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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the fiscal year ended December 31, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from ___________________ to ______________________
Commission file number 0-18202
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ValliCorp Holdings, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 77-0229483
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
8405 North Fresno Street, Fresno, California 93720
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (209) 437-5700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None
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- -------------------------------------- -----------------------------------
Securities registered pursuant to Section 12(g) of the Act:
$0.01 par value, Common Stock
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(Title of class)
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or, for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant at March 3, 1997 was approximately $298,000,000.
The number of shares of the registrant's common stock outstanding at March
3, 1997 was 14,164,659.
THIS REPORT INCLUDES A TOTAL OF 100 PAGES.
EXHIBIT INDEX IS ON PAGE 72.
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PART I
ITEM 1 - BUSINESS
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BUSINESS OF VALLICORP
HISTORY
ValliCorp Holdings, Inc. ("ValliCorp", the "Company" or the "Registrant") is a
Delaware corporation headquartered in Fresno, California. Its principal wholly-
owned subsidiary is ValliWide Bank ("ValliWide"), formerly Bank of Fresno,
incorporated in April 1973. At December 31, 1996, ValliCorp's only subsidiary
bank was ValliWide Bank.
ValliCorp commenced operations by way of a consolidation through merger in
November 1989 of two bank holding companies: Fresno Bancorp and Western
Commercial, Inc. ("Western Commercial"). Both of the holding companies were
headquartered in Fresno. In addition, in a companion bank merger, Fresno Bank
of Commerce ("Commerce"), a wholly-owned subsidiary of Western Commercial, was
merged into Bank of Fresno, a wholly-owned subsidiary of Fresno Bancorp. Upon
the merger of the two banks, Bank of Fresno became a wholly-owned subsidiary of
the Company, and Commerce ceased to exist. Merced Bank of Commerce, another
wholly-owned subsidiary of Western Commercial, became a subsidiary of the
Company, by operation of the consolidation through merger of Fresno Bancorp and
Western Commercial. In November 1993, the Company completed a merger with
Pacific Bancorporation ("Pacific") and Pacific's wholly-owned subsidiary,
Community First Bank, was merged into Bank of Fresno.
In August 1994, Merced Bank of Commerce was merged into Bank of Fresno.
Concurrently with such merger, Bank of Fresno's name was changed to ValliWide
Bank.
In December 1994, the Company completed two acquisitions. It acquired Bank One,
Fresno, N.A., which was merged into ValliWide. In addition, it acquired Mineral
King Bancorp, Inc. ("Mineral King"), including its subsidiary, Mineral King
National Bank, through the merger of Mineral King into the Company. In February
1995, Mineral King National Bank was merged into ValliWide.
In 1996, the Company completed three acquisitions, in which each acquired bank
holding company and subsidiary was merged with and into ValliCorp and ValliWide,
respectively: (i) in February 1996, El Capitan Bancshares, Inc., ("El Capitan")
and its wholly-owned subsidiary, El Capitan National Bank, were acquired; (ii)
in March 1996, CoBank Financial Corporation, ("CoBank") and its wholly-owned
subsidiary, Commerce Bank of San Luis Obispo, N.A., were acquired; and (iii) in
September 1996, Auburn Bancorp, Inc., ("Auburn") and its wholly-owned
subsidiary, The Bank of Commerce, N.A., were acquired.
As previously reported, on November 11, 1996, ValliCorp and ValliWide Bank
entered into an Agreement and Plan of Reorganization ("Agreement") with
Westamerica Bancorporation ("WABC") pursuant to which ValliCorp will be merged
with and into WABC and each issued and outstanding share of ValliCorp's common
stock will be converted into shares of WABC common stock with a value equal to
$21.00, subject to upward or downward adjustment if WABC's average stock price
(as defined) at closing is more than $53.81 or less than $48.69, as set forth in
the Agreement, as amended.
GENERAL
ValliCorp is the largest independent bank holding company headquartered in its
target market, Central California, defined by the Company as a 40,000 square
mile area of central California covering thirteen counties including the San
Joaquin Valley and extending from Nevada County in the north to Kern and San
Luis Obispo Counties in the south. ValliWide operates fifty-eight branches in
this area. ValliWide provides traditional banking services including personal
and business checking and savings accounts, insured money market deposit
accounts, time deposits and IRA and trustee control (pension fund) accounts;
commercial, construction, mortgage and consumer loans; travelers' checks; safe
deposit boxes; cashier's checks and money orders; and other customary banking
services. ValliWide actively engages in both retail and wholesale commercial
banking, principally serving small-and medium-sized businesses, professionals
and the title and escrow industry.
No material part of the business of the Company or its subsidiaries is dependent
upon a single customer, or a very few customers, where the loss of any one would
have a materially adverse effect on the Company.
As of December 31, 1996, the Company and its subsidiary had approximately 740
employees, including seven (7) executive officers. Management believes relations
with its employees are generally satisfactory.
COMPETITION
The banking business in California, and specifically in the market areas served
by ValliWide, is highly competitive. ValliWide competes for loans and deposits
with other commercial banks, savings and loan associations, finance companies,
money market funds, brokerage houses, credit unions and nonfinancial
institutions. By virtue of their larger capital bases, many of the commercial
banks with which ValliWide competes have significantly greater lending limits
and perform other functions for their customers which
2
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ValliWide can offer only through correspondents or other vendors, if at all.
Deregulation of the banking industry and increased competition from nonbank
entities for the cash balances of individuals and business have had and will
continue to have a significant impact on ValliWide's competitive position.
On September 29, 1994, the President signed into law the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Branching Act"). Under the
Branching Act and in general terms, beginning September 29, 1995, a bank holding
company that is adequately capitalized and managed may acquire an existing bank
located in another state, subject to certain limitations related to
concentrations of deposits. An out-of-state holding company may not acquire a
state bank in existence for less than a minimum length of time prescribed by
state law (up to 5 years); California law provides that a state bank must be in
existence for five years before being eligible for acquisition by an out-of-
state bank holding company.
The Branching Act also permits, in general terms, and beginning June 1, 1997,
insured banks located in different states to merge, subject to appropriate
regulatory approval and certain limitations related to concentrations of
deposits. Each state may permit such combinations earlier than June 1, 1997.
California has enacted legislation which currently permits such combinations to
occur. The Branching Act also permits a national or state bank to establish
branches in a state other than its home state, if permitted by the laws of that
state, subject to the same requirements and conditions as for a merger
transaction. California does not permit de novo interstate branching by banks
located outside California as a means of initial entry into California. The
Branching Act is likely to increase competition in the Company's market areas,
especially from larger financial institutions and their holding companies.
SUPERVISION
ValliCorp's business activities as a bank holding company are regulated by the
Board of Governors of the Federal Reserve System (the "Federal Reserve") under
the Bank Holding Company Act of 1956, as amended, which imposes various
requirements and restrictions on its operations. The activities of ValliCorp
and its subsidiaries are limited to the business of banking and activities
closely related or incidental to banking.
The business of banking is highly regulated, and there are various requirements
and restrictions in the laws of the United States and the state of California,
including requirements to maintain reserves against deposits and adequate
capital to support its operations, restrictions on the nature and amount of
loans which may be made by ValliWide, and restrictions relating to investments
(including loans to and investments in affiliates), branching and other
ValliWide activities.
ValliWide has a state charter and is supervised and examined by the California
Superintendent of Banks. The Federal Reserve is ValliWide's primary federal
regulator. ValliWide also is subject to examination by the Federal Deposit
Insurance Corporation (the "FDIC"), based upon the insurance of its deposits
under the Federal Deposit Insurance Act.
In recent years, Congress has enacted significant legislation which has
substantially changed the federal deposit insurance system and the regulatory
environment in which depository institutions and their holding companies
operate. The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), the Comprehensive Thrift and Bank Fraud Prosecution and
Taxpayer Recovery Act of 1990 and the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") have significantly increased the enforcement
powers of the federal regulatory agencies having supervisory authority over
ValliCorp and its subsidiaries. Certain parts of such legislation increase the
cost of doing business for depository institutions and their holding companies.
FIRREA also provides that all commonly-controlled FDIC insured depository
institutions may be held liable for any loss incurred by the FDIC resulting from
a failure of (or any assistance given by the FDIC to) any of such commonly
controlled institutions. Federal regulatory agencies have implemented
provisions of FDICIA with respect to taking prompt corrective action when a
depository institution's capital falls below certain levels. Under the new
rules, five capital categories have been established which range from
"critically undercapitalized" to "well capitalized". Failure of a depository
institution to maintain a capital level within the top two categories will
result in specific actions from the federal regulatory agencies. These actions
could include the inability to pay dividends, restricting new business activity,
prohibiting bank acquisitions, asset growth limitations and other restrictions
on a case-by-case basis. ValliWide exceeded all applicable federal capital
standards to be considered "well capitalized" at December 31, 1996.
In addition to the impact of regulation, commercial banks are affected
significantly by the actions of the Federal Reserve as it attempts to control
the money supply and credit availability in order to influence the economy.
Changes to such monetary policies have had a significant effect on operating
results of financial institutions in the past and are expected to have such an
effect in the future; however, the effect of possible future changes in such
policies on the business and operations of ValliCorp cannot be determined.
ITEM 2 - PROPERTIES
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On December 31, 1996, ValliCorp had 69 offices, of which 28 were owned and 41
were leased. All of these offices are considered by management to be well
maintained and adequate for the purpose intended. See the Notes to the
Consolidated Financial Statements included in Item 8 of this Report for further
information on ValliCorp and ValliWide properties and leases.
3
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ITEM 3 - LEGAL PROCEEDINGS
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Neither the Company nor ValliWide is a party to, nor is any of their property
the subject of, any material pending legal proceedings other than ordinary
routine litigation incidental to their respective businesses, nor are any such
proceedings known to be contemplated by governmental authorities.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matter was submitted to the vote of holders of ValliCorp securities during
the fourth quarter of 1996.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
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ValliCorp's common stock is traded on the Nasdaq Stock Market under the symbol
VALY. At March 3, 1997, there were approximately 3,000 holders of record of
the Common Stock. For additional information concerning the Common Stock and
related security holder matters, see Note K - Stockholders' Equity, Note L -
Regulatory Matters and Note U - Quarterly Results of Operations (Unaudited) of
the Notes to Consolidated Financial Statements in Item 8 hereof.
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ITEM 6 - SELECTED FINANCIAL DATA
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The following table presents selected consolidated financial data of the Company
for the five years ended December 31, 1996. The information below is qualified
in its entirety by the detailed information and financial statements of the
Company included elsewhere herein and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and Notes.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
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1996 1995 1994 1993 1992
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(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income $ 99,962 $ 109,324 $ 90,544 $ 71,190 $ 67,955
Interest expense 30,783 37,015 23,461 21,093 24,108
Net interest income 69,179 72,309 67,083 50,097 43,847
Provision for loan losses 7,731 9,633 3,958 2,922 2,227
Other income 14,270 12,696 10,930 10,443 8,329
Other expenses 60,424 55,620 55,787 39,786 34,893
Income taxes 6,166 7,950 7,817 6,596 5,614
Net income 9,128 11,802 10,451 11,236 9,442
SHARE DATA:
Earnings per share:
Primary $ 0.67 $ 0.88 $ 0.78 $ 1.08 $ 0.97
Fully-diluted 0.66 0.87 0.78 1.07 0.96
Cash dividends paid by ValliCorp 0.40 0.36 0.32 0.27 0.23
Book value per share 10.11 9.58 8.91 8.90 7.54
BALANCE SHEET DATA:
Total assets $1,320,640 $1,390,035 $1,335,769 $1,213,136 $857,769
Total loans 834,741 865,749 879,713 714,850 552,947
Total deposits 1,147,304 1,221,386 1,178,131 1,084,364 779,833
Debt financing 16,365 20,932 26,123 1,262 1,582
Stockholders' equity 142,390 127,121 116,508 112,026 70,010
Average assets 1,296,101 1,356,488 1,217,454 943,188 832,442
Average loans 841,647 885,200 742,055 606,323 538,977
Average earning assets 1,143,334 1,208,445 1,093,234 852,535 752,366
Average deposits 1,127,047 1,191,349 1,082,646 849,355 755,675
Average stockholders' equity 130,838 124,323 115,560 80,543 66,005
SELECTED RATIOS:
Total dividends paid by ValliCorp
to earnings per share 60.61% 41.38% 41.03% 25.23% 23.96%
Return on average equity 6.98 9.49 9.04 13.95 14.30
Return on average assets 0.70 0.87 0.86 1.19 1.13
Efficiency ratio without merger,
integration and restructuring costs 64.12 64.61 67.19 65.72 66.88
Average equity to average assets 10.09 9.17 9.49 8.54 7.93
</TABLE>
5
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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OVERVIEW
The Company's strategy is to provide high quality, community tailored financial
services to businesses and consumers located in Central California. The
Company's target market is defined as a thirteen county area within Central
California, extending from Nevada County in the north to Kern and San Luis
Obispo Counties in the south.
In 1996, the Company expanded within its target market through the acquisition
of El Capitan Bancshares, Inc. ("El Capitan"), CoBank Financial Corporation
("CoBank"), and Auburn Bancorp ("Auburn"). El Capitan, a bank holding company
headquartered in Sonora, California, with assets of $128 million and eight full
service banking offices, was acquired on February 2, 1996. CoBank, a bank
holding company headquartered in San Luis Obispo, California, with assets of $97
million and four full service banking offices, was acquired on March 22, 1996.
Auburn, a bank holding company headquartered in Auburn, California, with assets
of $76 million and three full service banking offices, was acquired on September
13, 1996.
In December 1994, the Company acquired Mineral King Bancorp, Inc. ("Mineral
King"), a bank holding company with assets of $185 million and five full-service
banking offices and Bank One, Fresno, a wholly owned subsidiary of Bank One
Arizona Corporation with assets of $130 million and seven full service banking
offices in Central California.
The consummation of these mergers helped to further strengthen the Company's
position as the largest banking company headquartered in Central California.
As a result of these mergers, the Company has total assets in excess of $1.3
billion and locations throughout Central California through its franchise of 58
full-service banking offices.
Consolidated net income for 1996 decreased by 23% to $9,128,000. Fully-diluted
earnings per share decreased to $0.66 in 1996 as compared to $0.87 in 1995. The
reduced level of earnings in 1996 was due principally to certain nonrecurring
merger, integration and restructuring charges and the impact of reduced average
earning assets. Return on average assets decreased to 0.70% in 1996 compared to
0.87% in 1995. The Company continued its history of annual dividend increases
with dividends of $0.40 paid in 1996, representing an 11% increase over
dividends paid in 1995 of $0.36.
At year-end 1996, the Company's total risk-based capital ratio was 15.14%
compared to 13.37% in 1995, and the leverage ratio was 9.62% in 1996 compared to
8.74% in 1995, all of which were in excess of applicable regulatory guidelines
to be considered "well capitalized" under the regulatory framework for prompt
corrective action.
Nonperforming assets were $13,261,000 at December 31, 1996 (1.00% of total
assets) compared to $20,249,000 at December 31, 1995 (1.46% of total assets).
The allowance for loan losses as a percentage of total loans was 1.92% at
December 31, 1996 compared to 1.73% at December 31, 1995. The coverage ratio of
allowance for loan losses to nonperforming loans was 170% at December 31, 1996
compared to 84% in 1995.
MERGER WITH WESTAMERICA BANCORPORATION
In November 1996, ValliCorp announced it had entered into an Agreement and Plan
of Reorganization, as amended ("Agreement") with Northern California-based
Westamerica Bancorporation ("WABC") to merge the two companies. Under the
Agreement, WABC will acquire the outstanding shares of common stock of ValliCorp
pursuant to a tax-free exchange of WABC common stock for all common stock of
ValliCorp. The merger between WABC and ValliCorp will result in the formation of
a financial institution with approximately $3.9 billion in assets.
The Agreement, which was approved unanimously by the Boards of Directors of both
companies, is subject to conditions usual and customary for merger transactions
of this type, including approvals by both WABC and ValliCorp shareholders (which
were obtained on February 24, 1997) and approvals by the Federal Reserve Board
and California Superintendent of Banks, and satisfaction of certain other terms
and conditions. WABC has obtained approvals from both the Federal Reserve Board
and the California Superintendent of Banks as of March 19, 1997. The merger is
currently expected to be consummated in the second quarter of 1997.
BRANCH SALES AND CLOSURES
In 1996, the Company approved the closure or consolidation of eight branches
(three of which were subject to certain conditions in the Agreement) which have
been completed in the first quarter of 1997. In accordance with the Agreement,
the Company anticipates closing or consolidating additional branches after the
consumation of the merger with WABC and subject to requisite regulatory
approvals. During the first quarter of 1997, the Company entered into agreements
to sell five additional branches and related deposits
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to two financial institutions. The branch sales are anticipated to be
consummated in the second quarter of 1997, subject to shareholder and regulatory
approvals and satisfaction of certain other conditions.
RESULTS OF OPERATIONS
The Company reported net income of $9,128,000 in 1996 with primary and fully-
diluted earnings per share of $0.67 and $0.66, respectively, in 1996 as compared
to $0.88 and $0.87, respectively, in 1995. Excluding merger, integration and
restructuring charges of $4.1 million, net of income taxes, or $0.30 per share
in 1996, the Company's net income on a pro forma basis would have been $13.3
million, or $0.96 per share for the year ended December 31, 1996, compared to
$12.5 million, or $0.92 per share in 1995. See "Other Expenses" for a further
discussion of merger costs incurred during the year. The Company's net interest
income decreased by 4%, to $69,179,000 compared to $72,309,000 in 1995.
The Company reported net income of $11,802,000 for the year ended December 31,
1995, an increase compared to net income of $10,451,000 for 1994. Fully-diluted
earnings per share increased to $0.87 in 1995 from $0.78 in 1994.
The following table presents, for the periods indicated, the distribution of
average assets, liabilities and stockholders' equity as well as the total dollar
amount of interest income from average interest-earning assets and resultant
yields, and the dollar amounts of interest expense and average interest-bearing
liabilities, expressed both in dollars and in rates.
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1996 1995 1994
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AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE INTEREST BALANCE RATE INTEREST BALANCE RATE INTEREST
------------ ------- -------- -------- -------- -------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans/(1)//(3)/ $ 834,341 9.83% $82,048 $ 867,963 10.32% $ 89,560 $ 741,138 9.77% $72,389
Securities:
Taxable 186,264 5.84 10,884 248,018 5.69 14,121 294,472 5.11 15,048
Tax exempt 28,329 6.40 1,812 32,200 6.33 2,039 31,839 6.59 2,099
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Total securities/(2)/ 214,593 5.92 12,696 280,218 5.77 16,160 326,311 5.25 17,147
Federal funds sold and
other 94,400 5.53 5,218 60,264 5.98 3,604 25,785 3.91 1,008
---------- ------- ------- ---------- ------- -------- ---------- ------- -------
Total interest-earning
assets 1,143,334 8.74 99,962 1,208,445 9.05 109,324 1,093,234 8.28 90,544
Allowance for loan losses (14,223) (15,705) (12,557)
Noninterest-earning assets:
Cash and due from banks 92,025 86,270 80,638
Premises and equipment, net 27,466 25,321 21,370
Accrued interest receivable 9,617 11,406 9,704
Other assets 37,882 40,751 25,065
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Total average assets $1,296,101 $1,356,488 $1,217,454
========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Transaction accounts $ 341,721 2.06% $ 7,025 $ 368,861 2.28% $ 8,425 $ 414,576 2.21% $ 9,190
Savings accounts 170,205 2.64 4,492 161,439 2.80 4,513 124,639 2.10 2,616
Certificates of deposit 339,303 5.16 17,507 391,810 5.62 22,017 290,891 3.82 11,100
Debt financing 20,642 6.36 1,313 25,574 6.87 1,757 4,960 4.76 236
Short-term borrowings 8,855 5.04 446 5,448 5.56 303 6,215 5.13 319
---------- ------- ------- ---------- ------- -------- ---------- ------- -------
Total interest-bearing
liabilities 880,726 3.50 30,783 953,132 3.88 37,015 841,281 2.79 23,461
Noninterest-bearing
liabilities:
Transaction accounts 275,818 269,239 252,540
Other liabilities 8,719 9,795 8,073
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Total liabilities 1,165,263 1,232,166 1,101,894
Total stockholders' equity 130,838 124,322 115,560
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Total average liabilities
and stockholders' equity $1,296,101 $1,356,488 $1,217,454
========== ========== ==========
Net interest income $69,179 $72,309 $67,083
======= ======= =======
Interest income as a
percentage of average earning assets 8.74% 9.05% 8.28%
Interest expense as a percentage
of average earning assets 2.69 3.06 2.15
------- ------- -------
Net interest margin 6.05% 5.99% 6.13%
======= ======= =======
</TABLE>
/(1)/ Amount includes loans held for sale, but excludes nonaccrual loans.
/(2)/ Yields are actual, not taxable equivalent. The taxable equivalent yields
for the years ended December 31, 1996, 1995 and 1994 are 6.33%, 6.12%, and
5.58%, respectively.
/(3)/ Interest income includes amortized net loan origination costs of $350,000
for the year ended December 31, 1996 and net loan origination fees of
$923,000 and $2,050,000 for the years ended December 31, 1995 and 1994,
respectively.
8
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NET INTEREST INCOME
The Company's primary source of revenue is net interest income, which is the
difference between interest income on interest-earning assets and interest
expense on interest-bearing liabilities. The Company's net interest margin is
influenced by competitive forces within its market area, the mix of its earning
assets and deposit base, and the changing interest rate environment. Net
interest income before provision for loan losses was $69,179,000 in 1996, a 4%
decrease compared to $72,309,000 in 1995, an increase of 8% over 1994. The
Company's net interest margin increased to 6.05% in 1996, as compared to 5.99%
in 1995, and 6.13% in 1994. The increase in the net interest margin in 1996
was due primarily to decreases in the Company's cost of funds from 3.88% in 1995
to 3.50% in 1996, offset by decreases in the Company's yield on interest-earning
assets from 9.05% in 1995 to 8.74% in 1996.
The Company's net interest income is affected by changes in the amount and mix
of interest-earning assets and interest-bearing liabilities, referred to as
"volume changes." It is also affected by changes in yields earned on interest-
earning assets and rates paid on interest-bearing deposits and other borrowed
funds, referred to as "rate changes." The following table sets forth changes in
interest income and interest expense for each major category of interest-earning
assets and interest-bearing liabilities, and the amount of change attributable
to volume and rate changes for the years indicated. The changes due to rate and
volume have been allocated to rate and volume in proportion to the relationship
between their absolute dollar amounts. The effects of tax-equivalent yields have
not been considered because they are not significant.
<TABLE>
<CAPTION>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
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VOLUME RATE TOTAL VOLUME RATE TOTAL
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(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
NET INTEREST INCOME VARIANCE ANALYSIS:
Increase (decrease) in interest income:
Loans $(3,396) $(4,116) $(7,512) $12,913 $ 4,258 $17,171
Securities:
Taxable (3,600) 363 (3,237) (2,532) 1,605 (927)
Tax-exempt (247) 20 (227) 24 (84) (60)
------- ------- ------- ------- ------- -------
Total securities (3,847) 383 (3,464) (2,508) 1,521 (987)
Federal funds sold and other 1,905 (291) 1,614 1,860 736 2,596
------- ------- ------- ------- ------- -------
Total (5,338) (4,024) (9,362) 12,265 6,515 18,780
------- ------- ------- ------- ------- -------
Increase (decrease) in interest expense:
Interest-bearing transaction accounts (594) (806) (1,400) (1,045) 280 (765)
Savings accounts 238 (259) (21) 893 1,004 1,897
Certificates of deposit (2,801) (1,709) (4,510) 4,621 6,296 10,917
Debt financing (321) (123) (444) 1,374 147 1,521
Short-term borrowings 174 (31) 143 (42) 26 (16)
------- ------- ------- ------- ------- -------
Total (3,304) (2,928) (6,232) 5,801 7,753 13,554
------- ------- ------- ------- ------- -------
Increase (decrease) in net interest income $(2,034) $(1,096) $(3,130) $ 6,464 $(1,238) $ 5,226
======= ======= ======= ======= ======= =======
</TABLE>
The decrease in total interest income of $9,362,000 in 1996 is comprised of a
$5,338,000 volume decrease associated with the $65,111,000 decrease in average
interest-earning assets between 1996 and 1995 and a $4,024,000 rate decrease
associated with a decrease in the total yield on interest-earning assets to
8.74% in 1996 from 9.05% in 1995. The decrease in total interest expense of
$6,232,000 in 1996 is comprised of a volume decrease of $3,304,000 related to
the $72,406,000 decrease in average interest-bearing liabilities between 1996
and 1995 and a $2,928,000 decrease associated with a decrease in the cost of
funds rate to 3.50% in 1996 from 3.88% in 1995.
The increase in total interest income of $18,780,000 in 1995 is comprised of a
$12,265,000 volume increase associated with the $115,211,000 increase in average
interest-earning assets between 1995 and 1994 and a $6,515,000 rate increase
associated with an increase in the total yield on interest-earning assets to
9.05% in 1995 from 8.28% in 1994. The increase in total interest expense of
$13,554,000 in 1995 is comprised of a volume increase of $5,801,000 related to
the $111,851,000 increase in average interest-bearing liabilities between 1995
and 1994 and a $7,753,000 increase associated with an increase in the cost of
funds rate to 3.88% in 1995 from 2.79% in 1994.
The average balance of securities decreased $65,625,000 during 1996 to
$214,593,000 primarily attributable to maturities of securities. This
contributed to a $34,136,000 increase in the average balance of federal funds
sold and other securities, from $60,264,000 in 1995 to $94,400,000 in 1996.
Average loans decreased $33,622,000 to $834,341,000 during 1996. The decrease in
the yield on loans from 10.32% in 1995 to 9.83% in 1996 reflects continued
competition in loan pricing during 1996.
Average interest-bearing liabilities decreased $72,406,000 to $880,726,000 at
December 31, 1996 due primarily to a planned reduction in high cost time
deposits in the first quarter of 1996, coupled with deposit runoff that was
anticipated as a result of acquisitions completed during 1996. The interest
rate paid on average interest-bearing liabilities decreased to 3.50% in 1996
compared to 3.88% in 1995.
9
<PAGE>
A changing interest rate environment can have a significant impact on the
Company's net interest margin. Management monitors its net interest margin by
repricing its loans and deposit products after giving effect to such factors as
competition and expected maturities in the loan, securities and deposit
portfolios.
PROVISION FOR LOAN LOSSES
The Company maintains an allowance for loan losses at a level management
believes to be adequate to cover the inherent risk of loss associated with its
loan portfolio (see "Balance Sheet Analysis" and "Credit Risk Management and
Asset Quality"). The provision for loan losses is charged against income and
increases the allowance for loan losses. The provision for loan losses for the
year ended December 31, 1996 was $7,731,000 compared to $9,633,000 in 1995 and
$3,958,000 in 1994. Net charge-offs to average loans was 1.00% in 1996, .99% in
1995 and .53% in 1994. The allowance for credit losses as a percentage of total
loans was 1.92% at December 31, 1996 compared to 1.73% and 1.61% as of December
31, 1995 and 1994, respectively.
OTHER INCOME
The following table summarizes changes in other income for the years ended
December 31, 1996, 1995, and 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 VS. 1995 1995 VS. 1994
----------------------------------------------------------------------------------------
1996 1995 1994 AMOUNT PERCENT AMOUNT PERCENT
-----------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER INCOME:
Service charges on deposit
accounts $ 2,801 $ 2,667 $ 2,552 $ 134 5% $ 115 5%
Other service charges and
fees 7,024 5,867 6,312 1,157 20 (445) (7)
Merchant credit card services 1,892 1,206 624 686 57 582 93
Mortgage banking revenue 696 590 521 106 18 69 13
Gain (loss) on sale of
securities - (113) 7 113 N/M (120) N/M
Other 1,857 2,479 914 (622) (25) 1,565 171
------- ------- ------- ------ --- ------ ---
Total other income $14,270 $12,696 $10,930 $1,574 12% $1,766 16%
======= ======= ======= ====== === ====== ===
</TABLE>
N/M = Not Meaningful
Other income increased 12% in 1996 principally due to increased service charge
earnings from the implementation of various revenue enhancement programs.
Merchant services income continued to grow during the year, representing 13% of
total other income compared to 9% in 1995.
Other income increased in 1995 principally due to revenues generated from
merchant services, alternative investments, loan packaging and small business
administration servicing. Service charge income decreased slightly primarily
due to certain deposit accounts on which net service charge income was adversely
affected by higher interest rates, as well as customers moving into higher
yielding deposits which are not typically associated with service charges.
10
<PAGE>
OTHER EXPENSES
The following table summarizes changes in other expenses for the years ended
December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
CHANGE CHANGE
YEAR ENDED DECEMBER 31, 1996 VS. 1995 1995 VS. 1994
---------------------------------------------------------------------------------------------------
1996 1995 1994 AMOUNT PERCENT AMOUNT PERCENT
---------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER EXPENSES:
Salaries and employee
benefits $23,378 $25,293 $25,327 $(1,915) (8)% $ (34) -%
Occupancy 6,490 6,099 5,448 391 6 651 12
Equipment and maintenance 4,652 4,837 4,293 (185) (4) 544 13
Professional and legal fees 2,609 2,348 1,937 261 11 411 21
Amortization of intangible
assets 1,770 1,679 1,092 91 5 587 54
Telecommunications 1,404 1,066 663 338 32 403 61
Stationery and supplies 1,194 1,655 1,404 (461) (28) 251 18
FDIC assessments 89 1,405 2,589 (1,316) (94) (1,184) (46)
Marketing 1,124 1,237 1,215 (113) (9) 22 2
Merchant credit card 1,440 985 505 455 46 480 95
External data processing 2,002 1,366 1,743 636 47 (377) (22)
OREO expense 530 940 254 (410) (44) 686 270
Other 6,824 6,010 5,950 814 14 60 1
------- ------- ------- ------- --- ------- ---
53,506 54,920 52,420 (1,414) (3) 2,500 5
Merger and integration 6,016 700 2,567 5,316 N/M (1,867) N/M
Restructuring 902 - 800 902 N/M (800) N/M
------- ------- ------- ------- --- ------- ---
Total other expenses $60,424 $55,620 $55,787 $ 4,804 9% (167) -%
======= ======= ======= ======= === ======= ===
</TABLE>
N/M = Not Meaningful
Other expenses totaled $60,424,000 in 1996, representing an increase of
$4,804,000, or 9%, over 1995. Excluding merger, integration and restructuring
costs of $6,918,000 and $700,000 recorded in 1996 and 1995, respectively, other
expenses decreased $1,414,000 (3%). This reduction in expenses reflects cost
savings achieved by the Company through the planned consolidation of operations
related to the three acquisitions completed in 1996.
In 1996 salaries and employee benefits decreased $1,915,000 (8%) as a result of
the reductions in full time equivalent employees related to the completed
acquisitions and the outsourcing of certain data processing functions. As part
of the Company's growth and expansion, occupancy increased $391,000 (6%) from
consolidating various support and administrative functions from numerous
locations to a centralized headquarters office. Professional and legal fees
increased $261,000 (11%) principally related to the engagement of outside
consultants to review the Company's operations with the objective of revenue
enhancements and streamlining the Company's work functions. Telecommunications
increased $338,000 (32%) primarily due to the expansion of the Company's
communication network to include the acquired branches and departments from the
mergers completed during the year. Stationery and supplies decreased $461,000
(28%) which reflects the write-off of obsolete marketing stationery and supplies
in 1995, coupled with the cost savings achieved through the planned
consolidation of operations related to the acquisitions completed during the
year. In June 1995, the FDIC reduced deposit insurance premiums, resulting in a
$1,316,000 (94%) decrease in assessments. Merchant credit card expenses
increased $455,000 (46%) commensurate with the revenue growth of 57% in services
provided to merchant customers. External data processing increased $636,000
(47%) as a result of outsourcing part of the Company's data processing
functions.
During 1995, expenses associated with occupancy, equipment and maintenance and
amortization of intangible assets increased $651,000 (12%), $544,000 (13%) and
$587,000 (54%), respectively, primarily due to the Bank One, Fresno merger and
depreciation related to the acquisition of facilities and equipment.
Professional and legal fees increased by $411,000 (21%) due primarily to the
increased use of outside legal loan collection services. FDIC assessments
decreased $1,184,000 (46%) as a result of the FDIC reduced insurance premiums.
