UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended June 30, 1996 Commission File Number: 1-9383 WESTAMERICA BANCORPORATION - -------------------------- (Exact Name of Registrant as Specified in its Charter) CALIFORNIA - ---------- (State or other jurisdiction of incorporation or organization) 94-2156203 - ---------- (I.R.S. Employer Identification No.) 1108 Fifth Avenue, San Rafael, California 94901 - ----------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code (415)257-8000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ x ] No [ ] Indicate the number of shares outstanding of each of the registrant classes of common stock, as of the latest practicable date: Title of Class Common Stock, No Par Value Shares outstanding as of August 2, 1996 9,529,390 WESTAMERICA BANCORPORATION CONSOLIDATED BALANCE SHEETS (in thousands) (Unaudited) June 30, December 31, ------------------ ---------- 1996 1995* 1995 -------- ------- -------- ASSETS Cash and cash equivalents $167,715 $190,656 $182,133 Money market assets 250 250 250 Investment securities available for sale 666,149 199,608 620,337 Investment securities held to maturity with market values of: $214,941 at June 30, 1996 $614,324 at June 30, 1995 $244,303 at December 31, 1995 216,256 616,362 242,175 Loans, net of reserve for loan losses of: $34,017 at June 30, 1996 $33,607 at June 30, 1995 $33,508 at December 31, 1995 1,364,069 1,342,037 1,353,732 Other real estate owned 6,509 6,388 5,103 Premises and equipment, net 30,689 28,118 26,625 Interest receivable and other assets 53,244 62,659 60,589 ---------- ---------- ---------- Total assets $2,504,881 $2,446,078 $2,490,944 ========== ========== ========== LIABILITIES Deposits: Non-interest bearing $ 474,654 $ 466,175 $ 497,489 Interest bearing: Transaction 345,636 322,300 356,099 Savings 670,776 740,407 716,871 Time 503,850 483,233 479,062 --------- --------- --------- Total deposits 1,994,916 2,012,115 2,049,521 Funds purchased 216,183 182,248 175,622 Liability for interest, taxes and other expenses 17,506 16,703 21,864 Notes and mortgages payable 42,500 20,000 20,000 --------- --------- --------- Total liabilities 2,271,105 2,231,066 2,267,007 SHAREHOLDERS' EQUITY Authorized - 50,000 shares Common stock issued and outstanding: 9,719 at June 30, 1996 9,879 at June 30, 1995 9,793 at December 31, 1995 95,705 94,943 94,786 Unrealized gain on securities available for sale, net of taxes 2,962 14 1,691 Retained earnings 135,109 120,055 127,460 ---------- ---------- ---------- Total shareholders' equity 233,776 215,012 223,937 ---------- ---------- ---------- Total liabilities and shareholders' equity $2,504,881 $2,446,078 $2,490,944 ========== ========== ========== * Restated on an historical basis to reflect the July 17, 1995 acquisition of North Bay Bancorp, on a pooling-of-interests basis. WESTAMERICA BANCORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three months Six months (in thousands, except ended June 30, ended June 30, when indicated) ----------------- ----------------- 1996 1995* 1996 1995* ------ ------ ------ ------ INTEREST INCOME Loans $30,930 $32,435 $62,145 $64,581 Money market assets and funds sold -- 5 -- 258 Trading account securities 1 -- 1 -- Investment securities available for sale 9,202 2,575 17,990 5,312 Investment securities held to maturity 3,013 8,647 6,334 17,170 ------- ------- ------- ------- Total interest income 43,146 43,662 86,470 87,321 INTEREST EXPENSE Transaction deposits 1,047 867 2,085 1,804 Savings deposits 4,623 5,219 9,325 10,551 Time deposits 6,114 6,022 12,244 11,198 Funds purchased 2,677 2,081 5,358 4,130 Notes and mortgages payable 757 496 1,313 1,001 ------- ------- ------- ------- Total interest expense 15,218 14,685 30,325 28,684 ------- ------- ------- ------- NET INTEREST INCOME 27,928 28,977 56,145 58,637 Provision for loan losses 1,200 1,935 2,475 3,270 ------- ------- ------- ------- Net interest income after provision for loan losses 26,728 27,042 53,670 55,367 NON-INTEREST INCOME Service charges on deposit 3,230 3,219 6,414 6,372 Merchant credit card 690 570 1,373 1,099 Mortgage banking 288 370 633 741 Brokerage commissions 199 155 343 297 Trust fees 92 147 173 316 Investment securities gains 21 -- 35 -- Other 767 973 1,668 1,728 ------- ------- ------- ------- Total non-interest income 5,287 5,434 10,639 10,553 NON-INTEREST EXPENSE Salaries and benefits 9,329 10,858 19,170 21,712 Occupancy 2,513 2,607 5,091 5,208 Equipment 1,309 1,369 2,654 2,803 Data processing 987 1,042 1,967 2,084 Professional fees 552 1,090 1,107 2,683 Other real estate owned 144 233 209 345 FDIC insurance 1 1,150 15 2,327 Other 3,607 5,281 7,096 8,873 ------- ------- ------- ------- Total non-interest expense 18,442 23,630 37,309 46,035 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 13,573 8,846 27,000 19,885 Provision for income taxes 4,221 2,308 8,501 5,797 ------- ------- ------- ------- NET INCOME $9,352 $6,538 $18,499 $14,088 ======= ======= ======= ======= Average shares outstanding 9,737 9,903 9,752 9,908 PER SHARE DATA Net income $0.96 $0.66 $1.90 $1.42 Dividends declared 0.23 0.20 0.46 0.37 * Restated on an historical basis to reflect the July 17, 1995 acquisition of North Bay Bancorp, on a pooling-of-interests basis. WESTAMERICA BANCORPORATION STATEMENTS OF CASH FLOWS (Unaudited) For the six months ended June 30, ---------------- (in thousands) 1996 1995 * ----- ------ OPERATING ACTIVITIES Net income $18,499 $14,088 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,062 2,392 Loan loss provision 2,475 3,170 Amortization of deferred net loan fees (873) (848) (Increase) decrease in interest income receivable (1,427) 122 Increase in other assets (3,292) (6,169) (Decrease) increase in income taxes payable (305) 336 Increase in interest expense payable 1,028 90 Decrease in other liabilities (1,444) (4,457) Gain on sales of investment securities (35) -- Net loss on sales/write down of equipment 70 339 Originations of loans for resale (4,972) (3,267) Proceeds from sale of loans originated for resale 5,549 4,443 Net gain on sale of property acquired in satisfaction of debt (95) (63) Write down on property acquired in satisfaction of debt 225 271 -------- -------- Net cash provided by operating activities 17,465 10,447 -------- -------- INVESTING ACTIVITIES Net (disbursements) repayments of loans (14,780) 8,708 Purchases of investment securities available for sale (161,561) (31,167) Purchases of investment securities held to maturity (10,634) (28,011) Purchases of property, plant and equipment (7,655) (1,563) Proceeds from maturity of securities available for sale 90,371 23,707 