
that would be a "parachute payment" to a "disqualified individual" as
those terms are defined in Section 280G of the Code, without regard to
whether such payment is reasonable compensation for personal services
performed or to be performed in the future.
(n) LABOR MATTERS. Neither Peninsula nor any of its Subsidiaries is a
party to or is bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization,
nor is Peninsula or any of its Subsidiaries the subject of a proceeding
asserting that it or any such Subsidiary has committed an unfair labor
practice (within the meaning of the National Labor Relations Act) or seeking
to compel Peninsula or any such Subsidiary to bargain with any labor
organization as to wages or conditions of employment, nor is there any
strike or other labor dispute involving it or any of its Subsidiaries
pending or, to Peninsula's knowledge, threatened, nor is
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Peninsula aware of any activity involving its or any of its Subsidiaries'
employees seeking to certify a collective bargaining unit or engaging in
other organizational activity.
(o) YEAR 2000 COMPLIANCE. Except as Previously Disclosed, (i)
Peninsula's computer software and related hardware (the "COMPUTER SYSTEM")
used for the storage and processing of data are or will be prior to the year
2000 Year 2000 Compliant; (ii) none of Peninsula's Computer System,
operations or business functions of Peninsula will be materially adversely
affected by any third party's failure to be Year 2000 Compliant; to the best
of Peninsula's knowledge after due inquiry, all of its suppliers, customers
and third party providers are, or will be prior to year 2000, Year 2000
Compliant; and (iii) Peninsula is taking or has taken, all necessary and
appropriate action to address and remedy any deficiencies in its Computer
System which would keep it from becoming Year 2000 Compliant. As used
herein, "YEAR 2000 COMPLIANT" shall mean the ability of a Computer System to
provide the following functions, without human intervention, individually
and in combination with other products or systems: (i) consistently handle,
record, store, process and present dates and date-related information
before, during and after January 1, 2000, including but not limited to
accepting date input, performing calculations on dates or portion of dates,
and providing date output; (ii) function accurately in accordance with the
published specifications and without undue interruption, before, during, and
after January 1, 2000 (including leap year computations) without any adverse
change in operation associated with the advent of the year 2000; (iii)
respond to two-digit or four-digit dates and date-related input in a way
that resolves any ambiguity as to the year 2000 in a disclosed, defined and
predetermined manner, and store and provide output of dates and date-related
information in ways that are unambiguous as to the year 2000; and (iv)
suitably interact with other software and related hardware in a way which
does not compromise its year 2000 compliance capability.
(p) ENVIRONMENTAL MATTERS.
(i) Peninsula and each of its Subsidiaries has complied at all times
with applicable Environmental Laws; (ii) no real property (including
buildings or other structures) currently or formerly owned or operated by
Peninsula or any of its Subsidiaries, or any property in which Peninsula
or any of its Subsidiaries has held a security interest, lien or a
fiduciary or management role ("Loan Property"), has been contaminated
with, or has had any release of, any Hazardous Substance; (iii) neither
Peninsula nor any of its Subsidiaries could be deemed the owner or
operator of any Loan Property under any Environmental Law which such Loan
Property has been contaminated with, or has had any release of, any
Hazardous Substance; (iv) neither Peninsula nor any of its Subsidiaries
is subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (v) neither Peninsula nor any
of its Subsidiaries has received any notice, demand letter, claim or
request for information alleging any violation of, or liability under,
any Environmental Law; (vi) neither Peninsula nor any of its Subsidiaries
is subject to any order, decree, injunction or other agreement with any
Governmental Authority or any third party relating to any Environmental
Law; (vii) to the best of Peninsula's knowledge, there are no
circumstances or conditions (including the presence of asbestos,
underground storage tanks, lead products, polychlorinated biphenyls,
prior manufacturing operations, dry-cleaning, or automotive services)
involving Peninsula or any of its Subsidiaries, any currently or formerly
owned or operated property, or any Loan Property, that could reasonably
be expected to result in any claims, liability or investigations against
Peninsula or any of its Subsidiaries or result in any restrictions on the
ownership, use, or transfer of any property pursuant to any Environmental
Law; and (viii) Peninsula has delivered to Western copies of all
environmental reports, studies, sampling data, correspondence, filings
and other environmental information in its possession or reasonably
available to it relating to Peninsula, any Subsidiary of Peninsula, any
currently or formerly owned or operated property or any Loan Property.
As used herein, the term "ENVIRONMENTAL LAW" means any federal, state or
local law, regulation, order, decree, permit, authorization, opinion, common law
or agency requirement relating to: (A) the
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protection or restoration of the environment, health, safety, or natural
resources, (B) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance or (C) noise, odor, wetlands, indoor air,
pollution, contamination or any injury or threat of injury to persons or
property in connection with any Hazardous Substance and the term "HAZARDOUS
SUBSTANCE" means any substance in any concentration that is: (A) listed,
classified or regulated pursuant to any Environmental Law; (B) any petroleum
product or by-product, asbestos-containing material, lead-containing paint or
plumbing, polychlorinated biphenyls, radioactive materials or radon; or (C) any
other substance which is or may be the subject of regulatory action by any
Governmental Authority in connection with any Environmental Law.
(q) TAX MATTERS. (i) (A) All Tax Returns that are required to be filed
(taking into account any extensions of time within which to file) by or with
respect to Peninsula and its Subsidiaries have been duly filed, (B) all
Taxes due have been paid in full, (C) the Tax Returns referred to in clause
(A) have been examined by the Internal Revenue Service or the appropriate
Tax authority or the period for assessment of the Taxes in respect of which
such Tax Returns were required to be filed has expired, (D) all deficiencies
asserted or assessments made as a result of such examinations have been paid
in full, (E) no issues that have been raised by the relevant taxing
authority in connection with the examination of any of the Tax Returns
referred to in clause (A) are currently pending, and (F) no waivers of
statutes of limitation have been given by or requested with respect to any
Taxes of Peninsula or its Subsidiaries. Peninsula has made available to
Western true and correct copies of the United States federal income Tax
Returns filed by Peninsula and its Subsidiaries for each of the three most
recent fiscal years ended on or before December 31, 1997. Neither Peninsula
nor any of its Subsidiaries has any liability with respect to income,
franchise or similar Taxes that accrued on or before the end of the most
recent period covered by Peninsula's Regulatory Documents filed prior to the
date hereof in excess of the amounts accrued with respect thereto that are
reflected in the financial statements included in Peninsula's Regulatory
Documents filed on or prior to the date hereof. Neither Peninsula nor any of
its Subsidiaries is a party to any Tax allocation or sharing agreement, is
or has been a member of an affiliated group filing consolidated or combined
Tax returns (other than a group the common parent of which is or was
Peninsula) or otherwise has any liability for the Taxes of any person (other
than Peninsula and its Subsidiaries). As of the date hereof, neither
Peninsula nor any of its Subsidiaries has any reason to believe that any
conditions exist that might prevent or impede the Merger from qualifying as
a reorganization within the meaning of Section 368 of the Code.
(ii) No Tax is required to be withheld pursuant to Section 1445 of
the Code as a result of the transfer contemplated by this Agreement.
(r) RISK MANAGEMENT INSTRUMENTS. All interest rate swaps, caps,
floors, option agreements, futures and forward contracts and other similar
risk management arrangements, whether entered into for Peninsula's own
account, or for the account of one or more of Peninsula's Subsidiaries or
their customers (all of which are listed on Peninsula's Disclosure
Schedule), if any, were entered into (i) in accordance with prudent business
practices and all applicable laws, rules, regulations and regulatory
policies and (ii) with counterparties believed to be financially responsible
at the time; and each of them constitutes the valid and legally binding
obligation of Peninsula or one of its Subsidiaries, enforceable in
accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles), and are in full force
and effect. Neither Peninsula nor its Subsidiaries, nor to Peninsula's
knowledge, any other party thereto, is in breach of any of its obligations
under any such agreement or arrangement.
(s) BOOKS AND RECORDS. The books and records of Peninsula and its
Subsidiaries have been fully, properly and accurately maintained in all
material respects, and there are no material inaccuracies or discrepancies
of any kind contained or reflected therein, and they fairly present the
financial position of Peninsula and its Subsidiaries.
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(t) INSURANCE. Peninsula has Previously Disclosed all of the insurance
policies, binders, or bonds maintained by Peninsula or its Subsidiaries
("INSURANCE POLICIES"). Peninsula and its Subsidiaries are insured with
reputable insurers against such risks and in such amounts as the management
of Peninsula reasonably has determined to be prudent for its business,
operations, properties and assets. All the Insurance Policies are in full
force and effect; Peninsula and its Subsidiaries are not in material default
thereunder; and all claims thereunder have been filed in due and timely
fashion.
(u) ACCOUNTING TREATMENT. As of the date hereof, Peninsula is not
aware of any reason why the Merger will fail to qualify for
"pooling-of-interests" accounting treatment.
(v) TRUST BUSINESS. Peninsula neither acts as trustee, agent, fiscal
agent, escrow agent, custodian or in another similar capacity for any other
person, nor otherwise performs any fiduciary or trust functions.
5.04 REPRESENTATIONS AND WARRANTIES OF WESTERN. Subject to Sections 5.01
and 5.02 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, Western hereby
represents and warrants to Peninsula as follows:
(a) ORGANIZATION, STANDING AND AUTHORITY; SUBSIDIARIES. Each of
Western and Merger Sub is a corporation duly organized, validly existing and
in good standing under the laws of the State of California. Each of Western
and Merger Sub is duly qualified to do business and is in good standing in
the states of the United States and foreign jurisdictions where its
ownership or leasing of property or assets or the conduct of its business
requires it to be so qualified. Each of Western and Merger Sub has in effect
all federal, state, local, and foreign governmental authorizations necessary
for it to own or lease its properties and assets and to carry on its
business as it is now conducted. Each of Western's Significant Subsidiaries
has been duly organized and is validly existing in good standing under the
laws of the jurisdiction of its organization, and is duly qualified to do
business and in good standing in the jurisdictions where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified.
(b) WESTERN CAPITAL STOCK. As of the date hereof, the authorized
capital stock of Western consists solely of 100,000,000 shares of Western
Common Stock, of which no more than 15,705,000 shares were outstanding as of
the date hereof and 5,000,000 shares of Western Preferred Stock, of which no
shares were outstanding as of the date hereof.
(c) MERGER SUB CAPITAL STOCK. As of the date hereof, the authorized
capital stock of Merger Sub consists solely of 100 shares of Merger Sub
Common Stock, of which one share was outstanding as of the date hereof.
(d) CORPORATE POWER. Western and each of its Significant Subsidiaries
has the corporate power and authority to carry on its business as it is now
being conducted and to own all its properties and assets; and each of
Western and Merger Sub has the corporate power and authority to execute,
deliver and perform its obligations under this Agreement and to consummate
the transactions contemplated hereby.
(e) CORPORATE AUTHORITY. This Agreement and the transactions
contemplated hereby have been authorized by all necessary corporate action
of each of Western and Merger Sub and their respective Boards of Directors.
This Agreement is a valid and legally binding agreement of each of Western
and Merger Sub enforceable in accordance with its terms (except as
enforceability may be limited by 12 U.S.C. 1818(b)(6)(D) or applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors'
rights or by general equity principles).
(f) REGULATORY APPROVALS; NO DEFAULTS. (i) No consents or approvals
of, or filings or registrations with, any court, administrative agency or
commission or other governmental authority or
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instrumentality or with any third party are required to be made or obtained
by Western or any of its Subsidiaries in connection with the execution,
delivery or performance by either Western or Merger Sub of this Agreement or
to consummate the Merger except for (A) the filing of applications and
notices, as applicable, with the Regulatory Authorities; (B) approval of the
listing on the Nasdaq of Western Common Stock to be issued in the Merger;
(C) the filing and declaration of effectiveness of the Registration
Statement; (D) the filing of an agreement of merger with the California
Secretary pursuant to the CGCL; (E) filing of an agreement of merger with
the Commissioner pursuant to the California Financial Code; (F) such filings
as are required to be made or approvals as are required to be obtained under
the securities or "Blue Sky" laws of various states in connection with the
issuance of Western Common Stock in the Merger; and (F) receipt of the
approvals set forth in Section 7.01(b). As of the date hereof, Western is
not aware of any reason why the approvals set forth in Section 7.01(b) will
not be received without the imposition of a condition, restriction or
requirement of the type described in Section 7.01(b).
(ii) Subject to receipt of the regulatory approvals referred to in
the preceding paragraph and expiration of the related waiting periods,
and required filings under federal and state securities laws, the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
(A) constitute a breach or violation of, or a default under, or give rise
to any Lien, any acceleration of remedies or any right of termination
under, any law, rule or regulation or any judgment, decree, order,
governmental permit or license, or agreement, indenture or instrument of
Western or of any of its Subsidiaries or to which Western or any of its
Subsidiaries or properties is subject or bound, (B) constitute a breach
or violation of, or a default under, the articles of incorporation or
by-laws (or similar governing documents) of Western or any of its
Subsidiaries, or (C) require any consent or approval under any such law,
rule, regulation, judgment, decree, order, governmental permit or
license, agreement, indenture or instrument.
