SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 2000 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON,

1108 ~~FIFTH AVENUE, SAN RAFAEL, CALIFORNIA~~Fifth Avenue, San Rafael, California 94901 ~~(415) 725-2200 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) DAVID~~

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ~~[ ]~~ o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

- ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------------ Common Stock, no par value.... 800,000


(1)	Represents the estimated maximum number of shares Not applicable $16,428,660 $4,337.17 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ of common stock of the Registrant to be issued upon consummation of the merger of Redwood Empire Bancorp with and into Registrant, based on (i) 4,952,123 shares of Redwood Empire Bancorp common stock outstanding, plus 343,685 shares of common stock issuable upon the exercise of outstanding options to acquire Redwood Empire Bancorp common stock and (ii) a maximum exchange ratio of 0.3792 shares of Registrant’s common stock for each share of Redwood Empire Bancorp common stock.

(2)	Pursuant to Rule 457(f), the registration fee was computed on the basis of $28.71, the market value of the common stock of Redwood Empire to be exchanged in the merger, computed in accordance with Rule 457(c) on the basis of the average of the high and low price per share of such stock as quoted on The Nasdaq National Market on October 11, 2004, and 5,295,808 shares of Redwood Empire Bancorp which may be received by the Registrant and canceled upon consummation of the merger. In calculating the filing fee the anticipated amount of $56,899,893 in cash consideration to be paid by the Registrant to Redwood Empire Bancorp shareholders who exchange their Redwood Empire Bancorp shares in the merger has been deducted from the value of the securities to be received by the Registrant in exchange.

(3)	Prior to the occurrence of certain events, the stock purchase rights will not be evidenced separately from the common stock.

~~(1) In~~

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with ~~Rule 457(f)(1), the amount used to determine the proposed maximum aggregate offering price and the registration fee has been based on the average~~Section 8(a) of the ~~bid and ask price for shares~~Securities Act of ~~Common Stock, no par value, of First Counties Bank~~1933 or until the Registration Statement shall become effective on such date as of April 12, 2000. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTIONthe Commission, acting pursuant to said Section 8(a), ~~MAY DETERMINE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------~~ ~~2 DRAFT DATED APRIL 17, 2000~~ may determine.

This ~~proxy statement/prospectus~~document is being furnished to the shareholders of ~~First Counties Bank~~Redwood Empire Bancorp in connection with the solicitation of proxies by the board of directors of ~~First Counties~~Redwood Empire Bancorp to be used in voting at ~~the Annual Meeting~~a special meeting of ~~Shareholders~~shareholders of ~~First Counties~~Redwood Empire Bancorp to be held on [meeting date], ~~2000.~~2004. This ~~proxy statement/prospectus~~document is first being mailed to holders of common stock of ~~First Counties~~Redwood Empire Bancorp on or about [mailing date], ~~2000.~~2004.

The meeting has been called to consider and vote upon ~~proposals: 1. To~~a proposal to approve the Agreement and Plan of Reorganization ~~and Merger (the "merger agreement")~~ dated ~~March 14, 2000,~~as of August 25, 2004 among ~~First Counties,~~Redwood Empire Bancorp, its wholly-owned subsidiary National Bank of the Redwoods, Westamerica Bancorporation and ~~Westamerica's wholly owned~~Westamerica Bancorporation’s wholly-owned subsidiary Westamerica ~~Bank; 2. To elect eight directors;~~Bank, and ~~3. To~~the transactions contemplated thereby, and to act upon such other matters as may properly come before the meeting or any adjournment thereof.

If the merger is completed, each share of Redwood Empire Bancorp common stock will be converted into the right to receive $28.74, consisting of $11.49 in cash and $17.25 in shares of Westamerica Bancorporation common stock, valued at its average closing price for the 20-trading day period ending three business days before the effective date of the merger. The merger consideration may be reduced by up to $0.30 per share (allocated proportionately between cash and stock) if regulatory agencies require Westamerica to divest deposits in Lake County as a condition of approving the merger. Westamerica Bancorporation common stock is traded on the Nasdaq National Market under the symbol “WABC.” The value of the stock portion will increase if the average closing price of Westamerica common stock over the measurement period ending three business days before completion of the merger is greater than $55.6050 and will decrease if the average closing price during that period is less than $45.4950. On [ ], 2004, the last reported sale price of Westamerica Bancorporation common stock was [$ ] per share. Based on that closing price, and assuming no divestments, you would receive shares of Westamerica Bancorporation common stock and $11.49 in cash for each share of Redwood Empire Bancorp common stock (subject to reduction as described above if Westamerica is required to divest deposits). This prospectus covers a maximum of 2,094,450 shares of Westamerica Bancorporation common stock that may be issued to Redwood Empire Bancorp shareholders in the merger. The specific details of the merger agreement are more fully discussed under the heading ~~"Proposal One -- The Merger"~~“The Merger” in this ~~proxy statement/prospectus,~~document, and in the merger agreement which is ~~set forth in full in Appendix~~attached as Annex A to this ~~proxy statement/prospectus. The~~document.You should also review and consider the matters described under the heading “Risk factors” on page 16 in determining whether to approve the merger.

Approval of the merger requires the affirmative vote of ~~the~~ holders of at least a majority of the ~~issued and~~ outstanding shares of ~~First Counties~~Redwood Empire Bancorp common stock. You should be aware that Redwood Empire Bancorp shareholders holding approximately 49.6% of the outstanding shares have agreed to vote in favor of the merger and have given Westamerica irrevocable proxies to vote their shares in favor of the merger and that directors of Redwood Empire, who in the aggregate own approximately 1.0% of the outstanding shares, have also agreed to vote their shares in favor of the merger. Therefore, shareholder approval of the merger is effectively assured. The merger does not require the approval of the Westamerica Bancorporation shareholders.

Neither this transaction nor the securities of Westamerica Bancorporation have been approved or disapproved by the Securities and Exchange Commission or any state securities commission, nor has the Securities and Exchange Commission or any state securities commission passed upon the accuracy or adequacy of this document. Any representation to the contrary is a criminal offense.

The shares of Westamerica Bancorporation common stock offered by the accompanying document are not savings accounts, deposits or other obligations of Westamerica Bancorporation or Redwood Empire Bancorp or any subsidiary of any of the parties and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. The shares are subject to investment risk.

The information in this document is ~~required~~not complete and may be changed. We may not issue these securities until the registration statement filed with the Securities and Exchange Commission is effective.

This document incorporates important business and financial information about Westamerica Bancorporation and Redwood Empire Bancorp that is not included in or delivered with this document. That information is available without charge, excluding all exhibits unless specifically incorporated by reference in this document, by requesting them in writing or by telephone from:

If you would like to ~~approve~~request documents, please do so by , 2004, to receive them before the merger. NEITHER THIS TRANSACTION NOR THE SECURITIES OF WESTAMERICA HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. [Themeeting.

In deciding how to vote on the merger, you should rely only on the information contained or incorporated by reference in this proxy statement/ prospectus. Neither Westamerica Bancorporation nor Redwood Empire Bancorp has authorized any person to provide you with any information that is different from what is contained in this proxy statement/ prospectus. This proxy statement/ prospectus is dated , 2004. You should not assume that the information contained in this proxy statement/ prospectus is accurate as of any date other than such date, and neither the mailing to you of this proxy statement/prospectus nor the issuance to you of shares of Westamerica Bancorporation common stock will create any implication to the contrary. This proxy statement/ prospectus does not constitute an offer to sell or a solicitation of any offer to buy any securities, or the solicitation of a proxy in any jurisdiction in which, or to any person to whom, it is unlawful.

The date of this document is , ~~2000.]~~ ~~3 FIRST COUNTIES BANK 15145 LAKESHORE DRIVE CLEARLAKE, CALIFORNIA 95422~~ 2004 and it is first being mailed to shareholders of Redwood Empire Bancorp on or about , 2004.

In connection with the proposed merger, shareholders will be given the opportunity to exercise dissenters’ rights in accordance with certain procedures specified in the California General Corporation Law, Sections 1300-1304, which sections are attached hereto as Annex C and incorporated in this proxy statement/ prospectus by reference. These rights will be made available if demands are made for payment with respect to 5% or more of the outstanding shares of Redwood Empire Bancorp common stock. If dissenters’ rights are made available and if shareholders follow all of the procedures required by law, shareholders may receive cash in the amount equal to the fair market value, as determined by Redwood Empire Bancorp, or, if required, by a court of law, of their shares of Redwood Empire Bancorp common stock as of August 25, 2004, the business day immediately preceding the announcement of the merger. For additional details about dissenters’ rights, please refer to “The Merger — Dissenters’ rights of appraisal” and Annex C in the accompanying proxy statement/ prospectus.

It is very important that every shareholder vote. Adoption of the merger agreement requires the affirmative vote of the holders of a majority of the shares of common stock of Redwood Empire Bancorp issued and outstanding on the record date. Whether or not you plan to attend the special meeting in person, please complete, date, sign and return the enclosed white proxy card in the enclosed white envelope to . No postage is required if mailed in the United States. If you attend the special meeting, you may vote in person if you wish, even if you have previously returned your proxy card. The proxy may be revoked at any time prior to its exercise.

QUESTIONS AND ANSWERS ABOUT THE MERGER Q: WHY HAVE YOU SENT ME THIS DOCUMENT? A: This proxy statement/prospectus contains important information regarding this proposed merger, as well as information about Westamerica and First Counties. It also contains important information about what the First Counties board of directors and management considered in evaluating this proposed merger. We urge you to read this proxy statement/prospectus carefully, including its appendices. You may also want to review the documents listed under "Where You Can Find More Information" on page 78. This document also contains other information about the matters to be voted on a First Counties Annual Meeting of Shareholders to be held on [meeting date], 2000 (page 10). Q: WHY IS THIS MERGER PROPOSED? A: First Counties is proposing this merger because its board of directors has concluded that this merger is in the best interest of its shareholders and that the combined companies can offer First Counties' customers a broader array of services and products than First Counties could offer on its own. Q: WHAT WILL I RECEIVE IN THIS MERGER? A: Under the merger agreement, you will have the right to receive 0.8880 of a share of Westamerica common stock for each share of First Counties common stock that you own. This ratio is subject to certain adjustments described below. Q: WHAT WILL HAPPEN TO FIRST COUNTIES IN THIS MERGER? A: Immediately after the merger, First Counties will merge with a subsidiary of Westamerica and continue to operate as "First Counties Bank." Within several months it will be merged with Westamerica Bank. The resulting bank will continue under the name "Westamerica Bank" as a wholly owned subsidiary of Westamerica. Q: HOW DO I VOTE? A: Simply indicate on your proxy card how you want to vote and then sign and mail your proxy card in the enclosed return envelope as soon as possible so that your shares may be represented at the First Counties Annual Meeting. Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR ME? A: Your broker will not vote your shares for you unless you provide instructions to your broker on how to vote. It is important therefore that you follow the directions provided by your broker regarding how to instruct your broker to vote your shares. If you fail to instruct your broker how to vote your shares, the effect will be the same as a vote against the merger agreement. Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD? A: Yes. You may change your vote at any time before your proxy is voted at the Annual Meeting. If your shares are held in your name you may do this in one of three ways. First, you may send a written notice stating that you would like to revoke your proxy. Second, you may complete and submit a new proxy card. If you choose either of these two methods, you must submit your notice of revocation or your new proxy card to First Counties at the address at the top of the Notice of iii 7 Annual Meeting in time so as to receive it prior to the vote at the Annual Meeting. Third, you may attend the meeting and vote in person if you tell the Secretary that you want to cancel your proxy and vote in person. Simply attending the First Counties Annual Meeting, however, will not revoke your proxy. If you have instructed a broker to vote your shares, you must follow directions received from your broker to change your vote or to vote at the First Counties Annual Meeting. Q: SHOULD I SEND IN MY CERTIFICATES NOW? A: No. After the merger is completed, we will send you written instructions for exchanging your stock certificates. Q: WHEN DO YOU EXPECT THIS MERGER TO BE COMPLETED? A: We are working toward completing this merger as quickly as possible. We currently expect to complete this merger in mid-2000. iv 8


Q:	What will happen to Redwood Empire Bancorp and National Bank of the Redwoods in this merger?

A:	Redwood Empire Bancorp will merge with Westamerica Bancorporation, with Westamerica Bancorporation as the surviving corporation. Promptly after that National Bank of the Redwoods will merge with Westamerica Bank. The resulting bank will continue under the name “Westamerica Bank” as a wholly owned subsidiary of Westamerica Bancorporation. The existing branches of National Bank of the Redwoods willeitherbecome or be consolidated with branches of Westamerica Bank.

Q:	How do I vote?

A:	Simply indicate on your proxy card how you want to vote and then sign and mail your proxy card in the enclosed return envelope as soon as possible so that your shares may be represented at the Redwood Empire Bancorp special meeting.

Q:	If my shares are held in “street name” by my broker, will my broker vote my shares for me?

A:	Your broker will not vote your shares for you unless you provide instructions to your broker on how to vote. It is important therefore that you follow the directions provided by your broker regarding how to instruct your broker to vote your shares. If you fail to instruct your broker how to vote your shares, the effect will be the same as a vote against the merger agreement.

Q:	Can I change my vote after I have mailed my signed proxy card?

A:	Yes. You may change your vote at any time before your proxy is voted at the special meeting. If your shares are held in your name you may do this in one of three ways. First, you may send a written notice stating that you would like to revoke your proxy. Second, you may complete and submit a new proxy card. If you choose either of these two methods, Redwood Empire Bancorp must receive your notice of revocation or your new proxy card to Redwood Empire Bancorp at the address at the top of the Notice of Special Meeting prior to the vote at the special meeting. Third, you may revoke your proxy before it is exercised by attending the special meeting and electing to vote in person. If you have instructed a broker to vote your shares, you must follow directions received from your broker to change your vote or to vote at the Redwood Empire Bancorp special meeting.

Q:	Should I send in my certificates now?

A:	No. After the merger is completed, we will send you written instructions for exchanging your stock certificates.

Q:	When do you expect this merger to be completed?

A:	We are working toward completing this merger as quickly as possible. We currently expect, subject to receiving required regulatory approvals, to complete this merger in the fourth quarter of 2004 or the first quarter of 2005.

This summary, together with the ~~"Questions~~“Questions and ~~Answers"~~Answers” on the preceding pages, highlights important selected information from this proxy statement/prospectus. To understand the merger fully and for a more complete description of the legal terms of the merger, you should read carefully this entire document and the other information available to you. We have included page references in parentheses to direct you to a more complete description of the topics presented in this summary. ~~FIRST COUNTIES SHAREHOLDERS WILL RECEIVE 0.8880 OF A SHARE OF WESTAMERICA COMMON STOCK IN THE MERGER (PAGE 25) When~~

Redwood Empire Bancorp shareholders will receive $28.74, consisting of $11.49 in cash and $17.25 in shares of Westamerica Bancorporation common stock in the merger, but this amount is subject to possible adjustment (page 44)

If the merger is completed, ~~you will receive 0.8880 of a share of Westamerica common stock for~~ each share of ~~First Counties~~Redwood Empire Bancorp common stock ~~that you hold, subject to certain possible adjustments. For example, if you hold 100 shares of First Counties common stock, you~~ will ~~have~~be converted into the right to receive ~~88.8~~merger consideration of $28.74, consisting of $11.49 in cash and $17.25 in shares of Westamerica Bancorporation common stock, in the merger. You will receive cash instead of fractional shares. Therefore, you would only receive 88 shares of Westamerica common stock. You would also receive a check in an amount equal to 0.8 of a share multiplied by the closing price of the Westamerica common stock on the trading day before the "closing date," the date on which the transactions relating to the merger are completed. If Westamerica's average closing price before the closing date is greater than $25.59, the exchange ratio will be reduced so that the product of the exchange ratio and Westamerica's average closing price will be $22.72. If Westamerica's average closing price before closing is less than $18.91, the exchange ratio will be increased so that the product of the exchange ratio and Westamerica's average closing price will be $16.79. If Westamerica's average closing price before closing is less than $18.00, Westamerica may, but is not required to, increase the exchange ratio as described in the preceding sentence; if it does not, the boards of Westamerica and First Counties may agree on any exchange ratio that is mutually acceptable to them. To determine adjustments in the number of Westamerica shares to be issued, the stock will be valued at its average closing price for the 20 trading days ending three business days before the effective date of the merger. ~~COMPARATIVE MARKET PRICE DATA~~The merger consideration may be reduced by up to $0.30 per share (allocated proportionately between cash and stock) if bank regulators require Westamerica Bancorporation or Redwood Empire Bancorp to divest deposits in Lake County as a condition of approving the merger. For example, based on an assumed Westamerica average closing price of $55.25 (the average closing price for the 20 trading days ended October 11, 2004) and a resulting exchange ratio of 0.3122, if you held 100 shares of Redwood Empire Bancorp common stock, you would have the right to receive $1,149 in cash and 31.22 shares of Westamerica Bancorporation common stock in the merger (assuming no adjustments). You will receive cash instead of fractional shares. Therefore, you would only receive 31 shares of Westamerica Bancorporation common stock. You would also receive a check in an amount equal to 0.22 of a share multiplied by an average closing price of the Westamerica Bancorporation common stock on account of your fractional share, or $12.16 based on an average closing price of $55.25.

The following table shows the effect on the exchange ratio and the value of the merger consideration of changes in the average closing price of Westamerica Bancorporation common stock (rounded to the nearest cent):

The merger agreement may be terminated by the board of directors of Redwood Empire Bancorp if Westamerica’s average closing price is less than $40.44. The merger agreement may be terminated by the board of directors of Westamerica Bancorporation if Westamerica Bancorporation’s average closing price is greater than $60.66.

The merger consideration will be reduced if Westamerica Bancorporation is required to divest deposits in Lake County as a condition of any governmental approval of the merger. Any reduction will be allocated proportionately between the stock portion and the cash portion. The following table shows the effect of deposit divestitures on the value of the merger consideration (assuming no adjustment on account of a change in Westamerica’s average closing price).

If Westamerica Bancorporation is required to divest at least $10 million but not more than $30 million in deposits, the reductions in the exchange ratio, value of the stock portion and the total merger consideration would be proportionately less. For additional detail on the effect of these possible adjustments, see “The merger agreement — Conversion of Redwood Empire Bancorp common stock” on page 44.

Westamerica Bancorporation’s common stock is ~~quoted~~traded on the Nasdaq National ~~Market. First Counties~~Market under the symbol “WABC.” Redwood Empire Bancorp common stock is ~~thinly~~ traded inon the ~~over-the-counter market, is quoted in~~Nasdaq National Market under the ~~"Electronic Bulletin Board" and is not quoted on Nasdaq.~~symbol “REBC.”

The following table ~~sets forth~~presents historical per share market values for Westamerica Bancorporation common stock and ~~First Counties~~Redwood Empire Bancorp common ~~stock. It also shows~~stock and the equivalent pro forma market values (i) on ~~March 14, 2000,~~August 25, 2004, the last trading day prior to public announcement of the merger and (ii) on [ , ~~2000.~~2004]. The historical values represent the last sale prices on or before the dates indicated. The ~~values~~equivalent pro forma market value of Redwood Empire Bancorp common stock is obtained by multiplying the historical market price of Westamerica Bancorporation common stock by the applicable exchange ratio. The equivalent pro forma market value per share of Redwood Empire Bancorp common stock assumes an average closing price equivalent to the market price for Westamerica Bancorporation common stock shown in the table and an assumed exchange ratio of 0.3122 (the actual exchange ratio will vary) and no adjustments on account of a possible divestiture of deposits.

The values shown for Westamerica Bancorporation common stock may be higher or lower than the average closing price of Westamerica Bancorporation common stock as that term is defined in the merger ~~agreement. The equivalent pro forma~~agreement for purposes of determining the exchange ratio and the actual market value ~~per share~~ of ~~First Counties~~Westamerica Bancorporation common stock ~~reflects an Exchange Ratio of 0.8880 and assumes an 1~~ ~~9 average closing price equivalent to the market price for Westamerica common stock shown in the table.~~
FIRST COUNTIES HISTORICAL MARKET PRICE EQUIVALENT ---------------------------- PRO FORMA WESTAMERICA FIRST COUNTIES MARKET VALUE ----------- -------------- -------------- ~~March 14, 2000..................................... $21.81 $11.25 $19.37 , 2000................................~~
- ------------------------- (1) The historical market price for First Counties' common stock is based on information provided to management by various sources, but not verified by First Counties. First Counties has not been a party to any trades reflected in that information. Westamerica cannot assure you that the price of its stock will be the same or greater than the prices shown in the table at the time of ~~the merger, or at any time after the~~ completion of the ~~merger.~~ merger, so the market value of Westamerica

~~Bancorporation common stock you receive and therefore the total per share merger consideration you receive upon completion of the merger may be greater or less than the amounts shown.~~

Once ~~First Counties~~Redwood Empire Bancorp is acquired by Westamerica Bancorporation, there will be no further public market for ~~First Counties'~~Redwood Empire Bancorp’s common stock. ~~However,~~ Westamerica Bancorporation common stock will continue to be traded on the Nasdaq National Market. ~~THE MERGER IS INTENDED TO BE A TAX-FREE TRANSACTION IN WHICH FIRST COUNTIES SHAREHOLDERS WILL NOT RECOGNIZE GAIN OR LOSS (PAGE 22)~~

~~The merger is intended to be a tax-free transaction in which Redwood Empire Bancorp shareholders will not recognize gain or loss on the stock portion of the merger consideration (page 38)~~

The merger is intended to be a tax-free reorganization so that no gain or loss will be recognized by either Westamerica Bancorporation or ~~First Counties~~Redwood Empire Bancorp or their respective shareholders for federal income tax purposes ~~except for~~on the stock portion of the merger consideration. Redwood Empire Bancorp shareholders may recognize gain but not loss on the receipt of the cash ~~that First Counties shareholders will receive instead~~portion of ~~fractional shares. FIRST COUNTIES BOARD RECOMMENDS SHAREHOLDER APPROVAL (PAGE 14) First Counties'~~the merger consideration.