Proceeds from maturity of securities held to maturity 36,554 50,108 Proceeds from sale of securities available for sale 35,111 -- Proceeds from sale of property and equipment 1,459 46 Proceeds from property acquired in satisfaction of debt 728 1,723 -------- -------- Net cash (used in) provided by investing activities (30,407) 23,551 -------- -------- FINANCING ACTIVITIES Net decrease in deposits (54,605) (59,577) Net increase in short-term borrowings 40,561 46,822 Additions (payments) on notes and mortgages payable 22,500 (5,524) Exercise of stock options/issuance of shares 2,286 2,430 Cash in lieu of fractional shares -- (14) Retirement of stock (7,723) (4,966) Dividends paid (4,495) (3,470) -------- -------- Net cash used in financing activities (1,476) (24,299) -------- -------- Net (decrease) increase in cash and cash equivalents (14,418) 9,699 -------- -------- Cash and cash equivalents at beginning of year 182,133 180,957 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $167,715 $190,656 ======== ======== Supplemental disclosure of non-cash and and cash activities: Loans transferred to other real estate owned 2,264 296 Unrealized net gain on securities available for sale 1,271 2,284 Interest paid for the period 29,297 30,019 Income tax payments for the period 8,653 6,551 * Restated on an historical basis to reflect the July 17, 1995 acquisition of North Bay Bancorp, on a pooling-of-interests basis. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Westamerica Bancorporation (the "Company"), parent company of Westamerica Bank, Bank of Lake County and Community Banker Services Corporation, reported second quarter 1996 net income of $9.4 million or $.96 per share. On a year-to-date basis, the Company reported net income of $18.5 million, or $1.90 per share. This record level of earnings represents increases of 43 percent and 31 percent, respectively, from the second quarter of 1995 and June 1995 year-to-date. On April 12, 1996, the Company merged one of its subsidiary banks, Napa Valley Bank, with and into Westamerica Bank, its largest subsidiary. All financial data has been restated on an historical basis to reflect the July 17, 1995 acquisition of North Bay Bancorp, which was accounted for as a pooling-of-interests. Acquisitions - ------------ On July 17, 1995, the merger between the Company and North Bay Bancorp, parent company of Novato National Bank, became effective. Under the terms of the merger agreement, the Company issued approximately 341,000 shares of its common stock in exchange for all of the outstanding common stock of North Bay Bancorp. This business combination was accounted for as a pooling-of-interests business combination and, accordingly, the consolidated financial statements and financial data for the periods prior to the merger have been restated to include the accounts and results of operations of North Bay Bancorp. In all mergers, certain reclassifications have been made to conform to the Company's presentation. Components of Net Income - ------------------------ Following is a summary of the components of net income for the periods indicated: For the three For the six months ended months ended June 30, June 30, ---------------- ---------------- (In millions) 1996 1995 1996 1995 ----- ----- ----- ----- Net interest income * $29.8 $30.6 $59.8 $61.8 Provision for loan losses (1.2) (1.9) (2.5) (3.3) Non-interest income 5.3 5.4 10.6 10.6 Non-interest expense (18.4) (23.6) (37.3) (46.0) Provision for income taxes * (6.1) (4.0) (12.1) (9.0) ----- ----- ----- ----- Net income $9.4 $6.5 $18.5 $14.1 ===== ===== ===== ===== * Fully taxable equivalent basis (FTE) Components of Net Income as a Percent of Average Earning Assets - --------------------------------------------------------------- The components of net income (annualized) expressed as a percent of average earning assets are summarized in the following table for the periods indicated: For the three For the six months ended months ended June 30, June 30, ---------------- ---------------- 1996 1995 1996 1995 ----- ----- ----- ----- Net interest income (FTE) 5.29% 5.63% 5.32% 5.67% Provision for loan losses -0.21% -0.36% -0.22% -0.30% Non-interest income 0.94% 1.00% 0.95% 0.97% Non-interest expense -3.27% -4.35% -3.32% -4.23% Provision for income taxes -1.09% -0.72% -1.08% -0.82% ----- ----- ----- ----- Net income 1.66% 1.20% 1.65% 1.29% ===== ===== ===== ===== Net income (annualized) as a percent of average total assets 1.51% 1.10% 1.50% 1.18% Analysis of Net Interest Income and Margin - ------------------------------------------ The Company continually manages its interest-earning assets and interest-bearing liabilities adapting rapidly to changes in market rates. Second quarter and June year-to-date 1996 net interest income (FTE) was lower than the comparable periods in 1995. This was due to the adverse effect of a decrease in the average balance of low-cost deposits combined with higher rates paid on interest-bearing liabilities and a decrease in average earning-asset yields, partially offset by higher earning-asset average balances. These variances are shown in the components of net interest income and in the analysis of net interest margin summarized as follows for the periods indicated: NET INTEREST INCOME For the three For the six months ended months ended June 30, June 30, ---------------- ---------------- (In millions) 1996 1995 1996 1995 ----- ----- ----- ----- Interest income $43.1 $43.7 $86.5 $87.3 Interest expense (15.2) (14.7) (30.3) (28.7) FTE adjustment 1.9 1.6 3.6 3.2 ----- ----- ----- ----- Net interest income (FTE) $29.8 $30.6 $59.8 $61.8 ===== ===== ===== ===== Average earning assets $2,269 $2,181 $2,261 $2,197 Net interest margin (FTE) 5.29% 5.63% 5.32% 5.67% Net interest income (FTE) decreased $800,000 or 3 percent in the second quarter of 1996 from the $30.6 million earned during the second quarter of 1995. The effect of a $600,000 decrease in interest income, mainly resulting from decreases in earning- asset yields due to higher average balances in the lower yielding investment securities portfolio, was partially offset by a $300,000 increase in the FTE adjustment, as the Company's average balance in tax-exempt securities and tax-free loans increased $28 million and $27 million, respectively, from the second quarter of 1995. Also contributing to the unfavorable variance from the second quarter of 1995, was an increase of $500,000 in interest expense, principally due to the effect of a $48 million decrease in the average balances of interest-bearing low-cost deposits, offset in part by an increase of $25 million in non-interest bearing