(g) FINANCIAL REPORTS AND REGULATORY DOCUMENTS; MATERIAL ADVERSE
EFFECT. (i) Western's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and all other reports, registration statements, or
definitive proxy statements filed or to be filed by it or any of its
Significant Subsidiaries subsequent to December 31, 1997 under the
Securities Act, or under Sections 13(a), 13(d), 14 or 15(d) of the Exchange
Act, in the form filed or to be filed (collectively, the "REGULATORY
DOCUMENTS"), as of the date filed, (A) complied or will comply in all
material respects as to form with the applicable requirements under the
Securities Act or the Exchange Act, as the case may be, and (B) did not and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and each of the balance sheets contained in or
incorporated by reference into any such Regulatory Document (including the
related notes and schedules thereto) fairly presents, or will fairly
present, the financial position of Western and its Subsidiaries as of its
date, and each of the statements of income and changes in shareholders'
equity and cash flows or equivalent statements in such Regulatory Documents
(including any related notes and schedules thereto) fairly presents, or will
fairly present, the results of operations, changes in shareholders' equity
and changes in cash flows, as the case may be, of Western and its
Subsidiaries for the periods to which they relate, in each case in
accordance with GAAP consistently applied during the periods involved,
except in each case as may be noted therein, subject to normal year-end
audit adjustments in the case of unaudited statements.
(ii) Since December 31, 1997, no event has occurred or circumstance
arisen that, individually or taken together with all other facts,
circumstances and events (described in any paragraph of Section 5.04 or
otherwise), is reasonably likely to have a Material Adverse Effect with
respect to it.
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(iii) Western has timely filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that they were required to file since December 31, 1996 with the
Regulatory Agencies, and all other material reports and statements
required to be filed by it since December 31, 1996, including, without
limitation, any report or statement required to be filed pursuant to the
laws of the United States or the State of California and the rules and
regulations of the Federal Reserve, the FDIC or the Commissioner, and has
paid all fees and assessments due and payable in connection therewith. As
of their respective dates, such reports, registrations and statements
complied in all material respects with all the laws, rules and
regulations of the applicable Regulatory Agency with which they were
filed.
(h) COMPLIANCE WITH LAWS. Western and each of its Significant
Subsidiaries:
(i) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders
or decrees applicable thereto or to the employees conducting such
businesses, including, without limitation, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home
Mortgage Disclosure Act and all other applicable fair lending laws and
other laws relating to discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and approvals
of, and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to own
or lease their properties and to conduct their businesses as presently
conducted; all such permits, licenses, certificates of authority, orders
and approvals are in full force and effect and, to Western's knowledge,
no suspension or cancellation of any of them is threatened; and
(iii) has received, since December 31, 1995, no notification or
communication from any Governmental Authority (A) asserting that Western
or any of its Subsidiaries is not in compliance with any of the statutes,
regulations or ordinances which such Governmental Authority enforces or
(B) threatening to revoke any license, franchise, permit or governmental
authorization (nor, to Western's knowledge, do any grounds for any of the
foregoing exist).
(i) NO BROKERS. No action has been taken by Western that would give
rise to any valid claim against any party hereto for a brokerage commission,
finder's fee or other like payment with respect to the transactions
contemplated by this Agreement, excluding Previously Disclosed fees payable
to Keefe, Bruyette & Woods, Inc. and Belle Plaine Partners, Inc.
(j) ACCOUNTING TREATMENT; TAX MATTERS. As of the date hereof, Western
is aware of no reason why the Merger will fail to qualify for
"pooling-of-interests" accounting treatment. As of the date hereof, neither
Western nor any of its Subsidiaries has any reason to believe that any
conditions exist that might prevent or impede the Merger from qualifying as
a reorganization within the meaning of Section 368 of the Code.
(k) YEAR 2000 COMPLIANCE. Except as Previously Disclosed, (i)
Western's Computer System used for the storage and processing of data are or
will be prior to the year 2000 Year 2000 Compliant; (ii) none of Western's
Computer System, operations or business functions of Western will be
materially adversely affected by any third party's failure to be Year 2000
Compliant; to the best of Western's knowledge after due inquiry, all of its
suppliers, customers and third party providers are, or will be prior to year
2000, Year 2000 Compliant; and (iii) Western is taking or has taken, all
necessary and appropriate action to address and remedy any deficiencies in
its Computer System which would keep it from becoming Year 2000 Compliant.
(l) LITIGATION. Other than as set forth in Western's Regulatory
Documents filed on or before the date hereof, no litigation, claim or other
proceeding before any court or governmental agency is pending against
Western or any of its Significant Subsidiaries and, to Western's knowledge,
no such litigation, claim or other proceeding has been threatened.
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ARTICLE VI
COVENANTS
6.01 REASONABLE BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each of Peninsula, Western and Merger Sub agrees to cooperate with
the other parties hereto and to use its reasonable best efforts in good faith to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or desirable, or advisable under applicable laws, so as
to permit consummation of the Merger as promptly as practicable and otherwise to
enable consummation of the transactions contemplated hereby and shall cooperate
fully with the other party hereto to that end.
6.02 SHAREHOLDER APPROVAL. Peninsula agrees to take, in accordance with
applicable law and the Peninsula Articles and the Peninsula By-Laws, all action
necessary to convene an appropriate meeting of its shareholders to consider and
vote upon the approval and adoption of this Agreement and any other matters
required to be approved by Peninsula's shareholders for consummation of the
Merger (including any adjournment or postponement, the "PENINSULA MEETING"), in
each case as promptly as practicable after the Registration Statement is
declared effective. Except to the extent legally required for the discharge by
the Peninsula Board of its fiduciary duties as advised by counsel to the
Peninsula Board, the Peninsula Board shall recommend such approval, and
Peninsula shall take all reasonable, lawful action to solicit such approval by
its shareholders.
6.03 REGISTRATION STATEMENT. (a) Western agrees to prepare a registration
statement on Form S-4 or other applicable form (the "REGISTRATION STATEMENT") to
be filed by Western with the SEC in connection with the issuance of Western
Common Stock in the Merger (including the proxy statement and prospectus and
other proxy solicitation materials of Peninsula constituting a part thereof (the
"PROXY STATEMENT") and all related documents). Peninsula shall have the right to
review such Registration Statement and Peninsula agrees to cooperate, and to
cause its Subsidiaries to cooperate, with Western, its counsel and its
accountants, in preparation of the Registration Statement and the Proxy
Statement. Peninsula agrees to file the Proxy Statement in preliminary form with
such of the Regulatory Authorities as may be required as soon as reasonably
practicable, and Western agrees to file the Registration Statement with the SEC
as soon as reasonably practicable. Each of Peninsula and Western agrees to use
all reasonable efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as reasonably practicable after
filing thereof. Western also agrees to use all reasonable efforts to obtain all
necessary state securities law or "Blue Sky" permits and approvals required to
carry out the transactions contemplated by this Agreement. Peninsula agrees to
furnish to Western all information concerning Peninsula, its Subsidiaries,
officers, directors and shareholders as may be reasonably requested in
connection with the foregoing.
(b) Each of Peninsula and Western agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it
for inclusion or incorporation by reference in (i) the Registration
Statement will, at the time the Registration Statement and each amendment or
supplement thereto, if any, becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Proxy Statement and any
amendment or supplement thereto will, at the date of mailing to shareholders
and at the time of the Peninsula Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or any
statement which, in the light of the circumstances under which such
statement is made, will be false or misleading with respect to any material
fact, or which will omit to state any material fact necessary in order to
make the statements therein not false or misleading or necessary to correct
any statement in any earlier statement in the Proxy Statement or any
amendment or supplement thereto. Each of Peninsula and Western further
agrees that if it shall become aware prior to the Effective Date of any
information furnished by it that would cause any of the statements in the
Proxy Statement to be false or misleading with respect to any
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material fact, or to omit to state any material fact necessary to make the
statements therein not false or misleading, promptly to inform the other
party thereof and to take the necessary steps to correct the Proxy
Statement.
(c) Western agrees to advise Peninsula, promptly after Western receives
notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, of the issuance of
any stop order or the suspension of the qualification of Western Common
Stock for offering or sale in any jurisdiction, of the initiation or threat
of any proceeding for any such purpose, or of any request by the SEC for the
amendment or supplement of the Registration Statement or for additional
information.
6.04 PRESS RELEASES. Each of Peninsula and Western agrees that it will
not, without the prior approval of the other party, issue any press release or
written statement for general circulation relating to the transactions
contemplated hereby, except as otherwise required by applicable law or
regulation or Nasdaq rules (provided that the issuing party shall nevertheless
provide the other party with notice of, and the opportunity to review, any such
press release or written statement).
6.05 ACCESS; INFORMATION. (a) Each of Peninsula and Western agrees that
upon reasonable notice and subject to applicable laws relating to the exchange
of information, each party shall afford the other party and the other party's
officers, employees, counsel, accountants and other authorized representatives,
such access during normal business hours throughout the period prior to the
Effective Time to the books, records (including, without limitation, tax returns
and work papers of independent auditors), properties, personnel and to such
other information as the requesting party may reasonably request and, during
such period, the providing party shall furnish promptly to the requesting party
(i) a copy of each material report, schedule and other document filed by it
pursuant to the requirements of federal or state securities or banking laws, and
(ii) all other information concerning the business, properties and personnel of
it as the requesting party may reasonably request.
(b) Each party agrees that it will not, and will cause its
representatives not to, use any information obtained pursuant to this
Section 6.05 (as well as any other information obtained prior to the date
hereof in connection with the entering into of this Agreement) for any
purpose unrelated to the consummation of the transactions contemplated by
this Agreement. Subject to the requirements of law, each party will keep
confidential, and will cause its representatives to keep confidential, all
information and documents obtained pursuant to this Section 6.05 (as well as
any other information obtained prior to the date hereof in connection with
the entering into of this Agreement) unless such information (i) was already
known to such party, (ii) becomes available to such party from other sources
not known by such party to be bound by a confidentiality obligation, (iii)
is disclosed with the prior written approval of the providing party or (iv)
is or becomes readily ascertainable from published information or trade
sources. In the event that this Agreement is terminated or the transactions
contemplated by this Agreement shall otherwise fail to be consummated, each
party shall promptly cause all copies of documents or extracts thereof
containing information and data as to the other party to be returned to the
other party. No investigation by either party of the business and affairs of
the other party shall affect or be deemed to modify or waive any
representation, warranty, covenant or agreement in this Agreement, or the
conditions to either party's obligation to consummate the transactions
contemplated by this Agreement.
6.06 ACQUISITION PROPOSALS. Peninsula agrees that it shall not, and shall
cause its Subsidiaries and its Subsidiaries' officers, directors, agents,
advisors and affiliates not to, solicit or encourage inquiries or proposals with
respect to, or engage in any negotiations concerning, or provide any
confidential information to, or have any discussions with, any person relating
to, any Acquisition Proposal, except to the extent legally required for the
discharge by the Peninsula Board of its fiduciary duties as advised by counsel
to the Peninsula Board. Peninsula shall immediately cease and cause to be
terminated any activities, discussions or negotiations conducted prior to the
date of this Agreement with any parties other than Western with
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respect to any of the foregoing and shall use its reasonable best efforts to
enforce any confidentiality or similar agreement relating to an Acquisition
Proposal. Peninsula shall promptly (within 24 hours) advise Western following
the receipt by Peninsula of any Acquisition Proposal and the substance thereof
(including the identity of the person making such Acquisition Proposal), and
advise Western of any developments with respect to such Acquisition Proposal
immediately upon the occurrence thereof.
6.07 AFFILIATE AGREEMENTS. (a) Not later than the 15th day prior to the
mailing of the Proxy Statement, Peninsula shall deliver to Western a schedule of
each person that, to the best of its knowledge, is or is reasonably likely to
be, as of the date of the Peninsula Meeting, deemed to be an "affiliate" of
Peninsula (each, a "PENINSULA AFFILIATE") as that term is used in Rule 145 under
the Securities Act or SEC Accounting Series Releases 130 and 135.
(b) Peninsula shall use its reasonable best efforts to cause each person
who may be deemed to be a Peninsula Affiliate to execute and deliver to
Western on or before the date of mailing of the Proxy Statement an agreement
in the form attached hereto as EXHIBIT A.
6.08 BOARD ATTENDANCE. John G. Rebelo, Jr. or in his absence another
representative of Peninsula selected by him, shall be invited by Western to
attend all regular and special meetings of the Western Board and the Executive
Committee of the Western Board from the date hereof until the Effective Date.
Western shall, to the extent reasonably practicable, inform Peninsula of each
such meeting at least two business days in advance of each such meeting;
PROVIDED, HOWEVER, that the attendance of John G. Rebelo, Jr. shall not be
permitted at any meeting, or portion thereof, for the purpose of discussing
transactions contemplated by this Agreement or the obligations of Western or
Merger Sub under this Agreement. Matthew P. Wagner or in his absence another
representative of Peninsula selected by him, shall be invited by Peninsula to
attend all regular and special meetings of the Peninsula Board and the Executive
Committee of the Peninsula Board from the date hereof until the Effective Date.
Peninsula shall, to the extent reasonably practicable, inform Western of each
such meeting at least two business days in advance of each such meeting;
PROVIDED, HOWEVER, that the attendance of Matthew P. Wagner shall not be
permitted at any meeting, or portion thereof, for the purpose of discussing
transactions contemplated by this Agreement or the obligations of Western under
this Agreement.
6.09 CERTAIN POLICIES. On or after the Regulatory Approval Date, Peninsula
shall, consistent with GAAP and on a basis mutually satisfactory to it and
Western, modify and change its loan, litigation and real estate valuation
policies and practices (including loan classifications and levels of reserves)
so as to be applied on a basis that is consistent with that of Western.
6.10 NASDAQ LISTING. Western agrees to use its reasonable best efforts to
list, prior to the Effective Date, on the Nasdaq, subject to official notice of
issuance, the shares of Western Common Stock to be issued to the holders of
Peninsula Common Stock in the Merger.
