0000311094-95-000021.txt : 19950915 0000311094-95-000021.hdr.sgml : 19950915 ACCESSION NUMBER: 0000311094-95-000021 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950913 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTAMERICA BANCORPORATION CENTRAL INDEX KEY: 0000311094 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 942156203 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-09383 FILM NUMBER: 95573361 BUSINESS ADDRESS: STREET 1: 1108 FIFTH AVE CITY: SAN RAFAEL STATE: CA ZIP: 94901 BUSINESS PHONE: 4152578000 MAIL ADDRESS: STREET 1: 1108 FIFTH AVENUE CITY: SAN RAFAEL STATE: CA ZIP: 94901 FORMER COMPANY: FORMER CONFORMED NAME: INDEPENDENT BANKSHARES CORP DATE OF NAME CHANGE: 19830801 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED COMMISSION FILE NUMBER DECEMBER 31, 1994 1-9383 WESTAMERICA BANCORPORATION (Exact name of registrant as specified in its charter) CALIFORNIA 94-2156203 (State of incorporation) (I.R.S. Employer Identification Number) 1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA 94901 (Address of principal executive offices and zip code) (415) 257-8000 Registrant's area code and telephone number Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: TITLE OF CLASS Common Stock, no par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ___ Aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price of such stock, as of March 24, 1995: $281,124,395 Number of shares outstanding of each of the registrant's classes of common stock, as of March 24, 1995. Title of Class Shares Outstanding Common Stock, no par value 9,200,164 Documents Incorporated by Reference Document* Incorporated Into: Proxy Statement dated March 21, 1995 for Annual Meeting of Shareholders to be held on April 25, 1995 Part III * Only selected portions of the documents specified are incorporated by reference into this report, as more particularly described herein. Except to the extent expressly incorporated herein by reference, such documents shall not be deemed to be filed as part of this Annual Report on Form 10-K. TABLE OF CONTENTS Page PART-I Item 1 Business. . . . . . . . . . . . . . . . . . . . . . . . . 3 Item 2 Description of Property . . . . . . . . . . . . . . . . . 12 Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . 13 Item 4 Submission of Matters to a Vote of Security Holders . . . 13 PART-II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . 13 Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . 15 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . 16 Item 8 Financial Statements and Supplementary Data . . . . . . . 35 Item 9 Disagreements on Accounting and Financial Disclosure. . . 65 PART-III Item 10 Directors and Executive Officers of the Registrant. . . . 65 Item 11 Executive Compensation. . . . . . . . . . . . . . . . . . 65 Item 12 Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . . . 65 Item 13 Certain Relationships and Related Transactions. . . . . . 65 PART-IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 66 PART I ITEM I. Business WESTAMERICA BANCORPORATION (the "Company") is a bank holding company registered under the Bank Holding Company Act of 1956 ("BHC"), as amended. It was incorporated under the laws of the State of California as "Independent Bankshares Corporation" on February 11, 1972. Its principal executive offices are located at 1108 Fifth Avenue, San Rafael, California 94901, and its telephone number is (415) 257-8000. The Company provides a full range of banking services to individual and corporate customers in Northern California through its subsidiary banks (the "Banks"), Westamerica Bank and Subsidiary, Bank of Lake County and Napa Valley Bank. The Banks are subject to competition from other financial institutions and regulations of certain agencies and undergo periodic examinations by those regulatory authorities. The Company was originally formed pursuant to a plan of reorganization among three previously unaffiliated banks: Bank of Marin, Bank of Sonoma County and First National Bank of Mendocino County (formerly First National Bank of Cloverdale). The reorganization was consummated on December 31, 1972, and, on January 1, 1973, the Company began operations as a bank holding company. Subsequently, the Company acquired Bank of Lake County (a California chartered bank) in 1974, Gold Country Bank in 1979 and Vaca Valley Bank in 1981, in each case by the exchange of the Company's Common Stock for the outstanding shares of the acquired banks. In mid-1983, the Company consolidated the six subsidiary banks into a single subsidiary bank. The consolidation was accomplished by the merger of the five state chartered banks (Bank of Marin, Bank of Sonoma County, Bank of Lake County, Gold Country Bank and Vaca Valley Bank) into First National Bank of Mendocino County which subsequently changed its name to Westamerica Bank ("WAB"), a national banking association organized and existing under the laws of the United States. The Company also owns all the capital stock of Westcore, formerly Learnex Corp., a newly formed company which will engage in planning and servicing retirement and employee benefit programs. On February 28, 1992 the Company acquired John Muir National Bank through a merger of such bank into WAB in exchange for the issuance of the Company's Common Stock for all of the outstanding shares of John Muir National Bank. This business transaction was accounted for as a pooling-of-interests basis. On April 15, 1993, the Company acquired Napa Valley Bancorp, a bank holding company, whose subsidiaries included Napa Valley Bank, 88 percent interest in Bank of Lake County, 50 percent interest in Sonoma Valley Bank, Suisun Valley Bank and Napa Valley Bancorp Services Association, established to provide data processing and other services to Napa Valley Bancorp's subsidiaries. This business transaction (the "Merger") was accounted for as a pooling-of-interests combination and, accordingly, the consolidated financial statements and financial data for periods prior to the combination have been restated to include the accounts and results of operations of Napa Valley Bancorp. Shortly after the Merger Suisun Valley bank was merged into Westamerica Bank, the name of Napa Valley Bancorp Services Corporation was changed to Community Banker Services Corporation and the Company sold its 50 percent interest in Sonoma Valley Bank. In June, 1993, the Company accepted from Westamerica Bank a dividend in the form of all outstanding shares of capital stock of that bank's subsidiary, Weststar Mortgage Corporation, a California corporation established to conduct mortgage banking activities. Immediately after the receipt of this dividend, the Company contributed all of the capital stock of Weststar Mortgage Corporation to its subsidiary, Community Banker Services Corporation. Westamerica Bank and Bank of Lake County became state chartered banks in June 1993 and December 1993, respectively. In December 1994, the Company finished purchasing the remaining 12 percent investment in Bank of Lake County from outside investors, becoming the sole owner of the Bank of Lake County. Regarding upcoming pending acquisitions, please see Note 18 to the consolidated financial statements included in this report. At December 31, 1994, the Company had consolidated assets of approximately $2.03 billion, deposits of approximately $1.69 billion and shareholders' equity of approximately $166.2 million. The Banks are engaged in the banking business through 48 offices in eleven counties in Northern California, including eleven offices in Marin County, nine in Sonoma County, seven in Solano County, seven in Napa County, three in Contra Costa County, four in Lake County, two in Mendocino County, two in Nevada County, one in Sacramento County, one in San Francisco County and one in Placer County. All offices are equipped to meet prescribed security requirements. The Banks own fifteen banking offices and three administrative service centers including the Company's and Westamerica Bank's headquarters. Thirty-three banking offices and two support facilities are leased. Substantially all of the leases contain multiple renewal options and provisions for rental increases, principally for changes in the cost of living index, property taxes and maintenance. Service Area The Banks serve the following ten major market areas: Marin County. Marin County is one of the most affluent counties in California and has a population of approximately 244,100. San Rafael and Novato are the largest communities in the county, with populations of approximately 52,700 and 49,050, respectively, in close proximity to San Francisco. The area served by WAB is a relatively densely populated area whose economic make-up is primarily residential, commercial and light industrial. Sonoma-Mendocino Counties. Of the eight San Francisco Bay Area counties, Sonoma County is the largest geographically. The population of the county is approximately 427,500. The City of Santa Rosa is the largest population center in Sonoma County with an estimated population of 124,900 people. Light industry, agriculture and food processing are the primary industries in Sonoma County, with tourism and recreational activities growing steadily. WAB also has two branch locations in southern Mendocino County, population 83,600, where the major business of the county is agriculture. Nevada County. WAB is currently serving most of Nevada County, the area generally known as the "Gold Country." The population of the entire county is approximately 87,700. Tourism, agriculture and wood products manufacturing are the major industries. Solano County. WAB serves all of Solano County, with an estimated population of 375,300. Vallejo is the largest city in the county, with a population of approximately 116,100. While light industry and the service sector is growing steadily, the federal government is the largest employer in the county. Sacramento County. In 1982, WAB established an office in the city of Sacramento, the state capital of California. The county has a population of approximately 1,137,400. Major industries include agriculture, government, manufacturing and wholesale and retail trade. Sacramento is also a major transportation center for the State. Contra Costa County. During 1984, WAB opened an office in the city of Walnut Creek, to serve Contra Costa County's growing commercial and industrial construction industry. In 1992, the Company acquired John Muir National Bank whose four banking offices in Martinez, Pittsburg and Antioch were merged into WAB. The population of Contra Costa County is approximately 874,700. San Francisco County. In 1987, WAB opened an office in the financial center of the city of San Francisco, with a focus on commercial lending and deposit relationships in that city. Placer County. In September 1991, WAB opened a new branch in Roseville, which is approximately 15 miles east of the Sacramento office and serves the growing area of the Sierra Nevada foothills. The population of Placer County is approximately 200,100. Lake County. Bank of Lake County, ("the Lake County's Bank"), has office locations in Lake County, with an estimated population of approximately 57,300. Agriculture is the primary industry followed closely by recreation and tourism. Napa County. Napa Valley Bank has office locations in Napa County. The population of the county is approximately 119,000, with agriculture being its major source of business followed by tourism. Neither the Company nor its subsidiaries have any foreign or international activities or operations. All population figures contained in the previous discussion are 1994 estimates as prepared by the California Department of Finance and are exclusive of unincorporated areas. Competition The Banks compete with other commercial banks, savings & loan associations, credit unions, brokerage firms, money market mutual funds, finance and insurance companies and mortgage banking firms. According to information obtained by the Company through an independent market research firm, WAB was the third largest financial institution in terms of deposits in Marin County at June 30, 1994, at which date it had approximately 15 percent of total deposits held in federally insured depository institutions in that county. Also, according to such information, WAB ranked third in Sonoma County at June 30, 1994, with approximately 8 percent of deposits; WAB was fourth in Contra Costa as of the same date, with over 4 percent in deposits held in financial institutions in the county and WAB was third in deposits in Solano County, with approximately 12 percent of deposits at June 30, 1994. The share of the market for deposits and loans held by WAB in Mendocino, Placer, San Francisco and Sacramento Counties is not significant. According to the same source of information NVB was the largest financial institution in terms of deposits in the Napa Valley service area as of June 30, 1994, with over 19 percent market share. The same source of data reports that as of June 30, 1994, BLC ranked second in market share in terms of deposits in the Lake County service area, with 15 percent of the total. All Banks provide checking and savings deposit services as well as commercial, real estate and personal loans. In addition, most of the branches offer safe deposit facilities, automated teller units, collection services and other investment services. The Banks believe that personal, prompt, professional service and community identity are important in the banking business. To this end, each Bank subsidiary has actively sought to retain its community identity and has emphasized personalized services through "big bank resources with small bank resourcefulness." Competitive conditions continue to intensify as legislative enactments dissolve historical barriers to limit participation in financial markets. Competition is expected to further increase in the state of California, as a result of legislation enacted in 1986 and 1989. In part, the legislation enabled bank holding companies based outside California to own and operate banks or bank holding companies in California on a reciprocal basis as of January 1, 1991. Legislative changes, as well as technological and economic factors, can be expected to have an ongoing impact on competitive conditions within the financial services industry. As an active participant in the financial markets, the Company continually adapts to these changing competitive conditions. Employees At December 31, 1994, the Company employed 1,067 people (773 full-time equivalent staff). Employee relations are believed to be good. Supervision and Regulation Regulation of Westamerica Bancorporation The Company is a bank holding company registered under the BHC Act. As such, it is subject to the supervision of the Federal Reserve Board ("FRB") and is required to file with that entity an annual report and such other additional information as the FRB may require pursuant to the BHC Act. The FRB may also conduct examinations of the Company and its respective subsidiaries. Under the BHC Act, bank holding companies are generally required to obtain the prior approval of the FRB before they may (i) acquire control of or merge with another bank holding company; (ii) acquire direct ownership or control of 5 percent or more of the voting shares of a bank; or (iii) otherwise acquire control of another bank. Moreover, the BHC Act generally prohibits the Company or any of its subsidiaries from acquiring the voting shares of, interest in or assets of, any bank located outside of California unless the laws of such state expressly authorize such an acquisition. Under the BHC Act, the Company is prohibited from engaging in any business other than managing or controlling banks, or furnishing services to its subsidiaries, unless the business proposed to undertake has been deemed by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. With certain exceptions, the Company is prohibited from acquiring direct or indirect ownership or control of more than 5 percent of the voting securities or assets of any company unless that company engages in activities which are permissible for bank holding companies and the FRB is given notice thereof or approves the acquisition in advance. Holding companies and any of their subsidiary banks are prohibited from engaging in certain tie-in arrangements in connection with the extension of credit. For example, a subsidiary bank generally may not extend credit on the condition that the customer obtain some additional service from such bank or its holding company, or refrain from obtaining such service from a competitor. The Company is also a bank holding company within the meaning of Section 3700 of the California Financial Code. As such, the Company and its subsidiaries are subject to examination by, and may be required to file reports with, the Superintendent of California State Banking Department. Regulations have not yet been proposed or adopted, nor have steps otherwise been taken, to implement the Superintendent's powers under this statute. Regulation of Bank Subsidiaries The deposits of the Banks are insured by the FDIC in an amount up to $100,000 per depositor and is therefore subject to applicable provisions of the Federal Deposit Insurance Act and the regulations thereunder, including the obligation to pay assessments for such insurance. Transactions with affiliates of a bank must be on substantially the same terms as would be available for nonaffiliates. This restriction applies to (i) a bank's sale of assets, payment of money or furnishing of services to an affiliate; (ii) transactions with the bank in which an affiliate acts as agent or broker; and (iii) transactions with the bank and a third party in which an affiliate is also a participant or has a financial interest. The FDIC has issued an advance notice of proposed rulemaking which would prohibit insured banks from paying excessive fees for services provided by their parent holding companies. The FDIC has also proposed rules which would authorize to rescind contracts between depository institutions and any person in connection with providing goods, products or services if the performance of such contract would adversely affect the safety or soundness of the institution. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 contains a "cross-guarantee" provision which could result in any insured depository institution owned by a holding company (i.e., any bank subsidiary) being assessed for losses incurred by the FDIC in connection with assistance provided to, or the failure of, any other depository institution owned by such holding company. As a consequence of the extensive regulation of commercial banking activities in the United States, the business of the Company and its subsidiary banks is particularly susceptible to being affected by enactment of federal and state legislation which may have the effect of increasing or decreasing the cost of doing business, modifying permissible activities, or enhancing the competitive position of other financial institutions. In response to various business failures in the savings and loan industry and more recently in the banking industry, in December 1991, Congress enacted and the President signed significant banking legislation entitled the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). FDICIA substantially revises the bank regulatory and funding provisions of the Federal Deposit Insurance Act and makes revisions to several other federal banking statutes. Among other things, FDICIA provides increased funding for the Bank Insurance Fund (the "BIF") of the FDIC, primarily by increasing the authority of the FDIC to borrow from the United States Treasury Department. It also provides for expanded regulation of depository institutions and their affiliates. A significant portion of the borrowings would be repaid by insurance premiums assessed on BIF members, including the Banks and their subsidiaries. In addition, FDICIA generally mandates that the FDIC achieve a ratio of reserves to insured deposits of 1.25 percent within the next 15 years, also to be financed by insurance premiums. The result of these provisions could be a significant increase in the assessment rate on deposits of BIF members. FDICIA also provides authority for special assessments against insured deposits. No assurance can be given at this time as to what the future level of premiums will be. As required by FDICIA, the FDIC adopted a transitional risk-based assessment system for deposit insurance premiums which became effective January 1, 1993. Under this system, depository institutions are charged anywhere from 23 cents to 31 cents for every $100 in insured domestic deposits, based on such institutions' capital levels and supervisory ratings. FDICIA prohibits assessment rates from falling below the current annual assessment rate of 23 cents per $100 of eligible deposits if the FDIC has outstanding borrowings from the United States Treasury Department or the 1.25 percent designated reserve ratio has not been met. FDICIA also restricts the acceptance of brokered deposits by insured depository institutions and contains a number of consumer banking provisions, including disclosure requirements and substantive contractual limitations with respect to deposit accounts. FDICIA contains numerous other provisions, including new reporting, examination and auditing requirements, termination of the "too big to fail" doctrine except in special cases, limitations on the FDIC's payment of deposits at foreign branches, and revised regulatory standards for, among other things, real estate lending and capital adequacy. Implementation of the various provisions of FDICIA are subject to the adoption of regulations by the various banking agencies or to certain phase-in periods. The effect of FDICIA on the Company and its subsidiary banks cannot be determined until implementing regulations are adopted by the agencies. Regulations Applicable to Bank Subsidiaries. The Company's subsidiary banks are state-chartered banks and subject to regulation, supervision and regular examinations by the State of California Banking Department as well as the FDIC. The regulations of these agencies and the FRB affect most aspects of the banking business and prescribe permissible types of loans and investments, requirements for branch offices, the permissible scope of activities and various other requirements. As WAB is also a member of the Federal Reserve System, it is subject to certain other regulations of the FRB dealing primarily with check clearing activities, establishment of banking reserves, truth-in-lending, truth-in-savings and equal credit opportunity. Capital Requirements Risk-Based Capital Ratio. The agencies which regulate financial institutions have adopted risk-based capital adequacy standards applicable to financial institutions. These guidelines provide a measure of capital adequacy and are intended to reflect the degree of risk associated with both on and off balance sheet items, including residential loans sold with recourse, legally binding loan commitments and standby letters of credit. Under these regulations, financial institutions are required to maintain capital to support activities which in the past did not require capital. Failure to meet the minimum capital requirements established by the regulators will result in an institution being classified as "undercapitalized", "significantly undercapitalized", or "critically undercapitalized". A financial institution's risk-based capital ratio is calculated by dividing its qualifying capital by its risk-weighted assets. Financial institutions generally are expected to meet a minimum ratio of qualifying total capital to risk-weighted assets of 8 percent, of which at least 4 percent of qualifying total capital must be in the form of core capital (Tier 1), i.e., common stock, noncumulative perpetual preferred stock, minority interests, retained earnings in equity capital accounts of consolidated subsidiaries and allowed mortgage servicing rights less all intangible assets other than allowed mortgage servicing rights. Supplementary capital (Tier 2) consists of the allowance for loan losses up to 1.25 percent of risk-weighted assets, cumulative preferred stock, term preferred stock, hybrid capital instruments and term subordinated debt. The maximum amount of Tier 2 capital which may be recognized for risk-based capital purposes is limited to 100 percent of Tier 1 capital (after any deductions for disallowed intangibles). Certain other limitations and restrictions apply as well. The risk-based capital ratio analysis establishes minimum supervisory guidelines and standards. The guidelines do not currently evaluate all factors affecting an organization's financial condition. Factors which are not evaluated include (i) overall interest rate exposure; (ii) liquidity, funding and market risks; (iii) quality and level of earnings; (iv) investment or loan portfolio concentrations; (v) quality of loans and investments; (vi) the effectiveness of loan and investment policies; and (vii) management's overall ability to monitor and control other financial and operating risks. FDICIA also requires the guidelines to reflect the actual performance and expected risk of loss of multifamily mortgages. These provisions will affect the capital positions and capital standing of all institutions and may result in the need for increased capital. However, the ultimate effect of FDICIA risk-based capital provisions cannot be determined until final regulations are adopted. Until such time, however, the capital adequacy assessment of federal bank regulators will continue to include analysis of the foregoing elements and, in particular, the level and severity of problem and classified assets. Minimum Leverage Ratio. The FDIC and the FRB have also adopted a 3 percent minimum leverage ratio which is intended to supplement risk-based capital requirements and to ensure that all financial institutions, even those that invest predominantly in low risk assets, continue to maintain a minimum level of Tier 1 capital. A financial institution's minimum leverage ratio is determined by dividing its Tier 1 capital by its quarterly average total assets, less intangibles not includable in Tier 1 capital. Under the guidelines, a minimum leverage ratio of 3 percent is required for institutions which have been determined to be in the highest of five categories used by regulators to rate financial institutions. All other organizations are required to maintain leverage ratios of at least 100 to 200 basis points above the 3 percent minimum. It is improbable, however, that an institution with a 3 percent leverage ratio would be rated in the highest category since a strong capital position is also a requirement for the highest rating. Therefore, the "minimum" leverage ratio is, for all practical purposes, significantly above 3 percent. The leverage ratio establishes a limit on the ability of banking organizations, including the Company, to increase assets and liabilities without increasing capital proportionately. The Company's Management believes that conformance with the leverage ratio will not have an adverse effect on the operations of the Company or require it to raise additional capital in the foreseeable future. New Capital Standards. FDICIA requires the federal banking regulators to take "prompt corrective action" with respect to banks that do not meet minimum capital requirements. In response to this requirement, the FDIC and the FRB participated in the adoption of final rules based upon FDICIA's five capital tiers. These rules provide that an institution is "well capitalized" if its risk-based capital ratio is 10 percent or greater; its Tier 1 risk-based capital ratio is 6 percent or greater; its leverage ratio is 5 percent or greater; and the institution is not subject to a capital directive. A bank is "adequately capitalized" if its risk-based capital ratio is 8 percent or greater; its Tier 1 risk-based capital ratio is 4 percent or greater; and its leverage ratio is 4 percent or greater (3 percent or greater for one rated institutions). An institution is considered "undercapitalized" if its risk-based capital ratio is less than 8 percent; its Tier 1 risk-based capital ratio is less than 4 percent; or its leverage ratio is 4 percent or less. An institution is "significantly undercapitalized" if its risk-based capital ratio is less than 6 percent; its Tier 1 risk-based capital ratio is less than 3 percent; or its leverage ratio is less than 3 percent. A bank is deemed to be "critically undercapitalized" if its ratio of tangible equity (Tier 1 capital) to total assets is equal to or less than 2 percent. An institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it engages in unsafe or unsound banking practices. No sanctions apply to institutions which are well capitalized. Adequately capitalized institutions are prohibited from accepting brokered deposits without the consent of the primary regulator. Undercapitalized institutions are required to submit a capital restoration plan for improving capital. In order to be accepted, such plan must include a financial guaranty from the institution's holding company that the institution will return to capital compliance. If such a guarantee were deemed to be a commitment to maintain capital under the Federal Bankruptcy Code, a claim for a subsequent breach of the obligations under such guarantee in a bankruptcy proceeding involving the holding company would be entitled to a priority over third party general unsecured creditors of the holding company. Undercapitalized institutions are prohibited from making capital distributions or paying management fees to controlling persons; may be subject to limitations pertaining to growth; and are restricted from acquisitions, branching and entering into new lines of business. Finally, the institution's regulatory agency has discretion to impose certain of the restrictions generally applicable to significantly undercapitalized institutions. In the event an institution is deemed to be significantly undercapitalized, it may be required to: sell stock; merge or be acquired; restrict transactions with affiliates including restrictions on payment of dividends; restrict interest rates paid; divest a subsidiary; or dismiss specified directors or officers. If the institution is a bank holding company, it may be prohibited from making any capital distributions without prior approval of the FRB and may be required to divest a subsidiary. A critically undercapitalized institution is generally prohibited from making payments on subordinated debt and may not, without the approval of the FDIC, enter into a material transaction other than in the ordinary course of business; engage in any covered transaction; or pay excessive compensation or bonuses. Critically undercapitalized institutions are subject to appointment of a receiver or conservator. As of December 31, 1994, the Company was in compliance with applicable capital and risk-based capital ratio requirements. ITEM 2. Descrpition of Property Branch Offices and Facilities The Banks are engaged in the banking business through 48 offices in eleven counties in Northern California, including eleven offices in Marin County, nine in Sonoma County, seven in Solano County, seven in Napa County, three in Contra Costa County, four in Lake County, two in Mendocino County, two in Nevada County, one in Sacramento County, one in San Francisco County and one in Placer County. All offices are constructed and equipped to meet prescribed security requirements. The Banks own fifteen banking office locations and three administrative buildings, including the Company's headquarters. Thirty-three banking offices and two support facilities are leased. Substantially all of the leases contain multiple five-year renewal options and provisions for rental increase, principally for changes in the cost of living index, property taxes and maintenance. ITEM 3. Legal Proceedings The Company and its subsidiaries are defendants in various legal actions which, in the opinion of management based on discussions with independent legal counsel, will be resolved with no material effect on the Company's consolidated results of operations or financial position. ITEM 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to the shareholders during the fourth quarter of 1994. PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company's common stock is traded on the NASDAQ National Market Exchange (NASDAQ) under the symbol "WABC". The following table shows the high and low closing price for the common stock, for each quarter, as reported by NASDAQ, previously reported on the American Stock Exchange. Period High Low 1994 -------------------------------------------------------------- First quarter ........................... $29.25 $25.88 Second quarter ........................... 