demand deposits, and an increase of $68 million in the average balance of higher costing short-term purchased funds. On a year-to-date basis, the Company experienced a similar pattern. Interest income decreased $800,000 as the growth in the average balances of the lower-yielding investment securities portfolio exceeded that of higher-yielding loans by $33 million, and was partially offset by a $400,000 increase in the FTE adjustment due to the same reasons listed above in reference to the second quarter of 1996. Interest expense increased $1.6 million from the first six months of 1996, mostly due to a $59 million decrease in the average balances of interest-bearing low-cost deposits, partially offset by an increase of $24 million in the average balances of non-interest bearing demand deposits, and a $61 million increase in the average balance of higher-costing purchased funds. Second quarter 1996 amortized loan fees of $290,000, which are included in interest income on loans, were $236,000 lower than the same period in 1995; June year-to-date loans fees of $563,000 were $688,000 lower than the first six months of 1996. NET INTEREST MARGIN (FTE) For the three For the six months ended months ended June 30, June 30, ---------------- ---------------- 1996 1995 1996 1995 ----- ----- ----- ----- Yield on earning assets 7.98% 8.33% 8.02% 8.30% Cost of interest-bearing liabilities 3.45% 3.42% 3.44% 3.32% ---- ---- ---- ---- Net interest spread 4.53% 4.91% 4.58% 4.98% Impact of non-interest bearing demand 0.76% 0.72% 0.74% 0.69% ---- ---- ---- ---- Net interest margin 5.29% 5.63% 5.32% 5.67% ==== ==== ==== ==== The net interest margin during the second three months of 1996 was 34 basis points lower than the same period in 1995. The average yield on earning assets for the same period in 1996 was 35 basis points lower than in 1995 due to a 3 basis point increase in the rate paid on interest-bearing liabilities. This was partially offset by the favorable effect of an increase in non-interest bearing demand deposits. For the first six months of 1996, the net interest margin was 35 basis points lower than 1995. This change resulted from a 28 basis point decrease in the yield on earning assets and an increase of 12 basis points in the rate paid on interest-bearing liabilities, partially offset by the favorable effect of an increase in non-interest bearing deposits. 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. For the three months ended June 30, 1996 (dollars in thousands) ------------------------------- Interest Rates Average income/ earned/ balance expense paid -------- ------- ------- Assets Money market assets and funds sold $ 250 $ -- --% Trading account securities 67 1 6.00 Investment securities: Available for sale 647,979 9,951 6.18 Held to maturity 225,812 3,727 6.64 Loans: Commercial 822,359 19,122 9.35 Real estate construction 47,639 1,323 11.17 Real estate residential 249,908 4,588 7.38 Consumer 274,906 6,321 9.25 --------- ------ Earning assets 2,268,920 45,033 7.98 Other assets 214,794 ---------- Total assets $2,483,714 ========== Liabilities and shareholders' equity Deposits: Non-interest bearing demand $ 462,151 $ -- --% Savings and interest-bearing transaction 1,032,020 5,670 2.21 Time less than $100,000 302,362 3,687 4.90 Time $100,000 or more 188,605 2,427 5.18 --------- ------ Total interest-bearing deposits 1,522,987 11,784 3.11 Funds purchased 210,687 2,677 5.11 Notes and mortgages payable 42,500 757 7.16 --------- ------ Total interest-bearing liabilities 1,776,174 15,218 3.45 Other liabilities 18,565 Shareholders' equity 226,824 ---------- Total liabilities and shareholders' equity $2,483,714 ========== Net interest spread (1) 4.53% Net interest income and interest margin (2) $29,815 5.29% ======= ==== (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 (annualized) by total average earning assets. For the three months ended June 30, 1995 * (dollars in thousands) ------------------------------- Interest Rates Average income/ earned/ balance expense paid -------- ------- ------- Assets Money market assets and funds sold $390 $ 5 5.14% Trading account securities -- -- -- Investment securities: Available for sale 181,323 2,634 5.83 Held to maturity 630,412 9,934 6.32 Loans: Commercial 802,099 19,762 9.88 Real estate construction 65,824 2,049 12.49 Real estate residential 210,446 3,955 7.54 Consumer 290,205 6,931 9.58 --------- ------ Earning assets 2,180,699 45,270 8.33 Other assets 211,082 ---------- Total assets $2,391,781 ========== Liabilities and shareholders' equity Deposits Non-interest bearing demand $ 436,901 $ -- --% Savings and interest-bearing transaction 1,080,601 6,086 2.26 Time less than $100,000 304,619 3,758 4.95 Time $100,000 or more 169,030 2,264 5.37 --------- ------ Total interest-bearing deposits 1,554,250 12,108 3.12 Funds purchased 143,040 2,081 5.84 Notes and mortgages payable 25,049 496 7.94 --------- ------ Total interest-bearing liabilities 1,722,339 14,685 3.42 Other liabilities 17,494 Shareholders' equity 215,047 ---------- Total liabilities and shareholders' equity $2,391,781 ========== Net interest spread (1) 4.91% Net interest income and interest margin (2) $30,585 5.63% ======= ==== (1) Net interest spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (2) Net interest margin is computed by dividing net interest income (annualized) by total average earning assets. * Restated on an historical basis to reflect the July 17, 1995 acquisition of North Bay Bancorp on a pooling-of-interests basis. For the six months ended June 30, 1996 (dollars in thousands) ------------------------------- Interest Rates Average income/ earned/ balance expense paid -------- ------- ------- Assets Money market assets and funds sold $ 250 $ -- --% Trading account securities 34 1 5.91 Investment securities: Available for sale 639,639 19,467 6.12 Held to maturity 233,430 7,739 6.67 Loans: Commercial 817,027 38,371 9.44 Real estate construction 49,239 2,847 11.63 Real estate residential 244,942 8,995 7.38 Consumer 275,983 12,734 9.28 --------- ------ Earning assets 2,260,544 90,154 8.02 Other assets 215,272 ---------- Total assets $2,475,816 ========== Liabilities and shareholders' equity Deposits Non-interest bearing demand $ 459,161 $ -- --% Savings and interest-bearing transaction 1,042,938 11,410 2.20 Time less than $100,000 304,638 7,550 4.98 Time $100,000 or more 178,971 4,694 5.27 --------- ------ Total interest-bearing deposits 1,526,547 23,654 3.12 Funds purchased 208,429 5,358 5.17 Notes and mortgages payable 36,293 1,313 7.28 --------- ------ Total interest-bearing liabilities 1,771,269 30,325 3.44 