6.11 REGULATORY APPLICATIONS. (a) Western and Peninsula and their
respective Subsidiaries shall cooperate and use their respective reasonable best
efforts to prepare all documentation, to effect all filings and to obtain all
permits, consents, approvals and authorizations of all third parties and
Governmental Authorities necessary to consummate the transactions contemplated
by this Agreement. Western and Peninsula shall use their reasonable best efforts
to make all required bank regulatory filings, including the appropriate filing
with the Regulatory Authorities. Each of Western and Peninsula shall have the
right to review in advance, and to the extent practicable each will consult with
the other, in each case subject to applicable laws relating to the exchange of
information, with respect to all material written information submitted to any
third party or any Governmental Authority in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto agrees to act reasonably and as promptly as practicable. Each
party hereto agrees that it will consult with the other party hereto with
respect to the obtaining of all material permits, consents, approvals and
authorizations of all third parties and Governmental Authorities necessary or
advisable to consummate the transactions
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contemplated by this Agreement and each party will keep the other party
appraised of the status of material matters relating to completion of the
transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other party with all
information concerning itself, its Subsidiaries, directors, officers and
shareholders and such other matters as may be reasonably necessary or
advisable in connection with any filing, notice or application made by or on
behalf of such other party or any of its Subsidiaries to any third party or
Governmental Authority.
6.12 INDEMNIFICATION; DIRECTOR AND OFFICERS' INSURANCE. (a) From and after
the Effective Time through the sixth anniversary of the Effective Date, Western
agrees to indemnify and hold harmless each present and former director and
officer of Peninsula or any Subsidiary of Peninsula determined as of the
Effective Time (the "INDEMNIFIED PARTIES"), against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities (collectively, "COSTS") incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time (including with respect to this Agreement or any
of the transactions contemplated hereby) (but excluding any Costs arising out of
any violation or alleged violation of the Exchange Act or the rules and
regulations thereunder with respect to insider trading), whether asserted,
claimed or arising prior to, at or after the Effective Time, to the extent to
which such Indemnified Parties were entitled under California law and the
Peninsula Articles or the Peninsula By-Laws in effect on the date hereof, and
Western shall also advance expenses as incurred to the extent permitted under
California law and the Peninsula Articles and the Peninsula By-Laws.
(b) Any Indemnified Party wishing to claim indemnification under Section
6.12(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall as promptly as possible notify Western thereof, but the
failure to so notify shall not relieve Western of any liability it may have
to such Indemnified Party if such failure does not materially prejudice
Western. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i)
Western shall have the right to assume the defense thereof and Western shall
not be liable to such Indemnified Parties for any legal expenses of other
counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if Western
elects not to assume such defense or counsel for the Indemnified Parties
advises in writing that there are issues which raise conflicts of interest
between Western and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them, and Western shall pay the reasonable
fees and expenses of one such counsel for the Indemnified Parties in any
jurisdiction promptly as statements thereof are received, (ii) the
Indemnified Parties will cooperate in the defense of any such matter and
(iii) Western shall not be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably withheld);
and PROVIDED, FURTHER, that Western shall not have any obligation hereunder
to any Indemnified Party when and if a court of competent jurisdic-tion
shall ultimately determine, and such determination shall have become final
and nonappealable, that the indemnification of such Indemnified Party in the
manner contemplated hereby is not permitted or is prohibited by applicable
law.
(c) For a period of six years after the Effective Time, Western shall
use its reasonable best efforts to cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained
by Peninsula (provided that Western may substitute therefor policies of
comparable coverage with respect to claims arising from facts or events
which occurred before the Effective Time); PROVIDED, HOWEVER, that in no
event shall Western be obligated to expend, in order to maintain or provide
insurance coverage pursuant to this Section 6.12(c), any amount per annum in
excess of 125% of the amount of the annual premiums paid as of the date
hereof by Peninsula for such insurance (the "MAXIMUM AMOUNT"). If the amount
of the annual premiums necessary to maintain or procure such insurance
coverage exceeds the Maximum Amount, Western shall use all reasonable
efforts to maintain the most advantageous policies of directors' and
officers' insurance obtainable for an annual premium equal to the Maximum
Amount. Notwithstanding the foregoing, prior to the
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Effective Time, Western may request Peninsula to, and Peninsula shall,
purchase insurance coverage, on such terms and conditions as shall be
acceptable to Western, extending for a period of six years Peninsula's
directors' and officers' liability insurance coverage in effect as of the
date hereof (covering past or future claims with respect to periods before
the Effective Time) and such coverage shall satisfy Western's obligations
under this Subsection (c).
(d) If Western or any of its successors or assigns (i) shall consolidate
with or merge into any other corporation or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger or (ii) shall transfer all or substantially all of its properties and
assets to any individual, corporation or other entity, then and in each such
case, proper provision shall be made so that the successors and assigns of
Western shall assume the obligations set forth in this Section 6.12
6.13 BENEFIT PLAN. Western shall, from and after the Effective Time, (i)
provide former employees of Peninsula who remain as employees of Western or any
of its Significant Subsidiaries with employee benefit plans no less favorable in
the aggregate than those provided to similarly situated employees of Western or
its Significant Subsidiaries, including, but not limited to, allowing such
employees to participate in Western's stock option plan in accordance with the
policies of Western with respect to such stock option plan, and (ii) with
respect to former employees of Peninsula who remain as employees of Western or
any of its Significant Subsidiaries, cause each employee benefit plan of Western
or its Significant Subsidiaries in which such employees are eligible to
participate to take into account for purposes of eligibility and vesting
thereunder the service of such employees with Peninsula as if such service were
with Western or its Significant Subsidiaries, to the same extent such service
was credited under a comparable plan of Peninsula. Western agrees that all
accrued bonuses for 1998 will be paid to former employees of Peninsula in
accordance with Peninsula's past practices. Notwithstanding the foregoing,
Peninsula consents and covenants that from and after the Effective Date,
Peninsula's Benefit Plans will be governed, managed and/ or terminated by
Western, all within Western's sole discretion.
6.14 ACCOUNTANTS' LETTERS. Each of Peninsula and Western shall use its
reasonable best efforts to cause to be delivered to the other party, and to
Western's directors and officers who sign the Registration Statement, a letter
of their respective independent auditors, dated (i) the date on which the
Registration Statement shall become effective and (ii) a date shortly prior to
the Effective Date, and addressed to such other party, and such directors and
officers, in form and substance customary for "comfort" letters delivered by
independent accountants in accordance with Statement of Accounting Standards No.
72.
6.15 NOTIFICATION OF CERTAIN MATTERS. Each of Peninsula and Western shall
give prompt notice to the other of any fact, event or circumstance known to it
that (i) is reasonably likely, individually or taken together with all other
facts, events and circumstances known to it, to result in any Material Adverse
Effect with respect to it or (ii) would cause or constitute a material breach of
any of its representations, warranties, covenants or agreements contained
herein.
6.16 SHAREHOLDER AGREEMENTS. Certain directors and certain officers who
are shareholders of Peninsula, in their capacities as shareholders, in exchange
for good and valuable consideration, have executed and delivered to Western
shareholder agreements substantially in the form of EXHIBIT B hereto and EXHIBIT
C hereto (the "SHAREHOLDER AGREEMENTS"), committing such persons, among other
things, (i) to vote their shares of Peninsula Common Stock in favor of the
Agreement at the Peninsula Meeting and (ii) to certain representations
concerning the ownership of Peninsula Common Stock and Western Common Stock to
be received in the Merger.
6.17 PENINSULA NAME. Except as set forth in the proviso to this Section
6.17, for a period of two years following the Effective Date, Western agrees to
operate the business currently operated by Peninsula as a separate division or
business unit under the name of Peninsula; PROVIDED, HOWEVER, that this covenant
shall terminate automatically upon Western's merger, acquisition or
consolidation with, by or into any other Person.
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6.18 EMPLOYEE AGREEMENTS. Peninsula will use its reasonable best efforts
to enter into employment agreements with each of John G. Rebelo, Jr., Larry L.
Willette, Barbara Hosaka and Lawrence G. Alameda, (together the "Executives"),
on terms and conditions mutually satisfactory to Western and the Executives.
Negotiations with respect to such agreements shall commence not later than 30
calendar days after the date hereof and shall be concluded as soon thereafter as
practicable and in any event not later than 60 calendar days after the date
hereof. In the event that any of the Executives do not enter into the employment
agreements contemplated by this Section 6.18, then such Executive's existing
employment agreement shall govern. Western acknowledges and agrees that after
the consummation of the Merger, the Surviving Corporation will continue to be
obligated to perform its obligations under the employment agreements and the
supplemental executive retirement pay agreements with each such Executive. In
accordance with the respective terms thereof, including the provisions relating
to a Change in Control as defined therein, except as such existing employment
agreements are modified in the letter agreement executed by each of the
Executives on the date hereof.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each of Western and Peninsula to consummate the Merger
is subject to the fulfillment or written waiver by Western and Peninsula prior
to the Effective Time of each of the following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger shall have
been duly adopted by the requisite vote of the shareholders of Peninsula.
(b) REGULATORY APPROVALS. All regulatory approvals or waivers required
to consummate the transactions contemplated hereby shall have been obtained
and shall remain in full force and effect and all statutory waiting periods
in respect thereof shall have expired and no such approvals or waivers shall
contain any conditions, restrictions or requirements which the Western Board
reasonably determines would (i) following the Effective Time, have a
Material Adverse Effect on the Surviving Corporation and its Subsidiaries
taken as a whole or (ii) reduce the benefits of the transactions
contemplated hereby to such a degree that Western would not have entered
into this Agreement had such conditions, restrictions or requirements been
known at the date hereof.
(c) NO INJUNCTION. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and prohibits
consummation of the transactions contemplated by this Agreement.
(d) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
(e) BLUE SKY APPROVALS. All permits and other authorizations under
state securities laws necessary to consummate the transactions contemplated
hereby and to issue the shares of Western Common Stock to be issued in the
Merger shall have been received and be in full force and effect.
(f) LISTING. The shares of Western Common Stock to be issued in the
Merger shall have been approved for listing on the Nasdaq, subject to
official notice of issuance.
7.02 CONDITIONS TO OBLIGATION OF PENINSULA. The obligation of Peninsula to
consummate the Merger is also subject to the fulfillment or written waiver by
Peninsula prior to the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Western set forth in this Agreement (subject to the standard set forth in
Section 5.02) shall be true and correct as of the
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date of this Agreement and as of the Effective Date as though made on and as
of the Effective Date (except that representations and warranties that by
their terms speak only as of the date of this Agreement or some other date
shall be true and correct as of such date), and Peninsula shall have
received a certificate, dated the Effective Date, signed on behalf of
Western by the Chief Executive Officer and the Chief Financial Officer of
Western to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF WESTERN. Western shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and Peninsula
shall have received a certificate, dated the Effective Date, signed on
behalf of Western by the Chief Executive Officer and the Chief Financial
Officer of Western to such effect.
(c) TAX OPINION. Peninsula shall have received an opinion of Deloitte
& Touche LLP, dated the Effective Date, to the effect that, on the basis of
facts, representations and assumptions set forth in such opinion, (i) the
Merger constitutes a "reorganization" within the meaning of Section 368 of
the Code and (ii) no gain or loss will be recognized by shareholders of
Peninsula who receive shares of Western Common Stock in exchange for shares
of Peninsula Common Stock, except with respect to cash received in lieu of
fractional share interests. In rendering its opinion, Deloitte & Touche LLP
may require and rely upon representations contained in letters from
Peninsula, Western and shareholders of Peninsula.
(d) ACCOUNTANTS' LETTERS. Peninsula shall have received the letters
referred to in Section 6.14 from Western's independent auditors.
(e) ACCOUNTING TREATMENT. Peninsula shall have received from
Peninsula's independent auditors, letters, dated the date of or shortly
prior to each of the mailing date of the Proxy Statement and the Effective
Date, stating its opinion that the Merger shall qualify for
pooling-of-interests accounting treatment.
(f) DIRECTOR. Western shall have adopted resolutions sufficient to
appoint John G. Rebelo, Jr. as a director of Western as of the Effective
Time and shall have caused John G. Rebelo, Jr. to be appointed as a director
of Peninsula as of the Effective Time, or if such person is unable to serve,
such other current director of Peninsula as shall be mutually satisfactory
to Western and Peninsula.
(g) FAIRNESS OPINION. Peninsula shall have received the written
opinion of NationsBanc Montgomery Securities LLC to the effect that, as of a
date within five days of the mailing of the Proxy Statement to the
shareholders of Peninsula in connection with the Peninsula Meeting, the
consideration to be received by the holders of the Peninsula Company Stock
in the Merger is fair to the holders of the Peninsula Common Stock from a
financial point of view.
7.03 CONDITIONS TO OBLIGATION OF WESTERN. The obligation of Western to
consummate the Merger is also subject to the fulfillment or written waiver by
Western prior to the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Peninsula set forth in this Agreement (subject to the standard set forth
in Section 5.02) shall be true and correct as of the date of this Agreement
and as of the Effective Date as though made on and as of the Effective Date
(except that representations and warranties that by their terms speak only
as of the date of this Agreement or some other date shall be true and
correct as of such date) and Western shall have received a certificate,
dated the Effective Date, signed on behalf of Peninsula by the Chief
Executive Officer and the Chief Financial Officer of Peninsula to such
effect.