Merchant credit card expenses increased $480,000 (95%) commensurate with the
revenue growth of 93% in services provided to merchant customers.
Merger and integration costs of $6,016,000 were recorded during 1996 in
connection with the El Capitan, CoBank and Auburn mergers and the pending merger
with Westamerica Bancorporation. Such costs related primarily to separation and
benefit costs, professional, legal and investment banking fees, facilities
termination fees and other merger related costs. A restructuring charge of
$902,000 was recorded in the fourth quarter of 1996 to reflect management's
estimate of the costs associated with the closure or consolidation of five
branches approved by the Company in 1996.
Merger costs of $700,000 were recorded in 1995. Such costs relate primarily to
professional, legal and investment banking fees incurred by El Capitan and
CoBank in connection with the planned acquisitions by the Company in 1996.
11
<PAGE>
Merger costs totaling $2,567,000 were recorded during 1994 in connection with
the Mineral King merger. Such costs related primarily to separation and benefit
costs, professional, legal and investment banking fees, and other merger related
costs. A restructuring charge of $800,000 was recorded in the first quarter of
1994 and consisted of costs to merge two of the Company's subsidiary banks, Bank
of Fresno and Merced Bank of Commerce, changing the name of Bank of Fresno to
ValliWide Bank, providing for separation and benefit costs, and the writeoff of
supplies.
The efficiency ratios before merger, integration and restructuring costs,
(defined as Other Expense excluding merger, integration and restructuring costs
divided by the sum of Net Interest Income plus Other Income), for 1996 and 1995
were 64.12% and 64.61%, respectively. The improvement in the Company's
efficiency ratio reflects the planned synergies expected from the El Capitan,
CoBank and Auburn mergers.
INCOME TAXES
Income taxes for 1996 were $6,166,000 compared to $7,950,000 in 1995 and
$7,817,000 in 1994. The decrease is primarily the result of an overall decline
in the level of taxable earnings. The effective tax rates were 40.3%, 40.2% and
42.8% for 1996, 1995 and 1994, respectively. Refer to Note O to the Company's
Consolidated Financial Statements for further information about income taxes.
BALANCE SHEET ANALYSIS
Average assets and average deposits decreased in 1996 by approximately 4% and 5%
respectively, compared to 1995. Average loans decreased 4% and average
securities and federal funds sold decreased to 24% of average total assets in
1996 compared to 25% of average total assets in 1995.
When compared to the prior year, average assets and average deposits increased
in 1995 by approximately 11% and 10%, respectively, primarily as a result of the
Bank One, Fresno merger. Average loans increased 17%, more than the growth in
deposits of 10%, which resulted in average securities and federal funds sold
decreasing to 25% of average total assets in 1995 compared to 29% of average
total assets in 1994.
SECURITIES
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." In accordance with the Statement, prior period financial
statements have not been restated to reflect the change in accounting principle.
The cumulative effect of adopting SFAS No. 115 was to increase stockholders'
equity at January 1, 1994 by $1,281,000 (net of $915,000 in income taxes) to
reflect the net unrealized holding gains on securities classified as available
for sale. There was no effect on net income as a result of adopting this
Statement. Net reclassifications totaling approximately $87,000,000 were made
from the available for sale portfolio to the held to maturity portfolio upon the
adoption of SFAS No. 115.
In November 1995, the FASB issued additional implementation guidance regarding
SFAS No. 115. In accordance with this guidance and prior to December 31, 1995,
companies were allowed a one-time reassessment of their classification of
securities and were required to account for any resulting transfers at fair
value. Transfers from the held to maturity category that result from this one-
time reassessment do not call into question the intent to hold other securities
to maturity in the future. The Company transferred approximately $115,144,000 of
securities from the held to maturity portfolio to the available for sale
portfolio. The transferred securities were adjusted to fair value and
stockholders' equity was decreased by $143,000 (net of income taxes of
$104,000). Additionally, the Company transferred approximately $3,019,000 of
securities from the available for sale portfolio to the held to maturity
portfolio. These transfers were made to allow the Company greater flexibility in
managing interest rate risk and liquidity.
The following table sets forth the carrying amount (fair value) of available for
sale securities.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
<S> <C> <C> <C>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury securities $ 26,265 $ 55,417 $ 69,173
U.S. Government agencies 97,317 115,131 35,128
U.S. Government agency mortgage-backed securities 47,124 54,906 15,719
State and political subdivisions 19,408 16,496 2,315
Other securities 8,090 7,636 7,023
-------- -------- --------
Carrying amount and fair value $198,204 $249,586 $129,358
======== ======== ========
</TABLE>
12
<PAGE>
The following table sets forth the maturities of available for sale securities
(stated at amortized cost) at December 31, 1996 and the weighted average yields
of such securities. Borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties. This right may cause actual
maturities to differ from the contractual maturities summarized below. Mortgage-
backed securities generally have stated maturities of over 10 years but are
subject to substantial prepayments which effectively accelerate actual
maturities. See Notes A and D to the Company's Consolidated Financial Statements
for further information about the securities portfolio.
<TABLE>
<CAPTION>
MATURING
-------------------------------------------------------------------------------------------------------
WITHIN AFTER ONE BUT AFTER FIVE BUT AFTER
ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS TEN YEARS TOTAL
------------------------------------------------------------------------------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
SECURITIES:
U.S. Treasury securities $19,552 5.20% $ 6,765 5.64% $ - -% $ - -% $ 26,317 5.31%
U.S. Government agencies 9,596 6.02 68,897 5.95 19,684 6.44 347 8.69 98,524 6.06
State and political
subdivisions 753 9.62 14,139 8.60 3,749 9.09 - - 18,641 8.74
Other securities 101 5.03 7,987 5.40 - - - - 8,088 5.39
------- ---- -------- ----- ------- ----- ------ ----- -------- ----
Total $30,002 5.57% $97,788 6.27% $23,433 6.86% $ 347 8.69% 151,570 6.22
======= ==== ======== ===== ======= ===== ====== ===== 49,048 6.33%
Mortgage-backed securities -------- ----
Total amortized cost $200,618 6.25%
======== ====
</TABLE>
The following table sets forth the carrying amount (amortized cost) and fair
value of held to maturity securities.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C>
HELD TO MATURITY SECURITIES:
U.S. Treasury securities $ 998 $ 982 $ 26,279
U.S. Government agencies 1,000 42,578 75,869
U.S. Government agency mortgage-backed securities 7,398 8,258 37,228
State and political subdivisions 8,608 13,828 31,589
------- ------- --------
Carrying amount (amortized cost) $18,004 $65,646 $170,965
======= ======= ========
Fair value $18,137 $66,074 $161,396
======= ======= ========
</TABLE>
The following table sets forth the maturities of held to maturity securities at
December 31, 1996 and the weighted average yields of such securities. Borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties. This right may cause actual maturities to differ from the
contractual maturities summarized below. Mortgage-backed securities generally
have stated maturities of over 10 years but are subject to substantial
prepayments which effectively accelerate actual maturities. See Notes A and D to
the Company's Consolidated Financial Statements for further information about
the securities portfolio.
<TABLE>
<CAPTION>
MATURING
--------------------------------------------------------------------------------------------------------
WITHIN AFTER ONE BUT AFTER FIVE BUT AFTER
ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS TEN YEARS TOTAL
-------------------------------------------------------------------------------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
HELD TO MATURITY SECURITIES:
U.S. Treasury Securities $ - -% $ 998 5.17% $ - -% $ - -% $ 998 5.17%
U.S. Government agencies - - 1,000 5.82 - - - - 1,000 5.82
State and political
subdivisions 2,038 10.43 4,886 9.72 958 10.07 726 9.77 8,608 9.93
------ ----- ------ ---- ---- ----- ---- ---- ------- ----
Total $2,038 10.43% $6,884 8.49% $958 10.07% $726 9.77% 10,606 9.10
====== ===== ====== ==== ==== ===== ==== ====
Mortgage-backed securities 7,398 6.65
------- ----
Total amortized cost $18,004 8.09%
======= ====
</TABLE>
13
<PAGE>
LOANS
Loans represent the Company's largest component of earning assets and,
accordingly, are its primary source of income. The Company concentrates its
lending activities in five principal areas: commercial, agribusiness, real
estate-construction, real estate-mortgage and consumer loans. The Company's
lending is generally concentrated in small- and medium-sized businesses and
consumers located in Central California. Interest rates charged for loans vary
with the degree of risk, the size and term of a loan, the borrowers' depository
relationships with the Company and prevailing market rates.
The Company has collateral management policies in place so that collateral
lending of all types is on a basis which it believes is consistent with
regulatory lending standards. Valuation analyses are utilized to take into
consideration the potentially adverse economic conditions under which
liquidation of collateral could occur. It is generally the Company's policy to
fully collateralize all loans with loan-to-value ratios determined on an
individual loan basis taking into account the financial stability of each
borrower and the value and type of the collateral. In addition to real estate,
other collateral accepted as security against loans includes deposits,
securities, accounts receivable, inventories, equipment and other assets.
Real estate-mortgage and construction lending contain potential risks which are
not inherent in other types of commercial loans. These potential risks include
declines in market values of underlying real property collateral and, with
respect to construction lending, delays or cost overruns, which could expose the
Company to loss. In addition, risks in commercial real estate lending include
declines in commercial real estate values and general economic conditions
surrounding the commercial real estate properties and increases in vacancy
rates. A decline in the general economic conditions or real estate values within
the Company's market area could have a negative impact on the performance of the
loan portfolio or value of the collateral. Because the Company lends primarily
within its market area, the real property collateral for its loans is similarly
concentrated, rather than diversified over a broader geographic area. The
Company could therefore be adversely affected by a decline in real estate values
in the Company's target market, even if real estate values elsewhere in
California generally remained stable or increased.
The following table sets forth the amount of loans outstanding by type of credit
extension as of the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------------------------------------------
DOLLAR PERCENT DOLLAR PERCENT DOLLAR PERCENT DOLLAR PERCENT DOLLAR PERCENT
AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS
----------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOAN CATEGORIES:
Commercial $372,079 45% $367,382 42% $357,277 41% $337,946 47% $257,079 47%
Agribusiness 83,721 10 76,278 9 73,695 8 47,513 7 24,336 4
Real estate-construction 61,046 7 74,720 8 102,470 12 100,007 14 81,196 15
Real estate-mortgage 134,110 16 136,278 16 126,208 14 106,858 15 89,313 16
Consumer 178,673 21 205,869 24 215,440 24 119,075 17 98,670 18
Other 5,112 1 5,222 1 4,623 1 3,451 - 2,353 -
-------- --- -------- ---- -------- --- -------- --- -------- ---
Total loans 834,741 100% 865,749 100% 879,713 100% 714,850 100% 552,947 100%
Less allowance for loan losses (16,002) (14,986) (14,130) (12,368) (8,144)
-------- -------- -------- -------- --------
Net loans $818,739 $850,763 $865,583 $702,482 $544,803
======== ======== ======== ======== ========
</TABLE>
There were no concentrations of loans exceeding 10% of total loans which were
not otherwise disclosed as a category of loans in the above table.
The Company's loan portfolio before the allowance for loan losses was $835
million at December 31, 1996, a decrease of $31 million (4%) from $866 million
at December 31, 1995. The decrease is primarily related to principal paydowns,
charge-offs and the runoff of business that was anticipated as a result of
acquisitions completed during 1996, offset by loans acquired from the Auburn
merger. The ratio of total loans to total assets was 63.2% at December 31, 1996,
up from 62.3%. The average loan to deposit ratio was 74.7% in 1996 compared to
74.3% in 1995.
The components of the Company's loan portfolio at December 31, 1996, compared
with December 31, 1995, are discussed below:
. Commercial loans consist primarily of short- to medium-term financing for
small- to medium-sized businesses and professionals. Commercial loans are
diversified with no material industry concentrations. Commercial loans
increased to $372 million, up $5 million (1%).
. Agribusiness loans represent the largest single industry concentration in the
loan portfolio, accounting for 10% of total loans. The agriculture portfolio
includes loans for diverse crops, agricultural real estate, beef and dairy
cattle, and equipment. Agriculture loans increased to $84 million, up $7
million (10%).
14
<PAGE>
. Real estate-construction loans are primarily for residential housing. The
market focus is toward local developers and small residential projects located
in the Company's market area. The economic viability of a project and the
borrower's past development record and credit worthiness are primary
considerations in the loan underwriting decision. Real estate-construction
loans decreased to $61 million, down $14 million (18%) primarily due to
principal paydowns and the continued softness in home sales in the Company's
market area. As a result, the Company continues a selective underwriting
posture in its lending practices.
. Real estate-mortgage loans are primarily "mini-perm" (medium term) commercial
real estate mortgages with maturities ranging from five to seven years. Real
estate-mortgage loans decreased to $134 million, down $2 million (2%)
primarily due to the continued economic stagnation within the Company's market
and the runoff of business associated with the acquisitions completed during
the year.
. Consumer loans are primarily comprised of home equity lines of credit, home
equity loans, automobile loans, home improvement loans and swimming pool
loans. Installment loans decreased to $179 million, down $27 million (13%) due
to lower demand for consumer loan products and management's decision to
discontinue offering certain consumer loan products during the year.
LOAN COMMITMENTS
In the normal course of business, there are various commitments outstanding to
extend credit that are not reflected in the consolidated balance sheets. As of
December 31, 1996, the Company had outstanding approximately $227,739,000 in
undisbursed loan commitments and standby letters of credit. Annual reviews of
the commercial credit lines and ongoing monitoring of outstanding balances
reduces the risk of loss associated with these commitments. At December 31,
1996, undisbursed loan commitments of $220,609,000 included $157,951,000 for
commercial loans, $43,575,000 of real estate-construction loans, $9,712,000 for
real estate-mortgage loans and $9,371,000 for consumer loans. The Company's
undisbursed commercial loan commitments were comprised primarily of business
lines of credit. Undisbursed construction commitments represent undisbursed
funding on construction projects in process.
MATURITY DISTRIBUTION
The following table shows the maturity distribution of the Company's loans
outstanding as of December 31, 1996 which, based on remaining scheduled
repayments of principal, were due within the periods indicated.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------
AFTER ONE
WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
- -------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
MATURITY DISTRIBUTION:
Commercial $147,907 $128,413 $ 91,337 $367,657
Agribusiness 62,700 19,144 1,877 83,721
Real estate-construction 57,789 2,169 1,088 61,046
Real estate-mortgage 58,327 49,847 21,142 129,316
Consumer 35,356 69,844 73,473 178,673
Other 2,268 2,843 1 5,112
-------- -------- -------- --------
Total /(1)/ $364,347 $272,260 $188,918 $825,525
======== ======== ======== ========
Fixed rate $ 92,356 $118,689 $ 93,634 $304,679
Variable rate 271,991 153,571 95,284 520,846
-------- --------- -------- --------
Total /(1)/ $364,347 $272,260 $188,918 $825,525
======== ========= ======== ========
</TABLE>
/ (1)/ Loans excludes nonaccrual loans of $9,216,000.
CREDIT RISK MANAGEMENT AND ASSET QUALITY
Management believes that the objective of a sound credit policy is to extend
quality loans on a diversified basis to customers while controlling risk
affecting shareholders and depositors. The Credit Quality Committee, made up of
members of the Board of Directors of the Company's subsidiary bank, approves
credit policy, reviews asset quality and ensures compliance with credit policy.
ValliWide maintains a credit review staff as part of its risk control function
which examines the loan portfolios of the subsidiary bank for compliance with
established standards. Executive management and senior credit officers also
perform reviews of loan quality and monitor, on a periodic basis, the progress
of watch list loans requiring an action plan for rehabilitation or refinancing.
In addition, credit underwriting guidelines are periodically reviewed and
adjusted to reflect current economic conditions.
15
<PAGE>
The Company places a loan on nonaccrual status when one of the following events
occurs: any installment of principal or interest is 90 days or more past due
(unless well secured and in the process of collection); management determines
the ultimate collection of principal or interest on a loan to be unlikely;
management deems it to be probable the Company will take possession of the
collateral in satisfaction of the loan; or the terms of a loan have been
renegotiated to less than market rates due to a serious weakening of the
borrower's financial condition.
With respect to the Company's policy of placing loans 90 days or more past due
on nonaccrual status unless the loan is well secured and in the process of
collection, a loan is considered in the process of collection if, based on a
probable specific event, management expects that the loan will be repaid or
brought current. When a loan is placed on nonaccrual status, the Company's
general policy is to reverse and charge against current income previously
accrued but unpaid interest. Income on such loans is subsequently recognized
only to the extent that cash is received and future collection of principal is
probable. Loans for which collectibility of the principal balance or interest is
considered to be doubtful by management are placed on nonaccrual status prior to
becoming 90 days delinquent.
Loans for which collateral has been repossessed are classified either as "other
real estate owned (OREO)" or "other assets" (for personal property collateral)
in the Company's financial statements. The Company values its OREO properties at
estimated net realizable value based on appraisals generally performed at the
time the property is acquired. In general, appraisals are performed by
independent appraisers on significant OREO properties. The Company's appraisal
department generally values other OREO properties. Management's objective is to
dispose of those properties in an expeditious time frame in an effort to
minimize holding costs, which may result in the Company realizing less than book
value. Due to possible fluctuations in real estate values, management can give
no assurance that the carrying values of OREO properties will ultimately be
realized upon disposition.
Interest income would have increased by approximately $937,000 in 1996,
$2,204,000 in 1995 and $678,000 in 1994 had nonaccrual and restructured loans
performed in accordance with their original terms.
NONPERFORMING ASSETS
The table below sets forth information about nonperforming assets and accruing
loans 90 days or more past due.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NONPERFORMING ASSETS:
Nonaccrual loans $ 9,216 $17,480 $ 7,303 $ 6,059 $4,930
Restructured loans 224 257 558 933 830
------- ------- ------- ------- ------
Nonperforming loans 9,440 17,737 7,861 6,992 5,760
Other real estate owned (OREO) 3,821 2,512 3,665 3,537 1,771
------- ------- ------- ------- ------
Total nonperforming assets $13,261 $20,249 $11,526 $10,529 $7,531
======= ======= ======= ======= ======
Accruing loans 90 days past due $ 1,514 $ 1,451 $ 3,073 $ 1,195 $1,517
======= ======= ======= ======= ======
Nonperforming loans to total loans 1.13% 2.05% 0.89% 0.98% 1.04%
Nonperforming assets:
To total loans and OREO 1.58 2.33 1.30 1.47 1.36
To total assets 1.00 1.46 0.86 0.87 0.88
</TABLE>
Nonaccrual loans decreased from $17,480,000 at December 31, 1995 to $9,216,000
at December 31, 1996. The decrease in nonaccrual loans at December 31, 1996
compared with the prior year reflects an improvement in the credit quality of
the loan portfolio. The Company expects to continue to reduce nonperforming
assets; however, the Company can give no assurances that additional increases in
nonaccrual loans may not occur in future periods.
Although the volume of nonperforming assets and accruing loans 90 days or more
past due will depend, in part, on the future economic environment, management of
the Company has identified approximately $2.4 million in potential problem loans
at December 31, 1996 as to which it has serious doubts as to the ability of the
borrowers to comply with the present repayment terms and which may become
nonperforming assets or accruing loans 90 days or more past due, based on known
information about possible credit problems of its borrowers.
16
<PAGE>
ALLOWANCE FOR LOAN LOSSES
Management's determination of the allowance for loan losses requires the use of
estimates and assumptions related to the risks inherent in the loan portfolio
which management believes are reasonable. Actual results could, however, differ
significantly from those estimates. Estimates that are particularly susceptible
to significant fluctuation relate to the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans because, in those
circumstances, management revalues the asset to the lower of cost or fair value
less selling expenses. In connection with the determination of the allowance for
loan losses and the valuation of OREO, management generally obtains independent
appraisals for significant properties. Management believes its current appraisal
policies generally conform to federal regulatory guidelines.
An evaluation of the overall quality of the portfolio is performed to determine
the necessary level of the allowance for loan losses. This evaluation takes into
consideration the classification of loans and the application of loss estimates
to these classifications. The Company classifies loans as pass, watch, special
mention, substandard, doubtful, or loss based on classification criteria
believed by management to be consistent with the criteria applied by the
Company's banking examiners. These classifications and loss estimates take into
consideration all sources of repayment, underlying collateral, the value of such
collateral, and current and anticipated economic conditions, trends and
uncertainties. These processes provide management with data that help to
identify and estimate the credit risk inherent in the portfolio so that
management may identify potential problem loans on a timely basis. The allowance
for loan losses reflects the results of these estimates. Based on information
available at December 31, 1996, management believes the allowance for loan
losses of $16,002,000, which constitutes 1.92% of total loans, is adequate as an
allowance against possible future losses.
The Company has experienced significant increases in the provision and allowance
for loan losses since 1992. The increases in the provision are primarily due to
loan growth and increased net charge-offs, and the increases in the allowance
for loan losses are primarily a result of loan growth and the impact of acquired
allowances for loan losses through mergers. Management believes the allowance
for loan losses will continue to increase in future periods commensurate with
loan growth, risks in the loan portfolio, and the possible impact of changes in
economic conditions on the loan portfolio. While the Company's policy is to
charge off in the current period those loans on which a loss is considered
probable, there also exists the risk of future losses which cannot be precisely
quantified or attributed to particular loans or classes of loans. Because this
risk is continually changing in response to factors beyond the control of the
Company, such as the state of the economy, management's judgment as to the
adequacy of the allowance for loan losses in future periods is necessarily an
approximate one. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the adequacy of the Company's
allowance for loan losses as well as the Company's methodology for arriving at
the allowance for loan losses. Such agencies may require the Company to
recognize additions to the allowance based on their judgment of information
available to them at the time of their examination.
17
<PAGE>
The following table provides a summary of the Company's allowance for loan
losses and charge-off and recovery activity.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of year $ 14,986 $ 14,130 $ 12,368 $ 8,144 $ 7,486
Provision for loan losses 7,731 9,633 3,958 2,922 2,227
Allowance acquired through merger 1,665 - 1,755 3,430 -
Charge-offs:
Commercial 4,244 4,146 1,748 1,519 1,375
Agribusiness 547 216 - - -
Real estate-construction 480 109 40 103 184
Real estate-mortgage 1,834 3,515 2,069 518 16
Consumer 2,868 1,346 424 440 403
Other 116 116 120 82 81
-------- -------- -------- -------- --------
Total charge-offs 10,089 9,448 4,401 2,662 2,059
Recoveries:
Commercial 418 395 329 407 354
Agribusiness 12 5 - - -
Real estate-construction - - - 18 23
Real estate-mortgage 72 26 - - -
Consumer 1,185 227 104 102 99
Other 22 18 17 7 14
-------- -------- -------- -------- --------
Total recoveries 1,709 671 450 534 490
-------- -------- -------- -------- --------
Net charge-offs 8,380 8,777 3,951 2,128 1,569
-------- -------- -------- -------- --------
Balance at end of year $ 16,002 $ 14,986 $ 14,130 $ 12,368 $ 8,144
======== ======== ======== ======== ========
Loans outstanding at year-end $834,741 $865,749 $879,713 $714,850 $552,947
Average loans 841,647 885,200 742,055 606,323 538,977
Net charge-offs during the year to average loans 1.00% 0.99% 0.53 0.35% 0.29%
Allowance for loan losses:
To total loans 1.92 1.73 1.61 1.73 1.47
To nonperforming loans 170 84 180 177 141
To nonperforming assets 121 74 123 117 108
</TABLE>
The provision for loan losses for the year ended December 31, 1996 was
$7,731,000 compared to $9,633,000 in 1995. The decrease in the provision of
$1,902,000 during 1996 compared to 1995 reflects the higher provision recognized
in the prior year related to certain nonperforming loans. As noted in the
previous table, the percentage of net charge-offs to average loans has increased
from a range of 0.29% in 1992 to a high of 1.00% in 1996. Net charge-offs as a
percentage of average loans may increase from the 1996 level in future periods
as certain nonperforming loans identified and reserved for during 1996 are
charged-off if they are not brought to resolution.
The following table shows the allocation of the Company's allowance for loan
losses and the percent of loans in each category to total loans for the dates
indicated. The allocation of individual categories of loans included amounts
applicable to specifically identified as well as unidentified losses inherent in
that segment of the loan portfolio and will necessarily change whenever
management determines that the risk characteristics of the loan portfolio have
changed. Management believes that any breakdown or allocation of the allowance
for loan losses into loan categories lends an appearance of exactness which does
not exist, in that the allowance is utilized as a single unallocated allowance
available for all loans and undisbursed commitments. The allocation below
should not be interpreted as an indication of the specific amounts or loan
categories in which future charge-offs may occur.
18
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------------------------------------------------
ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF ALLOWANCE % OF
FOR LOSSES LOANS FOR LOSSES LOANS FOR LOSSES LOANS FOR LOSSES LOANS FOR LOSSES LOANS
-------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOAN CATEGORIES:
Commercial $ 7,609 45% $ 6,898 42% $ 6,305 41% $ 5,677 47% $4,017 47%
Agribusiness 1,505 10 1,432 9 1,301 8 798 7 380 4
Real estate-construction 1,145 7 2,097 8 1,744 12 1,694 14 1,098 15
Real estate-mortgage 2,423 16 1,676 16 1,974 14 2,106 15 1,258 16
Consumer 3,228 21 2,813 24 2,748 24 2,046 17 1,364 18
Other 92 1 70 1 58 1 47 - 27 -
------- --- ------- --- ------- --- ------- --- ------ ---
Total $16,002 100% $14,986 100% $14,130 100% $12,368 100% $8,144 100%
======= === ======= === ======= === ======= === ====== ===
</TABLE>
DEPOSITS
The Company primarily attracts deposits from local businesses and professionals,
as well as through retail certificates of deposit, savings and checking
accounts. The Company had an insignificant amount of brokered deposits at
December 31, 1996, 1995 and 1994, and the Company's policy is not to purchase
brokered deposits. The Company has no known foreign deposits. The average daily
amount of deposits and the rates paid on deposits are summarized below.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------
1996 1995 1994
-----------------------------------------------------------------------------------
AVERAGE PERCENT OF AVERAGE PERCENT OF AVERAGE PERCENT OF
BALANCE DEPOSITS RATE/(1)/ BALANCE DEPOSITS RATE/(1)/ BALANCE DEPOSITS RATE/(1)/
-----------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DEPOSITS:
Noninterest-bearing transaction accounts $ 275,818 25% -% $ 269,239 22% -% $ 252,540 23% -%
Interest-bearing transaction accounts 341,721 30 2.06 368,861 31 2.28 414,576 38 2.21
Savings accounts 170,205 15 2.64 161,439 14 2.80 124,639 12 2.10
Certificates of deposit and other time
deposits:
Less than $100,000 213,574 19 5.08 262,623 22 5.61 185,772 17 3.76
$100,000 and more 125,729 11 5.30 129,187 11 5.64 105,119 10 3.91
---------- --- ---- ---------- --- ---- ---------- --- ----
339,303 30 5.16 391,810 33 5.62 290,891 27 3.82
---------- --- ---- ---------- --- ---- ---------- --- ----
Total deposits $1,127,047 100% 3.41% $1,191,349 100% 3.79% $1,082,646 100% 2.76%
========== === ==== ========== === ==== ========== === ====
</TABLE>
/(1)/ Rate is computed based on interest-bearing deposits.
In 1996, total average deposits decreased 5% primarily related to decreases in
interest-bearing transaction accounts and certificates of deposit and other time
deposits as a result of the declining interest rate environment and the runoff
of business that was anticipated from the acquisitions completed during 1996.
In 1995, total average deposits increased by 10% primarily due to a promotion by
the Company to generate deposits. Certificate of deposits and other time
deposits increased 35% as existing interest-bearing transaction account
customers as well as new deposit customers invested in these higher yielding
certificates of deposit.
Time deposits of $100,000 and more are generally received from the Company's
business and professional customer base. The potential impact on the Company's
liquidity from the withdrawal of these deposits is considered in the Company's
asset and liability management policies which attempt to anticipate liquidity
needs through its management of securities, federal funds sold, or by generating
additional deposits. The Company had no short-term borrowings of which the
average balance during the year exceeded 30% of stockholders' equity at
December 31, 1996.
Following is a summary of the remaining maturities of certificates of deposit
and other time deposits of $100,000 and more:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
(IN THOUSANDS)
<S> <C>
REMAINING MATURITIES:
Three months or less $ 51,072
Over three through six months 24,766
Over six through twelve months 35,079
Over twelve months 9,979
--------
Total $120,896
========
</TABLE>
19
<PAGE>
CAPITAL RESOURCES
The Company and its subsidiary are required to maintain minimum capital ratios
defined by various federal government regulatory agencies. These regulatory
agencies have established risk-based capital guidelines, which include minimum
capital requirements. Management believes as of December 31, 1996, the Company
and its subsidiary bank meet all capital adequacy guidelines to which they are
subject. Refer to Note L of the Company's Consolidated Financial Statements for
further information about regulatory matters.
Since 1991, the Company has consistently paid increasing quarterly cash
dividends from $0.20 per annum to the current annual dividend rate of $0.426 per
share beginning in the first quarter of 1997. These dividends are financed
through dividends received from the Company's subsidiary bank. For information
regarding dividends paid by the subsidiary bank refer to Note S of the Company's
Consolidated Financial Statements.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
The primary function of asset/liability management is to assure adequate
liquidity and maintain an appropriate balance between interest-sensitive assets
and interest-sensitive liabilities. The Company's policy has been to maintain an
adequate liquidity position which, in addition to cash and cash equivalents,
relies on cash inflows principally from earned interest, repayments of principal
on loans and securities and increases in deposits. The Company's principal cash
outflows are from loan originations, purchases of securities, decreases in
deposits and payment of operating expenses.
At December 31, 1996, the Company's cash and cash equivalents totaled
$205,748,000, an increase of $44,974,000 from the balance at December 31, 1995
of $160,774,000. Operating activities of the Company provided $13,405,000
primarily related to the Company's net income of $9,128,000. Investing
activities provided $188,830,000 due primarily to maturities of securities in
excess of purchases of $99,981,000, loan maturities and principal repayments in
excess of loan originations of $76,348,000, and loan participation sales in
excess of purchases of $9,486,000. In addition, purchases of premises and
equipment exceeded the proceeds from sales of premises and equipment by
$4,649,000, further reducing cash and cash equivalents. Such purchases related
primarily to leasehold improvements incurred at the Company's new corporate
headquarters and upgrading of data processing equipment. The Company's financing
activities utilized cash and cash equivalents by $157,261,000. This decrease is
primarily due to a decline in deposits of $139,902,000 and in federal funds sold
and repurchase agreements of $4,110,000. In addition cash was utilized for the
principal payments on debt financing of $5,015,000, the repurchase of treasury
shares of $5,253,000 and the payment of dividends of $5,922,000.
Historically, the Company has experienced seasonal fluctuations in the first
half of each year in its deposit base which has temporarily required the
utilization of short-term federal funds borrowings from correspondent banks and
brokerage firms. At December 31, 1996, management believes its liquidity is
adequate. The Company has arranged unsecured federal funds lines of credit of
approximately $102,000,000 with 5 major correspondent banks to provide funds in
periods of temporary declines in deposits. The Company has additional sources of
short-term credit through repurchase borrowing arrangements with several
brokerage firms and certain key customers. At December 31, 1996, the Company had
total short-term borrowings of $6,300,000 related to these arrangements.
Liquidity management requires the attention of the Company as well as its
subsidiary bank. The Company's operations generated administrative costs
associated with regulatory reporting, internal auditing, accounting and finance,
personnel, investor relations, executive management and overall corporate
planning, for which its subsidiary bank charges ValliCorp management and service
fees. Aside from accessing capital markets, the Company's primary source of
liquidity is dividends from its subsidiary bank. See Note T to the Consolidated
Financial Statements for further information on cash flows of the parent
company. There are regulatory restrictions which apply to dividends declared by
financial institutions; however, management believes that adequate dividends
will be received from ValliWide Bank to meet the Company's cash flow needs
through 1997.
Through the Company's interest rate sensitivity management, it seeks to minimize
fluctuating net interest margins and to enhance consistent growth of net
interest income through periods of changing interest rates. The difference
between the amount of assets and liabilities that are repricing in various time
frames is called the "gap." Generally, if repricing assets exceed repricing
liabilities in a given time period, the Company would be "asset sensitive."
Alternatively, if repricing liabilities exceed repricing assets, the Company
would be "liability sensitive."