Other liabilities 20,608 Shareholders' equity 224,778 ---------- Total liabilities and shareholders' equity $2,475,816 ========== Net interest spread (1) 4.58% Net interest income and interest margin (2) $59,829 5.32% ======= ==== (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 (annualized) by total average earning assets. For the six months ended June 30, 1995 * (dollars in thousands) ------------------------------- Interest Rates Average income/ earned/ balance expense paid Assets -------- ------- ------- Money market assets and funds sold $ 9,022 $ 258 5.77% Trading account securities -- -- -- Investment securities: Available for sale 185,750 5,432 5.90 Held to maturity 629,817 19,673 6.30 Loans: Commercial 804,553 39,447 9.89 Real estate construction 66,524 3,989 12.09 Real estate residential 209,121 7,854 7.57 Consumer 291,718 13,799 9.54 --------- ------ Earning assets 2,196,505 90,452 8.30 Other assets 208,711 ---------- Total assets $2,405,216 ========== Liabilities and shareholders' equity Deposits Non-interest bearing demand $ 435,101 $ -- --% Savings and interest-bearing transaction 1,102,370 12,355 2.26 Time less than $100,000 304,672 7,112 4.71 Time $100,000 or more 160,487 4,086 5.13 --------- ------ Total interest-bearing deposits 1,567,529 23,553 3.03 Funds purchased 147,326 4,130 5.65 Notes and mortgages payable 25,286 1,001 7.98 --------- ------ Total interest-bearing liabilities 1,740,141 28,684 3.32 Other liabilities 18,001 Shareholders' equity 211,973 ---------- Total liabilities and shareholders' equity $2,405,216 ========== Net interest spread (1) 4.98% Net interest income and interest margin (2) $61,768 5.67% ======= ==== (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 (annualized) by total average earning assets. * Restated on an historical basis to reflect the July 17, 1995 acquisition of North Bay Bancorp on a pooling-of-interests basis. RATE AND VOLUME VARIANCES. The following table sets forth a summary of the changes in interest income and interest expense from changes in average asset 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. Three months ended June 30, 1996 compared with three months ended June 30, 1995 * ----------------------------- Volume Rate Total ------ ---- ----- Increase (decrease) in interest and fee income: Money market assets and funds sold $ (1) $ (4) $ (5) Trading account securities 1 -- 1 Investment securities: Available for sale 7,150 167 7,317 Held to maturity (6,734) 527 (6,207) Loans: Commercial 570 (1,210) (640) Real estate construction (525) (201) (726) Real estate residential 711 (78) 633 Consumer (368) (242) (610) ------ ------ ------ Total loans 388 (1,731) (1,343) ------ ------ ------ Total increase (decrease) in interest and fee income (1) 804 (1,041) (237) ------ ------ ------ Increase (decrease) in interest expense: Deposits: Savings/interest-bearing (280) (136) (416) Time less than $ 100,000 (32) (39) (71) Time $ 100,000 or more 238 (75) 163 ------ ------ ------ Total interest-bearing (74) (250) (324) Funds purchased 808 (212) 596 Notes and mortgages payable 303 (42) 261 ------ ------ ------ Total increase (decrease) in interest expense 1,037 (504) 533 ------ ------ ------ Decrease in net interest income (1) $ (233) $ (537) $ (770) ====== ====== ====== (1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate. * Restated on an historical basis to reflect the July 17, 1995 acquisition of North Bay Bancorp, on a pooling-of-interests basis. Six months ended June 30, 1996 compared with six months ended June 30, 1995 * (In thousands) ----------------------------- Volume Rate Total ------ ---- ----- Increase (decrease) in interest and fee income: Money market assets and funds sold $ (127) $ (131) $ (258) Trading account securities 1 -- 1 Investment securities: Available for sale 13,821 214 14,035 Held to maturity (13,155) 1,221 (11,934) Loans: Commercial 570 (1,646) (1,076) Real estate construction (995) (147) (1,142) Real estate residential 1,335 (194) 1,141 Consumer (707) (358) (1,065) ------- ------- ------- Total loans 203 (2,345) (2,142) ------- ------- ------- Total increase (decrease) in interest and fee income (1) 743 (1,041) (298) ------- ------- ------- Increase (decrease) in interest expense Deposits: Savings/interest-bearing (633) (312) (945) Time less than $ 100,000 (1) 439 438 Time $ 100,000 or more 492 116 608 ------- ------- ------- Total interest-bearing (142) 243 101 Funds purchased 1,548 (320) 1,228 Notes and mortgages payable 391 (79) 312 ------- ------- ------- Total increase (decrease) in interest expense 1,797 (156) 1,641 ------- ------- ------- Decrease in net interest income (1) $(1,054) $ (885) $(1,939) ======= ======= ======= (1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate. * Restated on an historical basis to reflect the July 17, 1995 acquisition of North Bay Bancorp, on a pooling-of-interests basis. Provision for Loan Losses - ------------------------- The level of the provision for loan losses during each of the periods presented reflects the Company's continued efforts to improve loan quality by enforcing strict underwriting and administration procedures and aggressively pursuing collection efforts with troubled debtors. Maintenance of underwriting standards and continuing improvements in credit quality allowed the Company to reduce the level of its provision for loan losses to $1.2 million in the second quarter of 1996. This amount is $735,000 lower than the second quarter of 1995, which included a $600,000 additional provision recognized by Novato National Bank, North Bay Bancorp's subsidiary bank, prior to North Bay Bancorp's merger into the Company. For further information regarding net credit losses and the reserve for loan losses, see the "Asset Quality" section of this report. Non-interest Income - ------------------- The following table summarizes the components of non-interest income for the periods indicated. For the three For the six months ended months ended June 30, June 30, (in millions) ---------------- ---------------- 1996 1995 1996 1995 ----- ----- ----- ----- Deposit account fees $3.23 $3.22 $6.41 $6.37 Merchant credit card 0.69 0.57 1.37 1.10 Mortgage banking income 0.29 0.37 0.63 0.74 Brokerage commissions 0.20 0.15 0.34 0.30 Trust fees 0.09 0.15 0.17 0.32 Investment securities gain 0.02 -- 0.04 -- Other non-interest income 0.77 0.97 1.68 1.72 ----- ----- ------ ------ Total $5.29 $5.43 $10.64 $10.55 ===== ===== ====== ====== The $140,000 decrease in non-interest income during the second quarter of 1996 compared to the second quarter of 1995, included $190,000 lower other non-interest