(b) PERFORMANCE OF OBLIGATIONS OF PENINSULA. Peninsula shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and Western
shall have received a certificate, dated the Effective Date, signed on
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behalf of Peninsula by the Chief Executive Officer and the Chief Financial
Officer of Peninsula to such effect.
(c) OPINION OF WESTERN'S COUNSEL. Western shall have received an
opinion of Sullivan & Cromwell, special counsel to Western, dated the
Effective Date, to the effect that, on the basis of facts, representations
and assumptions set forth in such opinion, the Merger constitutes a
reorganization under Section 368 of the Code. In rendering its opinion,
Sullivan & Cromwell may require and rely upon representations contained in
letters from Peninsula, Western and shareholders of Peninsula.
(d) ACCOUNTANTS' LETTERS. Western shall have received the letters
referred to in Section 6.14 from Peninsula's independent auditors.
(e) ACCOUNTING TREATMENT. Western shall have received from KPMG Peat
Marwick LLP, Western's independent auditors, letters, dated the date of or
shortly prior to each of the mailing date of the Proxy Statement and the
Effective Date, stating its opinion that the Merger shall qualify for
pooling-of-interests accounting treatment.
(f) PENINSULA FINANCIAL TESTS. As of the month end preceding the
Effective Time, but without giving effect to any costs related to the Merger
or any changes effected as a result of Section 6.09, Peninsula's
shareholders' equity and allowance for credit losses shall not be less than
the respective amounts set forth on Peninsula's call report as of June 30,
1998, and Western shall have received a certificate, dated the Effective
Date, signed on behalf of Peninsula by its Chief Financial Officer to such
effect.
(g) DIRECTOR RESIGNATIONS. Western shall have received the written
resignation of each director (in such director's capacity as director) of
Peninsula, effective as of the Effective Time.
ARTICLE VIII
TERMINATION
8.01 TERMINATION. This Agreement may be terminated, and the Merger may be
abandoned:
(a) MUTUAL CONSENT. At any time prior to the Effective Time, by the
mutual consent of Western and Peninsula, if the Board of Directors of each
so determines by vote of a majority of the members of its entire Board.
(b) BREACH. At any time prior to the Effective Time, by Western or
Peninsula, if its Board of Directors so determines by vote of a majority of
the members of its entire Board, in the event of either: (i) a breach by the
other party of any representation or warranty contained herein (subject to
the standard set forth in Section 5.02), which breach cannot be or has not
been cured within 30 days after the giving of written notice to the
breaching party of such breach; or (ii) a breach by the other party of any
of the covenants or agreements contained herein, which breach cannot be or
has not been cured within 30 days after the giving of written notice to the
breaching party of such breach, provided that such breach (whether under (i)
or (ii)) would be reasonably likely, individually or in the aggregate with
other breaches, to result in a Material Adverse Effect.
(c) DELAY. At any time prior to the Effective Time, by Western or
Peninsula, if its Board of Directors so determines by vote of a majority of
the members of its entire Board, in the event that the Merger is not
consummated by March 31, 1999, except to the extent that the failure of the
Merger then to be consummated arises out of or results from the knowing
action or inaction of the party seeking to terminate pursuant to this
Section 8.01(c).
(d) NO APPROVAL. By Peninsula or Western, if its Board of Directors so
determines by a vote of a majority of the members of its entire Board, in
the event (i) the approval of any Governmental Authority required for
consummation of the Merger and the other transactions contemplated by this
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Agreement shall have been denied by final nonappealable action of such
Governmental Authority or (ii) the shareholder approval required by Section
7.01(a) herein is not obtained at the Peninsula Meeting.
(e) FAILURE TO RECOMMEND, ETC. At any time prior to the Peninsula
Meeting, by Western if the Peninsula Board shall have failed to make its
recommendation referred to in Section 6.02, withdrawn such recommendation or
modified or changed such recommendation in a manner adverse in any respect
to the interests of Western.
(f) WESTERN STOCK. By Peninsula in the event that, with respect to any
Ten Day Period (as defined below) both (i) (A) the Ten Day Average Price (as
defined below) shall be less than $36.656 per share and (B) the Western
Common Stock Price Percentage (as defined below) shall be less than the BKX
Index Percentage (as defined below) and (ii) Peninsula has delivered written
notice to Western of its intention to terminate this Agreement within
forty-eight (48) hours following the date of such event (it being understood
that, if an event set forth in clause (i) shall have occurred and Peninsula
fails to timely deliver the notice referred to in this clause (ii),
Peninsula shall have the right to terminate if any such event subsequently
occurs and Peninsula timely delivers such notice); PROVIDED, HOWEVER, that,
if Western effects a stock dividend, reclassification, recapitalization,
stock split, combination, exchange of shares or similar transaction after
the date hereof and prior to the Effective Time, the provisions of this
Section 8.01(f) shall be appropriately adjusted.
As used in this Section 8.01(f), (v) "WESTERN COMMON STOCK PRICE
PERCENTAGE" means the percentage determined by dividing the Ten Day Average
Price by $43.125 (as such amount may be adjusted pursuant to this clause
(f)); (w) "BKX INDEX PERCENTAGE" means the percentage determined by dividing
(i) the product of (A) the Ten Day Average Keefe Bank Index times (B) 0.9 by
(ii) the Keefe Bank Index as of the date hereof; (x) "TEN DAY AVERAGE PRICE"
means the volume weighted average sales price per share of Western Common
Stock for a Ten Day Period, which volume weighted average shall be
determined in a manner consistent with Section 3.01(a) hereof; (y) "TEN DAY
AVERAGE KEEFE BANK INDEX" means the average of the Keefe Bank Index for a
Ten Day Period; and (z) "TEN DAY PERIOD" means any period of ten (10)
consecutive Trading Days occurring after the date hereof.
(g) ACQUISITION PROPOSAL. This Agreement may be terminated by
Peninsula by written notice to Western if Peninsula (i) receives an
Acquisition Proposal, (ii) receives the advice of its outside counsel that
to proceed with the Merger will violate the fiduciary duties of the
Peninsula Board to Peninsula's shareholders in light of such Acquisition
Proposal and (iii) after receiving such advice, determines to accept such
proposal; PROVIDED, HOWEVER, that Peninsula shall not be entitled to
terminate this Agreement pursuant to this Section 8.01(g) unless it shall
have provided Western with written notice of such a possible determination
(which written notice will inform Western of the material terms and
conditions of the proposal, including the identity of the proponent) not
less than two business days prior to such determination.
8.02 EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article VIII,
no party to this Agreement shall have any liability or further obligation to any
other party hereunder except (i) as set forth in Section 8.03 or Section 9.01
and (ii) that termination will not relieve a breaching party from liability for
any willful breach of this Agreement giving rise to such termination.
8.03 TERMINATION FEE.
(a) MATERIAL BREACH BY WESTERN. Should Peninsula terminate this
Agreement pursuant to Section 8.01(b) (unless such breach under Section
8.01(b) shall result from no act or omission of Western), Western shall
promptly, if so requested by Peninsula, but in no event later than five
business days after the date of such request, pay Peninsula a fee equal to
Peninsula's out-of-pocket expenses in connection with this Agreement and the
transactions contemplated hereby, up to a maximum of
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$500,000, which amount shall be payable in same day funds, provided however
that no fee shall be paid pursuant to this Section 8.03(a) if Peninsula
shall be in material breach of its obligations hereunder and Western shall
owe no further duty or liability on account of this Agreement to Peninsula.
(b) MATERIAL BREACH BY PENINSULA; ENTERING ACQUISITION
PROPOSAL. Should Western terminate this Agreement pursuant to either
Section 8.01(e) or 8.01(b) (unless such breach under Section 8.01(b) shall
result from no act or omission of Peninsula), Peninsula shall promptly, if
so requested by Western, but in no event later than five business days after
the date of such request, pay Western a fee equal to Western's out-of-pocket
expenses in connection with this Agreement and the transactions contemplated
hereby, up to a maximum of $500,000, which amount shall be payable in same
day funds, provided however that no fee shall be paid pursuant to this
Section 8.03 if Western shall be in material breach of its obligations
hereunder and Peninsula shall owe no further duty or liability on account of
this Agreement to Western. In the event that there is a termination as a
result of Peninsula entering into an Acquisition Proposal pursuant to
Section 8.01(g), Peninsula shall pay Western up to $500,000 to cover
out-of-pocket expenses in addition to Western's rights under the Stock
Option Agreement and Peninsula shall owe no further duty or liability on
account of this Agreement to Western except under the Stock Option
Agreement.
ARTICLE IX
MISCELLANEOUS
9.01 SURVIVAL. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the Effective Time (other than
Sections 6.12 and 6.13 and this Article IX which shall survive the Effective
Time) or the termination of this Agreement if this Agreement is terminated prior
to the Effective Time (other than Sections 6.03(b), 6.05(b), 8.02, 8.03 and this
Article IX which shall survive such termination).
9.02 WAIVER; AMENDMENT. Prior to the Effective Time, any provision of this
Agreement may be (i) waived by the party benefitted by the provision, or (ii)
amended or modified at any time, by an agreement in writing between the parties
hereto executed in the same manner as this Agreement, except that after the
Peninsula Meeting, this Agreement may not be amended if it would violate the
CGCL or reduce the consideration to be received by Peninsula shareholders in the
Merger.
9.03 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
9.04 GOVERNING LAW; WAIVER OF JURY TRIAL. This Agreement shall be governed
by, and interpreted in accordance with, the laws of the State of California
applicable to contracts made and to be performed entirely within such State
(except to the extent that mandatory provisions of Federal law are applicable).
Each of the parties hereto hereby irrevocably waives any and all right to trial
by jury in any legal proceeding arising out of or related to this Agreement or
the transactions contemplated hereby.
9.05 EXPENSES. Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby.
9.06 NOTICES. All notices, requests and other communications hereunder to
a party shall be in writing and shall be deemed given if personally delivered,
telecopied (with confirmation) or mailed by registered or certified mail (return
receipt requested) to such party at its address set forth below or such other
address as such party may specify by notice to the parties hereto.
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If to Peninsula, to:
Peninsula Bank of San Diego
1331 Rosecrans Street
San Diego, California 92166
Attention: John G. Rebelo, Jr.
Facsimile: (619) 226-5554
With a copy to:
Reitner & Stuart
1319 Marsh Street
San Luis Obispo, California 93401
Attention: Barnet Reitner
Facsimile: (805) 545-8599
If to Western, to:
Western Bancorp
4100 Newport Place
Suite 900
Newport Beach, CA 92660
Attention: Julius G. Christensen
Facsimile: (949) 757-5845
With a copy to:
Sullivan & Cromwell
1888 Century Park East
Los Angeles, California 90067-1725
Attention: Stanley F. Farrar
Facsimile: (310) 712-8800
9.07 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement
and the Stock Option Agreement represent the entire understanding of the parties
hereto with reference to the transactions contemplated hereby and thereby and
this Agreement supersedes any and all other oral or written agreements
heretofore made (other than any such Stock Option Agreement). Except for Section
6.12, nothing in this Agreement expressed or implied, is intended to confer upon
any person, other than the parties hereto or their respective successors, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
9.08 INTERPRETATION; EFFECT. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and are not part of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." No provision of this Agreement shall
be construed to require Peninsula, Western or any of their respective
Subsidiaries, affiliates or directors to take any action which would violate
applicable law (whether statutory or common law), rule or regulation.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
<TABLE>
<S> <C> <C>
Peninsula Bank of San Diego
/s/ JOHN G. REBELO, JR.
-------------------------
Name: John G. Rebelo,
Jr.
Title: CHAIRMAN AND
CHIEF EXECUTIVE
OFFICER
By:
Western Bancorp
/s/ MATTHEW P. WAGNER
-------------------------
Name: Matthew P.
Wagner
Title: PRESIDENT AND
CHIEF EXECUTIVE OFFICER
By:
Portola Merger Sub
/s/ MATTHEW P. WAGNER
-------------------------
Name: Matthew P.
Wagner
Title: PRESIDENT
By:
</TABLE>
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APPENDIX B
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NATIONSBANC MONTGOMERY OPINION
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APPENDIX C
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
Section 1300. Reorganization or short-form merger; dissenting shares;
corporate purchase at fair market value; definitions.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5% or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
Section 1301. Notice to holders of dissenting shares in reorganizations;
demand for purchase; time; contents
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date
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of such approval, accompanied by a copy of Sections 1300, 1302, 1303, 1304 and
this section, a statement of the price determined by the corporation to
represent the fair market value of the dissenting shares, and a brief
description of the procedure to be followed if the shareholder desires to
exercise the shareholder's right under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
Section 1302. Submission of share certificates for endorsement;
uncertificated securities
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
Section 1303. Payment of agreed price with interest; agreement fixing fair
market value; filing; time of payment
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
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Section 1304. Action to determine whether shares are dissenting shares or
fair market value; limitation; joinder; consolidation; determination of issues;
appointment of appraisers
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
Section 1305. Report of appraisers; confirmation; determination by court;
judgment; payment; appeal; costs
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
% of the price offered by the corporation under subdivision (a) of Section
1301).