~~Redwood Empire Bancorp’s board recommends shareholder approval (pages 18, 22)~~

Redwood Empire Bancorp’s board of directors believes that the merger is in the best interests of ~~First Counties~~Redwood Empire and its shareholders and has unanimously approved the merger agreement. ~~First Counties'~~Redwood Empire Bancorp’s board unanimously recommends that you vote ~~"FOR"~~“FOR” approval of the merger agreement. ~~FINANCIAL ADVISOR GIVES OPINION THAT CONSIDERATION IS FAIR TO FIRST COUNTIES SHAREHOLDERS (PAGE 15)~~

Approval of the merger by Redwood Empire Bancorp shareholders requires the affirmative vote of the holders of a majority of the outstanding shares. The directors and executive officers of Redwood Empire Bancorp and their affiliates together held approximately 1.0% of Redwood Empire’s outstanding common stock as of the record date. You should be aware that Redwood Empire Bancorp shareholders holding approximately 49.6% of the outstanding shares have agreed to vote in favor of the merger and have given Westamerica Bancorporation irrevocable proxies to vote their shares in favor of the merger and that directors of Redwood Empire, who in the aggregate own approximately 1.0% of the outstanding shares, have also agreed to vote their shares in favor of the merger. Therefore shareholder approval of the merger is effectively assured.

~~The merger does not require the approval of the shareholders of Westamerica Bancorporation.~~

~~Financial advisor has given an opinion that consideration is fair to Redwood Empire Bancorp shareholders (page 25)~~

In deciding to approve the merger, the ~~First Counties~~Redwood Empire Bancorp board of directors considered the opinion of its financial advisor, ~~The Findley Group,~~Hovde Financial LLC, dated as of ~~March 14, 2000,~~August 13, 2004, about the fairness of the merger to ~~First Counties~~Redwood Empire Bancorp shareholders from a financial point of view. This opinion is attached as ~~Appendix~~Annex B to this proxy statement/prospectus. We encourage you to read it carefully. Under an agreement with ~~First Counties, Findley Group~~Redwood Empire Bancorp, Hovde Financial LLC will receive a fee of ~~$75,000~~approximately $1,530,000, subject to adjustment depending on the actual value of the merger consideration as of closing, when the merger closes. ~~ANNUAL SHAREHOLDERS MEETING TO BE HELD ON [MEETING DATE]~~

You will be given the opportunity to exercise dissenters’ rights in accordance with certain procedures specified under California law, provided that demands are made for payment with respect to 5% or more of the outstanding shares of Redwood Empire Bancorp common stock. This means that shareholders who vote against the merger may make a written demand to Redwood Empire Bancorp for payment in cash of the “fair market value” of their shares. Redwood Empire Bancorp must receive the demand no later than the date of the special meeting. To exercise dissenters’ rights, you must vote shares against the merger; it is not sufficient

to abstain from voting. The Redwood Empire Bancorp board of directors has determined that the “fair market value” of one share of Redwood Empire Bancorp common stock for this purpose is $25.99. That amount represents the last reported sale price for Redwood Empire Bancorp common stock on August 25, 2004, the business day before the public announcement of the merger. You may disagree with the Redwood Empire Bancorp board of directors’ determination of the fair market value. The procedure for exercising your dissenters’ rights is summarized under the heading “The Merger — Dissenters’ rights of appraisal.” The relevant provisions of California law on dissenters’ rights are attached to this document as Annex C.

In considering the recommendation of the board of directors of Redwood Empire Bancorp to approve the merger agreement, you should be aware that certain executive officers and directors of Redwood Empire Bancorp have certain interests in, and will receive benefits as a consequence of, the merger that are different from the benefits to Redwood Empire Bancorp shareholders generally. These interests include:


	•	vesting of all outstanding stock options, which, based on anticipated holdings as of December 1, 2004 and merger consideration of $28.74, would result in an estimated aggregate benefit to executive officers and directors of approximately $508,150; and

	•	potential severance benefits available to executive officers and directors under various severance policies, change in control agreements and salary continuation agreements, which could result in cash severance payments to executive officers and directors, assuming all were terminated immediately following the merger, of approximately $1,670,055 in the aggregate.

~~Shareholders of Westamerica Bancorporation and Redwood Empire Bancorp have different rights (page 69)~~

The rights of holders of Westamerica Bancorporation common stock are different in some respects from the rights of holders of Redwood Empire Bancorp common stock. You should consider these differences when voting on the merger.

~~Information regarding Westamerica Bancorporation and Redwood Empire Bancorp (pages 21, 54 and 64)~~


	Westamerica Bancorporation 4550 Mangels Boulevard Fairfield, CA 94585-1200 [(415) 257-8000] www.westamerica.com

Westamerica Bancorporation is a bank holding company registered under the Bank Holding Company Act of 1956. Westamerica Bancorporation was incorporated under the laws of the State of California as “Independent Bankshares Corporation” on February 11, 1972. It is the parent of Westamerica Bank and Community Banker Services Corporation. Westamerica Bancorporation has 88 branches throughout northern and central California. Westamerica Bancorporation as of June 30, 2003, was the 14th largest bank and 18th largest depository institution, measured by deposits, in California. At June 30, 2004 it had total assets of $4.6 billion, deposits of approximately $3.5 billion and shareholders’ equity of $329.8 million.


	Redwood Empire Bancorp 111 Santa Rosa Avenue Santa Rosa, CA 95404 (707) 573-4800

Redwood Empire Bancorp is a bank holding company registered under the Bank Holding Company Act of 1956. It was originally incorporated in 1988 for the purpose of becoming the holding company of National Bank of the Redwoods, a national banking association founded in 1985. Redwood Empire Bancorp conducts a general commercial banking business through its main office in Santa Rosa, California, five retail branches located in Sonoma County, California, one retail branch located in Mendocino County, California, and one retail branch located in Lake County, California. At June 30, 2004, Redwood Empire Bancorp had assets of

~~approximately $515.4 million, deposits of approximately $453.0 million and shareholders’ equity of approximately $28.3 million.~~

~~Special shareholders meeting to be held on [meeting date], ~~2000 (PAGE 10)~~ 2004 (page 18)~~

We will hold the ~~Annual Meeting~~special meeting of ~~Shareholders~~shareholders of Redwood Empire Bancorp at [meeting time] on Thursday, [meeting date], ~~2000,~~2004, at ~~15145 Lakeshore Drive, Clearlake, California.~~Redwood Empire Bancorp, 111 Santa Rosa Avenue, Santa Rosa, California 95404. At the ~~Annual Meeting,~~special meeting, you will be asked (1) to approve the merger agreement and (2) to ~~elect eight people to~~consider such other business as may properly come before the ~~board~~meeting.

Record date set at [record date], 2004; vote required for approval of ~~directors to serve until the~~ merger ~~is completed or until the next Annual Meeting. RECORD DATE SET AT [RECORD DATE], 2000; VOTE REQUIRED FOR APPROVAL OF MERGER (PAGE 11) AND ELECTION OF DIRECTORS (PAGE 11)~~ (page 19)

You can vote at the ~~Annual Meeting~~special meeting if you owned ~~First Counties~~Redwood Empire Bancorp common stock at the close of business on [record date], ~~2000. A~~2004. Holders of a majority of the outstanding shares of ~~First Counties~~Redwood Empire Bancorp common 2 10 stock must vote to approve the merger agreement in order for the merger to occur. In

~~Conditions that must be satisfied for the ~~election of directors,~~merger to occur (page 51)~~

We will not complete the ~~eight nominees receiving the greatest~~merger unless a number of ~~votes will be elected. DISSENTERS' RIGHTS OF APPRAISAL (PAGE 23 AND APPENDIX C) You may be entitled~~conditions are met. These include:


	•	approval of the merger agreement by Redwood Empire Bancorp shareholders,

	•	receipt of all required regulatory approvals;

	•	absence of material adverse changes in the parties, unless waived; and

	•	satisfaction by Redwood Empire Bancorp of certain financial conditions relating to its levels of performing loans, noninterest-bearing deposits and shareholders’ equity, unless waived by Westamerica Bancorporation.

~~Regulatory approvals we must obtain for the merger to ~~cash equal to~~occur (page 34)~~

The merger requires the ~~fair value of your First Counties shares before announcement~~prior approval of the merger if you perfect your dissenters' rights. INFORMATION REGARDING WESTAMERICA AND FIRST COUNTIES (PAGES 34 AND 42) Westamerica Bancorporation 1108 Fifth Avenue San Rafael, CA 94901 (415) 257-8000 www.westamerica.com Westamerica Bancorporation is a bank holding company registeredBoard of Governors of the Federal Reserve System (the “FRB”) under the Bank ~~Holding Company~~Merger Act ~~of 1956 ("BHC Act"). The company was incorporated under the laws of the State of California as "Independent Bankshares Corporation" on February 11, 1972. It is the parent of Westamerica Bank~~ and ~~Bank~~ of Lake County. The banks have 90 branches throughout northern and central California. Westamerica is the 12th largest bank, measured by deposits, in California. At December 31, 1999, it had total assets of $3.9 billion, deposits of $3.1 billion and shareholders' equity of $301 million. First Counties Bank 15145 Lakeshore Drive Clearlake, CA 95422 (707) 995-5236 www.FCOK.com First Counties is a state banking corporation licensed by the California Department of Financial Institutions ~~(the "DFI")~~under the California Financial Code. The FRB may require Westamerica Bancorporation or Redwood Empire Bancorp to divest deposits in Lake County as a ~~commercial bank. It was originally incorporated as a national bank in 1985 as Clear Lake National Bank. It~~condition to its approval. If such divestiture is headquartered in Clearlake, Lake County, California. First Counties conducts a general commercial banking business through its main office and four branches. At December 31, 1999, First Counties had assets of approximately $91 million, deposits of approximately $81 million and shareholders' equity of approximately $8.8 million. WESTAMERICA TO USE PURCHASE ACCOUNTING TREATMENT (PAGE 21) required, the merger consideration could be reduced by up to $0.30 per share.

~~Westamerica ~~expects~~Bancorporation to use purchase accounting treatment (page 38)~~

Westamerica Bancorporation will account for the merger as a purchase. Under the purchase accounting method, Westamerica Bancorporation will revalue on its books the assets and liabilities of ~~First Counties~~Redwood Empire Bancorp at their fair market values, and the amount by which the aggregate merger consideration exceeds the net fair values of the assets of ~~First Counties~~Redwood Empire Bancorp will be recorded as ~~intangible assets called~~intangibles such as goodwill or core deposit intangible. BENEFITS TO CERTAIN OFFICERS AND DIRECTORS IN THE MERGER (PAGE 21) In considering the recommendation of the board of directors of First Counties to approve the merger agreement, you should be aware that certain officers and directors of First Counties have certain interests in, and will receive benefits as a consequence of, the merger that are different from the benefits to First Counties shareholders generally. These interests include: - Certain officers and employee-directors of First Counties will receive options to acquire Westamerica common stock in place of existing options to acquire First Counties common stock; 3 11 - David Perry and Millie Hammes, who are the President and Chief Executive Officer and the Chief Financial Officer, respectively, of First Counties will receive certain payments under their salary continuation agreements; - David Perry will receive compensation for certain consulting services following completion of the merger. CONDITIONS THAT MUST BE SATISFIED FOR THE MERGER TO OCCUR (PAGE 30) We will not complete the merger unless a number of conditions are met. These include: - approval

Termination of the merger agreement by First Counties shareholders, - receipt of all required regulatory approvals, - absence of material adverse changes in the parties, and - absence of any orders suspending the effectiveness of the registration statement filed by Westamerica to register the shares to be issued to First Counties shareholders. REGULATORY APPROVALS WE MUST OBTAIN FOR THE MERGER TO OCCUR (PAGE 20) The merger requires the prior approval of the Board of Governors of the Federal Reserve System (the "FRB") and the California Department of Financial Institutions (the "DFI"). TERMINATION OF THE MERGER AGREEMENT (PAGE 31)(page 52)

~~The merger agreement may be terminated before completion as follows: ~~- by the mutual consent of the respective boards of directors; -~~~~


	•	by the mutual consent of Redwood Empire Bancorp and Westamerica Bancorporation;

	•	by either party if the conditions to its obligations have not been met by May 25, 2005;

	•	by either party if the shareholders of Redwood Empire Bancorp fail to approve the merger agreement at the Special Meeting;

	•	by either party if the other fails to comply materially with its obligations under the merger agreement and fails to cure within 60 days;

	•	by either party if any necessary governmental approval has been denied;

	•	by Westamerica Bancorporation if Redwood Empire Bancorp materially breaches its obligation not to solicit or encourage a different transaction for the acquisition of Redwood Empire Bancorp, and, in the


		event of such termination, Redwood Empire Bancorp will be liable to Westamerica Bancorporation for a break-up fee of $4,500,000;

	•	by Westamerica Bancorporation if the board of directors of Redwood Empire Bancorp fails to recommend adoption of the merger agreement at the special meeting, and, in the event of such termination, Redwood Empire Bancorp will be liable to Westamerica Bancorporation for a break-up fee of $4,500,000;

	•	by Redwood Empire Bancorp if its board of directors authorizes it to enter into a superior transaction for the acquisition of Redwood Empire Bancorp, and, in the event of such termination, Redwood Empire Bancorp will be liable to Westamerica Bancorporation for a break-up fee of $4,500,000;

	•	by either party if Westamerica Bancorporation solicits or encourages an acquisition of Westamerica Bancorporation that would materially interfere with its obligations under the merger agreement, and, in the event of such termination, Westamerica Bancorporation will be liable to Redwood Empire Bancorp for a break-up fee of $4,500,000;

	•	by Westamerica Bancorporation if the Westamerica average closing price is greater than $60.66; and

	•	by Redwood Empire Bancorp if the Westamerica average closing price is less than $40.44.

Selected Financial Information About Westamerica on or after September 29, 2000, if any of the conditions to the obligations of Westamerica has not been fulfilled or waived (subject to an extension to October 31 for regulatory waiting periods), if there is any material adverse change in First Counties or its properties, operations or financial condition, First Counties materially fails to comply with its obligations under the merger agreement, First Counties enters into a transaction with someone other than Westamerica providing for the acquisition of all or a substantial part of First Counties or its assets; or - by the board of directors of First Counties on or after September 29, 2000, if any of the conditions to the obligations of First Counties has not been fulfilled or waived (subject to an extension to October 31 for regulatory waiting periods), if there is any material adverse change in Westamerica or its properties, operations or financial condition, Westamerica materially fails to comply with its obligations under the merger agreement, Westamerica or its affiliates enter into a business combination with any other entity which does not expressly contemplate the performance by Westamerica or its successor in interest of Westamerica's obligations under the merger agreement. If either party breaches the merger agreement, the other party may terminate the merger agreement and becomes entitled to be paid $300,000 by the party who breached. In addition, each party remains liable for its other expenses as set forth in Section 10 of the merger agreement. If First Counties enters into, solicits or encourages a competing transaction, Westamerica may terminate the merger agreement and First Counties will be liable for a break-up fee of $1,750,000. If Westamerica enters into a competing transaction that precludes Westamerica from completing the merger, First Counties may terminate the merger agreement and Westamerica will be liable for a break-up fee of $1,000,000. 4 12 Either Westamerica or First Counties can terminate the merger agreement without penalty if Westamerica's average closing price for the 20-trading day measurement period ending three business days before the closing is less than $18.00, unless: - Westamerica agrees to increase the exchange ratio so that the product of the average closing price and the exchange ratio is $16.79; or - Westamerica and First Counties mutually agree to a different exchange ratio. 5 ~~13 SELECTED FINANCIAL INFORMATION ABOUT WESTAMERICA~~ Bancorporation

The following table ~~set forth below~~ presents selected supplemental historical financial information for Westamerica Bancorporation for each of the five years in the period ended December 31, ~~1999. Such~~2003, and the six-month periods ended June 30, 2004 and 2003. This information has been derived from and should be read in conjunction with the supplemental consolidated financial statements of Westamerica Bancorporation, including the notes ~~thereto,~~to such financial statements, which are incorporated by reference elsewhere in this document.

Interest income................... Interest expense.................. Net interest income............... Provision for loan losses......... Non-interest income............... Non-interest expense.............. Income before income taxes........ Provision for income taxes........ Net income.................... $ Earnings per share: Basic........................... $ Diluted......................... Per share: Dividends paid.................. $ Book value at December 31....... Average common shares outstanding..................... Average diluted common shares outstanding..................... Shares outstanding at December 31.............................. AT DECEMBER 31: Loans, net...................... Total assets.................... Total deposits.................. Short-term borrowed funds....... Debt financing and notes payable....................... Shareholders' equity............ FINANCIAL RATIOS: For the year: Return on assets................ Return on equity................ Net interest margin(1).......... Net loan losses to average loans......................... Efficiency ratio(2)............. AT DECEMBER 31: Equity to assets................ Total capital to risk-adjusted assets........................ Loan loss reserve to loans......
	YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) $ 257,656 $ 266,820 $ 270,670 $ 274,182 $ 283,704 78,456 86,665 88,054 91,700 95,627 179,200 180,155 182,616 182,482 188,077 4,780 5,180 7,645 12,306 15,229 40,174 37,805 37,013 36,307 34,227 100,133 101,408 137,878 136,051 141,960 114,461 111,372 74,106 70,432 65,115 38,373 37,976 25,990 23,605 21,930 76,088 $ 73,396 $ 48,116 $ 46,827 $ 43,185 1.97 $ 1.76 $ 1.12 $ 1.10 $ 0.99 1.94 1.73 1.10 1.08 0.98 0.66 $ 0.52 $ 0.36 $ 0.30 $ 0.25 8.10 9.25 9.51 8.84 8.12 38,588 41,797 43,040 42,759 43,747 39,194 42,524 43,827 43,358 44,274 37,125 39,828 42,799 42,889 43,228 $2,269,272 $2,246,593 $2,211,307 $2,236,319 $2,204,495 3,893,187 3,844,298 3,848,444 3,866,774 3,880,979 3,065,344 3,189,005 3,078,501 3,228,700 3,270,907 462,345 203,671 264,848 167,447 175,622 41,500 47,500 52,500 58,865 40,932 300,592 368,596 407,152 379,279 351,058 1.99% 1.94% 1.28% 1.24% 1.14% 23.31% 19.48% 12.71% 13.22% 12.73% 5.46% 5.52% 5.63% 5.54% 5.68% 0.20% 0.20% 0.35% 0.51% 0.59% 43.19% 44.25% 60.15% 60.08% 63.86% 7.72% 9.59% 10.58% 9.81% 9.05% 11.75% 13.79% 14.76% 14.95% 14.39% 2.22% 2.23% 2.24% 2.23% 2.15% width="98%">
*	Fully taxable equivalent

The ~~ratio of non-interest expenses to the sum of net interest income (FTE) and non-interest income. 6~~ ~~14 SELECTED FINANCIAL INFORMATION ABOUT FIRST COUNTIES This~~following table presents selected supplemental historical financial information for ~~First Counties~~Redwood Empire Bancorp for each of the years 1995 to 1999 is only a summary. You should read it with the audited consolidated financial statements and the accompanying notes of First Counties. First Counties' financial statements as of December 31, 1999 and 1998, and for the threefive years in the period ended December 31, ~~1999~~2003, and the six-month periods ended June 30, 2004 and 2003. This information has been derived from and should be read in conjunction with the supplemental consolidated financial statements of Redwood Empire Bancorp including the notes to such financial statements, which are ~~included~~incorporated by reference elsewhere in this document. ~~For~~


(1)	Restated for 2001 and 2003 3 for 2 stock splits.

(2)	Amounts previously reported as an extraordinary loss for the year ended December 31, 1999 have been reclassified to other expense in order to comply with FASB Statement No. 145. The related ratios and per share data have been restated to give effect to this reclassification.

(3)	Ratios for the six months ended June 30, 2004 and 2003 are annualized.

The following table shows information about our financial condition and results of operations, including per share data and financial ratios, after giving effect to the merger. This information is called pro forma financial information in this document. The table sets forth the information as if the merger had become effective on June 30, 2004, with respect to financial condition data, and on January 1, 2003, with respect to results of operations data. This pro forma financial information assumes that the merger is accounted for using the purchase method of accounting and represents a current estimate based on available information of the combined company’s results of operations. See “Accounting Treatment” on page 38. The pro forma information is based on an assumed Westamerica average closing price of $55.25 (the average closing price for the 20 trading days ended October 11, 2004) and a corresponding exchange ratio of 0.3122. The pro forma financial information includes adjustments to record the assets and liabilities of Redwood Empire Bancorp at their estimated fair values and is subject to further adjustment as additional information becomes available and as additional analyses are performed. The pro forma financial statements do not currently include costs that will be incurred by Westamerica Bancorporation after completion of the merger to combine the operations of Westamerica Bancorporation and Redwood Empire Bancorp. This table should be read in conjunction with, and is qualified in its entirety by, the historical financial statements, including the notes thereto, of Westamerica Bancorporation and Redwood Empire Bancorp incorporated by reference in this document and the more detailed pro forma financial information, ~~see "Where~~including the notes thereto, appearing elsewhere in this document. See “Where You Can Find ~~More Information"~~Additional Information” on page ~~78.~~
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- (UNAUDITED) (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATE) RESULTS OF OPERATIONS Interest income.................. $ 7,215 $ 6,881 $ 6,345 $ 5,582 $ 4,822 Interest expense................. 2,608 2,507 2,559 2,287 1,974 Net interest income.............. 4,607 4,374 3,786 3,295 2,848 Provision for loan losses........ 241 380 332 350 201 Noninterest income............... 1,345 869 978 1,006 719 Noninterest expense.............. 4,206 3,692 3,350 3,188 2,694 Income before income taxes....... 1,505 1,171 1,082 763 672 Provision for income taxes....... 552 442 421 228 251 Net income....................... 953 729 661 535 421 Basic earnings per share......... $ 1.16 $ 0.99 $ 1.16 $ 0.94 $ 0.74 Number of shares used in basic earnings per share calculation.................... 819,034 736,648 569,372 569,372 569,372 Diluted earnings per share....... $ 1.15 $ 0.97 $ 1.14 $ 0.93 $ 0.72 Number of shares used in diluted earnings per share calculation.................... 825,678 753,877 577,553 576,887 583,642 BALANCE SHEET (END OF PERIOD) Total assets..................... 90,884 85,984 77,867 69,353 61,466 Net loans........................ 59,721 56,653 50,706 50,459 42,710 Deposits......................... 81,057 77,272 71,671 64,020 56,687 Shareholders' equity............. 8,843 8,045 5,323 4,761 4,278 FINANCIAL RATIOS Tier 1 risk-based capital........ 15.2% 14.0% 10.3% 10.3% 11.5% Total risk-based capital......... 16.5% 15.3% 11.6% 11.5% 12.8% Leverage ratio................... 9.8% 9.8% 6.9% 6.5% 6.7% Allowance for loan losses/period end loans...................... 1.95% 1.81% 1.93% 1.63% 1.50% Return on average assets......... 1.05% 0.90% 0.88% 0.79% 1.11% Return on average equity......... 11.39% 10.36% 13.18% 9.45% 9.28% Nonperforming assets to total assets......................... 0.08% 3.20% 3.06% 1.96% 1.56%
7 ~~15 COMPARATIVE PER COMMON SHARE DATA~~78 and “Unaudited Pro Forma Condensed Combined Financial Information” on page 71.