income, principally due to the reversal, during the second quarter of 1995, of overaccrued reserves that had been recorded at the acquired institutions prior to the merger with and into the Company, $80,000 lower mortgage banking income resulting mostly from lower mortgage servicing fees, due to reduced refinancing volume and $60,000 lower trust fees. Partially offsetting these variances, merchant credit card income increased $120,000 in the second quarter of 1996 compared to the same quarter of 1995 due to increased volume, and brokerage commissions were $50,000 higher than in the second quarter of 1995. Completing the variance, the sale of investment securities available for sale resulted in a $20,000 gain in the second quarter of 1996, compared to $0 during the same period in 1995, and service charges on deposit accounts were $10,000 higher than in the comparable period of 1995. On a year-to-date basis, the same pattern repeats when comparing the individual changes experienced in 1996 compared with the same period in 1995. Non-interest income for the first six months of 1996 was $90,000 higher than the same period in 1995. Merchant credit card income was $270,000 higher than in 1995 due to volume, and brokerage commissions and service charges on deposit accounts were $40,000, each, higher than the first six months of 1995 mostly due to increased volumes. The Company realized a gain of $40,000 from the sale of investment securities available for sale compared to $0 in 1995. Partially offsetting these increases in non-interest income, trust fees were $150,000 lower than the first six months of 1995 as volumes have decreased from prior year; mortgage banking income decreased $110,000 from the same period in 1995 principally due to lower mortgage servicing fees resulting from lower volumes; other non-interest income decreased $40,000 reflecting the effect of the 1995 reversal of reserves mentioned above. These variances were partially offset by higher miscellaneous items also included in this category. Non-interest expense - -------------------- The following table summarizes the components of non-interest expense for the periods indicated. For the three For the six months ended months ended June 30, June 30, (In millions) ---------------- ---------------- 1996 1995 1996 1995 ----- ----- ----- ----- Salaries $7.23 $8.69 $14.65 $17.00 Other personnel 2.10 2.17 4.52 4.71 Occupancy 2.51 2.61 5.09 5.21 Equipment 1.31 1.37 2.65 2.80 Data processing services 0.99 1.04 1.97 2.08 Professional fees 0.55 1.09 1.11 2.68 Courier service 0.53 0.33 0.97 0.66 Stationery and supplies 0.45 0.45 0.82 0.85 Postage 0.34 0.38 0.71 0.76 Advertising/public relation 0.33 0.41 0.61 0.68 Loan expense 0.34 0.36 0.58 0.62 Merchant credit card 0.20 0.19 0.38 0.38 Operational losses 0.17 0.28 0.35 0.51 Other real estate owned 0.14 0.23 0.21 0.35 FDIC deposit insurance -- 1.15 0.01 2.33 Other non-interest expense 1.25 2.88 2.68 4.41 ------ ------ ------ ------ Total $18.44 $23.63 $37.31 $46.03 ====== ====== ====== ====== Non-interest expense continues to show the effects of cost controls and the benefits resulting from consolidation of operations after the 1995 acquisitions. During the second quarter of 1996, non-interest expense decreased $5.19 million from the second quarter of 1995. All categories decreased with the exception of courier service and merchant credit card related expenses. Reductions in non-interest expense include salaries and other employee related expenses, lower by $1.53 million, as a result of streamlining of operations reflected in the reduction of 102 full-time equivalent employees; FDIC insurance expense, lower by $1.2 million due to the elimination of premiums; professional fees, down $540,000 as the second quarter of 1995 included one-time expenses related to the 1995 mergers; and operational losses, down $110,000 from the second quarter of 1995. In addition, occupancy expense was down $100,000 from the second quarter in 1995 principally as a result of merger-related fixed asset write-offs recorded in 1995; other real estate owned was $90,000 lower as 1995 included higher write-downs to net realizable values of properties acquired in satisfaction of debt; and advertising/public relations and equipment expenses were $80,000 and $60,000, respectively, lower than the second quarter of 1995, mostly due to asset write-offs and other expense associated with the first and second quarter of 1995 mergers. Completing the variance from the same quarter of 1995, data processing services, postage and loan expense were lower by $50,000, $40,000 and $20,000, respectively, reflecting the consolidation of operations after the mergers. During the first six months of 1996, non-interest expense decreased $8.72 million from the first six months of 1995. The favorable impact of consolidation of operations after the 1995 mergers is reflected in the reductions of expenses in all categories, with the exception of courier services, higher than prior year by $310,000, in part due to the larger territory covered by the Company's operations and the increased number of merchant pick-ups and deliveries. Reductions in non-interest expense from the first six months of 1995 include employee related expense, lower by $2.54 million, principally caused by a reduction of 116 in full-time equivalent staff, FDIC insurance expense, lower by $2.32 million due to the elimination of premiums and professional fees, down $1.57 million as the first six months of 1995 included one-time expenses in connection with merger activity. In addition, operational losses were $160,000 lower than in the prior year and equipment expense decreased $150,000, also as a result of 1995 merger-related fixed asset write-offs. Other real estate owned expenses decreased $140,000, as 1995 included higher write-downs and maintenance costs of related properties, and occupancy and data processing services were down $120,000 and $110,000, respectively, mainly reflecting consolidation of operations. Completing the variance, advertising/public relations was lower than 1995 by $70,000, postage was down $50,000 and loan expense and stationery and supplies expense were lower by $40,000 and $30,000, respectively, from the first six months of 1995, as related costs stabilized after increased merger activity. Provision for income tax - ------------------------ During the second quarter and the first six months of 1996, the Company recorded income tax expense of $4.2 million and $8.5 million, respectively, compared to $2.3 million and $5.8 million in the comparable periods of 1995. The 1996 provisions represent effective tax