Section 1306. Prevention of immediate payment; status as creditors; interest
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
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Section 1307. Dividends on dissenting shares
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
Section 1308. Rights of dissenting shareholders pending valuation;
withdrawal of demand for payment
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
Section 1309. Termination of dissenting share and shareholder status
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
Section 1310. Suspension of right to compensation or valuation proceedings;
litigation of shareholders' approval
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
Section 1311. Exempt shares
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
Section 1312. Right of dissenting shareholder to attack, set aside or
rescind merger or reorganization; restraining order or injunction; conditions
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal
C-4
<PAGE>
terms of the reorganization are approved pursuant to subdivision (b) of Section
1202, is entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
C-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317 of the CGCL authorizes a court to award, or a corporation's
Board of Directors to grant indemnity to directors, officers and employees in
terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act. Article Six of Western's Restated Articles of
Incorporation and Article VI of Western's Restated Bylaws provide for
indemnification of its directors, officers, employees and other agents to the
fullest extent permitted by the CGCL.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION AND METHOD OF FILING
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of July 24, 1998, by and among Western, Merger Sub and Peninsula
(incorporated by reference to Appendix A to this Registration Statement on Form S-4)
4.1 Form of Certificate representing shares of Western Common Stock (incorporated by reference to Exhibit
3.1 to the Registrant's Current Report on Form 8-K, dated June 18, 1997)
5.1 Opinion of Julius G. Christensen
8.1 Form of Tax Opinion of Sullivan & Cromwell (to be filed by amendment)
8.2 Form of Tax Opinion of Deloitte & Touche LLP (to be filed by amendment)
10.1 Stock Option Agreement, dated as of July 24, 1998, by and between Western and Peninsula
23.1 Consent of KPMG Peat Marwick LLP (Western)
23.2 Consent of Deloitte & Touche LLP (Peninsula)
23.3 Consent of Deloitte & Touche LLP (Santa Monica Bank)
23.4 Consent of Deloitte & Touche LLP (SC Bancorp)
23.5 Consent of Deloitte & Touche LLP (California Commercial Bankshares)
23.6 Consent of Vavrinek, Trine, Day & Co., LLP (BKLA)
23.7 Consent of Vavrinek, Trine, Day & Co., LLP (Monarch Bancorp)
23.8 Consent of Arthur Andersen LLP (Santa Monica Bank)
23.9 Consent of Julius G. Christensen (included in opinion filed as Exhibit 5.1 hereto)
23.10 Consent of Sullivan & Cromwell (included in opinion filed as Exhibit 8.1 hereto)
23.11 Consent of Deloitte & Touche LLP (included in opinion filed as Exhibit 8.2 hereto)
23.12 Consent of NationsBanc Montgomery (to be filed by amendment)
23.13 Consent of John G. Rebelo, Jr., proposed Western director
24.1 Power of Attorney (set forth on Page II-3)
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration
II-1
<PAGE>
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(c) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Newport Beach, state of
California, on September 29, 1998.
<TABLE>
<S> <C> <C>
WESTERN BANCORP
By: /s/ ARNOLD C. HAHN
-----------------------------------------
Name: Arnold C. Hahn
Title: Executive Vice President and
Chief Financial Officer
</TABLE>
We, the undersigned officers and directors of Western Bancorp, do hereby
constitute and appoint Arnold C. Hahn and Julius G. Christensen, and each of
them, our true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for each of us and in each of our names, places
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as each of us might or could do in person,
hereby ratifying and confirming all that each of said attorneys-in-fact and
agents, or his/her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ HUGH S. SMITH, JR.
- ------------------------------ Chairman and Director September 29, 1998
Hugh S. Smith, Jr.
/s/ MATTHEW P. WAGNER
- ------------------------------ Chief Executive Officer, September 29, 1998
Matthew P. Wagner President and Director
/s/ ARNOLD C. HAHN Executive Vice President
- ------------------------------ and Chief Financial September 29, 1998
Arnold C. Hahn Officer
/s/ RICE E. BROWN
- ------------------------------ Director September 29, 1998
Rice E. Brown
/s/ JOHN M. EGGEMEYER
- ------------------------------ Director September 29, 1998
John M. Eggemeyer
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ WILLIAM C. GREENBECK
- ------------------------------ Director September 29, 1998
William C. Greenbeck
/s/ ROBERT L. MCKAY
- ------------------------------ Director September 29, 1998
Robert L. McKay
- ------------------------------ Director September 29, 1998
Mark H. Stuenkel
/s/ DALE E. WALTER
- ------------------------------ Director September 29, 1998
Dale E. Walter
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION AND METHOD OF FILING
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of July 24, 1998, by and among Western, Merger Sub and Peninsula
(incorporated by reference to Appendix A to this Registration Statement on Form S-4)
4.1 Form of Certificate representing shares of Western Common Stock (incorporated by reference to Exhibit
3.1 to the Registrant's Current Report on Form 8-K, dated June 18, 1997)
5.1 Opinion of Julius G. Christensen
8.1 Form of Tax Opinion of Sullivan & Cromwell (to be filed by amendment)
8.2 Form of Tax Opinion of Deloitte & Touche LLP (to be filed by amendment)
10.1 Stock Option Agreement, dated as of July 24, 1998, by and between Western and Peninsula
23.1 Consent of KPMG Peat Marwick LLP (Western)
23.2 Consent of Deloitte & Touche LLP (Peninsula)
23.3 Consent of Deloitte & Touche LLP (Santa Monica Bank)
23.4 Consent of Deloitte & Touche LLP (SC Bancorp)
23.5 Consent of Deloitte & Touche LLP (California Commercial Bankshares)
23.6 Consent of Vavrinek, Trine, Day & Co., LLP (BKLA)
23.7 Consent of Vavrinek, Trine, Day & Co., LLP (Monarch Bancorp)
23.8 Consent of Arthur Andersen LLP (Santa Monica Bank)
23.9 Consent of Julius G. Christensen (included in opinion filed as Exhibit 5.1 hereto)
23.10 Consent of Sullivan & Cromwell (included in opinion filed as Exhibit 8.1 hereto)
23.11 Consent of Deloitte & Touche LLP (included in opinion filed as Exhibit 8.2 hereto)
23.12 Consent of NationsBanc Montgomery (to be filed by amendment)
23.13 Consent of John G. Rebelo, Jr., proposed Western director
24.1 Power of Attorney (set forth on Page II-3)
</TABLE>
II-5
<PAGE>
EXHIBIT 5.1
September 29, 1998
Western Bancorp,
4100 Newport Place, Suite 900
Newport Beach, California 92660.
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933, as
amended (the "Act"), of 2,932,002 shares (the "Securities") of common stock,
without par value, of Western Bancorp, a California corporation (the "Company"),
I, as General Counsel of the Company, have examined such corporate records,
certificates and other documents, and such questions of law, as I have
considered necessary or appropriate for the purpose of this opinion. Upon the
basis of such examination, I advise you that, in my opinion, when the
registration statement on Form S-4 relating to the Securities (the "Registration
Statement") has become effective under the Act and the Securities have been duly
issued and sold as contemplated by the Registration Statement, and upon
consummation of the merger of Portola Merger Sub, a wholly owned subsidiary of
the Company, with and into Peninsula Bank of San Diego, the Securities will be
validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the Federal laws of the United States
and the laws of the State of California, and I am expressing no opinion as to
the effect of the laws of any other jurisdiction.
I have relied as to certain matters on information obtained from public
officials and other sources believed by me to be responsible.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the heading "Validity of
Western Common Stock" in the Proxy Statement-Prospectus contained in the
Registration Statement. In giving such consent, I do not thereby admit that I am
in the category of persons whose consent is required under Section 7 of the Act.
Very truly yours,
/s/ JULIUS G. CHRISTENSEN
Julius G. Christensen
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
<PAGE>
- -------------------------------------------------------------------------------
STOCK OPTION AGREEMENT
DATED AS OF THE 24th DAY OF JULY, 1998
BY AND BETWEEN
WESTERN BANCORP
AND
PENINSULA BANK OF SAN DIEGO
- -------------------------------------------------------------------------------
<PAGE>
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of the 24th day of July, 1998
(this "Agreement"), between Western Bancorp, a California corporation
("Grantee"), and Peninsula Bank of San Diego, a California corporation
("Issuer").
WITNESSETH:
WHEREAS, Grantee and Issuer are entering into an Agreement and Plan
of Merger dated as of the date hereof (the "Plan"), which is being executed
by the parties hereto simultaneously with the execution of this Agreement;
WHEREAS, as a condition and inducement to Grantee's entering into
the Plan and in consideration therefor, Issuer has agreed to grant Grantee
the Option (as defined below); and
WHEREAS, the Board of Directors of Issuer has approved the grant of
the Option and the Plan prior to the date hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Plan, the parties hereto
agree as follows:
SECTION 1. GRANT OF OPTION. (a) Issuer hereby grants to Grantee
an unconditional, irrevocable option (the "Option") to purchase, subject to
the terms hereof, up to 494,930 fully paid and nonassessable shares of Common
Stock, no par value per share ("Common Stock"), of Issuer at a fixed price
per share of $41.00 (the "Initial Price"); PROVIDED, HOWEVER, that in the
event Issuer issues or agrees to issue any shares of Common Stock at a price
less than the Initial Price (as adjusted pursuant to Section 5(b)), such
price shall be equal to such lesser price (such price, as adjusted as
hereinafter provided, the "Option Price"); and, PROVIDED FURTHER, HOWEVER,
that in no event shall the number of shares of Common Stock for which the
Option is exercisable exceed 19.9% of the number of shares of Common Stock
then issued and outstanding without giving effect to any shares subject or
issued pursuant to the Option. The number of shares of Common Stock that may
be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are
issued or otherwise become outstanding after the date of this Agreement
(other than pursuant to this Agreement and other than pursuant to an event
described in Section 5(a) hereof), the number of shares of Common Stock
subject to the Option shall be increased so that after such issuance such
number together with any shares of Common Stock previously issued pursuant
hereto, equals 19.9% of the number of shares of Common Stock then issued and
<PAGE>
outstanding without giving effect to any shares subject or issued pursuant to
the Option. Nothing contained in this Section l(b) or elsewhere in this
Agreement shall be deemed to authorize Issuer to issue shares in breach of
any provision of the Plan.
SECTION 2. EXERCISE OF OPTION.
(a) TIMING OF EXERCISE, TERMINATION. Provided that (i) Grantee
shall not be in material breach of the agreements or covenants contained in
this Agreement or the Plan and (ii) no preliminary or permanent injunction or
other order against delivery of shares covered by the Option issued by any
court of competent jurisdiction in the United States shall be in effect,
Grantee may exercise the Option, in whole or part, at any time and from time
to time following the occurrence of a Purchase Event (as defined below);
PROVIDED that the Option shall terminate and be of no further force and
effect upon the earliest to occur of (i) the time immediately prior to the
Effective Time, (ii) 12 months after the first occurrence of a Purchase
Event, (iii) 18 months after the termination of the Plan following the
occurrence of a Preliminary Purchase Event (as defined below), (iv)
termination of the Plan in accordance with the terms thereof prior to the
occurrence of a Purchase Event or a Preliminary Purchase Event (other than a
termination of the Plan by Grantee pursuant to Section 8.01(b)(i) or (ii), by
Grantee and Issuer pursuant to Section 8.01(a) thereof if Grantee shall at
that time have been entitled to terminate the Plan pursuant to Section
8.01(b)(i) or (ii) thereof or by Issuer pursuant to 8.01(g), or (v) 18 months
after the termination of the Plan by Grantee pursuant to Section 8.01(b)(i)
or (ii), by Grantee and Issuer pursuant to Section 8.01(a) thereof if Grantee
shall at that time have been entitled to terminate the Plan pursuant to
Section 8.01(b)(i) or (ii) thereof or by Issuer pursuant to 8.01(g)). The
events described in clauses (i) -(v) in the preceding sentence are
hereinafter collectively referred to as an "Exercise Termination Event."
Anything herein to the contrary notwithstanding, any purchase of shares upon
exercise of the Option shall be subject to compliance with applicable law.
The rights set forth in Section 7 hereof shall terminate when the right to
exercise the Option terminates (other than as a result of a complete exercise
of the Option) as set forth herein.