32.50 27.00 Third quarter ........................... 33.25 29.25 Fourth quarter ........................... 33.25 29.00 1993 -------------------------------------------------------------- First quarter ........................... $30.25 $22.13 Second quarter ........................... 28.75 23.88 Third quarter ........................... 28.50 25.13 Fourth quarter ........................... 28.50 25.75 As of December 31, 1994, there were 5,101 holders of record of the Company's common stock. This number does not include Napa Valley Bancorp. stockholders that as of December 31, 1994 had not yet tendered their shares for conversion to Company Common Stock. The Company has paid cash dividends on its common stock in every quarter since commencing operations on January 1, 1973, and it is currently the intention of the Board of Directors of the Company to continue payment of cash dividends on a quarterly basis. There is no assurance, however, that any dividends will be paid since they are dependent upon the earnings, financial condition and capital requirements of the Company and its subsidiaries. Furthermore, the Company's ability to pay future dividends is subject to contractual restrictions under the terms of the note agreement, as discussed in Note 6 to the Consolidated Financial Statements. Under the most restrictive of these contractual provisions, $24.4 million of retained earnings was available for the payment of dividends at December 31, 1994. Limitations of the Company's ability to pay dividends is discussed in Note 15 to the Consolidated Financial Statements on page 58 of this report. Additional information (required by Item 5) regarding the amount of cash dividends declared on common stock for the two most recent fiscal years is discussed in Note 17 to the consolidated financial statements on page 61 of this report. As discussed in Note 7 of the notes to the consolidated financial statements, in December 1986, the Company declared a dividend distribution of one common share purchase right (a "Right") for each outstanding share of common stock. The terms of the Rights were amended and restated on September 28, 1989. On March 23, 1995, the Board of Directors of the Company approved a further amendment and restatement of the Rights. Among other things, the amendments approved on that date included a provision to the effect that, after an acquisition of 15 percent of the Company's common stock without the prior consent of the Company, the Board of Directors will have the power to cause each Right to be exchanged for one share of common stock of the Company. ITEM 6. Selected Financial Data Financial Summary (In thousands, except per share data and number of shareholders)
---------------------------------------------------------------------------------------------------- Years ended December 31 1994 1993 1992 1991 1990 ---------------------------------------------------------------------------------------------------- Interest income $134,238 $136,916 $154,753 $176,552 $187,550 Interest expense 41,115 42,271 58,892 87,357 98,653 ---------------------------------------------------------------------------------------------------- Net interest income 93,123 94,645 95,861 89,195 88,897 Provision for loan losses 5,880 9,452 7,005 10,418 8,138 Non-interest income 19,421 23,946 23,827 23,976 22,339 Non-interest expense 71,123 96,645 89,604 84,943 81,641 ---------------------------------------------------------------------------------------------------- Income before income taxes 35,541 12,494 23,079 17,810 21,457 Provision for income taxes 10,868 3,039 7,857 5,833 6,838 ---------------------------------------------------------------------------------------------------- Net income $24,673 $9,455 $15,222 $11,977 $14,619 ==================================================================================================== Per share: Net income $3.06 $1.17 $ 1.92 $1.52 $1.89 Dividends declared .64 .57 .51 .44 .41 Book value at December 31 20.65 18.87 17.96 16.49 15.44 Average common shares outstanding 8,074 8,054 7,933 7,855 7,736 Shares outstanding at December 31 8,048 8,080 8,000 7,847 7,758 Estimated number of shareholders at December 31 7,255 7,351 7,595 7,940 8,069
---------------------------------------------------------------------------------------------------- At December 31 1994 1993 1992 1991 1990 ---------------------------------------------------------------------------------------------------- Cash and cash equivalents $ 112,401 $102,618 $139,497 $124,136 $128,813 Investment securities and money market assets 759,589 726,136 571,602 517,394 435,033 Loans, net 1,076,171 1,089,152 1,166,205 1,242,108 1,277,417 Other assets 82,074 86,513 104,045 82,443 79,142 ----------------------------------------------------------------------------------------------------- Total assets $2,030,235 $2,004,419 $1,981,349 $1,966,081 $1,920,405 ===================================================================================================== Non-interest bearing deposits $381,354 $369,820 $323,719 $283,594 $285,336 Interest bearing deposits 1,307,526 1,361,408 1,466,199 1,505,707 1,437,763 Other liabilities 175,150 120,744 47,757 47,360 77,495 Shareholders' equity 166,205 152,447 143,674 129,420 119,811 ----------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $2,030,235 $2,004,419 $1,981,349 $1,966,081 $1,920,405 ===================================================================================================== Financial Ratios For the year: Return on assets 1.21% .48% .77% .62% .77% Return on equity 15.59 6.51 11.16 9.52 12.87 Net interest margin (FTE)* 5.31 5.48 5.50 5.21 5.30 Net loan losses to average loans .36 .69 .50 .44 .39 At December 31: Equity to assets 8.19 7.61 7.25 6.58 6.24 Total capital to risk-adjusted assets 15.32 14.40 12.01 10.82 10.55 Loan loss reserve to loans 2.50 2.30 2.08 1.88 1.47
[FN] *Fully taxable equivalent ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion addresses information pertaining to the financial condition and results of operations of Westamerica Bancorporation (the "Company") that may not be otherwise apparent from a review of the consolidated financial statements and related footnotes. It should be read in conjunction with those statements and notes found on pages 36 through 62, as well as with the other information presented throughout the report. All data presented for 1992 include the April 15, 1993 acquisition of Napa Valley Bancorp. The Company achieved record earnings of $24.7 million in 1994, representing a 161 percent increase from the $9.5 million earned in 1993 and 62 percent higher than 1992 earnings of $15.2 million. The reduced level of earnings in 1993 was mostly due to $10.5 million in after-tax charges resulting from the April 15, 1993 merger with Napa Valley Bancorp (the "Merger"), that were taken in the form of asset write-downs, an additional loan loss provision and other merger-related charges. The asset write-downs and the additional loan loss provision reflect the Company's plan of non-performing asset resolution. Components of Net Income ----------------------------------------------------------------------- (Percent of average earning assets) 1994 1993 1992 ----------------------------------------------------------------------- Net interest income* 5.31% 5.48% 5.50% Provision for loan losses (.32) (.53) (.39) Non-interest income 1.05 1.34 1.33 Non-interest expense (3.84) (5.43) (5.00) Taxes* (.87) (.33) (.59) ----------------------------------------------------------------------- Net income 1.33% .53% .85% ======================================================================= Net income as a percentage of average total assets 1.21% .48% .77% ======================================================================= * Fully taxable equivalent (FTE) On a per share basis, 1994 net income was $3.06, compared to $1.17 and $1.92 in 1993 and 1992, respectively. During 1994, the Company continued to benefit from reductions in cost of funds and expense controls which offset declines in non-interest income. Earnings in 1993 were favorably affected compared to 1992 by reductions in cost of funds, increases in service fees and other non-interest income, and expense controls. However, merger-related costs more than offset those benefits. The Company's return on average total assets was 1.21 percent in 1994, compared to .48 percent and .77 percent in 1993 and 1992, respectively. Return on average equity in 1994 was 15.59 percent, compared to 6.51 percent and 11.16 percent, respectively, in the two previous years. Net Interest Income Due to increases in the level of average earning assets and a more favorable composition of deposits represented by increasing volumes of lower-costing demand and savings account balances and a reduction in the volumes of higher costing time deposits, the Company was able to generate higher net interest income (FTE) in 1994 when compared to 1993. However, net interest income (FTE) was still slightly lower than 1992. Continuing decreases in higher-yielding loan volumes and the growth of the lower-yielding investment securities portfolio more than offset the effect of increasing market interest rates and the Company's containment of rates paid on interest-bearing liabilities, resulting in a lower net interest margin for 1994. Components of Net Interest Income -------------------------------------------------------------------- (In millions) 1994 1993 1992 -------------------------------------------------------------------- Interest income $ 134.2 $ 137.0 $ 154.8 Interest expense (41.1) (42.3) (58.9) FTE adjustment 5.3 2.8 2.7 -------------------------------------------------------------------- Net interest income (FTE) $ 98.4 $ 97.5 $ 98.6 ==================================================================== Average earning assets $1,851.9 $1,779.3 $1,793.8 Net interest margin (FTE) 5.31% 5.48% 5.50% ==================================================================== Net interest income (FTE) in 1994 increased $900,000 from 1993 to $98.4 million. Interest income decreased $2.8 million from 1993, as a result of the combined effect of a 32 basis point decline in earning-asset yields partially offset by a $72.6 million increase in average balances. During 1994, increases in the balance of tax-exempt municipal securities resulted in an FTE adjustment $2.5 million higher than 1993. Interest expense decreased $1.2 million from 1993, the result of a decrease of 11 basis points in rates paid partially offset by an increase of $11.8 million in the average balance of interest-bearing liabilities. Summary of Average Balances, Yields/Rates and Interest Differential The following tables present, for the periods indicated, information regarding the consolidated average assets, liabilities and shareholders' equity, the amounts of interest income from average earning assets and the resulting yields, and the amount of interest expense paid on interest-bearing liabilities. Average loan balances include non-performing loans. Interest income includes proceeds from loans on non-accrual status only to the extent cash payments have been received and applied as interest income. Yields on securities and certain loans have been adjusted upward to reflect the effect of income thereon exempt from federal income taxation at the current statutory tax rate. Amortized loan fees, which are included in interest and fee income on loans were $1.2 million lower in 1994 than in 1993 and $1.5 million lower in 1993 than in 1992. Distribution of Average Assets, Liabilities and Shareholders' equity Yield/Rates and Interest Margin ----------------------------------------------------------------------- (In thousands) 1994 ----------------------------------------------------------------------- Interest Rates Average income/ earned/ balance expense paid ----------------------------------------------------------------------- Assets Money market assets and funds sold $ 250 $ -- -- % Trading account securities 37 2 4.24 Investment securities 763,360 45,711 5.99 Loans: Commercial 593,548 52,777 8.89 Real estate construction 37,968 3,890 10.24 Real estate residential 178,946 12,566 7.02 Consumer 277,780 24,583 8.85 --------------------------------------------------------------- Earning assets 1,851,889 139,529 7.53 Other assets 187,012 ------------------------------------------------------- Total assets $2,038,901 ======================================================= Liabilities and shareholders' equity Deposits Non-interest bearing demand $ 359,768 $ -- -- % Savings and interest-bearing transaction 970,592 18,785 1.94 Time less than $100,000 282,530 11,034 3.91 Time $100,000 or more 97,928 3,545 3.62 --------------------------------------------------------------- Total interest-bearing deposits 1,351,050 33,364 2.47 Funds purchased 126,225 5,139 4.17 Notes and mortgages payable 29,690 2,612 8.80 --------------------------------------------------------------- Total interest-bearing liabilities 1,506,965 41,115 2.73 Other liabilities 13,887 Shareholders' equity 158,281 ------------------------------------------------------- Total liabilities and shareholders' equity $2,038,901 ======================================================= Net interest spread (1) 4.80 % Net interest income and interest margin (2) $98,414 5.31 % ======================================================================= (1) Net interest spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (2) Net interest margin is computed by dividing net interest income by total average earning assets. Distribution of Average Assets, Liabilities and Shareholders' equity Yield/Rates and Interest Margin ---------------------------------------------------------------------- (in thousands) 1993 ----------------------------------------------------------------------- Interest Rates Average income/ earned/ balance expense paid ----------------------------------------------------------------------- Assets Money market assets and funds sold $ 4,463 $ 170 3.80 % Trading account securities 183 6 3.14 Investment securities 631,700 39,794 6.30 Loans: Commercial 615,981 53,990 8.76 Real estate construction 55,038 4,745 8.62 Real estate residential 168,379 13,322 7.91 Consumer 303,567 27,726 9.13 --------------------------------------------------------------- Earning assets 1,779,311 139,753 7.85 Other assets 200,561 ------------------------------------------------------- Total assets $1,979,872 ======================================================= Liabilities and shareholders' equity Deposits Non-interest bearing demand $ 330,867 $ -- -- % Savings and interest-bearing transaction 938,475 19,305 2.06 Time less than $100,000 340,122 14,176 4.17 Time $100,000 or more 135,505 4,837 3.57 --------------------------------------------------------------- Total interest-bearing deposits 1,414,102 38,318 2.71 Funds purchased 57,135 1,937 3.39 Notes and mortgages payable 17,959 2,016 11.22 --------------------------------------------------------------- Total interest-bearing liabilities 1,489,196 42,271 2.84 Other liabilities 14,652 Shareholders' equity 145,157 ------------------------------------------------------- Total liabilities and shareholders' equity $1,979,872 ======================================================= Net interest spread (1) 5.01 % Net interest income and interest margin (2) $97,482 5.48 % ======================================================================= (1) Net interest spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (2) Net interest margin is computed by dividing net interest income by total average earning assets. Distribution of Average Assets, Liabilities and Shareholders' equity Yield/Rates and Interest Margin ------------------------------------------------------------------------ (in thousands) 1992 ------------------------------------------------------------------------ Interest Rates Average income/ earned/ balance expense paid ----------------------------------------------------------------------- Assets Money market assets and funds sold $ 42,964 $ 1,765 -- % Trading account securities 103 4 3.67 Investment securities 534,793 40,332 7.54 Loans: Commercial 646,359 60,050 9.29 Real estate construction 76,173 7,058 9.27 Real estate residential 168,030 15,314 9.11 Consumer 325,393 33,003 10.14 --------------------------------------------------------------- Earning assets 1,793,815 157,526 8.78 Other assets 175,609 ------------------------------------------------------- Total assets $1,969,424 ======================================================= Liabilities and shareholders' equity Deposits Non-interest bearing demand $ 284,366 $ -- -- % Savings and interest-bearing transaction 903,211 26,518 2.94 Time less than $100,000 406,161 20,948 5.16 Time $100,000 or more 184,799 8,365 4.53 --------------------------------------------------------------- Total interest-bearing deposits 1,494,171 55,831 3.74 Funds purchased 15,729 698 4.44 Notes and mortgages payable 20,439 2,363 11.56 --------------------------------------------------------------- Total interest-bearing liabilities 1,530,339 58,892 3.85 Other liabilities 18,263 Shareholders' equity 136,456 ------------------------------------------------------- Total liabilities and shareholders' equity $1,969,424 ======================================================= Net interest spread (1) 4.93 % Net interest income and interest margin (2) $98,634 5.50 % ======================================================================= (1) Net interest spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (2) Net interest margin is computed by dividing net interest income by total average earning assets. Rate and volume variances The following table sets forth a summary of the changes in interest income and interest expense from changes in average assets and liability balances (volume) and changes in average interest rates for the periods indicated. Changes not solely attributable to volume or rates have been allocated in proportion to the respective volume and rate components.
(In thousands) For the years ended December 31, ------------------------------------------------------------------------------------------------------------ 1994 compared with 1993 1993 compared with 1992 --------------------------- ---------------------------- Volume Rate Total Volume Rate Total -------------------------------------------------------------- ----------------------------- Increase (decrease) in interest and fee income: MMkt. assets and funds sold $ (83) ($ 87) ($170) $(1,473) $ (122) ($1,595) Trading account securities (7) 3 (4) 2 (-) 2 Investment securities 7,756 (1,839) 5,917 (5,899) 5,361 (538) Loans: Commercial (2,014) 801 (1,213) (2,750) (3,310) (6,060) Real estate construction (2,176) 1,321 (855) (1,849) (464) (2,313) Real estate residential 955 (1,711) (756) 32 (2,024) (1,992) Consumer (2,302) (841) (3,143) (2,125) (3,152) (5,277) -------------------------------------------------------------- ------------------------------------- Total loans (5,537) (430) (5,967) (6,692) (8,950) (15,642) -------------------------------------------------------------- ------------------------------------- Total decrease in interest and fee income 2,129 (2,353) (224) ($14,062) ($3,711) ($17,773) -------------------------------------------------------------- ------------------------------------- Increase (decrease) in interest expense: Deposits: Savings/interest- bearing deposits 714 (1,234) (520) 1,082 (8,295) (7,213) Time less than $ 100,000 (2,290) (852) (3,142) (3,106) (3,666) (6,772) Time $ 100,000 or more (1,361) 69 (1,292) (1,968) (1,560) (3,528) -------------------------------------------------------------- ------------------------------------- Total interest-bearing (2,937) (2,017) (4,954) (3,992) (13,521) (17,513) Funds purchased 2,746 456 3,202 1,361 (122) 1,239 Notes and mortgages payable 890 (294) 596 (280) (67) (347) -------------------------------------------------------------- ------------------------------------- Total (decrease) increase in interest expense 699 (1,855) (1,156) (2,911) (13,710) (16,621) -------------------------------------------------------------- ------------------------------------- Increase (decrease) in net interest income $1,430 ($498) $932 ($11,151) $9,999 ($1,152) ============================================================== =====================================
[FN] (1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate. Provision for Loan Losses The level of the provision for loan losses reflects the Company's continuing efforts to improve loan quality by enforcing strict underwriting and administration procedures and aggressively pursuing collection efforts with troubled debtors. The provision for loan losses was $5.9 million for 1994, compared to $9.5 million in 1993 and $7.0 million in 1992. The 1993 provision included a $3.1 million merger-related provision, reflecting an aggressive workout strategy for problem loans and properties acquired in the Merger. For further information regarding net credit losses and the reserve for loan losses, see the "Asset Quality" section of this report. Investment Portfolio The Company maintains a securities portfolio consisting of U.S. Treasury, U.S. Government Agencies and Corporations, State and political subdivisions, asset-backed and other securities. Investment securities are held in safekeeping by an independent custodian. In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No.115"). The statement addresses the accounting and reporting for investments in equity securities that have a readily determinable fair value and for all investments in debt securities. The statement requires that all securities be classified, at acquisition, into one of three categories: held to maturity, available for sale, and trading. In classifying securities as being held to maturity, available for sale or trading, the Banks consider their collateral needs, asset/liability management strategies, liquidity needs, interest rate sensitivity and other factors that will determine the intent and ability to hold the securities to maturity. SFAS No. 115 was effective for fiscal years beginning after December 15, 1993. The objective of the investment securities held to maturity is to strengthen the portfolio yield, and to provide collateral to pledge for federal, state and local government deposits and other borrowing facilities. The investments held to maturity had an average term to maturity of 43 months at December 31, 1994 and, as of the same date, those investments included $594.8 million in fixed rate and $3.9 million in adjustable rate securities. Investment securities available for sale are typically used to supplement the Banks' liquidity. Unrealized net gains and losses on these securities are recorded as an adjustment to equity net of taxes, and are not reflected in the current earnings of the Company. If the security is sold, any gain or loss is recorded as a charge to earnings and the equity adjustment is reversed. At December 31, 1994, the Banks held $160.6 million classified as investments available for sale. At December 31, 1994, a net unrealized loss of $1.8 million net of taxes of $1.2 million related to these securities was held in stockholders' equity. The Company had no trading securities at December 31, 1994. For more information on investment securities, see Notes 1 and 2 to the consolidated financial statements. The following table shows the amortized cost of the Company's investment securities as of the dates indicated: ----------------------------------------------------------- December 31, (in thousands) 1994 1993 1992 ----------------------------------------------------------- U.S. Treasury $241,322 $245,586 $126,522 U.S. government agencies and corporations 256,133 254,635 237,753 States and political subdivisions (domestic) 198,135 127,302 87,031 Asset backed securities 37,162 65,433 82,270 Other securities 29,632 28,529 36,660 ----------------------------------------------------------- Total $762,384 $721,485 $570,236 =========================================================== The following table is a summary of the relative maturities and yields of the Company's investment securities as of December 31, 1994. Weighted average yields have been computed by dividing annual interest income, adjusted for amortization of premium and accretion of discount, by the book value of the related securities. Yields on state and political subdivision securities have been calculated on a fully taxable equivalent basis using the federal tax rate of 35 percent.
After one but After five but (in thousands) Within one within five within ten After year years years ten years Total Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield -------------------------------------------------------------------------------------------------------------------------- Investment securities available for sale ---------------------------------------- U.S. Treasury $15,304 5.37% $ 66,574 5.99% $ - -% $ - -% $81,878 5.87% U.S. Government Agencies and Corporations 2,002 6.20% 13,179 6.14% - -% 38,644 5.82% 53,825 5.91% States and Political Subdivisions 9,423 6.72% - -% - -% - -% 9,423 6.72% Asset backed - - -% - -% - -% - Other 8,503 7.59% 10,025 6.54% - -% - -% 18,528 7.02% -------------------------------------------------------------------------------------------------------------------------- Total $35,232 6.32% $ 89,778 6.07% $ - -% $ 38,644 3.82% $163,654 6.07% ========================================================================================================================== Investment securities held to maturity -------------------------------------- U.S. Treasury $21,084 4.08% $138,360 4.92% $ - -% $ - -% $159,444 4.81% U.S. Government Agencies and Corporations - -% 52,245 5.52% 77,912 5.49% 72,151 5.65% 202,308 5.55% States and Political Subdivisions 4,496 9.12% 24,744 8.25% 43,037 8.06% 116,435 8.14% 188,712 8.16% Asset backed - -% 37,162 5.11% - -% - -% 37,162 5.11% Other 6,700 6.00% 2,911 6.91% - -% 1,493 6.00% 11,104 6.24% -------------------------------------------------------------------------------------------------------------------------- Total $32,280 5.18% $255,422 5.42% $120,949 6.40% $190,079 7.18% $598,730 6.16% ========================================================================================================================== Loan Portfolio The following table shows the composition of loans of the Company by type of loan or type of borrower, on the dates indicated.