The following table sets forth the interest-rate sensitivity and repricing
schedule of the Company's interest-earning assets and interest-bearing
liabilities, the interest rate sensitivity gap, the cumulative interest rate
sensitivity gap and the cumulative interest rate sensitivity gap ratio.
20
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------
AFTER THREE AFTER ONE
IMMEDIATELY MONTHS BUT YEAR BUT AFTER
OR WITHIN WITHIN 12 WITHIN FIVE FIVE
THREE MONTHS MONTHS YEARS YEARS TOTAL
--------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INTEREST RATE SENSITIVITY GAP:
Loans/(1)/ $521,116 $ 63,939 $137,793 $102,677 $ 825,525
Securities and federal funds sold 137,845 30,261 95,500 44,602 308,208
-------- -------- -------- -------- ----------
Total interest-earning assets $658,961 $ 94,200 $233,293 $147,279 $1,133,733
======== ======== ======== ======== ==========
Interest-bearing transaction accounts $345,464 $ - $ - $ - $ 345,464
Savings accounts 165,311 - - - 165,311
Certificates of deposit 117,742 167,670 31,604 - 317,016
Debt financing 15,842 - - 523 16,365
Short-term borrowings 6,300 - - - 6,300
-------- -------- -------- -------- ----------
Total interest-bearing liabilities $650,659 $167,670 $ 31,604 $ 523 $ 850,456
======== ======== ======== ======== ==========
Interest rate sensitivity gap/(2)/ $ 8,302 $(73,470) $201,689 $ 146,756
Cumulative gap 8,302 (65,168) 136,521 283,277
Cumulative gap percentage to earning assets
at December 31, 1996 1% (6%) 12% 25%
</TABLE>
/(1)/ Loans excludes nonaccrual loans of $9,216,000.
/(2)/ Does not assume prepayments of interest-earning assets or run-off of
interest-bearing liabilities.
Based upon the average repricing schedules at December 31, 1996, the Company was
"liability sensitive" with respect to interest-earning assets and interest-
bearing liabilities repricing within one year. Because approximately $65 million
of interest-bearing liabilities in excess of interest-earning assets reprice
within one year, management expects that, in an increasing rate environment, the
Company's net interest margin would be expected to decline as liabilities would
generally reprice more quickly than assets, and in a decreasing rate
environment, the Company's net interest margin would tend to increase. The
Company manages its interest rate risk by emphasizing loan products which have
variable interest rates and deposit products which are short-term in duration.
The Company's asset/liability policy seeks to maintain a cumulative gap
percentage of not more than 10% on a relative basis for assets and liabilities
repricing within one year.
EFFECT OF CHANGING PRICES
The majority of assets and liabilities of a financial institution are monetary
in nature and, therefore, differ greatly from most commercial and industrial
companies that have significant investments in fixed assets or inventories.
However, inflation does have an important impact on the growth of total assets
in the banking industry and the resulting need to increase equity capital in
order to maintain an appropriate equity-to-assets ratio. An important effect of
this has been the reduction of the proportion of earnings paid out as dividends
by some banking organizations. Another significant effect of inflation is on
other expenses, which tend to rise during periods of general inflation.
21
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The following audited consolidated financial statements and related documents
are set forth in this Annual Report on Form 10-K on the pages indicated:
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors.........................................23
Consolidated Balance Sheets............................................24
Consolidated Statements of Income......................................25
Consolidated Statements of Stockholders' Equity........................26
Consolidated Statements of Cash Flows..................................27
Notes to Consolidated Financial Statements.............................28
</TABLE>
22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
ValliCorp Holdings, Inc.
We have audited the consolidated balance sheets of ValliCorp Holdings, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits. The consolidated
financial statements give retroactive effect to the mergers of ValliCorp
Holdings, Inc. and El Capitan Bancshares, Inc. on February 2, 1996, and
ValliCorp Holdings, Inc. and CoBank Financial Corporation on March 22, 1996,
which have been accounted for as poolings of interests as described in Notes A
and B to the consolidated financial statements. We did not audit the balance
sheet of El Capitan Bancshares, Inc. as of December 31, 1995, or the related
statements of earnings, stockholders' equity, and cash flows of El Capitan
Bancshares, Inc. for the years ended December 31, 1995 and 1994, which
statements reflect total assets of $133,499,000 as of December 31, 1995, and net
interest income of $6,849,000 and $7,503,000 and net earnings of $1,044,000 and
$1,882,000 for the years ended December 31, 1995 and 1994, respectively. Those
statements were audited by other auditors whose report, dated January 19, 1996,
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for El Capitan Bancshares, Inc. for 1995 and 1994, is based solely on
the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of ValliCorp Holdings, Inc. and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Fresno, California
January 24, 1997
23
<PAGE>
VALLICORP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks $ 113,748 $ 103,004
Federal funds sold 92,000 57,770
---------- ----------
Cash and cash equivalents 205,748 160,774
Loans held for sale 8,262 5,158
Securities:
Available for sale 198,204 249,586
Held to maturity (fair value: $18,137,000 in 1996
and $66,074,000 in 1995) 18,004 65,646
---------- ----------
Total securities 216,208 315,232
Loans 834,741 865,749
Allowance for loan losses (16,002) (14,986))
---------- ----------
Net loans 818,739 850,763
Accrued interest receivable 9,559 11,201
Premises and equipment, net 29,073 25,919
Other assets 33,051 20,988
---------- ----------
Total assets $1,320,640 $1,390,035
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing transaction accounts $ 319,513 $ 300,746
Interest-bearing transaction and savings accounts 510,775 526,274
Certificates of deposit, $100,000 and over 120,896 136,284
Other time deposits 196,120 258,082
---------- ----------
Total deposits 1,147,304 1,221,386
Other liabilities 8,281 10,186
Short-term borrowings 6,300 10,410
Debt financing 16,365 20,932
---------- ----------
Total liabilities 1,178,250 1,262,914
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 5,000,000
shares, none issued - -
Common stock, $.01 par value; authorized 40,000,000
shares, issued and outstanding 14,088,788 shares
in 1996 and 13,266,088 shares in 1995 141 133
Paid-in capital 95,166 84,135
Net unrealized securities losses, net of income taxes (1,396) (536)
Retained earnings 48,479 43,389
---------- ----------
Total stockholders' equity 142,390 127,121
---------- ----------
Total liabilities and stockholders' equity $1,320,640 $1,390,035
========== ==========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
VALLICORP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
---------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME
Loans $82,048 $ 89,560 $72,389
Securities 12,696 16,160 17,147
Federal funds sold and other 5,218 3,604 1,008
------- -------- -------
Total interest income 99,962 109,324 90,544
------- -------- -------
INTEREST EXPENSE
Deposits 29,024 34,955 22,906
Debt financing 1,313 1,757 236
Other 446 303 319
------- -------- -------
Total interest expense 30,783 37,015 23,461
------- --------- -------
NET INTEREST INCOME 69,179 72,309 67,083
Provision for loan losses 7,731 9,633 3,958
------- -------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 61,448 62,676 63,125
------- -------- -------
OTHER INCOME
Service charges on deposit accounts 2,801 2,667 2,552
Other service charges and fees 7,024 5,867 6,312
Merchant credit card services 1,892 1,206 624
Mortgage banking revenue 696 590 521
Gain (loss) on sale of securities - (113) 7
Other 1,857 2,479 914
------- -------- -------
Total other income 14,270 12,696 10,930
------- -------- -------
OTHER EXPENSES
Salaries and employee benefits 23,378 25,293 25,327
Occupancy 6,490 6,099 5,448
Equipment and maintenance 4,652 4,837 4,293
Amortization of intangible assets 1,770 1,679 1,092
Merger and integration 6,016 700 2,567
Restructuring 902 - 800
Other 17,216 17,012 16,260
------- -------- -------
Total other expenses 60,424 55,620 55,787
------- -------- -------
Income before income taxes 15,294 19,752 18,268
Income taxes 6,166 7,950 7,817
------- -------- -------
NET INCOME $ 9,128 $ 11,802 $10,451
======= ======== =======
EARNINGS PER SHARE
Primary $ 0.67 $ 0.88 $ 0.78
======= ======== =======
Fully-diluted $ 0.66 $ 0.87 $ 0.78
======= ======== =======
DIVIDENDS PER SHARE PAID BY VALLICORP $ 0.40 $ 0.36 $ 0.32
======= ======== =======
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
VALLICORP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
SECURITIES
NUMBER COMMON PAID-IN GAINS RETAINED
OF SHARES STOCK CAPITAL (LOSSES) EARNINGS TOTAL
-------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 12,603,387 $126 $79,840 $32,060 $112,026
Issuance of common stock:
Conversion of subordinated notes 15,171 84 84
Exercise of stock options 241,442 3 1,440 1,443
10% stock dividend - pooled company 210,193 2 1,567 (1,572) (3)
Adjustment for change in accounting method,
net of income taxes of $915,000 $ 1,281 1,281
Change in net unrealized losses on available for sale
securities, net of income tax benefit of $3,689,000 (5,069) (5,069)
Net income 10,451 10,451
Cash dividends declared prior to mergers:
ValliCorp Holdings, Inc. - $0.32 per share (2,440) (2,440)
Pooled companies (1,265) (1,265)
---------- ---- ------- ------- -------- -------
BALANCE AT DECEMBER 31, 1994 13,070,193 131 82,931 (3,788) 37,234 116,508
Issuance of common stock:
Conversion of subordinated notes 33,565 184 184
Exercise of stock options 162,330 2 1,020 1,022
Change in net unrealized losses on available for sale
securities, net of income taxes of $2,332,000 3,252 3,252
Net income 11,802 11,802
Cash dividends declared prior to mergers:
ValliCorp Holdings, Inc. - $0.46 per share (4,710) (4,710)
Pooled companies (937) (937)
---------- ---- ------- ----- ------- --------
BALANCE AT DECEMBER 31, 1995 13,266,088 133 84,135 (536) 43,389 127,121
Issuance of common stock:
Conversion of subordinated notes 15,380 84 84
Exercise of stock options 271,965 3 2,542 2,545
Sales through stock plans 26,728 396 396
Acquisition of Auburn Bancorp 844,627 8 13,259 13,267
Purchase of treasury stock (336,000) (3) (5,250) (5,253)
Change in net unrealized losses on available for sale
securities, net of income tax benefit of $634,000 (860) (860)
Net income 9,128 9,128
Cash dividends declared - $0.30 per share (4,038) (4,038)
---------- ---- ------- ------- -------- --------
BALANCE AT DECEMBER 31, 1996 14,088,788 $141 $95,166 $(1,396) $ 48,479 $142,390
========== ==== ======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
VALLICORP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 9,128 $ 11,802 $ 10,451
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 7,731 9,633 3,958
Provision for losses on other real estate owned 380 1,002 437
Depreciation and amortization 5,933 5,902 5,726
Originations of loans held for sale, net of principal collected (49,899) (51,258) (54,083)
Proceeds from loan sales 55,015 49,646 56,946
Decrease (increase) in accrued interest receivable 2,407 (183) (402)
Increase in other assets (11,842) (2,362) (242)
(Decrease) increase in other liabilities (4,608) (438) 1,224
Other operating activities, net (840) (660) (996)
--------- -------- --------
Net cash provided by operating activities 13,405 23,084 23,019
INVESTING ACTIVITIES:
Proceeds from sales of available for sale securities - 39,812 56,438
Proceeds from maturities of available for sale securities 105,418 36,642 25,829
Purchases of available for sale securities (51,136) (80,268) (52,389)
Proceeds from maturities of held to maturity securities 45,699 33,953 18,197
Purchases of held to maturity securities - (39,882) (20,862)
Net decrease (increase) in loans excluding loan participations
and loans held for sale 76,348 (1,850) (66,206)
Loan participations:
Purchases (1,309) (577) -
Sales 10,795 4,012 2,172
Purchases of premises and equipment (4,933) (5,444) (9,921)
Proceeds from premises and equipment disposals 284 365 72
Net cash obtained (used) in mergers and acquisitions 4,391 - (15,762)
Investments in other real estate owned - - (923)
Proceeds from sale of other real estate owned 3,273 4,391 3,328
--------- -------- --------
Net cash provided by (used in) investing activities 188,830 ( 8,846) (60,027)
FINANCING ACTIVITIES:
(Decrease) increase in deposits (139,902) 43,255 (5,282)
(Decrease) increase in short term borrowings (4,110) 4,910 5,500
Principal payments on debt financing (5,015) (5,007) (55)
Proceeds from debt financing - - 25,000
Stock sales through stock plans 2,941 1,022 1,443
Repurchase of common shares (5,253) - -
Cash dividends (5,922) (4,612) (3,623)
--------- -------- --------
Net cash (used in) provided by financing activities (157,261) 39,568 22,983
--------- -------- --------
Increase (decrease) in cash and cash equivalents 44,974 53,806 (14,025)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 160,774 106,968 120,993
--------- -------- --------
Cash and cash equivalents at end of year $ 205,748 $160,774 $106,968
========= ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 31,794 $ 38,229 $ 24,644
Income taxes paid 7,800 7,319 8,768
NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfers of loans to other real estate owned 5,165 4,045 3,829
Conversion of subordinated notes into common stock 84 184 84
Financing sale of premises and other real estate owned 345 333 1,556
Dividends declared, not yet paid - 1,884 849
Effect of Auburn Bancorp merger:
Liabilities assumed $ 70,939
Common stock issued 13,267
Net cash obtained (4,391)
---------
Net increase in assets $ 79,815
=========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE A - ACCOUNTING POLICIES
ValliCorp Holdings, Inc. is a supercommunity banking company headquartered in
Fresno, California, which provides full service banking through its branch
network in Central California. The accounting policies of ValliCorp Holdings,
Inc. and its subsidiary, ValliWide Bank, conform with generally accepted
accounting principles and prevailing practices within the financial services
industry. Such principles require management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates. The following is a summary of
significant accounting and reporting policies.
BASIS OF PRESENTATION: The accompanying consolidated financial statements
include the acquisitions in 1996 of El Capitan Bancshares, Inc. ("El Capitan")
and CoBank Financial Corporation ("CoBank"), and the 1994 acquisition of Mineral
King Bancorp, Inc. ("Mineral King"), as described in Note B, which were
accounted for as poolings of interests, and the 1996 acquisition of Auburn
Bancorp ("Auburn") and the 1994 acquisition of Bank One, Fresno, which were
accounted for under the purchase method of accounting. These financial
statements include the accounts of ValliCorp Holdings, Inc. ("ValliCorp") and
its subsidiary, ValliWide Bank ("ValliWide" or the "Bank"), hereinafter referred
to as the "Company." All significant intercompany balances and transactions are
eliminated.
BUSINESS COMBINATIONS: In a business combination accounted for as a pooling of
interests, the assets, liabilities and shareholders' equity of the acquired
entity are carried forward at their historical amounts and its results of
operations are combined with the Company's results of operations. Additionally,
the Company's prior period financial statements are restated to give effect to
the merger.
In a business combination accounted for as a purchase, the results of operations
of the acquired entity are included from the date of acquisition. Assets and
liabilities of the entity acquired are recorded at fair value on the date of
acquisition. Goodwill and identified intangibles are amortized over their
estimated lives.
CASH AND CASH EQUIVALENTS: Cash and due from banks and federal funds sold are
considered cash and cash equivalents.
LOANS HELD FOR SALE: Mortgage loans and loans guaranteed by the U.S. Small
Business Administration which are held for sale are carried at the lower of
aggregate cost or market as determined by outstanding commitments from investors
or current investor yield requirements. Gains and losses on loan sales are
recognized at the time of sale and are calculated based on the amounts received
and the carrying value of the loans sold.
SECURITIES: Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." In accordance with the standard,
prior period financial statements were not restated. The cumulative effect of
adopting SFAS No. 115 was to increase stockholders' equity at January 1, 1994 by
$1,281,000 (net of $915,000 in income taxes) to reflect the net unrealized
holding gains on securities classified as available for sale. There was no
effect on net income as a result of adopting this standard. Net
reclassifications totaling approximately $87,000,000 were made from the held to
maturity securities portfolio to the available for sale securities portfolio
upon the adoption of SFAS No. 115.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held to maturity when the Company has the
positive intent and ability to hold the securities to maturity. Held to maturity
securities are stated at cost, adjusted for amortization of premiums and
accretion of discounts. Such amortization and accretion together with interest
earned is included in interest income.
Marketable equity securities and debt securities not classified as held to
maturity are classified as available for sale. Available for sale securities are
carried at fair value, with unrealized gains and losses, net of income taxes,
reported as a component of stockholders' equity. The cost of debt securities in
this category is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization and accretion together with realized
gains and losses and declines in value judged to be other-than-temporary are
included in income. The cost of securities sold is based on the specific
identification method.
LOANS: Loans are carried at the principal amount outstanding, net of unearned
income, including deferred loan fees and costs. Certain nonrefundable loan
origination and commitment fees and the direct costs associated with originating
or acquiring the loans are deferred. The net deferred amount is amortized as an
adjustment of the related loan yield over the contractual lives of the related
loans.
28
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
Interest income on loans is accrued based on principal amounts outstanding.
Loans are accounted for on a nonaccrual basis when circumstances indicate that
collection is questionable or, generally, when payment is over 90 days past due
(unless the loan is well-secured and in the process of collection). Loans are
returned to accrual status when management determines circumstances have
improved to the extent that there has been a sustained period of repayment
performance and both principal and interest are deemed collectible.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is maintained at a
level estimated to be adequate to absorb potential losses in the loan portfolio.
Management's determination of the adequacy of the allowance is based on
evaluations of the portfolio, past credit loss experience, current economic
conditions, volume, growth and composition of the loan portfolio and other
relevant factors.
While the Company's policy is to charge-off those loans for which a loss is
considered probable, there also exists the risk of future losses which cannot be
precisely quantified or attributed to particular loans or classes of loans.
Because the risk is continually changing in response to factors beyond the
control of the Company, management's judgment as to the adequacy of the
allowance for loan losses in future periods is necessarily an approximate one.
Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan", and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures". SFAS No. 114
requires that impaired loans be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. Under SFAS No. 114, a loan
is considered impaired when, based on current information, it is probable that
the borrower will be unable to pay contractual interest or principal payments as
scheduled in the loan agreement. SFAS No. 114 applies to all loans except
smaller-balance homogeneous consumer loans, loans carried at fair value or the
lower of cost or fair value, debt securities and leases. Generally, the Company
applies SFAS No. 114 to nonaccrual commercial loans and renegotiated loans. In
addition, SFAS No. 114 modified the accounting for in-substance foreclosures
("ISF"). Effective January 1, 1995, a collateralized loan is considered an ISF
and reclassified to Other Real Estate Owned only when the Company has taken
physical possession of the collateral regardless of whether formal foreclosure
proceedings have taken place.
SFAS No. 118 amends SFAS No. 114 to allow a creditor to use existing methods for
recognizing interest income on impaired loans and requires certain information
to be disclosed. The effect of adoption of these standards was not material.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization is
computed using the straight-line method over the estimated lives, ranging from 3
to 35 years, of each asset.
OTHER REAL ESTATE OWNED: Other real estate owned (OREO) consists of properties
acquired through foreclosure or repossession. These properties (which are
included in Other Assets) are carried at the lower of cost or fair value less
estimated costs to sell. Credit losses arising from the acquisition of such
properties are charged against the allowance for loan losses. Subsequent market
write downs, operating expenses and gains and losses on the sale of OREO are
charged or credited to other operating expense as incurred.
INTANGIBLE ASSETS: Intangible assets (which are included in Other Assets)
aggregating $16,472,000 and $9,576,000 (net of accumulated amortization of
$8,131,000 and $6,367,000) at December 31, 1996 and 1995, respectively, are
comprised of core deposit intangibles and goodwill acquired in business
combinations. Core deposit intangibles are amortized over the estimated lives of
the existing deposit bases (10 years) using the interest method. Goodwill of
$10,384,000 in 1996 and $5,131,000 in 1995 (net of accumulated amortization of
$2,367,000 and $1,769,000, respectively) is amortized on a straight-line basis
over 15 years. Management periodically reviews the balances to determine if
such balances have been impaired.
INCOME TAXES: Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
29
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
EARNINGS PER SHARE: Primary earnings per share is computed by dividing net
income by the weighted average number of shares of common stock and common stock
equivalents (stock options and mandatory convertible subordinated debentures)
outstanding during each year. The computation of fully-diluted earnings per
share assumes the additional conversion of optional convertible subordinated
debentures. The number of weighted average shares used in the primary earnings
per share calculation was approximately 13,739,000 in 1996, 13,525,000 in 1995
and 13,402,000 in 1994. The average number of shares used in the fully-diluted
computation was approximately 13,804,000 in 1996, 13,559,000 in 1995 and
13,475,000 in 1994.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS: Effective January 1, 1996,
the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes
standards for accounting for the impairment of long-lived assets, certain
identifiable intangibles and goodwill. It does not apply to financial
instruments, long-term customer relationships of a financial institution (e.g.,
core deposit intangibles), mortgage and other servicing rights, or deferred tax
assets. The effect of adoption of this standard was not material.
MORTGAGE SERVICING RIGHTS: In May 1995, the Financial Accounting Standards Board
("FASB") issued SFAS No. 122, "Accounting for Mortgage Servicing Rights," which
was adopted by the Company effective January 1, 1996. SFAS No. 122 requires that
the Company recognize as separate assets rights to service mortgage loans for
others, whether those servicing rights are originated or purchased. SFAS No.
122 also requires that capitalized servicing rights be assessed for impairment
based on fair value, rather than an estimate of undiscounted future cash flows.
The effect of adoption of this standard was not material.
ACCOUNTING FOR STOCK-BASED COMPENSATION: In October 1995, the FASB issued SFAS
No. 123, "Accounting for Stock-Based Compensation." The new standard defines a
fair value method of accounting for stock options and other equity instruments,
such as stock purchase plans. Under this method, compensation cost is measured
based on the fair value of the stock award when granted and is recognized as an
expense over the service period, which is usually the vesting period. This
standard was effective for the Company beginning in 1996, and requires
measurement of awards made beginning in 1995.
As permitted under SFAS No. 123, the Company has elected to continue to account
for equity transactions with employees under existing accounting rules, and
provide required disclosure in a note to the financial statements of the pro
forma net income and earnings per share as if the Company had applied the new
method of accounting.
ACCOUNTING FOR FINANCIAL ASSETS AND LIABILITIES: In June 1996, the FASB issued
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities". This Statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996. The Company believes the effect of adoption of this standard
will not be material.
RECLASSIFICATIONS: Certain reclassifications have been made to prior year
balances to conform to current year classifications.
NOTE B - MERGERS AND ACQUISITIONS
PENDING TRANSACTIONS
WESTAMERICA BANCORPORATION: On November 12, 1996, the Company announced it had
entered into a definitive agreement ("Merger Agreement") with Westamerica
Bancorporation ("WABC"), a northern California based holding company with $2.5
billion in assets, to merge the two companies. WABC will acquire the
outstanding shares of common stock of ValliCorp pursuant to a tax-free exchange
of WABC common stock for all common stock of ValliCorp. Upon consummation of
the merger, each outstanding share of the Company's common stock will be
converted into the right to receive $21 of value in WABC Common Stock, subject
to upward or downward adjustments as described in the Merger Agreement. WABC
plans to acquire all of the Company's outstanding common stock for WABC common
stock pursuant to a tax-free exchange of common stock accounted for as a pooling
of interests.
The Merger Agreement, which was approved unanimously by the Boards of Directors
of both companies, is subject to conditions usual and customary for merger
transactions of this type, including approval by both WABC and ValliCorp
shareholders, approval by the Federal Reserve Board and California
Superintendent of Banks, and satisfaction of certain other terms and conditions.
The merger is currently expected to be consummated in the second quarter of
1997.
30
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
COMPLETED TRANSACTIONS
AUBURN: On September 13, 1996, Auburn, together with its wholly-owned
subsidiary, The Bank of Commerce, N.A., were merged with and into ValliCorp and
ValliWide, respectively. The transaction was accounted for using the purchase
method of accounting and, accordingly, the results of operations for Auburn have
been included in the consolidated financial statements for periods subsequent to
the consummation of the merger. Under this method of accounting, the purchase
price is allocated to the respective assets acquired and liabilities assumed
based on their estimated fair values. Each outstanding share of Auburn common
stock was exchanged for 0.8209 shares of ValliCorp common stock resulting in
approximately 845,000 shares of the Company's common stock being issued
(including 327,000 shares of the Company's treasury stock) and valued at $15.25
per share, ValliCorp's stock price at the Auburn merger announcement in March
1996. The purchase price totaled $13.3 million in stock, including professional
fees and other merger related expenses. At the merger date, the fair value of
the assets acquired totaled $84 million, including loans of $63 million,
securities of $3 million and intangible assets of $9 million, consisting of $3
million of core deposit intangibles and $6 million of goodwill, and the fair
value of liabilities assumed was approximately $71 million, including deposits
of $66 million.
The following presents a pro forma combined summary of operations of the Company
and Auburn for the years ended December 31, 1996 and 1995 and it is presented as
if the Auburn merger had been effective on January 1, 1995. It combines the
Company's historical results of operations for the year ended December 31, 1996,
which included combined operations from September 13, 1996 and Auburn's results
of operations for the period January 1, 1996 through September 12, 1996.
The unaudited pro forma combined summary of operations is intended for
informational purposes only and is not necessarily indicative of the future
results of operations of the Company, or the results of operations that would
have occurred had the Auburn merger been in effect for the full periods
presented.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1996 1995
---------- ---------
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net interest income $72,065 $76,428
Net income 8,094 11,861
Fully-diluted earnings per share 0.56 0.82
</TABLE>
COBANK: On March 22, 1996, CoBank, together with its wholly-owned subsidiary,
Commerce Bank of San Luis Obispo, N.A., were merged with and into ValliCorp and
ValliWide, respectively. Each outstanding share of CoBank common stock was
exchanged for 1.1875 shares of ValliCorp's common stock, resulting in
approximately 1 million shares being issued. At the date of the merger, CoBank
had unaudited total assets of $97 million, including $64 million in loans and
$24 million in securities, and unaudited total liabilities of $88 million,
including $87 million in deposits. The merger was accounted for as a pooling of
interests.
EL CAPITAN: On February 2, 1996, El Capitan together with its wholly-owned
subsidiary, El Capitan National Bank, were merged with and into ValliCorp and
ValliWide, respectively. Each outstanding share of El Capitan common stock was
exchanged for 2.3286 shares of ValliCorp's common stock resulting in
approximately 2 million shares being issued. At the date of the merger, El
Capitan had unaudited total assets of $128 million, including $63 million in
loans and $48 million in securities, and unaudited total liabilities of $113
million, including $112 million in deposits. The merger was accounted for as a
pooling of interests.
MINERAL KING: On December 16, 1994, Mineral King, together with its wholly-owned
subsidiary, Mineral King National Bank, was merged with and into ValliCorp.
Each share of Mineral King was exchanged for 2.0103 shares of ValliCorp common
stock resulting in approximately 2.5 million shares being issued. At the date of
merger, Mineral King had unaudited total assets of $185 million, including $124
million in loans and $45 million in securities, and unaudited total liabilities
of $173 million, including $167 million in deposits. The merger was accounted
for as a pooling of interests.
BANK ONE, FRESNO: On December 2, 1994, the Company acquired, for $17 million,
all of the deposits and the majority of the assets of Bank One, Fresno, a
wholly-owned subsidiary of Bank One Arizona Corporation. Bank One, Fresno was
concurrently merged with and into ValliWide. The transaction was accounted for
as a purchase. In connection with the transaction, ValliWide acquired $99
million in deposits
31
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
and $109 million in loans and recorded a core deposit intangible of $4 million
and goodwill of $3 million. The impact of pro forma adjustments on the combined
results of operations for 1994 is not material.
The following table presents preacquisition net interest income, net income and
earnings per share for ValliCorp and the companies accounted for under the
pooling of interests method and such information on a combined basis. During
1996, preacquisition earnings for El Capitan and CoBank were not material.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1995 1994
----------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
NET INTEREST INCOME:
ValliCorp $59,364 $43,977
Mineral King - 10,445
El Capitan 6,849 7,503
CoBank 6,096 5,158
------- -------
Combined $72,309 $67,083
======= =======
NET INCOME:
ValliCorp $10,247 $ 6,800
Mineral King - 994
El Capitan 1,045 1,882
CoBank 510 775
------- -------
Combined $11,802 $10,451
======= =======
</TABLE>
NOTE C - MERGER, INTEGRATION AND RESTRUCTURING COSTS
Merger and integration costs of $6,016,000 were recorded during 1996 in
connection with the El Capitan, CoBank and Auburn mergers and the pending merger
with Westamerica Bancorporation. Such costs related primarily to separation and
benefit costs, professional, legal and investment banking fees, facilities
termination fees and other merger related costs.
A restructuring charge of $902,000 was recorded in the fourth quarter of 1996 to
reflect management's estimate of the costs associated with the closure or
consolidation of five branches approved by the Company in 1996. The charge
reflects costs in connection with dispositions of facilities, premises and
equipment ($832,000) and other related costs; at December 31, 1996, $748,000 of
the restructuring charge remained in Other Liabilities.
Merger costs of $700,000, recorded in 1995, primarily relate to professional,
legal and investment banking fees incurred by El Capitan and CoBank in
connection with their mergers with the Company in 1996.
Merger costs totaling $2,567,000 were recorded during 1994 in connection with
the Mineral King merger. Such costs related primarily to separation and benefit
costs, professional, legal and investment banking fees and other merger related
costs.
A restructuring charge of $800,000 was recorded in the first quarter of 1994 and
consisted of costs to merge two of the Company's subsidiary banks, Bank of
Fresno and Merced Bank of Commerce, change the name of Bank of Fresno to
ValliWide Bank, provide for separation and benefit costs and write-off of
supplies.
32
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE D - SECURITIES
Following is a comparison of the amortized cost and approximate fair value of
available for sale securities.
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. Treasury securities $ 26,317 $ 32 $ (84) $ 26,265
U.S. Government agencies 98,524 22 (1,229) 97,317
U.S. Government agency mortgage-backed
securities 49,048 188 (2,112) 47,124
State and political subdivisions 18,641 798 (31) 19,408
Other securities 8,088 8 (6) 8,090
-------- ------ ------- --------
$200,618 $1,048 $(3,462) $198,204
======== ====== ======= ========
DECEMBER 31, 1995
U.S. Treasury securities $ 55,506 $ 113 $ (202) $ 55,417
U.S. Government agencies 115,751 150 (770) 115,131
U.S. Government agency mortgage-backed
securities 56,120 25 (1,239) 54,906
State and political subdivisions 15,503 995 (2) 16,496
Other securities 7,626 14 (4) 7,636
-------- ------ ------- --------
$250,506 $1,297 $(2,217) $249,586
======== ====== ======= ========
</TABLE>
Gross realized gains and losses were approximately $117,000 and $230,000,
respectively, in 1995 and $141,000 and $134,000, respectively, in 1994 (none in
1996).
In November 1995, the FASB issued additional implementation guidance regarding
previously issued SFAS No. 115. In accordance with this guidance and prior to
December 31, 1995, companies were allowed a one-time reassessment of their
classification of securities and were required to account for any resulting
transfers at fair value. Transfers from the held to maturity category that
resulted from this one-time reassessment will not call into question the intent
to hold other securities to maturity in the future. The Company transferred
approximately $115,144,000 of securities from the held to maturity portfolio to
the available for sale portfolio. Available for sale securities were adjusted to
fair value and stockholders' equity was decreased by $143,000, net of income
taxes of $104,000. This transfer was made to allow the Company greater
flexibility in managing its interest rate risk and liquidity. Also, the Company
transferred approximately $3,019,000 of securities from the available for sale
portfolio to the held to maturity portfolio. The securities were transferred at
their fair value which approximated amortized cost at the date of transfer.