(b) PRELIMINARY PURCHASE EVENT. The term "Preliminary Purchase
Event" shall mean any of the following events or transactions occurring after
the date hereof:
(i) Issuer or any of its subsidiaries (each, an "Issuer
Subsidiary") shall have entered into an agreement to engage in an
Acquisition Transaction (as defined below) with any Person (the term
"Person" for purposes of this Agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act
of 1934 (the "Exchange Act"), and the rules and regulations thereunder)
other than Grantee or any of its subsidiaries (each a "Grantee
Subsidiary") or the Board of Directors of Issuer shall have recommended
that the shareholders of Issuer approve or accept any Acquisition
Transaction with any Person other than Grantee or any Grantee
Subsidiary. For purposes of this Agreement, "Acquisition Transaction"
shall mean (x) a merger or
-2-
<PAGE>
consolidation, or any similar transaction, involving Issuer or any
Issuer Subsidiary, (y) a purchase, lease or other acquisition of all or
substantially all of the assets of or assumption of all or
substantially all the deposits of Issuer or any Issuer Subsidiary or
(z) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing
10% or more of the voting power of Issuer or any Issuer Subsidiary,
provided that the term "Acquisition Transaction" does not include any
internal merger or consolidation involving only Issuer and/or Issuer
Subsidiaries;
(ii) Any Person (other than Grantee or any Grantee Subsidiary or any
Issuer Subsidiary acting in a fiduciary capacity in the ordinary course
of business) shall have acquired Beneficial Ownership or the right to
acquire Beneficial Ownership, of shares of Common Stock (the term
"Beneficial Ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the Exchange Act, and the
rules and regulations thereunder) such that, upon the consummation of
such acquisition, such Person would have Beneficial Ownership, in the
aggregate, of 10% or more of the then outstanding shares of Common
Stock;
(iii) Any Person other than Grantee or any Grantee Subsidiary shall
have made a BONA FIDE proposal to Issuer or its shareholders, by public
announcement or written communication that is or becomes the subject of
public disclosure, to engage in an Acquisition Transaction (including,
without limitation, any situation in which any Person other than
Grantee or any Grantee Subsidiary shall have commenced (as such term is
defined in Rule 14d-2 under the Exchange Act) or shall have filed a
registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to, a tender offer or exchange
offer to purchase any shares of Common Stock such that, upon
consummation of such offer, such Person would own or control 10% or
more of the then outstanding shares of Common Stock (such an offer
being referred to herein as a "Tender Offer" or an "Exchange Offer",
respectively));
(iv) After a proposal is made by a third party to Issuer or its
shareholders to engage in an Acquisition Transaction, or such third
party states its intention to make such a proposal if the Plan
terminates and/or the Option expires, Issuer shall have breached any
covenant or obligation contained in the Plan and such breach would
entitle Grantee to terminate the Plan (without regard to the cure
period provided for therein);
(v) The holders of Common Stock shall not have approved the Plan
by the requisite vote at the meeting of such shareholders held for the
purpose of voting on the Plan, or such meeting shall not have been held
or shall have been canceled prior to termination of the Plan, in each
case after it shall have been publicly announced that any Person (other
than Grantee or any Grantee Subsidiary) shall have (A) made, or
disclosed an intention to make, a BONA FIDE proposal to engage
-3-
<PAGE>
in an Acquisition Transaction, (B) commenced a Tender Offer or filed a
registration statement under the Securities Act with respect to an
Exchange Offer or (C) filed an application (or given a notice) with,
whether in draft of final form, the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") or any other governmental
authority or regulatory or administrative agency or commission (each, a
"Governmental Authority"), for approval to engage in an Acquisition
Transaction;
(vi) Any Person (other than Grantee or any Grantee Subsidiary),
other than in connection with a transaction to which Grantee has given
its prior written consent, shall have filed an application or notice
with the Federal Reserve Board or other Governmental Authority for
approval to engage in an Acquisition Transaction; or
(vii) The Issuer's Board of Directors shall have withdrawn or
modified (or publicly announced its intention to withdraw or modify) in
any manner adverse in any respect to Grantee its recommendation that
the shareholders of Issuer approve the transactions contemplated by the
Plan in anticipation of engaging in an Acquisition Proposal, or Issuer
or any Issuer Subsidiary shall have authorized, recommended, proposed
(or publicly announced its intention to authorize, recommend or
propose) an agreement to engage in an Acquisition Transaction with any
person other than Grantee or a Grantee Subsidiary.
(c) PURCHASE EVENT. The term "Purchase Event" shall mean
either of the following events or transactions occurring after the date
hereof:
(i) The acquisition by any Person other than Grantee or any
Grantee Subsidiary of Beneficial Ownership of shares of Common Stock,
such that, upon the consummation of such acquisition, such Person would
have Beneficial Ownership, in the aggregate, of 25% or more of the then
outstanding shares of Common Stock; or
(ii) The occurrence of a Preliminary Purchase Event described in
Section 2(b)(i) or (ii) hereof except that the percentage referred to
in either such case shall be 25%.
(d) NOTICE BY ISSUER. Issuer shall notify Grantee promptly in
writing of the occurrence of any Preliminary Purchase Event or Purchase
Event; PROVIDED, HOWEVER, that the giving of such notice by Issuer
shall not be a condition to the right of Grantee to exercise the Option.
(e) NOTICE OF EXERCISE. In the event that Grantee is entitled to
and wishes to exercise the Option, it shall send to Issuer a written
notice (the "Option Notice" and the date of which being hereinafter
referred to as the "Notice Date") specifying (i) the total
-4-
<PAGE>
number of shares of Common Stock it will purchase pursuant to such
exercise, (ii) the aggregate purchase price as provided herein and
(iii) a period of time (that shall not be less than three business days
nor more than sixty business days) running from the Notice Date (the
"Closing Date") and a place at which the closing of such purchase shall
take place; PROVIDED, THAT, if prior notification to or approval of the
Federal Reserve Board or any other Governmental Authority is required
in connection with such purchase (each, a "Notification" or an
"Approval," as the case may be), (a) Grantee shall promptly file, or
cause to be filed, the required notice or application for approval
("Notice/Application"), (b) Grantee shall expeditiously process, or
cause to be expeditiously processed, the Notice/Application and (c) for
the purpose of determining the Closing Date pursuant to clause (iii) of
this sentence, the period of time that otherwise would run from the
Notice Date shall instead run from the later of (x) in connection with
any Notification, the date on which any required notification periods
have expired or been terminated and (y) in connection with any
Approval, the date on which such approval has been obtained and any
requisite waiting period or periods shall have expired. For purposes of
Section 2(a) hereof, any exercise of the Option shall be deemed to
occur on the Notice Date relating thereto. On or prior to the Closing
Date, Grantee shall have the right to revoke its exercise of the Option
in the event that the transaction constituting a Purchase Event that
gives rise to such right to exercise shall not have been consummated.
(f) PAYMENTS. At the closing referred to in Section 2(e) hereof,
Grantee shall present and surrender this Agreement and pay to Issuer
the aggregate Option Price for the shares of Common Stock specified in
the Option Notice in immediately available funds by wire transfer to a
bank account designated by Issuer; PROVIDED, HOWEVER, that failure or
refusal of Issuer to designate such a bank account shall not preclude
Grantee from exercising the Option.
(g) DELIVERY OF COMMON STOCK. At such closing, simultaneously
with the delivery of immediately available funds as provided in Section
2(f) hereof, Issuer shall deliver to Grantee a certificate or
certificates representing the number of shares of Common Stock
specified in the Option Notice and, if the Option should be exercised
in part only, a new Option evidencing the rights of Grantee thereof to
purchase the balance of the shares of Common Stock purchasable
hereunder.
(h) HOLDER OF RECORD. Upon the giving by Grantee to Issuer of an
Option Notice and the tender of the applicable purchase price in
immediately available funds on the Closing Date, Grantee shall be
deemed to be the holder of record of the number of shares of Common
Stock specified in the Option Notice, notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then actually be
delivered to Grantee. Issuer shall pay all expenses and any and all
United States federal, state and local taxes and other charges that may
be payable in connection with the preparation, issue and delivery of
stock certificates under this Section 2 in the name of Grantee.
-5-
<PAGE>
SECTION 3. ISSUER'S COVENANTS.
(a) AVAILABLE SHARES. The Issuer agrees that it shall at all
times until the termination of this Agreement have reserved for issuance upon
the exercise of the Option that number of authorized and reserved shares of
Common Stock equal to the maximum number of shares of Common Stock at any
time and from time to time issuable hereunder, all of which shares will, upon
issuance pursuant hereto, be duly authorized, validly issued, fully paid,
nonassessable, and delivered free and clear of all claims, liens,
encumbrances and security interests and not subject to any preemptive rights.
(b) COMPLIANCE. The Issuer agrees that it will not, by amendment
of its articles of incorporation or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid
or seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer.
(c) CERTAIN ACTIONS, APPLICATIONS AND ARRANGEMENTS. Issuer shall
promptly take all action as may from time to time be required (including (i)
complying with all pre-merger notification, reporting and waiting period
requirements specified in 15 U.S.C. Section 18a and regulations promulgated
thereunder and (ii) in the event, under the Bank Holding Company Act of 1956,
as amended ("BHCA"), or the Change in Bank Control Act of 1978, as amended,
or any California banking law, prior approval of or notice to the Federal
Reserve Board or to any other Governmental Authority is necessary before the
Option may be exercised, cooperating with Grantee in preparing such
applications or notices and providing such information to each such
Governmental Authority as it may require) in order to permit Grantee to
exercise the Option and Issuer duly and effectively to issue shares of Common
Stock pursuant hereto, and to protect the rights of Grantee against dilution.
SECTION 4. EXCHANGE OF OPTION. This Agreement and the Option
granted hereby are exchangeable, without expense, at the option of Grantee,
upon presentation and surrender of this Agreement at the principal office of
Issuer, for other agreements providing for Options of different denominations
entitling the holder thereof to purchase, on the same terms and subject to
the same conditions as are set forth herein, in the aggregate the same number
of shares of Common Stock purchasable hereunder. The terms "Agreement" and
"Option" as used in this Section 4 include any agreements and related options
for which this Agreement and the Option granted hereby may be exchanged.
Upon receipt by Issuer of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Agreement, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the
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Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
SECTION 5. ADJUSTMENTS. The number of shares of Common Stock
purchasable upon the exercise of the Option shall be subject to adjustment
from time to time as follows:
(a) In the event of any change in, or distributions in respect of, the
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of
shares or the like, the type and number of shares of Common Stock purchasable
upon exercise hereof shall be appropriately adjusted and proper provision
shall be made so that, in the event that any additional shares of Common
Stock are to be issued or otherwise to become outstanding as a result of any
such change (other than pursuant to an exercise of the Option), the number of
shares of Common Stock that remain subject to the Option shall be increased
so that, after such issuance and together with shares of Common Stock
previously issued pursuant to the exercise of the Option (as adjusted on
account of any of the foregoing changes in the Common Stock), it represents
the same proportion of the number of shares of Common Stock then issued and
outstanding as such proportion before the applicable event described in this
Section 5(a).
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the
numerator of which shall be equal to the number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which shall be
equal to the number of shares of Common Stock purchasable after the
adjustment.
SECTION 6. REGISTRATION RIGHTS. (a) Upon the occurrence of a
Purchase Event that occurs prior to an Exercise Termination Event, Issuer
shall, at the request of Grantee (whether on its own behalf or on behalf of
any subsequent holder of the Option (or part thereof) or any of the shares of
Common Stock issued pursuant hereto), promptly take such action as may be
required under applicable federal or state laws, including if applicable
registering or qualifying any shares issued and issuable pursuant to the
Option for sale or the sale of any such shares or otherwise securing any
necessary governmental permits or approvals for the sale of such shares (any
and all such actions are hereinafter referred to as a "Registration"), in
order to permit the sale or other disposition of any shares of Common Stock
issued upon total or partial exercise of the Option ("Option Shares") in
accordance with any plan of disposition requested by Grantee. Issuer will
use its best efforts to cause such Registration to remain in effect for such
period not in excess of 180 days from the day such Registration is first
effected. Grantee shall have the right to demand two such Registrations at
the Issuer's expense. The foregoing notwithstanding, if, at the time of any
such request by Grantee as provided above, Issuer is in the process of a
Registration with respect to an underwritten public offering of shares of
Common Stock, and if in the good faith judgment of the managing
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underwriter or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering, the offering or inclusion of the Option
Shares would interfere materially with the successful marketing of the shares
of Common Stock offered by Issuer, the number of Option Shares otherwise to
be covered in such Registration contemplated hereby may be reduced; PROVIDED,
HOWEVER, that after any such required reduction, the number of Option Shares
to be included in such Registration for the account of Grantee shall
constitute at least 33 1/3% of the total number of shares of Common Stock
held by Grantee and Issuer covered in such Registration; PROVIDED FURTHER,
HOWEVER, that if such reduction occurs, then Issuer shall effect a
Registration for the balance of such shares as promptly as practicable
thereafter as to which no reduction shall thereafter occur. In addition, if
the Issuer proposes to effect a Registration with respect to its Common Stock
or any other securities in such a manner that would permit the Registration
of the Shares or a sale of the Shares for public sale (whether proposed to be
offered for sale by the Issuer or any other Person) it will give prompt
written notice to Grantee of its intention to do so, specifying the relevant
terms of such proposal, including the proposed maximum offering price
thereof. Upon the written notice of Grantee (whether on its own behalf or on
behalf of any subsequent holder of the Option (or part thereof) or any of the
shares of Common Stock issued pursuant hereto) delivered to the Issuer within
20 business days after the giving of any such notice, which request shall
specify the number of Shares desired to be disposed by Grantee, the Issuer
will use its best efforts to effect, in connection with such proposed action,
the Registration of the Shares or a sale thereof set forth in such request.
Grantee shall be entitled to two such Registrations at the Issuer's expense.
Grantee shall provide all information reasonably requested by Issuer for
inclusion in connection with any such Registration. In connection with any
such Registration, Issuer and Grantee shall provide each other with
representations, warranties, indemnities and other agreements customarily
given in connection with such Registrations. If requested by Grantee in
connection with such Registration, Issuer and Grantee shall become a party to
any underwriting agreement relating to the sale of such shares, but only to
the extent of obligating themselves in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements.
(b) In the event that Grantee requests Issuer to effect a
Registration following the failure to obtain any approval required to
exercise the Option as described in Section 9 hereof, the closing of the sale
or other disposition of the Common Stock or other securities pursuant to such
Registration shall occur substantially simultaneously with the exercise of
the Option.
(c) Except where applicable state law prohibits such payments,
Issuer will pay all expenses (including without limitation registration fees,
qualification fees, blue sky fees and expenses (including the fees and
expenses of counsel), legal expenses, including the reasonable fees and
expenses of one counsel to the holders of Option Shares the subject of a
Registration, printing expenses and the costs of special audits or "cold
comfort" letters, expenses of underwriters, excluding discounts and
commissions but
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including liability insurance if Issuer so desires or the underwriters so
require, and the reasonable fees and expenses of any necessary special
experts) in connection with each Registration pursuant to this Section 6
(including the related offerings and sales by holders of Option Shares) and
all other qualifications, notification or exemptions pursuant to this Section
6.