Composition of the loan portfolio 1994 1993 1992 1991 1990 -------------------------------------------------------------------------------------------- Commercial and commercial real estate $ 605,245 $ 612,756 $ 635,895 $ 667,082 $ 670,364 Real estate construction 27,278 40,533 63,886 89,946 122,988 Real estate residential 193,061 172,245 175,834 163,938 148,460 Consumer 292,735 304,993 334,215 364,276 377,112 Unearned income (14,548) (15,788) (18,883) (19,281) (22,504) -------------------------------------------------------------------------------------------- Gross loans $1,103,771 $1,114,739 $1,190,947 $1,265,961 $1,296,420 Reserve for loan losses (27,600) (25,587) (24,742) (23,853) (19,001) -------------------------------------------------------------------------------------------- Net loans $1,076,171 $1,089,152 $1,166,205 $1,242,108 $1,277,419 ============================================================================================
Maturities and Sensitivity of Selected Loans to Changes in Interest Rates The following table shows the maturity distribution and interest rate sensitivity of Commercial and Real estate construction loans at December 31, 1994.*
Within One to After one year five years five years Total --------------------------------------------------------------------------------- Commercial and Commercial real estate** $349,444 $91,367 $164,434 $605,245 Real estate construction 25,542 1,736 0 27,278 --------------------------------------------------------------------------------- Total $374,986 $93,103 $164,434 $632,523 ================================================================================= Loans with fixed interest rates $ 31,060 $93,103 $164,434 $288,597 Loans with floating interest rates 343,926 0 0 343,926 --------------------------------------------------------------------------------- Total $374,986 $93,103 $164,434 $632,523 =================================================================================
[FN] * Excludes loans to individuals and residential mortgages totaling $471,248. These types of loans are typically paid in monthly installments over a number of years. **Includes demand loans Commitments and Lines of Credit It is not the policy of the Company to issue formal commitments on lines of credit except to a limited number of well established and financially responsible local commercial enterprises. Such commitments can be either secured or unsecured and are typically in the form of revolving lines of credit for seasonal working capital needs. Occasionally, such commitments are in the form of Letters of Credit to facilitate the customer's particular business transaction. Commitment fees generally are not charged except where Letters of Credit are involved. Commitments and lines of credit typically mature within one year. See also Note 12 of the consolidated notes to the financial statements. Asset Quality The Company closely monitors the markets in which it conducts its lending operations. The Company continues its strategy to control its exposure to loans with higher credit risk and increase diversification of earning assets into less risky investments. Asset reviews are performed using grading standards and criteria similar to those employed by bank regulatory agencies. Assets receiving lesser grades fall under the "classified assets" category which includes all non-performing assets and potential problem loans. These lesser grades occur when known information about possible credit problems causes doubts about the ability of such borrowers to comply with loan repayment terms. These loans have varying degrees of uncertainty and may become non-performing assets. Classified assets receive an elevated level of attention by Management to ensure collection. Total classified assets peaked during the second quarter of 1993 as a result of the Merger but declined significantly to $63.6 million by December 31, 1993, mainly due to improvements in the Napa Valley Bank classified asset portfolio. Continuing write-downs, loan collections, real estate liquidations and restructuring reflecting the Company's workout strategy, resulted in classified assets of $46.5 million at December 31, 1994, a decrease of $17.1 million, or 27 percent, from the previous year end. Non-Performing Assets Non-performing assets include non-accrual loans, loans 90 or more days past due and still accruing, other real estate owned and loans classified as substantively foreclosed. Loans are placed on non-accrual status upon reaching 90 days or more delinquent, unless the loan is well secured and in the process of collection. Interest previously accrued on loans placed on non-accrual status is charged against interest income. Loans secured by real estate with temporarily impaired values and commercial loans to borrowers experiencing financial difficulties are placed on non-accrual status even though the borrowers continue to repay the loans as scheduled. Such loans are classified by Management as "performing non-accrual" and are included in total non-performing assets. Performing non-accrual loans are reinstated to accrual status when improvements in credit quality eliminate the doubt as to the full collectibility of both interest and principal and the loan is brought current. When the ability to fully collect non-accrual loan principal is in doubt, cash payments received are applied against the principal balance of the loans until such time as full collection of the remaining recorded balance is expected. Any additional payments received after that point are recorded as interest income on a cash basis.
Non performing assets ------------------------------------------------------------------------------------ (in millions) 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------------ Performing non-accrual loans $ 2.0 $ 1.9 $ 1.1 $ 2.2 $16.0 Non-performing non-accrual loans 5.1 7.2 14.9 37.7 9.3 ------------------------------------------------------------------------------------ Total non-accrual loans 7.1 9.1 16.0 39.9 25.3 Loans 90 or more days past due and still accruing 0.4 0.3 0.1 1.0 6.2 Loan collateral substantively foreclosed -- 5.4 16.6 7.1 6.0 Other real estate owned 7.4 12.5 17.9 4.9 2.7 ------------------------------------------------------------------------------------ Total non-performing assets $14.9 $27.3 $50.6 $52.9 $40.2 ==================================================================================== Reserve for loan losses as a percentage of non-accrual loans and loans 90 or more past due and still accruing 369% 272% 153% 58% 60%
Performing non-accrual loans increased $100,000 to $2.0 million at December 31, 1994 while non-performing non-accrual loans decreased $2.1 million to $5.1 million at December 31, 1994, due to loan collections, write-downs and foreclosure of loan collateral. The amount of gross interest income that would have been recorded for non-accrual loans for the year ended December 31, 1994, if all such loans had been current in accordance with their original terms while outstanding during the period was $814,000. The amount of interest income that was recognized on non-accrual loans from cash payments made during the year ended December 31, 1994 totaled $386,000, representing an annualized yield of 4.39 percent. Cash payments received which were applied against the book balance of performing and non-performing non-accrual loans outstanding at December 31, 1994, totaled $248,000 compared to $534,000 in 1993. Of the $5.4 million loan collateral substantively foreclosed at December 31, 1993, a total of $415,000 was reclassified as non-accrual loans at December 31, 1994 and the rest was either foreclosed or liquidated. The declining OREO balance during 1994 and 1993 is due to asset write-downs and liquidations.
Summary of non-accrual loans (In thousands) -------------------------------------------------------------------------------------------------------- December 31, 1994 1993 1992 1991 1990 -------------------------------------------------------------------------------------------------------- Performing non-accrual loans $1,943 $1,855 $1,083 $2,227 $9,281 Non-performing non-accrual loans 5,126 7,215 14,856 37,665 4,832 -------------------------------------------------------------------------------------------------------- Total non-accrual loans $7,069 $9,070 $15,939 $39,892 $14,113 Performing non-accrual loans Commercial 1,761 1,126 1,009 2,227 4,291 Real estate construction 156 729 -- -- 4,961 Real estate residential -- -- 74 -- -- Consumer 26 -- -- -- 29 -------------------------------------------------------------------------------------------------------- Total performing non-accrual loans 1,943 1,855 1,083 2,227 9,281 Non-performing non-accrual loans Commercial 3,484 4,373 13,575 19,277 3,639 Real estate construction 1,247 2,106 573 17,305 7,500 Real estate residential 252 197 481 796 4,455 Consumer 143 539 227 287 411 -------------------------------------------------------------------------------------------------------- Total non-performing non-accrual loans 5,126 7,215 14,856 37,665 16,005 -------------------------------------------------------------------------------------------------------- Total non-accrual loans $7,069 $9,070 $15,939 $39,892 $25,286 ========================================================================================================
The Company's reserve for loan losses is maintained at a level estimated by Management to be adequate to provide for losses that can be reasonably anticipated based upon specific conditions as determined by Management, credit loss experience, the amount of past due and non-performing loans, recommendations of regulatory authorities, prevailing economic conditions and other factors. The reserve is allocated to segments of the loan portfolio based in part on quantitative analysis of historical credit loss experience. Criticized and classified loan balances are analyzed using a linear regression model or standard allocation percentages. The results of this analysis are applied to current criticized and classified loan balances to allocate the reserve to the respective segments of the loan portfolio. In addition, loans with similar characteristics not usually criticized using regulatory guidelines due to their small balances and numerous accounts, are analyzed based on the historical rate of net losses and delinquency trends grouped by the number of days the payments on those loans are delinquent. While these factors are essentially judgmental and may not be reduced to a mathematical formula, Management considers the $27.6 million reserve for loan losses, which constituted 2.50 percent of total loans at December 31, 1994, to be adequate as a reserve against inherent losses. Management continues to evaluate the loan portfolio and assess current economic conditions that will dictate future reserve levels. The following table summarizes the loan loss experience of the Company for the periods indicated:
Loan loss experience (In thousands) -------------------------------------------------------------------------------------------------------- December 31, 1994 1993 1992 1991 1990 -------------------------------------------------------------------------------------------------------- Total loans outstanding $1,103,771 $1,114,739 $1,190,947 $1,265,961 $1,296,420 Average loans outstanding during the period 1,088,242 1,142,965 1,215,955 1,276,098 1,306,992 Analysis of the reserve: Balance, beginning of period $25,587 $24,742 $23,852 $19,001 $15,960 Credit losses: Commercial, commercial real estate (2,646) (5,560) (4,081) (4,770) (5,647) Real estate construction (747) (1,908) (1,657) (50) -- Real estate residential -- (66) -- -- -- Consumer (2,528) (2,557) (3,055) (4,320) (4,542) -------------------------------------------------------------------------------------------------------- Total (5,921) (10,091) (8,793) (9,140) (10,189) Credit loss recoveries: Commercial, commercial real estate 811 972 1,105 878 2,551 Real estate construction -- -- -- -- 239 Real estate residential -- -- 18 -- -- Consumer 1,243 1,196 1,555 2,695 2,302 -------------------------------------------------------------------------------------------------------- Total 2,054 2,168 2,678 3,573 5,092 -------------------------------------------------------------------------------------------------------- Net credit losses (3,867) (7,923) (6,115) (5,567) (5,097) Sale of Sonoma Valley Bank -- (684) -- -- -- Additions to the reserve charged to operating expense 5,880 9,452 7,005 10,418 8,138 -------------------------------------------------------------------------------------------------------- Balance, end of period $27,600 $25,587 $24,742 $23,852 $19,001 ======================================================================================================== Net credit losses to average loans 0.36% 0.69% 0.50% 0.44% 0.39% Reserve for loan losses as a percentage of loans outstanding 2.50% 2.30% 2.08% 1.88% 1.47%
In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"), which addresses the accounting treatment of certain impaired loans and amends FASB Statements No. 5 and No. 15. In October, 1994, the FASB issued statement No. 118, "Accounting by Creditors for Impairment of a Loan" Income Recognition and Disclosures" ("SFAS 118"), which amends the income recognition and disclosure provisions of SFAS 114. SFAS 114 and SFAS 118 are effective January 1, 1995. Under SFAS 114, a loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Under SFAS 114, impairment may be measured based on the present value of the expected future cash flows discounted at the loan's effective interest rate. Alternatively, impairment may be measured by using the loan's observable market price or the fair value of the collateral if repayment is expected to be provided solely by the underlying collateral. The Company will implement SFAS 114, as amended by SFAS 118, in January, 1995. Management believes that the adoption of this pronouncement will not significantly impact the Company's financial statements. The following tables present the allocation of the loan loss reserve balance on the dates indicated: Allocation of the loan loss reserve:
----------------------------------------------------------------------------------- December 31, ---------------------------------------------- 1994 1993 ---------------------- ---------------------- Allocation Loans as Allocation Loans as of reserve percent of of reserve percent of balance total loans balance total loans ---------- ----------- ---------- ----------- Type of loan Commercial $10,705 54.8% $12,537 55.0% Real estate construction 1,987 2.5 2,538 3.6 Real estate residential 47 17.5 85 15.5 Consumer 3,765 25.2 3,921 25.9 Unallocated portion of the reserve 11,096 - 6,506 - ---------------------------------------------------------------------------------- Total $27,600 100.0% $25,587 100.0% ==================================================================================
---------------------------------------------------------------------------------- December 31, --------------------------------------------- 1992 1991 --------------------- --------------------- Allocation Loans as Allocation Loans as of reserve percent of of reserve percent of balance total loans balance total loans --------- ----------- --------- ----------- Type of loan Commercial $13,551 53.4% $8,325 52.7% Real estate construction 964 5.4 2,336 7.1 Real estate residential 545 14.8 50 12.9 Consumer 3,872 26.4 2,363 27.3 Unallocated portion of the reserve 5,810 - 10,778 - ---------------------------------------------------------------------------------- Total $24,742 100.0% $23,852 100.0% ==================================================================================
------------------------------------------------------------ December 31, ----------------------- 1990 ----------------------- Allocation Loans as of reserve percent of balance total loans ------- ----------- Type of loan Commercial $2,698 52.5% Real estate construction 4,360 9.5 Real estate residential 29 10.4 Consumer 1,782 27.6 Unallocated portion of the reserve 10,132 - ---------------------------------------------------------- Total $19,001 100.0% ========================================================== The reduced allocation to commercial loans from December 31, 1993 to December 31, 1994 is primarily due to a reduction in the balance of criticized loans. The unallocated component includes Management's judgemental determination of the amounts necessary for concentrations, economic uncertainties and other subjective factors. The changes in the allocation to loan portfolio segments from December 31, 1992 to December 31, 1993 reflect changes in criticized and classified loan balances. The increased allocation to construction loans is attributable to an increase in criticized loans due to the recessionary environment. The decreased allocation to commercial and consumer loans is attributable to a higher level of recoveries. Asset and Liability Management The fundamental objective of the Company's management of assets and liabilities is to maximize its economic value while maintaining adequate liquidity and a conservative level of interest-rate risk. The principal sources of asset liquidity are marketable investment and money market securities available for sale. At December 31, 1994, investment securities available for sale totaled $160.6 million. As in previous years, decreased loan balances resulted in an increase in the size of the securities portfolio. The Company generates significant liquidity from its operating activities. The Company's profitability in 1994, 1993 and 1992 generated cash flows provided from operations for such years of $27.7 million, $28.4 million and $33.4 million, respectively. Additional cash flow may be provided by financing activities, primarily the acceptance of customer deposits and short-term borrowings from banks. Over the last three years, deposit balances have either remained flat, as in 1992, or declined, as in 1993 and 1994. The decline in 1993 was mainly due to the sale of its 50 percent interest in Sonoma Valley Bank. During 1994, the Company paid off $9.8 million in principal of its high-rate long-term debt. To compensate for decreases in deposits and long-term debt, the Company increased its short-term borrowings, which grew $64.2 million, $57.0 million and $2.5 million in 1994, 1993 and 1992, respectively. In addition, in December, 1993, Westamerica Bank issued a ten-year, $20.0 million subordinated capital note that qualifies as Tier II Capital, to be used as a source of working capital. The Company uses cash flow from operating and financing activities to make investments in loans, money market assets and investment securities. The Company's strategy to reduce its exposure to high-risk loans is shown in the reduction of loan volumes over the past three years, when balances decreased $11.0 million, $68.1 million and $32.8 million in 1994, 1993 and 1992, respectively. The smaller decline in 1994 reflects efforts of the Company to stabilize loan volume without jeopardizing credit quality. The net repayment of loans resulted in added liquidity for the Company, which increased its investment securities portfolio by $40.9 million, $153.3 million, and $54.7 million in 1994, 1993 and 1992, respectively. Interest rate risk is influenced by market forces. However, that risk may be controlled by monitoring and managing the repricing characteristics of interest-bearing assets and liabilities. The primary analytical tool used by Management to gauge interest-rate sensitivity is a simulation model used by many major banks and bank regulators. This industry standard model is used to simulate the effects on net interest income of changes in market interest rates that are up to 2 percent higher or 2 percent lower than current levels. The results of the model indicate that the mix of interest-rate sensitive assets and liabilities at December 31, 1994 would not, in the view of Management, expose the Company to an unacceptable level of interest-rate risk. Capital Resources The current and projected capital position of the Company and the impact of capital plans and long-term strategies is reviewed regularly by Management. The Company's capital position represents the level of capital available to support continuing operations and expansion. The Company's primary capital resource is shareholders' equity, which increased $13.8 million or 9 percent from the previous year end and increased $22.5 million from December 31, 1992. During 1994, the Board of Directors approved a 13 percent increase in the cash dividend on the Company's Common Stock, from 15 cents to 17 cents per share. During 1994, the Company recorded common stock dividends of $5.2 million. The ratio of total risk-based capital to risk-adjusted assets increased to 15.32 percent at December 31, 1994, from 14.40 percent at December 31, 1993. Tier I risk-based capital to risk-adjusted assets increased to 12.57 percent at December 31, 1994, from 11.11 percent at year-end 1993. Capital to Risk-Adjusted Assets Minimum Regulatory Capital Minimum Regulatory Capital At December 31, 1994 1993 Requirements ----------------------------------------------------------------------- Tier I Capital 12.57% 11.11% 4.00% Total Capital 15.32 14.40 8.00 Leverage ratio 8.23 7.42 3.00 The risk-based capital ratios improved in 1994 due to a more rapid growth in equity than total assets, in conjunction with the decline in loan volumes and increase in investment securities, which reduced the level of risk-adjusted assets. Capital ratios are reviewed on a regular basis to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet the Company's future needs. All ratios are in excess of regulatory definitions of "well capitalized". Financial Ratios The following table shows key financial ratios for the periods indicated:
For the Years Ended ------------------------------------------------------------------------------------ 1994 1993 1992 ------------------------------------------------------------------------------------ Return on average total assets 1.21% .48% .77% Return on average shareholders' equity 15.59 6.51 11.16 Average shareholders' equity as a percent of: Average total assets 7.76 7.33 6.93 Average total loans 14.54 12.70 11.22 Average total deposits 9.25 8.32 7.67 Deposits The following table sets forth, by time remaining to maturity, the Company's domestic time deposits in amounts of $100,000 or more. Time Remaining to Maturity December 31, ---------------------------------------------------------------- (in thousands) 1994 1993 1992 ---------------------------------------------------------------- Three months or less $49,939 $ 73,988 $ 92,581 Three to six months 25,114 23,817 46,378 Six months to twelve months 13,453 10,503 12,895 Over twelve months 8,055 4,685 6,630 ---------------------------------------------------------------- Total $96,561 $112,993 $158,484 ================================================================ Short-term borrowings The following table sets forth the short-term borrowings of the Company. December 31, ----------------------------------------------------------------------- (in thousands) 1994 1993 1992 ----------------------------------------------------------------------- Federal funds purchased $ 1,300 $25,000 $ -- Other borrowed funds: Retail repurchase agreements 111,957 28,038 4,099 Other 19,961 16,026 7,939 ----------------------------------------------------------------------- Total other borrowed funds $131,918 $44,064 $12,038 ----------------------------------------------------------------------- Total funds purchased $133,218 $69,064 $12,038 ======================================================================= Further details of the other borrowed funds are: December 31, ----------------------------------------------------------------------- (in thousands) 1994 1993 1992 ----------------------------------------------------------------------- Outstanding Average during the year $118,263 $37,284 $11,509 Maximum during the year 167,081 68,608 19,055 Interest rates Average during the period 4.11% 3.13% 4.73% Average at period end 5.07 3.04 3.23 Non-Interest Income Components of Non-Interest Income --------------------------------------------------------------- (In millions) 1994 1993 1992 --------------------------------------------------------------- Service charges on deposit accounts $11.8 $12.8 $12.4 Merchant credit card 2.3 2.2 2.9 Mortgage banking .8 1.5 1.8 Brokerage commissions .7 .8 .6 Net investment securities gain - .1 1.1 Sale of Sonoma Valley Bank - .7 - Automobile receivable servicing - 1.3 - Other 3.8 4.5 5.0 --------------------------------------------------------------- Total $19.4 $23.9 $23.8 =============================================================== Non-interest income was $19.4 million in 1994. The $4.5 million decrease from 1993 resulted from the 1993 recognition of a deferred gain on an earlier sale of automobile receivables, the gain on the sale of the Company's 50 percent interest in Sonoma Valley Bank, and gains from the sale of credit cardholders' portfolios acquired through the Merger, partially offset by refunds from prior years' income tax returns recognized in 1994. In addition, the decrease was the result of lower service charges on deposit accounts, and lower mortgage banking income and brokerage commissions, partially offset by higher merchant credit card fees. In 1993 non-interest income increased $100,000 from the previous year, as the items recognized in 1993 were partially offset by a $1.1 million gain on the sale of securities available for sale recognized in 1992. In addition, service charges on deposit accounts and brokerage commissions which were higher in 1993 when compared to 1992, were partially offset by lower merchant credit card and mortgage banking income. Non-Interest Expense Components of Non-Interest Expense ------------------------------------------------------------------ (In millions) 1994 1993 1992 ------------------------------------------------------------------ Salaries $27.4 $31.6 $33.7 Other personnel benefits 7.0 7.4 7.2 Occupancy 7.3 8.6 8.5 Equipment 4.9 6.2 5.3 FDIC insurance assessment 3.9 4.1 4.0 Data processing 3.7 3.7 3.1 Professional fees 2.1 3.1 3.3 Loan expense 1.4 1.6 1.4 Stationery and supplies 1.3 1.9 1.7 Advertising and public relations 1.2 1.8 1.8 Operational losses 1.1 2.0 .7 Other real estate owned 1.0 11.5 6.2 Merchant credit card .8 1.1 1.7 Insurance .6 .9 1.0 Other 7.4 11.1 10.0 ------------------------------------------------------------------ Total $71.1 $96.6 $89.6 ================================================================== Average full-time equivalent staff 796 905 1,092 Average assets per full-time equivalent staff $2,561 $2,188 $1,804 Non-interest expense decreased $25.5 million or 26 percent in 1994 compared to 1993 which, in turn, increased $7.0 million or 8 percent from 1992. Lower expenses in 1994 reflect the Company's improved efficiency and exercise of cost controls, plus the effect of consolidating operations after the Merger. The combination of these effects is the main reason for the $4.6 million decrease in personnel-related expenses, $1.0 million reduction in professional fees, and other reductions in most non-interest expense categories. Higher expenses in 1993 are the direct result of merger-related foreclosed real estate owned expenses, including a $10.0 million write-down of assets acquired in the Merger to net realizable value and chargeoffs of excess furniture, equipment and stationery and supplies also associated with the Merger. The ratio of average assets per full-time equivalent staff was $2.6 million in 1994 compared to $2.2 million and $1.8 million in 1993 and 1992, respectively. The Company's strategy to improve efficiency can be seen in the reduction of the average number of full-time equivalent staff from 1,092 in 1992 to 905 and 796 in 1993 and 1994, respectively. Provision for Income Tax The provision for income tax increased $7.9 million in 1994 as a direct result of higher pretax income partially offset by an increase in tax-exempt interest income from municipal securities. The provision was $10.9 million in 1994, reflecting an effective tax rate of 31 percent, compared to $3.0 million in 1993 and $7.9 million in 1992, reflecting effective tax rates of 24 percent and 34 percent, respectively. ITEM 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Page Consolidated Balance Sheets as of December 31, 1994 and 1993 36 Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992 37 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1994, 1993 and 1992 38 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 39 Notes to consolidated financial statements 40 Management's Letter of Financial Responsibility 63 Independent Auditors' Report 64 WESTAMERICA BANCORPORATION CONSOLIDATED BALANCE SHEETS
(In thousands) ------------------------------------------------------------------------------- December 31, 1994 1993 ------------------------------------------------------------------------------- Assets Cash and cash equivalents (Note 15) $ 112,401 $ 102,618 Money market assets 250 250 Trading account securities - 10 Investment securities available for sale; fair value (Note 2) 160,609 168,819 Investment securities held to maturity; market value of $569,684 in 1994 and $563,563 in 1993 (Note 2) 598,730 557,057 Loans, net of reserve for loan losses of: $27,600 at December 31, 1994 $25,587 at December 31, 1993 (Notes 3, 4 and 14) 1,076,171 1,089,152 Loan collateral substantively foreclosed and other real estate owned 7,431 17,905 Premises and equipment, net (Notes 5 and 6 23,287 25,341 Interest receivable and other assets (Note 8) 51,356 43,267 -------------------------------------------------------------------------- Total assets $2,030,235 $2,004,419 ========================================================================== Liabilities Deposits: Non-interest bearing $ 381,354 $ 369,820 Interest bearing: Transaction 285,153 289,322 Savings 659,434 654,766 Time (Note 6) 362,939 417,320 -------------------------------------------------------------------------- Total deposits 1,688,880 1,731,228 Funds purchased 133,218 69,064 Liability for interest, taxes, other expenses, minority interest and other (Note 8) 16,408 15,328 Notes and mortgages payable (Notes 6 and 15) 25,524 36,352 -------------------------------------------------------------------------- Total liabilities 1,864,030 1,851,972 Commitments and contingent liabilities (Notes 4, 11 and 12) - - Shareholders' Equity (Notes 7 and 15) Common stock (no par value) Authorized- 20,000 shares Issued and outstanding- 8,048 shares in 1994 and 8,080 shares in 1993 53,510 52,499 Capital surplus 10,289 10,831 Unrealized net (loss) gain on securities available for sale (1,753) 2,527 Retained earnings 104,159 86,590 -------------------------------------------------------------------------- Total shareholders' equity 166,205 152,447 -------------------------------------------------------------------------- Total liabilities and shareholders' equity $2,030,235 $2,004,419 ==========================================================================