The amortized cost and approximate fair value of available for sale securities
at December 31, 1996, by contractual maturity, are as shown below. Actual
maturities may differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
33
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------
AMORTIZED FAIR
COST VALUE
-----------------------------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less $ 30,002 $ 29,982
Due after one year through five years 90,210 90,195
Due after five years through ten years 27,952 27,489
Due after ten years 3,406 3,414
-------- --------
151,570 151,080
Mortgage-backed securities 49,048 47,124
-------- --------
$200,618 $198,204
======== ========
</TABLE>
The amortized cost and approximate fair value of held to maturity securities are
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. Treasury securities $ 998 $ - $ (4) $ 994
U.S. Government agencies 1,000 - (12) 988
U.S. Government agency mortgage-backed securities 7,398 114 (266) 7,246
State and political subdivisions 8,608 304 (3) 8,909
------- ---- -------- --------
$18,004 $418 $ (285) $ 18,137
======= ==== ======== ========
DECEMBER 31, 1995
U.S. Treasury securities $ 982 $ 14 $ - $ 996
U.S. Government agencies 42,578 - (44) 42,534
U.S. Government agency mortgage-backed securities 8,258 139 (175) 8,222
State and political subdivisions 13,828 554 (60) 14,322
------- ---- -------- --------
$65,646 $707 $ (279) $ 66,074
======= ==== ======== ========
</TABLE>
The amortized cost and approximate fair value of held to maturity securities at
December 31, 1996, by contractual maturity, are as shown below. Actual
maturities may differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------
AMORTIZED FAIR
COST VALUE
---------------------------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less $ 2,038 $ 2,085
Due after one year through five years 6,884 7,075
Due after five years through ten years 958 1,008
Due after ten years 726 723
------- -------
10,606 10,891
Mortgage-backed securities 7,398 7,246
------- -------
$18,004 $18,137
======= =======
</TABLE>
At December 31, 1996 and 1995, securities with carrying values of approximately
$82,000,000 and $93,000,000, respectively, were pledged as collateral for
deposits of public funds and other purposes as required by law or contract.
34
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE E - LOANS
The carrying amounts of loans consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------------------
(IN THOUSANDS)
<S> <C> <C>
Commercial $372,079 $367,382
Agribusiness 83,721 76,278
Real estate-construction 61,046 74,720
Real estate-mortgage 134,110 136,278
Consumer 178,673 205,869
Other 5,112 5,222
-------- --------
834,741 865,749
Allowance for loan losses (16,002) (14,986)
-------- --------
Net loans $818,739 $850,763
======== ========
</TABLE>
In the ordinary course of business, the Company, through its banking subsidiary,
makes loans to directors and executive officers of the Company and their related
businesses. Such loans are made on substantially the same terms, including
interest rates and collateral, as those for comparable transactions with
unrelated parties and do not, in the opinion of management, involve more than
the normal risk of collectibility or present other unfavorable features. Changes
in loans to, or guaranteed by, directors and executive officers and their
related businesses are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1996 1995
-------------------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year $ 7,542 $ 13,101
New loans 7,713 10,858
Payments (9,352) (12,907)
Other changes (3,254) (3,510)
------- --------
Balance at end of year $ 2,649 $ 7,542
======= ========
</TABLE>
Other changes in 1996 and 1995 represent loans to former directors and executive
officers of the Company who are no longer related parties.
At December 31, 1996, the Company's loan portfolio is highly diversified among
industry groups within the Company's customer service area. The Company's
largest loan concentrations are related to real estate-mortgage, agribusiness
and real estate-construction lending which represented approximately 16%, 10%
and 7% of the loan portfolio at December 31, 1996, respectively. The Company's
loan portfolio is concentrated within Central California.
The Company has collateral management policies in place to assure that
collateral lending of all types is approached on a basis which management
believes is consistent with safe and sound lending standards. Valuation analyses
are utilized to take into consideration the potentially adverse economic
conditions under which liquidation could occur. The Company requires collateral
on all real estate loans. Other collateral accepted as security for loans
includes deposits, securities, accounts receivable, inventories, equipment and
other assets.
The outstanding principal balance of loans placed on nonaccrual status was
approximately $9,216,000 and $17,480,000 at December 31, 1996 and 1995,
respectively. Interest income not recognized on nonaccrual loans approximated
$937,000, $2,204,000 and $678,000 during 1996, 1995 and 1994, respectively. The
Company did not recognize any interest income related to nonaccrual loans in
1996, 1995 and 1994.
35
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995 1994
------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 14,986 $14,130 $12,368
Provision for loan losses 7,731 9,633 3,958
Charge-offs (10,089) (9,448) (4,401)
Recoveries 1,709 671 450
Allowance acquired through merger 1,665 - 1,755
-------- ------- -------
Balance at end of year $ 16,002 $14,986 $14,130
======== ======= =======
</TABLE>
The following is a summary of loans considered to be impaired in accordance with
SFAS No. 114 and the related interest income:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
-----------------
(IN THOUSANDS)
<S> <C> <C>
Recorded investment in impaired loans not requiring
an allowance for credit losses as determined in
accordance with SFAS No. 114 /(1)/ $ 6,463 $ 5,732
Recorded investment in impaired loans requiring an
allowance for credit losses as determined in
accordance with SFAS No. 114 /(2)/ 2,753 10,957
------- -------
Total recorded investment in impaired loans /(3)/ $ 9,216 $16,689
======= =======
Average recorded investment in impaired loans $13,170 $11,245
Interest income recognized - 179
</TABLE>
/(1)/ These loans did not require an allowance for credit losses as measured in
accordance with SFAS No. 114 since the values of the impaired loans equal
or exceed the recorded investments in the loans.
/(2)/ For these impaired loans, the related SFAS No. 114 allowance was $972,000
and $3,464,000 as of December 31, 1996 and 1995, respectively.
/(3)/ These amounts were evaluated for impairment using the following methods:
$7,304,000 and $7,364,000 were evaluated using the present value of the
loan's expected future cash flows method for the years ended December 31,
1996 and 1995, respectively and $1,912,000 and $9,325,000 were evaluated
using the fair value of collateral for the years ended December 31, 1996
and 1995, respectively.
36
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE F - OTHER REAL ESTATE OWNED
Other real estate owned, net of the allowance, was approximately $3,821,000 and
$2,512,000 at December 31, 1996 and 1995, respectively, and is included within
Other Assets.
Changes in the allowance for losses on other real estate owned are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995 1994
-----------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 496 $ 250 $ 932
Provision for losses on other real estate owned 380 1,002 437
Net charge-offs (534) (756) (1,119)
----- ------ ------
Balance at end of year $ 342 $ 496 $ 250
===== ====== ======
</TABLE>
NOTE G - PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995
-----------------------------
(IN THOUSANDS)
<S> <C> <C>
Land and leasehold interest $ 4,248 $ 3,428
Premises and improvements 10,972 9,475
Leasehold improvements 10,062 8,348
Furniture and equipment 23,462 20,654
-------- --------
48,744 41,905
Accumulated depreciation and amortization (19,671) (15,986)
-------- --------
Premises and equipment, net $ 29,073 $ 25,919
======== ========
</TABLE>
Depreciation and amortization of premises and equipment totaled $4,420,000,
$3,939,000 and $2,962,000 for 1996, 1995 and 1994, respectively.
NOTE H - DEPOSITS
At December 31, 1996, the scheduled maturities of all certificates of deposits
and other time deposits are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997 $285,412
1998 28,277
1999 2,621
2000 294
2001 and thereafter 412
--------
$317,016
========
</TABLE>
37
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE I - SHORT-TERM BORROWINGS
Short-term borrowings consist of securities sold under repurchase agreements
which generally mature within one to thirty-one days from the transaction date.
The weighted average rates on such borrowings during 1996 and 1995 were 5.03%
and 5.60%, respectively. The Company has arranged unsecured federal funds lines
of credit totaling approximately $102,000,000 with five major banks, of which
none was outstanding at December 31, 1996 and 1995.
NOTE J - DEBT FINANCING
Debt financing consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
-----------------------
(IN THOUSANDS)
<S> <C> <C>
Mandatory convertible subordinated debentures dated April 1, 1986; interest
payable quarterly at prime plus 1.5%; principal mandatorily convertible
into common stock in March 1998, or prior thereto at the option of the
holder, at $5.50 per share $ 728 $ 728
Optional convertible subordinated debentures dated April 1, 1986; interest
payable quarterly at prime plus .75%; principal payable quarterly at
$22,734 with final payment due April 1998; convertible, at the option
of the holder, into common stock at $5.50 per share 114 204
Two real property note obligations secured by property and improvements;
original principal amount of $698,000 at 8.5%; with monthly
principal and interest payments of $6,590 through June 2010 523 -
Federal Home Loan Bank notes in increments of $5,000,000 each dated
December 1, 1994; interest payable quarterly at prime minus 2.05% to
2.32%; principal payable annually in $5,000,000 increments collateralized
by $30 million of commercial and mortgage loans. 15,000 20,000
------- -------
$16,365 $20,932
======= =======
</TABLE>
The prime interest rate related to all financing arrangements was 8.25% and
8.50% at December 31, 1996 and 1995, respectively. Scheduled maturities are
$5,127,000 in 1997, $5,789,000 in 1998, $5,043,000 in 1999 $46,000 in 2000, and
$50,000 in 2001 and $310,000 thereafter.
NOTE K - STOCKHOLDERS' EQUITY
Under the Company's Dividend Reinvestment and Stock Purchase Plan ("DRIP Plan"),
stockholders may reinvest all or part of their quarterly cash dividends in
shares of common stock. The Company has suspended the DRIP Plan because of the
pending merger transaction with WABC (see Note B).
In connection with the Auburn merger, the Company issued 845,000 shares of
common stock valued at $13.3 million including 327,000 shares of treasury stock
purchased during 1996 in contemplation of the merger at an average per-share
price of $15.62. (See Note B.)
38
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE L - REGULATORY MATTERS
The Company and the Bank are 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 Company's financial statements. Capital adequacy
guidelines for the Company and the Bank and the regulatory framework for prompt
corrective action for the Bank require that the Company and the Bank meet
specific capital adequacy guidelines that involve quantitative measures of the
Company's and the Bank's assets, liabilities and certain off-balance sheet items
as calculated under regulatory accounting practices. The Bank's capital
classification as well as the Company's and the Bank's capital adequacy are also
subject to qualitative judgments by the regulators about components, risk
weighting and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum ratios of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined) and
of Tier 1 capital to average assets (as defined). Management believes, as of
December 31, 1996, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1996 and 1995, the most recent notifications from the Federal
Reserve Bank 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 1 risk-based, and Tier 1
leverage ratios as set forth in the table below. There are no conditions or
events since that notification that management believes have changed the
institution's category.
39
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
The following table shows the Company's and the Bank's capital ratios at
December 31, 1996 and 1995 as well as the minimum capital ratios required to be
deemed "well capitalized" under the regulatory framework.
<TABLE>
<CAPTION>
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
---------------------- ------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO
---------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996
Total Capital (to Risk Weighted Assets):
Company $139,653 15.14% greater than $73,794 greater than 8.00%
or equal to or equal to
Bank 123,428 13.45 greater than 73,428 greater than 8.00
or equal to or equal to
Tier 1 Capital (to Risk Weighted Assets):
Company 127,900 13.87 greater than 36,897 greater than 4.00
or equal to or equal to
Bank 111,899 12.19 greater than 36,714 greater than 4.00
or equal to or equal to
Tier 1 Capital (to Average Assets):
Company 127,900 9.62 greater than 53,174 greater than 4.00
or equal to or equal to
Bank 111,899 8.53 greater than 52,473 greater than 4.00
or equal to or equal to
AS OF DECEMBER 31, 1995
Total Capital (to Risk Weighted Assets):
Company $131,831 13.37% greater than $78,903 greater than 8.00%
or equal to or equal to
Bank 125,287 12.75 greater than 78,594 greater than 8.00
or equal to or equal to
Tier 1 Capital (to Risk Weighted Assets):
Company 119,097 12.08 greater than 39,451 greater than 4.00
or equal to or equal to
Bank 112,973 11.50 greater than 39,297 greater than 4.00
or equal to or equal to
Tier 1 Capital (to Average Assets):
Company 119,097 8.74 greater than 54,519 greater than 4.00
or equal to or equal to
Bank 112,973 8.30 greater than 54,452 greater than 4.00
or equal to or equal to
</TABLE>
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER PROMPT
CORRECTIVE ACTION PROVISIONS
-------------------------------------------
AMOUNT RATIO
--------------------------------------------
<S> <C> <C>
AS OF DECEMBER 31, 1996
Total Capital (to Risk Weighted Assets):
Company N/A
Bank greater than $91,786 10.00%
or equal to
Tier 1 Capital (to Risk Weighted Assets):
Company N/A
Bank greater than $55,072 6.00
or equal to
Tier 1 Capital (to Average Assets):
Company N/A
Bank greater than 65,591 5.00
or equal to
AS OF DECEMBER 31, 1995
Total Capital (to Risk Weighted Assets):
Company N/A
Bank greater than $98,242 10.00%
or equal to
Tier 1 Capital (to Risk Weighted Assets):
Company N/A
Bank greater than 58,945 6.00
or equal to
Tier 1 Capital (to Average Assets):
Company N/A
Bank greater than 68,066 5.00
or equal to
</TABLE>
Under federal and California state banking laws, dividends paid by ValliCorp's
subsidiary bank in any calendar year may not exceed certain limitations without
the prior written approval of the appropriate bank regulatory agency. At
December 31, 1996, the amount available for such dividends without prior written
approval was approximately $6 million. Similar restrictions apply to the amounts
and terms of loans, advances and other transfers of funds from the subsidiary
bank to ValliCorp.
40
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE M - EMPLOYEE BENEFIT PLANS
The Company sponsors an employee benefit plan (the "Plan") which includes
401(k), savings and employee stock ownership features. During 1996, 1995 and
1994, the Company contributed approximately $686,000, $652,000 and $515,000,
respectively, to the Plan.
The 401(k) provisions included within the Plan allow participating employees to
contribute between 1% and 10% of their eligible pretax annual compensation. The
Company contributes funds matching the employees' contributions up to 2% of the
employees' eligible annual compensation.
The employee savings provisions included within the Plan allow participating
employees to contribute between 1% and 10% of their eligible after-tax annual
compensation. The Company contributes funds matching 60% of the employees'
elected contributions not to exceed 5% of the employees' eligible annual
compensation.
Under the provisions of the employee stock ownership portion of the Plan, the
Company can make discretionary contributions each fiscal year to be allocated to
participants in proportion to their individual annual eligible compensation. The
aggregate contribution is a specified percentage of eligible compensation during
each year.
In connection with the acquisition of El Capitan and CoBank in 1996, the
previously existing employee profit sharing plans were terminated. El Capitan
and CoBank contributions totaled $436,000 in 1995 and $459,000 in 1994.
NOTE N - STOCK OPTION PLANS
The Company has a Directors' Stock Option Plan and a Key Employees' Stock Option
Plan, under which the Company may issue options to purchase 750,000 and
1,550,000 shares of common stock, respectively.
Options to purchase shares of common stock are available for grant under the
Director's Stock Option Plan at prices (historically market value) determined by
the Compensation Committee of the Board of Directors. Options may be granted to
certain directors as nonqualified options. The options become exercisable 20%
annually and expire 10 years from the date of grant.
Options to purchase shares of common stock are available for grant under the Key
Employees' Stock Option Plan at prices determined by the Compensation Committee
of the Board of Directors. Options may be granted to any employee, including
those who serve as a director, as either incentive or nonqualified options.
Incentive options are to be granted at not less than fair market value at the
date of grant. The options become exercisable 25% annually and expire 10 years
from the date of grant.
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for its plans. Under the intrinsic value method
no compensation cost has been recognized for its stock option plans.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the disclosure
of pro forma net income and earnings per share as if the Company adopted the
fair value method as of the beginning of 1995. Under SFAS No. 123, the fair
value of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values. The Company's calculations were made using the Black-Scholes option
pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Expected life following vesting (years) 4.5 4.5
Stock volatility 37.5% 34.5%
Risk free interest rate 6.2% 5.4%
Dividend yield 2.5% 2.0%
</TABLE>
41
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
The Company's calculations are based on a multiple option valuation approach and
forfeitures are recognized as they occur. If the computed fair values of the
1996 and 1995 awards had been amortized to expense over the vesting period of
the awards, net income would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Net income
As reported $9,128,000 $11,802,000
Pro forma 8,818,000 11,576,000
Fully-diluted earnings per share
As reported $ 0.66 $ 0.87
Pro forma 0.64 0.85
</TABLE>
The impact of outstanding non-vested stock options granted prior to 1995 has
been excluded from the pro forma calculation; accordingly, the 1996 and 1995 pro
forma adjustments are not indicative of future period pro forma adjustments,
when the calculation will apply to all applicable stock options.
A summary of activity related to the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- -------------------- -------------------------
WEIGHTED AVG. WEIGHTED AVG. WEIGHTED AVG.
OPTION PRICE OPTION PRICE OPTION PRICE
SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 896,505 $11.96 945,124 $10.41 936,290 $ 7.59
Effect of Mineral King 10% stock
dividend - - 26,641 5.42
Granted 274,494 12.41 188,000 14.97 420,112 14.34
Exercised (271,965) 9.36 (162,330) 6.30 (241,442) 5.98
Forfeited (133,894) 14.04 (74,289) 12.23 (196,477) 10.13
-------- -------- --------
Outstanding at end of year 765,140 896,505 945,124
======== ======== ========
</TABLE>
At December 31, 1996 and 1995, 323,147 and 367,030 shares were exercisable and
1,271,888 and 1,329,112 shares were available for grant, respectively. The
weighted average fair values of options granted during 1996 and 1995 were $5.39
and $5.50, respectively. No options expired during 1996, 1995 and 1994.
Additional information regarding options outstanding as of December 31, 1996 is
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------- ----------------------------
WEIGHTED AVG.
REMAINING
RANGE OF NUMBER CONTRACTUAL WEIGHTED AVG. NUMBER WEIGHTED AVG.
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.25 - 10.53 191,295 5.86 $ 7.83 172,174 $ 7.74
13.13 - 13.44 223,312 8.30 13.28 50,209 13.13
14.00 - 14.75 47,100 8.17 14.60 10,400 14.63
14.88 - 16.13 303,433 8.10 15.00 90,364 14.94
-------------- ------- ---- ------ ------- ------
$ 5.25 - 16.13 765,140 7.60 $12.68 323,147 $10.81
============== ======= ==== ====== ======= ======
</TABLE>
42
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE O - INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-------------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 6,330 $5,371
Merger adjustments 567 140
Tax basis over book basis of OREO 434 363
State franchise taxes 591 722
Interest on nonaccrual loans 674 927
Net unrealized securities losses 1,018 384
Alternative minimum tax credit - 349
Other 406 200
------- ------
Total deferred tax assets 10,020 8,456
Deferred tax liabilities:
Intangible assets 1,654 766
Book basis over tax basis of premises and equipment 1,086 1,306
Leases 732 753
Net deferred loan costs 1,461 940
Other 235 226
------- ------
Total deferred tax liabilities 5,168 3,991
------- ------
Net deferred tax assets $ 4,852 $4,465
======= ======
</TABLE>
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
--------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current: Federal $4,860 $6,085 $5,922
State 1,463 2,023 2,291
------ ------ ------
6,323 8,108 8,213
Deferred: Federal (328) (347) (500)
State 171 189 104
------ ------ ------
(157) (158) (396)
------ ------ ------
$6,166 $7,950 $7,817
====== ====== ======
</TABLE>
The effective income tax rate varies from the statutory federal income tax rate
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
-------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State franchise taxes, net of federal tax benefit 7.3 7.3 7.5
Tax exempt interest income (3.5) (3.9) (4.3)
Costs related to acquisitions 2.4 1.2 3.5
Other, net (0.9) 0.6 1.1
---- ---- ----
40.3% 40.2% 42.8%
==== ==== ====
</TABLE>
Income taxes (benefit) related to the sale of securities totaled ($47,000) and
$3,000 for the years ended December 31, 1995 and 1994, respectively (none in
1996).
43
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE P - LEASES
The Company leases certain premises used for banking purposes. Such leases are
accounted for as operating leases. Certain leases provide for increases in
rentals, after initial periods, to be computed in accordance with predetermined
formulas contained in the lease agreements. Rent expense is recorded on a
straight-line basis over the term of the lease.
Future minimum payments under noncancelable operating leases consist of the
following at December 31, 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997 $ 3,568
1998 3,407
1999 2,870
2000 2,299
2001 2,117
Thereafter 11,810
</TABLE>
Rent expense for all operating leases was approximately $3,082,000, $2,886,000
and $2,597,000 in 1996, 1995, and 1994, respectively.
NOTE Q - OTHER EXPENSES
Other expenses consist of the following:
<TABLE>
<CAPTION> DECEMBER 31,
---------------------------
1996 1995 1994
---------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Professional and legal fees $ 2,609 $ 2,348 $ 1,937
External data processing 2,002 1,366 1,743
Merchant credit card 1,440 985 505
Telecommunications 1,404 1,066 663
Stationery and supplies 1,194 1,655 1,404
Marketing 1,124 1,237 1,215
OREO expense 530 940 254
FDIC assessments 89 1,405 2,589
Other 6,824 6,010 5,950
------- ------- -------
$17,216 $17,012 $16,260
======= ======= =======
</TABLE>
NOTE R - FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE
The following summary disclosures are made in accordance with the provisions of
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," which
requires the disclosure of fair value information about both on- and off-balance
sheet financial instruments where it is practicable to estimate that value. Fair
value is defined in SFAS No. 107 as the amount at which an instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. It is not the Company's intent to enter into such
exchanges.
In cases where quoted market prices were not available, fair values were
estimated using present value or other valuation methods, as described below.
The use of different assumptions (e.g., discount rates and cash flow estimates)
and estimation methods could have a significant effect on the resulting fair
value amounts. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. Because SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements, any aggregation of
the fair value amounts presented would not represent the underlying value of the
Company.
44
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
DECEMBER 31, 1996
FINANCIAL ASSETS
Cash and cash equivalents $ 205,748 $ 205,748
Loans held for sale 8,262 8,500
Securities 216,208 216,341
Loans, net 818,739 819,000
FINANCIAL LIABILITIES
Deposits 1,147,304 1,148,200
Short-term borrowings 6,300 6,300
Debt financing 16,365 18,600
COMMITMENTS TO EXTEND CREDIT - 2,313
DECEMBER 31, 1995
FINANCIAL ASSETS
Cash and cash equivalents $ 160,774 $ 160,774
Loans held for sale 5,158 5,200
Securities 315,232 315,660
Loans, net 850,763 845,900
FINANCIAL LIABILITIES
Deposits 1,221,386 1,224,600
Short-term borrowings 10,410 10,410
Debt financing 20,932 22,400
COMMITMENTS TO EXTEND CREDIT - 2,232
</TABLE>
The following methods and assumptions were used in estimating the fair values of
financial instruments.
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheets
for cash and cash equivalents approximate their estimated fair values.
LOANS HELD FOR SALE: Fair values for loans held for sale are determined based
upon outstanding commitments from investors or current investor yield
requirements.
SECURITIES: Fair values for securities, including mortgage-backed securities,
are based on quoted market prices.
LOANS: Fair values of variable rate loans which reprice frequently and with no
significant change in credit risk are based on carrying values. Fair values for
all other loans are estimated using discounted cash flow analyses over their
remaining maturities, using interest rates at which similar loans would
currently be offered to borrowers with similar credit ratings and for the same
remaining maturities.
DEPOSITS: Fair values for transaction and savings accounts are equal to the
respective amounts payable on demand at December 31, 1996 and 1995, i.e., their
carrying amounts. Fair values of fixed-maturity certificates of deposit were
estimated using the rates currently offered for deposits with similar remaining
maturities.
DEBT FINANCING: Fair values of variable rate convertible debt financing are
based on their conversion features. Fair values for other debt financing
approximates the carrying values since the rates currently available to the
Company for debt with similar terms and remaining maturities are comparable to
the stated rates of the notes.
SHORT-TERM BORROWINGS: The carrying amounts reported in the balance sheets for
federal funds purchased and repurchase agreements approximate their estimated
fair values.
COMMITMENTS TO EXTEND CREDIT: Fair values of commitments to extend credit are
estimated using the fees currently charged to enter into similar agreements and
the present counterparties' credit standing. Fair values of standby letters of
credit are based on fees currently charged for similar agreements.
45
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE S - COMMITMENTS, CONTINGENCIES AND OTHER DISCLOSURES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK: In the ordinary course of
business, the Company enters into transactions which involve financial
instruments with off-balance sheet risk. These financial instruments include
commitments to extend credit and standby letters of credit and involve, to
varying degrees, elements of credit and interest rate risk in excess of amounts
recognized in the accompanying consolidated financial statements. The Company
applies the same credit policies in making commitments as it does for on-balance
sheet instruments. The Company's off-balance sheet risk exposure is the
contractual amount of commitments to extend credit and standby letters of
credit. Management does not anticipate any losses to result from these
commitments.
The following summarizes the Company's significant contractual commitments
(which generally expire within 12 months) at December 31, 1996.
<TABLE>
<CAPTION>
CONTRACTUAL
COMMITMENTS
--------------
(IN THOUSANDS)
<S> <C>
Commitments to extend credit $220,609
Standby letters of credit 7,130
</TABLE>
Commitments to extend credit are agreements to lend to customers. These
commitments have specified interest rates and fixed expiration dates but may be
terminated by the Company if certain conditions of the contracts are violated.
Although currently subject to draw down, many of these commitments are expected
to expire or terminate without funding. Therefore, the total commitment amounts
do not necessarily represent future cash requirements. Collateral relating to
these commitments varies but may include deposits, securities, accounts
receivable, inventories, equipment and real estate.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Credit risk arises in
these transactions from the possibility that the customer may not be able to
repay the Company upon default of performance. Collateral relating to these
commitments varies but may include deposits, securities, accounts receivable,
inventories, equipment and real estate.
LITIGATION: The Company is party to legal proceedings and claims which arise
during the ordinary course of business. In the opinion of management, the
ultimate outcome of the claims and litigation will not have a material effect on
the Company's financial position or results of operations.
RESTRICTIONS ON CASH AND DUE FROM BANKS: ValliWide is required to maintain an
average reserve balance relative to certain deposit balances with the Federal
Reserve Bank. Deposits in the Federal Reserve Bank, included in cash and due
from banks, satisfy this requirement.
46
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE T - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Following are the condensed financial statements of ValliCorp:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
BALANCE SHEETS 1996 1995
--------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and short-term investments $ 14,803 $ 5,098
Investment in bank subsidiary 127,150 121,884
Other assets 1,709 3,123
-------- --------
Total assets $143,662 $130,105
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Subordinated notes $ 842 $ 932
Other liabilities 430 2,052
-------- --------
Total liabilities 1,272 2,984
STOCKHOLDERS' EQUITY
Common stock 141 133
Paid-in capital 95,166 84,135
Net unrealized securities losses, net of income taxes (1,396) (536)
Retained earnings 48,479 43,389
-------- --------
Total stockholders' equity 142,390 127,121
-------- --------
Total liabilities and stockholders' equity $143,662 $130,105
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
STATEMENTS OF INCOME 1996 1995 1994
-------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME
Dividends from bank subsidiary/(1)/ $10,999 $ 4,655 $ 3,599
Interest 494 49 824
Loss on sale of available for sale securities - (44) -
Other 10 272 -
Management fees from bank subsidiary - - 2,460
------- ------- -------
Total income 11,503 4,932 6,883
EXPENSES
Interest 85 101 102
Merger costs 1,834 300 1,297
Management fees to bank subsidiary 541 541 -
Other 306 121 3,920
------- ------- -------
Total expenses 2,766 1,063 5,319
------- ------- -------
Income before income taxes and equity in undistributed
earnings of bank subsidiary 8,737 3,869 1,564
Income tax benefit 391 159 233
Equity in undistributed earnings of bank subsidiary/(1)/ - 7,774 8,654
------- ------- -------
Net income $ 9,128 $11,802 $10,451
======= ======= =======
</TABLE>
/(1)/ Total dividends from bank subsidiary were $18,100,000 including $7,101,000
from prior year's undistributed earnings.
47
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
STATEMENTS OF CASH FLOWS 1996 1995 1994
------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 9,128 $11,802 $10,451
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed earnings of bank subsidiary - (7,774) (8,654)
Loss on sale of available for sale securities - 44 -
Amortization 219 141 242
Decrease (increase) in other assets 1,322 (1,167) (441)
(Decrease) increase in other liabilities (43) (915) 1,345
------- ------- -------
Net cash provided by operating activities 10,626 2,131 2,943
INVESTING ACTIVITIES:
Net cash obtained in merger 218 - -
Proceeds from note receivable from subsidiary - - 1,400
Proceeds from maturities of available for sale securities - - 395
Proceeds from sales of available for sale securities - 1,979 -
------- ------- -------
Net cash provided by investing activities 218 1,979 1,795
FINANCING ACTIVITIES:
Principal payments on subordinated notes (6) (7) (55)
Issuance of common stock 2,941 1,022 1,443
Dividends from prior year's undistributed earnings 7,101 - -
Repurchase of treasury stock (5,253) - -
Cash dividends (5,922) (4,612) (3,623)
------- ------- -------
Net cash used in financing activities (1,139) (3,597) (2,235)
------- ------- -------
Increase in cash and cash equivalents 9,705 513 2,503
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,098 4,585 2,082
------- ------- -------
Cash and cash equivalents at end of year $14,803 $ 5,098 $ 4,585
======= ======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of subordinated notes into common stock $ 84 $ 184 $ 84
Capital contribution to subsidiary - 741 12,380
Dividends declared, not yet paid - 1,884 849
Issuance of common stock for Auburn merger 13,267 - -
</TABLE>
48
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE U - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
1996
---------------------------------------------
QUARTER ENDED DEC 31 SEPT 30 JUNE 30 MAR 31
---------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income $25,896 $24,176 $24,623 $25,267
Interest expense 7,771 7,465 7,538 8,009
------- ------- ------- -------
Net interest income 18,125 16,711 17,085 17,258
Provision for loan losses 2,102 2,102 1,602 1,925
Other income 3,872 3,556 3,704 3,138
Other expenses 15,519 13,979 12,848 18,078
------- ------- ------- -------
Income before income taxes 4,376 4,186 6,339 393
Income taxes 1,681 1,737 2,571 177
------- ------- ------- -------
Net income $ 2,695 $ 2,449 $ 3,768 $ 216/(1)/
======= ======= ======= =======
Earnings per share
Primary $ 0.19 $ 0.18 $ 0.28 $ 0.02/(1)/
Fully-diluted 0.19 0.18 0.28 0.02/(1)/
Market value per share/(3)/
High 20.75 19.25 17.13 15.75
Low 15.25 14.25 12.50 13.50
Dividends per share paid by ValliCorp 0.10 0.10 0.10 0.10
<CAPTION>
1995
-----------------------------------------------
QUARTER ENDED DEC 31 SEPT 30 JUNE 30 MAR 31
-----------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income $27,677 $27,293 $ 27,903 $26,451
Interest expense 9,491 9,647 9,743 8,134
------- ------- ------- -------
Net interest income 18,186 17,646 18,160 18,317
Provision for loan losses 1,820 6,051 1,084 678
Other income 3,334 3,235 3,203 2,924
Other expenses 14,777 13,530 13,645 13,668
------- ------- ------- -------
Income before income taxes 4,923 1,300 6,634 6,895
Income taxes 2,016 554 2,611 2,769
------- ------- ------- -------
Net income $ 2,907 $ 746/(2)/ $ 4,023 $ 4,126
======= ======= ======= =======
Earnings per share
Primary $ 0.22 $ 0.06/(2)/ $ 0.30 $ 0.31
Fully-diluted 0.21 0.06/(2)/ 0.30 0.31
Market value per share/(3)/
High 14.50 18.75 16.75 16.50
Low 12.00 13.75 14.50 14.00
Dividends per share paid by ValliCorp 0.09 0.09 0.09 0.09
</TABLE>
_________________________
/(1)/ Net income and earnings per share were impacted by nonrecurring merger
costs of $2,767,000, net of taxes, related to the El Capitan and CoBank
mergers, both of which were consummated during the first quarter of 1996.
/(2)/ Net income and earnings per share were affected by the increase in the
provision for loan losses. Adverse economic conditions directly impacted
the real estate market in Central California, resulting in an increase in
nonperforming assets.
/(3)/ Market values reflect high and low bid prices as reported on the NASDAQ
National Market System.
Earnings per share is based on the weighted average number of shares and common
stock equivalents outstanding during each period. Full year weighted average
shares differ from quarterly weighted average shares and, therefore, annual
earnings per share may not equal the sum of the quarters.