(d) In connection with any Registration under this Section 6,
Issuer hereby indemnifies the Grantee, and each officer, director and
controlling person of Grantee, and each underwriter thereof, including each
person, if any who controls such holder or underwriter within the meaning of
Section 15 of the Securities Act, against all expenses, losses, claims,
damages and liabilities caused by any untrue, or alleged untrue, statement
contained in any registration statement or prospectus or notification or
offering circular (including any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission, or alleged omission, to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such expenses,
losses, claims, damages or liabilities of such indemnified party are caused
by any untrue statement or alleged untrue statement that was included by
Issuer in any such registration statement or prospectus or notification or
offering circular (including any amendments or supplements thereto) in
reliance upon and in conformity with, information furnished in writing to
Issuer by such indemnified party expressly for use therein, and Issuer and
each officer, director and controlling person of Issuer shall be indemnified
by such Grantee, or by such underwriter, as the case may be, for all such
expenses, losses, claims, damages and liabilities caused by any untrue, or
alleged untrue, statement, that was included by Issuer in any such
registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) in reliance upon, and in
conformity with, information furnished in writing to Issuer by such holder or
such underwriter, as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this Section 6(d)
of notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 6(d), such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may otherwise have to any indemnified party under this
Section 6(d). In case notice of commencement of any such action shall be given
to the indemnifying party as above provided, the indemnifying party shall be
entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and reasonably satisfactory
to such indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnified party unless (i) the
indemnifying party either agrees to pay the same, (ii) the indemnifying party
fails to assume the defense of such action with counsel reasonably satisfactory
to the
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indemnified party, or (iii) the indemnified party has been advised by counsel
that one or more legal defenses may be available to the indemnifying party
that may be contrary to the interests of the indemnified party. No
indemnifying party shall be liable for the fees and expenses of more than one
separate counsel for all indemnified parties or for any settlement entered
into without its consent, which consent may not be unreasonably withheld.
If the indemnification provided for in this Section 6(d) is
unavailable to a party otherwise entitled to be indemnified in respect of any
expenses, losses, claims, damages or liabilities referred to herein, then the
indemnifying party, in lieu of indemnifying such party otherwise entitled to
be indemnified, shall contribute to the amount paid or payable by such party
to be indemnified as a result of such expenses, losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative
fault of Issuer, the Grantee and the underwriters in connection with the
statements or omissions which resulted in such expenses, losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The amount paid or payable by a party as a result of the
expenses, losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or claim;
PROVIDED, HOWEVER, that in no case shall the Grantee be responsible, in the
aggregate, for any amount in excess of the net offering proceeds attributable
to its Option Shares included in the offering. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Any obligation by any Grantee
to indemnify shall be several and not joint with other holders of Option
Shares.
SECTION 7. OPTION REPURCHASE. (a) Upon the occurrence of a
Purchase Event that occurs prior to an Exercise Termination Event, (i) at the
request (the date of such request being the "Request Date") of Grantee,
delivered within 30 days of the Purchase Event (or such later period as may
be provided pursuant to Section 9 hereof), Issuer shall repurchase the Option
from Grantee at a price (the "Option Repurchase Price") equal to (x) the
amount by which (A) the market/offer price (as defined below) exceeds (B) the
Option Price, multiplied by the number of shares for which the Option may
then be exercised and (ii) at the request (the date of such request being the
"Request Date") of the owner of Option Shares from time to time (the
"Owner"), delivered within 30 days of a Purchase Event (or such later period
as may be provided pursuant to Section 9 hereof), Issuer shall repurchase
such number of the Option Shares from the Owner as the Owner shall designate
at a price (the "Option Share Repurchase Price") equal to (x) the
market/offer price multiplied by the number of Option Shares so designated.
The term "market/offer price" shall mean the highest of (i) the price per
share of Common Stock at which a tender offer or exchange offer therefor has
been made after the date hereof and on or prior to the Request Date, (ii) the
price per share of Common Stock paid or to be paid by any third party
pursuant to an agreement with Issuer (whether by way of a merger,
consolidation or otherwise) or (iv) in
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the event of a sale of all or substantially all of Issuer's assets, the sum
of the price paid in such sale for such assets and the current market value
of the remaining assets of Issuer as determined by a nationally-recognized
independent investment banking firm mutually selected by Grantee or the
Owner, as the case may be, on the one hand, and Issuer, on the other hand,
divided by the number of shares of Common Stock of Issuer outstanding at the
time of such sale. In determining the market/offer price, the value of
consideration other than cash shall be determined by a nationally-recognized
independent investment banking firm mutually selected by Grantee or Owner, as
the case may be, on the one hand, and Issuer, on the other hand, whose
determination shall be conclusive and binding on all parties.
(b) Grantee or the Owner, as the case may be, may exercise its
right to require Issuer to repurchase the Option and/or any Option Shares
pursuant to this Section 7 by surrendering for such purpose to Issuer, at its
principal office, a copy of this Agreement or certificates for Option Shares,
as applicable, accompanied by a written notice or notices stating that
Grantee or the Owner, as the case may be, elects to require Issuer to
repurchase the Option and/or the Option Shares in accordance with the
provisions of this Section 7. As immediately as practicable, and in any event
within five business days after the surrender of the Option and/or
certificates representing Option Shares and the receipt of such notice or
notices relating thereto, Issuer shall deliver or cause to be delivered to
Grantee the Option Repurchase Price or to the Owner the Option Share
Repurchase Price or the portion thereof that Issuer is not then prohibited
from so delivering under applicable law and regulation or as a consequence of
administrative policy.
(c) Issuer hereby undertakes to use its best efforts to obtain all
required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to accomplish any repurchase contemplated by
this Section 7. Nonetheless, to the extent that Issuer is prohibited under
applicable law or regulation from repurchasing the Option and/or the Option
Shares in full, Issuer shall immediately so notify Grantee and/or the Owner
and thereafter deliver or cause to be delivered, from time to time, to
Grantee and/or the Owner, as appropriate, the portion of the Option
Repurchase Price and the Option Share Repurchase Price, respectively, that it
is no longer prohibited from delivering, within five business days after the
date on which Issuer is no longer so prohibited; PROVIDED, HOWEVER, that if
Issuer at any time after delivery of a notice of repurchase pursuant to
Section 7(b) is prohibited under applicable law or regulation from delivering
to Grantee and/or the Owner, as appropriate, the Option Repurchase Price and
the Option Share Repurchase Price, respectively, in full Grantee or Owner may
revoke its notice of repurchase of the Option or the Option Shares either in
whole or in part whereupon, in the case of a revocation in part, Issuer shall
promptly (i) deliver to Grantee and/or the Owner, as appropriate, that
portion of the Option Purchase Price or the Option Share Repurchase Price
that Issuer is not prohibited from delivering after taking into account any
such revocation and (ii) deliver, as appropriate, either (A) to Grantee, a
new Agreement evidencing the right of Grantee to purchase that number of
shares of Common Stock equal to the number of shares of Common Stock
purchasable immediately prior to
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the delivery of the notice of repurchase less the number of shares of Common
Stock covered by the portion of the Option repurchased or (B) to the Owner, a
certificate for the number of Option Shares covered by the revocation.
(d) Issuer shall not enter into any agreement with any party
(other than Grantee or a Grantee Subsidiary) for an Acquisition Transaction
unless the other party thereto assumes all the obligations of Issuer pursuant
to this Section 7 in the event that a Grantee or Owner elects, in its sole
discretion, to require such other party to perform such obligations.
SECTION 8. SUBSTITUTE OPTION.
(a) GRANT OF SUBSTITUTE OPTION. In the event that prior to an
Exercise Termination Event, Issuer shall enter into an agreement (i) to
consolidate or merge with any Person, other than Grantee or a Grantee
Subsidiary, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any Person, other than Grantee or a
Grantee Subsidiary, to merge into Issuer and Issuer shall be the continuing
or surviving corporation, but, in connection with such merger, the then
outstanding shares of Common Stock shall be changed into or exchanged for
stock or other securities of any other Person or cash or any other property
or the then outstanding shares of Common Stock shall after such merger
represent less than 50% of the outstanding shares and share equivalents of
the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its or any Issuer Subsidiary's assets to any Person,
other than Grantee or a Grantee Subsidiary, then, and in each such case, the
agreement governing such transaction shall make proper provision so that the
Option shall, upon the consummation of such transaction and upon the terms
and conditions set forth herein, be converted into, or exchanged for, an
option (the "Substitute Option"), at the election of Grantee, of either (x)
the Acquiring Corporation (as defined below) or (y) any Person that controls
the Acquiring Corporation (the Acquiring Corporation and any such controlling
Person being hereinafter referred to as the "Substitute Option Issuer").
(b) EXERCISE OF SUBSTITUTE OPTION. The Substitute Option shall be
exercisable for such number of shares of the Substitute Common Stock (as is
hereinafter defined) as is equal to the market/offer price (as defined in
Section 7 hereof), MULTIPLIED by the number of shares of the Common Stock for
which the Option was theretofore exercisable, DIVIDED by the Average Price
(as is hereinafter defined). The exercise price of the Substitute Option per
share of the Substitute Common Stock (the "Substitute Purchase Price") shall
then be equal to the product of the Option Price MULTIPLIED by a fraction in
which the numerator is the number of shares of Common Stock for which the
Option was theretofore exercisable and the denominator is the number of
shares for which the Substitute Option is exercisable.
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(c) TERMS OF SUBSTITUTE OPTION. The Substitute Option shall
otherwise have the same terms as the Option, PROVIDED, HOWEVER, that if the
terms of the Substitute Option cannot, for legal reasons, be the same as the
Option, such terms shall be as similar as possible and in no event less
advantageous to Grantee.
(d) SUBSTITUTE OPTION DEFINITIONS. The following terms have the
meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer in a merger in which Issuer is the
continuing or surviving Person, and (iii) the transferee of all or any
substantial part of the Issuer's assets (or the assets of any Issuer
Subsidiary);
(ii) "Substitute Common Stock" shall mean the common stock issued
by the Substitute Option Issuer upon exercise of the Substitute Option;
and
(iii) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding
the consolidation, merger or sale in question, but in no event higher
than the closing price of the shares of the Substitute Common Stock on
the day preceding such consolidation, merger or sale; PROVIDED,
HOWEVER, that if such closing price is not ascertainable due to an
absence of a public market for the Substitute Common Stock, "Average
Price" shall mean the higher of (i) the price per share of Substitute
Common Stock paid or to be paid by any third party pursuant to an
agreement with the issuer of the Substitute Common Stock and (ii) the
book value per share, calculated in accordance with generally accepted
accounting principles, of the Substitute Common Stock immediately prior
to exercise of the Substitute Option; PROVIDED, FURTHER, that if Issuer
is the issuer of the Substitute Option, the Average Price shall be
computed with respect to a share of common stock issued by Issuer, the
Person merging into Issuer or by any company which controls or is
controlled by such merging Person, as Grantee may elect.
(e) CAP ON SUBSTITUTE OPTION. In no event, pursuant to any of
the foregoing paragraphs, shall the Substitute Option be exercisable for more
than that proportion of the outstanding Substitute Common Stock equal to the
proportion of the outstanding Common Stock of the Issuer which Grantee had
the right to acquire immediately prior to the issuance of the Substitute
Option. In the event that the Substitute Option would be exercisable for
more than the proportion of the outstanding Substitute Common Stock referred
to in the immediately preceding paragraph but for this clause (e), the
Substitute Option Issuer shall make a cash payment to Grantee equal to the
excess of (i) the value of the Substitute Option without giving effect to the
limitation in this clause (e) over (ii) the value of the Substitute Option
after giving effect to the limitation in this clause (e). This difference in
value shall be determined by a nationally
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recognized investment banking firm selected by Grantee and reasonably
acceptable to the Acquiring Corporation.
SECTION 9. EXTENSION OF EXERCISE RIGHT. Notwithstanding Sections
2, 6 and 7 and 11 hereof, if Grantee has given the notice referred to in one
or more of such Sections, the exercise of the rights specified in any such
Section shall be extended (a) if the exercise of such rights requires
obtaining regulatory approvals (including any required waiting periods) to
the extent necessary to obtain all regulatory approvals for the exercise of
such rights, and (b) to the extent necessary to avoid liability under Section
16(b) of the Exchange Act by reason of such exercise; PROVIDED, HOWEVER, that
in no event shall any closing date occur more than 6 months after the related
Notice Date, and, if the closing date shall not have occurred within such
period due to the failure to obtain any required approval by the Federal
Reserve Board or any other Governmental Authority despite the best efforts of
Issuer or the Substitute Option Issuer, as the case may be, to obtain such
approvals, the exercise of the Option shall be deemed to have been rescinded
as of the related Notice Date. In the event (a) Grantee receives official
notice that an approval of the Federal Reserve Board or any other
Governmental Authority required for the purchase and sale of the Option
Shares will not be issued or granted or (b) a closing date has not occurred
within six months after the related Notice Date due to the failure to obtain
any such required approval, Grantee shall be entitled to exercise the Option
in connection with the resale of the Option Shares pursuant to a registration
statement as provided in Section 6.
SECTION 10. ISSUER'S REPRESENTATIONS AND WARRANTIES. Issuer
hereby represents and warrants to Grantee as follows:
(a) CORPORATE AUTHORITY. Issuer has full corporate power and
authority to execute and deliver this Agreement and, subject to any approvals
or consents referred to herein, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by the Board
of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly authorized,
executed and delivered by the Issuer.