[FN] See accompanying notes to consolidated financial statements. WESTAMERICA BANCORPORATION CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data) --------------------------------------------------------------------------------- For the years ended December 31, 1994 1993 1992 -------------------------------------------------------------------------------- Interest Income Loans $93,140 $99,607 $115,357 Money market assets and federal funds sold - 298 1,745 Trading account securities 1 6 4 Investment securities available for sale: Taxable 9,057 - - Non-taxable 174 - - Investment securities held to maturity: Taxable 22,658 31,265 32,343 Non-taxable 9,208 5,740 5,304 -------------------------------------------------------------------------------- Total interest income 134,238 136,916 154,753 -------------------------------------------------------------------------------- Interest Expense Transaction deposits 2,804 4,219 7,680 Savings deposits 15,981 15,085 18,838 Time deposits (Note 6) 14,579 19,014 29,314 Funds purchased 5,139 1,937 698 Notes and mortgages (Note 6) 2,612 2,016 2,362 -------------------------------------------------------------------------------- Total interest expense 41,115 42,271 58,892 -------------------------------------------------------------------------------- Net Interest Income 93,123 94,645 95,861 Provision for loan losses (Note 3) 5,880 9,452 7,005 -------------------------------------------------------------------------------- Net interest income after provision for loan losses 87,243 85,193 88,856 -------------------------------------------------------------------------------- Non-Interest Income Service charges on deposit accounts 11,815 12,809 12,437 Merchant credit card 2,251 2,217 2,900 Mortgage banking 801 1,467 1,808 Brokerage commissions 650 839 555 Net gain on sales of securities available for sale 24 68 1,066 Other 3,880 6,546 5,061 -------------------------------------------------------------------------------- Total non-interest income 19,421 23,946 23,827 -------------------------------------------------------------------------------- Non-Interest Expense Salaries and related benefits (Note 13) 34,346 39,007 40,826 Occupancy (Notes 5 and 11) 7,323 8,625 8,524 Equipment (Notes 5 and 11) 4,851 6,195 5,302 FDIC insurance assessment 3,930 4,079 4,021 Data processing 3,712 3,658 3,137 Professional fees 2,086 3,071 3,332 Other real estate owned 1,042 11,526 5,183 Other 13,833 20,484 19,279 -------------------------------------------------------------------------------- Total non-interest expense 71,123 96,645 89,604 -------------------------------------------------------------------------------- Income Before Income Taxes 35,541 12,494 23,079 Provision for income taxes (Note 8) 10,868 3,039 7,857 -------------------------------------------------------------------------------- Net Income $24,673 $ 9,455 $ 15,222 ================================================================================ Average common shares outstanding 8,074 8,054 7,933 Per Share Data (Notes 7 and 18) Net income $ 3.06 $ 1.17 $ 1.92 Dividends declared .64 .57 .51
[FN] See accompanying notes to consolidated financial statements. WESTAMERICA BANCORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands) ------------------------------------------------------------------------------------------ Unrealized Net Unrealized Gain (Loss) on (Loss) Gain on Securities Marketable Capital Available Retained Equity Common Stock Surplus for Sale Earnings Securities Total ------------------------------------------------------------------------------------------ December 31, 1991 $ 49,088 $ 10,786 $ - $ 69,555 $ (9) $ 129,420 Net income - - - 15,222 - 15,222 Stock issued (Note 7) 2,169 45 - - - 2,214 Retirement of stock (204) - - - - (204) Dividends declared - - - (2,987) - (2,987) Unrealized gain on securities - - - - 9 9 ------------------------------------------------------------------------------------------ December 31, 1992 $ 51,053 $ 10,831 $ - $ 81,790 $ - $ 143,674 ------------------------------------------------------------------------------------------ Net income - - - 9,455 - 9,455 Stock issued (Note 7) 1,446 - - - - 1,446 Dividends declared - - - (4,655) - (4,655) Unrealized gain on securities - - 2, 527 - - 2,527 ------------------------------------------------------------------------------------------ December 31, 1993 $ 52,499 $ 10,831 $ 2,527 $ 86,590 $ - 152,447 ------------------------------------------------------------------------------------------ Net income - - - 24,673 - 24,673 Stock issued (Note 7) 1,567 (542) - - - 1,025 Retirement of stock (556) - - (1,932) - (2,488) Dividends declared - - - (5,172) - (5,172) Unrealized loss on securities - - (4,280) - - (4,280) ------------------------------------------------------------------------------------------ December 31, 1994 $ 53,510 $ 10,289 $( 1,753) $104,159 $ - $166,205 ==========================================================================================
[FN] See accompanying notes to consolidated financial statements. WESTAMERICA BANCORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) --------------------------------------------------------------------------------- For the years ended December 31, 1994 1993 1992 --------------------------------------------------------------------------------- Operating Activities Net income $24,673 $ 9,455 $ 15,222 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,708 3,622 4,198 Loan loss provision 5,880 9,452 7,005 Amortization of deferred net loan (cost)/fees (1,159) (462) 615 (Increase) decrease in interest income receivable (1,491) (2,542) 1,070 (Increase) decrease in other assets (2,129) 2,888 (3,204) Decrease in income taxes payable (677) (1,529) (1,179) Increase (decrease) in interest expense payable 467 (1,169) (1,933) (Decrease) increase in accrued expenses (20) (1,809) 1,420 Gain on sale of securities (538) (68) (1,066) Loss on sale of securities 514 - - Loss on sale of developed land - - 2,930 Loss on sale/write-down of premises and equipment 179 1,476 225 Originations of loans for resale (26,634) (92,374) (100,055) Proceeds from sale of loans originated for resale 24,762 92,536 103,855 Loss on sale/write-down of property acquired in satisfaction of debt 175 9,618 3,507 Gain on sale of Sonoma Valley Bank - (668) - Net maturities (purchases) of trading securities 10 (10) 779 --------------------------------------------------------------------------------- Net cash provided by operating activities 27,720 28,416 33,389 --------------------------------------------------------------------------------- Investing Activities Net repayments of loans 11,021 68,109 32,782 Purchases of money market assets - (325) (16,833) Purchases of investment securities (266,792) (427,886) (339,583) Purchases of property, plant and equipment (1,833) (3,481) (4,416) Improvements on developed land - - (1,435) Proceeds from maturity/sale of money market assets - 1,441 17,574 Proceeds from maturity of securities 142,798 274,451 263,793 Proceeds from sale of securities 83,117 184 21,128 Proceeds from sale of property and equipment - - 1,640 Net proceeds from sale of developed land - 356 1,928 Proceeds from disposition of property acquired in satisfaction of debt 5,955 6,313 4,513 Proceeds from sale of Sonoma Valley Bank - 2,733 - Net repayments on loan collateral substantively foreclosed 3,455 669 1,187 --------------------------------------------------------------------------------- Net cash used in investing activities (22,279) (77,436) (17,722) --------------------------------------------------------------------------------- Financing Activities Net (decrease) increase in deposits (42,349) (58,691) 617 Net increase in federal funds purchased 64,154 57,026 2,468 Issuance of notes payable - 20,000 - Principal and interest payments on notes and mortgages payable (10,828) (2,985) (2,423) Exercise of stock options 1,025 1,446 2,214 Retirement of stock (2,488) - (204) Unrealized loss in marketable equity securities - - 9 Dividends paid (5,172) (4,655) (2,987) --------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 4,342 12,141 (306) --------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 9,783 (36,879) 15,361 --------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 102,618 139,497 124,136 --------------------------------------------------------------------------------- Cash and cash equivalents at end of period $112,401 $102,618 $139,497 ================================================================================= Supplemental disclosures: Loans transferred to other real estate owned and substantively repossessed $ 3,892 $ 16,111 $ 36,572 Interest paid 41,582 42,982 57,491 Income tax payments 11,725 5,700 9,773 Unrealized (loss) gain on securities available for sale (4,280) 2,527 -
[FN] See accompanying notes to consolidated financial statements. WESTAMERICA BANCORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: Business and Accounting Policies Westamerica Bancorporation, a registered bank holding Company, (the "Company"), provides a full range of banking services to individual and corporate customers in Northern California through its subsidiary banks (the "Banks"), Westamerica Bank and Subsidiary, Bank of Lake County and Napa Valley Bank. The Banks are subject to competition from other financial institutions and to regulations of certain agencies and undergo periodic examinations by those regulatory authorities. Summary of Significant Accounting Policies The consolidated financial statements are prepared in conformity with generally accepted accounting principles and general practices within the banking industry. The following is a summary of significant policies used in the preparation of the accompanying financial statements. In preparing the financial statements, Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the balance sheets and revenues and expenses for the periods indicated. Principles of Consolidation The financial statements include the accounts of the Company, and all the Company's subsidiaries which include the Banks, Community Banker Services Corporation and Subsidiary and Westcore, a newly formed company which will engage in planning and servicing retirement and employee benefit programs. Significant intercompany transactions have been eliminated in consolidation. All data presented for 1992 has been restated to include the April 15, 1993 acquisition of Napa Valley Bancorp on a pooling-of-interests basis. Cash Equivalents Cash equivalents include Due From Banks balances and Federal Funds Sold which are both readily convertible to known amounts of cash and are so near their maturity that they present insignificant risk of changes in value because of interest rate volatility. Securities Investment securities consist of U.S. Treasury, federal agencies, state, county and municipal securities, mortgage-backed, corporate debt and equity securities. Under the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", the Company classifies its debt and marketable equity securities in one of three categories: trading, available for sale or held to maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities in which the Company has the ability and intent to hold the security until maturity. All other securities not included in trading or held to maturity are classified as available for sale. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized gains and losses on trading securities are included in earnings. Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of shareholders' equity until realized. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary, results in a charge to earnings and the establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related investment security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available for sale are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Loans and Reserve for Loan Losses The reserve for loan losses is a combination of specific and general reserves available to absorb estimated future losses throughout the loan portfolio and is maintained at a level considered adequate to provide for such losses. Credit reviews of the loan portfolio, designed to identify problem loans and to monitor these estimates, are conducted continually, taking into consideration market conditions, current and anticipated developments applicable to the borrowers and the economy, and the results of recent examinations by regulatory agencies. Management approves the conclusions resulting from credit reviews. Ultimate losses may vary from current estimates. Adjustments to previous estimates of loan losses are charged to income in the period which they become known. Unearned interest on discounted loans is amortized over the life of these loans, using the sum-of-the-months digits formula for which the results are not materially different from those obtained by using the interest method. For all other loans, interest is accrued daily on the outstanding balances. Loans which are more than 90 days delinquent with respect to interest or principal, unless they are well secured and in the process of collection, and other loans on which full recovery of principal or interest is in doubt, are placed on non-accrual status. Non-refundable fees and certain costs associated with originating or acquiring loans are deferred and amortized as an adjustment to interest income over the estimated respective loan lives. Loans held for sale are identified upon origination and are reported at the lower of cost or market value on an individual loan basis. Other Real Estate Owned and Loan Collateral Substantively Foreclosed Other real estate owned includes property acquired through foreclosure or forgiveness of debt. These properties are transferred at fair value, which becomes the new cost basis of the property. Losses recognized at the time of acquiring property in full or partial satisfaction of loans are charged against the reserve for loan losses. Subsequent losses incurred due to the declines in property values as identified in annual independent property appraisals are recognized as non-interest expense. Routine holding costs, such as property taxes, insurance and maintenance, and losses from sales and dispositions are recognized as non-interest expense. In 1993, the Company had loans classified as "loan collateral substantially foreclosed" when the borrower had little or no equity in the collateral, when proceeds for repayment of the loan were expected to come only from the operation or sale of the collateral, and the debtor had either formally or effectively abandoned control of the collateral to the Company or had retained control of the collateral but, because of the current financial condition of the debtor or the economic prospects for the debtor and/or collateral in the foreseeable future, there were doubts about the ability of the debtor to rebuild equity in the collateral or otherwise repay the loan in the near term. Losses recognized at the time the loans were reclassified as substantive foreclosures were charged against the reserve for loan losses. Subsequent losses incurred due to declines in property values, were recognized as non-interest expense as were other routine holding costs. The Company had no loans classified as substantively foreclosed at December 31, 1994. Premises and Equipment Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed substantially on the straight-line method over the estimated useful life of each type of asset. Estimated useful lives of premises and equipment range from 20 to 50 years and from 3 to 20 years, respectively. Leasehold improvements are amortized over the terms of the lease or their estimated useful life, whichever is shorter. Fully depreciated and/or amortized assets are removed from the Company's balance sheet. Interest Rate Swap Agreements The Company uses interest rate swap agreements as an asset/liability management strategy to reduce interest rate risk. These agreements are exchanges of fixed and variable interest payments based on a notional principal amount. The primary risk associated with swaps is the exposure to movements in interest rates and the ability of the counterparties to meet the terms of the contracts. The Company controls the credit risk of these agreements through credit approvals, limits and monitoring procedures. The Company is not a dealer but an end user of these instruments and does not use them for trading purposes. As a hedging mechanism, the differential to be paid or received on such agreements is recognized as an adjustment to interest income in the period received or paid. Payments made and/or received in connection with early termination of interest rate swap agreements are recognized over the remaining original term of the swap agreement. Earnings Per Share Earnings per share amounts are computed on the basis of the weighted average of common and common equivalent shares outstanding during each of the years. Income Taxes The Company and its subsidiaries file consolidated tax returns. For financial reporting purposes, the income tax effects of transactions are recognized in the year in which they enter into the determination of recorded income, regardless of when they are recognized for income tax purposes. Accordingly, the provisions for income taxes in the consolidated statements of income include charges or credits for deferred income taxes relating to temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Other Securities and other property held by the Banks in a fiduciary or agency capacity are not included in the consolidated financial statements since such items are not assets of the Company or its subsidiaries. Certain amounts in prior years' financial statements have been reclassified to conform with the current presentation. These reclassification have no effect on previously reported income. Note 2: Investment Securities An analysis of available for sale investment securities portfolio as of December 31, 1994 follows:
------------------------------------------------------------------------------------------------------------------ (In thousands) One One Five Over year or to five to ten ten Amortized Unrealized Unrealized Fair Maturity in Years less years years years Cost gains losses Value ------------------------------------------------------------------------------------------------------------------ December 31, 1994: U.S. Treasury Securities $15,304 $66,574 $-- $ -- $ 81,878 $ 19 $(1,706) $ 80,191 Securities of U.S. Govt. Agencies and Corporations * 2,002 13,179 -- 38,644 53,825 140 (805) 53,160 Obligations of States and Political Subdivisions 9,423 -- -- -- 9,423 2 (29) 9,396 Asset Backed (Automobile Receivables) -- -- -- -- -- -- -- -- Other Securities (Preferred Stocks and Corporate Bonds) 8,503 10,025 -- -- 18,528 19 (685) 17,862 ------------------------------------------------------------------------------------------------------------------ Total $35,232 $89,778 $-- $38,644 $163,654 $180 $(3,225) $160,609 ================================================================================================================== Fair Value by Maturity $34,334 $88,220 $-- $38,055 ======================================================================
[FN] * Includes $46.8 million in Collateralized Mortgage Obligations with the following maturities: 1 to 5 years $10.2 million; over 10 years $36.6 million. The average yield of these securities is 5.91 percent. An analysis of held to maturity investment securities portfolio as of December 31, 1994 follows:
------------------------------------------------------------------------------------------------------------------ (In thousands) One One Five Over year or to five to ten ten Amortized Unrealized Unrealized Fair Maturity in Years less years years years Cost gains losses Value ------------------------------------------------------------------------------------------------------------------ December 31, 1994: U.S. Treasury Securities $21,084 $138,360 $ -- $ -- $159,444 $ -- $ (7,481) $151,963 Securities of U.S. Govt. Agencies and Corporations * -- 52,245 77,912 72,151 202,308 291 (10,784) 191,815 Obligations of States and Political Subdivisions 4,496 24,744 43,037 116,435 188,712 365 (10,487) 178,590 Asset Backed (Automobile Receivables) -- 37,162 -- -- 37,162 -- (933) 36,229 Other Securities (Preferred Stocks and Corporate Bonds) 6,700 2,911 -- 1,493 11,104 3 (20) 11,087 ------------------------------------------------------------------------------------------------------------------ Total $32,280 $255,422 $120,949 $190,079 $598,730 $659 $(29,705) $569,684 ================================================================================================================== Fair Value by Maturity $31,889 $244,831 $115,552 $177,412 ======================================================================
[FN] * Includes $155.1 million in Collateralized Mortgage Obligations with the following maturities: 1 to 5 years $16.6 million; 5 to 10 years $71.6 million; over 10 years $66.9 million. These securities have a market value of $146.6 million and an average yield of 5.28 percent. An analysis of available for sale investment securities portfolio as of December 31, 1993 follows:
------------------------------------------------------------------------------------------------------------------ (In thousands) One One Five Over year or to five to ten ten Amortized Unrealized Unrealized Fair Maturity in Years less years years years Cost gains losses Value ------------------------------------------------------------------------------------------------------------------ December 31, 1993: U.S. Treasury Securities $11,044 $109,473 $ -- $ -- $120,517 $4,029 $ (2) $124,544 Securities of U.S. Govt. Agencies and Corporations * 9,582 18,478 2,008 1,571 31,639 275 (219) 31,695 Obligations of States and Political Subdivisions 3,005 -- -- -- 3,005 -- (5) 3,000 Asset Backed (Automobile Receivables) -- -- -- -- -- -- -- -- Other Securities (Preferred Stocks and Corporate Bonds) 6,250 3,017 -- -- 9,267 313 -- 9,580 ------------------------------------------------------------------------------------------------------------------ Total $29,881 $130,968 $2,008 $1,571 $164,428 $4,617 $(226) $168,819 ================================================================================================================== Fair Value by Maturity $30,103 $135,100 $2,001 $1,615 ======================================================================
[FN] * Includes $24.6 million in Collateralized Mortgage Obligations with the following maturities: 1 year or less $9.4 million; 1 to 5 years $15.2 million. The average yield of these securities is 5.56 percent. An analysis of held to maturity investment securities portfolio as of December 31, 1993 follows:
------------------------------------------------------------------------------------------------------------------ (In thousands) One One Five Over year or to five to ten ten Amortized Unrealized Unrealized Fair Maturity in Years less years years years Cost gains losses Value ------------------------------------------------------------------------------------------------------------------ December 31, 1993: U.S. Treasury Securities $ 3,029 $122,040 $ -- $ -- $125,069 $ 540 $ (270) $125,339 Securities of U.S. Govt. Agencies and Corporations * 9,886 51,668 80,419 81,023 222,996 1,859 (793) 224,062 Obligations of States and Political Subdivisions 11,823 23,185 38,065 51,224 124,297 4,548 (758) 128,087 Asset Backed (Automobile Receivables) 152 65,281 -- -- 65,433 665 (34) 66,064 Other Securities (Preferred Stocks and Corporate Bonds) 12,999 3,115 1,654 1,494 19,262 749 -- 20,011 ------------------------------------------------------------------------------------------------------------------ Total $37,889 $265,289 $120,138 $133,741 $557,057 $8,361 $(1,855) $563,563 ================================================================================================================== Fair Value by Maturity $38,638 $266,843 $120,892 $137,190 ======================================================================
[FN] * Includes $162.6 million in Collateralized Mortgage Obligations with the following maturities: 1 year or less $9.9 million; 1 to 5 years $9.3 million; 5 to 10 years $71.3 million; over 10 years $72.1 million. These obligations have a market value of $162.4 million and an average yield of 5.45 percent. As of December 31, 1994, $248.1 million of investment securities held to maturity were pledged to secure public deposits. Note 3: Loans and Reserve for Loan Losses Loans at December 31, consisted of the following: ---------------------------------------------------------------- (In thousands) 1994 1993 ---------------------------------------------------------------- Commercial $262,518 $266,448 Real estate-commercial 342,727 346,308 Real estate-construction 27,278 40,533 Real estate-residential 193,061 172,245 ---------------------------------------------------------------- Total real estate loans 563,066 559,086 Installment and personal 292,735 304,993 Unearned income (14,548) (15,788) ---------------------------------------------------------------- Gross loans 1,103,771 1,114,739 Loan loss reserve (27,600) (25,587) ---------------------------------------------------------------- Net loans $1,076,171 $1,089,152 ================================================================ Included in real estate-residential at December 31, 1994 and 1993 are loans held for resale of $1.9 million and $5.9 million, respectively, the cost of which approximates market value. Changes in the loan loss reserve were: ------------------------------------------------------------------ (In thousands) 1994 1993 1992 ------------------------------------------------------------------ Balance at January 1, $25,587 $24,742 $23,853 Sale of Sonoma Valley Bank - (684) - Provision for loan losses 5,880 9,452 7,005 Credit losses (5,921) (10,091) (8,794) Credit loss recoveries 2,054 2,168 2,678 ------------------------------------------------------------------ Net chargeoffs (3,867) (7,923) (6,116) ------------------------------------------------------------------ Balance at December 31, $27,600 $25,587 $24,742 ================================================================== Restructured loans were $4.4 million at December 31, 1994 and at December 31; 1993, they were $319,000 at December 31, 1992. The following is a summary of interest foregone on restructured loans for the years ended December 31: ------------------------------------------------------------------------ (In thousands) 1994 1993 1992 ------------------------------------------------------------------------ Interest income that would have been recognized had the loans performed in accordance with their original terms $380 $472 $135 Less: Interest income recognized on restructured loans (264) (218) - ------------------------------------------------------------------------ Interest foregone on restructured loans $116 $254 $135 ======================================================================== There were no commitments to lend additional funds to borrowers whose loans are included above. Note 4: Concentrations of Credit Risk The Company's business activity is with customers in Northern California. The loan portfolio is well diversified with no industry comprising greater than ten percent of total loans outstanding as of December 31, 1994. The Company has a significant amount of credit arrangements that are secured by real estate collateral. In addition to real estate loans outstanding as disclosed in Note 3, the Company had loan commitments and stand-by letters of credit related to real estate loans of $11.8 million at December 31, 1994. The Company requires collateral on all real estate loans and generally attempts to maintain loan-to-value ratios no greater than 75 percent on commercial real estate loans and no greater than 80 percent on residential real estate loans. Note 5: Premises and Equipment A summary as of December 31, follows: ------------------------------------------------------------------------- Accumulated Depreciation and Net (In thousands) Cost Amortization Book Value ------------------------------------------------------------------------- 1994 Land $ 3,735 $ - $ 3,735 Buildings and improvements 19,861 (7,286) 12,575 Leasehold improvements 2,276 (1,520) 756 Furniture and equipment 13,737 (7,516) 6,221 ------------------------------------------------------------------------- Total $39,609 $(16,322) $23,287 ========================================================================= 1993 Land $ 3,735 $ - $ 3,735 Buildings and improvements 20,072 (6,876) 13,196 Leasehold improvements 2,537 (1,513) 1,024 Furniture and equipment 14,347 (6,961) 7,386 ------------------------------------------------------------------------- Total $40,691 $(15,350) $25,341 ========================================================================= Depreciation and amortization included in non-interest expense amount to $3,708,000 in 1994, $3,622,000 in 1993 and $4,198,000 in 1992. Note 6: Borrowed Funds Notes payable include the unsecured obligations of the Company as of December 31, 1994 and 1993, as follows: ----------------------------------------------------------------------- (In thousands) 1994 1993 ----------------------------------------------------------------------- Unsecured note dated September, 1976, interest payable semiannually at 9 7/8% and principal payments of $267,000 due annually to September 1, 1996. Note was paid off in September, 1994. $ - $ 196 Unsecured note dated May, 1984, interest payable quarterly at 12.95% and principal payments of $1,000,000 due annually beginning September 1, 1991 and ending on September 1, 1996. Note was paid off in October, 1994. - 2,100 Equity contract notes, originated in April, 1986 and maturing on April 1, 1996. Interest payable semiannually at 11 5/8% and principal payments of $2,500,000 due annually, on April 1, starting in 1993. Notes were paid off in April, 1994. - 7,500 Senior notes, originated in May, 1988 and maturing on June 30, 1995. Interest payable semiannually at 10.87% and principal payment due at maturity. 5,000 5,000 Subordinated note, issued by Westamerica Bank, originated in December, 1993 and maturing September 30, 2003. Interest of 6.99% per annum is payable semiannually on March 31 and September 30, with principal due at maturity. 