49
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
- ---------------------------------------------------------
Not Applicable
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The following table sets forth certain information with respect to ValliCorp's
Directors.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES DIRECTOR TERM
NAME COMMITTEE AGE HELD WITH VALLICORP SINCE ENDS
---- --------- --- ------------------- ----- ----
<S> <C> <C> <C> <C> <C>
William A. Benneyan D,E 55 Director 1995 1997
Louis H. Herwaldt A,B,D 64 Director and Chairman of 1989 1998
Executive Committee
J. Mike McGowan A 50 Chairman of the Board & Chief Executive 1991 1999
Officer
Patrick J. Mon Pere A,D 66 Vice Chairman of the Board, Director 1989 1998
D. Dwight Odom, M.D. C,E 59 Director 1996 1999
Lorenzo Tony Ortega, Ph.D. D,E 60 Director 1995 1998
Steven C. Pumphrey C 52 President & Chief Operating Officer, Director 1996 1999
V. Eugene Ross A,B,C 71 Director 1995 1997
Michael J. Ryan, Jr. A,E 67 Director and Chairman of Audit and 1989 1998
Finance Committee
Jerry K. Stanners A,B,C 61 Director and Chairman of Compensation and 1993 1998
Credit Quality Committees
Charles L. Tingey C,D 56 Director and Chairman of Marketing and 1989 1997
CRA Committee
</TABLE>
Member of:
A. Executive Committee
B. Compensation Committee
C. Credit Quality Committee
D. Marketing and CRA Committee
E. Audit and Finance Committee
Messrs. Benneyan and Ross, two former directors of Mineral King, were elected
Directors of ValliCorp in January 1995 by the Board of Directors of ValliCorp,
as permitted under the bylaws of ValliCorp and pursuant to the provisions of an
Agreement and Plan of Reorganization (the "Mineral King Agreement") dated June
20, 1994, as amended, between ValliCorp and Mineral King. The Mineral King
Agreement obligated ValliCorp, promptly following the merger (the "Mineral King
Merger") of Mineral King into ValliCorp, to cause the number of directors on
its Board of Directors to be increased by two and the resulting vacancies to be
filled by the election of two persons, mutually acceptable to ValliCorp and
Mineral King and who were directors of Mineral King, for the longest terms of
office possible at the time of their election. The Mineral King Merger occurred
on December 16, 1994.
Dr. Odom, a former Director of Auburn, was elected a Director of ValliCorp in
September 1996 by the Board of Directors of ValliCorp, as permitted under the
bylaws of ValliCorp and pursuant to the provisions of an Agreement and Plan of
Reorganization (the "Auburn Agreement") dated March 27, 1996, between ValliCorp
and Auburn. The Auburn Agreement obligated ValliCorp, promptly following the
merger (the "Auburn Merger") of Auburn into ValliCorp, to cause the number of
directors on its Board of Directors to be increased by one and the resulting
vacancy to be filled by the election of one person, mutually acceptable to
ValliCorp and Auburn and who was a director of Auburn, for the longest term of
office possible at the time of his election. The Auburn Merger occurred on
September 13, 1996.
There were no agreements or understandings pursuant to which any other of the
persons listed above was selected as a director.
50
<PAGE>
The following table sets forth certain information with respect to the executive
officers of ValliCorp, each of whom serves as a member of the Executive
Management Committee.
<TABLE>
<CAPTION>
OFFICER
NAME AGE POSITIONS AND OFFICES HELD WITH VALLICORP SINCE
- -------------------------- --- ----------------------------------------------------------------------- -------
<S> <C> <C> <C>
J. Mike McGowan 50 Chairman of the Board and Chief Executive Officer of ValliCorp and 1990
ValliWide Bank
Steven C. Pumphrey 52 President and Chief Operating Officer of ValliCorp and ValliWide Bank 1996
John H. Tait 50 Executive Vice President/Community Banking of ValliCorp and 1993
ValliWide Bank
Wolfgang T. N. Muelleck 47 Executive Vice President/Chief Financial Officer of ValliCorp and 1990
ValliWide Bank
Edwin L. Herbert 46 Executive Vice President/General Counsel and Secretary of 1994
ValliCorp and ValliWide Bank
Jerry A. Melton 58 Executive Vice President/Chief Credit Officer of ValliCorp and 1996
ValliWide Bank
Lucineia S. Donnelly 42 Executive Vice President/Administration and Operations of 1996
ValliCorp and ValliWide Bank
</TABLE>
Each executive officer is elected annually by the Board of Directors pursuant to
provisions of the bylaws of ValliCorp or, in the case of officers of ValliWide
Bank by its Board of Directors pursuant to its bylaws. There were no
arrangements or understandings pursuant to which any of the persons listed above
were selected as executive officers. The Board of Directors of ValliCorp has
established an Executive Management Committee whose function is to formulate
major policies and programs for ValliCorp concerning the following, among other
matters: (a) acquisitions and dispositions of significant corporate entities,
assets or investments; (b) the issuance of equity or debt securities; (c)
engaging in new business activities; (d) the hiring, retention, termination,
training and motivation of senior management; (e) the development of marketing
programs concerning financial services; and (f) policies concerning risk
management, legal and regulatory compliance programs. All recommendations and
policies are subject to review and approval by the Board of Directors of
ValliCorp.
Set forth below is a description of the business experience of ValliCorp's
directors and executive officers. Except for ValliWide Bank (and, formerly,
Community First Bank), none of the corporations or organizations discussed below
is an affiliate of ValliCorp. There are no family relationships among any of the
executive officers and directors.
WILLIAM A. BENNEYAN has been the Managing Partner of the BenArt Group of
Companies, which specializes in real estate investments, sales and management,
since 1986. He served as a director of Mineral King from 1988 to its acquisition
by ValliCorp in 1994. Mr. Benneyan serves as a director of San Pacific Farming
Company and as an advisory board member of O.K. Produce. He is also a current
member of the Visalia Education Foundation board of directors. He also serves as
a director of ValliWide Bank.
LUCINEIA S. DONNELLY, Executive Vice President/Administration and Operations for
ValliCorp and ValliWide Bank since February 1996, has also served as Senior Vice
President, Accounting/Finance and Merger Coordinator for ValliCorp and ValliWide
Bank from August 1991 to February 1996. Previously, Ms. Donnelly was employed by
Ernst & Young as an Audit Manager from 1988 to 1991 having been continually
employed by that firm since 1985.
EDWIN L. HERBERT has been Executive Vice President/General Counsel and Secretary
of ValliCorp since February 1994. From 1983 to 1994 Mr. Herbert was employed as
Assistant General Counsel and Assistant Secretary by Firstar Corporation, a bank
holding company, in its law department and supervised other attorneys in
providing legal services to certain business segments of Firstar Corporation.
LOUIS H. HERWALDT is President of Herwaldt Automotive Group, Inc. Prior to 1996,
Mr. Herwaldt had been President of Herwaldt Oldsmobile-GMC Truck since 1969,
President of Saturn of Fresno since 1991, and President of Herwaldt Motors since
1993. Mr. Herwaldt served as a director of Western Commercial, one of the
predecessor companies to ValliCorp, from 1982 to 1989. He also serves as
Chairman of the Executive Committee of ValliCorp and of ValliWide Bank.
J. MIKE MCGOWAN, Chairman of the Board and Chief Executive Officer of ValliCorp
and of ValliWide Bank since April 1996, has also served as President and Chief
Executive Officer of ValliCorp and ValliWide Bank (formerly Bank of Fresno) from
1992 to 1996, as Executive Vice President and Chief Operating Officer of
ValliCorp and Bank of Fresno from 1990 to 1991 and as Executive Vice President
and Chief Financial Officer in 1990. From 1969 to 1990, Mr. McGowan was employed
by the accounting firm Ernst & Young (formerly Arthur Young). From 1981 until
1990, Mr. McGowan was a partner with Ernst & Young, serving as a director of the
Financial Services Industries Group for Arthur Young and a member of the firm's
National Banking Industry Committee.
51
<PAGE>
JERRY A. MELTON has been the Executive Vice President/Chief Lending Officer of
ValliCorp and ValliWide Bank since May 1996 and was a Senior Vice President of
ValliCorp and ValliWide Bank from February 1996 to April 1996. He was a Senior
Vice President of West One Bank of Idaho from January 1992 until January 1996,
and served as Senior Vice President of US Bank of Idaho (which acquired West One
Bank of Idaho) in January 1996.
PATRICK J. MON PERE is the owner and President/CEO of Patrick James Inc., a
men's retail clothing firm. Mr. Mon Pere served as a director of Fresno Bancorp,
one of the predecessor companies to ValliCorp, from 1981 to 1989. He serves as
Vice Chairman of the Board of Directors of ValliCorp and ValliWide Bank.
WOLFGANG T. N. MUELLECK, Executive Vice President/Chief Financial Officer of
ValliCorp and ValliWide Bank since December 1990, has also served as Executive
Vice President/Chief Financial and Operations Officer of ValliCorp and ValliWide
Bank from January 1994 to February 1996. He also served as a partner with Ernst
& Young (formally Ernst & Whinney) from 1987 to 1990, having been continually
employed by that firm since 1975. He also served as a partner-in-charge of the
audit department in the firm's Fresno office until 1989.
D. DWIGHT ODOM, M.D. is a physician who retired from the private practice of
obstetrics and gynecology in 1994. Mr. Odom also served as Chairman of the
Board of Directors of Auburn Bancorporation from its inception to its
acquisition by ValliCorp in September 1996. He also serves as director of
ValliWide Bank.
LORENZO TONY ORTEGA, PH.D. has been an Associate Professor of Management, School
of Business and Public Administration at California State University Bakersfield
since 1990. He was employed by Rockwell International in a number of different
capacities from 1984 to 1990. He is currently active in the Hispanic Chamber of
Commerce and the Downtown Association of Bakersfield. He served as a director of
Community First Bank from November 1993 to March 1995. He also serves as a
director of ValliWide Bank.
STEVEN C. PUMPHREY has been the President and Chief Operating Officer of
ValliCorp and ValliWide Bank since April 1996 and was Executive Vice President
and Chief Credit Officer of ValliCorp and ValliWide Bank from February 1996 to
April 1996. From August 1992 to January 1996, he served as Executive Vice
President and Chief Credit Officer with West One Bancorp. Previously, he served
in various management positions with Security Pacific Bank (formerly Rainier
National Bank) from March 1982 to August 1992 and Seattle First National Bank
from September 1971 to February 1982. He also serves as director of ValliWide
Bank.
V. EUGENE ROSS has been a business owner and real estate developer since
November 1988 and prior to that time owned and managed Sequoia Rock Company and
Vicon Ready Mix Concrete Company. Mr. Ross is a director of the Visalia Building
Industry Association and served as Chairman of the Board and a director of
Mineral King National Bank from its inception to its acquisition by ValliCorp in
1994. He also serves as a director of ValliWide Bank.
MICHAEL J. RYAN, JR. has been involved in Ryan Farms, a diversified farming
venture, as well as investments and real estate since 1957. Mr. Ryan served as a
director of Fresno Bancorp, one of the predecessor companies to ValliCorp, from
1986 to 1989. He also serves as a director of ValliWide Bank.
JERRY K. STANNERS currently serves as a business consultant, having recently
retired as President, Chief Executive Officer, and a director of Freymiller
Trucking, Inc., where he served in such capacities since 1991. From 1980 to 1991
he was the Chief Executive Officer of the Bakersfield Californian Newspaper. He
currently serves on the Foundation Boards of California State University at
Bakersfield and Bakersfield College and is Chairman of the Board and a Director
of Umthun Trucking Company, a flatbed carrier headquartered in Eagle Grove,
Iowa. Mr. Stanners also served as a director of Community First Bank and was
the Chairman of the Board of Directors of Community First Bank from November
1993 to March 1995. He also serves as a director of ValliWide Bank.
JOHN H. TAIT has been Executive Vice President/Sales and Service of ValliWide
Bank since July 1994. From 1992 to 1994 he served as President and Chief
Executive Officer of Community First Bank, a wholly-owned subsidiary of
ValliCorp. From 1990 to 1992 he served as Vice President and District Manager,
South Valley District, for Wells Fargo Bank, and from 1977 to 1990 he was
Executive Vice President of American National Bank. Mr. Tait also served as a
director of Community First Bank from March 1992 until March 1995.
CHARLES L. TINGEY is the Chairman of the Board and a principal of Colliers
Tingey International, formerly Charles Tingey Associates, Inc., a commercial-
industrial real estate brokerage firm. Mr. Tingey served as a director of Fresno
Bancorp, one of the predecessor companies to ValliCorp, from 1982 to 1989. He
also serves as a director of ValliWide Bank.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16 of the Securities and Exchange Act of 1934 requires ValliCorp's
executive officers, directors and more than ten percent shareholders
("Insiders") to file with the Securities and Exchange Commission and ValliCorp
reports of their ownership of ValliCorp securities. Based upon written
representations and copies of reports furnished to ValliCorp by Insiders, all
Section 16 reporting requirements applicable to Insiders during 1996 were
satisfied on a timely basis.
52
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
- --------------------------------
General. The following information relates to compensation of management for the
years ended December 31, 1996, 1995 and 1994, unless otherwise noted below.
Executive Compensation. The following table sets forth the annual and long-term
compensation for ValliCorp's Chief Executive Officer and the four highest-paid
executive officers, as well as the total compensation paid to each individual
during ValliCorp's last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- -------------
(A) OTHER SECURITIES ALL OTHER
SALARY BONUS ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR DOLLARS DOLLARS COMPENSATION(B) OPTIONS(#) ($)(C)
- ---------------------------------------- ---- -------- -------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
J. Mike McGowan......................... 1996 $356,438 $160,469 $ -- 30,000 3,161
Chairman of the Board and Chief 1995 312,843 120,665 -- 30,000 7,505
Executive Officer 1994 258,175 -- -- 80,400 9,583
Steven C. Pumphrey...................... 1996 165,833 64,327 22,945 50,000 292
President and Chief Operating
Officer
John H. Tait............................ 1996 169,855 27,600 -- 10,000 6,077
Executive Vice President/ 1995 159,214 13,757 -- 10,000 8,197
Community Banking 1994 133,558 -- 13,416 21,752 7,832
Wolfgang T. N. Muelleck................. 1996 154,138 44,101 -- 10,000 5,869
Executive Vice President/ 1995 148,235 27,853 -- 10,000 4,148
Chief Financial Officer 1994 123,557 -- -- 21,128 6,817
Edwin L. Herbert........................ 1996 120,885 34,800 -- 10,000 2,009
Executive Vice President/ 1995 105,852 14,376 -- 10,000 1,167
General Counsel and Secretary 1994 91,667 17,292 17,122 15,000 --
</TABLE>
53
<PAGE>
- --------
(A)Includes amounts earned for unused vacation for 1996 and 1995 for the
following, respectively: Mr. McGowan, $30,938 and $17,343; Mr. Pumphrey, $3,375
and $0; Mr. Tait, $9,847 and $5,231; Mr. Muelleck, $7,137 and $4,735; and Mr.
Herbert, $4,885 and $3,352.
(B)Amounts for individual items comprising 25% or more of the Other Annual
Compensation shown in this column for Messrs. Pumphrey, Tait and Herbert are as
follows: (a) Mr. Pumphrey: moving/living expenses--$15,503 in 1996 and auto
allowance--$7,150 in 1996; (b) Mr. Tait: auto allowance--$8,574 in 1994 and
moving expenses--$4,135 in 1994; and (c) Mr. Herbert: auto allowance--$7,915 in
1994 and moving expenses--$8,828 in 1994. Other Annual Compensation did not
exceed $50,000 or 10 percent of salary and bonus for any other named executive
officer.
(C)The amounts shown in this column for the most recently completed fiscal year
were derived from the following figures: (1) contributions by ValliCorp to the
ValliCorp Retirement and Savings Plan: Mr. McGowan, $2,488; Mr. Muelleck,
$5,580; Mr. Tait, $5,789; and Mr. Herbert, $1,784; and (2) split dollar
insurance premiums paid by ValliCorp: Mr. McGowan, $673; Mr. Pumphrey, $292; Mr.
Muelleck, $289; Mr. Tait, $288; and Mr. Herbert, $225.
Stock Option Plans. ValliCorp and its stockholders have adopted the Amended and
Restated Directors' Stock Option Plan (the "Director Plan") and the Amended
and Restated Key Employees' Stock Option Plan (the "Employee Plan")
(collectively, the "Stock Option Plans").
The following description of the Stock Option Plans, as amended and restated, is
a summary of their terms only and is qualified in its entirety by reference to
the Stock Option Plans, copies of which are available to any ValliCorp
shareholder at no expense by contacting Richard Jacobs, Senior Vice President
and Senior Counsel.
Shares Subject to Grant. The Director Plan currently sets aside up to 750,000
shares of Common Stock which may be issued upon the exercise of stock options
granted thereunder, and the Employee Plan currently sets aside up to 1,550,000
shares of Common Stock which may be issued upon the exercise of incentive stock
options (within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code")) and nonqualified stock options granted thereunder. In
both cases, the Stock Option Plans and grants made thereunder are subject to
antidilution provisions that permit the Board to adjust the number of shares
subject thereto to reflect events such as stock dividends, stock splits,
recapitalizations, mergers or reorganizations of or by ValliCorp. In addition,
if any option granted under either Stock Option Plan expires or is terminated
without having been exercised in full, the unused shares of Common Stock subject
to those options will again be available for other options to be granted under
the respective Stock Option Plan.
Administration. Each of the Stock Option Plans is administered by the
Compensation Committee, consisting of not less than three members appointed by
the Board. Subject to the eligibility and other provisions of the Stock Option
Plans, the Committee is authorized to make grants under the Stock Option Plans,
to determine certain terms of the grants, to specify and amend the terms of
agreements granting options under the Stock Option Plans, to interpret the Stock
Option Plans, to prescribe, amend and rescind rules and regulations under the
Stock Option Plans, to exercise certain other powers under the Stock Option
Plans and to make any determinations or perform any other acts necessary or
advisable for the administration of the Stock Option Plans.
In addition to other rights of indemnification they may have as directors of
ValliCorp or as members of the Committee, each of the members of the Committee
is entitled to indemnification by ValliCorp in connection with his or her
actions or failure to take actions under the Stock Option Plans, provided that
the member acted in good faith and in a manner which he believed to be in, and
not opposed to, ValliCorp's best interests.
The Stock Option Plans provide that if any of the terms or provisions of such
Plan conflicts with the requirements of SEC Rule 16b-3, then such terms or
provisions are deemed inoperative to the extent they so conflict with the
requirements of Rule 16b-3. In addition, if either Stock Option Plan does not
contain a provision required under Rule 16b-3, that provision will be deemed to
be incorporated into the appropriate Plan. Shareholder approval is required for
any amendment to the respective Stock Option Plan for which Rule 16b-3 would
require such shareholder approval.
The Stock Option Plans may be amended by the Committee, subject to shareholder
approval if such approval is then required in order for the Stock Option Plans
to continue to satisfy the requirements of Rule 16b-3. Unless sooner terminated
by the Board or the Committee, the Stock Option Plans each will terminate on
November 30, 1999. The termination of either Stock Option Plan will not affect
the validity or terms of any option granted thereunder, except upon written
consent to the specific alteration or impairment by the recipient to whom the
option was granted.
Eligibility. Stock options under the Director Plan may be awarded only to
directors of ValliCorp and its subsidiaries and to certain consultants or
advisors to ValliCorp and its subsidiaries, as designated by the Committee in
its sole discretion. Incentive stock options and nonqualified options under the
Employee Plan may be awarded only to full-time, salaried employees or officers
of ValliCorp and its subsidiaries, as designated by the Committee in its sole
discretion. In any case, when granting options under either Stock Option Plan,
the
54
<PAGE>
Committee may consider the nature of the services rendered by the potential
recipient, the present and potential contribution of the potential recipient to
the success of ValliCorp and such other factors as the Committee deems relevant.
As of December 31, 1996, 11 directors of ValliCorp or its subsidiaries were
eligible to participate in the Director Plan, of whom 10 were participating, and
97 employees (all of whom were officers) were eligible to participate in the
Employee Plan, all of whom were participating.
For all options granted or outstanding under the Stock Option Plans, the
exercise price equaled the fair market value of the Common Stock on the date the
options were granted. The fair market value of the Common Stock as of March 4,
1997 was $22.25 per share.
Terms and Conditions. The exercise of any stock option granted under either of
the Stock Option Plans permits the optionee to purchase shares of Common Stock
from ValliCorp at a specified exercise price per share. Subject to the terms of
the appropriate Stock Option Plan, all options granted pursuant to either Stock
Option Plan are governed by the terms and conditions of the agreement pursuant
to which the grant was made.
The exercise price for all options granted under the Stock Option Plans is set
by the Committee in the respective stock option agreement, except that the
exercise price of any stock option granted under the Employee Plan must at least
equal the fair market value of the Common Stock on the date of grant. The
Committee may grant either incentive stock options or nonqualified options under
the Employee Plan, except that the Code places a restriction of $100,000 per
calendar year on the aggregate fair market value of the Common Stock underlying
incentive stock options that may first become exercisable in any year. The
purchase price for any stock acquired pursuant to stock options granted under
the Stock Option Plans must be fully paid by the optionee in cash or by tender
of shares, or a combination thereof. Any shares tendered as part of such
purchase price must have been beneficially owned by the optionee for a period of
six months prior to the time of such tender.
Options granted to a director under the Director Plan become exercisable in
increments of 20% per year for each year in which a director attends at least
80% of all regularly scheduled meetings of the Board and any Board committees of
which the individual director may be a member, or as otherwise specified in the
appropriate stock option agreement. Any option granted to a director under the
Director Plan that does not become exercisable within five years from the date
of grant will not thereafter become exercisable. Except as determined by the
Committee, no option granted to a director under the Director Plan generally may
be exercised unless the grantee is a director on the date of exercise. If,
however, a director ceases to be a director for any reason other than death or
permanent illness or permanent disability (together, "Disability"), then the
exercise period of all unexpired options granted to the director will be
extended for an additional three months and one day after the date the person
ceases to be a director, but only to the extent that such options were otherwise
exercisable at the date of cessation of such person's duties as a director. In
the event of the death or Disability of a director, available options under the
Director Plan may be exercised within twelve months after the grantee ceases to
be a director, but only to the extent that such options would have been
exercisable within the period of three months and one day following the date the
grantee ceased to be a director. Generally, no option may be exercised in
accordance with the provisions described in the preceding two sentences prior to
the date such option would otherwise be exercisable or after the expiration of
the term of such option, except that all unexpired options granted to a person
who has served as a director of ValliCorp, its affiliates or any of their
predecessors for a continuous period of five years prior to the time the person
ceases to be a director, whether exercisable at such time or not, will
immediately become exercisable and will remain exercisable for three months and
one day thereafter.
All options granted under the Employee Plan, and all options granted to non-
directors under the Director Plan, are exercisable in accordance with a schedule
determined by the Committee in its sole discretion. Except as determined by the
Committee, no option granted under the Employee Plan generally may be exercised
unless the grantee is an employee on the date of exercise. If an employee's
employment is terminated for deliberate, willful or gross misconduct
("Cause"), all unexpired options granted to such person terminate immediately,
although the Committee may permit exercise of then-exercisable stock options for
three months after termination. If an employee's employment is terminated for
reasons other than Cause, and other than by death or Disability, then the option
may be exercised for a three month period after termination, but only to the
extent exercisable at the date of termination. In the event of death or
Disability, available options under the Employee Plan may be exercised within
twelve months after termination of employment, but only to the extent that such
options would have been exercisable within the three month period following
termination. No option may be exercised in accordance with the provisions
described in the preceding three sentences prior to the date it would otherwise
be exercisable or after the expiration of the term of such option.
The term of each option granted under the Employee Plan will be determined by
the Committee, except that the term of any incentive stock option may not exceed
ten years from the date of grant, and the term of any incentive stock option
granted to an employee who owns more than 10% of the total combined voting power
of all classes of ValliCorp's stock may not exceed five years from the date of
grant.
55
<PAGE>
The maximum aggregate number of shares of Common Stock with respect to which
stock options may be granted to any employee under the Employee Plan is 200,000
shares during any two calendar year period, subject to adjustment in the event
of any change in the number or exchange of shares of Common Stock as a result of
reorganization, merger, consolidations, recapitalizations, reclassification,
split-up, combination of shares, stock dividend or otherwise.
The Stock Option Plans each provide that under certain circumstances involving a
dissolution, merger, liquidation or acquisition of ValliCorp, or of certain
tender offers with regard to ValliCorp's stock, the options granted thereunder
may become immediately exercisable.
The Employee Plan provides that an employee may satisfy any applicable federal,
state or local tax withholding requirement with regard to the receipt or
exercise of grants under the Plan by tendering a cash payment to ValliCorp,
authorizing ValliCorp to withhold shares of Common Stock otherwise issuable to
the employee, delivering to ValliCorp already owned Common Stock, or a
combination of the above.
Options granted under either Stock Option Plan are not transferable other than
by will or the laws of descent and distribution, and during the lifetime of a
grantee, an option may be exercised only by the grantee or his or her guardian
or legal representative. The interests of any grantee under each Plan are not
subject to the claims of creditors and may not, in any way, be assigned,
alienated or encumbered except as described in the preceding sentence.
Summary of Certain Federal Income Tax Consequences. The following discussion
briefly summarizes certain federal income tax aspects of incentive stock options
and nonqualified options granted under the Stock Option Plans. State and local
tax consequences may differ.
In general, an optionee is not required to recognize income on the grant or
exercise of an incentive stock option granted under the Employee Plan. However,
the difference between the exercise price and the fair market value of the stock
on the exercise date is an adjustment item for purposes of the alternative
minimum tax. Further, if an optionee does not exercise an incentive stock option
within certain specified periods of time after termination of employment, the
option is treated for federal income tax purposes in the same manner as a
nonqualified stock option, as described below.
An optionee generally is not required to recognize income on the grant of a
nonqualified stock option under either Stock Option Plan. Instead, ordinary
income generally is required to be recognized on the date the nonqualified stock
option is exercised. In general, the amount of ordinary income required to be
recognized, in the case of a nonqualified stock option, is an amount equal to
the excess, if any, of the fair market value of the shares of Common Stock on
the exercise date over the exercise price.
In general, gain or loss from the sale or exchange of shares granted under the
Stock Option Plans will be treated as capital gain or loss, provided that the
shares are held as capital assets at the time of the sale or exchange. However,
if certain holding period requirements are not satisfied at the time of a sale
or exchange of shares acquired upon exercise of an incentive stock option (a
"disqualifying disposition"), an optionee may be required to recognize
ordinary income upon such disposition.
ValliCorp generally is not allowed a deduction in connection with the grant or
exercise of an incentive stock option. However, if an optionee is required to
recognize income as a result of a disqualifying disposition, ValliCorp will be
entitled to a deduction equal to the amount of ordinary income so recognized. In
the case of a nonqualified stock option (including an incentive stock option
that is treated as a nonqualified stock option, as described above), at the same
time the optionee is required to recognize ordinary income, ValliCorp generally
will be allowed a deduction in an amount equal to the amount of ordinary income
so recognized.
Information about options granted to executive officers of ValliCorp during 1996
and held by them on December 31, 1996 appears in the "Option Grants Table" and
the "Option Exercises and Year-End Value Table," below. For all options
granted or outstanding under the Stock Option Plans, the exercise price equaled
the fair market value of the Common Stock on the date the options were granted.
Option Grants Table. The following table presents information about stock
options granted during 1996 to the five named executive officers. No stock
appreciation rights were granted.
56
<PAGE>
OPTION GRANTS TABLE
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
----------------------------------------------------------------- ---------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE EXPIRATION
NAME GRANTED(#)(A) FISCAL YEAR (B) PRICE($/SH)(C) DATE 5% 10%
- ------------------------- ------------ -------------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
J. Mike McGowan.......... 30,000 15.1% $13.438 5/20/06 $253,533 $642,501
Steven C. Pumphrey....... 30,000 15.1 14.875 2/01/06 280,644 711,208
20,000 10.0 13.438 5/20/06 169,022 428,334
John H. Tait............. 10,000 5.0 13.438 5/20/06 84,511 214,167
Wolfgang T.N. Muelleck... 10,000 5.0 13.438 5/20/06 84,511 214,167
Edwin L. Herbert......... 10,000 5.0 13.438 5/20/06 84,511 214,167
- -------------
</TABLE>
(A) All 1996 options granted in the above table were under the Employee Plan.
Options granted under the Employee Plan generally become exercisable in
increments of 25% each year. It is expected that all of such Options will
become exercisable immediately prior to consummation of the Merger with
WABC. There are no performance or other units granted in tandem with
options under either of the Stock Option Plans, nor are there any reload or
tax-reimbursement features.
(B) Does not include options granted by ValliCorp in connection with
acquisitions completed in 1996.
(C) Stock options expiring on February 1, 2006 were granted on February 1, 1996
and stock options expiring on May 20, 2006 were granted on May 20, 1996. All
stock options were granted with an exercise price of 100% of the then-
current fair market value on the date of the grant.
Option Exercises and Year-End Value Table. The following table presents
information about stock options exercised during 1996 and unexercised stock
options at December 31, 1996 for the five named executive officers.
OPTION EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION EXERCISES IN 1996 AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS THE-MONEY OPTIONS AT
DECEMBER 31, 1996(#) DECEMBER 31, 1996($)
-------------------------- --------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------- --------------- -------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
J. Mike McGowan.......... 46,503 $519,551 25,804/105,093 $161,858/$734,252
Steven C. Pumphrey....... 0 - 0/50,000 0/303,740
John H. Tait............. 0 - 20,321/31,431 137,703/203,803
Wolfgang T.N. Muelleck... 10,000 149,500 22,064/28,064 213,040/180,910
Edwin L. Herbert......... 0 - 10,000/25,000 67,813/164,058
</TABLE>
57
<PAGE>
Employment Agreements with Executives. ValliCorp entered into revised employment
agreements ("Agreements") during 1996 with the executive officers named in the
Summary Compensation Table. The agreements are four years in duration and are
renewable each year thereafter unless terminated by either the executive or the
Executive Committee of the Board. The Agreements provide for base compensation,
adjusted annually at the Compensation Committee's discretion, and incentive
awards (as described in more detail in "Executive Compensation and Other
Information" and the "Compensation Committee Report on Executive
Compensation") to be paid to the executives for the performance of their
duties. These Agreements also provide for severance benefits, which for Mr.
McGowan and Mr. Pumphrey include a cash lump sum payment of three times their
annual salary (including bonus), continuation of certain welfare benefits
coverage for up to three years and a prorated cash bonus for the year of
termination and for Mr. Tait, Mr. Muelleck and Mr. Herbert include a cash lump
sum payment of two times their annual salary (including bonus), continuation of
certain welfare benefits coverage for up to two years and a prorated cash bonus
for the year of termination. All of the contracts provide for an additional
lump sum cash payment (the "Gross-Up Payment") equal to the sum of any federal
excise taxes payable by the executives with respect to the severance benefits
and the fully vested options, plus all federal, state and local income,
employment and excise taxes payable by the executives on said Gross-Up Payment.
Upon consummation of the anticipated merger with Westamerica Bancorporation, it
is anticipated that J. Mike McGowan, Steven C. Pumphrey, John H. Tait, Edwin L.
Herbert and Wolfgang T.N. Muelleck will receive lump sum cash payments under the
Agreements (excluding the value of stock options) of $2,278,602, $1,256,776,
$419,878, $347,096, and $580,143, respectively (certain of which amounts may
include an approximation of the anticipated Gross-Up Payments).
DIRECTOR COMPENSATION
Directors of ValliCorp are compensated for all services as a director in the
following manner: eligible directors (other than the Vice Chairman of the Board
and the Chairman of the Executive Committee) receive $1,000 per month retainer
regardless of board meeting attendance and $500 per ValliCorp committee meeting
attended. The Vice Chairman of the Board receives $1,750 per month and $500 per
committee meeting attended and the Chairman of the Executive Committee receives
$1,750 per month and $500 per committee meeting attended. Committee chairmen,
with the exception of the Executive Committee Chairman, receive $600 per
committee meeting attended. Directors who are full-time salaried employees of
ValliCorp do not receive directors' fees. See also the discussion of the
Director Plan under the caption "Stock Option Plans" above.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Overview and Philosophy. The Board of Directors of ValliCorp has established a
Compensation Committee. The Compensation Committee, composed of outside
directors, is responsible for developing and making recommendations to the Board
with respect to ValliCorp's executive compensation policies. There are no
interlocking relationships between any members of the Compensation Committee.