rates of 31 percent for the second quarter and the first six months of 1996 and 26 percent and 29 percent, respectively, for the second quarter and first six months of 1995. The reduced income tax expense in the second quarter of 1995 was mainly due to a $924,000 reduction in the valuation allowance at CapitolBank Sacramento, recognized prior to the acquisition by the Company during the second quarter of 1995. The increased expenses in the current year are directly attributable to the higher level of earnings. Asset Quality - ------------- CLASSIFIED ASSETS The Company closely monitors the markets in which it conducts its lending operations. The Company continues its strategy to control exposure to loans with high credit risk and increase diversification of earning assets. Asset reviews are performed using grading standards and criteria similar to those employed by bank regulatory agencies. Assets receiving lesser grades fall under the "classified assets" category which includes all non-performing assets. These assets have a higher degree of risk and receive an elevated level of attention to ensure collection. The following is a summary of classified assets on the dates indicated: Balances at June 30, December 31, (In millions) ---------------- ----------- 1996 1995 1995 ----- ----- ----- Classified loans $41.4 $51.4 $44.9 Other classified assets 6.5 6.4 5.1 ----- ----- ----- Total classified assets $47.9 $57.8 $50.0 ===== ===== ===== Reserve for loan losses as a percentage of classified loans 82% 65% 75% Classified loans at June 30, 1996, decreased $10.0 million or 19 percent to $41.4 million from June 30, 1995, principally due to sales and pay-offs of loans with real estate collateral and transfers to the other real estate owned category. The $100,000 increase from prior year of other classified assets was due to the combination of transfers of loans with real estate collateral net of sales, write-downs and payoffs of properties classified as other real estate owned. NON-PERFORMING ASSETS Non-performing assets include non-accrual loans, loans 90 days past due and still accruing and other real estate owned. Loans are placed on non-accrual status when reaching 90 days or more delinquent, unless the loan is well secured and in the process of collection. Interest previously accrued on loans placed on non-accrual status is charged against interest income. Generally, loans secured by real estate with temporarily impaired values and commercial loans to borrowers experiencing financial difficulties are placed on non-accrual status even though the borrowers continue to repay the loans as scheduled. Such loans are classified as "performing non-accrual" and are included in total non-performing assets. Performing non-accrual loans are reinstated to accrual status when improvements in credit quality eliminate the doubt as to the full collectibility of both interest and principal. When the ability to fully collect non-accrual loan principal is in doubt, cash payments received are applied against the principal balance of the loan until such time as full collection of the remaining recorded balance is expected. Any subsequent interest received is recorded as interest income on a cash basis. The following is a summary of non-performing assets on the dates indicated: Balances at June 30, December 31, (In millions) ---------------- ----------- 1996 1995 1995 Loans: ----- ----- ----- Performing non-accrual $2.17 $3.26 $2.46 Non-performing, non-accrual 6.11 7.16 7.49 ----- ----- ----- Total non-accrual loans 8.28 10.42 9.95 90 days past due and still accruing 0.17 0.28 0.27 ----- ----- ----- Total non-performing loans 8.45 10.70 10.22 Other real estate owned 6.51 6.39 5.10 ------ ------ ------ Total non-performing assets $14.96 $17.09 $15.32 ====== ====== ====== Reserve for loan losses as a percentage of non-performing loans 402% 314% 328% Performing non-accrual loans decreased $1.09 million to $2.17 million at June 30, 1996 from $3.26 million at June 30, 1995 and decreased $290,000 from $2.46 million outstanding at December 31, 1995. Non-performing non-accrual loans of $6.11 million at June 30, 1996, decreased $1.05 million from June 31, 1995 and decreased $1.38 million from December 31, 1995. The $2.14 million and $1.67 million reductions in total non-accrual loans from June 30 and December 31, 1995, respectively, were principally due to payoffs and writeoffs of loans with real estate collateral and commercial loans. The $120,000 and the $1.41 million other real estate owned increases from June 30 and December 31, 1995, respectively, were due to the combination of additions from non-accrual loans with real estate collateral net of liquidations and sales. The amount of gross interest income that would have been recorded for non-accrual loans for the three and six months ending June 30, 1996, if all such loans had been current in accordance with their original terms, was $192,000 and $406,000, respectively. The amount of interest income that was recognized on non-accrual loans from cash payments made during the three and six months ended June 30, 1996 totaled $45,000 and $124,000, respectively, representing annualized yields of 2.10 and 2.86 percent. Cash payments received which were applied against the book balance of non-accrual loans outstanding at June 30, 1996, totaled $291,000. Reserve for loan losses - ----------------------- It is the position of the Company that, even though the strategy to improve credit quality is reflected in the declining balances of non-accrual loans, the increased level of the loan loss reserve is adequate to provide for losses that can be estimated based on anticipated specific and general conditions as determined by Management. These include credit loss experience, the amount of past due, non-performing and classified loans, recommendations of regulatory authorities and prevailing economic conditions. The reserve is allocated to segments of the loan portfolio based in part on quantitative analyses of historical credit loss experience. Criticized and classified loan balances are analyzed using both a linear regression model and standard allocation percentages. The results of these analyses 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 these loans are delinquent. While these factors are judgmental and may not be reduced to a purely mathematical formula, Management considers the reserve for loan losses, for the periods presented, to be adequate as a reserve against inherent losses. Management continues to evaluate the loan portfolio and assess current economic conditions that will dictate future required reserve