The pro forma financial information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the impact of possible revenue enhancements, expense efficiencies, asset dispositions and share repurchases, among other factors, that may result as a consequence of the merger and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had our companies been combined during these periods.

The following table sets forth for Westamerica Bancorporation common stock and Redwood Empire Bancorp common stock certain historical, pro forma and pro forma-equivalent per share financial information. The pro forma and pro forma-equivalent per share information gives effect to the merger as if the merger had been effective on the dates presented, in the case of the book value data, and as if the merger had become effective on January 1, 2003, in the case of the income and dividends paid data. The pro forma data in the tables assume that the merger is accounted for using the purchase method of accounting and represents a current estimate based on available information of the combined company’s results of operations. See “Accounting Treatment” on page 38. The pro forma financial adjustments record the assets and liabilities of Redwood Empire Bancorp at their estimated fair values and are subject to adjustment as additional information becomes available and as additional analyses are performed.

The pro forma information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the impact of possible revenue enhancements, expense efficiencies, asset dispositions and share repurchases, among other factors, that may result as a consequence of the merger and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had our companies been combined during these periods. Upon completion of the merger, the operating results of Redwood Empire Bancorp will be reflected in the consolidated financial statements of Westamerica Bancorporation on a prospective basis.

We have summarized ~~below~~ the historical per share information for Westamerica Bancorporation and ~~First Counties~~Redwood Empire Bancorp and additional information as if the companies had been combined for the period shown ("(“pro ~~forma"~~forma”) calculated based on an assumed exchange ratio of ~~0.8880~~0.3122 of a share of Westamerica Bancorporation common stock per share of ~~First Counties~~Redwood Empire Bancorp common stock. You should read this information with Westamerica's historical financial statements and related notes contained in the Annual Reports on Form 10-K that we have filed with the Securities and Exchange Commission. See "Where You Can Find More Information" on page 78. First Counties

Redwood Empire Bancorp equivalent pro forma share amounts are calculated by multiplying the pro forma book value per share and net income per share and ~~Westamerica's~~Westamerica Bancorporation’s historical per share dividends by the assumed exchange ratio so that the per share amounts equate to the respective stock values for one share of ~~First Counties~~Redwood Empire Bancorp common ~~stock.~~stock, excluding the $11.49 per share (subject to adjustment) of cash that will be part of the merger consideration. You should not rely on the pro forma information as being indicative of the historical results that we would have had or the future results that will occur after the merger. The equivalent pro forma data reflects the purchase method of accounting ~~including amortization of goodwill, but~~and does not reflect potential cost savings or revenue enhancements, if any, that may be achieved.

In addition to the other information included in this document, you should consider the matters described below carefully in determining whether to approve the merger agreement. Where “we” or “our” is used in this section, it is meant to refer to both Westamerica Bancorporation and Westamerica Bank before the merger and to Westamerica Bancorporation and Westamerica Bank following its proposed acquisition of Redwood Empire Bancorp and National Bank of the Redwoods.

The value of the merger consideration fluctuates based on Westamerica Bancorporation’s stock price and any required divestiture of deposits in Lake County, California. The exchange ratio is based on the average price per share of Westamerica Bancorporation’s common stock for the 20 consecutive trading days prior to the three business days before the day the merger is consummated. This average price may vary from the market price of Westamerica Bancorporation common stock on the date the merger was announced, on the date that this document is mailed to Redwood Empire Bancorp shareholders, on the date of the special meeting of Redwood Empire Bancorp shareholders and on the date the merger is completed. Any change in the price of Westamerica Bancorporation common stock prior to completion of the merger may affect the value of the merger consideration that you will receive upon completion of the merger. Stock price changes may result from a variety of factors, many of which are beyond our control. In addition, the merger consideration will be reduced if any governmental agency requires divestment of deposits by Westamerica Bancorporation or Redwood Empire Bancorp in Lake County, California.

The fairness opinion obtained by Redwood Empire Bancorp from its financial adviser will not reflect changes in circumstances between the signing of the agreement and the merger. Redwood Empire Bancorp has not obtained an updated fairness opinion as of the date of this document from its financial advisor, Hovde Financial LLC. Changes in the operations and prospects of Westamerica Bancorporation or Redwood Empire Bancorp, general market and economic conditions and other factors that may be beyond the control of Westamerica Bancorporation and Redwood Empire Bancorp, and on which the fairness opinion was based, may alter the value of Westamerica Bancorporation or Redwood Empire Bancorp or the respective prices of shares of their common stock by the time the merger is completed. The opinion does not speak as of the time the merger will be completed or as of any date other than the date of the opinion. For a description of the opinion that Redwood Empire Bancorp received from its advisor, please refer to “The Merger — Opinion of Redwood Empire Bancorp’s financial advisor” on page 25. For a description of the other factors considered by Westamerica Bancorporation’s board of directors in determining to approve the merger, please refer to “The Merger — Westamerica Bancorporation’s Reasons for the Merger” on page 25. For a description of the other factors considered by Redwood Empire Bancorp’s board of directors in determining to approve the merger, please refer to “The Merger — Redwood Empire Bancorp’s Reasons for the Merger” on page 23.

There are uncertainties in integrating our business operations and realizing enhanced earnings. If we are unable to integrate our businesses successfully, this could hurt our business. The merger involves the integration of companies that have previously operated independently. No assurance can be given that Westamerica Bancorporation and Redwood Empire Bancorp will be able to integrate their operations without encountering difficulties including, without limitation, the loss of key employees and customers, the disruption of their respective ongoing businesses, possible inconsistencies in standards, controls, procedures and policies and possible difficulties in integrating information and data processing systems.

The merger agreement limits Redwood Empire Bancorp’s ability to pursue alternatives to the merger. The merger agreement contains “no shop” provisions that, subject to limited exceptions, limit Redwood Empire Bancorp’s ability to discuss, facilitate or commit to competing third-party proposals to acquire all or a significant part of the company. In addition, the merger agreement provides that Redwood Empire Bancorp must pay a break-up fee of $4,500,000 if the merger agreement is terminated because Redwood Empire Bancorp solicits or enters into a competing third-party transaction. These provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Redwood Empire Bancorp from considering or proposing that acquisition even if it were prepared to pay consideration with a higher per share market price than that proposed in the merger, or might result in a potential competing acquirer proposing to pay a lower per share price to acquire Redwood Empire Bancorp than it might otherwise have proposed to pay. The merger agreement also limits Westamerica Bancorporation’s ability to enter into an

~~agreement for a competing business combination, but only if that agreement did not permit Westamerica Bancorporation to complete the merger with Redwood Empire Bancorp.~~

Further economic slowdown in California could hurt our business. Westamerica Bancorporation has focused its business in Northern and Central California. Much of Redwood Empire Bancorp’s business is focused in Sonoma, Mendocino and Lake Counties of Northern California. These areas have experienced economic difficulties in the recent past, and a further economic slowdown in California could have the following consequences:

AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 --------------------------------------------------- WESTAMERICA FIRST COUNTIES ----------------------- ------------------------ PRO FORMA EQUIVALENT HISTORICAL COMBINED HISTORICAL PRO FORMA ---------- --------- ---------- ---------- Book value.................................. $8.10 $8.39 $10.71 $7.45 Cash dividends.............................. 0.66 0.66 0.05 0.59 Net income (basic).......................... 1.97 1.94 1.16 1.72 Net income (diluted)........................ 1.94 1.91 1.15 1.70

	•	Loan delinquencies may increase;

	•	Problem assets and foreclosures may increase;

	•	Demand for our products and services may decline; and

	•	Collateral for loans made by us, especially real estate, may decline in value, in turn reducing customers’ borrowing power.

~~8 16~~

Redwood Empire Bancorp shareholders will not control Westamerica Bancorporation’s future operations. Following the merger, Redwood Empire Bancorp shareholders in the aggregate will become owners of approximately 5.1% of the outstanding shares of Westamerica Bancorporation common stock. Accordingly, former Redwood Empire Bancorp shareholders will not have a significant impact on the election of directors or on whether future Westamerica Bancorporation proposals are approved or rejected.

Westamerica Bancorporation’s shareholders’ rights plan may have anti-takeover effects, which could limit the price investors might be willing to pay in the future for its common stock. Westamerica Bancorporation’s board of directors has adopted a preferred stock purchase rights plan, commonly known as a “poison pill.” The rights plan is intended to prevent abusive hostile takeover attempts by requiring a potential acquirer to negotiate the terms of an acquisition with Westamerica Bancorporation’s board of directors. However, the rights plan could have the effect of deterring or preventing an acquisition of the combined company, even if a majority of the shareholders would be in favor of such acquisition, and could also make it more difficult for a person or group to gain control of the combined company or to change existing management.

Additional risks concerning ownership of Westamerica Bancorporation common stock are discussed in this document under the caption “Information about Westamerica Bancorporation — Certain additional business risks.”

This proxy statement/prospectus contains certain forward-looking statements with respect to the financial condition, results of operations and business of Westamerica Bancorporation and ~~First Counties~~Redwood Empire Bancorp in the ~~future, including~~future. These forward-looking statements include, but are not limited to statements relating to the cost savings ~~which~~that we expect to realize from the merger, the expected impact of the merger on ~~Westamerica's~~Westamerica Bancorporation’s financial performance, earnings estimates for the combined company, ~~and~~ the market value of Westamerica Bancorporation common stock in the future and other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “should,” “seeks,” “estimates” or words of similar meaning. (see ~~"The~~“The Merger --— Reasons for the ~~merger; recommendations~~Merger; Recommendations of the board of ~~directors" on page 14)~~directors”). These forward-looking statements ~~involve certain risks~~are based upon the current beliefs and ~~uncertainties.~~expectations of Westamerica Bancorporation and Redwood Empire Bancorp management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: - expected cost savings from the merger cannot be fully realized; - deposit attrition, customer loss or revenue loss following the merger is greater than expected; - competitive pressure in the banking industry increases significantly; - costs or difficulties related to the integration of the business of Westamerica and First Counties are greater than expected; - changes in the interest rate environment reduce margins; - general economic conditions, either nationally or regionally, are less favorable than expected, resulting in, among other things, a deterioration in credit quality; - changes in the regulatory environment; - changes in business conditions and inflation; and - changes in the securities markets.


	•	expected cost savings from the merger cannot be fully realized;

	•	deposit attrition, customer loss or revenue loss following the merger is greater than expected;

	•	costs or difficulties related to the integration of the business of Westamerica Bancorporation and Redwood Empire Bancorp are greater than expected;


	•	competitive pressure in the banking and financial services industry increases significantly;

	•	operational risks including data processing system failures or fraud;

	•	changes in the interest rate environment reduce margins;

	•	general economic conditions, either nationally or regionally, are less favorable than expected, resulting in, among other things, a deterioration in credit quality;

	•	increased economic uncertainty resulting from recent terrorist attacks and the threat of similar attacks in the future;

	•	changes in the regulatory environment;

	•	changes in business conditions and inflation; and

	•	changes in the securities markets.

The forward-looking earnings estimates included in this ~~proxy statement/prospectus~~document have not been examined or compiled by the independent registered public ~~accountants~~accounting firm of Westamerica Bancorporation or ~~First Counties~~Redwood Empire Bancorp nor have such accountants applied any procedures ~~thereto.~~to those estimates. Accordingly, such accountants do not express an opinion or any other form of assurance on them. Further information on other factors which could affect the financial results of Westamerica Bancorporation after the merger is included in the SEC filings incorporated by reference ~~herein. 9~~ ~~17 ANNUAL~~into this document.

~~SPECIAL MEETING OF ~~FIRST COUNTIES BANK~~REDWOOD EMPIRE BANCORP SHAREHOLDERS ~~DATE, TIME AND PLACE OF MEETING~~~~

The ~~Annual Meeting~~special meeting of ~~Shareholders~~shareholders of ~~First Counties Bank~~Redwood Empire Bancorp will be held on [meeting date], ~~2000,~~2004, at [meeting time] local time at ~~15145 Lakeshore Drive, Clearlake, California. THE MEETING~~Redwood Empire Bancorp, 111 Santa Rosa Avenue, Santa Rosa, California 95404.

At the meeting, the shareholders of ~~First Counties Bank~~Redwood Empire Bancorp will be asked to consider and vote on the merger agreement dated ~~March 14, 2000~~August 25, 2004 among Westamerica Bancorporation, Westamerica Bank, Redwood Empire Bancorp and ~~First Counties.~~National Bank of the Redwoods and the transactions contemplated by the merger agreement. The merger agreement is included as ~~Appendix~~Annex A to this proxy statement/ prospectus and is incorporated ~~herein~~in this proxy statement/ prospectus by reference. Under the merger agreement: - First Counties will merge with a separate subsidiary of Westamerica and later, after information systems and facilities conversions are completed, with Westamerica Bank; and - each share of First Counties common stock would be converted into the right to receive 0.8880 shares of common stock of Westamerica, subject to decrease if Westamerica's average closing stock price before closing is above $25.59 or increase if Westamerica's average closing price before closing is below $18.91. THE BOARD OF DIRECTORS OF FIRST COUNTIES HAS, BY UNANIMOUS VOTE, APPROVED THE MERGER AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT.


	•	Redwood Empire Bancorp will merge with Westamerica Bancorporation;

	•	National Bank of the Redwoods will merge with Westamerica Bank; and

	•	each share of Redwood Empire Bancorp common stock will be converted into the right to receive $28.74, consisting of $11.49 in cash and $17.25 in shares of Westamerica Bancorporation common stock, valued at its average closing price for the 20 trading days ending three business days before the effective date of the merger. The merger consideration may be reduced by up to $0.30 per share (allocated proportionately between cash and stock) if regulatory agencies require Westamerica Bancorporation to divest deposits in Lake County as a condition of approving the merger. The value of the stock portion will increase if the average closing price of Westamerica Bancorporation common stock over the 20-trading day period ending three business days before completion of the merger is greater than $55.6050 and will decrease if the average closing price during that period is less than $45.4950.

In addition to the proposal to approve the merger agreement, at the ~~Annual Meeting~~special meeting you will be asked ~~to: - elect eight directors~~ to ~~serve until their successors are elected or until completion of the merger; and -~~ act upon such other matters as may properly come before the ~~meeting. RECORD DATE AND VOTING RIGHTS~~meeting, including a motion to adjourn.

~~The Redwood Empire Bancorp Board of Directors Recommends a Vote for the Merger~~

The board of directors of Redwood Empire Bancorp has unanimously approved the merger and the merger agreement and unanimously recommends that shareholders vote in favor of the merger and the merger agreement.

Only holders of record of ~~First Counties~~Redwood Empire Bancorp common stock at the close of business on [record date], ~~2000~~2004 are entitled to notice of and to vote at the meeting. At the ~~Record Date,~~record date, there were approximately ~~300~~ shareholders of record and ~~825,871~~ shares of ~~First Counties~~Redwood Empire Bancorp common stock outstanding and entitled to vote. A majority of the shares of Redwood Empire Bancorp common stock entitled to vote, present in person or by proxy, constitutes a quorum. Directors and executive officers of ~~First Counties~~Redwood Empire Bancorp and their affiliates owned beneficially as of the ~~Record Date~~record date an aggregate of ~~204,736~~48,825 shares of ~~First Counties~~Redwood Empire Bancorp common stock (excluding exercisable stock ~~options)~~options to acquire 154,059 shares), or approximately ~~24.8%~~1.0% of the outstanding ~~First Counties~~shares of Redwood Empire Bancorp common stock. At that date, B. John Barry owned beneficially 1,400,000 shares or approximately 28.3% of the outstanding shares of the common stock, and certain relatives and a business associate of Mr. Barry owned in the aggregate 1,056,321 shares or approximately 21.3% of the outstanding shares of the common stock.

Each shareholder is entitled to one vote for each share of common stock he or she owns, except that in the election of directors each shareholder has cumulative voting rights and is entitled to as many votes as shall equal the number of shares held multiplied by the number of directors to be elected and such shareholder may cast all his or her votes for a single candidate or distribute such votes among any or all of the candidates as he or she chooses. However, no shareholder may cumulate votes unless the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate votes. If any shareholder gives such notice, all shareholders may cumulate votes for candidates in nomination. 10 ~~18 VOTE REQUIRED~~owns.

Approval of the merger by ~~First Counties~~Redwood Empire Bancorp shareholders requires the affirmative vote of the holders of a majority of the outstanding shares. The ~~eight director nominees receiving~~directors and executive officers of Redwood Empire Bancorp and their affiliates together held approximately 1.0% of Redwood Empire Bancorp’s outstanding common stock as of the ~~most~~record date. You should be aware that Redwood Empire Bancorp shareholders holding approximately 49.6% of the outstanding shares have agreed to vote in favor of the merger and have given Westamerica Bancorporation irrevocable proxies to vote their shares in favor of the merger and that directors of Redwood Empire Bancorp, who in the aggregate own approximately 1.0% of the outstanding shares, have also agreed to vote their shares in favor of the merger. Therefore shareholder approval of the merger is effectively assured.

~~The Merger does not require the approval of the shareholders of Westamerica Bancorporation.~~

All votes will be ~~elected. VOTING BY PROXY~~ tabulated by Redwood Empire Bancorp’s transfer agent, Mellon Investor Services LLC. A representative of Mellon Investor Services LLC will be in attendance at the special meeting in order to receive any votes cast at that time.

Shareholders of ~~First Counties~~Redwood Empire Bancorp may use the enclosed proxy if they are unable to attend the meeting in person or wish to have their shares voted by proxy even if they attend the meeting. All proxies that are properly executed and returned, unless revoked, will be voted at the meeting in accordance with the instructions indicated or, if no instruction is indicated, in favor of the ~~merger and for the election of the nominees for director.~~merger. The execution of a proxy will not affect the right of a shareholder to attend the meeting and vote in person. ~~REVOCABILITY OF PROXIES~~

A person who has given a proxy may revoke it any time before it is exercised at the meeting by filing with the Secretary of ~~the company,~~Redwood Empire Bancorp a written notice of revocation or a proxy bearing a later date or by attendance at the meeting and voting in person. Attendance at the meeting will not, by itself, revoke a proxy. ~~ADJOURNMENTS~~

The meeting may be adjourned, even if a quorum is not present, by the vote of the holders of a majority of the shares represented at the meeting in person or by proxy. In the absence of a quorum at the meeting, no other business may be transacted at the meeting.

Notice of the adjournment of a meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken, provided that if the adjournment is for more than 45 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. At an adjourned meeting, any business may be transacted which might have been transacted at the original meeting. ~~SOLICITATION OF PROXIES~~

The proxy relating to the meeting is being solicited by the board of directors of ~~First Counties. First Counties~~Redwood Empire Bancorp. Redwood Empire Bancorp will bear the cost of soliciting proxies and Westamerica Bancorporation and Redwood Empire will share the cost of printing and distributing the proxy statement/prospectus. Copies of solicitation material will be furnished to brokerage houses, fiduciaries and custodians holding in their names shares of ~~First Counties~~Redwood Empire Bancorp common stock beneficially owned by others to forward to such beneficial owners. ~~First Counties~~Redwood Empire Bancorp may reimburse such persons representing beneficial owners of its shares for their expenses in forwarding solicitation material to beneficial owners. Solicitation of proxies by mail may be supplemented by telephone, telegram or personal solicitation by directors, officers or other regular employees of ~~First Counties,~~Redwood Empire Bancorp, who will not receive any additional compensation for such efforts. ~~OTHER MATTERS~~

The board of ~~First Counties~~directors of Redwood Empire Bancorp is not aware of any matters to come before the ~~Annual Meeting~~special meeting other than ~~as set forth above.~~the approval of the merger agreement. If any other matters should be brought before the ~~Meeting,~~special meeting, or any adjournment thereof, upon which a vote properly may be taken, the proxy holders will vote in their discretion unless otherwise provided in the proxies. If

Westamerica Bancorporation is a California corporation and a bank holding company registered under the ~~merger~~Bank Holding Company Act of 1956, as amended. Its legal headquarters are located at 1108 Fifth Avenue, San Rafael, California 94901. Principal administrative offices are located at 4550 Mangels Boulevard in Fairfield, California 94534 and its telephone number is ~~completed, First~~(707) 863-8000. Westamerica Bancorporation provides a full range of banking services to individual and corporate customers through its subsidiary bank, Westamerica Bank. The principal communities served are located in Northern and Central California, from Mendocino, Lake, Colusa and Nevada Counties ~~will not hold an Annual Meeting~~in the north to Kern County in the south. Westamerica Bancorporation’s strategic focus is on the banking needs of ~~Shareholders~~small businesses. In addition, Westamerica Bancorporation also owns 100% of the capital stock of Community Banker Services Corporation, a company engaged in ~~2001.~~providing Westamerica Bancorporation and its subsidiaries data processing services and other support functions. At June 30, 2004, Westamerica Bancorporation had consolidated assets of approximately $4.6 billion, deposits of approximately $3.5 billion and shareholders’ equity of approximately $329.8 million.