Pursuant to authority delegated by the Board, the Compensation Committee
determines annually the compensation to be paid to the Chief Executive Officer
and each member of the Executive Management Committee. The Compensation
Committee also structures and monitors ValliCorp's employment contracts with
Executive Officers which include, among other things, provisions relating to
each executive in the event of a change of control. Compensation decisions with
respect to Executive Officers are based upon the factors discussed below, rather
than any obligation set forth in such employment contracts.
The Compensation Committee has had available to it an outside compensation
consultant, William M. Mercer Incorporated ("Mercer"), and has worked with the
consultant since 1990 to gather comparative compensation data from independent
sources and to develop a strategy which links pay to performance.
The objectives of ValliCorp's Executive Compensation Program are to:
. Support the achievement of desired ValliCorp goals.
. Provide compensation that will attract and retain superior talent and
reward performance.
. Align the Executive Officers' interests with those of shareholders by
placing a portion of pay at risk with payout dependent upon corporate
performance, both on a short-term and long-term basis.
58
<PAGE>
The Executive Compensation Program provides an overall level of compensation
opportunity that is competitive within the banking industry. Actual compensation
levels may be greater or less than average competitive levels in surveyed
companies based upon annual and long-term ValliCorp performance, as well as
individual performance. The Compensation Committee uses its discretion to set
executive compensation where, in its judgment, external, internal or an
individual's circumstances warrant.
Compensation Matters in 1996. During 1996, the Compensation Committee
maintained the preexisting levels of base salary of the Chief Executive Officer
and certain other Executive Officers, while increasing the levels of base salary
of certain other Executive Officers. The levels of base salary were based upon
an analysis by Mercer (the "Mercer Analysis") of compensation levels for
management performing similar function at other banking companies of similar
size and operation, as well as compensation data from published surveys for
finance, accounting and legal professionals, and the objective of the
Compensation Committee to place base salaries of Executive Officers at or near
market median levels, given satisfactory job performance. Target and maximum
cash bonus opportunities, as a percentage of base salary, were maintained at
preexisting levels for Executive Officers in 1996, with the exception of the
newly created position of President and Chief Operating Officer, for which
target and maximum cash bonus opportunities, as a percentage of base salary,
were increased. Such actions were based upon the Mercer Analysis and
recommendation of Mercer. The achievement of goals representing corporate
performance factors was weighted more heavily than the achievement of individual
goals, consistent with the objective of more closely aligning cash incentive
payments to Executive Officers with overall performance by ValliCorp. Based
upon the Mercer Analysis and recommendations of Mercer, Executive Officers were
also awarded stock options in 1996, as indicated above under the caption,
"Option Grants Table".
The Mercer Analysis included a review of three years' compensation data from the
proxy statements of banking companies (the "Independent Banks"), ranging in size
from approximately $836 million to $2.4 billion in assets. The Mercer Analysis
also included compensation data from published surveys in the banking industry
and for finance, accounting and legal professionals, as well as a review of
ValliCorp's financial performance compared to the financial performance of the
Independent Banks. Performances were compared for the five year period ending
December 31, 1995.
The Independent Banks included in Mercer's survey of compensation data from
proxy statements are not identical with the peer group (the "Peer Group")
employed by ValliCorp to show a comparison of cumulative total returns for
ValliCorp as included in the graph set forth below under the caption, "ValliCorp
Performance". Mercer selected the companies for its compensation survey
independently of Montgomery Securities' selection of companies for the Peer
Group.
During 1996 the Compensation Committee also took action, ratified by the Board
of Directors, to renew and enhance the employment agreements of the Executive
Officers, effective July 1, 1996. Such action was based upon the
recommendations of Mercer and the review of data from the proxy statements of
the Independent Banks and published survey data concerning Executive Officer
employment agreements. The employment agreements of the five most highly
compensated Executive Officers are more fully described above under the heading,
"Employment Agreements with Executives". ValliCorp has entered into an
Agreement of Plan of Reorganization dated November 11, 1996, as amended, among
ValliCorp, ValliWide Bank and Westamerica Bancorporation, providing for the
merger (the "Merger") of ValliCorp into Westamerica, subject to the satisfaction
of certain conditions (the "Westamerica Merger Agreement"). Upon consummation
of the Merger, ValliCorp anticipates the making of the payments to the Executive
Officers under their employment agreements as more fully described under the
heading, "Employment Agreements with Executives".
Executive Officer Compensation Program. ValliCorp's Executive Officer
Compensation Program is comprised of base salary, annual cash incentive
compensation, longer-term incentive compensation in the form of stock options,
and various benefits.
Base Salary. Base salary levels for ValliCorp's Executive Officers are attempted
to be set relative to companies in the banking industry of similar size and
complexity of operations, as described above. In determining salaries, the
Compensation Committee also takes into account individual experience and
performance, ValliCorp performance and specific issues particular to ValliCorp.
Annual Incentive Compensation. The Management Incentive Plan is ValliCorp's
annual incentive program for Executive Officers. The purpose of the plan is to
provide direct financial incentives in the form of an annual cash bonus to
executives to achieve their business units' and ValliCorp's annual goals.
Threshold, target and maximum goals for ValliCorp and business unit performance
are set at the beginning of each fiscal year. For 1996, the following measures
of ValliCorp performance were selected: earnings per share of ValliCorp Common
Stock and the efficiency ratio (total noninterest expenses divided by total
revenues). Individual performance is also taken into account in determining
bonuses, based on specific performance measures for each executive established
at the beginning of each year. Target bonus opportunities are attempted to be
set at competitive levels within the banking industry, as described above.
Incentive compensation amounts are also subject to being discounted as a penalty
should ValliCorp or any subsidiary receive a rating from any federal or state
bank regulatory agency that falls below target levels established by the
Compensation Committee.
59
<PAGE>
The achievement of goals representing corporate performance factors comprised
seventy-five percent of Executive Officers' potential incentive compensation for
1996, with earnings per share and the efficiency ratio given equal weighting.
Because of the disruption that occurred during the third and fourth quarters of
1996 stemming from protracted discussions leading up to the Westamerica Merger
Agreement and the implications of that agreement with respect to the conduct of
ValliCorp's business, the Compensation Committee made the decision that the
Executive Officers' 1996 incentive compensation that was dependent on the
achievement of goals representing corporate performance factors would be based
upon ValliCorp's performance through and including the second quarter of the
year but not the third and fourth quarters of the year. ValliCorp met its
threshold goal for earnings per share and its target goal for the efficiency
ratio for 1996 through and including the second quarter.
Stock Option Program. The Stock Option Program is ValliCorp's long-term
incentive plan for Executive Officers and key managers. The objectives of the
program are to align executive and shareholder long-term interests by creating a
strong and direct link between executive pay and shareholder return, and to
enable executives to develop and maintain a long-term stock ownership position
in ValliCorp Common Stock.
ValliCorp's Stock Option Plans authorize a committee of outside directors to
award stock options to key executives. The committee is the Compensation
Committee. Generally, stock options are granted at one-year intervals at an
option price equal to the fair market value of ValliCorp Common Stock on the
date of grant, have ten-year terms and have exercise restrictions that lapse
ratably over a four-year period (five-year period in the case of grants under
the Directors' Plan). Awards are made at levels considered to be competitive
within the banking industry.
Chief Executive Officer Compensation. The base salary of Mr. McGowan,
ValliCorp's Chairman of the Board and Chief Executive Officer, was $325,000 for
1996, based upon the recommendation of Mercer arising from its survey of other
banking companies, as described above. Mr. McGowan received a total of 30,000
stock options in 1996, which were awarded by the Compensation Committee in
recognition of the performance of ValliCorp Common Stock over the five year
period ending December 31, 1995 and were within the range recommended by Mercer
based upon its survey of other banking companies, as described above.
Membership of the Compensation Committee. ValliCorp Directors serving on the
Compensation Committee are named below:
Jerry K. Stanners
V. Eugene Ross
Louis H. Herwaldt
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Regulations require the disclosure of any related party transactions with
members of the Compensation Committee. During the past year, certain directors
and officers, including members of the Compensation Committee, and one or more
of their associates may have been customers of and had business transactions
with one or more of the bank subsidiaries of ValliCorp. All loans included in
such transactions were made in the ordinary course of business and on
substantially the same terms, including interest rates and collateral, as those
prevailing at the same time for comparable transaction with other persons, and
did not involve more than normal risk of collectability or present other
unfavorable features. It is expected that similar transactions will occur in
the future.
60
<PAGE>
VALLICORP PERFORMANCE
The following graph shows a five-year comparison of cumulative total returns
for ValliCorp, the NASDAQ Market Index and the peer group, as defined below.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
[GRAPH APPEARS HERE]
* Assumes the value of the investment in ValliCorp Common Stock and each index
was $100 on December 31, 1991 and that all dividends were reinvested.
** The source of the Peer Group Index is Montgomery Securities' "Western Bank
Monitor" -- (more than) $1 Billion Independent Bank Proxy Index.
The above graph is based on the following data points:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
ValliCorp Common Stock... 100.00 137.81 195.79 252.40 227.89 343.35
NASDAQ Market Index...... 100.00 116.38 133.59 130.59 184.67 227.16
Peer Group Index......... 100.00 116.91 133.76 150.02 225.24 267.32
</TABLE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
As of March 1, 1997, no persons were known to ValliCorp to be the beneficial
owners of more than five percent of ValliCorp's Common Stock.
61
<PAGE>
The following table sets forth information as of February 14, 1997 with respect
to beneficial ownership of the Common Stock of ValliCorp by all of the directors
named in this Annual Report, the five most highly compensated executive officers
of ValliCorp, and directors and all executive officers of ValliCorp as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF BENEFICIAL PERCENT OF
NAME OWNERSHIP CLASS
---- --------- -----
<S> <C> <C>
William A. Benneyan............................ 180,872(2) 1.28%
Louis H. Herwaldt.............................. 55,914(3) *
J. Mike McGowan................................ 182,619(4) 1.29%
Patrick J. Mon Pere............................ 212,409(5) 1.50%
D. Dwight Odom, M.D............................ 39,452(6) *
Lorenzo Tony Ortega, Ph.D ................... 1,994(7) *
Steven C. Pumphrey............................. 7,500(8) *
V. Eugene Ross................................. 111,198(9) *
Michael J. Ryan, Jr............................ 74,943(10) *
Jerry K. Stanners.............................. 15,500(11) *
Charles L. Tingey.............................. 12,752(12) *
Edwin L. Herbert............................... 10,082(13) *
Wolfgang T.N. Muelleck......................... 39,254(14) *
John H. Tait................................... 25,473(15) *
All directors and executive officers (1) as a
group (16 in number)......................... 987,614(16) 6.99%
*Ownership is less than 1% of the class.
- -------------
</TABLE>
(1) Included within the term "executive officer" in the foregoing table are
the non-director members of ValliCorp's Executive Management Committee.
(2) Includes beneficial ownership of 166,277 shares which are subject to shared
voting and investment power with his spouse. Includes 14,595 shares subject
to options which are presently exercisable.
(3) Includes beneficial ownership of 28,964 shares owned by Herwaldt Automotive
Group, Inc. and 16,250 shares owned by Herwaldt Automotive Group Profit
Sharing Plan. Mr. Herwaldt is President of Herwaldt Automotive Group, Inc.
Includes 10,700 shares subject to options which are presently exercisable.
Does not include 1,800 shares subject to options which are neither
exercisable nor exercisable within sixty days of such date, but which may
become exercisable by acceleration prior to consummation of the proposed
transaction with Westamerica.
(4) Includes 107,522 shares which are subject to shared voting and investment
power with his spouse, 1,262 shares held by his spouse and 5,084 shares held
as custodian for his children. Includes 6,722 shares subject to conversion
under ValliCorp's Floating Rate (Optional and Mandatory) Convertible
Debentures (the "Debentures"). Includes 33,304 shares subject to options
which are presently exercisable or will become exercisable within 60 days of
such date. Includes 12,371 shares held in ValliCorp's Retirement and Savings
Plan. Does not include 97,593 shares subject to options which are neither
exercisable nor exercisable within sixty days of such date, but which may
become exercisable by acceleration prior to consummation of the proposed
transaction with Westamerica.
(5) Includes 82,833 shares which are subject to shared voting and investment
power with his spouse and 5,578 shares held by his spouse. Includes 26,590
shares subject to conversion under the Debentures. Also includes 28,996
shares held in a voting trust of which he is a trustee. Also includes 35,458
shares in Patrick James, Inc. Profit Sharing Plan. Mr. Mon Pere is the
President and owner of Patrick James, Inc. Includes 6,100 shares subject to
options which are presently exercisable. Does not include 3,400 shares
subject to options which are neither exercisable nor exercisable within
sixty days of such date, but which may become exercisable by acceleration
prior to consummation of the proposed transaction with Westamerica.
(6) Includes 931 shares held by his spouse.
(7) Includes 794 shares subject to shared voting and investment power with his
spouse and 1,800 shares subject to options which are presently exercisable.
Does not include 1,200 shares subject to options which are neither
exercisable nor exercisable within sixty days of such date, but which may
become exercisable by acceleration prior to consummation of the proposed
transaction with Westamerica.
(8) Includes 7,500 shares subject to options which are presently exercisable.
Does not include 42,500 shares subject to options which are neither
exercisable nor exercisable within sixty days of such date, but which may
become exercisable by acceleration prior to consummation of the proposed
transaction with Westamerica.
62
<PAGE>
(9) Includes 4,013 shares held by his spouse. Includes 22,343 shares in the
Eugene Ross Pension Trust Plan. Includes 5,265 shares subject to options
which are presently exercisable. Does not include 1,600 shares subject to
options which are neither exercisable nor exercisable within sixty days of
such date, but which may become exercisable by acceleration prior to
consummation of the proposed transaction with Westamerica.
(10) Includes 52,779 shares owned by a family trust of which he is a trustee.
Includes 16,364 shares subject to conversion under the Debentures. Includes
5,800 shares subject to options which are presently exercisable. Does not
include 3,200 shares subject to options which are neither exercisable nor
exercisable within sixty days of such date, but which may become
exercisable by acceleration prior to consummation of the proposed
transaction with Westamerica.
(11) Includes 13,700 shares subject to shared voting and investment power with
his spouse. Includes 1,800 shares subject to options which are presently
exercisable. Does not include 3,700 shares subject to options which are
neither exercisable nor exercisable within sixty days of such date, but
which may become exercisable by acceleration prior to consummation of the
proposed transaction with Westamerica.
(12) Includes 9,550 shares subject to options which are presently exercisable.
Does not include 3,200 shares subject to options which are neither
exercisable nor exercisable within sixty days of such date, but which may
become exercisable by acceleration prior to consummation of the proposed
transaction with Westamerica.
(13) Includes 10,000 shares subject to options which are presently exercisable.
Includes 82 shares held in the ValliCorp Retirement and Savings Plan. Does
not include 25,000 shares subject to options which are neither exercisable
nor exercisable within sixty days of such date, but which may become
exercisable by acceleration prior to consummation of the proposed
transaction with Westamerica.
(14) Includes 22,064 shares subject to options which are presently exercisable
and 3,628 shares held in ValliCorp's Retirement and Savings Plan. Does not
include 28,064 shares subject to options which are neither exercisable nor
exercisable within sixty days of such date, but which may become
exercisable by acceleration prior to consummation of the proposed
transaction with Westamerica.
(15) Includes 20,321 shares subject to options which are presently exercisable
and 672 shares held in ValliCorp's Retirement and Savings Plan. Does not
include 31,431 shares subject to options which are neither exercisable nor
exercisable within sixty days of such date, but which may become
exercisable by acceleration prior to consummation of the proposed
transaction with Westamerica.
(16) Includes 49,676 shares subject to conversion under the Debentures. Includes
160,530 shares subject to options which are presently exercisable. Does not
include 274,669 shares subject to options which are neither exercisable nor
exercisable within sixty days of such date, but which may become
exercisable by acceleration prior to consummation of the proposed
transaction with Westamerica.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
ValliCorp owns a 49% limited partnership interest in a limited partnership known
as ValliPlaza del Rio ("Limited Partnership"), which owns a three story
building that serves as ValliCorp's headquarters. Substantially all of the space
in the building is leased to ValliCorp. Under a contract entered into with the
developer of the property prior to ValliCorp's acquisition of an interest in the
Limited Partnership, Colliers Tingey International, formerly Charles Tingey
Associates, Inc., of which Mr. Tingey, a ValliCorp director, is the Chairman and
principal stockholder, acts as leasing agent in respect to the lease of the
space in the building to ValliCorp and other tenants. Colliers Tingey
International, formerly Charles Tingey Associates, Inc., has earned
approximately $65,769 in commissions from such arrangement from January 1, 1996
to the end of fiscal 1996. All leases between ValliCorp and the Limited
Partnership have been made on an arms' length basis and management of ValliCorp
believes that all commissions paid to Colliers Tingey International, formerly
Charles Tingey Associates, Inc., have been at competitive rates.
63
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
- - ------------------------------------------------------------------------
(a) (1) Financial Statements.
--------------------
The following consolidated financial statements of the Company and
subsidiaries are included in Item 8 above.
Report of Deloitte & Touche LLP, Independent Auditors
Consolidated Balance Sheets --
December 31, 1996 and 1995
Consolidated Statements of Income --
Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity --
Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows --
Years ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements --
December 31, 1996, 1995 and 1994
(a) (2) Financial Statement Schedules.
-----------------------------
All financial statement schedules are omitted because they are not
applicable or are not required or because the required information is
included in the consolidated financial statements which are included
in Item 8 above.
64
<PAGE>
(a) (3) Exhibits.
--------
The exhibits listed below are filed with, or incorporated by
reference as a part of, this Form 10-K pursuant to Item 601 of
Regulation S-K.
3.1 Restated Certificate of Incorporation of ValliCorp.(1)
3.2 Amended and Restated Bylaws of ValliCorp.
4.1 Form of Indenture, dated as of April 1, 1986, and as of May 27,
1986, as to The MacDonald Group, Ltd., relating to Bancorp's
[ValliCorp's] Floating Rate Convertible Subordinated Debentures
(the "Indenture"). (2)
4.2 Form of Supplemental Indenture amending the Indenture, dated as of
March 27, 1987.(3)
4.3 Form of Supplemental Indenture amending the Indenture, dated as of
August 1, 1989.(1)
4.4 Specimen Common Stock Certificate of ValliCorp.(4)
10.1.1 ValliCorp Amended and Restated Directors' Stock Option Plan.
10.1.2 ValliCorp Amended and Restated Key Employees' Stock Option Plan.
10.1.3 ValliCorp Retirement and Savings Plan, as amended. (5)
10.1.4 ValliCorp 1994 Mineral King Continuation Stock Option Plan. (6)
10.1.5 ValliCorp 1996 CoBank Continuation Stock Option Plan. (7)
10.1.6 ValliCorp 1996 El Capitan Continuation Stock Option Plan. (8)
10.1.7 ValliCorp 1996 Auburn 1982 Non-qualified Continuation Stock Option
Plan. (9)
10.1.8 ValliCorp 1996 Auburn 1982 Incentive Continuation Stock Option
Plan. (10)
10.1.9 ValliCorp 1996 Auburn Continuation Stock Option Plan. (11)
10.1.10 ValliCorp Dividend Reinvestment and Stock Purchase Plan, dated as
of March 28, 1996. (12)
10.2.1 Agreement and Plan of Reorganization between ValliCorp and El
Capitan, dated as of May 11, 1995, together with Amendment thereto
dated August 3, 1995. (13)
10.2.2 Second Amendment to Agreement and Plan of Reorganization between
ValliCorp and El Capitan, dated as of October 17, 1995. (14)
10.2.3 Agreement and Plan of Reorganization between ValliCorp and CoBank,
dated as of July 20, 1995. (15)
10.2.4 Agreement and Plan of Reorganization between ValliCorp and Auburn,
dated as of March 27, 1996. (16)
10.2.5 Agreement and Plan of Reorganization, dated as of November 11,
1996, among ValliCorp, ValliWide Bank and Westamerica
Bancorporation. (17)
10.3 Loan Guaranty Agreement (Deferred Participation) by and between
Fresno Bank and the Small Business Administration, dated September
19, 1978. (4)
10.4.1 Employment Agreement, dated as of July 1, 1996, entered into
between J. Mike McGowan and ValliCorp. (18)
10.4.2 Employment Agreement, dated as of July 1, 1996, entered into
between Steven C. Pumphrey and ValliCorp. (18)
65
<PAGE>
10.4.3 Employment Agreement, dated as of July 1, 1996, entered into
between Wolfgang T.N. Muelleck and ValliCorp. (18)
10.4.4 Employment Agreement, dated as of July 1, 1996, entered into
between Jerry A. Melton and ValliCorp. (18)
10.4.5 Employment Agreement, dated as of July 1, 1996, entered into
between John H. Tait and ValliCorp. (18)
10.4.6 Employment Agreement, dated as of July 1, 1996, entered into
between E.L. Herbert and ValliCorp. (18)
10.4.7 Employment Agreement, dated as of July 1, 1996, entered into
between Lucineia S. Donnelly and ValliCorp. (18)
10.5 ValliPlaza del Rio Limited Partnership Agreement. (19)
11 Statement regarding computation of per share earnings.
13.1 Opinion of Grant Thornton LLP, independent auditors for El Capitan,
previously merged into ValliCorp.
21 Subsidiaries of ValliCorp.
23.1 Consent of Deloitte & Touche LLP, independent auditors for
ValliCorp.
23.2 Consent of Grant Thornton LLP, independent auditors for El Capitan,
previously merged into ValliCorp.
27 Financial Data Schedule
66
<PAGE>
______________
(1) Incorporated by reference from the exhibits included with ValliCorp's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989,
previously filed with the Commission.
(2) Incorporated by reference from the exhibits included with ValliCorp's
Annual Report on Form 10-K for the fiscal year ended December 31, 1986,
previously filed with the Commission.
(3) Incorporated by reference from the exhibits included with Amendment No. 1
to ValliCorp's Registration Statement on Form S-4 (Registration No. 33-
13741), previously filed with the Commission.
(4) Incorporated by reference from the exhibits included with ValliCorp's
Registration Statement on Form S-14 (Registration No. 2-73590),
previously filed with the Commission.
(5) Incorporated by reference from the exhibits included with ValliCorp's
Registration Statement on Form S-8 (Registration No. 333-09181),
previously filed with the Commission.
(6) Incorporated by reference from the exhibits included with ValliCorp's
Registration Statement on Form S-8 (Registration No. 33-87652),
previously filed with the Commission.
(7) Incorporated by reference from the exhibits included with ValliCorp's
Registration Statement on Form S-8 (Registration No. 33-80029),
previously filed with the Commission.
(8) Incorporated by reference from the exhibits included with ValliCorp's
Registration Statement on Form S-8 (Registration No. 33-31050),
previously filed with the Commission.
(9) Incorporated by reference from the exhibits included with ValliCorp's
Registration Statement on Form S-8 (Registration No. 333-13057),
previously filed with the Commission.
(10) Incorporated by reference from the exhibits included with ValliCorp's
Registration Statement on Form S-8 (Registration No. 333-13045),
previously filed with the Commission.
(11) Incorporated by reference from the exhibits included with ValliCorp's
Registration Statement on Form S-8 (Registration No. 333-13055),
previously filed with the Commission.
(12) Incorporated by reference from ValliCorp's Registration Statement on Form
S-3 (Registration No. 33-80013), previously filed with the Commission.
(13) Incorporated by reference from the exhibits included with ValliCorp's
Registration Statement on Form S-4 (Registration No. 33-94158),
previously filed with the Commission.
(14) Incorporated by reference from the exhibits included with ValliCorp's
Registration Statement on Form S-4 (Registration No. 33-94158),
previously filed with the Commission.
(15) Incorporated by reference from Exhibit A to the Proxy Statement/
Prospectus included with ValliCorp's Registration Statement on Form S-4
(Registration No. 33-80029), previously filed with the Commission.
(16) Incorporated by reference from the exhibits included with ValliCorp's
Current Report on Form 8-K dated April 12, 1996, previously filed with
the Commission.
(17) Incorporated by reference from the exhibits included with ValliCorp's
Current Report on Form 8-K dated November 13, 1996, previously filed with
the Commission.
(18) Incorporated by reference from the exhibits to ValliCorp's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, previously
filed with the Commission.
67
<PAGE>
(19) Incorporated by reference from the exhibits included with ValliCorp's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994,
previously filed with the Commission.
(b) Reports on Form 8-K filed in the fourth quarter of 1996.
-------------------------------------------------------
Current Reports on Form 8-K were filed during the fourth quarter of 1996
as follows:
Date of Report Subject
-------------- -------
November 13, 1996 A Report on Form 8-K was filed by the Registrant on
November 13, 1996 reporting on the execution of an
Agreement and Plan of Reorganization ("Agreement")
among Westamerica Bancorporation ("WABC"), the
Registrant and ValliWide Bank, which provides for the
merger of the Registrant with and into WABC and the
conversion of the Registrant's common stock into
stock of WABC. A copy of the Agreement, a Stock
Option Agreement between the Registrant and WABC and
a joint press release dated November 12, 1996 are
attached as exhibits to the report on Form 8-K.
(c) Exhibits.
--------
The response to this Item is submitted as a separate section of this
report. (See Item 14(a)(3).)
(d) Financial Statement Schedules
-----------------------------
The response to this Item is submitted as a separate section of this
report (See Item 14(a)(2).)
68
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
Date: March 24, 1997 VALLICORP HOLDINGS, INC.
/s/J. Mike McGowan Chief Executive Officer March 24, 1997
- --------------------- (Principal Executive
J. Mike McGowan Officer), Director
and Chairman of the
Board
/s/ Wolfgang T.N. Muelleck Executive Vice March 24, 1997
- ------------------------- President/Chief
Wolfgang T.N. Muelleck Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
69
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/Patrick J. Mon Pere Vice Chairman of the March 24, 1997
- ------------------------ Board
Patrick J. Mon Pere
/s/William A. Benneyan Director March 24, 1997
- ------------------------
William A. Benneyan
/s/Louis H. Herwaldt Director March 24, 1997
- ----------------------
Louis H. Herwaldt
/s/D. Dwight Odom, M.D. Director March 24, 1997
- -------------------------
D. Dwight Odom, M.D.
/s/Lorenzo Tony Ortega Ph.D. Director March 24, 1997
- ------------------------------
Lorenzo Tony Ortega Ph.D.
/s/Steven C. Pumphrey President, Chief March 24, 1997
- ----------------------- Operating Officer and
Steven C. Pumphrey Director
/s/V. Eugene Ross Director March 24, 1997
- -------------------
V. Eugene Ross
/s/Michael J. Ryan, Jr. Director March 24, 1997
- -------------------------
Michael J. Ryan, Jr.
/s/Jerry K. Stanners Director March 24, 1997
- ----------------------
Jerry K. Stanners
/s/Charles L. Tingey Director March 24, 1997
- ----------------------
Charles L. Tingey
</TABLE>
70
<PAGE>
/s/J. Mike McGowan Chief Executive Officer March 24, 1997
- -------------------- (Principal Executive
J. Mike McGowan Officer), Director
and Chairman of the
Board
/s/Wolfgang T.N. Muelleck Executive Vice March 24, 1997
- ------------------------- President/Chief
Wolfgang T.N. Muelleck Financial Officer
(Principal Financial and
Accounting Officer)
71
<PAGE>
VALLICORP HOLDINGS, INC.
EXHIBIT INDEX TO
REPORT ON FORM 10-K
Page Number
in Sequential
Numbering
Exhibit Description System
- ------- ----------- -------------
3.2 Amended and Restated Bylaws of ValliCorp. 73
10.1.1 ValliCorp Amended and Restated Directors'
Stock Option Plan. 82
10.1.2 ValliCorp Amended and Restated Key Employees'
Stock Option Plan. 88
11 Statement regarding computation of per
share earnings. 95
13.1 Opinion of Grant Thornton LLP. 96
21 Subsidiaries of ValliCorp. 97
23.1 Consent of Deloitte & Touche LLP. 98
23.2 Consent of Grant Thornton LLP. 99
27 Financial Data Schedule 100
All exhibits listed in item 14(a)(3) of this report but not listed above have
been incorporated by reference as described in Item 14(a)(3).
72
<PAGE>
EXHIBIT 3.2
VALLICORP HOLDINGS, INC.
AMENDED AND RESTATED BYLAWS
---------------------------
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting. An annual meeting of the stockholders, for the
--------------
election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held on the third Monday in May of each year, if not a legal holiday,
and if a legal holiday, then on the next succeeding business day, or on such
other date and at such place within or without the State of Delaware, and at
such time as the Board of Directors shall each year fix.
Section 2. Special Meetings. Special meetings of the stockholders, for
----------------
any purpose or purposes prescribed in the notice of the meeting, may be called
only by the Board of Directors pursuant to a resolution adopted by a majority of
the directors then in office though less than a quorum. Special meetings shall
be held at such place within or without the State of Delaware, on such date, and
at such time as the Board of Directors shall fix. Business transacted at
special meetings shall be confined to the purpose or purposes stated in the
notice.
Section 3. No Action Without Meeting. Any action required or permitted to
-------------------------
be taken by the stockholders of the Corporation must be effected at an annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by the stockholders.
Section 4. Notice of Meetings. Written notice of the place, date, and
------------------
time of all meetings of the stockholders shall be given not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or required by law (meaning, here and hereinafter, as required
from time to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 5. Quorum. At any meeting of the stockholders, the holders of a
------
majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall constitute a quorum for all purposes,
unless or except to the extent that the presence of a larger number may be
required by law.
The chairperson of the meeting or the holders of a majority of the
shares of stock entitled to vote who are present, in person or by proxy, may
adjourn the meeting to another place, date, or time, whether or not there is
such a quorum.
Section 6. Conduct of Business. The chairperson of any meeting of
-------------------
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him or her in order.
Section 7. Notice of Stockholder Business.
------------------------------
(a) At an annual or special meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before the meeting, business must be: (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (ii) properly brought before the
meeting by or at the direction of the Board of Directors, or (iii) properly
brought before an annual meeting by a stockholder. For business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than thirty (30)
days prior to the meeting; provided, however, that in the event that less than
forty (40) days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting: (w)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (x)
the name and address, as they appear on the Corporation's books, of the
stockholder
73
<PAGE>
proposing such business, (y) the class and number of shares of the Corporation
which are beneficially owned by the stockholder, and (z) any material interest
of the stockholder in such business. Notwithstanding anything in the Bylaws to
the contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 7. The chairperson of
an annual meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 7, and if s/he should so
determine, s/he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
(b) At any special meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting by or at the
direction of the Board of Directors.
Section 8. Proxies and Voting. At any meeting of the stockholders, every
------------------
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing filed in accordance with the procedure established for the
meeting.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his or her name on the record date for the
meeting, except as otherwise provided herein or required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairperson of the meeting.
All elections shall be determined by a plurality of the votes cast,
and except as otherwise required by law, all other matters shall be determined
by a majority of the votes cast.
Section 9. Inspectors of Election; Opening and Closing of Polls. In
----------------------------------------------------
advance of any meeting of stockholders, the Board of Directors may, or shall if
Section 231 of the Delaware General Corporation Law applies to the Corporation,
appoint one or more inspectors of election to act at the meeting and any
adjournment thereof and to make a written report thereof. If inspectors of
election are not so appointed, or if any persons so appointed fail to appear or
refuse to act, the chairperson of any meeting of stockholders may, or shall if
Section 231 of the Delaware General Corporation Law applies to the Corporation,
appoint inspectors of election (or persons to replace those who so fail or
refuse) at the meeting. Each inspector, before entering upon the discharge of
his or her duties, shall take and sign an oath faithfully to execute the duties
of inspector with strict impartiality and according to the best of his or her
ability.
The inspectors of election shall ascertain the number of shares
outstanding and the voting power of each, determine the shares represented at
the meeting and the validity of proxies and ballots, count all votes and
ballots, determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
certify their determination of the number of shares represented at the meeting,
and their count of all votes and ballots. The inspectors of election may
appoint or retain other persons or entities to assist the inspectors in the
performance of the duties of the inspectors.
The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be announced
at the meeting. No ballot, proxies or vote, nor any revocations thereof or
changes thereto, shall be accepted by the inspectors after the closing of the
polls unless the Delaware Count of Chancery upon application by a stockholder
shall determine otherwise.
The provisions of Section 231(d) of the Delaware General Corporate Law
shall govern the inspectors of election in their determination of the validity
and counting of proxies and ballots.