20,000 20,000 ----------------------------------------------------------------------- Total notes payable $25,000 $34,796 ======================================================================= Mortgages payable of $524,000 consist of a note of Westamerica Bank secured by a deed of trust on premises having a net book value of $756,000 at December 31, 1994. The note, which has an effective interest rate of 10 percent, is scheduled to mature in April, 1995. At December 31, 1994, the Company had unused lines of credit amounting to $2.5 million. Compensating balance arrangements are not significant to the operations of the Company. At December 31, 1994, the Banks had $96.6 million in time deposit accounts in excess of $100,000; interest on these accounts in 1994 was $3.5 million. Note 7: Shareholders' Equity In April 1982, the Company adopted an Incentive Stock Option Plan and 413,866 shares were reserved for issuance. Under this plan, all options are currently exercisable and terminate 10 years from the grant. At December 31, 1994, 17,340 options were outstanding and exercisable. Under the Stock Option Plan adopted by the Company in 1985, 750,000 shares have been reserved for issuance. Stock appreciation rights, incentive stock options and non-qualified stock options are available under this plan. Options are granted at fair market value and are generally exercisable in equal installments over a three-year period with the first installment exercisable one year after the date of the grant. Each incentive stock option has a maximum ten-year term while non-qualified stock options may have a longer term. The 1985 plan was amended in 1990 to provide for restricted performance shares ("RPS") grants. RPS's granted were 33,900, 24,700, and 27,450, for the years ended December 31, 1994, 1993 and 1992, respectively. The related expense for those years was $960,000, $740,000, and $315,000, respectively. An RPS grant becomes fully vested after three years of being awarded, provided that the Company has attained its performance goals for such three-year period. At December 31, 1994, 167,209 options were available for grant under the 1985 Stock Option Plan. Information with respect to options outstanding and options exercised under the plans is summarized in the following table: ----------------------------------------------------------------------------- Number Option Price of shares $ per share $ Total ----------------------------------------------------------------------------- Shares under option at December 31: 1994 399,741 8.50 - 28.06 8,628,494 1993 313,564 8.50 - 24.50 5,766,400 1992 278,544 6.06 - 22.00 4,249,399 Options exercised during: 1994 31,742 8.88 - 24.50 456,150 1993 51,260 8.88 - 22.00 692,157 1992 168,423 6.06 - 13.29 1,975,000 At December 31, 1994, options for 204,104 shares were exercisable. Shareholders have authorized issuance of two new classes of 1,000,000 shares each, to be denominated "Class B Common Stock" and "Preferred Stock", respectively, in addition to the 20,000,000 shares of Common Stock presently authorized. At December 31, 1994, no shares of Class B or Preferred Stock had been issued. In December 1986, the Company declared a dividend distribution of one common share purchase right (the "Right") for each outstanding share of common stock. The Rights are exercisable only in the event of an acquisition of, or announcement of a tender offer to acquire, 15 percent or more of the Company's stock without the prior consent of the Board of Directors. If the Rights become exercisable, the holder may purchase one share of the Company's common stock for $65. Following an acquisition of 15 percent of the Company's common stock or 50 percent or more of its assets without prior consent of the Company, each right will also entitle the holder to purchase $130 worth of common stock of the Company for $65. Under certain circumstances, the Rights may be redeemed by the Company at a price of $.05 per right prior to becoming exercisable and in certain circumstances thereafter. The Rights expire on December 31, 1999, or earlier, in connection with certain Board-approved transactions. Note 8: Income Taxes The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement reported amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The components of the net deferred tax assets as of December 31 are as follows: ------------------------------------------------------------------------ (In thousands) 1994 1993 ------------------------------------------------------------------------ Deferred tax asset Reserve for loan losses $11,280 $10,321 State franchise taxes 1,318 676 Securities available for sale 1,293 - Deferred compensation 998 534 Real estate owned 2,135 2,742 Other 1,187 1,037 ------------------------------------------------------------------------ 18,211 15,310 Valuation allowance - - ------------------------------------------------------------------------ Total deferred tax asset 18,211 15,310 Deferred tax liability Net deferred loan costs 452 502 Fixed assets 1,076 1,164 Securities available for sale - 1,864 Other 23 148 ------------------------------------------------------------------------ Total deferred tax liability 1,551 3,678 ------------------------------------------------------------------------ Net deferred tax asset $16,660 $11,632 ======================================================================== The Company believes a valuation allowance is not needed to reduce the deferred tax asset because it is more likely than not that the deferred tax asset will be realized through recoverable taxes or future taxable income. The provisions for federal and state income taxes consist of amounts currently payable and amounts deferred which, for the years ended December 31, are as follows: ----------------------------------------------------------------- (In thousands) 1994 1993 1992 ----------------------------------------------------------------- Current income tax expense: Federal $ 8,693 $2,501 $6,977 State 4,045 2,195 3,130 ----------------------------------------------------------------- Total current 12,738 4,696 10,107 ----------------------------------------------------------------- Deferred income tax benefit: Federal (1,590) (646) (1,758) State (280) (617) (492) ----------------------------------------------------------------- Total deferred (1,870) (1,263) (2,250) Adjustment of net deferred tax asset for enacted changes in tax rates: Federal - (304) - State - (90) - ----------------------------------------------------------------- Provision for income taxes $10,868 $3,039 $7,857 ================================================================= The provisions for income taxes differ from the provisions computed by applying the statutory federal income tax rate to income before taxes, as follows: ----------------------------------------------------------------- (In thousands) 1994 1993 1992 ----------------------------------------------------------------- Federal income taxes due at statutory rate $12,433 $4,248 $7,846 (Reductions) increases in income taxes resulting from: Interest not taxable for federal income tax purposes (3,362) (1,895) (1,735) State franchise taxes, net of federal income tax benefit 2,447 982 1,753 Deferred benefit and other (650) (296) (7) ----------------------------------------------------------------- Provision for income taxes $10,868 $3,039 $7,857 ================================================================= Note 9: Fair Value of Financial Instruments The following fair values of financial instruments do not represent actual amounts that may be realized upon any sale or liquidation of the related assets or liabilities. In addition, these values do not give effect to discounts to fair value which may occur when financial instruments are sold in larger quantities. The fair values presented represent the Company's best estimate of fair value using the methodologies discussed below. The fair value of financial instruments which have a relatively short period of time between their origination and their expected realization was estimated using historical cost. The estimated fair value of such financial instruments at December 31, was: --------------------------------------------------------------------------- (In thousands) 1994 1993 --------------------------------------------------------------------------- Cash and cash equivalents $ 112,401 $ 102,618 Money market assets 250 250 Interest and taxes receivable 34,777 28,799 Non-interest bearing and interest-bearing transaction and savings deposits 1,325,941 1,313,908 Funds purchased 133,218 69,064 Interest payable 3,167 2,700 The fair value at December 31, of the following financial instruments was estimated using quoted market prices: -------------------------------------------------------------------------- (In thousands) 1994 1993 -------------------------------------------------------------------------- Investment securities available for sale $ 160,609 $ 168,819 Investment securities held to maturity 569,684 563,563 Trading account securities - 10 Loans were separated into two groups for valuation. Variable rate loans, except for those which have reached their maximum contractual rates, which reprice frequently with changes in market rates were valued using historical data. Fixed rate loans were valued by discounting the future cash flows expected to be received from the loans using current interest rates charged on loans with similar characteristics. Additionally, the $27,600,000 reserve for loan losses was applied against the estimated fair value to recognize future defaults of contractual cash flows. The estimated fair value of loans at December 31, was: --------------------------------------------------------------------------- (In thousands) 1994 1993 --------------------------------------------------------------------------- Loans $1,054,768 $1,096,164 The fair value of time deposits and notes and mortgages payable was estimated by discounting future cash flows related to these financial instruments using current market rates for financial instruments with similar characteristics. The estimated fair values at December 31, were: -------------------------------------------------------------------------- (In thousands) 1994 1993 -------------------------------------------------------------------------- Time deposits $ 362,186 $ 420,475 Notes and mortgages payable 22,898 36,014 The estimated fair value of the Company's interest rate swaps, which are determined by dealer quotes and generally represent the amount that the Company would pay to terminate its swap contracts were $1,071,000 and $593,000, respectively, at December 31, 1994 and 1993. Note 10: Interest Rate Risk Management The Company considers the effects of various factors in implementing interest rate risk management activities, including the utilization of interest-rate swaps. The notional amounts of interest rate swaps outstanding were: -------------------------------------------------------------------- (In thousands) 1994 1993 1992 -------------------------------------------------------------------- Balance, January 1, $110,000 $ 50,000 $75,000 Contracts entered - 60,000 50,000 Contracts matured (50,000) - (75,000) -------------------------------------------------------------------- Balance, December 31, $ 60,000 $110,000 $50,000 -------------------------------------------------------------------- Fair value, December 31, $ (1,071) $ (593) $ - ==================================================================== Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to the notional amounts. For the $60 million of interest rate swaps outstanding at December 31, 1994, comprised of two contracts with notional amounts of $30 million each, the Company pays a floating rate, based on the three-month London Interbank Offering Rate (LIBOR), and receives a weighted average fixed rate of 4.11 percent. The LIBOR rate has averaged 4.43 percent from the date these swaps were entered into through December 31, 1994. The Company is exposed to credit-related losses in the event of non-performance by the counterparty but does not expect this event to occur, as the Company deals only with highly rated counterparties. At December 31, 1994 and 1993, due to the loss position, no credit exposure existed in connection with the interest rate swaps. These swap contracts are scheduled to mature in August, 1995. Note 11: Lease Commitments Fifteen banking offices and three administrative service centers are owned and thirty-three banking offices and two support facilities are leased. Substantially all the leases contain multiple renewal options and provisions for rental increases, principally for cost of living index, property taxes and maintenance. The Company also leases certain pieces of equipment. Minimum future rental payments, net of sublease income, at December 31, 1994, are as follows: (In thousands) Year Amount -------------------------------------- 1995 $ 3,600 1996 2,933 1997 1,772 1998 1,262 1999 825 Thereafter 2,600 -------------------------------------- Total minimum lease payments $12,992 ====================================== Total rentals for premises and equipment net of sublease income included in non-interest expense were $3,129,000 in 1994, $3,862,000 in 1993 and $3,910,000 in 1992. Note 12: Commitments and Contingent Liabilities Loan commitments are agreements to lend to a customer provided there is no violation of any condition established in the agreement. Commitments generally have fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future funding requirements. Loan commitments are subject to the Company's normal credit policies and collateral requirements. Unfunded loan commitments were $161.8 million at December 31, 1994. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. Standby letters of credit are primarily issued to support customers' short-term financing requirements and must meet the Company's normal credit policies and collateral requirements. Standby letters of credit outstanding totaled $6.5 million and $6.4 million at December 31, 1994 and 1993, respectively. The Company, because of the nature of its business, is subject to various threatened or filed legal cases. The Company, based on the advice of the legal counsel, does not expect such cases will have a material, adverse effect on its financial position or results of operations. Note 13: Retirement Benefit Plans The Company sponsors a defined benefit Retirement Plan covering substantially all of its salaried employees with one or more years of service. The Company's policy is to expense costs as they accrue as determined by the Projected Unit Cost method. The Company's funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. The following table sets forth the Retirement Plan's funded status as of December 31 and the pension cost for the years ended December 31: -------------------------------------------------------------------------- (In thousands) 1994 1993 -------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligation $ (8,870) $(11,245) -------------------------------------------------------------------------- Accumulated benefit obligation $(10,120) $(11,430) -------------------------------------------------------------------------- Projected benefit obligation $(10,331) $(11,612) Plan assets at fair market value 10,430 11,677 -------------------------------------------------------------------------- Funded status - projected benefit obligation less than plan assets $ 99 $ 65 ========================================================================== Comprised of: Prepaid pension cost $ 69 $ 22 Unrecognized net (loss) gain 27 (75) Unrecognized prior service cost 362 529 Unrecognized net obligation, net of amortization (359) (411) -------------------------------------------------------------------------- Total $ 99 $ 65 ========================================================================== -------------------------------------------------------------------------- (In thousands) 1994 1993 -------------------------------------------------------------------------- Net pension costs includes the following components: Service cost during the period $ 372 $ 364 Interest cost on projected benefit obligation 776 744 Actual return on plan assets (68) (1,012) Net amortization and deferral (775) 64 -------------------------------------------------------------------------- Net periodic pension cost $ 305 $ 160 ========================================================================== The discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.25 percent and 4.50 percent, respectively, at December 31, 1994 and 6.75 percent and 4.50 percent, respectively, at December 31, 1993. The expected long-term rate of return on plan assets in 1994 and 1993 was 7 percent. Effective January 1, 1992, the Company adopted a defined contribution Deferred Profit Sharing Plan covering substantially all of its salaried employees with one or more years of service. Participant deferred profit sharing account balances offset benefits accrued under the Retirement Plan which was amended effective January 1, 1992 to coordinate benefits with the Deferred Profit Sharing Plan. The coordination of benefits results in the Retirement Plan benefit formula establishing the minimum value of participant retirement benefits which, if not provided by the Deferred Profit Sharing Plan, are guaranteed by the Retirement Plan. The costs charged to non-interest expense related to benefits provided by the Retirement Plan and the Deferred Profit Sharing Plan were $1,327,000 in 1994, $1,160,000 in 1993 and $1,037,000 in 1992. In addition to the Retirement Plan and the Deferred Profit Sharing Plan, all salaried employees are eligible to participate in the voluntary Tax Deferred Savings/Retirement Plan (ESOP) upon completion of a 90-day introductory period. This plan allows employees to defer, on a pretax basis, a portion of their salaries as contributions to the plan. Participants may invest in five funds, including Westamerica Bancorporation Common Stock Fund. The matching contributions charged to operating expense were $477,000 in 1994, $482,000 in 1993 and $462,000 in 1992. Effective December 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions", ("SFAS No. 106"). Adoption of SFAS No. 106 required a change from the cash method to an actuarial based accrual method of accounting for postretirement benefits other than pensions. The Company offers continuation of group insurance coverage to employees electing early retirement, as defined by the Retirement Plan, for the period from the date of early retirement until age sixty five. The Company contributes an amount toward early retirees' insurance premiums which is fixed at the time of early retirement. The Company reimburses Medicare Part B premiums for all retirees over age sixty five, as defined by the Retirement Plan. The following table sets forth the net periodic postretirement benefit cost for the years ended December 31 and the funded status of the plan at December 31: ---------------------------------------------------------------------- (In thousands) 1994 1993 ---------------------------------------------------------------------- Service cost $ - $ - Interest cost 105 107 Actual return on plan assets - - Amortization of unrecognized transition obligation 61 61 Other, net - - ---------------------------------------------------------------------- Net periodic cost $ 166 $ 168 ---------------------------------------------------------------------- Accumulated postretirement benefit obligation attributable to: Retirees $1,140 $1,130 Fully eligible participants 239 265 Other 188 158 ---------------------------------------------------------------------- Total $1,567 $1,553 ====================================================================== Fair value of plan assets $ - $ - Accumulated postretirement benefit obligation in excess of plan assets 1,567 $1,553 Comprised of: Unrecognized prior service cost - - Unrecognized net gain (loss) - - Unrecognized transition obligation 1,407 1,471 Recognized postretirement obligation 160 82 ---------------------------------------------------------------------- Total $1,567 $1,553 ====================================================================== The discount rate used in measuring the accumulated postretirement benefit obligation was 7.25 percent at December 31, 1994 and 6.75 percent at December 31, 1993. The assumed health care cost trend rate used to measure the expected cost of benefits covered by the plan was 8 percent for 1995 and declined steadily to an ultimate trend rate of 4 percent beginning in 1999. The effect of a one percentage point increase on the assumed health care cost trend for each future year would increase the aggregate of the service cost components of the 1994 and 1993 net periodic cost by $87,000 and $73,000, respectively, and increase the accumulated postretirement benefit obligation at December 31, 1994 and 1993 by $255,000 and $204,000, respectively. Note 14: Related Party Transactions Certain directors and executive officers of the Company and/or its subsidiaries were loan customers of the Banks during 1994 and 1993. All such loans were made in the ordinary course of business on normal credit terms, including interest rate and collateral requirements. No related party loans represent more than normal risk of collection. Such loans were $3,108,000 and $5,238,000 at December 31, 1994 and 1993, respectively. Note 15: Restrictions Payment of dividends to the Company by Westamerica Bank, the largest subsidiary bank, is limited under regulations for Federal Reserve member banks. The amount that can be paid in any calendar year, without prior approval from regulatory agencies, cannot exceed the net profits (as defined) for that year plus the net profits of the preceding two calendar years less dividends declared. Under this regulation, Westamerica Bank was not restricted as to the payment of $11.4 million in dividends to the Company as of December 31, 1994. During 1992 and 1993, Napa Valley Bank, a banking subsidiary, was operating under a regulatory order which disallowed payment of dividends to the Company unless it reduced the level of problem loans, liquidated or reserved adequately against the real estate investment in its subsidiary company, and strengthened its loan loss reserve. Napa Valley Bank has complied with all conditions of the regulatory order, which was removed by the regulators early in 1994. Napa Valley Bank began to pay dividends to the Company in the fourth quarter of 1994. Bank of Lake County, another subsidiary bank, started to pay dividends to the Company in the third quarter of 1994. Payment of dividends by the Company is also restricted under the terms of the note agreements as discussed in Note 6. Under the most restrictive of these agreements, $24.4 million was available for payment of dividends as of December 31, 1994. The Banks are required to maintain reserves with the Federal Reserve Bank equal to a percentage of its reservable deposits. The Banks' daily average on deposit at the Federal Reserve Bank was $43.0 million in 1994 and $40.4 million in 1993. Note 16: Westamerica Bancorporation (Parent Company Only) Statements of Income (In thousands) ----------------------------------------------------------------------------- Years ended December 31, 1994 1993 1992 ----------------------------------------------------------------------------- Dividends from subsidiaries $19,680 $16,671 $ 8,630 Interest from subsidiaries 101 315 61 Other income 3,752 2,781 1,158 ----------------------------------------------------------------------------- Total income 23,533 19,767 9,849 ----------------------------------------------------------------------------- Interest on borrowings 1,029 1,958 2,434 Salaries and benefits 5,529 4,526 782 Other non-interest expense 2,927 5,464 3,451 ----------------------------------------------------------------------------- Total expenses 9,485 11,948 6,667 ----------------------------------------------------------------------------- Income before income tax benefit and equity in undistributed income of subsidiaries 14,048 7,819 3,182 Income tax benefit 2,463 3,478 1,890 Equity in undistributed income (loss) of subsidiaries 8,162 (1,842) 10,150 ----------------------------------------------------------------------------- Net income $24,673 $ 9,455 $15,222 ============================================================================= Balance Sheets (In thousands) ----------------------------------------------------------------------- Years ended December 31, 1994 1993 ----------------------------------------------------------------------- Assets Cash and cash equivalents $ 4,526 $ 4,790 Investment securities held to maturity 6,750 9,250 Loans 148 149 Investment in subsidiaries 158,168 154,257 Premises and equipment 55 29 Accounts receivable from subsidiaries 156 65 Other assets 5,741 2,056 ----------------------------------------------------------------------- Total assets $175,544 $170,596 ======================================================================= Liabilities Long-term debt $ 5,000 $ 14,796 Other liabilities 4,339 3,353 ----------------------------------------------------------------------- Total liabilities 9,339 18,149 Shareholders' equity 166,205 152,447 ----------------------------------------------------------------------- Total liabilities and shareholders' equity $175,544 $170,596 ======================================================================= Statements of Cash Flows (In thousands) --------------------------------------------------------------------------- Years ended December 31, 1994 1993 1992 --------------------------------------------------------------------------- Operating Activities Net income $ 24,673 $ 9,455 $ 15,222 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 65 108 67 Undistributed earnings (loss) of affiliates (8,162) 607 (10,150) Increase in equity in affiliates - - (1,797) (Increase) decrease in receivables from affiliates (91) 197 1,020 Net change in income taxes (1,740) 60 2,633 (Increase) decrease in other assets (2,295) 1,183 (1,394) Increase in other liabilities 1,448 1,583 301 Gain on sale of Sonoma Valley Bank - (668) - Net gain on sale of land - - 43 --------------------------------------------------------------------------- Net cash provided by operating activities 13,898 12,525 5,945 --------------------------------------------------------------------------- Investing Activities Purchases of premises and equipment (92) - (2,189) Net change in land held for sale - (800) - Net change in loan balances 1 (149) - Investment in subsidiaries (140) (8,639) (485) Purchase of investment securities (4,500) (9,700) (13,991) Proceeds from maturities of investment securities 7,000 14,191 10,500 Proceeds from sale of premises and equipment - 2,369 2,149 Proceeds from sale of Sonoma Valley Bank - 2,733 - --------------------------------------------------------------------------- Net cash provided by (used in) investing activities 2,269 5 (4,016) --------------------------------------------------------------------------- Financing Activities Net decrease in short-term debt - - (656) Principal reductions of long-term debt (9,796) (6,260) (2,611) Proceeds from issuance of note payable to affiliate - - 1,368 Proceeds from exercise of stock options 1,025 1,446 2,139 Retirement of stock (2,488) - - Unrealized loss on marketable equity securities - - 9 Dividends paid (5,172) (4,655) (2,987) --------------------------------------------------------------------------- Net cash used in financing activities (16,431) (9,469) (2,738) --------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (264) 3,061 (809) Cash and cash equivalents at prior year end 4,790 1,729 2,538 --------------------------------------------------------------------------- Cash and cash equivalents at December 31, $ 4,526 $ 4,790 $ 1,729 =========================================================================== Note 17: Quarterly Financial Information (Unaudited)
(In thousands except per share data and price of common stock) March 31, June 30, Sept. 30, Dec. 31, 1994 --------------------------------------------------------------------------------- Interest income $32,478 $33,382 $34,006 $34,372 Net interest income 22,821 23,336 23,421 23,545 Provision for loan losses 1,605 1,605 1,470 1,200 Non-interest income 5,404 4,812 4,536 4,669 Non-interest expense 17,784 17,752 17,575 18,013 Income before taxes 8,836 8,791 8,912 9,001 Net income 5,995 6,023 6,286 6,369 Net income per share .74 .75 .78 .79 Dividends declared per share .15 .15 .17 .17 Price range, common stock $25.88-29.25 $27.00-32.50 $29.25-33.25 $29.00-33.25 1993 ------------------------------------------------------------------------------------ Interest income $35,946 $34,293 $33,215 $33,462 Net interest income 24,174 23,392 23,301 23,778 Provision for loan losses 1,550 4,692 1,605 1,605 Non-interest income 5,018 8,344 5,575 5,009 Non-interest expense 23,314 34,245 19,594 19,492 Income (loss) before taxes 4,328 (7,201) 7,677 7,690 Net income (loss) 3,019 (4,070) 5,125 5,381 Net income (loss) per share .38 (.50) .63 .67 Dividends declared per share .14 .14 .14 .15 Price range, common stock $22.13-30.25 $23.88-28.75 $25.13-28.50 $25.75-28.50 Note 18: Acquisitions a) Consumated acquisitions On April 15, 1993, the Company issued approximately 2,122,740 shares of its common stock in exchange for all of the outstanding common stock of Napa Valley Bancorp, a bank holding company. This business transaction was accounted for as a pooling-of-interests combination and, accordingly, the consolidated financial data for periods prior to the combination include the accounts and results of operations of Napa Valley Bancorp. Certain reclassification have been made to Napa Valley Bancorp to conform to Westamerica Bancorporation's presentation. The total interest and total non-interest income previously reported by Napa Valley Bancorp included in the accompanying 1992 consolidated financial statements were $49.9 million and $7.1 million, respectively. The net income reported by Napa Valley Bancorp for 1992 was $1.2 million. b) Pending acquisitions On July 25, 1994, the Company announced the signing of a Definitive Merger Agreement under which the Company will acquire all of the outstanding shares of common stock of PV Financial, a bank holding company located in Modesto, California. Shareholders of PV Financial approved the proposed merger with and into the Company on November 14, 1994 and the merger date was effective January 31, 1995. Under the terms of this agreement, all of the outstanding shares of PV Financial Common Stock will be converted into the right to receive .5348 of a share of the Company's Common Stock, pursuant to a tax-free exchange. On November 17, 1994, the Company announced the signing of a Definitive Merger Agreement under which the Company will acquire all of the outstanding shares of common stock of CapitolBank Sacramento, headquartered in Sacramento, California. This agreement provides for an exchange ratio of .0938 of a share of the Company's Common Stock for each outstanding share of CapitolBank Common Stock. Pursuant to this agreement, the exchange ratio is subject to adjustments if certain conditions in connection with the Company's average share price occur and other conditions as defined in the definitive merger agreement. The parties have not yet adopted a formal timetable, but it is estimated that the merger will be consummated by mid 1995. On December 8, 1994, the Company and North Bay Bancorp, a bank holding company located in Novato, California, signed a Definitive Merger Agreement under which all of the outstanding shares of North Bay Bancorp Common Stock will be exchanged for shares of the Company's Common Stock. This agreement provides that holders of each share of North Bay Bancorp will be entitled to receive, on a tax-free basis, .3600 of a share of the Company's common stock. Pursuant to this agreement, the exchange ratio is subject to an adjustment if certain conditions in connection with the Company's average share price occur and other conditions as defined in the definitive merger agreement. The following unaudited pro forma combined financial information, based on the historical financial statements of the parties, summarizes the combined results of operations of the Company, PV Financial, Capitol Bank and North Bay on a pooling-of-interests basis, as if the combinations had been consummated on January 1 of each of the periods presented. (In thousands, except per share data) ------------------------------------------------------------------ Years Ended December 31, 1994 1993 1992 ------------------------------------------------------------------ Total assets at year end $2,457,463 $2,428,848 $2,377,028 Net loans at year end 1,353,468 1,363,543 1,407,612 Deposits at year end 2,071,668 2,109,514 2,141,800 Shareholders' equity at year end 204,704 188,644 177,639 Net interest income 116,234 113,786 114,149 Net income 27,705 12,023 16,040 Earnings per share 2.77 1.20 1.63 Management's Letter of Financial Responsibility To the Shareholders: The Management of Westamerica Bancorporation is responsible for the preparation, integrity, reliability and consistency of the information contained in this annual report. The financial statements, which necessarily include amounts based on judgments and estimates, were prepared in conformity with generally accepted accounting principles and prevailing practices in the banking industry. All other financial information appearing throughout this annual report is presented in a manner consistent with the financial statements. Management has established and maintains a system of internal controls that provides reasonable assurance that the underlying financial records are reliable for preparing the financial statements, and that assets are safeguarded from unauthorized use or loss. This system includes extensive written policies and operating procedures and a comprehensive internal audit function, and is supported by the careful selection and training of staff, an organizational structure providing for division of responsibility, and a Code of Ethics covering standards of personal and business conduct. Management believes that, as of December 31, 1994 the Corporation's internal control environment is adequate to provide reasonable assurance as to the integrity and reliability of the financial statements and related financial information contained in the annual report. The system of internal controls is under the general oversight of the Board of Directors acting through its Audit Committee, which is comprised entirely of outside directors. The Audit Committee monitors the effectiveness of and compliance with internal controls through a continuous program of internal audit and credit examinations. This is accomplished through periodic meetings with Management, internal auditors, loan quality examiners, regulatory examiners and independent auditors to assure that each is carrying out their responsibilities. The Corporation's financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants elected by the shareholders. All financial records and related data, as well as the minutes of shareholders and directors meetings, have been made available to them. Management believes that all representations made to the independent auditors during their audit were valid and appropriate. David L. Payne Chairman, President and CEO James M. Barnes Executive Vice President and CFO Dennis R. Hansen Senior Vice President and Controller Independent Auditor's Report The Board of Directors and Shareholders of Westamerica Bancorporation We have audited the accompanying consolidated balance sheets of Westamerica Bancorporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three year period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. As discussed in Note 1 to the consolidated financial statements, the consolidated statements of income, changes in shareholders' equity, and cash flows for the period ended December 31, 1992, include the April 15, 1993 acquisition of Napa Valley Bancorp on a pooling-of-interests basis. We did not audit the financial statements of Napa Valley Bancorp as of and for the period ended December 31, 1992, which statements reflect total interest and non-interest income constituting 32 percent in 1992 of the related consolidated total. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Napa Valley Bancorp, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and 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 Westamerica Bancorporation and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1994 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP San Francisco, California February 13, 1995 Report of Independent Public Accountants To the Board of Directors and Shareholders of Napa Valley Bancorp: We have audited the accompanying consolidated statements of income, changes in shareholders' equity and cash flows of Napa Valley Bancorp and subsidiaries (the Company) for the year ended December 31, 1992. 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 audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows for Napa Valley Bancorp and subsidiaries for the year ended December 31, 1992 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP San Francisco, California, March 31, 1993 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 information required by this Item 10 is incorporated herein by reference from the "Election of Directors" and "Executive Officers" section on Pages 2 through 10 of the Company's Proxy Statement dated March 21, 1995, which has been filed with the Commission pursuant to Regulation 14A. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 is incorporated herein by reference from the "Executive Compensation" and "Retirement Benefits and Other Arrangements" section on Pages 11 through 15 of the Company's Proxy Statement dated March 21, 1995, which has been filed with the Commission pursuant to Regulation 14A. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is incorporated herein by reference from the "Security Ownership of Certain Beneficial Owners and Management" section on Pages 8 and 9 of the Company's Proxy Statement dated March 21, 1995, which has been filed with the Commission pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 13 is incorporated herein by reference from the "Indebtedness of Directors and Management" section on Page 6 of the Company's Proxy Statement dated March 21, 1995, which has been filed with the Commission pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. All Financial Statements See Index to Financial Statements on page 35. (a) 2. Financial statement schedules required by Item 8 of Form 10-K and by Item 14(d). None (Information included in Financial Statements). (a) 3. Exhibits The following documents are included or incorporated by reference in this annual report on Form 10-K. Exhibit Number 3(a) Restated Articles of Incorporation (composite copy). 3(b)** By-laws. 4(a) Ammended and Restated Rights Agreement - March 23, 1995. 10 Material contracts: (a)* Incentive Stock Option Plan (b)*** James M. Barnes --January 7, 1987 (Employment) (c)*** E. Joseph Bowler --January 7, 1987 (Employment) (d)*** Robert W. Entwisle --January 7, 1987 (Employment) (e)**** Amended and Restated Agreement and Plan of Reorganization by and between Westamerica Bancorporation and John Muir National Bank, proxy and prospectus dated November 27, 1991. (f)***** Agreement and Plan of Merger by and between Westamerica Bancorporation and Napa Valley Bancorp, proxy and prospectus dated November 12, 1992. 21 Subsidiaries of the registrant. 23 Consent of experts *Exhibit 10(a) is incorporated by reference from Exhibit A to the Company's Proxy Statement dated March 22, 1983, which was filed with the Commission pursuant to Regulation 14A. **Exhibits 3(b), is incorporated by reference from Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1986. ***Exhibits 3(a), 10(b), 10(c) and 10(d) are incorporated herein by reference from Exhibits 3(a), 10(n), 10(o), and 10(q) to the Company's Annual Report on Form 10-K for the year ended December 31, 1986. ****Exhibit 3(e) is incorporated herein by reference from the Form S-4 dated November 27, 1991. *****Exhibit 3(f) is incorporated herein by reference from the Form S-4 dated November 12, 1992. The Corporation will furnish to shareholders a copy of any exhibit listed above, but not contained herein, upon written request to Office of the Corporate Secretary, Westamerica Bancorporation, P. O. Box 567, San Rafael, California 94915, and payment to the Corporation of $.25 per page. (b) Report on Form 8-K None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WESTAMERICA BANCORPORATION By Dennis R. Hansen By James M. Barnes ---------------------- ---------------------- Senior Vice President and Controller Executive Vice President and (Principal Accounting Officer) Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature Title Date David L. Payne Chairman of the Board and 3/23/95 ------------------------------ Director and President and CEO David L. Payne E. Joseph Bowler Senior Vice President 3/23/95 ------------------------------ and Treasurer E. Joseph Bowler Etta Allen Director 3/23/95 ------------------------------ Etta Allen Louis E. Bartolini Director 3/23/95 ------------------------------ Louis E. Bartolini Charles I. Daniels, Jr. Director 3/23/95 ------------------------------ Charles I. Daniels, Jr. Don Emerson Director 3/23/95 ------------------------------ Don Emerson Arthur C. Latno Director 3/23/95 ------------------------------ Arthur C. Latno Patrick D. Lynch Director 3/23/95 ------------------------------ Patrick D. Lynch Catherine Cope MacMillan Director 3/23/95 ------------------------------ Catherine Cope MacMillan Director 3/23/95 ------------------------------ James Maggetti Dwight H. Murray, Jr. M.D. Director 3/23/95 ------------------------------ Dwight H. Murray, Jr., M.D. Ronald A. Nelson Director 3/23/95 ------------------------------ Ronald A. Nelson Carl Otto Director 3/23/95 ------------------------------ Carl Otto Edward B. Sylvester Director 3/23/95 ----------------------------- Edward B. Sylvester Exhibit 21 WESTAMERICA BANCORPORATION SUBSIDIARIES AS OF DECEMBER 31, 1994 State of Incorporation Westamerica Bank California Napa Valley Bank California Bank of Lake County California Community Banker Services Corporation California Westcore California Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K, filed by Westamerica Bancorporation, of our reports dated March 31, 1993 on our audits of Napa Valley Bancorp's financial statements for the year ended December 31, 1992. It should be noted that we have performed no audit procedures subsequent to March 31, 1993, the date of our report. Furthermore, we have not audited any financial statements of Napa Valley Bancorp as of any date or for any periods subsequent to December 31, 1992. /s/ Arthur Andersen LLP San Francisco, California March 27, 1995
EX-4 2 ____________________________________________________________ ____________________________________________________________ Westamerica Bancorporation and Chemical Trust Company of California Rights Agent _______________________ Amended and Restated Rights Agreement Dated as of March 23, 1995 ____________________________________________________________ ____________________________________________________________ TABLE OF CONTENTS Section Page 1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Appointment of Rights Agent . . . . . . . . . . . . . . . . . . . . 4 3. Issue of Rights Certificates. . . . . . . . . . . . . . . . . . . . 4 4. Form of Rights Certificates . . . . . . . . . . . . . . . . . . . . 6 5. Countersignature and Registration . . . . . . . . . . . . . . . . . 7 6. Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7. Exercise of Rights; Purchase Price; Expiration Date of Rights . . . 8 8. Cancellation and Destruction of Rights Certificates . . . . . . . 10 9. Reservation and Availability of Common Stock. . . . . . . . . . . 11 10. Common Stock Record Date. . . . . . . . . . . . . . . . . . . . . 12 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights . . . . . . . . . . . . . . . . . . . . . . . . 12 12. Certificate of Adjusted Purchase Price or Number of Shares. . . . 20 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. . . . . . . . . . . . . . . . . . . . . . . . . . 21 14. Additional Covenants. . . . . . . . . . . . . . . . . . . . . . . 24 15. Fractional Rights and Fractional Shares . . . . . . . . . . . . . 24 16. Rights of Action. . . . . . . . . . . . . . . . . . . . . . . . . 26 17. Agreement of Rights Holders . . . . . . . . . . . . . . . . . . . 26 18. Rights Certificate Holder Not Deemed a Stockholder. . . . . . . . 27 19. Concerning the Rights Agent . . . . . . . . . . . . . . . . . . . 27 20. Merger or Consolidation or Change of Name of Rights Agent . . . . 28 21. Duties of Rights Agent. . . . . . . . . . . . . . . . . . . . . . 28 22. Change of Rights Agent. . . . . . . . . . . . . . . . . . . . . . 31 23. Issuance of New Rights Certificates . . . . . . . . . . . . . . . 32 24. Redemption, Termination and Exchange. . . . . . . . . . . . . . . 32 25. Notice of Certain Events. . . . . . . . . . . . . . . . . . . . . 35 26. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 27. Supplements and Amendments. . . . . . . . . . . . . . . . . . . . 37 28. Determination and Actions by the Board of Directors, etc. . . . . 37 29. Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 30. Benefits of This Agreement. . . . . . . . . . . . . . . . . . . . 38 31. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . 38 32. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 38 33. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 38 34. Descriptive Headings. . . . . . . . . . . . . . . . . . . . . . . 38 Exhibit A -- Form of Rights Certificate . . . . . . . . . . . . . . . A-1 Exhibit B -- Amended and Restated Summary of Rights to Purchase Common Stock . . . . . . . . . . . . . . . . . . B-1 AMENDED AND RESTATED RIGHTS AGREEMENT This Amended and Restated Agreement, dated as of March 23, 1995, between Westamerica Bancorporation, a California corporation (the "Company"), and Chemical Trust Company of California (the "Rights Agent"). W I T N E S S E T H: WHEREAS, the Company and Bank of America, NT&SA (the "Original Rights Agent") entered into a Rights Agreement dated as of December 18, 1986 (the "Original Rights Agreement") in connection with which the Company authorized and declared a dividend distribution of one right for each share of common stock, no par value, of the Company outstanding on January 20, 1987 (the "Record Date") (as subsequently adjusted for the stock split on May 15, 1987, "Common Stock"), and contemplates the issuance of one right (subject to adjustment) for each share of Common Stock issued between the Record Date and the earlier of the Distribution Date and the Expiration Date (as such terms are hereafter defined), each right representing the right to purchase one share of Common Stock (as adjusted) upon the terms and subject to the conditions set forth in the Original Rights Agreement (such rights, as their terms are hereinafter amended, being hereinafter referred to as the "Rights"); and WHEREAS, Section 27 of the Original Rights Agreement provides that the Company and the Original Rights Agent may amend the Original Rights Agreement without approval of any holders of Rights Certificates, prior to the Distribution Date (as such term is defined in Section 3(a)), in order to change or supplement the provisions thereunder as the Company deems necessary and desirable; and WHEREAS, the Original Rights Agreement was amended and restated on September, 1989 by the Company and the Original Rights Agent (the "Restated Rights Agreement"); and WHEREAS, pursuant to an Appointment and Acceptance Agreement dated May 25, 1992 between the Company and the Rights Agent, the Original Rights Agent was replaced by the Rights Agent to act as rights agent in accordance with the terms and conditions of the Restated Rights Agreement; and WHEREAS, Section 27 of the Restated Rights Agreement provides that the Company and the Rights Agent may amend the Restated Rights Agreement without approval of any holders of Rights Certificates, prior to the Distribution Date (as such term is defined in Section 3(a)), in order to change or supplement the provisions thereunder as the Company deems necessary and desirable; and WHEREAS, the Company deems it desirable to amend and supplement the Restated Rights Agreement, in accordance with such section; NOW, THEREFORE, the Restated Rights Agreement is hereby amended and restated to read, from and after the date hereof, in its entirety as set forth below: Section 1. Certain Definitions. For purposes of this Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which, together with all Affiliates (as such term is hereinafter defined) and Associates (as such term is hereinafter defined) of such Person, without the prior approval of the Company, shall be the Beneficial Owner (as such term is hereinafter defined) of securities representing 15% or more of the Voting Power (as such term is hereinafter defined) or who was such a Beneficial Owner at any time after the date hereof, whether or not such Person continues to be the Beneficial Owner of securities representing 15% or more of the Voting Power, provided, however, that in no event shall a Person who or which, together with all Affiliates and Associates of such Person, is the Beneficial Owner of less than 15% of the Company's outstanding shares of Common Stock become an Acquiring Person solely as a result of a reduction of the number of shares of outstanding Common Stock, including repurchases of outstanding shares of Common Stock by the Company, which reduction increases the percentage of outstanding shares of Common Stock beneficially owned by such Person, and provided further that Acquiring Person shall not mean (i) any Person, not otherwise an Acquiring Person, who has purchased all shares validly tendered pursuant to a Permitted Offer (as such term is defined in Section 11(a)(ii)) made by such Person or (ii) the Company, any subsidiary of the Company (as such term is hereinafter defined), any employee benefit plan of the Company or any of its subsidiaries or any entity holding securities of the Company organized, appointed or established by the Company or any of its subsidiaries for or pursuant to the terms of any such plan. (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date of this Agreement. (c) A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to "beneficially own," any securities: (i) which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly; (ii) which such Person or any of such Person's Affiliates or Associates has (A) the right or obligation to acquire (whether such right or obligation is exercisable or effective immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights (other than these Rights), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding (whether or not in writing); provided, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," any security under this clause (B) if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and (2) is not also then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (whether or not in writing) (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or with which such Person or any of such Person's Affiliates have otherwise formed a group, for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in clause (B) of subparagraph (ii) of this paragraph (c)) or disposing of any securities of the Company. (d) "Business Day" shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in the State of California are authorized or obligated by law or executive order to close. (e) "Close of business" on any given date shall mean 5:00 p.m., San Francisco, California time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 p.m., San Francisco, California time, on the next succeeding Business Day. (f) "Common Stock" shall mean the Common Stock, no par value, of the Company, except that "Common Stock" when used with reference to stock issued by any Person other than the Company shall mean the capital stock with the greatest aggregate voting power, or the equity securities or other equity interest having power to control or direct the management, of such Person or, if such Person is a subsidiary of another Person, of the Person which ultimately controls such first-mentioned Person and which has issued and outstanding such capital stock, equity securities or equity interests. (g) "Person" shall mean any individual, firm, corporation, partnership or other entity. (h) "Stock Acquisition Date" shall mean the first date of public announcement by the Company or an Acquiring Person that an Acquiring Person has become such. (i) A "subsidiary" of any Person shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or voting interests is owned, directly or indirectly, by such Person, or which is otherwise controlled by such Person. (j) "Voting Power" shall mean the voting power of all securities of the Company then outstanding generally entitled to vote for the election of directors of the Company. Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable. In the event the Company appoints one or more Co-Rights Agents, the respective duties of the Rights Agents and any Co-Rights Agents shall be as the Company shall determine. Section 3. Issue of Rights Certificates. (a) Until the earlier of (i) the Stock Acquisition Date or (ii) the tenth day after the date of the commencement of, or first public announcement of the intent of any Person (other than the Company, any subsidiary of the Company, or any employee benefit plan of the Company or any of its subsidiaries) to commence (which intention to commence remains in effect for five Business Days after such announcement), a tender or exchange offer which would result in such Person becoming an Acquiring Person, unless such date is extended by the Board of Director's of the Company (but no later than the Stock Acquisition Date) (the earlier of such dates being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for Common Stock registered in the names of the holders of the Common Stock (which certificates for Common Stock shall be deemed also to be certificates for Rights) and not by separate certificates, and (y) the Rights (and the right to receive certificates therefor) will be transferable only in connection with the transfer of the underlying shares of Common Stock. As soon as practicable after the Distribution Date, the Rights Agent will send by first-class, insured, postage prepaid mail, to each record holder of the Common Stock as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, a certificate for Rights, in substantially the form of Exhibit A hereto (the "Rights Certificates"), evidencing one Right for each share of Common Stock so held. As of and after the Distribution Date, the Rights will be evidenced solely by such Rights Certificates. With respect to certificates for the Common Stock outstanding as of the date hereof, until the Distribution Date (or earlier redemption, expiration or termination of the Rights), the Rights will be evidenced by such certificates for the Common Stock and the registered holders of the Common Stock shall also be the registered holders of the associated Rights. Until the Distribution Date (or earlier redemption, expiration or termination of the Rights), the surrender for transfer of any of the certificates for the Common Stock outstanding on the date hereof shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. (b) Certificates issued for Common Stock (including, without limitation, certificates issued upon transfer or exchange of Common Stock) after the date hereof, but prior to the earlier of the Distribution Date or the Expiration Date (as such term is hereinafter defined), shall be deemed also to be certificates for Rights, and shall have impressed, printed, stamped, written or otherwise affixed onto them the following legend: This certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Amended and Restated Rights Agreement between Westamerica Bancorporation and Chemical Trust Company of California (the "Rights Agent") dated as of March 23, 1995 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of Westamerica Bancorporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed, may expire, or may be evidenced by separate certificates and will no longer be evidenced by this certificate. Westamerica Bancorporation will mail to the holder of this certificate a copy of the Rights Agreement without charge within five days after receipt of a written request therefor. Under certain circumstances, Rights issued to Acquiring Persons (as defined in the Rights Agreement) or certain related persons and any subsequent holder of such Rights may become null and void. With respect to such certificates containing the foregoing legend, until the Distribution Date (or earlier redemption, expiration or termination of the Rights), the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any of such certificates shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. Section 4. Form of Rights Certificates. (a) The Rights Certificates (and the forms of election to purchase shares and of assignment to be printed on the reverse thereof) shall each be substantially in the form set forth in Exhibit A hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 11 and Section 23 hereof, the Rights Certificates, whenever distributed, shall be dated as of the Record Date, and on their face shall entitle the holders thereof to purchase such number of shares of Common Stock as shall be set forth therein at the price per share set forth therein (the "Purchase Price"), but the number of such shares and the Purchase Price shall be subject to adjustment as provided herein. (b) Any Rights Certificate issued pursuant to Section 3(a) hereof that represents Rights beneficially owned by an Acquiring Person or any Associate or Affiliate thereof and any Rights Certificate issued at any time upon the transfer of any Rights to such an Acquiring Person or any Associate or Affiliate thereof or to any nominee of such Acquiring Person, Associate or Affiliate, and any Rights Certificate issued pursuant to Section 6 or Section 11 upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain the following legend: The Rights represented by this Rights Certificate were issued to a Person who was an Acquiring Person or an Affiliate or an Associate of an Acquiring Person, as such terms are defined in the Rights Agreement. This Rights Certificate and the Rights represented hereby may become void under the circumstances specified in Section 7(e) of the Rights Agreement. The provisions of Section 7(e) of this Rights Agreement shall be operative whether or not the foregoing legend is contained on any such Rights Certificate. Section 5. Countersignature and Registration. The Rights Certificates shall be executed on behalf of the Company by its Chairman of the Board, any Vice Chairman of the Board, any President or any Vice President, either manually or by facsimile signature, and shall have affixed thereto the Company's seal or a facsimile thereof which shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Rights Certificates shall be countersigned by the Rights Agent, either manually or by facsimile signature and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Rights Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Rights Certificates, nevertheless, may be countersigned by the Rights Agent, and issued and delivered by the Company with the same force and effect as though the person who signed such Rights Certificates had not ceased to be such officer of the Company; and any Rights Certificates may be signed on behalf of the Company by any person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its office designated for such purpose, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates and the date of each of the Rights Certificates. Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates. Subject to the provisions of Section 15 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the Expiration Date, any Rights Certificate or Certificates may be transferred, split up, combined or exchanged for another Rights Certificate or Rights Certificates, entitling the registered holder to purchase a like number of shares of Common Stock as the Rights Certificate or Rights Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Rights Certificate shall make such request in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Rights Certificates to be transferred, split up, combined or exchanged at the principal office of the Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Rights Certificates. Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Company will execute and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Rights Certificates so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights. (a) The registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein) in whole or in part at any time after the Distribution Date upon presentation of the Rights Certificate, with the appropriate form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the principal office of the Rights Agent, together with payment of the Purchase Price for each share of Common Stock (or such other number of shares or other securities) as to which the Rights are exercised, at or prior to the earliest of (i) the close of business on December 31, 1999 (the "Final Expiration Date"), or (ii) the time at which the Rights are redeemed as provided in Section 24(a) hereof, (iii) the consummation of a transaction contemplated by Section 13(f) hereof or (iv) the time at which the Rights are exchanged as provided in Section 24(c) hereof (such earliest time being herein referred to as the "Expiration Date"). Notwithstanding any other provision of this Agreement, any Person who prior to the Distribution Date becomes and remains a record holder of shares of Common Stock may exercise all of the rights of a registered holder of a Rights Certificate with respect to the Rights associated with such shares of Common Stock in accordance with and subject to the provisions of this Agreement, including the provisions of Section 7(e) hereof, as of the date such Person becomes a record holder of shares of Common Stock. (b) The Purchase Price for each share of Common Stock to be purchased pursuant to the exercise of a Right shall initially be $65, shall be subject to adjustment from time to time as provided in Sections 11 and 13 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) below. (c) Upon receipt of a Rights Certificate representing exercisable Rights, with the appropriate form of election to purchase duly executed, accompanied by payment of the Purchase Price for the shares (or other securities or property) to be purchased and an amount equal to any applicable transfer tax (as determined by the Rights Agent) in cash, or by certified check or bank draft payable to the order of the Company, the Rights Agent shall, subject to Section 21(k), thereupon promptly (i) (A) requisition from any transfer agent of the shares of Common Stock (or make available, if the Rights Agent is the transfer agent) certificates for the number of shares of Common Stock to be purchased, and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company, in its sole discretion, shall have elected to deposit the shares of Common Stock issuable upon exercise of the Rights hereunder into a depositary, requisition from the depositary agent depositary receipts representing such number of shares of Common Stock as are to be purchased (in which case certificates for the shares of Common Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company will direct the depositary agent to comply with such request, (ii) when appropriate, requisition from the Company the amount of cash, if any, to be paid in lieu of issuance of fractional shares in accordance with Section 15, (iii) promptly after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder and (iv) when appropriate, after receipt promptly deliver such cash to or upon the order of the registered holder of such Rights Certificate. In the event that the Company is obligated to issue other securities of the Company, and/or distribute other property pursuant to Section 11(a), the Company will make all arrangements necessary so that such other securities and/or property are available for distribution by the Rights Agent, if and when appropriate. In addition, in the case of an exercise of the Rights by a holder pursuant to Section 11(a)(ii), the Rights Agent shall return such Rights Certificate to the registered holder thereof after imprinting, stamping or otherwise indicating thereon that the rights represented by such Rights Certificate no longer include the rights provided by Section 11(a)(ii) of the Rights Agreement and if less than all the Rights represented by such Rights Certificate were so exercised, the Rights Agent shall indicate on the Rights Certificate the number of Rights represented thereby which continue to include the rights provided by Section 11(a)(ii). (d) In case the registered holder of any Rights Certificate shall exercise (except pursuant to Section 11(a)(ii)) less than all the Rights evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to the registered holder of such Rights Certificate or to his duly authorized assigns, subject to the provisions of Section 15 hereof. (e) Notwithstanding anything in this Agreement to the contrary, if there occurs any of the events set forth in Section 11(a)(ii) or Section 13(a) then any Rights that are or were on or after the earlier of the Distribution Date or the Stock Acquisition Date beneficially owned by an Acquiring Person or any Associate or Affiliate of an Acquiring Person shall become null and void, without any further action, and any holder of such Rights shall thereafter have no rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. (f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless the certificate contained in the appropriate form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise shall have been properly completed and duly executed by the registered holder thereof and the Company shall have been provided with such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Section 8. Cancellation and Destruction of Rights Certificates. All Rights Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Rights Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Rights Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Rights Certificates to the Company, or shall, at the written request of the Company, destroy such cancelled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. Reservation and Availability of Common Stock. The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Common Stock, or any authorized and issued shares of Common Stock held in its treasury, the number of shares of Common Stock that will be sufficient to permit the exercise in full of all outstanding