Additional information about Westamerica Bancorporation and its subsidiaries is included in documents incorporated by reference in this document. See “Where You Can Find Additional Information” on page 78.

Redwood Empire Bancorp is a California corporation and a bank holding company registered under the Bank Holding Company Act of 1956, as amended, headquartered in Santa Rosa, California. One of its wholly-owned subsidiaries is National Bank of the Redwoods, a national bank which was chartered in 1985. Redwood Empire Bancorp’s business strategy involves two principal business activities which are conducted through National Bank of the Redwoods: community banking and merchant card services. National Bank of the Redwoods provides its core community banking services through five retail branches located in Sonoma County, California, one retail branch located in Mendocino County, California, and one retail branch located in Lake County, California. Redwood Empire Bancorp and its subsidiaries had 159 full-time-equivalent employees at June 30, 2004. Redwood Empire Bancorp’s headquarters are located at 111 Santa Rosa Avenue, Santa Rosa, California 95404-4905, and its telephone number is (707) 573-4800. At June 30, 2004, Redwood Empire Bancorp had consolidated assets of approximately $515.4 million, deposits of approximately $453.0 million and shareholders’ equity of approximately $28.3 million.

Additional information about Redwood Empire Bancorp and its subsidiaries is included in documents incorporated by reference in this document. See “Where You Can Find Additional Information” on page 78.

In recent years, there has been considerable consolidation in the ~~event~~financial institutions industry as well as increasing competition from other providers of financial services. Over the ~~merger is not completed, the 11~~ 19 proxy holders may vote in their discretion all proxies solicited for First Counties' Annual Meeting on any matter raised at that meeting of which First Counties did not have notice by at least January 15, 2001. Any proposals which shareholders intend to present at the 2001 Annual Meeting of Shareholders, if such a meeting is held, must be received by the Secretary of First Counties by January 15, 2001, in order to be considered for inclusion in First Counties' 2001 proxy materials. 12 ~~20 PROPOSAL ONE -- THE MERGER GENERAL The~~years, Redwood Empire Bancorp’s board of directors has considered its strategic alternatives to maximize stockholder value. These strategic alternatives have included continuing as an independent institution, acquiring other small banks and/or establishing or acquiring additional branches within and beyond Redwood Empire Bancorp’s existing geographic reach in California, and entering into a strategic business combination with a similarly-sized or larger institution. With respect to strategic business combinations, from time to time, Redwood Empire Bancorp has received unsolicited inquiries regarding a possible acquisition of ~~First Counties has approved~~the company, including previous discussions with Westamerica regarding such a transaction in 1998. In early 2000 and again in early 2002, discussions also took place with two other financial institutions and due diligence materials were provided in each such case; however, prior to entering into the merger agreement ~~which provides~~with Westamerica, none of these inquiries or investigations led to any definitive acquisition agreement.

In late 2003 and early 2004, Mr. Eric Hovde, Chairman of Hovde Financial LLC, held discussions with Mr. David Payne, Westamerica’s Chairman and CEO, to discuss Westamerica’s interest in acquiring other financial institutions, including a possible acquisition of Redwood Empire. In the course of these discussions, Mr. Payne advised Mr. Hovde that he was interested in exploring an acquisition of Redwood Empire; Mr. Hovde suggested that Mr. Payne provide a written expression of Westamerica’s interest. On April 8, 2004, Westamerica delivered a written expression of interest based solely upon publicly available information and subject to the successful completion of a due diligence review of Redwood Empire by Westamerica. On April 20, 2004, following a discussion between Mr. Hovde and Mr. Payne, Westamerica indicated a tentative price; this offer was communicated to representatives of Redwood Empire by Hovde.

On April 27, 2004, Westamerica and Redwood Empire entered into a confidentiality agreement providing for the ~~merger~~confidential treatment of ~~First Counties~~non-public information exchanged between the parties and Messrs. Patrick Kilkenny and Dana Johnson, the president and chairman of Redwood Empire, respectively, agreed to meet with ~~and into~~Mr. Payne at the offices of Westamerica ~~Bank. This section~~in Fairfield, California, on May 7, 2004. After the execution of the ~~proxy statement/prospectus describes certain aspects of~~confidentiality agreement, Redwood Empire provided select nonpublic information to Westamerica. On April 30, 2004, Mr. Johnson, acting pursuant to authority delegated to him as Chairman by the merger, including the background of the merger and First Counties' reasons for the merger. In the merger, each outstanding share of First Counties common stock will be converted into the right to receive 0.8880 of a share of Westamerica common stock. This figure may be decreased if Westamerica's average closing stock price for the 20 trading days ending three days before closing is greater than $25.59 or increased if Westamerica's average closing stock price for this period is less than $18.91. Based on the number of shares of First Counties common stock outstanding on the record date, Westamerica will issue approximately 750,000 shares of Westamerica common stock in the merger, representing approximately 2% of the number of shares of Westamerica common stock that will be outstanding immediately after the merger. The merger agreement also provides that before the merger, Westamerica may specify that the parties to the merger agreement and First Counties enter into transactions that are structured differently from the merger described in this section. To minimize the disruption in customer service that might result from the conversion of First Counties' information systems and facilities to those of Westamerica, Westamerica intends to break the integration of First Counties into Westamerica Bank down into two steps as follows: - At the closing, First Counties will merge with a newly formed Westamerica subsidiary created solely for this purpose. At this time, the exchange of First Counties common stock for Westamerica common stock will begin. First Counties will be the surviving entity and will operate as a separate subsidiary of Westamerica for several months while work on the conversion proceeds. - Once the conversion is complete, First Counties will be merged with Westamerica Bank. We expect this to occur near the end of September of 2000. No such change, however, may materially and adversely affect the timing of the completion of the merger or adversely affect the economic benefits, the form of consideration or the tax effect of the merger to you. BACKGROUND OF THE MERGER First Counties, based in Lake County, California, has conducted general banking operations to serve individuals and small to medium-sized businesses since 1985. In serving individuals and small businesses, First Counties historically has focused on a community-based approach to banking. In early November, 1999 as part of its strategic planning retreat, the board of directors evaluated the banking marketplace, the economic cycle and the historically high acquisition prices being paid for banks of First Counties' size. The board of directors was concerned about the rapid changes occurring in the banking industry in California. Tremendous consolidation had taken place, especially in 1996 through 1999. To effectively compete with other, more efficient financial institutions, First Counties'Redwood Empire board of directors, and management knew that they had to continue to increase its core deposit base as well as its loan portfolio, or substantially modify its business practices to a less costly process. Although the board believed that First Counties was in a position to do this, the boardHovde agreed to ~~entertain offers for purchasing~~ the ~~bank as well as looking~~terms of an agreement pursuant to which Hovde would provide financial advisory services to Redwood Empire; Redwood Empire’s board of directors subsequently ratified the agreement at ~~possible acquisitions. Over~~its special meeting held on August 13, 2004. As scheduled, Messrs. Kilkenny and Johnson met with Mr. Payne on May 7, 2004, at which time the ~~last few years, First Counties had meetings and discussions with respect to potential acquisitions and 13~~ ~~21 business combinations. One of the institutions with which First Counties had discussions was Westamerica. At the November, 1999 strategic planning retreat,~~parties exchanged additional nonpublic information. On May 18, 2004, the board of directors of ~~First Counties determined~~Redwood Empire met in executive session to discuss Westamerica’s offer and authorized Redwood Empire’s executive management to continue discussions with Westamerica.

On May 27, 2004, Mr. Payne and Mr. Johnson engaged in further negotiations in light of Westamerica’s review of the nonpublic information provided by Redwood Empire as of that ~~First Counties should contact several financial institutions~~time and its assessment of Redwood Empire’s operating performance and prospects. At the conclusion of these negotiations, the parties agreed on a price of $28.75 per share. The parties established a schedule for due diligence review and commenced review and negotiation of the terms of a merger agreement. Throughout June, July and a portion of August, 2004, extensive discussions and negotiations occurred between representatives of Redwood Empire and Westamerica concerning, ~~their interest in possibly acquiring First Counties. The board~~among other things, the terms and conditions of directors of First Counties retained the services of The Findley Group ("Findley") in order to disseminate information out to prospective acquirers of First Counties. In mid-November, 1999, approximately 25 financial institutions were contacted to determine whether they had interest in reviewing a ~~confidential information package concerning First Counties. Of the 25 banking institutions contacted, 12 institutions executed confidentiality~~merger agreement, various ancillary agreements, and ~~were forwarded financial~~issues relating to the environmental conditions on the property on which Redwood Empire’s headquarters’ office was located and ~~related information concerning First Counties. Those institutions that signed confidentiality agreements were given until January 10, 2000~~the terms upon which the lessor could put the property to ~~provide an indication~~Redwood Empire. During this period of ~~interest in the acquisition of First Counties and to indicate a proposed price. Four banking institutions submitted offers to~~time, the board of directors of ~~First Counties. On January~~Redwood Empire met in executive session on June 15, 2004 and on July 20, ~~2000~~2004, to discuss the ~~board~~potential transaction with Westamerica and in each instance authorized executive management to continue discussions.

During the first week of ~~directors reviewed~~August, 2004, the ~~four offers with Findley~~parties discussed the effect of certain merger-related expenses and ~~determined~~the risk that ~~three institutions should~~Westamerica might be ~~permitted~~required to ~~complete due diligence examination of First Counties. During late January and early February, each~~divest some or all of the ~~three institutions conducted due diligence examinations at First Counties.~~deposit liabilities in the Lake

County, California market. On ~~February 14, 2000, two financial institutions reconfirmed their proposal for~~August 6, 2004, the ~~acquisition~~parties agreed to reduce the per share price to be paid by Westamerica to the Redwood Empire shareholders to $28.74 to offset in part the cost of ~~First Counties after~~certain expenses. On August 10, 2004, the ~~completion~~parties agreed that, in the event any deposit liabilities in the Lake County market are required by the regulators to be divested in connection with the merger, the per share price to be paid to the Redwood Empire shareholders by Westamerica would be reduced in an amount ranging from $0.10 per share to $0.30 per share depending on the dollar volume of ~~due diligence. One institution decided~~deposits required to ~~withdraw its offer.~~be divested.

On ~~February 17, 2000,~~August 13, 2004, a special meeting of the board of directors of ~~First Counties met~~Redwood Empire Bancorp was held to ~~review~~analyze and consider the ~~two remaining proposals. The financial~~proposed transaction with Westamerica and the terms of the ~~proposal submitted by Westamerica were clearly superior~~merger agreement. Representatives of Pillsbury Winthrop LLP, Redwood Empire’s legal advisors, reviewed the fiduciary obligations of the Redwood Empire boards of directors with respect to the ~~other offer.~~consideration of the proposed transaction and reviewed the terms of the transaction and the merger agreement from a legal point of view. At the ~~February 17, 2000~~August 13th special meeting, Hovde summarized certain financial information with respect to Westamerica and the proposed transaction and delivered its written opinion to Redwood Empire, a copy of which is attached to this document as Annex B, that, as of the ~~First Counties board~~date of ~~directors,~~the opinion, the merger consideration contemplated by the merger agreement was fair, from a financial point of view, to the shareholders of Redwood Empire. After a general question and discussion period among the members of the board of directors, management, and ~~advisors~~their financial and legal advisers, the Redwood Empire board of directors met in executive session to ~~First Counties discussed in detail~~further discuss the terms of the proposed ~~merger terms and plans for First Counties' officers and staff following~~transaction. Following the ~~proposed merger. The First Counties~~discussion in executive session on August 13, 2004, the board ~~considered this information and then authorized representatives~~ of ~~First Counties~~directors of Redwood Empire voted unanimously to continue negotiating a tentative merger agreement between First Counties and Westamerica. Negotiations continued between representatives of First Counties and Westamerica, and on March 13, 2000, the First Counties board deliberated at length concerning the transaction. The First Counties board reviewedapprove the merger agreement and ~~related documents, its strategic alternatives,~~ the ~~competitive banking environment in California,~~transactions contemplated by the merger agreement and to recommend the ~~prospects for First Counties if it remained independent. At this meeting, Findley discussed with the First Counties board its analysis~~approval of the merger ~~and delivered~~agreement to the ~~First Counties board its opinion that~~shareholders of Redwood Empire.

Following approval of the ~~consideration to be received in~~transaction and the merger ~~was fair~~agreement by Redwood Empire’s board of directors on August 13, 2004, representatives of Westamerica and Redwood Empire continued to hold discussions to clarify language in certain provisions of the ~~First Counties shareholders from a financial point~~merger agreement; discussions also continued with certain directors and employees of ~~view. Thereafter,~~Redwood Empire regarding the ~~First Counties~~terms and scope of non-solicitation and/or non-compete agreements and understandings with certain employees regarding continuation of their employment by Westamerica following consummation of the transaction. On August 17, 2004, the board ~~unanimously approved~~of directors of Redwood Empire met in executive session to receive an update on the progress of the proposed transaction with Westamerica and ~~authorized~~the proposed timing of the execution of the merger agreement. ~~REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS~~On August 25, 2004, Redwood Empire and Westamerica executed the merger agreement and issued a joint press release announcing the transaction.

The board of directors of Redwood Empire Bancorp believes that the transaction and the terms and provisions of the merger agreement are fair to and in the best interest of all shareholders of Redwood Empire. The Redwood Empire Bancorp board of directors unanimously recommends that each shareholder vote to approve the proposed transaction with Westamerica.

~~In reaching its decision to adopt and recommend the approval of the merger agreement, the Redwood Empire board considered a number of factors, including, but not limited to, the following:~~


	•	the Redwood Empire board’s familiarity with and review of Redwood Empire’s business, operations, financial condition and earnings on an historical and a prospective basis, including, without limitation, its potential growth and profitability;

	•	the current and prospective economic and competitive environment facing the financial services industry generally, and Redwood Empire in particular, including the continued rapid consolidation in the financial services industry and the competitive effects of the increased consolidation on financial institutions such as Redwood Empire;

	•	the increasing importance of operational scale and financial resources in maintaining efficiency and remaining competitive over the long term;


	•	the value to be received by holders of Redwood Empire Bancorp common stock pursuant to the merger agreement relative to the book value and earnings per share of Redwood Empire Bancorp common stock;

	•	the merger consideration, which is not fixed and may fluctuate depending on the average closing price of Westamerica common stock and possible required deposit divestitures in Lake County, California by banking regulators;

	•	the risks associated with required regulatory approvals, including the impact of any required divestitures of deposits in Lake County and resulting reduction in the merger consideration;

	•	the anticipated returns on the shares of Westamerica common stock to be received by Redwood Empire shareholders in the merger;

	•	the Redwood Empire board’s review, based on the presentation of its financial advisor, of the business, operations, financial condition and earnings of Westamerica on an historical and a prospective basis and of the combined company on a pro forma basis and the historical stock price performance and liquidity of Westamerica common stock, and the resulting relative interests of Redwood Empire shareholders and Westamerica in the common equity of the combined company;

	•	the financial terms of recent business combinations in the financial services industry and a comparison of the multiples of selected combinations with the terms of the proposed merger with Westamerica;

	•	the previous experience of management of Westamerica in completing acquisition transactions;

	•	the general impact that the merger could be expected to have on the constituencies served by Redwood Empire, including its customers, employees and communities;

	•	the expanded range of banking services that the transaction will allow Redwood Empire to provide to its customers;

	•	the expectation that the merger would constitute a reorganization under section 368(a) of the Internal Revenue Code and that it would be accounted for as a purchase for accounting and financial reporting purposes;

	•	the results of the due diligence investigation of Westamerica by management of Redwood Empire and Hovde;

	•	the Redwood Empire board’s assessment, with the assistance of counsel, concerning the likelihood that Westamerica would obtain all requisite regulatory approvals required for the merger;

	•	the terms of the $4.5 million termination fee in favor of Westamerica, including the risk that the termination fee might discourage third parties from offering to acquire Redwood Empire by increasing the cost of a third party acquisition, and recognizing that the termination fee was a condition to Westamerica’s willingness to enter into the merger agreement;

	•	the terms of the $4.5 million termination fee in favor of Redwood Empire if Westamerica enters into a transaction with a third party that, among other things, is not expressly conditioned on, or completion of such a transaction would materially interfere with, the performance by Westamerica of its obligations pursuant to the merger agreement;

	•	the alternative strategic courses available to Redwood Empire, including remaining independent and exploring other potential business combination transactions;

	•	the interests of certain directors and executive officers of Redwood Empire in the merger, as described below under the caption “Interests of certain officers and directors in the merger”; and

	•	the information presented by Hovde to the Redwood Empire board with respect to the merger and the opinion of Hovde that, as of the date of that opinion, the aggregate merger consideration was fair to the holders of Redwood Empire Bancorp common stock from a financial point of view.

The foregoing discussion of the information and factors considered by the board of Redwood Empire is not intended to be exhaustive, but includes the material factors considered. In view of the variety of factors considered in connection with its evaluation of the transaction, including the components of the merger

consideration, the board of directors of Redwood Empire did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determinations and recommendations, and individual directors may have given differing weights to different factors.

Redwood Empire Bancorp shareholders holding approximately 49.6% of the outstanding shares have agreed to vote in favor of the merger and have given Westamerica irrevocable proxies to vote their shares in favor of the merger and that directors of Redwood Empire Bancorp, who in the aggregate own approximately 1.0% of the outstanding shares, have also agreed to vote their shares in favor of the merger.

Westamerica Bancorporation believes that the merger will provide it with an attractive opportunity to expand its community banking operations in ~~Lake~~Northern California and ~~Napa counties.~~to augment its merchant card processing business. Westamerica Bancorporation believes that ~~First Counties'~~Redwood Empire Bancorp’s locations and business mix complement ~~Westamerica's~~Westamerica Bancorporation’s existing presence in ~~Lake County~~Northern California and will enable it to offer its broad array of products and services to customers of ~~First Counties. The First Counties board believes that the terms~~Redwood Empire Bancorp. Westamerica Bancorporation will reduce expenses by consolidating its office in Santa Rosa with Redwood Empire Bancorp’s main office and by selectively consolidating other Westamerica and Redwood Empire Bancorp branches where consolidation would not be disruptive to customers.

Opinion of the merger are fair and are in the best interests of First Counties and its shareholders and recommends that the shareholders of First Counties vote FOR approval of the merger. In reaching its conclusion, the First Counties board considered information provided at its meetings in January, February and March, 2000, including, among other things: - information concerning theRedwood Empire Bancorp’s Financial Advisor

Hovde Financial LLC has acted as financial ~~performance and condition, business operations, capital levels, asset quality, loan portfolio breakdown, and prospects of Westamerica; 14~~ 22 - the structure of the transaction, including the fact that the First Counties shareholders would receive approximately 2% of the common stock of Westamerica; - the terms of the merger agreement and other documentsadvisor to ~~be executed~~Redwood Empire Bancorp in connection with the proposed Westamerica Bancorporation/ Redwood Empire Bancorp merger. Hovde Financial LLC is a nationally recognized investment banking firm with substantial experience in transactions similar to the merger ~~including~~and is familiar with Redwood Empire Bancorp. As part of its investment banking business, Hovde Financial LLC is continually engaged in the ~~substantial premium over book value~~valuation of businesses and their securities in connection with, among other things, mergers and acquisitions.

At the ~~substantial multiple~~August 13, 2004 Redwood Empire board of ~~earnings~~directors meeting, Hovde Financial LLC reviewed the financial aspects of ~~First Counties which~~the proposed Westamerica ~~will pay to First Counties' shareholders; -~~Bancorporation/ Redwood Empire merger with the ~~presentation~~board of ~~Findley~~directors and ~~the~~rendered an opinion ~~of Findley~~ that the consideration to be received by Redwood Empire shareholders in the merger iswas fair to ~~the~~those shareholders ~~of First Counties~~ from a financial point of ~~view; - the prices paid and the terms of other recent comparable combinations of banks and bank holding companies; - the board's review with~~view. Hovde Financial LLC subsequently confirmed its ~~legal and financial advisors of alternatives~~August 13, 2004 opinion by delivery to the ~~merger,~~Redwood Empire board of directors of a written opinion later that day.

The full text of Hovde Financial LLC’s written opinion is included in this proxy statement/ prospectus as Annex B and is incorporated herein by reference. Redwood Empire shareholders are urged to read the ~~range of possible values to First Counties shareholders obtainable through implementation of alternatives and the timing and likelihood~~opinion in its entirety for a description of the ~~same; - the current~~procedures followed, assumptions made, matters considered, and ~~prospective economic environment~~qualifications and increasing regulatory and competitive burdens and constraints facing community banks; - the pro forma financial statements of the combined companies and the capitalization of the combined companies; - the geographic distribution of Westamerica offices in relation to First Counties' banking offices and strategic plan; - the advantages of being part of a larger entity, including the potential for operating efficiencies, the effect of a higher lending limit on First Counties' customers and prospective customers, and the generally higher trading multiples of larger financial institutions; - the business strategies, the strength and depth of management of the combined entity and the extent of their interest in continuing First Counties' significant business relationships in Lake, Napa and Colusa counties; - the ability of a larger institution to compete in the banking environment and to leverage overhead costs; - the anticipated positive effect of the merger on existing shareholders, employees, officers and customers of First Counties; - the ability of First Counties and Westamerica to achieve operating efficiencies; - the anticipated impactlimitations on the ~~communities served~~review undertaken by First Counties and Westamerica in the merger, and the increased ability to serve the communities through the larger branch network; - the unprecedented consolidation currently underway in the banking industry and increased competition from larger independent banks in California; - the value of the consideration offered by Westamerica comparedHovde Financial LLC.