The inspectors of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum and the authenticity, validity and effect of proxies,
receive votes or ballots, hear and determine all challenges and questions in any
way arising in connection with the right to vote, count and tabulate all votes,
determine when the polls shall close, determine the result and do such acts as
may be proper to conduct the election or vote with fairness to all stockholders.
Section 10. Stock List. A complete list of stockholders entitled to vote
----------
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
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The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number of
shares held by each of them.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Term of Office. The number of directors shall be
-------------------------
thirteen (13) and, thereafter, shall be fixed from time to time exclusively by
the Board of Directors pursuant to a resolution adopted by a majority of the
total number of authorized directors (whether or not there exist any vacancies
in previously authorized directorships at the time any such resolution is
presented to the Board for adoption). The Board of Directors shall be divided
into three classes, designated Class "A", Class "B" and Class "C", which shall
be as nearly equal in number of directors as possible. Each director shall be
elected for a term ending at the date of the third annual meeting of
stockholders following the annual meeting at which such director is elected;
provided, however, that each initial director in Class "A" shall hold office
until the annual meeting of stockholders in 1990; each initial director in Class
"B" shall hold office until the annual meeting of stockholders in 1991; and each
initial director in Class "C" shall hold office until the annual meeting of
stockholders in 1992. At each annual meeting of stockholders, directors shall be
elected for a term ending at the third annual meeting of stockholders following
the annual meeting at which such directors are elected and shall succeed those
whose terms expire at such annual meeting.
Section 2. Vacancies and Newly Created Directorships.
-----------------------------------------
(a) Subject to the rights of the holders of any series of Preferred
Stock then-outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office, though less than a quorum, or by the vote of the stockholders at
an annual or special meeting of stockholders, and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been elected expires. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
(b) Subject to the rights of the holders of any series of Preferred
Stock then-outstanding, when a director has been removed from office with cause
by the stockholders, the stockholders shall have the right to fill the vacancy
created by such removal from office by the affirmative vote of the holders of at
least a majority of the voting power of all of the then-outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, and in the event that the
stockholders fail to fill such vacancy or vacancies, the Board of Directors may
fill the vacancy or vacancies as provided in subsection (a) above.
Section 3. Removal. Subject to the rights of the holders of any series of
-------
Preferred Stock then-outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, but only for cause, and only
by the affirmative vote of the holders of at least a majority of the voting
power of all the then-outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class.
For the purposes of this Section, "cause" shall mean: (i) declaration of
unsound mind by order of court; (ii) conviction of a felony or misdemeanor
involving moral turpitude; (iii) a final judgment by a court of competent
jurisdiction that the director committed a gross dereliction of his or her
duties as a director which resulted in material injury to the Corporation; (iv)
a final judgment by a court of competent jurisdiction that the director
willfully violated any banking law, rule, regulation or final cease-and-desist
order entered by federal or state banking regulators; or (v) a final judgment by
a court of competent jurisdiction that the director engaged in intentional
misconduct or a knowing violation of law, and that such misconduct or violation
resulted in both material injury to the Corporation and an improper substantial
personal benefit.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
----------------
shall be held at such place or places within or without the State of Delaware,
on such date or dates, and at such time or times as shall have been established
by the Board of Directors and publicized among all directors. A notice of each
regular meeting shall not be required.
Section 5. Special Meetings. Special meetings of the Board of Directors
----------------
may be called by a majority of the directors then in office (rounded up to the
nearest whole number), by the chairman of the board or by the chief executive
officer and shall be held at such place, on such date, and at such time as they
shall fix. Notice of the place, date and time of each such special meeting
shall be given each director by whom it is not waived by mailing written notice
not less than four (4) days before the meeting or by telephoning or telegraphing
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or personally delivering the same not less than twenty-four (24) hours before
the meeting. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting.
Section 6. Quorum. At any meeting of the Board of Directors, a majority
------
of the total number of authorized directors shall constitute a quorum for all
purposes, and every act or decision of a majority of the directors present at a
meeting at which a quorum is present, made or done when duly assembled, shall be
valid as the act of the Board of Directors; provided that the directors present
at a meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors if any action taken is
approved by a majority of the required quorum for such meeting. A majority of
the directors present at the time and place of any stated or special meeting,
although less than a quorum, may adjourn the same from time to time, or from day
to day, without further notice, until a quorum shall attend, and when a quorum
shall attend, any business may be transacted which might have been transacted at
the meeting had the same been held on the day on which the same was originally
appointed or called.
Section 7. Participation in Meetings by Conference Telephone. Members of
-------------------------------------------------
the Board of Directors, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person at such meeting.
Section 8. Conduct of Business. At any meeting of the Board of Directors,
-------------------
business shall be transacted in such order and manner as the Board may from time
to time determine, and all matters shall be determined by the vote of a majority
of the directors present, except as otherwise provided herein or required by
law. Action may be taken by the Board of Directors without a meeting if all
members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors.
Section 9. Powers. The Board of Directors may, except as otherwise
------
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase, lease and otherwise acquire any property, rights or
privileges on behalf of the Corporation on such terms as it shall determine;
(3) To sell, convey, transfer, assign, exchange, lease, and otherwise
dispose of, mortgage, pledge, hypothecate and otherwise encumber any property on
behalf of the Corporation on such terms as it shall determine;
(4) To authorize the creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or nonnegotiable,
secured or unsecured, on behalf of the Corporation, and to do all things
necessary in connection therewith;
(5) To remove any officer of the Corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon any other
person for the time being;
(6) To confer upon any officer of the Corporation the power to appoint,
remove and suspend subordinate officers, employees and agents;
(7) To adopt from time to time such stock option, stock purchase, bonus or
other compensation plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(8) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and
(9) To adopt from time to time regulations, not inconsistent with these
Bylaws, for the management of the Corporation's business and affairs.
Section 10. Compensation of Directors. Directors, as such, may receive,
-------------------------
pursuant to resolution of the Board of Directors, such compensation for their
services as directors, including, without limitation, their services as members
of committees of the Board of Directors.
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Section 11. Nomination of Director Candidates. Subject to the rights of
---------------------------------
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, nominations for the election of
directors may be made by the Board of Directors or by a proxy committee
appointed by the Board of Directors or by any stockholder entitled to vote in
the election of directors generally. However, any stockholder entitled to vote
in the election of directors generally may nominate one or more persons for
election as directors at a meeting only if timely notice of such stockholder's
intent to make such nomination or nominations has been given in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not fewer than thirty (30) days prior to the meeting; provided
however, that in the event that less than forty (40) days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received no later than the
close of business on the 10th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. Each such
notice shall set forth: (i) the name and address of the stockholder who intends
to make the nomination and of the person or persons to be nominated; (ii) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote for the election of directors on the date of such
notice and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (iii) the class and number of
shares of the Corporation's capital Stock beneficially owned by the stockholder;
(iv) a description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (v) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (vi) the consent of each nominee to serve as a director of the Corporation
if so elected.
If the chairperson of the meeting for the election of directors
determines that a nomination of any candidate for election as a director at such
meeting was not made in accordance with the applicable provisions of this
Section 11, such nomination shall be void; provided, however, that nothing in
this Section 11 shall be deemed to limit any voting rights upon the occurrence
of dividend averages provided to holders of Preferred Stock pursuant to the
Preferred Stock designation for any series of Preferred Stock.
ARTICLE III
COMMITTEES
Section 1. Committees of the Board of Directors. The Board of Directors,
------------------------------------
by a vote of a majority of the whole Board, may from time to time designate
committees of the Board, with such lawfully delegable powers and duties as it
thereby confers, to serve at the pleasure of the Board and shall, for those
committees and any others provided for herein, elect a director or directors to
serve as a member or members, designating, if it desires, other directors as
alternate members who may replace any absent or disqualified member at any
meeting of the committee. Any committee so designated shall have and may
exercise all the powers and authority of the Board of Directors, except the
following powers: (i) to fill vacancies in the Board of Directors; (ii) subject
to the succeeding sentence, to appoint, to change the membership of or to fill
vacancies in any committee of the Board of Directors; (iii) unless otherwise
provided in a resolution passed by a majority of the total number of authorized
directors (whether or not there exists any vacancies in the previously
authorized directorships at the time any such resolution is presented to the
Board for adoption) designating such committee, to declare dividends; (iv) to
adopt, amend or repeal the Certificate of Incorporation (except that such
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
the designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes of stock of the Corporation or fix the number of
shares of any series of stock or authorize the increase or decrease of the
shares of any series) or these Bylaws; (v) to approve any action that also
requires stockholder approval; (vi) to amend or repeal any resolution of the
Board of Directors which by its express terms is not so amendable or repealable;
(vii) to fix the compensation of directors for serving on the Board of Directors
or on any committee; (viii) to adopt an agreement of merger or consolidation
under Sections 251 or 252 of the General Corporation Law of Delaware
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets; (ix) to recommend to
the stockholders a dissolution of the Corporation, a revocation of a
dissolution, or amending the Bylaws; (x) unless otherwise provided in a
resolution passed by a majority of the total number of authorized directors
(whether or not there exists any vacancies in the previously authorized
directorships at the time any such resolution is presented to the Board for
adoption) designating such committee, to authorize the issuance of stock; and
(xi) unless otherwise provided in a resolution passed by a majority of the whole
Board of Directors designating such committee, to adopt a certificate of
ownership and merger pursuant to Section 253 of the General Corporation Law of
Delaware. In the absence or disqualification of any member of any committee and
any alternate member in his/her place, the member or members of the committee
present at the meeting and not disqualified from voting, whether or not he or
she or they constitute a quorum, may by unanimous vote appoint another member of
the Board of Directors to act at the meeting in the place of the absent or
disqualified member.
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Section 2. Conduct of Business. Each committee may determine the
-------------------
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings; a
majority of the authorized members shall constitute a quorum unless the
committee shall consist of one or two members, in which event one member shall
constitute a quorum, and all matters shall be determined by a majority vote of
the members present. Action may be taken by any committee without a meeting if
all members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee.
ARTICLE IV
OFFICERS
Section 1. Generally. The officers of the Corporation shall consist of a
---------
Chairman, a President, a Chief Financial Officer, a Secretary and such other
officers as may from time to time be appointed by the Board of Directors.
Officers shall be elected by the Board of Directors, which shall consider that
subject at its first meeting after every annual meeting of stockholders. Each
officer shall hold office until his or her successor is elected and qualified or
until his or her earlier resignation or removal. Any number of offices may be
held by the same person.
Section 2. Chairman of the Board. The Board of Directors shall elect a
---------------------
Chairman of the Board. The Chairman shall be the Chief Executive Officer of the
Corporation. Subject to the provisions of these Bylaws and to the direction of
the Board of Directors, he or she shall have the responsibility for the general
management and control of the business and affairs of the Corporation and shall
perform all duties and have all powers which are commonly incident to the
office of Chief Executive or which are delegated to him or her by the Board of
Directors. He or she shall be responsible for the execution of all orders and
resolutions of the Board of Directors and shall have general supervision and
direction of all of the other officers, employees and agents of the Corporation.
The Chairman shall preside at all meetings of the directors and stockholders at
which he or she is present and shall exercise and perform any other powers and
duties assigned to him or her by the Board or prescribed by the Bylaws;
provided, however, the Board of Directors may, in its discretion, select the
President or some other officer of the Corporation or some other member of the
Board of Directors to preside at a meeting of the stockholders.
Section 3. President. The President shall be the Chief Operating Officer
---------
of the Corporation. He or she shall preside as Chairman at all meetings of the
Stockholders and Directors not presided over by the Chairman of the Board.
Section 4. Vice President. Each Vice President shall have such powers and
--------------
duties as may be delegated to him or her from time to time by the Board of
Directors. One Vice President shall be designated by the Board to perform the
duties and exercise the powers of the President in the event of the President's
absence or disability.
Section 5. Chief Financial Officer. The Chief Financial Officer shall
-----------------------
keep and maintain, or cause to be kept and maintained, adequate and correct
accounts of the Corporation's properties and business transactions, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
capital, retained earnings, and shares. The books of account shall at all
reasonable times be open to inspection by any director.
The Chief Financial Officer shall deposit all money and other
valuables in the name and to the credit of the Corporation with the depositories
designated by the Board of Directors. He or she shall disburse the
Corporation's funds as ordered by the Board of Directors; shall render to the
President and directors, whenever they request it, an account of all his or her
transactions as Chief Financial Officer and of the Corporation's financial
condition; and shall have any other powers and perform any other duties that are
prescribed by the Board of Directors or Bylaws.
If required by the Board of Directors, the Chief Financial Officer
shall give the Corporation a bond in the amount and with the surety or sureties
specified by the Board for faithful performance of the duties of his or her
office and for restoration to the Corporation of all its books, papers,
vouchers, money, and other property of every kind in his or her possession or
under his or her control on his or her death, resignation, retirement, or
removal from office. The Chief Financial Officer is, for purposes of these
Bylaws, the General Corporation Law of Delaware or otherwise, deemed also to be
the Treasurer of the Corporation.
Section 6. Secretary. The Secretary shall keep or cause to be kept, and
---------
be available at the principal office and any other place that the Board of
Directors specifies, a book of minutes of all directors' and stockholders'
meetings. The minutes of each meeting shall state the time and place that it was
held; whether it was regular or special; if a special meeting, how it was
authorized; the notice given; the names of those present or represented at
stockholders' meetings; and the proceedings of the meetings. A similar minute
book shall be kept for any committees, if required by the Board.
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The Secretary shall keep, or cause to be kept, at the principal office
or at the office of the Corporation's transfer agent, a stock register, or
duplicate stock register, showing the stockholders' names and addresses, the
number and classes of shares held by each, the number and date of each
certificate issued for these shares, and the number and date of cancellation of
each certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all
directors' and stockholders' meetings required to be given under these Bylaws or
by law, shall keep the corporate seal in safe custody, and shall have any other
powers and perform any other duties that are prescribed by the Board of
Directors or the Bylaws.
Section 7. Delegation of Authority. The Board of Directors may from time
-----------------------
to time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.
Section 8. Removal. Any officer of the Corporation may be removed at any
-------
time, with or without cause, by the Board of Directors.
ARTICLE V
STOCK
Section 1. Certificates of Stock. Each stockholder shall be entitled to a
---------------------
certificate signed by, or in the name of the Corporation by, the Chairman of the
Board, President or a Vice President, and by the Secretary or an Assistant
Secretary, or the Treasurer, certifying the number of shares owned by him or
her. Any or all of the signatures on the certificate may be facsimile.
Section 2. Transfers of Stock. Transfers of stock shall be made only upon
------------------
the transfer books of the Corporation kept at an office of the Corporation or by
transfer agents designated to transfer shares of the stock of the Corporation.
Except where a certificate is issued in accordance with Section 4 of Article V
of these Bylaws, an outstanding certificate for the number of shares involved
shall be surrendered for cancellation before a new certificate is issued
therefor.
Section 3. Record Date. In order that the Corporation may determine the
-----------
stockholders entitled to notice of, or to vote at, any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion, or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors and which record
date: (i) in the case of the determination of stockholders entitled to vote at
any meeting of stockholders or adjournment thereof, shall, unless otherwise
required by law, not be more than sixty (60) nor less than ten (10) days before
the event of such meeting and (ii) in the case of any other action, shall not be
more than sixty (60) days prior to such other action. If no record date is
fixed: (x) the record date for determining stockholders entitled to notice of,
or vote at, a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held and (y) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of, or to vote at, a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates. In the event of the
--------------------------------------
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
Section 5. Regulations. The issue, transfer, conversion and registration
-----------
of certificates of stock shall be governed by such other regulations as the
Board of Directors may establish.
ARTICLE VI
NOTICES
Section 1. Notices. Except as otherwise specifically provided herein or
-------
required by law, all notices required to be given to any stockholder, director,
officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the United States mails, postage paid, or by sending such notice by
prepaid telegram or mailgram. Any such notice shall be addressed to such
stockholder, director, officer, employee or agent at his or her last known
address as the same appears on the books of the Corporation. If mailed, notice
is given when deposited in the United States mail, postage prepaid, directed to
the stockholder, director, officer, employee or agent at his, her or its address
as it appears on the records of the Corporation.
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Section 2. Waivers. A written waiver of any notice, signed by a
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stockholder, director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, director, officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures. In addition to the provisions for use of
--------------------
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 2. Corporate Seal. The Board of Directors may provide a suitable
--------------
seal, containing the name of the Corporation, which seal shall be in the charge
of the Secretary. If and when so directed by the Board of Directors or a
committee thereof, duplicates of the seal may be kept and used by the Chief
Financial Officer or by an Assistant Secretary.
Section 3. Reliance Upon Books, Reports and Records. Each director, each
----------------------------------------
member of any committee designated by the Board of Directors, and each officer
of the Corporation shall, in the performance of his/her duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation, including reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser
selected with reasonable care.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be as
-----------
fixed by the Board of Directors.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification. Each person who was or is made a
------------------------
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director or executive officer of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director or executive officer or in any other capacity
while serving as a director or executive officer, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by Delaware Law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said Law permitted the Corporation
to provide prior to such amendment) against all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties,
amounts paid or to be paid in settlement and amounts expended in seeking
indemnification granted to such person under applicable law, this Bylaw or any
agreement with the Corporation) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director or executive officer and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in Section 2 of this Article VIII, the Corporation
shall indemnify any such person seeking indemnity in connection with an action,
suit or proceeding (or part thereof) initiated by such person only if such
action, suit or proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. Such right shall be a contract right and shall
include the right to be paid by the Corporation expenses incurred in defending
any such proceeding in advance of its final disposition; provided, however,
that, if the Delaware General Corporation Law then so requires, the payment of
such expenses incurred by a director or executive officer of the Corporation in
his or her capacity as a director or executive officer (and not in any other
capacity in which service was or is rendered by such person while a director or
executive officer, including, without limitation, service to an employee benefit
plan) in advance of the final disposition of such proceeding, shall be made only
upon delivery to the Corporation of an undertaking, by or on behalf of such
director or executive officer, to repay all amounts so advanced if it should be
determined ultimately that such director or executive officer is not entitled to
be indemnified under this Section or otherwise. For purposes of this Article
VIII, "executive officer" shall mean the President, Secretary, Chief Financial
Officer, and any other officer who is so designated as such in a resolution of
the Board of Directors that expressly refers to this Article.
Section 2. Right of Claimant to Bring Suit. If a claim under Section 1 is
-------------------------------
not paid in full by the Corporation within thirty (30) days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if such suit is not frivolous or brought in bad faith, the
claimant shall be entitled to be paid
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also the expense of prosecuting such claim. In making such claim, the claimant
shall have the burden of proving that the claimant has met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 3. Nonexclusivity of Rights. The rights conferred on any person
------------------------
in Section 1 and 2 shall not be exclusive of any other right which such persons
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
Section 4. Indemnification Contracts. The Board of Directors is
-------------------------
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article VIII.
Section 5. Insurance. The Corporation shall maintain insurance to the
---------
extent that it is reasonably available and the premium costs are not
disproportionate to the amount of coverage provided, at its expense, to protect
itself and any such director or executive officer of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Effect of Amendment. Any amendment, repeal or modification of
-------------------
any provision of this Article VIII by the stockholders and the directors of the
Corporation shall not adversely affect any right or protection of a director or
executive officer of the Corporation existing at the time of such amendment,
repeal or modification.
Section 7. Settlement of Claims. The Corporation shall not be liable to
--------------------
indemnify any director or executive officer under this Article VIII: (i) for
any amounts paid in settlement of any action or claim effected without the
Corporation's written consent, which consent shall not be unreasonably withheld
or (ii) for any judicial award, if the Corporation was not given a reasonable
and timely opportunity, at its expense, to participate in the defense of such
action.
Section 8. Subrogation. In the event of payment under this Article VIII,
-----------
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the indemnified party who shall execute all papers
required and shall do everything that may be necessary to secure such rights,
including, without limitation, the execution of such documents necessary to
enable the Corporation effectively to bring suit to enforce such rights.
Section 9. No Duplication of Payments. The Corporation shall not be
--------------------------
liable under this Article VIII to make any payment in connection with any claim
made against the director or executive officer to the extent such director or
executive officer has otherwise actually received payment (under any insurance
policy, agreement, vote, or otherwise) of the amounts otherwise indemnifiable
hereunder.
ARTICLE IX
AMENDMENTS
The Board of Directors is expressly empowered to adopt, amend or
repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any
resolution providing for adoption, amendment or repeal is presented to the
Board). The stockholders shall also have power to adopt, amend or repeal the
Bylaws of the Corporation. In addition to any vote of the holders of any class
or series of stock of this Corporation required by law or by these Bylaws, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to adopt, amend
or repeal any provisions of the Bylaws of the Corporation.
Revisions:
February 3, 1993
March 25, 1996
May 20, 1996
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EXHIBIT 10.1.1
VALLICORP HOLDINGS, INC.
AMENDED AND RESTATED
DIRECTORS' STOCK OPTION PLAN
1 Purpose
-------
The purpose of this Directors' Stock Option Plan is to aid in
attracting, developing and maintaining Directors who are capable of assuring the
future success of the Company by providing them with additional incentives to
enlarge their proprietary interests in the Company, to increase their efforts on
behalf of the Company and to continue their association with the Company, as
well as to permit the Company to compensate its consultants and advisors in the
manner provided herein.
2 Definitions
-----------
(a) "Affiliate" shall mean any bank or corporation which is a member
of an unbroken chain of banks or corporations beginning or ending with the
Company, if at the time of the granting of an Option, each such bank or
corporation other than the last in that chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other banks or corporations in the chain.
(b) "Agreement" shall mean the stock option agreement entered into
between the Company and a Participant, pursuant to the Plan, in the form
approved by the Committee.
(c) "Board of Directors" shall mean the Board of Directors of the
Company.
(d) "Committee" shall mean the Compensation Committee of the Board
of Directors, consisting of not fewer than three (3) members, who shall
administer the Plan in accordance with section 5 hereof.
(e) "Company" shall mean ValliCorp Holdings, Inc., a Delaware
corporation, and its successors and assigns.
(f) "Consultant" shall mean a consultant or advisor who provides
bona fide services to the Company or an Affiliate, other than in connection with
the offer or sale of securities in a capital-raising transaction.
(g) "Date of Grant" shall mean the date an Option is granted
pursuant to section 6.01.
(h) "Director" shall mean a member of the Board of Directors of the
Company or of any Affiliate.
(i) "Fair Market Value" shall mean the fair market value of the
Company's Shares, as determined by the Committee using any reasonable method or
methods of valuation.
(j) "Option" shall mean a Participant's rights to purchase Shares
subject to the terms and conditions of the Agreement and the Plan.
(k) "Participant" shall mean any Director or Consultant to whom an
Option is granted by the Committee.
(l) "Plan" shall mean this Directors' Stock Option Plan, as amended
from time to time.
(m) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the
Securities and Exchange Commission pursuant to the Securities and Exchange Act
of 1934, as amended, and any successor Rule thereto.
(n) "Share" shall mean a share of the Company's common stock.
3 Shares Subject to the Plan
--------------------------
Subject to the adjustments provided in Section 12 hereof, the
aggregate maximum number of Shares which are available for the grant of Options
under the Plan is Seven Hundred Fifty Thousand (750,000). Such Shares may be, in
whole or in part, as the Board of Directors shall determine from time to time,
previously
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issued Shares that shall have been reacquired by the Company or authorized but
unissued Shares, whether now or hereafter authorized. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full, the unused Shares subject thereto shall again be available
for other Options to be granted under the Plan.
4 Effective Date
--------------
The Plan first became effective on November 30, 1989, subject to
approval by the shareholders of the Company received on May 21, 1990.
5 Administration
--------------
5.1 The Plan shall be administered by a Committee consisting of not
fewer than three (3) members who shall be appointed from time to time by the
Board of Directors.
5.2 If no Committee has been appointed by the Board of Directors or
the Committee has been terminated by the Board of Directors, each reference
herein to the Committee shall be deemed to refer to the Board of Directors
(unless the context otherwise requires) until such time, if ever, that a
Committee is appointed by the Board of Directors.
5.3 Subject to the provisions of the Plan and relevant law, the
Committee shall have complete authority in its sole discretion: (i) to select
the Participants in the Plan; (ii) to specify the purchase price and terms of
payment, subject to section 7 hereof, and number of the Shares, subject to
section 3 hereof, covered by Options; (iii) to set the time when Options shall
be granted; (iv) to determine the term of the Options granted hereunder; (v) to
interpret the Plan; (vi) to prescribe, amend and rescind rules and regulations
relating to the Plan; (vii) to specify and amend the terms and provisions of
Agreements; (viii) to amend the Plan to conform with relevant law; (ix) to
prescribe any restrictions with respect to the Shares covered by any Option; and
(x) to make all other determinations and to do all other acts deemed necessary
or advisable for the administration of the Plan. The Committee may in its sole
discretion specify a different Agreement for each Participant; provided,
however, that any Agreement adopted by the Committee shall conform with the
terms of the Plan. The Committee shall report to the Board of Directors the
names of the Participants granted Options, the number of Shares covered thereby
and the terms and conditions thereof. The Committee's determination on the
foregoing matters shall be conclusive.
5.4 No member of the Committee or the Board of Directors shall be
liable for any action or determination with respect to the Plan or Agreement
made in good faith. In addition to such other rights of indemnification as they
may have as Directors or as members of the Committee, the Company will
indemnify, to the fullest extent permitted by law, the members of the Committee
and the Board of Directors against the reasonable expenses, including attorneys'
fees, actually and reasonably incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal thereof, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any Option granted hereunder, and
against all amounts reasonably paid by them in settlement thereof or paid by
them in satisfaction of a judgment in any such action, suit or proceeding, if
such members acted in good faith and in a manner which they believed to be in,
and not opposed to, the best interests of the Company.
5.5 The Committee shall select one of its members as its chairman
and shall hold its meetings at such times and places as it shall deem advisable.
A majority of the members of the Committee shall constitute a quorum. All
determinations of the Committee shall be made by not less than a majority of its
members. A decision or determination reduced to writing and signed by a majority
of the members shall be fully as effective as if it had been made by a majority
vote at a meeting duly called and held. The Committee may appoint a secretary,
who shall keep minutes of its meetings, and shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
5.6 The Committee may designate the Secretary of the Company or any
other employees of the Company to assist it in the administration of the Plan
and may grant authority to such persons to execute Agreements or other documents
on the Company's behalf.
6 Eligibility
-----------
6.1 Options may be granted to any Director or Consultant. Options
shall be evidenced by an Agreement that specifies the terms and conditions of
the grant. In determining the individuals to whom Options shall be granted and
the number of Shares to be covered thereby, the Committee may consider the
nature of the services rendered by the Director or the Consultant, the present
and potential contributions of such
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Director or Consultant to the success of the Company and such other factors as
the Committee in its sole discretion shall deem relevant. A Participant who has
been granted Options under the Plan or under any other stock option plans of the
Company may be granted additional Options if the Committee shall so determine,
subject to the limitations set forth in this Section 6.
6.2 Nothing contained herein shall be construed to limit the
Company's right to grant or assume options or other rights (other than under the
Plan) in connection with any acquisition by purchase, lease, merger,
consolidation or otherwise of the business and assets of any corporation, firm
or association, including without limitation the right to grant options to
directors of such acquired corporation, firm or association who become Directors
of the Company, or for other proper Company purposes. The terms or conditions
of any such options or other rights may vary from the terms and conditions set
forth in this Plan to such extent as the Committee may deem appropriate (but
only to the extent consistent with the requirements of Rule 16b-3).
7 Price
-----
7.1 The purchase price of the Shares covered by each Option shall be
determined by the Committee and set forth in the Agreement.
7.2 All Shares acquired pursuant to the Plan must be fully paid for
by the Participant in cash or by tender of Shares (the value of which shall be
the Fair Market Value of such Shares as of the date of exercise of the Option),
or a combination thereof. All Shares tendered by a Director to pay for Shares
acquired pursuant to the exercise of an Option granted under the Plan shall have
been beneficially owned by the Director for a period of not less than six (6)
months prior to the time of such tender.
8 Exercise of Options
-------------------
8.1 Options granted to a Director hereunder shall be exercisable in
increments of twenty percent (20%) per year for each year in which a Director
attends at least eighty percent (80%) of all regularly scheduled meetings of the
Board of Directors (and any committees thereof of which the Director is a
member), or as otherwise specified in the Agreement, by the delivery to the
Company of written notice. Any Option granted to a Director that does not
become exercisable hereunder by the date five (5) years from the Date of Grant
of such Option shall not thereafter become exercisable and no cash, Shares or
other property shall be exchanged therefor. Options granted to a Consultant
hereunder shall be exercisable as determined by the Committee and as specified
in the Agreement with the Consultant. After an Option becomes exercisable, a
Participant may exercise such Option at any time or from time to time during the
term thereof with respect to any or all Shares that have become available for
purchase thereunder; provided, however, that in no event shall an Option be
exercised for less than One Hundred (100) Shares, unless such lesser amount is
the entire remaining amount of Shares available under that Option, and in no
event shall fractional Shares be issued.
8.2 Except as determined by the Committee, and subject to section 11
hereof, no Option granted to a Director may be exercised unless the Participant
holding the Option is a Director on the date of such exercise. No Participant
shall have any of the rights of a shareholder with respect to the Shares covered
by an Option until such Shares have been issued to such Participant.
8.3 As a condition of exercising any Option granted hereunder, the
Company may require any Participant or his legal representative, heir, legatee
or distributee, as appropriate, to give written assurances, in form and
substance satisfactory to the Company, to the effect that such person is
acquiring the Shares subject to the Option for his own account for investment
purposes and not with any present intention of selling or further distributing
them; provided, however, that upon the registration of the Shares subject to any
Option with the Securities and Exchange Commission, any such investment
representation previously required of a Participant or his successor shall
become void.
8.4 All Options granted under the Plan are subject to the
requirements that: (i) if at any time the Board of Directors or the Committee
shall determine in its discretion that the listing or qualification of the
Shares subject thereto on any securities exchange or under any applicable law,
or the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of or in connection with the issuance of Shares under
the Option, the Option may not be exercised in whole or in part unless such
listing, qualification, consent or approval shall have been effected or obtained
free of any condition not acceptable to the Board of Directors or the Committee,
and (ii) if at any time the Board of Directors or the Committee shall determine
in its discretion that the exercise of any Option may violate any federal or
state securities law, rule or regulation, the right of the Participant to
exercise such Option shall be suspended, and the Option may not be exercised in
whole or in part, until the Board of Directors or the Committee is reasonably
satisfied that such a violation will not occur.
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9 Nontransferability
------------------
Options granted under the Plan shall not be transferable other than
by will or the laws of descent and distribution, and during the lifetime of a
Participant, an Option may be exercised only by the Participant or his or her
guardian or legal representative.
10 No Effect on Employment Status
------------------------------
Options granted to a Director under the Plan shall not be affected
by any change in a Participant's duties or position so long as the Participant
continues to be a Director. Nothing in the Plan or in any Option granted to a
Director pursuant thereto shall confer on any Participant any right to continue
as a Director or affect in any way the rights of the Company with regard to the
Participant's status as a Director at any time.
11 Termination of Director Status, Death or Disability of a Participant
--------------------------------------------------------------------
11.1 In the event that a Director ceases to be a Director for any
reason other than by death or permanent illness or disability ("Disability"),
all unexpired Options granted to such Director may be exercised within three (3)
months and one day after the date that the participant ceases to be a Director,
but only to the extent that any such Options were otherwise exercisable at the
date of cessation of such Participant's duties as a Director. All other
unexpired Options granted to such Director immediately terminate on such date.
11.2 If a Participant shall die while he is a Director, or if a
Participant shall cease to be a Director because of Disability, such
Participant's Options may be exercised by his legatees under his will, or by his
personal representatives, or by his distributees, or by him, as the case may be,
at any time within twelve (12) months after the date such Participant ceased to
be a Director, but in no event after the expiration of the term of the Option
specified in the Agreement therefor, and only to the extent that any such Option
is exercisable within the period of three (3) months and one day following the
date such Participant ceased to be a Director. In no event may an Option be
exercised pursuant to this section 11.02 prior to the date it would be otherwise
exercisable.
11.3 Notwithstanding any other provision of this Section 11, for any
Director who has served as such for the Company or any Affiliate, or for any
predecessor thereof, for a continuous period of not less than five (5) years
prior to the time such Director ceases to be a Director for any reason other
than death, all unexpired Options granted to such Director, whether exercisable
at the time the Director ceases to be a Director or not, shall immediately
become exercisable and shall remain exercisable for three (3) months and one day
after the date that the Director ceased to be a Director of the Company.