levels. The following table summarizes the loan loss provision, net credit losses and loan loss reserve for the periods indicated: For the three For the six months ended months ended June 30, June 30, (In millions) ---------------- ---------------- 1996 1995 1996 1995 ------ ------ ------ ------ Balance, beginning of period $33.78 $33.05 $33.51 $32.45 Loan loss provision 1.20 1.94 2.48 3.27 Credit losses (1.54) (1.82) (3.06) (3.28) Credit loss recoveries 0.58 0.44 1.09 1.17 ----- ----- ----- ----- Net credit losses (0.96) (1.38) (1.97) (2.11) ------ ------ ------ ------ Balance, end of period $34.02 $33.61 $34.02 $33.61 ====== ====== ====== ====== Reserve for loan losses as a percentage of loans outstanding 2.43% 2.44% Asset and Liability Management - ------------------------------ The fundamental objective of the Company's management of assets and liabilities is to maximize its economic value while maintaining adequate liquidity and a conservative level of interest rate risk. In evaluating the exposure to interest rate risk, the Company considers the effects of various factors in implementing interest rate risk management activities, including interest rate swaps, utilized to hedge the impact of interest rate fluctuations on interest-bearing assets and liabilities in the current interest rate environment. Interest rate swaps are agreements to exchange interest payments computed on notional amounts, which are used as a basis for the calculations only and do not represent exposure to risk for the Company. The risk to the Company is associated with interest rate fluctuations and with the counterparty's ability to meet interest payment obligations. The Company minimizes this credit risk by entering into contracts with well-capitalized money-center banks and by requiring settlement of only the net difference between the exchanged interest payments. At June 30, 1995, the Company was a party in two interest rate swaps with notional amounts totaling $60 million. The Company paid a variable rate based on three-month LIBOR and received an average fixed rate of 4.11 percent. The effect of entering into these contracts resulted in reductions of net interest income of $607,000 for the first six months of 1995. The Company had no interest rate swaps outstanding during the first six months of 1996. The primary analytical tool used by the Company to gauge interest-rate sensitivity is a simulation model used by many major banks and bank regulators. This industry standard model is used to simulate, based on the current and projected portfolio mix, the effects on net interest income of changes in market interest rates. Under the Company's policy and practice, the projected amount of net interest income over the ensuing twelve months is not allowed to fluctuate more than ten percent even under alternate assumed interest rate changes of plus or minus 200 basis points. The results of the model indicate that the mix of interest rate sensitive assets and liabilities at June 30, 1996 does not expose the Company to an unacceptable level of interest rate risk. Liquidity - --------- The Company's principal source of asset liquidity is investment securities available for sale. At June 30, 1996, investment securities available for sale totaled $666.1 million. This represents an increase of $466.5 million from June 30, 1995 resulting, in large part, from a one-time reclassification, at December 31, 1995, of $329.4 million of securities from held to maturity to available for sale, that provided greater flexibility for managing the securities portfolio. This reclassification followed a special report issued by the Financial Accounting Standards Board, "A Guide to Implementation of Statement No. 115 on Accounting for Certain Investments in Debt and Equity Securities - Questions and Answers", which allowed companies to reassess the appropriateness of the classifications of all securities and account for any reclassification at fair value. The Company generates significant liquidity from its operating activities. The Company's profitability in the first six months of 1996 and 1995 was the main contributor to the cash flows provided from operations for such periods of $17.5 million and $10.4 million, respectively. Cash flow is provided by and used in financing activities, primarily customer deposits, short-term borrowings from banks and extensions of long-term debt. In the first six months of 1996, $1.5 million were used in financing activities, as a $54.6 million decrease in deposits combined with other cash flow uses, including $4.5 million in dividends paid to shareholders and $7.7 million in repurchases and retirement of stock, were partially offset by an increase of $40.6 million in purchased funds, a $2.3 million increase in common stock from option exercises and the issuance of $22.5 million of the Company's Senior Notes. These results compare to the first six months of 1995 when $24.3 million were used in financing activities, mainly comprised of a $59.6 million decrease in customer deposits, plus payments of $5.5 million on long-term debt, and retirement of stock and dividends paid to shareholders for $5.0 million and $3.5 million, respectively. These uses of funds were partially offset by a $46.8 million increase in short-term purchased funds and a $2.4 million increase in common stock from option exercises. The Company uses cash flows from operating and financing activities primarily to invest in securities and loans. During the first six months of 1996, net disbursements of loans were $14.8 million compared to net repayments of loans of $8.7 million during the same period in 1995. The Company continued to grow its investment securities portfolio in 1996, reflected in the $10.2 million increase in purchases of investment securities net of maturities and sales for the first six months of 1996 compared to proceeds from maturities net of purchases of $14.6 million during the same period of 1995. The Company anticipates increasing its cash level from operations through the end of 1996 due to increased profitability and retained earnings. For the same period, it is anticipated that the investment securities portfolio and demand for loans will moderately increase. The growth in deposit balances is expected to follow the anticipated growth in loan and investment balances through the end of 1996. Capital Resources - ----------------- The current and projected capital position of the Company and the impact of capital plans and long-term strategies is reviewed regularly by Management. The Company's capital position represents the level of capital available to support