Hovde Financial LLC’s opinion is directed to the value of the consideration offered in other acquisitions of financial institutions in California in 1996 - 1999 and the prospects for enhanced value of the combined entity in the future; - the tax-free nature of the Westamerica offer; - the liquidity of Westamerica common stock; and - the prospects for First Counties on a stand alone basis and on the basis of alternative stand alone strategies, such as dividends, share repurchases, restructurings and growth through acquisitions. 15 ~~23 In addition to the advantages, discussed in the previous paragraph, of a merger with a larger financial institution, the~~Redwood Empire board of directors and ~~management of First Counties also discussed~~addresses only the various risks of combining with Westamerica, including: - the disadvantages of being part of a larger entity, including the potential for decreased customer service; and - the integration of First Counties and Westamerica will divert the combined entities' management from other activities. However, after weighing the advantages and disadvantages of a merger with Westamerica, the First Counties board of directors determined that the advantages clearly outweighed the disadvantages. The foregoing discussion of the information and factors considered by the First Counties board of directors is not intended to be exhaustive, but constitutes the material factors considered by the First Counties board of directors. In reaching its determination to approve and recommend the merger, the First Counties board of directors did not assign relative or specific weights to the foregoing factors and individual directors may have weighed such factors differently. For reasons set forth above, the First Counties board of directors has unanimously approved the merger agreement as in the best interest of First Counties and its shareholders and unanimously recommends that the First Counties shareholders approve the merger. OPINION OF FINANCIAL ADVISOR First Counties retained Findley to act as its financial advisor in connection with the merger pursuant to an oral agreement entered into in November 1999 and confirmed in an engagement letter dated March 13, 2000. Findley has rendered to the board of directors of First Counties its written opinion dated March 14, 2000, as affirmed on [mailing date], 2000, pursuant to the terms of the agreement that, subject to the assumptions and limitations set forth therein, the exchange ratio is fair,fairness, from a financial point of view, ~~to the holders~~ of the ~~shares of First Counties common stock. A copy of~~aggregate merger consideration to Redwood Empire shareholders. It does not address the ~~opinion of Findley dated March 14, 2000 is attached as Appendix B~~underlying business decision to ~~this proxy statement/prospectus and should be read in its entirety. The following summary is qualified in its entirety by reference to~~proceed with the ~~full text of the opinion. This opinion is addressed to the board of directors of First Counties~~merger and does not constitute a recommendation to any Redwood Empire shareholder ~~of First Counties~~ as to how such ~~shareholder~~shareholders should vote at the ~~First Counties meeting.~~Redwood Empire special meeting on the Westamerica Bancorporation/ Redwood Empire merger agreement or any related matter.

~~In ~~connection with~~rendering its ~~fairness~~ opinion, ~~Findley, among other things: (a)~~ Hovde Financial LLC:~~


	•	reviewed a draft of the Westamerica/ Redwood Empire merger agreement, substantially in final form;

	•	reviewed certain historical publicly available business and financial information concerning Redwood Empire and Westamerica;

	•	reviewed certain internal financial statements and other financial and operating data concerning Redwood Empire;

	•	analyzed certain financial projections prepared by the management of Redwood Empire;


	•	conducted meetings with members of the senior management of Redwood Empire for the purpose of reviewing the future prospects of Redwood Empire, including financial forecasts related to the respective businesses, earnings, assets, liabilities and the amount and timing of cost savings and revenue enhancements expected to be achieved as a result of the merger;

	•	reviewed historical market prices and trading volumes for Redwood Empire Bancorp common stock and Westamerica Bancorporation common stock;

	•	evaluated the pro forma contribution of Redwood Empire’s assets, liabilities, equity and earnings to the pro forma company;

	•	reviewed the terms of recent merger and acquisition transactions, to the extent publicly available, involving banks and bank holding companies that it considered relevant;

	•	analyzed the pro forma impact of the Westamerica/ Redwood Empire merger on the combined company’s earnings per share, consolidated capitalization and financial ratios; and performed analyses and considered such other factors as it deemed appropriate.

Hovde Financial LLC also took into account its assessment of general economic, market and financial conditions and its experience in other transactions, as well as its knowledge of the banking industry and its general experience in securities valuations.

Hovde Financial LLC assumed, without independent verification, the accuracy and completeness of the financial and other ~~data~~information and representations contained in the materials provided to it by Redwood Empire and Westamerica and in the discussions it had with Redwood Empire and Westamerica managements. Hovde Financial LLC also assumed that the financial forecasts, including without limitation, the synergies and projections regarding under-performing and nonperforming assets and net charge-offs were reasonably prepared on a basis reflecting the best currently available information and judgments and estimates of Redwood Empire and Westamerica and that such forecasts will be realized in the amounts and at the times contemplated thereby. Hovde Financial LLC is not an expert in the evaluation of loan and lease portfolios for purposes of assessing the adequacy of the allowances for loan losses with respect thereto. Hovde Financial LLC has assumed that such allowances for Redwood Empire and Westamerica are in the aggregate adequate to cover such losses. Hovde Financial LLC was not retained to and did not conduct a physical inspection of any of the properties or facilities of Redwood Empire or Westamerica. In addition, Hovde Financial LLC did not review individual credit files nor make an independent evaluation or appraisal of the assets and liabilities of Redwood Empire or Westamerica and Hovde Financial LLC was not furnished with any such evaluations or appraisals.

Hovde Financial LLC assumed that the Westamerica/ Redwood Empire merger would be consummated substantially in accordance with the terms set forth in the merger agreement. Hovde Financial LLC also assumed that the merger will be accounted for as a purchase under GAAP. Hovde Financial LLC assumed that the merger is, and will be, in compliance with all laws and regulations that are applicable to Redwood Empire and Westamerica. Hovde Financial LLC further assumed that, in the course of obtaining the necessary regulatory and government approvals, no restriction will be imposed on Westamerica that would have a material adverse effect on Westamerica or the contemplated benefits of the merger. Hovde Financial LLC also assumed that there would not occur any change in applicable law or regulation that would cause a material adverse change in the prospects or operations of Westamerica after the merger.

Redwood Empire engaged Hovde Financial LLC on April 30, 2004, to provide it with an analysis of its strategic options. Pursuant to its engagement agreement, at the time the Westamerica/ Redwood Empire merger is completed, Redwood Empire will pay Hovde Financial LLC a total fee equal to 1.0% of the merger consideration, plus an initial retainer fee of $20,000 and a fairness opinion fee of $50,000. Pursuant to the engagement agreement, Redwood Empire also agreed to reimburse Hovde Financial LLC for all reasonable out-of-pocket expenses incurred in performing its services and to indemnify Hovde Financial LLC against certain liabilities relating to the merger or Hovde Financial LLC’s engagement.

Hovde Financial LLC’s opinion is not an expression of an opinion as to the prices at which shares of Westamerica Bancorporation common stock will trade following the announcement of the Westamerica Bancorporation/ Redwood Empire merger or the actual value of the Westamerica Bancorporation common

~~stock when issued pursuant to the merger or the prices at which the Westamerica Bancorporation common stock will trade following the completion of the merger.~~

In performing its analyses, Hovde Financial LLC made numerous assumptions with respect to First Counties and Westamerica, including the consolidated financial statements for recent years, and certain other relevant financial and operating data relating to First Counties and Westamerica made available to Findley from published sources and from the internal records of First Counties; (b) reviewed the merger agreement; (c) reviewed certain historicalindustry performance, general business, economic, market prices and trading volumes of First Counties common stock and Westamerica common stock; (d) compared First Counties and Westamerica from a financial point of view with certain other banks and bank holding companies that Findley deemed to be relevant; (e) considered the financial terms, to the extent publicly available, of selected recent business combinations of banks and bank holding companies that Findley deemed to be comparable, in whole or in part, to the merger; 16 ~~24 (f) reviewed and discussed with representatives of the management of First Counties certain information of a business~~ and financial nature regarding First Counties and Westamerica furnished to Findley by First Counties, including financial forecasts and related assumptions of First Counties; (g) made inquiries regarding and discussed the merger and the merger agreementconditions and other matters, ~~related thereto with First Counties' counsel;~~many of which are beyond the control of Hovde Financial LLC, Westamerica Bancorporation and (h) performed such other analyses and examinations as Findley deemed appropriate. For its evaluation Findley used an exchange ratio under the terms of the merger agreement of 0.8880, which is based upon Westamerica having an Average Closing Price, as definedRedwood Empire. Any estimates contained in the merger agreement, of between $18.91 and $25.59. Contribution Analysis. Findley analyzed the contribution of each First Counties and Westamerica to, among other things, common equity and net income of the pro forma combined companies for the period ending December 31, 1999. This analysis showed, among other things, that based on pro forma combined balance sheets and income statements for First Counties and Westamerica as of December 31, 1999, First Counties would have contributed approximately 2.58% of the deposits, 2.86% of the shareholder equity of the combined companies (before costs savings and revenue enhancements), 2.56% of net loans and 1.24% of 1999 net income. Based upon the stock consideration to be paid in the merger as provided in the merger agreement, the First Counties shareholders would own approximately 2.0% of the combined company before giving effect to all outstanding options. Discounted Cash Flow Analysis. Findley examined the results of a discounted cash flow analysis designed to compare the exchange ratio with the present value, under certain assumptions, that would be attained if First Counties remained independent through 2002, at which time First Counties was acquiredanalyses performed by a larger financial institution. The cash flows for the combined companies assumed that the exchange ratio equals 0.8880 shares of Westamerica common stock for each share of First Counties common stock. The results produced in the analysesHovde Financial LLC are not necessarily indicative of actual values or ~~expected values~~future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of ~~First Counties~~the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities may be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the Hovde Financial LLC opinion was among several factors taken into consideration by the Redwood Empire board in making its determination to approve the merger agreement and the merger. Consequently, the analyses described below should not be viewed as solely determinative of the decision of the Redwood Empire board or Redwood Empire management with respect to the fairness of the merger consideration.

The following is a summary of the material analyses presented by Hovde Financial LLC to the Redwood Empire board on August 13, 2004, in connection with its opinion. The summary is not a complete description of the analyses underlying the Hovde Financial LLC opinion or the ~~combined companies at such future date. The discount rates used ranged from 10% to 14%. For the First Counties stand alone analysis, the terminal price multiples applied~~presentation made by Hovde Financial LLC to the ~~2002~~Redwood Empire board, but summarizes the material analyses performed and presented in connection with such opinion. The preparation of a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis in the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, Hovde Financial LLC did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. The financial analyses summarized below include information presented in tabular format. The analyses and the summary of the analyses must be considered as a whole and selecting portions of the analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying the analyses and opinion of Hovde Financial LLC. The tables alone are not a complete description of the financial analyses.

Statement of Offer Analysis. Hovde Financial LLC compared the offer value to Redwood Empire’s trailing twelve-months GAAP net income, MRQ earnings annualized, YTD earnings annualized, 2004 calendar-year estimated ~~earnings~~GAAP net income (as estimated by Redwood Empire), book value, tangible book value, tangible book value to core deposits premium, and premium-to-market of Redwood Empire Bancorp common stock. Based on the price per share ~~ranged from 10.0~~of $28.74 for Redwood Empire Bancorp common stock, and taking into consideration the in-the-money value of Redwood Empire options resulting in an aggregate offer value of $147,959,445 (in case of a Lake County Divestiture the implied maximum price adjustment for Redwood Empire would be a price per share of $28.44 for Redwood Empire Bancorp common stock, and taking into consideration the in-the-money value of Redwood Empire options resulting in an aggregate offer value of $146,370,702), Hovde Financial LLC observed that the implied transaction multiples to ~~20.0. The lower levels~~Redwood Empire were as follows:

Premium to Market Analysis Based on Redwood Empire’s Historical Trading Valuation. Hovde Financial LLC reviewed the merger consideration premium to Redwood Empire Bancorp common stock price at different intervals during the period commencing January 6, 2004, using the 5-day, 10-day, 20-day, 30-day, 45-day, 60-day and 90-day average closing price of Redwood Empire Bancorp common stock during such period. Using such average closing prices, Hovde observed that the premium to Redwood Empire Bancorp common stock was as follows:

Using such average closing prices, Hovde Financial LLC observed that the premium to Redwood Empire Bancorp common stock based on the maximum potential price adjustment for the Lake County Divestiture was as follows:

Stock Trading History Analysis. Hovde Financial LLC reviewed the history of the ~~price~~reported trading prices of Redwood Empire’s common stock and Westamerica Bancorporation’s common stock and the relationship between the movements in the prices of Redwood Empire’s common stock and Westamerica Bancorporation’s common stock to ~~earnings values multiples range reflected an estimated future trading range~~movements in certain stock indices, including the NASDAQ Bank and Thrift Index, the Russell 2000 Financial Services Index, the Standard & Poor’s 500 Index, and the DJIA. Hovde Financial LLC noted that during the one-year period ended August 2, 2004, Redwood Empire’s common stock underperformed the NASDAQ Bank and Thrift Index, the Russell 2000 Financial Services Index, the Standard & Poor’s 500 Index and the DJIA. Within the same one-year period, Hovde Financial LLC observed that Westamerica Bancorporation’s common stock outperformed the NASDAQ Bank and Thrift Index, the Standard & Poor’s 500 Index and the DJIA and underperformed the Russell 2000 Financial Services Index. Hovde concluded by stating that Westamerica’s common stock outperformed Redwood Empire’s common stock from August 2, 2003 to August 2, 2004.

Hovde Financial LLC noted that during the five-year period ended August 2, 2004, Redwood Empire’s common stock outperformed the NASDAQ Bank and Thrift Index, the Russell 2000 Financial Services Index, the Standard & Poor’s 500 Index and the DJIA. Within the same five-year period, Hovde observed that Westamerica’s common stock outperformed the Standard & Poor’s 500 Index and the DJIA and underperformed the NASDAQ Bank and Thrift Index and the Russell 2000 Financial Services Index. Hovde Financial LLC concluded by stating that Redwood Empire’s common stock outperformed Westamerica’s common stock from August 2, 1999 to August 2, 2004.

Selected Transaction Analysis. As part of ~~First Counties, while~~its analysis, Hovde Financial LLC reviewed comparable mergers involving banks located in California (the “California Merger Group”) announced since January 1, 2004, in which the ~~higher levels~~seller had assets between $100 million and $1.25 billion, the Western Region (the “Western Region Group”) announced since January 1, 2003, in which the seller had assets between $150 million and $1.25 billion, and Nationwide (the “Nationwide Merger Group”) announced since January 1, 2004, in which the seller had assets between $400 million and $1.0 billion.

~~The California Merger Group consisted of the ~~price~~following 15 transactions:~~

~~Hovde Financial LLC calculated the medians for the following relevant transaction ratios in the California Merger Group, the Western Merger Group, and the Nationwide Merger Group:~~


	•	the multiple of the merger consideration to the acquired company’s earnings for the 12 months preceding the announcement date of the transaction;


	•	the tangible book value premium to core deposits;

	•	the multiple of the merger consideration to the acquired company’s book value; and

	•	the multiple of the merger consideration to the acquired company’s tangible book value.

Hovde Financial LLC used the medians of these multiples for the California Merger Group, the Western Merger Group, and the Nationwide Merger Group to estimate an implied transaction value involving Redwood Empire. These values and the corresponding multiples were then compared to the value of the consideration expressed in the merger agreement. In calculating the multiples for the merger, Hovde Financial LLC used earnings for the last twelve months at June 30, 2004, core deposits (total deposits net of CDs greater than $100,000) and common equity and tangible equity for Redwood Empire. The table below shows the results of this analysis comparing the multiples based on the merger agreement versus the implied multiples to Redwood Empire based on the medians of the corresponding group’s multiples.

Discounted Cash Flow Analysis. Hovde Financial LLC estimated the discounted present value ~~multiples range~~of Redwood Empire by using estimated 2004-2008 aggregate GAAP earnings (which estimates were ~~more indicative~~prepared by Hovde Financial LLC) of ~~a future sale~~$8.1 million, $9.0 million, $9.9 million, $10.9 million and $11.9 million, respectively, and 2004-2008 annual dividends of ~~First Counties to a larger financial institution. For the First Counties stand alone analysis, the cash flows were comprised of no dividends in years 2000 through 2002 plus~~$4.1 million, $4.5 million, $5.0 million, $5.5 million and $6.0 million, respectively. In arriving at the terminal value of ~~First Counties common stock~~Redwood Empire’s earnings stream at the ~~year-end 2002 (calculated by applying each one~~end of 2008, Hovde Financial LLC assumed a terminal earnings value multiple at a range of 14.0, 15.0, 16.0, 17.0 and 18.0. The terminal values were then discounted, along with annual dividends for 2004-2008, using a range of discount rates of 12.0%, 13.0%, 14.0% and 15.0% to arrive at the present value for Redwood Empire. These rates and values were chosen to reflect different assumptions regarding the required rates of return of holders or prospective buyers of Redwood Empire Bancorp common stock. These analyses and their underlying assumptions yielded a range of value for Redwood Empire of approximately $99.8 million to $140.1 million based on the earnings approach.

Financial Implications to Redwood Empire Shareholders. Hovde Financial LLC prepared an analysis of the ~~assumed terminal price to earnings value multiples as stated above~~financial implications to the ~~2002 projected First Counties~~holders of Redwood Empire Bancorp common stock. This analysis indicated the level of accretion to estimated cash earnings per ~~share). An analysis was done for Westamerica based upon a 20% increase in Westamerica market~~share, GAAP earnings per share, book value per ~~year from 2000 to 2002,~~share, tangible book value per share and dividends per share that a stockholder of Redwood Empire would achieve on a pro forma equivalent basis, assuming a ~~starting price of $23.50 and the continuation of cash dividends at an indicated rate of $0.72 per year per~~Redwood Empire share ofis converted entirely into Westamerica common stock. The ~~discount rates described above were then applied to~~table below summarizes these ~~cash flows to obtain~~results:

Comparative Shareholder Rates of Return. Hovde Financial LLC presented an analysis of comparative theoretical shareholder returns in several scenarios, including (i) Redwood Empire remaining independent; (ii) Redwood Empire being acquired in 2008; (iii) Redwood Empire merging with Westamerica Bancorporation under the ~~present values per~~terms of the agreement; and (iv) Redwood Empire merging with Westamerica Bancorporation under the terms of the agreement (assuming a Redwood Empire share ~~of First Counties~~is converted entirely into Westamerica Bancorporation common ~~stock. Under a most likely scenario,~~stock) and the ~~Findley~~pro forma company in turn being acquired in 2008. This analysis, ~~assumed that projected earnings for First Counties would be achieved; that~~which was based on the market value of Westamerica stock would increase a minimum of 20% per annum, a present value discount rate of 12% and a terminal price to earnings value multiple of 20.0. Assuming First Counties remains independent through 2002 and is then acquired by a larger financial institution, at an earnings value multiple of 20.0, a holder of one share of First 17 ~~25 Counties common stock today would receive cash flows with a~~net present value of ~~$18.93. Assuming~~projected dividend streams and projected common stock valuations, using historical operating and acquisition price-to-earnings and price-to-book value multiples, indicated total shareholder returns of 16.77% if Redwood Empire remained independent, 20.00% if Redwood Empire were acquired in 2008, 42.72% (42.68% if a maximum potential divestiture were to occur) if Redwood Empire merged with Westamerica Bancorporation, and 50.62% (50.59% if a maximum potential divestiture were to occur) if Redwood Empire merged with Westamerica and the ~~merger is consummated~~pro forma company in turn were acquired in 2008.

Contribution Analysis. Hovde Financial LLC prepared a contribution analysis showing percentages of assets, loans, deposits, equity and tangible equity at June 30, 2004, the LTM net income and the estimated 2004 net income on GAAP basis that would be contributed to the combined companies remain independent through 2002 and the market value of Westamerica shares increases a minimum of 20% per year, a holder of one share of First Counties common stock today would receive cash flows with a present value of at least $30.11. In comparison to these ranges of value, the value for Westamerica common stock on March 14, 2000, the last trading day before the announcement of the merger, was its closing price of $21.81 per share. Based upon an exchange ratio of 0.8880, the equivalent value based upon Westamerica common stock on March 13, 2000 was $19.31. On , 2000, the closing price for a share of Westamerica common stock was $ . Based upon an exchange ratio of 0.8880 the equivalent value was $ . These analyses are not necessarily indicative of actual values or expected values of the shares of First Counties common stock. Discounted present value analysis is a widely used valuation methodology which relies on numerous assumptions, including asset and earnings growth rates, dividend payout rates, terminal values and discount rates. The analysis showed that use of a higher (lower) level of projected earnings raised (lowered) the resulting present value for a given level of First Counties earnings,company on a pro forma ~~combined basis. The analysis also showed~~basis by Redwood Empire and Westamerica. These contribution percentages were compared to the approximately 5.08% (under the current structure or 5.03% under the maximum potential price adjustment for the divestiture) and 8.19% (assumes all Redwood Empire shares are converted entirely into Westamerica common stock or 8.11% under the maximum potential price adjustment for the divestiture) of the pro forma common shares outstanding that ~~use~~holders of ~~a lower (higher) discount rate or a higher (lower) terminal price-to-earnings per share multiple raised (lowered) the calculated present values.~~Redwood Empire Bancorp common stock would own.

Comparison Analysis of Westamerica and Selected ~~Bank Merger Transactions. Findley~~Publicly Traded Reference Companies. As part of its analysis, Hovde Financial LLC reviewed ~~the consideration paid in recently completed transactions whereby certain banks~~ and compared publicly available financial data, market information and trading multiples for Westamerica with 10 other selected publicly traded bank holding

reference companies that were ~~acquired. Specifically, Findley reviewed 130 transactions involving acquisitions of selected banks~~based in ~~California completed since January 1, 1996~~the Western Region with assets between $1 billion and $10 billion (the ~~"California Acquisitions"~~“Western Peer Group”).