(b) AVAILABILITY OF SHARES. Issuer has taken all necessary
corporate action to authorize and reserve and to permit it to issue, and at
all times from the date hereof through the termination of this Agreement in
accordance with its terms will have reserved for issuance upon the exercise
of the Option, that number of shares of Common Stock equal to the maximum
number of shares of Common Stock at any time and from time to time issuable
hereunder, and all such shares, upon issuance pursuant hereto, will be duly
authorized, validly issued, fully paid, non-assessable, and will be delivered
free and clear of all claims, liens, encumbrances and security interests and
not subject to any preemptive rights.
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(c) NO VIOLATIONS. The execution, delivery and performance of
this Agreement does not or will not, and the consummation by Issuer of any of
the transactions contemplated hereby will not, constitute or result in (A) a
breach or violation of, or a default under, its articles of incorporation or
by-laws, or the comparable governing instruments of any of the Issuer
Subsidiaries, or (B) a breach or violation of, or a default under, any
agreement, lease, contract, note, mortgage, indenture, arrangement or other
obligation of it or any of the Issuer Subsidiaries (with or without the
giving of notice, the lapse of time or both) or under any law, rule,
ordinance or regulation or judgment, decree, order, award or governmental or
non-governmental permit or license to which it or any of the Issuer
Subsidiaries is subject, that would, in any case give any other person the
ability to prevent or enjoin Issuer's performance under this Agreement in any
material respect.
SECTION 11. GRANTEE'S REPRESENTATIONS AND WARRANTIES. Grantee
hereby represents and warrants to issuer as follows:
(a) CORPORATE AUTHORITY. Grantee has all requisite corporate
power and authority to enter into this Agreement and, subject to any
approvals or consents referred to herein, to consummate the transactions
contemplated hereby. The execution and deliver of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Grantee. This
Agreement has been duly authorized, executed and delivered by Grantee.
(b) INVESTMENT INTENT. The Option is not being, and any shares of
Common Stock or other securities acquired by Grantee upon exercise of the
Option will not be, acquired with a view to the public distribution thereof
and will not be transferred or otherwise disposed of except in a transaction
registered or exempt from registration under the Securities Act.
SECTION 12. ASSIGNMENT. Neither of the parties hereto may assign
any of its rights or delegate any of its obligations under this Agreement or
the Option created hereunder to any other Person without the express written
consent of the other party, except that Grantee may assign this Agreement to
a wholly owned subsidiary of Grantee and Grantee may assign its rights
hereunder in whole or in part after the occurrence of a Preliminary Purchase
Event; PROVIDED, HOWEVER, that until the date at which both the Federal
Reserve Board has approved an application by Grantee under the BHCA and the
California Commissioner of Financial Institutions (the "Commissioner") has
approved or exempted an application by Grantee under Section 700 et. seq. of
the California Financial Code to acquire the shares of Common Stock subject
to the Option, other than to a wholly owned subsidiary of Grantee, Grantee
may not assign its rights under the Option except in (i) a widely dispersed
public distribution, (ii) a private placement in which no one party acquires
the right to purchase in excess of 2% of the voting shares of Issuer, (iii)
an assignment to a single party (E.G., a broker or investment banker) for the
purpose of conducting a widely dispersed public distribution on Grantee's
behalf, or (iv) any other
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manner approved by the Federal Reserve Board and the Commissioner. The term
"Grantee" as used in this Agreement shall also be deemed to refer to
Grantee's permitted assigns. Any attempted assignment prohibited by this
Section 12 is void and without effect.
SECTION 13. FILINGS AND CONSENTS. Each of Grantee and Issuer will
use its reasonable efforts to make all filings with, and to obtain consents
of, all third parties and Governmental Authorities necessary to the
consummation of the transactions contemplated by this Agreement, including,
without limitation, making application if necessary, for listing of the
shares of Common Stock issuable hereunder on any exchange or quotation system
and applying to the Federal Reserve Board under the BHCA and to state banking
authorities for approval to acquire the shares issuable hereunder.
SECTION 14. REMEDIES. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties shall hereto be enforceable by
either party hereto through injunctive or other equitable relief. Both
parties further agree to waive any requirement for the securing or posting of
any bond in connection with the obtaining of any such equitable relief and
that this provision is without prejudice to any other rights that the parties
hereto may have for any failure to perform this Agreement.
SECTION 15. SEVERABILITY. If any term, provision, covenant or
restriction contained in this Agreement is held by a court or a federal or
state regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Agreement shall remain in full force and
effect, and shall in no way be affected, impaired or invalidated. If for any
reason such court or regulatory agency determines that the Holder is not
permitted to acquire, or Issuer is not permitted to repurchase pursuant to
Section 7, the full number of shares of Common Stock provided in Section 1(a)
hereof (as adjusted pursuant to Section 1(b) or Section 5 hereof), it is the
express intention of Issuer to allow Grantee to acquire or to require Issuer
to repurchase such lesser number of shares as may be permissible, without any
amendment or modification hereof.
SECTION 16. NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be deemed to have been duly given when
delivered in Person, by cable, telegram, telecopy or telex, or by registered
or certified mail (postage prepaid, return receipt requested) at the
respective addresses of the parties set forth in the Plan.
SECTION 17. COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement and shall be
effective at the time of execution.
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<PAGE>
SECTION 18. EXPENSES. Except as otherwise expressly provided
herein, each of the parties hereto shall bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
SECTION 19. ENTIRE AGREEMENT. Except as otherwise expressly
provided herein or in the Plan, this Agreement contains the entire agreement
between the parties with respect to the transactions contemplated hereunder
and supersedes all prior arrangements or understandings with respect thereof,
written or oral. The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
and their respective successors except as assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
SECTION 20. DEFINITIONS. Capitalized terms used in this Agreement
and not defined herein but defined in the Plan shall have the meanings
assigned thereto in the Plan.
SECTION 21. EFFECT ON PLAN. Nothing contained in this Agreement
shall be deemed to authorize Issuer or Grantee to breach any provision of the
Plan.
SECTION 22. SELECTIONS. In the event that any selection or
determination is to be made by Grantee hereunder and at the time of such
selection or determination there is more than one Grantee, such selection
shall be made by a majority in interest of such Grantees.
SECTION 23. FURTHER ASSURANCES. In the event of any exercise of
the option by Grantee, Issuer and such Grantee shall execute and deliver all
other documents and instruments and take all other action that may be
reasonably necessary in order to consummate the transactions provided for by
such exercise.
SECTION 24. VOTING. Except to the extent Grantee exercises the
Option, Grantee shall have no rights to vote or receive dividends or have any
other rights as a shareholder with respect to shares of Common Stock covered
hereby.
SECTION 25. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Stock
Option Agreement to be executed on its behalf by their officers thereunto
duly authorized, all as of the date first above written.
WESTERN BANCORP
By:
--------------------------------------------
Name: Matthew P. Wagner
Title: President and Chief Executive Officer
PENINSULA BANK OF SAN DIEGO
By:
--------------------------------------------
Name: John G. Rebelo, Jr.
Title: Chairman and Chief Executive Officer
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<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Western Bancorp:
We consent to the use of our report, dated January 30, 1998, incorporated by
reference herein and included in Western Bancorp's December 31, 1997 annual
report on Form 10-K, and to the reference to our firm under the heading
"Experts" in the Proxy Statement -- Prospectus. Our report indicates that: (i)
KPMG Peat Marwick LLP did not audit either the 1996 consolidated financial
statements of California Commercial Bankshares or the 1996 consolidated
financial statements of SC Bancorp, both of which were acquired during 1997 in
mergers and accounted for as poolings-of-interests. Such financial statements
were audited by other auditors whose reports were furnished to KPMG Peat Marwick
LLP, and KPMG Peat Marwick LLP's opinion, insofar as it relates to California
Commercial Bankshares and SC Bancorp, is based solely on the reports of the
other auditors; (ii) The 1995 consolidated statements of operations, changes in
shareholders' equity, and cash flows of Western Bancorp, prior to their
restatement for the 1997 pooling-of-interests, were audited by other auditors;
(iii) The separate 1995 consolidated financial statements of California
Commercial Bankshares and SC Bancorp included in the 1995 consolidated financial
statements of Western Bancorp were audited by other auditors; and (iv) The
combination of the consolidated statements of operations, changes in
shareholders' equity and cash flows for the year ended December 31, 1995, after
restatement for the 1997 poolings-of-interest, has been audited by KPMG Peat
Marwick LLP.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Los Angeles, California
September 29, 1998
<PAGE>
EXHIBIT 23.2
DELOITTE & TOUCHE LLP LETTERHEAD
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Western Bancorp on
Form S-4 of our report dated January 24, 1998 (July 24, 1998 as to Note 12) on
the financial statements of Peninsula Bank of San Diego, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
September 28, 1998
<PAGE>
EXHIBIT 23.3
DELOITTE & TOUCHE LLP LETTERHEAD
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Western Bancorp on Form S-4 of our report, dated January 19, 1996, on the
statements of operations, changes in stockholders' equity and cash flows of
Santa Monica Bank for the year ended December 31, 1995, incorporated by
reference in the Current Report on Form 8-K/A, dated April 9, 1998, of Western
Bancorp, incorporated by reference in the Proxy Statement-Prospectus, which is
part of this Registration Statement, and to the reference to us under the
heading "Experts" in such Proxy Statement-Prospectus.
/s/ DELOITTE & TOUCHE LLP
September 29, 1998
Los Angeles, California
<PAGE>
EXHIBIT 23.4
DELOITTE & TOUCHE LLP LETTERHEAD
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Western Bancorp on Form S-4 of our report, dated January 24, 1997, on the
consolidated balance sheet of SC Bancorp and subsidiary as of December 31, 1996
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows of SC Bancorp and subsidiary for each of the two years in
the period ended December 31, 1996 incorporated by reference in the Annual
Report on Form 10-K of Western Bancorp for the year ended December 31, 1997,
incorporated by reference in the Proxy Statement-Prospectus, which is part of
this Registration Statement, and to the reference to us under the heading
"Experts" in such Proxy Statement-Prospectus.
/s/ DELOITTE & TOUCHE LLP
September 29, 1998
Los Angeles, California
<PAGE>
EXHIBIT 23.5
DELOITTE & TOUCHE LLP LETTERHEAD
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Western Bancorp on Form S-4 of our report, dated January 24, 1997 (March 17,
1997 as to Notes 8 and 16), on the consolidated statement of financial condition
of California Commercial Bancshares and subsidiaries as of December 31, 1996 and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows of California Commercial Bancshares and subsidiaries for
each of the two years in the period ended December 31, 1996 incorporated by
reference in the Annual Report on Form 10-K of Western Bancorp for the year
ended December 31, 1997, incorporated by reference in the Proxy
Statement-Prospectus, which is part of this Registration Statement, and to the
reference to us under the heading "Experts" in such Proxy Statement-Prospectus.
/s/ DELOITTE & TOUCHE LLP
September 29, 1998
Los Angeles, California
<PAGE>
EXHIBIT 23.6
VAVRINEK, TRINE, DAY & CO., LLP LETTERHEAD
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our Independent Auditor's Report dated
January 23, 1998 regarding the balance sheets of Bank of Los Angeles as of
December 31, 1997 and 1996 and the related statements of operations, changes in
shareholder's equity and cash flows for each of the three years in the period
ending December 31, 1997, in the Form 10-K filed by Western Bancorp with the
Securities and Exchange Commission, and incorporated by reference in their Form
S-4, and the reference to our firm as experts.
/s/ Vavrinek, Trine, Day & Co., LLP
VAVRINEK, TRINE, DAY & CO., LLP
Rancho Cucamonga, CA
September 29, 1998
<PAGE>
EXHIBIT 23.7
VAVRINEK, TRINE, DAY & CO., LLP LETTERHEAD
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent, as successor accountants of Dayton & Associates (said
firm being merged with and into Vavrinek, Trine, Day & Co., LLP on September 1,
1996) to the incorporation by reference of their Independent Auditor's Report
dated February 29, 1996 regarding the consolidated balance sheets of Monarch
Bancorp and Subsidiaries as of December 31, 1995 and December 31, 1994, and the
related statements of operations, changes in capital, and cash flows for each of
the two years in the period ended December 31, 1995, in the Form 10-K of Western
Bancorp filed with the Securities and Exchange Commission, which is to be
incorporated by reference in the Form S-4 and the reference to our firm as
experts.
/s/ Vavrinek, Trine, Day & Co., LLP
VAVRINEK, TRINE, DAY & CO., LLP
Laguna Hills, CA
September 29, 1998
<PAGE>
ARTHUR ANDERSEN LLP
EXHIBIT 23.8
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our Report of Independent Public
Accountants dated January 21, 1998 on the financial statements of Santa Monica
Bank (the Bank) as of and for the years ended December 31, 1997 and 1996
included in the Form 8K/A of Western Bancorp dated April 9, 1998 and to all
references to our Firm included in this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
September 29, 1998
<PAGE>
EXHIBIT 23.13
September 29, 1998
Board of Directors
Western Bancorp
4100 Newport Place, Suite 900
Newport Beach, California 92660
Ladies and Gentlemen:
Pursuant to Rule 438 under the Securities Act of 1933, as amended, the
undersigned hereby consents to being named as a person who will become a
director of Western Bankcorp, a California corporation (the "Company"), in the
Company's Registration Statement of Form S-4 filed with the Securities and
Exchange Commission (the "Registration Statement"), and to the filing of this
consent as an exhibit to such Registration Statement.
Sincerely,
/s/ JOHN G. REBELO
--------------------------------------
John G. Rebelo, Jr.