continued operations and expansion. The Company's primary capital resource is shareholders' equity which was $233.8 million at June 30, 1996, representing an increase of $18.8 million or 9 percent from June 30, 1995 and an increase of $9.8 million, or 4 percent, from December 31, 1995. As a result of the Company's profitability and the retention of earnings, the ratio of equity to total assets increased to 9.3 percent at June 30, 1996, from 8.8 percent a year ago and 9.0 percent at year-end 1995. The ratio of Tier I capital to risk-adjusted assets was 13.11 percent at June 30, 1996 compared to 13.01 percent at June 30, 1995 and 12.77 percent at December 31, 1995. Total capital to risk-adjusted assets was 15.51 percent at June 30, 1996 compared to 15.48 percent at June 30, 1995 and 15.18 percent at December 31, 1995. The following summarizes the ratios of capital to risk-adjusted assets for the periods indicated: At At June 30, December 31, ---------------- ----------- 1996 1995 1995 ----- ----- ----- Tier I Capital 13.11% 13.01% 12.77% Total Capital 15.51% 15.48% 15.18% Leverage ratio 9.29% 9.03% 9.12% Capital ratios are reviewed on a regular basis to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet the Company's future needs. All ratios are in excess of regulatory definitions of "well capitalized". During 1996, 1995 and in 1994, the Board of Directors approved the repurchase of up to 838,150 shares of common stock from time to time, subject to appropriate regulatory and acquisition accounting requirements. These purchases are made periodically in the open market and lessen the dilutive impact of issuing new shares to meet stock performance, option plans and other requirements on the calculation of earnings per share. Pursuant to this program, 410,750 shares had been purchased through June 30, 1996. Interim Periods - --------------- The financial information of the Company included herein for June 1996 and 1995 is unaudited; however, such information reflects all adjustments which are, in the opinion of Management, necessary for a fair statement of results for the interim periods. Those adjustments are normal and recurring in nature. The results of operations for the three and six-month periods ended June 30, 1996 are not necessarily indicative of the results to be expected for the full year. This report should be read in conjunction with Westamerica Bancorporation's annual report on Form 10-K for the year ended December 31, 1995. On October 23, 1995, the Financial Accounting Standards Board Issued Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). The recognition provisions and disclosure requirements of SFAS 123 are effective January 1, 1996. SFAS 123 allows an entity to either (i) retain the current method of accounting for stock compensation (principally APB Opinion No. 25) for purposes of preparing its basic financial statements or (ii) to adopt a new fair value based method that is established by the provisions of SFAS 123. Companies may continue to apply the accounting provisions of APB Opinion No. 25 in determining net income. However, they must apply the disclosure requirements of SFAS 123. The Company will retain its current method of accounting for stock compensation and thus SFAS 123 is not expected to have an impact on the Company's financial results. In January 1996, the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). Under the provisions of SFAS 121, long-lived assets and certain identifiable intangibles to be held and used by an entity are required to be reviewed for impairment whenever events or changes indicate that the carrying amount of those assets may not be recoverable. The adoption of SFAS 121 did not have any effect on the Company's financial statements. In January 1996, the Company adopted the provisions of Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS 122"), which amends Statement No.65. SFAS 122 eliminated the accounting distinction to recognize as separate assets the rights to service mortgage loans for others depending on how the servicing rights were acquired, whether by purchase of loans or by origination of loans. SFAS 122 also requires the assessment of capitalized mortgage servicing rights for impairment to be based on the current value of those rights. The adoption of SFAS 122 did not have a material impact on the Company's financial statements. Certain amounts in prior periods have been restated to conform to the current presentation. SIGNATURES Pursuant to the requirements of Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WESTAMERICA BANCORPORATION (Registrant) Date: August 6, 1996 /s/ DENNIS R. HANSEN -------------------- Dennis R. Hansen Senior Vice President and Controller PART II - OTHER INFORMATION Item 1 - Legal Proceedings Due to the nature of the banking business, the Subsidiary Banks are at times party to various legal actions; all such actions are of a routine nature and arise in the normal course of business of the Subsidiary Banks. Item 2 - Changes in Securities None Item 3 - Defaults upon Senior Securities None Item 4 - Submission of Matters to a Vote of Security Holders Proxies for the Annual Meeting of shareholders held on April 23, 1996, were solicited pursuant Regulation 14A of the Securities Exchange Act of 1934. The Report of Inspector of election indicates that 7,470,716 shares of the Common Stock of the Company, out of 9,791,109 shares outstanding, were present at the meeting. The following matters were submitted to a vote of the shareholders: 1.- Election of directors: Withheld/ For Exceptions --------- --------- Etta Allen 7,349,652 121,064 Louis E. Bartolini 7,310,815 159,901 Charles I. Daniels, Jr. 7,310,314 160,402 Don Emerson 7,407,447 63,269 Arthur C. Latno, Jr. 7,318,882 151,834 Patrick D. Lynch 7,315,483 155,233 Catherine C. MacMillan 7,310,359 160,357 Dwight H. Murray, Jr. 7,400,792 69,924 Ronald A. Nelson 7,403,956 66,760 Carl R. Otto 7,378,847 91,869 David L. Payne 7,406,998 63,718 Edward B. Sylvester 7,376,070 94,646 2.- Ratification of independent certified public accountant firm. A proposal to ratify the selection of KPMG Peat Marwick LLP as independent certified public accountants for the Company for 1996. For : 7,355,398 Against : 23,924 Abstain : 90,394 3.- Proposal to change the method of compensating the members who serve on the Board of Directors. For : 657,796 Against : 5,109,089 Abstain : 271,898 Item 5 - Other Information None Item 6 - Exhibits and Reports on Form 8-K (a) Exhibit 11: Computation of Earnings Per Share on Common and Common Equivalent Shares and on Common Shares Assuming Full Dilution (b) Reports on Form 8-K: None