For ~~each bank acquired in such transactions, Findley compiled figures illustrating,~~the Western Peer Group, Hovde Financial LLC analyzed, among other things, stock price as a multiple of earnings for the ~~ratio~~last twelve months, and estimated fiscal year 2004 earnings per share, book value per share, and tangible book value per share. All multiples were based on closing stock prices as of August 2, 2004. Estimated earnings per share for the reference companies were based on First Call consensus estimates. The following table sets forth the median and average multiples indicated by the market analysis of the premium (i.e., purchase price in excess of book value) to deposits, purchase price to book value, and purchase price to previous year's earnings. The figures for all banks acquired in the California Acquisitions produced: (a) a median percentage of premium to deposits of 11.99%; (b) a median ratio of purchase price to book value of 1.82; and (c) a median ratio of purchase price to previous year's earnings of 18.10. Findley also analyzed California bank merger and acquisition transactions where the total target asset size was more than $50 million and less than $160 million for the period January 1, 1999 to February 22, 2000. The transactions analyzed were: Antelope Valley Bank by Eldorado Bankshares; Bank of Stockdale FSB by VIB Corp.; Lake Community Bank by Western Sierra Bancorp; Bay Area Bank by Greater Bay Bancorp; First Central Bank, N.A. by East West Bank; Frontier State Bank by City Holdings; City Commerce Bank by Mid-State Bancshares; Saratoga Bank by SJNB Financial Corp.; Kings River Bank by VIB Corp.; The Bank of Hollywood by Peoples Bank of California and East County Bank by CivicBank of Commerce. The figures for these 11 banks acquired in California in 1999 and 2000 produced: (a) a median percentage of premium to deposits of 12.88%; (b) a median ratio of purchase price to book value of 2.31; and (c) a median ratio of purchase price to previous year's earnings of 19.04. InPeer Group:

No company used as comparison assuming that the price to be paid in the merger equals $20.65 per share (using a value for Westamerica of $23.25 per share) recent trades for Westamerica stock have been $ per share, Findley determined that the exchange ratio in the merger based upon December 31, 1999 information and including First Counties stock options represented a percentage of premium to deposits of 10.79%, a ratio of purchase price to book value of 1.88 and a ratio of purchase price to 1999 earnings of 19.67. While two of First Counties' acquisition ratios are below the figures for the 11 banks identified above, Findley determined that the value was reasonable based upon the location of First Counties' business in a rural area and the liquidity of Westamerica common stock in the market. No other company or transaction used in the above analysis ~~as a comparison~~ is identical to ~~First Counties,~~ Westamerica ~~or the merger.~~Bancorporation. Accordingly, an analysis of ~~the~~these results ~~of the foregoing~~ is not 18 ~~26 mathematical; rather,~~mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the ~~companies~~companies.

Other Factors and Analyses. Hovde Financial LLC took into consideration various other factors and analyses, including but not limited to: historical market prices and trading volumes for Westamerica Bancorporation’s common stock; movements in the common stock of selected publicly traded companies; movements in the S&P 500 Index and the NASDAQ Composite Index; and analyses of the weighted average costs of capital of selected publicly traded companies.

Based upon the foregoing analyses and other ~~factors that could affect the public trading value of the companies to which First Counties, Westamerica~~investigations and the merger are being compared. Comparable Company Analysis. Using public and other available information, Findley compared certain financial ratios of First Counties and Westamerica (including the ratio of net income to average total assets ["return on average assets"], the ratio of net income to average total equity ["return on average equity"], the ratio of average equity to average assets and certain credit ratios for the years ending December 31, 1998 and December 31, 1999 to a peer group consisting of 20 selected banks and bank holding companies located in California. No company used in the analysis is identical to First Counties or Westamerica. The analysis necessarily involved complex considerations and judgments concerning differences in financial and operating characteristics of the companies. The results of this analysis indicated that First Counties performed consistently with peer group levels on the basis of profitability in 1998 and 1999 and Westamerica performed ahead of peer group levels on the basis of profitability in 1998 and 1999. First Counties' return on average assets and return on average equity for 1998 and 1999 were similar to peer group levels, inclusive of its interest spread factors (interest earned on assets minus interest paid on liabilities). Westamerica's performances in 1998 and 1999 showed better than peer group levels concerning return on average assets, return on average equity and non-performing assets. First Counties' non-interest expense, inclusive of payroll expense, quarters expense and other related non-interest expenses were higher than peer group level. Westamerica's non-interest expense levels for 1998 and 1999 were better than peer group levels. The foregoing summarizes the material portions of Findley's report, but does not purport to be a complete description of the presentation by Findley to First Counties' board of directors or of the analyses performed by Findley. The preparation of a fairness opinion is not necessarily susceptible to partial analysis or summary description. Findley believes that its analyses and the summary set forth above must be considered as a whole and that selecting a portion of its analyses and of the factors considered, without considering all analyses and factors, would create an incomplete view of the process underlying the analysesassumptions set forth in its presentation to the First Counties board of directors. In performing its analyses, Findley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Westamerica or First Counties. The analyses performed by Findley are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as part of Findley's analysis of the fairness, from a financial standpoint, of the merger to First Counties' shareholders and were provided to the First Counties board of directors in connection with the delivery of Findley's opinion. The analyses do not purport to be appraisals or to reflect the prices at which any securities may trade at the present time or at any time in the future. Findley used in its analyses various projections of future performance prepared by the management of First Counties. The projections are based on numerous variables and assumptions which are inherently unpredictable and must be considered not certain of occurrence as projected. Accordingly, actual results could vary significantly from those set forth in such projections. In rendering its fairness opinion, ~~Findley relied upon and assumed~~ without independent verification the accuracy and completeness of all of the financial and other information reviewed by Findley for purposes of its opinion. Findley did not make an independent evaluation or appraisal of the assets and liabilities of Westamerica, First Counties or any of their respective subsidiaries. First Counties did not impose any limitations or restrictions with respect to the scope of Findley's investigation or the procedures or methods it followed, or with regardgiving specific weightings to any ~~other matters relating to 19~~ ~~27 Findley's rendering of~~one factor or comparison, Hovde Financial LLC determined that the ~~opinion regarding the fairness of the merger. Findley did participate in negotiations regarding the~~aggregate merger agreement. First Counties' board of directors selected Findley as financial advisor and instructed Findley to render an opinion with respect to the fairness of the merger to First Counties' shareholdersconsideration was fair from a financial point of view ~~based on~~to the Redwood Empire shareholders.

The Redwood Empire board of directors selected Hovde Financial LLC to act as its ~~belief that Findley~~financial advisor and render a fairness opinion regarding the proposed merger because Hovde Financial LLC is ~~experienced and qualified in such matters. Findley has extensive~~a nationally recognized investment banking firm with substantial experience in transactions similar to the ~~evaluation~~proposed merger and because it is familiar with Redwood Empire, its business and its industry. Hovde Financial LLC is continually engaged in the valuation of ~~banks~~businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, secondary distributions of listed and ~~valuations for corporate~~unlisted securities and ~~other purposes. In over 40 years of bank consulting, Findley has been involved in creating, developing, merging and acquisition of hundreds of financial institutions.~~ private placements.

Pursuant to a letter agreement dated April 30, 2004, in addition to the ~~engagement letter, First Counties~~$20,000 Initial Retainer and the $50,000 Fairness Opinion Fee, Redwood Empire has agreed to pay ~~Findley~~Hovde Financial LLC a financial advisory fee ~~of $75,000 for Findley's services rendered to First Counties in connection with the transaction and the issuance~~at closing of the ~~fairness opinion, plus expenses identified with~~proposed merger equal to 1.0 percent of the ~~merger. First Counties~~aggregate value of the merger consideration. In addition, Redwood Empire has agreed to reimburse Hovde Financial LLC for its reasonable out-of-pocket expenses, subject to certain limitations, and to indemnify ~~Findley~~Hovde Financial LLC and certain related persons against certain liabilities ~~and expenses~~arising out of or in ~~connection~~conjunction with its rendering of services ~~as financial advisor to First Counties. Gary Steven Findley, director~~under its engagement, including certain liabilities under the federal securities laws. In the ordinary course of ~~Findley, is also~~its business, Hovde Financial LLC may actively trade in the ~~principal~~securities of ~~Gary Steven Findley & Associates, attorneys~~Redwood Empire or Westamerica for ~~First Counties. Gary Steven Findley & Associates has served as legal counsel for First Counties since~~its own account and the ~~inception~~accounts of ~~business. Gary Steven Findley & Associates is being paid for legal services related to the merger. Gary Steven Findley owns 11,296 shares of First Counties common stock. REGULATORY APPROVALS REQUIRED~~its customers and, accordingly, may at any time hold a long or short position in such securities.

The merger is subject to approval by the FRB under ~~both the BHC Act and~~ the Bank Merger Act. ~~These laws provide~~This law provides that no transaction may be approved ~~which~~that would result in a monopoly or ~~which~~that would be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States, or the effect of which in any section of the country may be substantially to lessen competition, or to tend to create a monopoly or which in any other manner might restrain trade, unless it is determined that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. In conducting a review of any application for approval, the FRB is required to consider the financial and managerial resources and future prospects of the banks concerned, their compliance with laws intended to detect and combat money laundering, and the convenience and needs of the community to be served. An application may be denied if it is determined that the financial or managerial resources of the acquiring entity are inadequate.

A transaction approved by the FRB may not be consummated for 30 days after the approval. The FRB may reduce the waiting period to 15 days ~~after such approval.~~if the Department of Justice has not provided comment on the application. During this waiting period, the Department of Justice may commence legal action challenging the transaction under the antitrust laws. If, however, the Justice Department does not commence a legal action during the ~~15-day~~waiting period, it may not thereafter challenge the transaction except in an action commenced under the antimonopoly provisions of Section 2 of the Sherman Antitrust Act.

The ~~BHC Act and the~~ Bank Merger Act ~~provide~~provides for the publication of notice and the opportunity for administrative hearings relating to the applications for approval and authorize the FRB to permit interested parties to intervene in the proceedings. If an interested party is permitted to intervene, ~~such~~ intervention could substantially delay the regulatory approvals required for consummation of the merger.

The merger must also ~~must~~ be approved by the California Commissioner of Financial Institutions ~~(the "Commissioner") pursuant to~~under the California Financial Code. The factors that the Commissioner will consider in determining whether to grant its approval include the competitive effects of the merger, the convenience and needs of the community, ~~Westamerica's~~Westamerica Bancorporation’s financial condition, the fairness of the 20 28 merger to the depositors, creditors and shareholders of the parties and the competence, experience and integrity of ~~Westamerica's~~Westamerica Bancorporation’s management.

One factor considered by the FRB under the Bank Merger Act is the probable effect of the proposed merger on competition for banking services in the communities served by the two banks. Westamerica Bank and National Bank of the Redwoods together hold approximately 33% of all FDIC-insured deposits in Lake

County. Under tests used by the FRB and the Department of Justice to measure effects on competition, the percentage of deposits that Westamerica would hold in Lake County following completion of the merger in relation to the number of remaining depository institutions and their relative market shares may exceed levels permitted by the FRB and the Department of Justice, unless Westamerica can demonstrate mitigating factors in current competition or promises to mitigate the effect of the merger by divesting certain deposits in Lake County.

Based on current precedents, ~~First Counties~~Redwood Empire Bancorp and Westamerica Bancorporation believe that the merger will be approved by the appropriate regulatory agencies and will not be subject to challenge by the Department of Justice under the antitrust laws. However, no assurance can be provided that the regulatory agencies or the Department of Justice will concur in this assessment or that any approval by the regulatory agencies will not contain conditions which are materially burdensome to ~~First Counties~~Redwood Empire Bancorp or ~~Westamerica. NASDAQ LISTING~~ Westamerica Bancorporation or that those agencies will not effectively require Westamerica to divest some or all of the deposits of National Bank of the Redwoods in Lake County. Such divestiture could cause the merger consideration to be reduced by up to $0.30 per share.

~~The shares of Westamerica Bancorporation common stock to be issued in the merger will be included for listing on Nasdaq.~~

~~Interests of Certain Officers and Directors in the ~~Nasdaq National Market. INTERESTS OF CERTAIN OFFICERS AND DIRECTORS IN THE MERGER Certain~~Merger~~

In considering the recommendation of the Redwood Empire Bancorp board of directors ~~and officers of First Counties may receive benefits from~~with respect to the merger agreement, you should be aware that the executive officers and directors of Redwood Empire Bancorp have interests in the merger and have arrangements that are different from, or in addition to, those of the ~~benefits received by~~Redwood Empire Bancorp shareholders generally. The Redwood Empire Bancorp board of directors was aware of these interests and considered them, among other ~~shareholders. These benefits include~~matters, in reaching its decisions to approve the ~~following: Certain~~merger agreement and to recommend that the Redwood Empire Bancorp shareholders vote in favor of the merger agreement.

Share ownership. As of [record date], 2004, the record date, the directors and executive officers of Redwood Empire Bancorp beneficially owned an aggregate of 202,884 shares of Redwood Empire Bancorp common stock (including 154,059 shares subject to presently exercisable options).

Stock option plans. As a result of the execution of the merger agreement, all outstanding stock options under Redwood Empire Bancorp’s stock option plans shall become vested and ~~directors~~exercisable if the holder of ~~First Counties hold~~such options has not terminated his or her employment with Redwood Empire Bancorp before the effective date of the merger. Any options not exercised prior to completion of the merger will be converted into options to ~~acquire 54,371 shares of First Counties common stock. In the merger, these options will be replaced by options to acquire~~purchase Westamerica Bancorporation common stock ~~with~~on economically equivalent terms.

The following chart shows the number of ~~shares~~vested and ~~exercise price adjusted~~unvested options held by each director and executive officer of Redwood Empire Bancorp as of the record date for the meeting, the value of these options assuming merger consideration of $28.74 per share, and the value of the unvested options that are accelerated due to ~~reflect~~ the ~~exchange ratio. David Perry, CEO~~merger:

Redwood Empire Bancorp’s director severance policy. Under Redwood Empire Bancorp’s director severance policy, Redwood Empire Bancorp has agreed to pay a severance benefit equal to one year of ~~First Counties,~~fees to each non-employee director following the merger.

~~The following chart shows the amount payable to each non-employee director under the Redwood Empire Bancorp director severance policy:~~

Employment and Compensation Agreements. Redwood Empire Bancorp has the following agreements with directors and executive officers containing change in control compensation provisions which could be triggered as a result of the merger:

Under the Change of Control Agreement dated May 1, 2004 by and between Redwood Empire Bancorp and Kim C. McClaran, Ms. McClaran is entitled to receive one time her current annual base salary or the annual base salary in effect on the date of the merger, whichever is greater, if, within two years after the merger:


	•	Ms. McClaran’s employment with Redwood Empire is terminated and her annual compensation and/or fringe benefits are reduced by 10% or more from the levels in effect on the date of the merger; or

	•	Ms. McClaran’s duties, responsibilities and authority are materially modified from those of her current position or those of the position that she held on the date of the merger; or

	•	Ms. McClaran is required to relocate to work at a location more than 30 miles from her present office location on the date of the merger.

Redwood Empire Bancorp expects that, as a result of the merger, Ms. McClaran will become entitled to a payment under this agreement equal to one time her annual base salary at the time of the merger. As of the record date for the meeting this payment would be approximately $110,000.

~~Under the Executive Salary Continuation Agreement between Patrick W. Kilkenny and Redwood Empire Bancorp dated as of November 1, 1993, as amended, upon notice of merger, Mr. Kilkenny may elect~~

to terminate his employment within 90 days of the notice and receive an amount equal to two times his annual base salary. In addition, if, within two years after the merger, Mr. Kilkenny’s employment is terminated, his compensation or authority is materially reduced, or he is required to relocate, Mr. Kilkenny is entitled to receive an amount equal to two times his current annual base salary or his base salary at the time of the merger whichever is greater. Redwood Empire Bancorp expects that, as a result of the merger, Mr. Kilkenny will become entitled to a payment under this agreement equal to two times his annual base salary at the time of the merger. As of the record date for the meeting this payment would be approximately $490,228.

At Westamerica Bancorporation’s request, Mr. Kilkenny has agreed to enter into a consulting agreement with Westamerica Bancorporation upon completion of the merger. His duties under ~~which~~the agreement will be to assist Westamerica Bancorporation in the areas of employee retention, customer retention, operation of the Redwood Merchant Services card-processing division and community relations. The agreement will have a term of one year, but Mr. Kilkenny may terminate it early (except as the card-processing division) on six months’ notice. Westamerica Bancorporation will pay Mr. Kilkenny at an annual rate of $245,000 plus benefits for his consulting services.

Under the Salary Continuation Agreement by and between National Bank of the Redwoods and Stephen A. Fleming dated April 14, 2004, upon the merger, National Bank of the Redwoods must pay Mr. Fleming the greater of (a) the disability benefit set forth in this agreement; or (b) the amount determined by vesting Mr. Fleming in 10% of the normal retirement benefit for every completed year of employment commencing as of his date of hire until he is 100% vested in the normal retirement benefit. As of the record date of the meeting, this amount was $43,827.

Under the Employment Agreement effective December 1, 2003, between National Bank of the Redwoods and Stephen A. Fleming, as amended, if, within two years after the merger Mr. Fleming’s employment is terminated without cause, or is terminated by Mr. Fleming following a reduction in his compensation, benefits, title or responsibilities, or a relocation of his principal office of more than 40 miles, Mr. Fleming will receive commissions on new construction loans generated by him over two years. In addition, under his existing salary continuation agreement with First Counties, he will receive payments of approximately $750,000 over a 15-year period beginning in June 2002, and under his existing employment agreement he will receivebe entitled to a severance payment equal to two times his base annual salary as of ~~approximately $232,000 when~~the date of such termination and a pro-rated bonus for the portion of the year during which his employment was terminated, based on the previous year’s bonus award. Redwood Empire Bancorp expects that, as a result of the merger, Mr. Fleming will become entitled to a payment equal to two times his annual base salary at the time of the merger plus a pro-rated bonus for the portion of the year in which the merger occurs. As of the record date for the meeting this payment would be approximately $472,500.

Under the Redwood Empire Bancorp Director Compensation Agreement by and between Redwood Empire and Dana R. Johnson dated April 20, 2004, as amended, if Mr. Johnson is ~~completed. Millie Hammes, CFO~~terminated within 24 months of ~~First Counties, has~~the merger, he will be entitled to a ~~salary continuation agreement with First Counties.~~payment of $400,000. Redwood Empire Bancorp expects that, as a result of the merger, Mr. Johnson will become entitled to a payment equal to $400,000 under this agreement. In connection with the merger, ~~she will receive approximately $200,000~~Mr. Johnson has agreed to place in ~~settlement~~escrow the amount of ~~her rights under this agreement~~his severance payments that could constitute a “Golden Parachute” payment if Mr. Johnson were deemed to be an “officer” for purposes of the Golden Parachute tax rules in sections 280G and ~~an additional severance~~4999 of the Internal Revenue Code pending a request for a pre-filing ruling and/or or private letter ruling from the Internal Revenue Service that the payment of ~~approximately $34,000. EFFECT ON FIRST COUNTIES' EMPLOYEE BENEFIT PLANS First Counties employees~~the escrowed payment to Mr. Johnson will not result in the disallowance of the deduction under section 280G of the Internal Revenue Code. If Mr. Johnson receives an unfavorable ruling, then the escrowed payment will be ~~eligible~~distributed to ~~participate in Westamerica's employee benefit plans.~~ Westamerica Bancorporation. If Mr. Johnson is unable to obtain a ruling on this matter, the escrowed payment may ~~require First Counties~~be distributed to ~~terminate one or more~~Mr. Johnson if Mr. Johnson indemnifies Westamerica Bancorporation against the disallowance of ~~its employee benefits plans immediately before~~ the ~~closing. ACCOUNTING TREATMENT~~ deduction under section 280G of the Internal Revenue Code. As of the record date for the meeting, Redwood Empire Bancorp estimates that the amount of this escrowed payment would be approximately $280,000.

Summary chart of maximum possible payments to Redwood Empire Bancorp directors and executive officers upon the merger.The following chart shows the maximum possible payment from all sources to each Redwood Empire Bancorp director and executive officer as a result of the merger:

The merger will be subject to the purchase method of accounting. Under this method of accounting, ~~First Counties'~~Redwood Empire Bancorp’s assets and liabilities will be reflected on ~~Westamerica's~~Westamerica Bancorporation’s future financial statements at their fair market values, and the excess of the aggregate merger consideration above the fair market value of acquired assets and liabilities will be reflected as goodwill ~~except approximately $2.0 million (subject to further valuation) that will~~or other identifiable intangibles. Intangibles must be ~~recorded~~valued annually and any impairment written off at the time of the determination of impairment. Intangibles such as those based on core ~~deposit intangible. Goodwill is an intangible asset that~~deposits will be amortized over ~~20 years.~~their estimated lives.

The ~~core deposit intangible~~following summary discusses certain anticipated U.S. federal income tax consequences of the merger applicable to a holder of shares of Redwood Empire Bancorp common stock that holds such shares as capital assets. This discussion is based upon the Internal Revenue Code of 1986, as amended, which we refer to as the Internal Revenue Code, Treasury Regulations, judicial authorities, published positions of the Internal Revenue Service, which we refer to in this proxy statement/ prospectus as the IRS, and other applicable authorities, all as in effect on the date of this document and all of which are subject to change or differing interpretations (possibly with retroactive effect). This discussion does not address all of the tax consequences that may be relevant to a particular person or the tax consequences that may be relevant to persons subject to special treatment under U.S. federal income tax laws (including, among others, tax-exempt organizations, dealers in securities or foreign currencies, banks, insurance companies, financial institutions or persons that hold their Redwood Empire Bancorp common stock as part of a hedge, straddle, constructive sale or conversion transaction, persons whose functional currency is not the U.S. dollar, holders that exercise appraisal rights, holders who are not U.S. persons as defined in Section 7701(a)(30) of the Internal Revenue Code, persons that are, or hold their Redwood Empire Bancorp common stock through, partnerships or other pass-through entities, or persons who acquired their Redwood Empire Bancorp common stock through the exercise of an employee stock option or otherwise as compensation). In addition, this discussion does not address any aspects of state, local, non-U.S. taxation or U.S. federal taxation other than income taxation.