12 Adjustment of and Changes in the Shares
---------------------------------------
12.1 In the event the outstanding Shares as presently constituted
shall be changed into or exchanged for a different number or kind of shares of
stock or other securities of the Company or of another corporation (whether by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, split-up, combination of shares, or otherwise), or if the
number of the outstanding Shares shall be increased through the payment of a
stock dividend, the Board of Directors may substitute for or add to each Share
theretofore appropriated or thereafter subject, or which may become subject, to
an Option, the number and kind of shares of stock or other securities into which
each outstanding Share shall be so changed, or for which each Share shall be
exchanged, or to which each such Share shall be entitled, as the case may be.
In addition, the Board of Directors may make appropriate adjustment in the
number and kind of shares as to which outstanding Options, or portions thereof
then unexercised, shall be exercisable, so that the Participant's proportionate
interest in the Company by reason of his rights under unexercised portions of
such Options shall be maintained as before the occurrence of such event. Any
such adjustment in outstanding Options shall be made without change in the total
price to the unexercised portion of the Option and with a corresponding
adjustment in the Option price per share.
12.2 In the event of sale, dissolution or liquidation of the
Company, a merger or consolidation in which the Company is not the surviving or
resulting corporation, or a merger or consolidation in which the Company becomes
the subsidiary of another person or entity, the Board of Directors shall have
the power to cause the termination of every Option outstanding hereunder, except
that the surviving, resulting or parent corporation may, in its absolute and
uncontrolled discretion, tender an option or options to purchase its shares on
its terms and conditions, both as to the number of shares and otherwise;
provided, however, that in all events the Participant shall have the right
immediately prior to such sale, dissolution, liquidation, merger or
consolidation to notification thereof as soon as practicable and, thereafter, to
exercise the Participant's Options and purchase Shares subject thereto to the
extent of any unexercised portion of the Options, regardless of any vesting
provisions hereunder. This right of exercise shall be conditioned upon the
execution of a final plan of dissolution or liquidation or a definitive
agreement of merger or consolidation and upon the Company's receipt of written
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notice of such exercise at least five (5) days prior to such sale, dissolution,
liquidation, merger, or consolidation. For purposes of this paragraph, the
Company shall be deemed to be a "subsidiary" of any person or entity that owns
or controls, directly or indirectly, more than fifty percent (50%) of the
outstanding Shares of the Company.
12.3 In the event of an offer by any person or entity to all
shareholders of the Company to purchase more than fifty percent (50%) of the
Shares outstanding immediately prior to such offer (or shares of stock or other
securities which shall be substituted for such Shares or to which such Shares
shall be adjusted as provided in this section 12), any Participant shall have
the right upon the commencement of such offer to exercise any Option and
purchase Shares subject thereto to the extent of any unexercised or unvested
portion of such Option.
12.4 No right to purchase fractional Shares shall result from any
adjustment in Options pursuant to this section 12. In case of any such
adjustment, the number of Shares subject to the Option shall be rounded down to
the nearest whole Share. Notice of any adjustment shall be given by the Company
to each Participant and such adjustment (whether or not such notice is given)
shall be effective and binding for all purposes of the Plan.
12.5 To the extent any adjustments required pursuant to this section
12 relate to stock or securities of the Company, such adjustments shall be made
by the Board of Directors or the Committee, whose determination in that respect
shall be final, binding, and conclusive.
12.6 Except as expressly provided in this section 12, a Participant
shall have no rights by reason of any of the following events: (i) subdivision
or consolidation of shares of stock of any class; (ii) payment of any stock
dividend; (iii) any other increase or decrease in the number of shares of stock
of any class; or (iv) any dissolution, liquidation, merger, consolidation, or
spin-off of assets or stock of another corporation. Any issue by the Company of
shares of stock of any class, or securities convertible into shares of any
class, shall not affect the number or price of Shares subject to any Option, and
no adjustment by reason thereof shall be made.
12.7 The grant of an Option pursuant to the Plan shall not affect
in any way the right or power of the Company to make adjustments,
reclassifications, recapitalizations, reorganizations, or changes of its capital
or business structure or to merge or to consolidate or to dissolve, liquidate or
sell, or transfer all or any part of its business or assets.
13 Amendment of the Plan
---------------------
13.1 The Committee may amend the Plan at any time, and from time to
time; provided, however, that the approval of the affirmative vote of holders of
a majority of the Company's shares present or represented at a duly convened
meeting of shareholders at which a quorum is present shall be required for any
amendment that is provided for in Rule 16b-3.
13.2 Rights and obligations under any Option granted before an
amendment of the Plan became or becomes effective shall not be altered or
impaired by such an amendment except upon written consent to the specific
amendment by the Participant to whom the Option was granted.
14 Termination or Suspension of the Plan
-------------------------------------
14.1 The Board of Directors or the Committee may suspend or
terminate the Plan at any time. Unless sooner terminated, the Plan shall
terminate on November 30, 1999. An Option may not be granted while the Plan is
suspended or after it is terminated. Any suspension of the Plan shall not serve
to extend the termination date thereof.
14.2 Subject to the effect of sections 8 and 12 above, all rights
and obligations under any Option granted while the Plan is in effect shall not
be altered or impaired by the suspension or termination of the Plan, except upon
written consent to the specific alteration or impairment by the Participant to
whom the Option was granted.
15 Consent of Participants
-----------------------
Every Participant who accepts an Option under the Plan shall be
bound by the terms and conditions of the Plan as in effect on the Date of Grant
and his acceptance thereof may be made only by his execution of an Agreement.
The grant of any Option under the Plan shall become void if the Participant
involved
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shall fail to execute and deliver a copy of the Agreement to the Company within
thirty (30) days after the Agreement is sent by the Company to such Participant.
16 Deliveries of Certificates and Resale
-------------------------------------
Certificates for the Shares acquired through the exercise of an
Option shall be delivered to the Participant involved as soon as possible after
such exercise and the Company's receipt of payment for such Shares. Such
certificates shall be subject to such legends, stop-transfer instructions, or
other conditions as counsel for the Company shall recommend in order to ensure
the Company's compliance with all applicable state and federal laws, rules and
regulations. There is no assurance that the Participant may sell the Shares
acquired through the exercise of an Option until such Shares have been
registered or qualified for such sale with the Securities and Exchange
Commission and any appropriate state agencies. The Company is not obligated to
so register or qualify such Shares.
17 Creditors
---------
The interests of any Participant under the Plan are not subject to
the claims of creditors and may not, in any way, be assigned, alienated or
encumbered except as provided in Section 9.
18 Certain Conflicts
-----------------
If any of the terms or provisions of this Plan conflict with the
requirements of Rule 16b-3, then such terms or provisions shall be deemed
inoperative to the extent they so conflict with the requirements of Rule 16b-3.
If this Plan does not contain any provision required to be included herein under
Rule 16b-3, such provision shall be deemed to be incorporated herein with the
same force and effect as if such provision had been set forth herein.
19 Construction
------------
As used herein, the singular shall include the plural, and vice
versa, and the masculine shall include the feminine.
20 Governing Law
-------------
The interpretation and performance of the Plan shall be governed by
the laws of the State of Delaware.
Includes changes by First Amendment, June 30, 1994, Second Amendment, April 10,
1995, and Third Amendment, March 14, 1996.
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EXHIBIT 10.1.2
VALLICORP HOLDINGS, INC.
AMENDED AND RESTATED
KEY EMPLOYEES' STOCK OPTION PLAN
1 Purpose
-------
The purpose of this Key Employees' Stock Option Plan is to aid in
attracting, developing and maintaining key Employees who are capable of assuring
the future success of the Company by providing them with additional incentives
to enlarge their proprietary interests in the Company, to increase their efforts
on behalf of the Company and to continue their association with the Company.
2 Definitions
-----------
(a) "Affiliate" means any bank or corporation which is a member of
an unbroken chain of banks or corporations beginning or ending with the Company,
if at the time of the granting of an Option, each such bank or corporation other
than the last in that chain owns stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
banks or corporations in the chain.
(b) "Agreement" shall mean the stock option agreement entered into
between the Company and a Participant, pursuant to the Plan, in the form
approved by the Committee.
(c) "Board of Directors" shall mean the Board of Directors of the
Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall mean the Compensation Committee of the Board
of Directors, consisting of not fewer than three (3) members, which shall
administer the Plan in accordance with section 5 hereof.
(f) "Company" shall mean ValliCorp Holdings, Inc., a Delaware
corporation, and its successors and assigns.
(g) "Date of Grant" shall mean the date an Option is granted
pursuant to section 7 hereof.
(h) "Director" shall mean a member of the Board of Directors of the
Company or of any Affiliate.
(i) "Employee" shall mean any full-time, salaried employee or
officer of the Company or of any Affiliate.
(j) "Fair Market Value" shall mean the fair market value of the
Company's Shares, as determined by the Committee using any reasonable method or
methods of valuation.
(k) "Incentive Option" shall mean an Option granted pursuant to the
provisions of section 7 hereof that satisfies the requirements for incentive
stock options contained in section 422 of the Code.
(l) "Nonqualified Option" shall mean an Option granted pursuant to
the provisions of section 7 hereof other than an Incentive Option.
(m) "Option" shall mean a Participant's right to purchase Shares
subject to the terms and conditions of the Agreement and the Plan.
(n) "Participant" shall mean any Employee to whom an Option is
granted by the Committee.
(o) "Plan" shall mean this Key Employees' Stock Option Plan, as
amended from time to time.
(p) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission pursuant to the Securities and Exchange Act of 1934, as
amended, and any successor Rule thereto.
88
<PAGE>
(q) "Share" shall mean a share of the Company's common stock.
3 Shares Subject to the Plan
--------------------------
Subject to adjustments as provided in section 14 hereof, the
aggregate maximum number of Shares which are available for the grant of Options
under the Plan is One Million Five Hundred Fifty Thousand (1,550,000). Such
Shares may be, in whole or in part, as the Board of Directors shall determine
from time to time, previously issued Shares that shall have been reacquired by
the Company or authorized but unissued Shares, whether now or hereafter
authorized. If any Option granted under the Plan shall expire or terminate for
any reason without having been exercised in full, the unused Shares subject
thereto shall again be available for other Options to be granted under the Plan.
4 Effective Date
--------------
The Plan first became effective on November 30, 1989, subject to
approval by the shareholders of the Company received on May 21, 1990.
5 Administration
--------------
5.1 The Plan shall be administered by a Committee consisting of not
fewer than three (3) members who shall be appointed from time to time by the
Board of Directors.
5.2 If no Committee has been appointed by the Board of Directors or
the Committee has been terminated by the Board of Directors, each reference
herein to the Committee shall be deemed to refer to the Board of Directors
(unless the context otherwise requires) until such time, if ever, that a
Committee is appointed by the Board of Directors.
5.3 Subject to the provisions of the Plan and relevant law, the
Committee shall have complete authority in its sole discretion: (i) to select
the Participants in the Plan; (ii) to specify the purchase price and terms of
payment, subject to section 8 hereof, and number of the Shares, subject to
sections 3 and 6 hereof, covered by Options; (iii) to set the time when Options
shall be granted; (iv) to determine the term, subject to section 9 hereof, and
the vesting schedule, if any, of the Options granted hereunder; (v) to interpret
the Plan; (vi) to prescribe, amend and rescind rules and regulations relating to
the Plan; (vii) to specify and amend the terms and provisions of Agreements;
(viii) to amend the Plan to conform with relevant law; (ix) to prescribe any
restrictions with respect to the Shares covered by any Option; and (x) to make
all other determinations and to do all other acts deemed necessary or advisable
for the administration of the Plan. The Committee may in its sole discretion
specify a different Agreement for each Participant; provided, however, that any
Agreement adopted by the Committee shall conform with the terms of the Plan.
The Committee shall report to the Board of Directors the names of the
Participants granted Options, the number of Shares covered thereby and the terms
and conditions thereof. The Committee's determination on the foregoing matters
shall be conclusive.
5.4 No member of the Committee or the Board of Directors shall be
liable for any action or determination with respect to the Plan or Agreement
made in good faith. In addition to such other rights of indemnification as they
may have as Directors or as members of the Committee, the Company will
indemnify, to the fullest extent permitted by law, the members of the Committee
and the Board of Directors against the reasonable expenses, including attorneys'
fees, actually and reasonably incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal thereof, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any Option granted hereunder, and
against all amounts reasonably paid by them in settlement thereof or paid by
them in satisfaction of a judgment in any such action, suit or proceeding, if
such members acted in good faith and in a manner which they believed to be in,
and not opposed to, the best interests of the Company.
5.5 The Committee shall select one of its members as its chairman
and shall hold its meetings at such times and places as it shall deem advisable.
A majority of the members of the Committee shall constitute a quorum. All
determinations of the Committee shall be made by not less than a majority of its
members. A decision or determination reduced to writing and signed by a majority
of the members shall be fully as effective as if it had been made by a majority
vote at a meeting duly called and held. The Committee may appoint a secretary,
who shall keep minutes of its meetings, and shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
89
<PAGE>
5.6 The Committee may designate the Secretary of the Company or any
other employees of the Company to assist it in the administration of the Plan
and may grant authority to such persons to execute Agreements or other documents
on the Company's behalf.
6 Eligibility
-----------
6.1 Options may be granted to any Employee, including any Employee
who is also a Director. Options shall be evidenced by an Agreement that
specifies the terms and conditions of the grant. In determining the Employees
to whom Options shall be granted and the number of Shares to be covered thereby,
the Committee may consider the nature of the services rendered by the Employees,
the present and potential contributions of such Employees to the success of the
Company and such other factors as the Committee in its sole discretion shall
deem relevant. A Participant who has been granted Options under the Plan or
under any other stock option plans of the Company may be granted additional
options if the Committee shall so determine, subject to the limitations set
forth in this section 6.
6.2 Nothing contained herein shall be construed to limit the
Company's right to grant or assume options or other rights (other than under the
Plan) in connection with any acquisition by purchase, lease, merger,
consolidation or otherwise of the business and assets of any corporation, firm
or association, including without limitation the right to grant options to
directors or employees of such acquired corporation, firm or association who
become Directors or Employees, or for other proper Company purposes. The terms
or conditions of any such options or other rights may vary from the terms and
conditions set forth in this Plan to such extent as the Committee may deem
appropriate (but only to the extent consistent with the requirements of Rule
16b-3).
6.3 The maximum number of Shares with respect to which Options may
be granted to any Employee under this Plan during any two calendar year period
is 200,000 Shares.
7 Grant of Incentive Options and Nonqualified Options
---------------------------------------------------
Options granted hereunder to Employees shall be either Incentive
Options or Nonqualified Options, as designated by the Committee. If, with
regard to any Incentive Options, the Fair Market Value of Shares with respect to
which Options are exercisable for the first time during any calendar year
exceeds One Hundred Thousand Dollars ($100,000), such Options will be designated
as Nonqualified Options at the date of exercise.
8 Price
-----
8.1 The purchase price of the Shares covered by each Option shall
be determined by the Committee and set forth in the Agreement, provided that the
price shall be at least equal to the Fair Market Value of the Shares on the Date
of Grant.
8.2 All Shares acquired pursuant to the Plan must be fully paid for
by the Participant in cash or by tender of Shares (the value of which shall be
the Fair Market Value of such Shares as of the date of exercise of the Option),
or a combination thereof. All Shares tendered by the Participant to pay for
Shares acquired pursuant to the exercise of an Option granted under the Plan
shall have been beneficially owned by the Participant for a period of not less
than six (6) months prior to the time of such tender.
8.3 The Company's obligation to deliver Shares pursuant to the
terms of any Option granted hereunder shall be subject to the satisfaction of
applicable federal, state and local tax withholding requirements. To the extent
provided in the applicable Agreement and in accordance with rules prescribed by
the Committee, a Participant may satisfy any such withholding tax obligation by
any of the following means or by a combination of such means: (a) tendering a
cash payment, (b) authorizing the Company to withhold Shares from the Shares
otherwise issuable to the Participant, or (c) delivering to the Company already
owned and unencumbered Shares.
9 Term
----
The Committee shall determine the term of each Option and such term
shall be set forth in the Agreement; provided that in no event shall the term of
an Incentive Option exceed ten (10) years from the Date of Grant of the
Incentive Option; and provided further that the term of an Incentive Option
granted to an Employee who owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company may not exceed five
(5) years from the Date of Grant of the Incentive Option.
90
<PAGE>
10 Exercise of Options
-------------------
10.1 The Committee shall have complete authority in its sole
discretion to prescribe in any Agreement that an Option will be exercisable in
full at any time, or from time to time, during the term thereof, or to provide
for exercise in such installments and at such times during such term as the
Committee may determine.
10.2 Except as determined by the Committee, and subject to section
13 hereof, no Option may be exercised unless the Participant holding the Option
is an Employee on the date of such exercise. No Participant shall have any of
the rights of a shareholder with respect to the Shares covered by an Option
until such Shares have been issued to such Participant.
10.3 All Options granted under the Plan are subject to the
requirements that: (i) if at any time the Board of Directors or the Committee
shall determine in its discretion that the listing or qualification of the
Shares subject thereto on any securities exchange or under any applicable law,
or the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of or in connection with the issuance of Shares under
the Option, the Option may not be exercised in whole or in part unless such
listing, qualification, consent or approval shall have been effected or obtained
free of any condition not acceptable to the Board of Directors or the Committee,
and (ii) if at any time the Board of Directors or the Committee shall determine
in its discretion that the exercise of any Option may violate any federal or
state securities law, rule or regulation, the right of the Participant to
exercise such Option shall be suspended, and the Option may not be exercised in
whole or in part, until the Board of Directors or the Committee is reasonably
satisfied that such a violation will not occur.
11 Nontransferability
------------------
Options granted under the Plan shall not be transferable other than
by will or the laws of descent and distribution, and during the lifetime of a
Participant, an Option may be exercised only by the Participant or his or her
guardian or legal representative.
12 No Effect on Employment Status
------------------------------
Options granted under the Plan shall not be affected by any change
in a Participant's duties or position so long as the Participant continues to be
an employee of the Company. Nothing in the Plan or in any Option granted
pursuant thereto shall confer on any Participant any right to continue in the
employment of the Company or affect in any way the rights of the Company to
terminate the Participant's employment at any time.
13 Termination of Employment, Death or Disability of a Participant
---------------------------------------------------------------
13.1 If a Participant's employment is terminated for deliberate,
wilful or gross misconduct, as determined by the Company in its sole discretion
(for "Cause"), all unexpired Options granted to such Participant shall cease
immediately upon his receipt of notice of such termination; provided, however,
that the Committee may, in its sole discretion, prior to the expiration of
thirty (30) days from such termination, by written notice to the Employee,
determine that any such Incentive Options that were exercisable on the date of
such termination of employment shall not terminate pursuant to this section 13
until the expiration of three (3) months from the date of such termination of
employment, and any such Nonqualified Options that were exercisable on the date
of such termination of employment shall not terminate pursuant to this section
13 until the expiration of three (3) months and one day from the date of such
termination of employment. In no event may any Options be exercised after the
terms of the respective Options have expired.
13.2 In the event that a Participant terminates employment for any
reason other than for Cause or by death or permanent illness or disability
("Disability"), all unexpired Incentive Options may be exercised within three
(3) months after the date that the Participant ceases to be an employee of the
Company, and all unexpired Nonqualified Options may be exercised within three
(3) months and one day after the date that the Participant ceased to be an
employee of the Company, but in either case only to the extent that any such
Options were otherwise exercisable at the date of such termination of
employment. All other unexpired Options granted to such Participant immediately
terminate on such date.
13.3 If a Participant shall die while he is employed by the
Company, or the employment of a Participant is terminated because of Disability,
such Participant's Options may be exercised by his legatees under his will, or
by his personal representatives, or by his distributees, or by him, as the case
may be, at any time within twelve (12) months after his termination of
employment, but in no event after the expiration of the term of the Option
specified in the Agreement therefor, and only to the extent that any such Option
is exercisable within the
91
<PAGE>
three (3) month period following such Participant's termination of employment.
In no event may an Option be exercised pursuant to this section 13.03 prior to
the date it would be otherwise exercisable.
14 Adjustment of and Changes in the Shares
---------------------------------------
14.1 In the event the outstanding Shares as presently constituted,
shall be changed into or exchanged for a different number or kind of shares of
stock or other securities of the Company or of another corporation (whether by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, split-up, combination of shares, or otherwise), or if the
number of the outstanding Shares shall be increased through the payment of a
stock dividend, the Board of Directors may substitute for or add to each Share
theretofore appropriated or thereafter subject or which may become subject to an
Option, or the number of Shares set forth in Section 6.03 hereof, the number and
kind of shares of stock or other securities into which each outstanding Share
shall be so changed, or for which each Share shall be exchanged, or to which
each such Share shall be entitled, as the case may be. In addition, the Board
of Directors may make appropriate adjustment in the number and kind of shares as
to which outstanding Options, or portions thereof then unexercised, shall be
exercisable, so that any Participant's proportionate interest in the Company by
reason of his rights under unexercised portions of such Options shall be
maintained as before the occurrence of such event. Any such adjustment in
outstanding Options shall be made without change in the total price to the
unexercised portion of the Option and with a corresponding adjustment in the
Option price per share.
14.2 In the event of sale, dissolution or liquidation of the
Company, a merger or consolidation in which the Company is not the surviving or
resulting corporation, or a merger or consolidation in which the Company becomes
the subsidiary of another person or entity, the Board of Directors shall have
the power to cause the termination of every Option outstanding hereunder, except
that the surviving, resulting or parent corporation may, in its absolute and
uncontrolled discretion, tender an option or options to purchase its shares on
its terms and conditions, both as to the number of shares and otherwise;
provided, however, that in all events the Participant shall have the right
immediately prior to such sale, dissolution, liquidation, merger or
consolidation to notification thereof as soon as practicable and, thereafter, to
exercise the Participant's Options and purchase Shares subject thereto to the
extent of any unexercised portion of the Options, regardless of any vesting
provisions hereunder. In the case of Options constituting Incentive Options,
such Options shall become exercisable pursuant to the preceding sentence
notwithstanding the limitation set forth in section 7 hereof. This right of
exercise shall be conditioned upon the execution of a final plan of dissolution
or liquidation or a definitive agreement of merger or consolidation and upon the
Company's receipt of written notice of such exercise at least five (5) days
prior to such sale, dissolution, liquidation, merger, or consolidation. For
purposes of this paragraph, the Company shall be deemed to be a "subsidiary" of
any person or entity that owns or controls, directly or indirectly, more than
fifty percent (50%) of the outstanding shares of the Company.
14.3 In the event of an offer by any person or entity to all
shareholders of the Company to purchase more than fifty percent (50%) of the
Shares outstanding immediately prior to such offer (or shares of stock or other
securities which shall be substituted for such Shares or to which such Shares
shall be adjusted as provided in this section 14), any Participant shall have
the right upon the commencement of such offer to exercise any Option and
purchase Shares subject thereto to the extent of any unexercised or unvested
portion of such Option. In the case of Options constituting Incentive Options,
such Options shall become exercisable pursuant to the preceding sentence
notwithstanding the limitation set forth in section 7 hereof.
14.4 No right to purchase fractional Shares shall result from any
adjustment in Options pursuant to section 14. In case of any such adjustment,
the number of Shares subject to the Option shall be rounded down to the nearest
whole Share. Notice of any adjustment shall be given by the Company to each
Participant and such adjustment (whether or not such notice is given) shall be
effective and binding for all purposes of the Plan.
14.5 To the extent any adjustments required pursuant to this
section 14 relate to stock or securities of the Company, such adjustments shall
be made by the Board of Directors or the Committee, whose determination in that
respect shall be final, binding and conclusive.
14.6 Except as expressly provided in this section 14, a Participant
shall have no rights by reason of any of the following events: (i) subdivision
or consolidation of shares of stock of any class; (ii) payment of any stock
dividend; (iii) any other increase or decrease in the number of shares of stock
of any class; or (iv) any dissolution, liquidation, merger, consolidation, or
spin-off of assets or stock of another corporation. Any issue by the Company of
shares of stock of any class, or securities convertible into shares of any
class, shall not affect the number or price of Shares subject to any Option, and
no adjustment by reason thereof shall be made.
92
<PAGE>
14.7 The grant of an Option pursuant to the Plan shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, recapitalizations, reorganizations or changes of its capital
or business structure or to merge or to consolidate or to dissolve, liquidate or
sell, or transfer all or any part of its business or assets.
15 Amendment of the Plan
---------------------
15.1 The Committee may amend the Plan at any time, and from time to
time; provided, however, that the approval of the affirmative vote of holders of
a majority of the Company's shares present or represented at a duly convened
meeting of shareholders at which a quorum is present shall be required for any
amendment that is provided for in Rule 16b-3.
15.2 Rights and obligations under any Option granted before an
amendment of the Plan became or becomes effective shall not be altered or
impaired by such an amendment except upon written consent to the specific
amendment by the Participant to whom the Option was granted.
16 Termination or Suspension of the Plan
-------------------------------------
16.1 The Board of Directors or the Committee may suspend or
terminate the Plan at any time. Unless sooner terminated, the Plan shall
terminate on the day preceding the tenth (10th) anniversary of the date on which
the Plan, as amended, is adopted by the Board of Directors or approved by the
shareholders, whichever first occurs. An Option may not be granted while the
Plan is suspended or after it is terminated. Any suspension of the Plan shall
not serve to extend the termination date thereof.
16.2 Subject to the effect of sections 10 and 13 above, all rights
and obligations under any Option granted while the Plan is in effect shall not
be altered or impaired by the suspension or termination of the Plan, except upon
written consent to the specific alteration or impairment by the Participant to
whom the Option was granted.
17 Consent of Participants
-----------------------
Every Participant who accepts an Option under the Plan shall be
bound by the terms and conditions of the Plan as in effect on the Date of Grant
and his acceptance thereof may be made only by his execution of an Agreement.
The grant of any Option under the Plan shall become void if the Participant
involved shall fail to execute and deliver a copy of the Agreement to the
Company within thirty (30) days after the Agreement is sent by the Company to
such Participant.
18 Deliveries of Certificates and Resale
-------------------------------------
Certificates for the Shares acquired through the exercise of an
Option shall be delivered to the Participant involved as soon as possible after
such exercise and the Company's receipt of payment for such Shares. Such
certificates shall be subject to such legends, stop-transfer instructions, or
other conditions as counsel for the Company shall recommend in order to ensure
the Company's compliance with all applicable state and federal laws, rules and
regulations. There is no assurance that the Participant may sell the Shares
acquired through the exercise of an Option until such Shares have been
registered or qualified for such sale with the Securities and Exchange
Commission and any appropriate state agencies. The Company is not obligated to
so register or qualify such Shares.
19 Creditors
---------
The interests of any Participant under the Plan are not subject to
the claims of creditors and may not, in any way, be assigned, alienated or
encumbered except as provided in Section 11.
20 Certain Conflicts
-----------------
If any of the terms or provisions of this Plan conflict with the
requirements of Rule 16b-3, then such terms or provisions shall be deemed
inoperative to the extent they so conflict with the requirements of Rule 16b-3.
If this Plan does not contain any provision required to be included herein under
Rule 16b-3, such provision shall be deemed to be incorporated herein with the
same force and effect as if such provision had been set forth herein.
93
<PAGE>
21 Construction
------------
As used herein, the singular shall include the plural, and vice
versa, and the masculine shall include the feminine.
22 Governing Law
-------------
The interpretation and performance of the Plan shall be governed by
the laws of the State of Delaware.
Includes changes by First Amendment, November 12, 1993, Second Amendment, June
30, 1994, Third Amendment, April 10, 1995 and Fourth Amendment, March 14, 1996.
94
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
------- ------- -------
(In thousands, except
per share amounts)
<S> <C> <C> <C>
Primary:
Weighted average shares outstanding 13,415 13,187 13,004
Net effect of the assumed exercise of stock
options - based on the treasury stock
method using average market price 192 192 248
Assumed conversion of mandatory convertible
subordinated debentures 132 146 150
------- ------- -------
13,739 13,525 13,402
======= ======= =======
Net income $ 9,128 $11,802 $10,451
Add effect on income of converting mandatory
convertible subordinated debentures,
net of related income taxes 41 35 41
------- ------- -------
$ 9,169 $11,837 $10,492
======= ======= =======
Earnings per share $ 0.67 $ 0.88 $ 0.78
======= ======= =======
Fully Diluted:
Weighted average shares outstanding 13,407 13,186 13,009
Net effect of the assumed exercise of stock
options - based on the treasury stock
method using year-end market price 238 193 256
Assumed conversion of all convertible
subordinated debentures 159 80 210
------- ------- -------
13,804 13,559 13,475
======= ======= =======
Net income $ 9,128 $11,802 $10,451
Add effect on income of converting
all subordinated debentures
net of related income taxes 49 45 56
------- ------- -------
$ 9,177 $11,847 $10,507
======= ======= =======
Earnings per share $ 0.66 $ 0.87 $ 0.78
======= ======= =======
</TABLE>
95
<PAGE>
EXHIBIT 13.1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors & Stockholders
El Capitan Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of EL CAPITAN
BANCSHARES, INC. (A CALIFORNIA CORPORATION) AND SUBSIDIARY as of December 31,
1995 and 1994, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also included
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of El Capitan
Bancshares, Inc. and Subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
Grant Thornton LLP
Stockton, California
January 19, 1996
96
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF VALLICORP
(i) ValliWide Bank, a California-chartered bank.
(ii) Commerce Securities Corporation, a California Corporation, a subsidiary
of ValliWide Bank (i) above.
(iii) California Valley Securities Corporation, a California Corporation, a
subsidiary of ValliWide Bank (i) above.
97
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 333-
09181, 33-80029, 333-13057, 333-13045, 333-13055, 33-37935, 33-37934, 33-87652,
and 33-31050 of ValliCorp Holdings, Inc. on Forms S-8 and in Registration
Statement No. 33-80013 of ValliCorp Holdings, Inc. on Form S-3 of our report
dated January 24, 1997, appearing in this Annual Report on Form 10-K of
ValliCorp Holdings, Inc. for the year ended December 31, 1996.
Deloitte & Touche LLP
Fresno, California
March 25, 1997
98
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (File Nos. 33-37935, 33-37934,333-09181, 33-87652, 33-80029, 33-31050,
333-13057, 333-13045, 333-13055) and Form S-3 (File No. 33-80013), appearing in
this Annual Report on Form 10-K of ValliCorp Holdings, Inc. for the year ended
December 31, 1996, of our report dated January 19, 1996 with respect to the
consolidated financial statements of El Capitan National Bancshares, Inc. and
Subsidiary for the years ended December 31, 1995 and 1994.
GRANT THORNTON LLP
Stockton, California
March 25, 1997
99
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 113,548
<INT-BEARING-DEPOSITS> 200
<FED-FUNDS-SOLD> 92,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 198,204
<INVESTMENTS-CARRYING> 18,004
<INVESTMENTS-MARKET> 18,137
<LOANS> 834,741
<ALLOWANCE> 16,002
<TOTAL-ASSETS> 1,320,640
<DEPOSITS> 1,147,304
<SHORT-TERM> 6,300
<LIABILITIES-OTHER> 8,281
<LONG-TERM> 16,365
0
0
<COMMON> 141
<OTHER-SE> 142,249
<TOTAL-LIABILITIES-AND-EQUITY> 1,320,640
<INTEREST-LOAN> 82,048
<INTEREST-INVEST> 12,696
<INTEREST-OTHER> 5,218
<INTEREST-TOTAL> 99,962
<INTEREST-DEPOSIT> 29,024
<INTEREST-EXPENSE> 30,783
<INTEREST-INCOME-NET> 69,179
<LOAN-LOSSES> 7,731
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 60,424
<INCOME-PRETAX> 15,294
<INCOME-PRE-EXTRAORDINARY> 15,294
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,128
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.66
<YIELD-ACTUAL> 8.74
<LOANS-NON> 9,216
<LOANS-PAST> 1,514
<LOANS-TROUBLED> 224
<LOANS-PROBLEM> 2,362
<ALLOWANCE-OPEN> 14,986
<CHARGE-OFFS> 10,089
<RECOVERIES> 1,709
<ALLOWANCE-CLOSE> 16,002
<ALLOWANCE-DOMESTIC> 16,002
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 15,030
</TABLE>