Rights and, after the occurrence of an event specified in Sections 11 and 13, shall so reserve and keep available a sufficient number of shares of Common Stock (and/or other securities) which may be required to permit the exercise in full of the Rights pursuant to this Agreement. So long as the shares of Common Stock (and, after the occurrence of an event specified in Sections 11 and 13, any other securities) issuable upon the exercise of the Rights may be listed on any national securities exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares (or other securities) reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. The Company covenants and agrees that it will take all such action as may be necessary to ensure that all shares of Common Stock and/or other securities delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares or other securities (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares or securities. The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Rights Certificates or of any certificates for shares of Common Stock and/or other securities upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or in respect of the issuance or delivery of the shares of Common Stock and/or other securities in a name other than that of, the registered holder of the Rights Certificates evidencing Rights surrendered for exercise or to issue or deliver any certificates for shares of Common Stock, and/or other securities in a name other than that of the registered holder upon the exercise of any Rights until such tax shall have been paid (any such tax being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due. The Company shall use its best efforts to (i) file, as soon as practicable following the Distribution Date, a registration statement on an appropriate form under the Securities Act of 1933, as amended (the "Act"), with respect to the securities purchasable upon exercise of the Rights, (ii) cause such registration statement to become effective as soon as practicable after such filing, and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act and the rules and regulations thereunder) until the expiration of the Rights. The Company will also take such action as may be appropriate under the blue sky laws of the various states. Section 10. Common Stock Record Date. Each person in whose name any certificate for shares of Common Stock (or other securities) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the shares of Common Stock (or other securities) represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly presented and payment of the Purchase Price (and any applicable transfer taxes) was made; provided, however, that if the date of such presentation and payment is a date upon which the Common Stock (or other securities) transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Common Stock (or other securities) transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate, as such, shall not be entitled to any rights of a stockholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights. The Purchase Price, the number of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Common Stock payable in shares of Common Stock, (B) subdivide the outstanding Common Stock, (C) combine the outstanding Common Stock into a smaller number of shares or (D) issue any shares of its capital stock in a reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall, except as otherwise provided in this Section 11(a) and in Section 7(e), be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock and other securities which, if such Right had been exercised immediately prior to such date and at a time when the Common Stock transfer books of the Company were open, the holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an event occurs which would require an adjustment under both Section 11(a)(i) and Section 11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii). (ii) Subject to Section 24(c) of this Agreement, in the event that any Person (other than the Company, any subsidiary of the Company, any employee benefit plan of the Company or any of its subsidiaries or any entity holding securities of the Company organized, appointed or established by the Company or any of its subsidiaries for or pursuant to the terms of any such plan), alone or together with its Affiliates and Associates, shall become an Acquiring Person (except pursuant to a tender or exchange offer for all outstanding shares of Common Stock at a price and on terms determined by at least a majority of the members of the Board of Directors who are not officers of the Company to be both adequate and otherwise in the best interests of the Company and its shareholders (other than the Person or an Affiliate or Associate thereof on whose behalf the offer is being made) (a "Permitted Offer")), then proper provision shall be made so that each holder of a Right, except as provided in Section 7(e) hereof, shall, for a period of 60 days after the later of the occurrence of any such event and the effective date of an appropriate registration statement pursuant to Section 9, have a right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement such number of shares of Common Stock of the Company as shall equal the result obtained by (x) multiplying the then current Purchase Price by the then number of shares of Common Stock for which a Right is then exercisable and (y) dividing that product by 50% of the current market price per one share of Common Stock (determined pursuant to Section 11(d)) on the date of the occurrence of the event set forth in this subparagraph (ii) (such number of shares being referred to as the "number of Adjustment Shares"); provided, however, that if the transaction that would otherwise give rise to the foregoing adjustment is also subject to the provisions of Section 13 hereof, then only the provisions of Section 13 hereof shall apply and no adjustment shall be made pursuant to this section 11(a)(ii). (iii) In the event that there shall not be sufficient treasury shares or authorized but unissued shares of Common Stock to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii) and the Rights become so exercisable, notwithstanding any other provision of this Agreement, to the extent necessary and permitted by applicable law and any agreements in effect on the date hereof to which it is a party, each Right shall thereafter represent the right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, a number of shares, or units of shares, of (x) Common Stock (up to the maximum number of shares of Common Stock which may permissibly be issued using the allocation procedure specified in the second sentence of Section 11(k)) and (y) preferred stock (or other equity securities) of the Company equal in the aggregate to the number of Adjustment Shares where the Board of Directors of the Company shall have deemed such shares or units, other than the shares of Common Stock, to have at least the same economic value and voting rights as the Common Stock (a "common stock equivalent"); provided, however, if there are unavailable sufficient shares (or fractions of shares) of Common Stock and/or common stock equivalents, then the Company shall take all such action as may be necessary to authorize additional shares of Common Stock or common stock equivalents for issuance upon exercise of the Rights, including the calling of a meeting of shareholders; and provided, further, that the Company shall issue no common stock equivalent upon exercise of the Rights until the Company has first issued all authorized and unreserved shares of Common Stock; and provided, further, that if the Company is unable to cause sufficient shares of Common Stock and/or common stock equivalents to be available for issuance upon exercise in full of the Rights, then each Right shall thereafter represent the right to receive the Adjusted Number of Common Shares upon exercise at the Adjusted Purchase Price (as such terms are hereinafter defined). As used herein, the term Adjusted Number of Common Shares shall be equal to that number of shares (or fractions of shares) of Common Stock (and/or shares or units of common stock equivalents) equal to the product of (x) the number of Adjustment Shares and (y) a fraction, the numerator of which is the number of shares of Common Stock (and/or shares or units of common stock equivalents) available for issuance upon exercise of the Rights and the denominator of which is the aggregate number of Adjustment Shares otherwise issuable upon exercise in full of all Rights (assuming there were sufficient shares of Common Stock available) (such fraction being referred to as the "Proration Factor"). The Adjusted Purchase Price shall mean the product of the Purchase Price and the Proration Factor. The Board of Directors may, but shall not be required to, establish procedures to allocate the right to receive Common Stock and common stock equivalents upon exercise of the Rights among holders of Rights. (b) If the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Common Stock entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Common Stock (or shares having the same or more favorable rights, privileges and preferences as the Common Stock ("equivalent common stock")) or securities convertible into Common Stock or equivalent common stock at a price per share of Common Stock or per share of equivalent common stock (or having a conversion price per share, if a security convertible into Common Stock or equivalent common stock) less than the current market price (as defined in Section 11(d)) per share of Common Stock on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on such record date, plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock and/or equivalent common stock to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price and the denominator of which shall be the number of shares of Common Stock outstanding on such record date, plus the number of additional shares of Common Stock and/or equivalent common stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be determined reasonably and with good faith to the holders of Rights by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent. Shares of Common Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) If the Company shall fix a record date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness, cash (other than a regular quarterly cash dividend out of the earnings or retained earnings of the Company), assets (other than a dividend payable in Common Stock, but including any dividend payable in stock other than Common Stock) or subscription rights or warrants (excluding those referred to in Section 11(b)), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the current market price (as defined in Section 11(d)) per share of Common Stock on such record date, less the fair market value (as determined reasonably and with good faith to the holders of Rights by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants distributable in respect of one share of Common Stock and the denominator of which shall be the current market price (as defined in Section 11(d)) per share of the Common Stock. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would be in effect if such record date had not been fixed. (d) For the purpose of any computation hereunder, other than in Section 11(a)(iii), the "current market price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that in the event that the current per share market price of the Common Stock is determined during a period following the announcement by the issuer of such Common Stock of (A) a dividend or distribution on such Common Stock payable in shares of such Common Stock or securities convertible into shares of such Common Stock or (B) any subdivision, combination or reclassification of such Common Stock, and prior to the expiration of 30 Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the "current market price" shall be properly adjusted to take into account ex-dividend trading. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the shares of Common Stock are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the Nasdaq National Market, the Nasdaq Stock Market or such other system then in use, or, if on any such date the shares of Common Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board of Directors of the Company. If on any such date no market maker is making a market in the Common Stock, the fair value of such shares on such date as determined reasonably and with good faith by the Board of Directors of the Company shall be used and shall be binding on the Rights Agent. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, a Business Day. If the Common Stock is not publicly held or not so listed or traded, "current market price" per share shall mean the fair value per share determined reasonably and with good faith to the holders of Rights by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent. (e) Anything herein to the contrary notwithstanding, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest ten-thousandth of a share of Common Stock or other share, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) one year from the date of the transaction which mandates such adjustment or (ii) the Expiration Date. (f) If as a result of any provision of Section 11(a), the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Common Stock, thereafter the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares contained in Section 11(a) through (c), inclusive, and the provisions of Sections 7, 9, 10, 13 and 15 hereof with respect to the Common Stock shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of shares of Common Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Section 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of shares of Common Stock (calculated to the nearest ten-thousandth) obtained by (i) multiplying (x) the number of shares of Common Stock covered by a Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any adjustment in the number of shares of Common Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of shares of Common Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest ten-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least 10 days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section 15 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of shares of Common Stock issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price per share and the number of shares which were expressed in the initial Rights Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of the shares of Common Stock or other securities issuable upon exercise of the Rights, the Company shall take any corporate action which, in the opinion of its counsel, may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock or other securities at such adjusted Purchase Price. If upon any exercise of the Rights, a holder is to receive a combination of Common Stock and common stock equivalents, a portion of the consideration paid upon such exercise, equal to at least the then par value of a share of Common Stock of the Company, shall be allocated as the payment for each share of Common Stock of the Company so received. (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date the shares of Common Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the shares of Common Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (m) Anything to the contrary in this Section 11 notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of the Common Stock, issuance wholly for cash of any shares of Common Stock at less than the current market price, issuance wholly for cash of shares of Common Stock or securities which by their terms are convertible into or exchangeable for shares of Common Stock, stock dividends or issuance of rights, options or warrants referred to hereinabove in this Section 11, hereafter made by the Company to holders of its Common Stock shall not be taxable to such stockholders. (n) The exercise of Rights under Section 11(a)(ii) shall only result in the loss of rights under Section 11(a)(ii) to the extent so exercised and shall not otherwise affect the rights represented by the Rights under this Rights Agreement, including the rights represented by Section 13. Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent and with each transfer agent for the Common Stock a copy of such certificate and (c) mail a brief summary thereof to each holder of Rights in accordance with Section 26 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained. Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. (a) In the event that, following the Stock Acquisition Date, directly or indirectly, (w) the Company shall consolidate with, or merge with and into, any other Person, (x) any Person shall consolidate with the Company, or merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger, (y) any subsidiary bank of the Company shall consolidate with, or merge with and into any other Person or any Person shall consolidate with, or merge with and into, any subsidiary bank of the Company (other than, in the case of any transaction described in (w), (x) or (y), a merger or consolidation which would result in all of the Voting Power represented by the securities of the Company or subsidiary bank outstanding immediately prior thereto continuing to represent, directly or indirectly (either by remaining outstanding or by being converted into securities of the surviving entity), all of the Voting Power represented by the securities of the Company, subsidiary bank or such surviving entity outstanding immediately after such merger or consolidation and the holders of such securities not having changed as a result of such merger or consolidation), or (z) the Company shall sell, mortgage or otherwise transfer (or one or more of its subsidiaries shall sell, mortgage or otherwise transfer), in one or more transactions, assets or earnings power aggregating more than 50% of the assets or earning power of the Company and its subsidiaries (taken as a whole) to any other Person (other than to the Company or any of its subsidiaries), then, and in each such case, proper provision shall be made so that (i) following the Distribution Date, each holder of a Right (other than as provided in Section 7(e) hereof) shall have the right to receive, upon the exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, such number of shares of freely tradeable Common Stock of the Principal Party (as hereinafter defined), free and clear of liens, rights of call or first refusal, encumbrances or other adverse claims, as shall be equal to the result obtained by (1) multiplying the then current Purchase Price by the number of shares of Common Stock for which a Right is then exercisable and (2) dividing that product by 50% of the current market price per share of the Common Stock of such Principal Party (determined pursuant to Section 11(d) hereof) on the date of consummation of such consolidation, merger, sale or transfer; (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply to such Principal Party; and (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock in accordance with Section 9 hereof) in connection with such consummation as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the Rights. (b) "Principal Party" shall mean: (i) in the case of any transaction described in (w) or (x) of the first sentence of this Section 13, the Person that is the issuer of any securities into which shares of Common Stock of the Company are converted in such merger or consolidation, and if no securities are so issued, the Person that is the other party to the merger or consolidation; (ii) in the case of any transaction described in (y) of the first sentence of this Section 13, the surviving or resulting Person in such merger or consolidation; and (iii) in the case of any transaction described in (z) of the first sentence in this Section 13, the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions; provided, however, that in any such case, (1) if the Common Stock of such Person is not at such time and has not been continuously over the preceding 12-month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect subsidiary or Affiliate of one or more other Persons, "Principal Party" shall refer to any such other Person the Common Stock of which is and has been so registered, unless the Common Stocks of two or more of such other Persons are and have been so registered, in which case "Principal Party" shall refer to whichever of such Persons is the issuer of the Common Stock having the greatest aggregate market value, (2) if the Common Stock of such Person is and has not been so registered and such Person is a direct or indirect subsidiary or Affiliate of one or more other Persons, the Common Stocks of none of which are and have been so registered, "Principal Party" shall refer to the senior such Person having outstanding Common Stock, and (3) in case such Person is owned, directly or indirectly, by a joint venture or partnership formed by two or more Persons that are not owned, directly or indirectly, by the same Person, the rules set forth in (1) and (2) above shall apply to each of the chains of ownership having an interest in such joint venture or partnership as if such party were a "Subsidiary" of both or all of such joint venturers or partners and the Principal Parties in each such chain shall bear the obligations set forth in this Section 13 in the same ratio as their direct or indirect interests in such Person bear to the total of such interests. (c) The Company shall not consummate, nor will it permit any subsidiary bank to consummate, any such consolidation, merger, sale or transfer unless prior thereto the Company, the subsidiary bank, if appropriate, and each Principal Party and each other Person who may become a Principal Party as a result of such consolidation, merger, sale or transfer shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable after the date of any consolidation, merger, sale or transfer of assets mentioned in paragraph (a) of this Section 13, the Principal Party at its own expense will: (i) prepare and file a registration statement under the Act with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, will use its best efforts to cause such registration statement to become effective as soon as practicable after such filing and will use its best efforts to cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the Expiration Date; (ii) use its best efforts to qualify or register the Rights and the securities purchasable upon exercise of the Rights under the blue sky laws of such jurisdictions as may be necessary or appropriate; and (iii) deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates which comply in all material respects with the requirements for registration on Form 10 under the Exchange Act. (d) The provisions of this Section 13 are intended to provide to the holders of Rights a significant continuing equity interest in the business of the Company following the consummation of any transaction of the types described in paragraph (a) of this Section 13, and any attempt by any Acquiring Person or Principal Party to avoid the provisions of this Section 13 or to limit the impact thereof shall not be given any effect. (e) The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. The Company will cause its subsidiary bank or banks to adhere to the terms and provisions of this Agreement, to the extent applicable to such subsidiary bank. The rights under this Section 13 shall be in addition to the rights to exercise Rights and adjustments under Section 11(a)(ii) and shall survive any exercise thereunder. (f) Notwithstanding anything in this Agreement to the contrary, Section 13 shall not be applicable to a transaction described in subparagraphs (w), (x) and (y) of Section 13(a) if (i) such transaction is consummated with a Person or Persons who acquired shares of Common Stock pursuant to a Permitted Offer (or a wholly owned subsidiary of any such Person or Persons), (ii) the price per share of Common Stock offered in such transaction is not less than the price per share of Common Stock paid to all holders of Common Stock whose shares were purchased pursuant to such Permitted Offer and (iii) the form of consideration being offered to the remaining holders of Common Stock pursuant to such transaction is the same as the form of consideration paid pursuant to such Permitted Offer. Upon consummation of any such transaction contemplated by this subsection (d), all Rights hereunder shall expire. Section 14. Additional Covenants. (a) After the Stock Acquisition Date, the Company covenants and agrees that it shall not (i) consolidate with, (ii) merge with or into, or (iii) sell or transfer to, in one or more transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its subsidiaries taken as a whole, any other Person if at the time of or after such consolidation, merger or sale there are any charter or by-law provisions or any rights, warrants or other instruments outstanding or any other action taken which would diminish or otherwise eliminate the benefits intended to be afforded by the Rights. The Company shall not consummate any such consolidation, merger or sale unless prior thereto the Company and such other Person shall have executed and delivered to the Rights Agent a supplemental agreement evidencing compliance with this subsection. (b) The Company covenants and agrees that, after the Stock Acquisition Date, it will not, except as permitted by Section 24 hereof, take any action the purpose or effect of which is to diminish or otherwise eliminate the benefits intended to be afforded by the Rights. Section 15. Fractional Rights and Fractional Shares. (a) The Company shall not be required to issue fractions of Rights or to distribute Rights Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 15(a), the current market value of a whole Right shall be the closing price per Right of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price of the Rights for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading, or if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the Nasdaq National Market, the Nasdaq Stock Market or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined reasonably and with good faith to the holders of Rights by the Board of Directors of the Company shall be used and shall be binding on the Rights Agent. (b) The Company shall not be required to issue fractions of shares of Common Stock upon exercise of the Rights or to distribute certificates which evidence fractional shares of Common Stock. In lieu of fractional shares of Common Stock the Company may pay to the registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of shares of Common Stock. For purposes of this Section 15(b), the current market value of one share of Common Stock shall be the closing price of a share of Common Stock (as determined pursuant to Section 11(d) hereof) for the Trading Day immediately prior to the date of such exercise. (c) Following the occurrence of one of the transactions or events specified in Section 11 or Section 13 giving rise to the right to receive common stock equivalents (other than Common Stock) or other securities upon the exercise of a Right, the Company shall not be required to issue fractions of shares or units of such common stock equivalents or other securities upon exercise of the Rights or to distribute certificates which evidence fractional shares of such common stock equivalents or other securities. In lieu of fractional shares or units of such common stock equivalents or other securities, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of a share or unit of such common stock equivalent or other securities. For purposes of this Section 15(c), the current market value shall be determined in the manner set forth in Section 11(d) hereof for the Trading Day immediately prior to the date of such exercise and, if such common stock equivalent is not traded, each such common stock equivalent shall have the value of one share of Common Stock. (d) Except as otherwise expressly provided herein, the holder of a Right by the acceptance of the Rights expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right. Section 16. Rights of Action. All rights of action in respect of this Agreement are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of the Common Stock), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligations hereunder of any Person subject to this Agreement. Holders of Rights shall be entitled to recover the reasonable costs and expenses, including attorneys' fees, incurred by them in any action to enforce the provisions of this Agreement. Section 17. Agreement of Rights Holders. Every holder of a Right by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of Common Stock; (b) after the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office of the Rights Agent, duly endorsed or accompanied by a proper instrument of transfer; and (c) the Company and the Rights Agent may deem and treat the Person in whose name a Rights Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated Common Stock certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. Section 18. Rights Certificate Holder Not Deemed a Stockholder. No holder, as such, of any Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the shares of Common Stock or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions thereof. Section 19. Concerning the Rights Agent. The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability arising therefrom, directly or indirectly. The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons. Section 20. Merger or Consolidation or Change of Name of Rights Agent. Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 22 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates in this Agreement. In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. Section 21. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel selected by it (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person) be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, any Vice Chairman of the Board, any President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Rights Certificates (except as to the fact that it has countersigned the Rights Certificates) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11 or 13 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after actual notice of any such adjustment); nor shall it be responsible for any determination by the Board of Directors of the Company of the current market value of the Rights or Common Stock pursuant to the provisions of Section 15 hereof; nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock or other securities to be issued pursuant to this Agreement or any Rights Certificate or as to whether any shares of Common Stock or other securities will, when so issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder and certificates delivered pursuant to any provision hereof from the Chairman of the Board, any Vice Chairman of the Board, any President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company, and is authorized to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instruction of any such officer. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, omission, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company or to the holders of the Rights resulting from any such act, omission, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. (j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. (k) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative response to clause 1 and/or 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise of transfer without first consulting with the Company. Section 22. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Stock by registered or certified mail, and to holders of the Rights by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock by registered or certified mail, and to the holders of the Rights by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right (who shall, with such notice, submit his Rights Certificate (if any) for inspection by the Company), then the registered holder of any Rights may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a corporation organized and doing business under the laws of the United States or of the State of California or the State of New York (or of any other state of the United States so long as such corporation is authorized to do business as a banking institution in the State of California or the State of New York), in good standing, having a principal office in the State of California or the State of New York, which is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50,000,000 or (b) an affiliate of a corporation described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock, and mail a notice thereof in writing to the registered holders of the Rights. Failure to give any notice provided for in this Section 22, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 23. Issuance of New Rights Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price per share and the number or kind or class of shares or other securities or property purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock following the Distribution Date and prior to the redemption or expiration of the Rights, the Company (a) shall, with respect to shares of Common Stock so issued or sold pursuant to the exercise of stock options or otherwise under any employee plan or arrangement, which plan or arrangement is existing as of the Distribution Date, or upon the exercise, conversion or exchange of any other securities issued by the Company on or prior to the Distribution Date, and (b) may, in any other case, if deemed necessary or appropriate by the Board of Directors of the Company, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale; provided, however, that (i) no such Rights Certificates shall be issued if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Rights Certificates would be issued, and (ii) no such Rights Certificates shall be issued if, and to the extent that appropriate adjustment shall otherwise have been made in lieu of the issuance thereof. Section 24. Redemption, Termination and Exchange. (a)(i) The Board of Directors of the Company may, at its option, at any time prior to the earlier of (x) the time that any person becomes an Acquiring Person without the prior consent of the Company or (y) 5:00 P.M., San Francisco, California time, on the Final Expiration Date, redeem all but not less than all of the then outstanding Rights at a redemption price of $.05 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). (ii) In addition, and notwithstanding the provisions of Section 24(a)(i), the Board of Directors of the Company may redeem all but not less than all of the then outstanding Rights at the Redemption Price following the occurrence of a Stock Acquisition Date but prior to any event described in Section 13(a), either (x) following the occurrence of an event set forth in, and the expiration of any period during which the holder of Rights may exercise the rights under, Section 11(a)(ii) if and for as long as the Acquiring Person is not thereafter the Beneficial Owner of securities representing 15% or more of the outstanding shares of the Voting Power, and at the time of redemption there are no other persons who are Acquiring Persons or (y) in connection with any event specified in Section 13(a) not involving an Acquiring Person or an Affiliate or Associate of an Acquiring Person or any other Person in which such Acquiring Person, Affiliate or Associate has any interest, or any other Person acting directly or indirectly on behalf of or in association with any such Acquiring Person, Affiliate or Associate. (b) In the case of a redemption permitted under Section 24(a)(i), immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. In the case of a redemption permitted only under Section 24(a)(ii), the right to exercise the Rights will terminate and represent only the right to receive the Redemption Price only after the giving of notice of such redemption to the holder of such Rights if no event set forth in Section 11(a)(ii) shall have occurred, upon the later of ten Business Days following the giving of such notice or the expiration of any period during which the rights under Section 11(a)(ii) may be exercised. After the action of the Board of Directors ordering any such redemption of the Rights, the Company shall promptly give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice to the Rights Agent and to all such holders at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the Transfer Agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. In the case of a redemption permitted under Section 24(a)(i) or (ii), the Company may, at its option, discharge all of its obligations with respect to the Rights by (i) issuing a press release announcing the manner of redemption of the Rights and (ii) mailing payment of the Redemption Price to the registered holders of the Rights at their last addresses as they appear on the registry books of the Rights Agent, or, prior to the Distribution Date, on the registry books of the Transfer Agent of the Common Stock, and upon such action, all outstanding Rights Certificates shall be null and void without any further action by the Company. (c) (i) Subject to the limitations of applicable law, the Board of Directors of the Company may, at its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 7(e) hereof) for (A) shares of Common Stock at an exchange ratio of one share of Common Stock per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (the "Exchange Shares") or (B) Substitute Consideration (as that term is defined below). The Board of Directors may determine, in its sole discretion, whether to deliver Exchange Shares or Substitute Consideration. Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such exchange at any time after any Person (other than the Company, any subsidiary of the Company, any employee benefit plan of the Company or any such subsidiary, or any entity holding Common Stock for or pursuant to the terms of any such plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Common Stock then outstanding. (ii) In the event the Board of Directors shall determine to deliver Substitute Consideration in exchange for Rights, the Company shall (1) determine the value of the Exchange Shares (the "Exchange Value"), and (2) with respect to each Right to be exchanged, make adequate provision to substitute for Exchange Shares the following (the "Substitute Consideration"): (v) cash, (w) Common Stock or common stock equivalents (as that term is defined in Section 11(a)(iii) hereof), (x) debt securities of the Company, (y) other assets, or (z) any combination of the foregoing, having an aggregate value equal to the Exchange Value, where such aggregate value has been determined by the Board of Directors of the Company based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors of the Company. For purposes of this Section 24(c), the value of a share of Common Stock shall be the current market price (as determined pursuant to Section 11(d) hereof) per share of Common Stock on the day that is the later of (x) the first occurrence of an event described in Section 11(a)(ii) hereof and (y) the date on which the Company's right of redemption pursuant to Section 24(a) expires; and the value of any common stock equivalent shall be deemed to have the same value as the Common Stock on such date. (iii) Immediately upon the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to this Section 24(c), and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive Exchange Shares or Substitute Consideration for each Right exchanged by such holder. The Company shall promptly give public notice of any such exchange; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of Common Stock for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 7(e) hereof) held by each holder of Rights. (iv) In the event that there shall not be sufficient shares of Common Stock issued but not outstanding or authorized but unissued to permit any exchange of Rights as contemplated in accordance with this Section 24(c), the Company shall take all such action as may be necessary to authorize additional shares of Common Stock for issuance upon exchange of the Rights. (v) The Company shall not be required to issue fractions of shares of Common Stock or to distribute certificates which evidence fractional shares of Common Stock. In lieu of such fractional shares of Common Stock, the Company shall pay to the registered holders of the Rights Certificates with regard to which such fractional shares of Common Stock would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole share of Common Stock. For the purposes of this Section 24(c)(v), the current market value of a whole share of Common Stock shall be the closing price of a share of Common Stock (as determined pursuant to Section 11(d) hereof) for the Trading Day immediately prior to the date of exchange pursuant to this Section 24(c). Section 25. Notice of Certain Events. In case the Company shall propose (a) to pay any dividend payable in stock of any class to the holders of Common Stock or to make any other distribution to the holders of Common Stock (other than a regular quarterly cash dividend out of earnings or retained earnings of the Company) or (b) to offer to the holders of Common Stock rights or warrants to subscribe for or to purchase any additional shares of Common Stock or shares of stock of any class or any other securities, rights or options, or (c) to effect any reclassification of its Common Stock (other than a reclassification involving only the subdivision of outstanding shares of Common Stock), or (d) to effect any consolidation or merger into or with, or to effect any sale or other transfer (or to permit one or more of its subsidiaries to effect any sale or other transfer), in one or more transactions, of more than 50% of the assets or earning power of the Company and its subsidiaries (taken as a whole) to, any other Person, or (e) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Rights Certificate, in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the shares of Common Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (a) or (b) above at least 20 days prior to the record date for determining holders of the shares of Common Stock for purposes of such action, and in the case of any such other action, at least 20 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the shares of Common Stock whichever shall be the earlier. In case any of the events set forth in Section 11(a)(ii) or 13(a) of this Agreement shall occur, then, in any such case, the Company or the Principal Party, as the case may be, shall as soon as practicable thereafter give to each holder of a Rights Certificate, in accordance with Section 26 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section 11(a)(ii) or 13(a) hereof, as the case may be. Section 26. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Westamerica Bancorporation 1108 5th Avenue San Rafael, California 94901 Attention: David L. Payne President and Chief Executive Officer Subject to the provisions of Section 22, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: Chemical Trust Company of California 50 California Street, 10th Floor San Francisco, California 94111 Attention: Michael B. Levinson Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 27. Supplements and Amendments. The Company and the Rights Agent may from time to time supplement or amend this Agreement without approval of any holders of Right Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (iii) prior to the Distribution Date, to change or supplement the provisions hereunder which the Company may deem necessary or desirable or (iv) following the Distribution Date, to change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Rights Certificates. Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 27, the Rights Agent shall execute such supplement or amendment unless the Rights Agent shall have determined in good faith that such supplement or amendment would adversely affect its interests under this Agreement. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Stock. Section 28. Determination and Actions by the Board of Directors, etc. For all purposes of this Agreement, any calculation of the number of shares of Common Stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock or any other securities of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act as in effect on the date of this Agreement. The Board of Directors of the Company shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board of Directors, or the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend the Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights Certificates and all other parties, and (y) not subject the Board to any liability to the holders of the Rights Certificates. Section 29. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 30. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, the Common Stock). Section 31. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 32. Governing Law. This Agreement, each Right and each Rights Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of California and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and to be performed entirely within such State. Section 33. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 34. Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. Attest: WESTAMERICA BANCORPORATION [Seal] ______________________________ By __________________________ Name: James M. Barnes Name: David L. Payne Title: Executive Vice President Title: President and Chief & Chief Financial Officer Executive Officer Attest: CHEMICAL TRUST COMPANY OF CALIFORNIA [Seal] _____________________________ By __________________________ Name: Name: Michael B. Levinson Title: Title: Assistant Vice President Exhibit A [Form of Rights Certificate] Certificate No R- _____________ Rights NOT EXERCISABLE AFTER DECEMBER 31, 1999 OR EARLIER IF NOTICE OF REDEMPTION IS GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.05 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE WERE ISSUED TO A PERSON WHO WAS AN ACQUIRING PERSON OR AN AFFILIATE OR AN ASSOCIATE OF AN ACQUIRING PERSON, AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT. THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME VOID UNDER THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT.] Rights Certificate Westamerica Bancorporation This certifies that ____________________________, or registered assigns, is the registered owner of the number of ____ Rights set forth above, each of which entitles the owner ____________ thereof, subject to the terms, provisions and conditions of the Amended and Restated Rights Agreement dated as of March 23, 1995 (the "Rights Agreement") between Westamerica Bancorporation, a California corporation (the "Company"), and Chemical Trust Company of California, (the "Rights Agent"), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M. (San Francisco, California time) on December 31, 1999 at the office of the Rights Agent designated for such purpose, one fully paid, nonassessable share of Common Stock (the "Common Stock") of the Company, at a purchase price of $65 per share (the "Purchase Price"), upon presentation and surrender of this Rights Certificate with the appropriate Form of Election to Purchase and Certificate duly executed. The number of Rights evidenced by this Rights Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of March 23, 1995, based on the Common Stock as constituted at such date. As provided in the Rights Agreement, the Purchase Price and the number of shares of Common Stock or other securities which may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events. This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates. Copies of the Rights Agreement are on file at the principal office of the Company and are also available upon written request to the Company. This Rights Certificate, with or without other Rights Certificates, upon surrender at the office of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of shares of Common Stock as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be exercised (other than pursuant to Section 11(a)(ii) of the Rights Agreement) in part, the holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. If this Rights Certificate shall be exercised in whole or in part pursuant to Section 11(a)(ii) of the Rights Agreement, the holder shall be entitled to receive this Rights Certificate duly marked to indicate that such exercise has occurred as set forth in the Rights Agreement. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Company at its option at a redemption price of $.05 per Right. Subject to the provisions of the Rights Agreement, the Company, at its option, may elect to mail payment of the redemption price to the registered holder of the Right at the time of redemption, in which event this certificate may become void without any further action by the Company. The Company is not obligated to issue fractional shares of Common Stock upon the exercise of any Right or Rights evidenced hereby, but in lieu thereof a cash payment may be made, as provided in the Rights Agreement. No holder of this Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of shares of Common Stock or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement. This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of _________, 19__. ATTEST: WESTAMERICA BANCORPORATION _____________________________ By __________________________ Name: James M. Barnes Name: David L. Payne Title: Executive Vice President Title: President and Chief & Chief Financial Officer Executive Officer Countersigned: CHEMICAL TRUST COMPANY OF CALIFORNIA _____________________________ Authorized Signature [Form of Reverse Side of Rights Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Rights Certificate.) FOR VALUE RECEIVED _________________________________________ hereby sells, assigns and transfers unto ____________________ ____________________________________________________________ (Please print name and address of transferee) ____________________________________________________________ this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ______________________ Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution. Dated: _______________, 19___ ____________________________ Signature Signature Guaranteed: CERTIFICATE The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: _______________, 19__ ___________________________ Signature NOTICE The signature to the foregoing Assignment must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise the Rights Certificate pursuant to Section 11(a)(ii) of the Rights Agreement.) To WESTAMERICA BANCORPORATION: The undersigned hereby irrevocably elects to exercise __________ Rights represented by this Rights Certificate to purchase the shares of Common Stock (or such other securities of the Company) issuable upon the exercise of the Rights and requests that certificates for such shares be issued in the name of: ________________________________________________________________ (Please insert social security or other identifying number) ________________________________________________________________ (Please print name and address) ________________________________________________________________ The Rights Certificate indicating the balance, if any, of such Rights which may still be exercised pursuant to Section 11(a)(ii) of the Rights Agreement shall be returned to the undersigned unless such Person requests that the Rights Certificate be registered in the name of and delivered to: ________________________________________________________________ Please insert social security or other identifying number (complete only if Rights Certificate is to be registered in a name other than the undersigned) ________________________________________________________________ (Please print name and address) ________________________________________________________________ Dated: ____________, 19__. __________________________________ Signature Signature Guaranteed: CERTIFICATE The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement); (2) this Rights Certificate [ ] is [ ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement); (3) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: ____________, 19__. __________________________________ Signature NOTICE The signature to the foregoing Election to Purchase must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise the Rights Certificate other than pursuant to Section 11(a)(ii) of the Rights Agreement.) To WESTAMERICA BANCORPORATION: The undersigned hereby irrevocably elects to exercise __________ Rights represented by this Rights Certificate to purchase the shares of Common Stock (or such other securities of the Company or any other Person) issuable upon the exercise of the Rights and requests that certificates for such shares be issued in the name of: ________________________________________________________________ (Please insert social security or other identifying number) ________________________________________________________________ (Please print name and address) ________________________________________________________________ The Rights Certificate indicating the balance, if any, of such Rights which may still be exercised pursuant to Section 11(a)(ii) of the Rights Agreement shall be returned to the undersigned unless such Person requests that the Rights Certificate be registered in the name of and delivered to: ________________________________________________________________ Please insert social security or other identifying number (complete only if Rights Certificate is to be registered in a name other than the undersigned) ________________________________________________________________ (Please print name and address) ________________________________________________________________ Dated: ____________, 19__. __________________________________ Signature Signature Guaranteed: CERTIFICATE The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement); (2) this Rights Certificate [ ] is [ ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement); (3) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: ____________, 19__. __________________________________ Signature NOTICE The signature to the foregoing Election to Purchase must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. Exhibit B AMENDED AND RESTATED SUMMARY OF RIGHTS TO PURCHASE COMMON STOCK On December 18, 1986, the Board of Directors of Westamerica Bancorporation (the "Company") declared a dividend distribution of one Right for each outstanding share of common stock, no par value (the "Common Stock"), of the Company to shareholders of record at the close of business on January 20, 1987 (the "Record Date"). The Rights Agreement, which provides the description and terms of the Rights, was previously amended and restated on September 28, 1989 and on May 25, 1992 the current Rights Agent, Chemical Trust Company of California, replaced the original Rights Agent. On March 23, 1995, the Company and Chemical Trust Company of California as Rights Agent, amended and restated the Rights Agreement (referred to herein, as amended and restated, as the "Amended and Restated Rights Agreement"). A summary of the Amended and Restated Rights Agreement is set forth below. Except as set forth below, each Right, when exercisable, entitles the registered holder to purchase from the Company one share of Common Stock, at a price of $65 per share (the "Purchase Price"), subject to adjustment. The Rights are not exercisable until the Distribution Date (as defined below). The Rights are currently attached to all Common Stock certificates representing shares outstanding, and no separate Right Certificates will be distributed until the earlier to occur of (i) a public announcement that, without the prior consent of the Company, a Person or group of affiliated or associated Persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of securities having 15% or more of the voting power of all outstanding voting securities of the Company, or (ii) ten days (unless such date is extended by the Board of Directors) following the commencement of (or a public announcement of an intention to make) a tender offer or exchange offer which would result in any Person or group and related Persons becoming an Acquiring Person (the earlier of such dates being called the "Distribution Date"). Until the Distribution Date the Rights will be evidenced, with respect to any of the Common Stock certificates outstanding as of the Record Date, by such Common Stock certificate together with this Amended and Restated Summary of Rights. The Amended and Restated Rights Agreement provides that, until the Distribution Date, the Rights will be transferred with and only with Common Stock certificates. From as soon as practicable after the Record Date and until the Distribution Date (or earlier redemption or expiration of the Rights), new Common Stock certificates issued after the Record Date upon transfer or new issuance of the Common Stock will contain a notation incorporating the Amended and Restated Rights Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for Common Stock outstanding as of the Record Date (with or without this Amended and Restated Summary of Rights attached) will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Rights Certificates") will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date, and the separate Rights Certificates alone will evidence the Rights. The Rights will expire on the earliest of (i) December 31, 1999 (ii) consummation of a merger transaction with a Person or group who acquired Common Stock pursuant to a Permitted Offer (as defined below), and is offering in the merger the same price per share and form of consideration paid in the Permitted Offer, or (iii) redemption by the Company as described below. The Purchase Price payable, and the number of shares of the Common Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of the Common Stock, (ii) upon the grant to holders of the Common Stock of certain rights or warrants to subscribe for Common Stock, certain convertible securities or securities having the same or more favorable rights, privileges and preferences as the Common Stock at less than the current market price of the Common Stock or (iii) upon the distribution to holders of the Common Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends out of earnings or retained earnings and dividends payable in Common Stock) or of subscription rights or warrants (other than those referred to above). In the event that, after the first date of public announcement by the Company or an Acquiring Person that an Acquiring Person has become such, (i) the Company is acquired in a merger or other business combination transaction in which the Common Stock is exchanged or changed, (ii) any bank subsidiary of the Company is involved in a merger or other business combination transaction or (iii) 50% or more of its assets or earning power are sold (in one transaction or a series of transactions), proper provision shall be made so that each holder of a Right (other than such Acquiring Person) shall thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the surviving or resulting Person in the merger or business combination transaction or the Person acquiring the greatest portion of the assets, as appropriate, or, in either case, its publicly traded parent company or affiliate, which at the time of such transaction would have a market value of two times the exercise price of the Right (such right being called the "Merger Right"). In the event that a Person becomes the beneficial owner of securities having 15% or more of the voting power of all then outstanding voting securities of the Company (unless pursuant to a tender offer or exchange offer for all outstanding shares of Common Stock at a price and on terms determined by at least a majority of the members of the Board of Directors who are not officers of the Company to be both adequate and otherwise in the best interests of the Company and its stockholders (a "Permitted Offer")), proper provision shall be made so that each holder of a Right will for a 60-day period thereafter have the right to receive upon exercise that number of shares of Common Stock having a market value of two times the exercise price of the Right, to the extent available, and then (after all authorized and unreserved shares of Common Stock have been issued) a common stock equivalent (such as Preferred Stock or another equity security with at least the same economic value as the Common Stock) having a market value of two times the exercise price of the Right, with Common Stock to the extent available being issued first (such right being called the "Subscription Right"). The holder of a Right will continue to have the Merger Right whether or not such holder exercises the Subscription Right. Upon the occurrence of any of the events giving rise to the exercisability of the Merger Right or the Subscription Right, any Rights that are or were at any time after the Distribution Date owned by an Acquiring Person shall immediately become null and void. With certain exceptions, no adjustments in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. No fractions of shares will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of the Common Stock on the last trading date prior to the date of exercise. At any time prior to the earlier to occur of (i) a Person becoming an Acquiring Person or (ii) the expiration of the Rights, the Company may redeem the Rights in whole, but not in part, at a price of $.05 per Right (the "Redemption Price"), which redemption shall be effective upon the action of the Board of Directors. Additionally, the Company may thereafter redeem the then outstanding Rights in whole, but not in part, at the Redemption Price (i) provided that such redemption is incidental to a merger or other business combination transaction or series of transactions involving the Company but not involving an Acquiring Person or certain related Persons or (ii) following an event giving rise to, and the expiration of the exercise period for, the Subscription Right if and for as long as an Acquiring Person beneficially owns securities representing less than 15% of the voting power of the Company's voting securities and at the time of redemption there are no other persons who are Acquiring Persons. The redemption of Rights described in the preceding sentence shall be effective only as of such time when the Subscription Right is not exercisable, and in any event, only after 10 Business Days' prior notice. Subject to applicable law, the Board of Directors, at its option, may at any time after a Person becomes an Acquiring Person (but not after the acquisition by such Person of 50% or more of the outstanding Common Stock), exchange all or part of the then outstanding and exercisable rights (except for Rights which have become void) for shares of Common Stock equivalent to one share of Common Stock per Right or, alternatively, for substitute consideration consisting of cash, securities of the Company or other assets (or any combination thereof). Fractional shares of Common Stock will be issuable; however, the Company may elect to distribute depositary receipts in lieu of such fractional shares. In lieu of fractional shares an adjustment in cash may be made based on the market price of the Common Stock on the last trading date prior to the date of exercise. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. A copy of the Amended and Restated Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Form 8-A/A Amendment to a Registration Statement on Form 8-A. A copy of the Amended and Restated Rights Agreement is available free of charge from the Company. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Amended and Restated Rights Agreement, which is incorporated herein by reference. EX-27 3
9 1000 YEAR DEC-31-1994 DEC-31-1994 112401 1307526 0 0 160609 598730 569684 1103771 27600 2030235 1688880 133218 16408 25524 53510 0 0 112695 2030235 93140 41097 1 134238 33364 41115 93123 5800 24 71123 35541 0 0 0 24673 3.06 3.06 5.31 7069 400 0 0 25587 5921 2054 27600 27600 0 0