No ruling has been requested from the IRS regarding the U.S. federal income tax consequences of the merger. However, it is a condition to the consummation of the merger that Redwood Empire Bancorp and Westamerica Bancorporation will have received opinions from their respective counsel that the merger will constitute a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code for federal income tax purposes. These tax opinions neither bind the IRS nor preclude the IRS from adopting a contrary position. The tax opinions will be ~~amortized over a period of approximately seven~~subject to ~~ten years, depending~~certain assumptions and qualifications and will be based in part on the ~~results~~truth and accuracy of ~~Westamerica's valuation. 21~~ ~~29 CERTAIN FEDERAL INCOME TAX CONSEQUENCES First Counties~~certain representations of Redwood Empire Bancorp, National Bank of the

Redwoods, Westamerica Bancorporation and Westamerica Bank. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences set forth below.

Redwood Empire Bancorp shareholders are urged to consult their own tax advisors as to the U.S. federal income tax consequences of the merger to them, as well as the effects of state, local, non-U.S. tax laws and U.S. tax laws other than income tax laws.

Redwood Empire Bancorp and Westamerica Bancorporation expect that the merger will qualify as a “reorganization” for U.S. federal income tax purposes within the meaning of Section 368(a) of the Internal Revenue Code. As a result, Redwood Empire Bancorp and Westamerica Bancorporation expect that the merger will have the following ~~consequences for~~U.S. federal income tax ~~purposes: -~~consequences:


	•	A Redwood Empire shareholder that exchanges all of its Redwood Empire Bancorp common stock for a combination of Westamerica Bancorporation common stock and cash in the merger will recognize gain (but not loss) in an amount equal to the lesser of (i) the amount of cash received in the merger and (ii) the excess, if any, of (a) the sum of the amount of cash and the fair market value of the Westamerica Bancorporation common stock received in the merger over (b) the Redwood Empire shareholder’s aggregate tax basis in its Redwood Empire Bancorp common stock surrendered in exchange therefor. Any gain recognized will be capital gain (and further will be long-term capital gain if the Redwood Empire shareholder’s holding period for its Redwood Empire Bancorp common stock is more than one year as of the date of the exchange) unless the Redwood Empire shareholder’s receipt of cash has the effect of a distribution of a dividend, in which case the gain will be treated as ordinary dividend income to the extent of the holder’s ratable share of Redwood Empire’s accumulated earnings and profits, as calculated for U.S. federal income tax purposes. For purposes of determining whether an Redwood Empire shareholder’s receipt of cash has the effect of a distribution of a dividend, the Redwood Empire shareholder will be treated as if it first exchanged all of its Redwood Empire Bancorp common stock solely in exchange for Westamerica Bancorporation common stock and then Westamerica immediately redeemed a portion of that stock for the cash that the holder actually received in the merger. Receipt of cash will generally not have the effect of a distribution of a dividend to the Redwood Empire shareholder if such receipt is, with respect to such holder, “not essentially equivalent to a dividend” or “substantially disproportionate,” each within the meaning of Section 302(b) of the Internal Revenue Code. The IRS has indicated in rulings that any reduction in the interest of a minority stockholder that owns a small number of shares in a publicly and widely held corporation and that exercises no control over corporate affairs would result in capital gain (as opposed to dividend) treatment. In determining the interest of a stockholder in a corporation, certain constructive ownership rules must be taken into account.

	•	Subject to the discussion above regarding possible dividend treatment, a Redwood Empire shareholder that receives cash instead of a fractional share of Westamerica Bancorporation common stock in the merger will recognize capital gain or loss with respect to the fractional share in an amount equal to the difference, if any, between the amount of cash received instead of the fractional share and the portion of the holder’s tax basis in its Redwood Empire Bancorp common stock that is allocable to the fractional share. The capital gain or loss will be long-term if the holding period for such Redwood Empire Bancorp common stock is more than one year as of the date of the exchange.

	•	A Redwood Empire shareholder’s aggregate tax basis in the Westamerica common stock received in the merger will be equal to the stockholder’s aggregate tax basis in its Redwood Empire Bancorp common stock surrendered, decreased by the amount of any cash received and increased by the amount of any gain recognized.

	•	A Redwood Empire shareholder’s holding period for Westamerica common stock received in the merger will include the holding period of the Redwood Empire Bancorp common stock surrendered in the merger.


	•	No gain or loss will be recognized by Redwood Empire or Westamerica as a result of the merger, and Westamerica Bancorporation will succeed to the basis and the holding period of the assets of Redwood Empire.

If the merger ~~will not result in any recognized gain or loss~~fails to First Counties or Westamerica, and Westamerica will succeed to the carryover basis and the holding period of the assets of First Counties; - Except for any cash received in lieu of any fractional share or on account of dissenting shares, no gain or loss will be recognized by holders of First Counties common stock who receive Westamerica common stock in exchange for the shares of First Counties common stock which they hold; - The holding period of Westamerica common stock exchanged for First Counties common stock will include the holding period of the First Counties common stock for which it is exchanged, assuming that the shares of First Counties common stock are capital assets in the hands of the holder thereof at the effective date; and - The basis of the Westamerica common stock received in the exchange will be the same as the basis of the First Counties common stock for which it was exchanged, less any basis attributable fractional shares for which cash is received. A shareholder who perfects dissenters' rights and receives payment for his or her First Counties shares will be treated as if such shares were redeemed. In general, if the shares are heldqualify as a ~~capital asset at~~“reorganization” within the ~~time~~meaning of the merger, the dissenting shareholder will recognize a capital gain or loss measured by the difference between the amount of cash received and the basis of the shares in the hands of the dissenting shareholder. However, if the dissenting shareholder owns, directly or indirectly through the application of Section 318section 368(a) of the Internal Revenue Code, ~~any shares~~each Redwood Empire Bancorp shareholder would recognize taxable gain or loss with respect to each share of Redwood Empire Bancorp stock surrendered equal to the difference between the holder’s tax basis in that share and the sum of the cash and the fair market value, as of the effective time of the merger, of the Westamerica Bancorporation common stock ~~as to which dissenters' rights are not exercised and perfected and which are therefore exchanged~~received in exchange for that share. In that event, a stockholder’s aggregate basis in the Westamerica Bancorporation common stock inso received would equal its fair market value and the ~~merger,~~shareholder’s holding period for that stock would begin on the ~~shareholder may~~day after the effective time of the merger. In addition, Redwood Empire Bancorp would be treated as ~~having received~~if it had made a ~~dividend in the amount~~taxable sale or exchange of ~~cash paid to the shareholder in exchange for the shares as to which dissenter's rights were perfected. Under Section 318~~all of the Code, an individual is deemed to own stock that is actually owned (or deemed to be owned) by certain members of his or her family (spouse, children, grandchildren and parents, with certain exceptions) and other related parties, including, for example, certain entities in which the individual has a direct or indirect interest (including partnerships, estates, trusts and corporations), as well as stock that such individual (or a related person) has the right to acquire upon exercise of an option or conversion right held by such individual (or a related person). Each First Counties shareholder who intends to dissent from the merger (see "The merger -- dissenters' rights of appraisal" on page 23) should consult his or her own tax advisor with respect to the application of the constructive ownership rules to the shareholder's particular circumstances.its assets.

For federal tax purposes, the highest marginal tax rate ~~for individuals~~ on ordinary income for non-corporate taxpayers is ~~39.6%~~generally 35%, ~~compared~~while long term capital gains (which for this purpose includes certain “qualifying dividend income”) are subject to ~~28%~~a maximum 15% tax rate (reduced to 5% for ~~capital gain, and~~individuals in the 10% or 15% tax bracket). The highest marginal tax rate for corporations is 35% on both ordinary income and capital gain. ~~Capital losses are treated differently than ordinary losses. Essentially, a capital loss for any taxable year may be deducted by a corporation in that year only to the extent~~The deductibility of capital ~~gain, and by an individual~~losses is subject to limitations.

In general, a Redwood Empire Bancorp shareholder receiving cash in that year only to the extent of capital gain plus up to $3,000 of ordinary income. Capital losses not deductible in the year they occur may be carried forward indefinitely by individuals and may be carried back up to three years and forward up to five years by corporations. This proxy statement/prospectus does not provide information about the tax consequences of the merger under any state, local or foreign tax laws. The shareholders of First Counties are urged to 22 30 consult their own tax advisors with respect to all tax consequences of the merger. Expenses incurred by any shareholder arising from disputes with the IRS or any state or foreign tax agency over the tax consequences of the merger will be subject to information reporting to the IRS. In addition, backup withholding at the applicable rate (currently 28%) will generally apply if the exchanging Redwood Empire Bancorp shareholder fails to provide an accurate taxpayer identification number or fails to properly certify that it is not subject to backup withholding (generally on a substitute IRS Form W-9). Certain holders (including, among others, U.S. corporations) are not subject to information reporting or backup withholding, but they may still need to furnish a substitute IRS Form W-9 or otherwise establish an exemption. Any amount withheld as backup withholding from payments to an exchanging Redwood Empire Bancorp shareholder will be ~~borne by First Counties or Westamerica. DISSENTERS' RIGHTS OF APPRAISAL Shareholders of First Counties who vote~~creditable against the ~~merger~~Redwood Empire Bancorp shareholder’s federal income tax liability, provided that it timely furnishes the required information to the IRS. Redwood Empire Bancorp shareholders should consult their tax advisors as to their qualifications for exemption from backup withholding and the procedure for obtaining an exemption.

You may be ~~entitled~~given the opportunity to ~~certain dissenters' appraisal~~exercise dissenters’ rights in connection with the merger: such rights will be available only if demands for payment under that California statute are made, as described below, by the holders of 5% or more of the outstanding shares of Redwood Empire Bancorp common stock. The procedures for you to obtain dissenters’ rights are set forth in Chapter 13 of the California General Corporation Law. ~~Relevant excerpts~~The information set forth below is a general summary of Chapter 13 dissenters’ rights as they are ~~set forth in Appendix C. Important details concerning these~~being made available to you. For purposes of convenience, please simply assume that the transaction is one which would give rise to the exercise of dissenters’ rights by Redwood Empire Bancorp shareholders, and all remaining procedures and requirements of the law are ~~set forth below; failure to take these actions in a timely and proper fashion will result in the loss of dissenters' appraisal rights. The following discussion~~applicable. This summary is not a complete ~~statement~~discussion of ~~the law relating to dissenters' rights~~Chapter 13 and is qualified in its entirety by reference to ~~Appendix~~Sections 1300-1304 of Chapter 13, which are attached as Annex C. ~~This discussion and Appendix C should be reviewed carefully by any shareholder of First Counties who wishes~~If you wish to exercise ~~dissenters'~~dissenters’ rights or ~~who wishes~~wish to preserve the right to do so ~~since failure~~you should carefully read Annex C. You must follow exactly the required procedures set forth in Chapter 13 of the California General Corporation Law or any dissenters’ rights may be lost.

If the merger is consummated, if you elect to ~~comply~~exercise your dissenters’ rights and you perfect your rights in a timely and proper fashion in accordance with the procedures set forth in Chapter 13, will result in the loss of dissenters' rights. If the merger is consummated, those shareholders of First Counties who elect to exercise their dissenters' rights and who in a timely and proper fashion perfect such rightsyou will be entitled to receive an amount equal to the ~~"fair~~“fair market ~~value"~~value” of ~~their shares in cash. Pursuant to Section 1300(a) of the California General Corporation Law, such "fair~~your shares. Chapter 13 provides that fair market ~~value" would~~value shall be determined as of August 25, 2004, the business day before the ~~first~~public announcement of the ~~terms of the merger, excluding any appreciation or depreciation caused by the~~ merger. ~~The board of directors of First Counties has determined that~~Redwood Empire Bancorp believes the fair market value of ~~First Counties~~its stock is $25.99 as of August 25, 2004, which is the last reported sales price on the Nasdaq National Market as of that date.

You must satisfy each of the following requirements for your shares to be considered dissenting shares under Chapter 13. Shares of Redwood Empire Bancorp must be purchased by Redwood Empire Bancorp from

a dissenting shareholder if all applicable requirements are complied with, but only if demands are made for payment with respect to 5% or more of the outstanding shares of Redwood Empire Bancorp common stock.

This 5% limitation does not apply to shares which are subject to a restriction on transfer imposed by Redwood Empire Bancorp or by any law or regulation. Redwood Empire Bancorp is not aware of any restriction on transfer of any of their respective shares of common stock ~~for this purpose~~except restrictions which may be imposed upon shareholders who are deemed to be “affiliates” of Redwood Empire Bancorp as that term is ~~$11.25. See "Summary -- comparative market price data" on page 1.~~used in the Securities Act of 1933, as amended (the “Securities Act”). Those shareholders who believe there is some restriction affecting their shares should consult with their own counsel as to the nature and extent of any dissenters’ rights they may have. In ~~order~~addition, Redwood Empire Bancorp is required to ~~qualify for dissenters' rights, First Counties~~purchase dissenting shares only if the following conditions are satisfied:


	•	You must have shares of Redwood Empire Bancorp common stock outstanding as of the record date of the shareholder’s meeting;

	•	You must vote the shares against the merger. It is not sufficient to abstain from voting. However, you may abstain as to part of your shares or vote part of those shares for the merger without losing the right to exercise dissenters’ rights with respect to those shares which were voted against the merger; and

	•	If you voted against the merger and you wish to have Redwood Empire purchase those shares that were voted by you against the merger, you must make a written demand to have Redwood Empire purchase those shares of common stock for cash at their fair market value. The demand must include the information specified below and must be received by Redwood Empire or its transfer agent no later than the date of the shareholders’ meeting at which the shareholder may vote such shares.

If you return a proxy without voting instructions or with instructions to vote “FOR” the proposal to approve the merger agreement, your shares will automatically be voted in favor of the merger and you will lose your dissenters’ rights.

If the merger is approved by the Redwood Empire Bancorp shareholders, ~~(i) must make a written demand on First Counties within 30~~Redwood Empire Bancorp will have 10 days after ~~First Counties mails~~the approval to mail those shareholders who voted against the merger and who made a timely demand for purchase, assuming that the holders of 5% or more of the Redwood Empire Bancorp shares made such demand, written notice of the approval along with a copy of Sections 1300 through 1304 of Chapter 13. In the notice of approval, Redwood Empire Bancorp must state the price it determines represents the fair market value of the ~~merger and~~dissenting shares. This notice will constitute an offer by Redwood Empire Bancorp to purchase the ~~procedure to be followed, and (ii)~~dissenting shares at the price stated. Additionally, Redwood Empire Bancorp must ~~not vote their shares~~set forth in ~~favor~~the approval notice a brief description of the ~~merger.~~procedures a shareholder must follow if he or she desires to exercise dissenters’ rights.

A written demand ~~by a First Counties shareholder should be sent~~is essential for dissenters’ rights. Chapter 13 requires you to ~~First Counties Bank, 15145 Lakeshore Drive, Clearlake, California 95422, Attention: Corporate Secretary. The~~specify in the written demand ~~must (i) state~~ the number ~~and class~~ of shares ~~held~~you hold of record ~~by such shareholder which~~that you are demanding that Redwood Empire Bancorp purchase from you. In the ~~shareholder demands that First Counties purchase for cash, and (ii) contain~~written demand, you must also include a statement of the amount ~~which the shareholder claims~~you claim to be the fair market value of ~~the dissenting~~those shares as of the business day before ~~announcement~~the terms of the merger were first announced, excluding any appreciation or depreciation because of the proposed merger. ~~That statement will constitute~~It is Redwood Empire Bancorp’s position that this day is August 25, 2004. You may take the position in the written demand that a different date is applicable. This demand constitutes an offer by ~~the shareholder~~you to sell ~~his or her~~the dissenting shares at the price stated.

In addition to ~~First Counties at~~the requirements of the provisions of Chapter 13 of the California Corporations Code described herein, Westamerica Bancorporation and Redwood Empire Bancorp recommend that ~~price. If~~you comply with the ~~merger is approved, First Counties will, within ten days after the meeting, mail~~following conditions to ~~any shareholder who has a right to require the company to purchase his or her shares a notice~~ensure that the ~~required~~demand is properly executed and delivered.


	•	The demand should be sent by registered or certified mail, return receipt requested.

	•	The demand should be signed by the shareholder of record, or his or her duly authorized representative, exactly as his or her name appears on the stock certificates evidencing the shares.

	•	A demand for the purchase of the shares jointly owned by more than one person should identify and be signed by all such holders.


	•	Any person signing a demand for purchase in any representative capacity, such as attorney-in-fact, executor, administrator, trustee or guardian, should indicate his or her title, and, if Redwood Empire so requests, furnish written proof of his or her capacity and authority to sign the demand.

~~A shareholder ~~approval~~may not withdraw a demand for payment without the consent of Redwood Empire Bancorp.~~

Under California law, a demand by a shareholder is not effective for any purpose unless it is received by Redwood Empire Bancorp or its transfer agent, no later than the date of the ~~merger was obtained. This notice of approval will set forth the price determined by First Counties to represent the "fair market value" of any dissenting~~shareholders’ meeting at which such shares ~~and will set forth a brief description of the procedures~~are entitled to be ~~followed by dissenting shareholders who wish to pursue further their statutory rights. The dissenting shareholder must deliver his or her share certificate(s) for receipt by First Counties within~~voted.

Within 30 days after the date on which Redwood Empire Bancorp mails the notice of the approval ~~was mailed~~of the merger, dissenting shareholders must also submit the certificates representing the dissenting shares to Redwood Empire Bancorp at the ~~shareholder. The certificate(s)~~office it designates in the notice of approval. Redwood Empire Bancorp will ~~be stamped~~stamp or ~~endorsed~~endorse the certificates with a statement that the shares are dissenting shares or Redwood Empire Bancorp will exchange the certificates with certificates of appropriate denomination that are so stamped or endorsed. If a shareholder transfers any shares of Redwood Empire Bancorp common stock before submitting the shares for endorsement, then such shares will lose their status as dissenting shares.

If Redwood Empire Bancorp and ~~will be returned~~you agree that the surrendered shares are dissenting shares and agree upon the price of the shares, you are entitled to receive the agreed price together with interest thereon at the legal rate on judgments from the date of the agreement between Redwood Empire Bancorp and the dissenting shareholder. ~~The statements in~~Redwood Empire Bancorp will pay the ~~notice~~fair value of ~~approval will constitute an offer by First Counties~~the dissenting shares within 30 days after Redwood Empire Bancorp and you agree upon the price of the shares or within 30 days after any statutory or contractual conditions to the merger have been satisfied, whichever is later. Redwood Empire Bancorp’s duty to pay is subject to your surrendering the certificates and is also subject to the restrictions imposed under California law on the ability of Redwood Empire Bancorp to purchase ~~from~~ its ~~shareholders any~~outstanding shares.

If Redwood Empire Bancorp denies that the shares surrendered are dissenting shares, ~~at the price stated, but only if the merger is consummated. However, the determination by First Counties of fair market value is not binding on its shareholders,~~or Redwood Empire Bancorp and ~~if a dissenting shareholder chooses not~~you fail to ~~accept such offer, he or she has the right 23~~ 31 during a period of six months following the mailing of the notice of approval to file a lawsuit to have the fair market value, as described in Section 1300(a), determined by a court. The fair market value of dissenting shares as determined by the court in those circumstances could be higher or lower than the amount offered by First Counties in the notice of approval or the consideration provided for in merger agreement, and any such determination would be binding on the dissenting shareholder or shareholders involved in the lawsuit and on First Counties and Westamerica. Any party may appeal from the judgment. However, the court action to determineagree upon the fair market value of such shares, then you may, within six months after the notice of approval is mailed, file a complaint in the Superior Court of the proper county of California requesting the court to make such determinations. In the alternative, you may intervene in any pending action brought by any other dissenting shareholder. If you fail to file such a complaint or fail to intervene in a pending action within the specified six-month period, your dissenting rights will be ~~suspended if litigation is instituted to test~~lost. If the ~~sufficiency or regularity~~fair market value of the ~~votes~~dissenting shares is at issue, the court will determine, or will appoint one or more impartial appraisers to determine, such fair market value. The costs of the action will be assessed or apportioned as the court considers equitable, but if the fair market value is determined to exceed the price offered to the shareholder, Redwood Empire Bancorp will be required to pay such costs. If the fair market value is determined to exceed 125% of the price offered to the shareholder, the court may also require, at its discretion, that Redwood Empire Bancorp pay attorneys’ fees, fees of expert witnesses and interest.

This summary has already described certain situations where shareholders ~~in authorizing~~of Redwood Empire Bancorp will cease to have dissenters’ appraisal rights. In addition to the ~~merger. No shareholder who has~~situations described above, you will cease to have dissenters’ appraisal rights ~~under Chapter 13 will have any right~~if:


	•	Redwood Empire abandons the merger, in which case Redwood Empire will pay any dissenting shareholder who has filed a complaint, as described above, all necessary expenses and reasonable attorneys’ fees incurred in such proceedings;

	•	you surrender your shares for conversion into shares of another class;

	•	you transfer your dissenting shares before submitting them to Redwood Empire for endorsement; or

	•	you withdraw your demand for the purchase of the dissenting shares with the consent of Redwood Empire.

~~Any demands, notices, certificates or other documents required to ~~attack the validity~~be delivered to Redwood Empire Bancorp may be sent to:~~


	Redwood Empire Bancorp
	111 Santa Rosa Avenue
	Santa Rosa, California 95404
	Attention: Corporate Secretary

It is a condition to completion of the merger ~~except in an action to test whether the number~~that holders of ~~shares required to authorize the merger has been legally voted in favor~~not more than 9% of the ~~merger. Dissenting First Counties~~outstanding shares ~~may lose their status as such if any~~ of ~~the following events occurs: - the merger is abandoned (in which case First Counties must pay on~~Redwood Empire Bancorp common stock demand and perfect dissenters’ rights. Each holder of Redwood Empire Bancorp common stock who becomes entitled pursuant to dissenting shareholders who have initiated proceedings in good faith as provided under Chapter 13 all necessary expenses and reasonable attorneys' fees incurred in such proceedings); - the dissenting shares are transferred before being submittedprovisions of applicable law to ~~First Counties~~payment for ~~endorsement; - the dissenting shareholder withdraws~~ his or her ~~demand~~dissenting shares shall receive payment therefor from Westamerica Bancorporation and such shares of Redwood Empire Bancorp common stock shall be canceled. After completion of the merger, Westamerica Bancorporation will assume the rights and obligations of Redwood Empire Bancorp with ~~the consent of First Counties; or, - in the absence of agreement between the dissenting shareholder and First Counties as~~respect to the ~~price~~exercise of his or her shares, the First Counties shareholder fails to file suit or otherwise fails to become a party to such suit within six months following the mailing of the notice of approval. The receipt of a cashan payment for ~~dissenting shares will result in recognition~~dissenters’ rights.

Resales of gain or loss for federal and California state income tax purposes by dissenting shareholders. See "The merger -- certain federal income tax consequences" on page 22. RESALES OF WESTAMERICA COMMON STOCKWestamerica Bancorporation Common Stock

The shares of Westamerica Bancorporation common stock to be issued to shareholders of ~~First Counties~~Redwood Empire Bancorp under the merger agreement have been registered under the Securities Act, so these shares may be freely traded without restriction by ~~people~~persons who will not be affiliates of Westamerica Bancorporation after the merger orand who were not affiliates of ~~First Counties~~Redwood Empire Bancorp on the date of the ~~Annual Meeting.~~special meeting. All directors and certain officers of ~~First Counties~~Redwood Empire Bancorp and holders of 10% or more of the outstanding shares of Redwood Empire Bancorp common stock may be ~~deemed~~considered to have been affiliates of ~~First Counties within the meaning of such rules.~~Redwood Empire Bancorp. Those ~~people~~persons may resell shares of Westamerica Bancorporation common stock to be received by them in the merger only if the shares are registered for resale under the Securities Act or an exemption from such registration under the Securities Act is available. Those ~~people~~persons may be permitted to resell the Westamerica Bancorporation shares under the safe harbor provisions of Rule 145 under the Securities Act (or Rule 144 in the case of ~~such~~ persons who become affiliates of ~~Westamerica)~~Westamerica Bancorporation) or as otherwise permitted under the Securities Act. ~~People~~Persons who may be deemed affiliates of ~~First Counties~~Redwood Empire Bancorp or Westamerica Bancorporation generally include individuals or entities that control, are controlled by, or are under common control with, ~~First Counties~~Redwood Empire Bancorp or Westamerica Bancorporation, and may include certain officers and directors of such entities as well as principal shareholders of ~~First Counties~~Redwood Empire Bancorp or ~~Westamerica.~~Westamerica Bancorporation. We encourage any such person to obtain advice of securities counsel before reselling any Westamerica Bancorporation shares.

At the time the parties signed the merger agreement, each ~~director and executive officer~~person deemed by Westamerica to be affiliates of ~~First Counties~~Redwood Empire Bancorp executed and delivered a written agreement to the effect that such person will not offer or sell or otherwise dispose of any Westamerica Bancorporation common stock received in the merger in violation of the Securities Act or the rules and regulations thereunder. 24 32

The following is a summary of the material provisions of the merger agreement, a copy of which is attached to this proxy statement/prospectus as ~~Appendix~~Annex A. The merger agreement is incorporated by reference into this proxy statement/prospectus. You are urged to read the merger agreement in its entirety. ~~STRUCTURE OF THE MERGER; EFFECTIVE TIME~~

The merger agreement contemplates the merger of ~~First Counties~~Redwood Empire Bancorp with and into Westamerica ~~Bank.~~Bancorporation. Westamerica ~~Bank~~Bancorporation will be the surviving corporation in the merger and will continue its corporate existence under California law. The merger will become effective upon the filing ~~of an agreement of merger~~ with the California Secretary of State of a duly executed merger agreement and officers’ certificates required by Section 1103 of the ~~State of~~ California ~~or at such~~General Corporation Law unless a different time ~~thereafter as~~ is provided in ~~such agreement of merger.~~the merger agreement. The closing of the merger will take place on a date to be specified by the parties, which will be the earliest practicable day after satisfaction of all of the conditions ~~set forth in~~required by the merger agreement, unless another time or date is agreed to in writing by Westamerica Bancorporation and ~~First Counties.~~Redwood Empire Bancorp. If

the closing would otherwise occur in December 2004 or January 2005, Westamerica Bancorporation may elect to defer the closing until the first business day of February 2005 or as soon as practicable after that date. The merger agreement may be terminated by either Westamerica Bancorporation or ~~First Counties~~Redwood Empire Bancorp if, among other reasons, the merger ~~shall~~is not ~~have been~~ consummated on or before ~~September 29, 2000 (subject to an extension to October 31 if the parties are awaiting the expiration of regulatory waiting periods).~~May 25, 2005. See ~~"--~~“— Conditions to the completion of the ~~merger"~~merger” and ~~"-- Termination" below. The merger agreement provides that Westamerica may change the structure~~“— Termination.”

Conversion of the merger, such as by initially merging First Counties with a different Westamerica subsidiary and later merging it with Westamerica Bank. The alternate structure, however, may not materially and adversely affect the timing of the merger, or adversely affect the economic benefits, the form of consideration or the tax effect of the merger to you. CONVERSION OF FIRST COUNTIES COMMON STOCKRedwood Empire Bancorp Common Stock

If you are a shareholder of ~~First Counties~~Redwood Empire Bancorp common stock as of the effective time of the merger, each share of ~~your shares of First Counties~~Redwood Empire Bancorp common stock will be converted into the right to receive ~~0.8880~~$28.74, consisting of ~~a share of~~$11.49 in cash and $17.25 in Westamerica Bancorporation common stock (valued at its average closing price for the 20 trading days ending three business days before the effective date of the merger), subject to certain ~~possible~~ adjustments. Your shares of ~~First Counties~~Redwood Empire Bancorp common stock will no longer be outstanding and will be automatically canceled and retired and will cease to exist. Your stock certificate previously representing shares of ~~First Counties~~Redwood Empire Bancorp common stock will be exchanged for a certificate representing whole shares of Westamerica Bancorporation common stock. 25 33

The number of shares of Westamerica Bancorporation common stock into which the stock portion of each share of Redwood Empire Bancorp common stock shall be converted is equal to the following, ~~table indicates~~in each case rounded to four decimal places:


	•	if the Westamerica average closing price is not less than $45.4950 and not more than $55.6050, a fraction (i) the numerator of which is $17.25 and (ii) the denominator of which is the Westamerica average closing price (as defined below);

	•	if the Westamerica average closing price is greater than $55.6050, a fraction (i) the numerator of which is $17.25 and (ii) the denominator of which is $55.6050.

	•	if the Westamerica average closing price is less than $45.4950, a fraction (i) the numerator of which is $17.25 and (ii) the denominator of which is $45.4950.

“Westamerica average closing price” means the average of the closing prices of Westamerica Bancorporation common stock quoted on the Nasdaq National Market as reported in The Wall Street Journal on each of the last 20 trading days on which trades in Westamerica Bancorporation’s shares occur ending on the day which is the day prior to two business days prior to the effective date, whether or not trades occurred on those days, rounded to four decimal places.

As a result of the above formula (assuming no adjustment as a result of a required divestiture of deposits), if the Westamerica average closing price is between $45.4950 and $55.6050, the exchange ratio aswill be a ~~function~~fraction of a ~~possible range of~~share that, when multiplied by the Westamerica average closing ~~prices for~~price, will produce a stock portion of $17.25; if the Westamerica average closing price is higher than $55.6050, the exchange ratio will be fixed at 0.3102 and the value of the stock portion will be higher than $17.25; if the Westamerica average closing price is lower than $45.4950, the exchange ratio will be fixed at 0.3792 and the value of the stock portion will be less than $17.25. The merger agreement may be terminated by the board of directors of Redwood Empire Bancorp if Westamerica’s average closing price is less than $40.44. The merger agreement may be terminated by the board of directors of Westamerica Bancorporation if Westamerica’s average closing price is greater than $60.66.


	•	if the Westamerica average closing price is $52.50, then the stock portion exchange ratio would have a numerator of $17.25 and a denominator of $52.50; the stock portion exchange ratio would therefore be 0.3286; the stock portion exchange ratio times one share of Westamerica common stock would have a nominal value at that time of 0.3286 multiplied by $52.50 or $17.25, and the merger consideration would consist of a cash portion of $11.49 plus a stock portion of $17.25 for a total of $28.74;

	•	if the Westamerica average closing price is $57.50, then the stock portion exchange ratio would have a numerator of $17.25 and a denominator of $55.6050; the stock portion exchange ratio would therefore be 0.3102; the stock portion exchange ratio times one share of Westamerica common stock would have


		a nominal value at that time of 0.3102 multiplied by $57.50 or $17.84, and the merger consideration would consist of a cash portion of $11.49 plus a stock portion of $17.84 for a total of $29.33;

	•	if the Westamerica average closing price is $42.50, then the stock portion exchange ratio would have a numerator of $17.25 and a denominator of $45.4950; the stock portion exchange ratio would therefore be 0.3792; the stock portion exchange ratio times one share of Westamerica common stock would have a nominal value at that time of 0.3792 multiplied by $42.50 or $16.12, and the merger consideration would equal a cash portion of $11.49 plus a stock portion of $16.12 for a total of $27.61.

However, if Westamerica Bancorporation is required by any condition of a governmental approval to divest deposits of either National Bank of the Redwoods or Westamerica Bank in Lake County, California, then the stock and cash portions of the merger consideration and the aggregate per share merger consideration shall be reduced in accordance with the following table:

~~and references above to “$11.49,” “$17.25” and “$28.74” will be deemed to be references to the applicable reduced values in the table above.~~

The following tables illustrate the exchange ratio and the market value that Redwood Empire Bancorp shareholders would receive for each share of Redwood Empire Bancorp common stock based on certain assumptions and the ~~corresponding merger consideration per share~~changes in the exchange ratio that would take effect if certain of ~~First Counties common stock expressed in dollars (shown as~~ the ~~"Exchange Amount").~~adjustments described above were to be made. No assurance can be given that the actual value of each share of Westamerica Bancorporation common stock upon completion of the merger will be equal to the average closing price used to determine the exchange ratio.
~~AVERAGE CLOSING PRICE OF WESTAMERICA EXCHANGE EXCHANGE COMMON STOCK(1) RATIO AMOUNT - ------------------------ -------- --------~~ $17.00(2) 0.9876 $16.79 18.00 0.9328 16.79 18.91 0.8880 16.79 19.00 0.8880 16.87 20.00 0.8880 17.76 21.00 0.8880 18.65 22.00 0.8880 19.54 23.00 0.8880 20.42 24.00 0.8880 21.31 25.00 0.8880 22.20 25.59 0.8880 22.72 26.00 0.8738 22.72 27.00 0.8415 22.72 28.00 0.8114 22.72
~~- ------------------------- (1) This price, which will be used to determine any adjustments to~~“Per share amount” means the exchange ratio ~~is based~~multiplied by the assumed value of one share of Westamerica Bancorporation common stock.

The following table shows the effect on the ~~average~~exchange ratio and the value of the merger consideration of changes in the average closing ~~prices~~price (in increments of 5% from $50.55) of Westamerica ~~shares for~~Bancorporation common stock (rounded to the ~~20 trading days ending three business days before~~nearest cent):

The following table shows the ~~closing~~effect on the exchange ratio and the value of the ~~merger. (2) If Westamerica's~~merger consideration of changes in the average closing price of Westamerica Bancorporation common stock, assuming a required divestiture of up to $10 million in deposits in Lake County:

~~Assuming Divestiture of More Than $10 Million up to $20 Million in Deposits~~

~~Assuming Divestiture of More Than $20 Million up to $30 Million in Deposits~~

On [ , 2004], the last reported sale price for Westamerica Bancorporation common stock was $ . The average closing price maybe be higher or lower than this amount. The merger agreement may be terminated by the board of directors of Redwood Empire Bancorp if Westamerica’s average closing price is less than ~~$18.00, either party has~~$40.44. The merger agreement may be terminated by the ~~right to terminate the merger unless~~board of directors of Westamerica ~~agrees to increase the exchange ratio to a figure that produces an exchange amount of $16.79 or the parties mutually agree to a different exchange ratio.~~Bancorporation if Westamerica’s average closing price is greater than $60.66.

You will not receive any fractional shares of Westamerica Bancorporation common stock. If you are entitled to a fraction of a share of Westamerica Bancorporation common stock you will, instead, receive an amount in cash. The cash amount will be equal to the average closing price ~~as reported on~~used to determine the ~~Nasdaq National Market for the Westamerica common stock on the trading day immediately preceding the closing date,~~exchange ratio, multiplied by the fraction of a share of Westamerica Bancorporation common stock to which you would otherwise been entitled. You will not be entitled to dividends, voting rights, interest on the value of, or any other rights in respect of a fractional share. In the event Westamerica Bancorporation pays, declares or otherwise effects a stock split, reverse stock split, reclassification or stock dividend or stock distribution with respect to Westamerica Bancorporation common stock between the date of the merger agreement and the effective time of the merger, appropriate adjustments will be made to the average Westamerica Bancorporation closing price of Westamerica Bancorporation common stock. ~~OPTIONS~~

~~We encourage you to review this text in the merger agreement for this full description of the adjustments that are possible.~~

At the effective time of the merger, each ~~option~~person holding one or more options to acquire ~~First Counties~~Redwood Empire Bancorp common stock which ~~is outstanding~~are exercisable or become exercisable immediately before the proposed merger will have the right to exercise any of these options immediately prior to the effective time. In addition, a person holding one or more options to acquire Redwood Empire Bancorp common stock will have the right to convert those options into a fully vested and ~~unexercised will be converted automatically into an~~exercisable option to purchase shares of Westamerica Bancorporation common ~~stock.~~stock on economically equivalent terms. The number of shares to be subject to the ~~new~~ option to purchase shares of Westamerica Bancorporation common stock will be equal to the product of the number of shares of ~~First Counties~~Redwood Empire Bancorp common stock subject to the original option and ~~the~~an exchange ratio applicable to options, rounded down to the nearest share. The exchange ratio applicable to options is a fraction, the numerator of which is the sum of (1) the cash portion of the merger consideration plus (2) the exchange ratio multiplied by the Westamerica average closing price as described above, and the denominator of which is the applicable denominator used in Section 2.1(c) of the merger agreement to determine the exchange ratio for the stock portion of the merger consideration. The exercise price per share of Westamerica Bancorporation common stock under the new option will be equal to the exercise price per share of 26 ~~34 First Counties~~Redwood Empire Bancorp common stock under the original option divided by the exchange ~~ratio.~~ ratio applicable to options.

The exercise price will be rounded up to the nearest cent. In the case of any options which are ~~"incentive~~“incentive stock options,"” as defined in Section 422 of the ~~Internal Revenue~~ Code, the exercise price, the number of shares purchasable pursuant to such options and the terms and conditions of such options will be determined in order to comply with Section 424(a) of the ~~Internal Revenue~~ Code. The duration and other terms of ~~the~~each new ~~options~~option will be the same as those of the original ~~option. EXCHANGE AGENT; EXCHANGE PROCEDURE~~option that it replaces.

Under the merger agreement, Westamerica Bancorporation has agreed to appoint ~~Harris Trust Company of California~~Computershare Investor Services, LLC or its successor, or any other bank or trust company mutually acceptable to ~~First Counties~~Redwood Empire Bancorp and Westamerica Bancorporation, as exchange agent for the purpose of exchanging certificates representing shares of Redwood Empire Bancorp common stock for certificates representing the Westamerica Bancorporation common stock ~~which~~that are to be issued ~~pursuant~~under to the merger agreement. ~~Computershare Investor Services LLC will acquire the shareholder services business of Harris Trust Company of California on July 1, 2000, and will thereafter act as exchange agent.~~ As soon as practicable after the effective time of the merger, upon the surrender of your ~~First Counties~~Redwood Empire Bancorp shares certificate for cancellation, you will be entitled to receive a certificate representing the number of shares of Westamerica Bancorporation common stock determined in accordance with the merger agreement and a payment in cash ~~with respect to~~for the cash portion of the merger consideration and cash in lieu of any fractional shares. Do not send in your certificates at this time. Please wait until you receive a transmittal letter with more specific instructions on exchanging your certificates.

You will not receive any dividends or other distributions of any kind which are declared payable to shareholders of record of the shares of Westamerica Bancorporation common stock after the effective time of the merger until you surrender your certificate for shares of ~~First Counties~~Redwood Empire Bancorp common stock. ~~Upon such~~When you surrender of your ~~First Counties~~Redwood Empire Bancorp certificate, you will be paid, without interest, any dividends or other distributions ~~with respect to~~on the shares of Westamerica Bancorporation common stock ~~as to~~on which the record date and payment date occurred on or after the effective time of the merger and on or before the date on which you surrendered your certificate for shares of ~~First Counties~~Redwood Empire Bancorp common stock.

If you would like your certificate for shares of Westamerica Bancorporation common stock to be issued in a name other than the name or names in which your exchanged ~~First Counties~~Redwood Empire Bancorp certificate is registered, you will have to pay to the exchange agent any transfer costs, taxes or other expenses required by reason of the issuance of certificates for such shares of Westamerica Bancorporation common stock in a name other than the registered holder of the exchanged ~~First Counties~~Redwood Empire Bancorp certificate. ~~All dividends or distributions, and~~

The cash portion of the merger consideration, any cash to be paid instead of fractional shares and all dividends or distributions, if held by the exchange agent for payment or delivery to the holders of unsurrendered ~~First Counties~~Redwood Empire Bancorp certificates representing shares of ~~First Counties~~Redwood Empire Bancorp common stock and unclaimed at the end of one year from the effective time of the merger, ~~shall~~will (together with any interest earned ~~thereon)~~on those shares) at ~~such~~that time be paid or redelivered by the exchange agent to ~~Westamerica.~~Westamerica Bancorporation. After ~~such~~that time, if you still have not surrendered your ~~First Counties~~Redwood Empire Bancorp certificate, you must look as a general creditor only to Westamerica Bancorporation for payment or delivery of such ~~dividends or distributions or cash, as the case may be.~~ amounts.

Neither Westamerica Bancorporation nor ~~the surviving corporation shall~~Redwood Empire Bancorp will be liable to you for ~~such~~cash or shares (or dividends or distributions thereon) ~~or cash payable instead of fractional shares~~ delivered to a public official ~~pursuant to~~under any applicable abandoned property, escheat or similar law. ~~REPRESENTATIONS AND WARRANTIES~~

In the merger agreement, Westamerica Bancorporation and ~~First Counties~~Redwood Empire Bancorp make certain customary representations and warranties to one another, including those related to the following: ~~- Incorporation, valid existence and authority to conduct business; - Necessary licenses and permits; 27~~ 35 - Authorization to enter into the merger agreement, and the absence of any material conflict between the merger agreement and other agreements to which each is a party; - Capital structure; - The accuracy of information in regulatory filings; - The accuracy of representations in the merger agreement, financial statements and this proxy statement/prospectus; - Compliance with applicable laws; - The performance of contractual obligations; and - The absence of any material adverse change or undisclosed liabilities. First Counties


	•	Incorporation, valid existence, authority to conduct business and authorization to enter into the merger agreement;

	•	Corporate records;

	•	Compliance with laws and regulations;

	•	Valid execution and delivery of the merger agreement;


	•	Securities laws filings;

	•	Capital structure;

	•	Accuracy of information in regulatory filings;

	•	Accuracy of information in financial statements;

	•	Community Reinvestment Act rating;

	•	Filing of tax returns and payment of taxes;

	•	Absence of material changes;

	•	Compliance with ERISA;

	•	Absence of material litigation;

	•	Absence of facts preventing receipt of government approvals to merger;

	•	Information in securities filings;

	•	Accuracy in representations and warranties; and

	•	Internal controls.

~~Redwood Empire Bancorp makes additional representations concerning the following matters: ~~- The absence~~~~


	•	Equity ownership of subsidiaries;

	•	Absence of undisclosed liabilities;

	•	Absence of undisclosed indemnification agreements;

	•	Title to properties and leases;

	•	Identification of material contracts;

	•	Disclosure of classified loans;

	•	Absence of restrictions on investments;

	•	Identification of certain employment benefits and contracts;

	•	Absence of collective bargaining agreements;

	•	Compensation of officers and employees;

	•	Rights to intellectual property;

	•	Disclosure of derivative transactions;

	•	Disclosure of brokers and finders;

	•	Status of insurance coverage and claims;

	•	Loan loss policies;

	•	Transactions with affiliates; and

	•	Absence of brokered deposits.

Conduct of material litigation involving it; - The absence of any regulatory agreements affecting it; - The status of its insurance coverage and claims; - Title to its assets; - The filing of tax returns and payment of taxes; - The status of its loan and investment portfolios; - Its responsibility for broker's fees; - Identification of all material contracts to which it is a party; - Compliance with ERISA; - The absence of hazardous materials on any its properties; - The number and terms of stock options outstanding; - The absence of any severance arrangements that would constitute "parachute payments" underBusiness Pending the ~~Internal Revenue Code; and - The absence of any derivatives or similar hedging instruments in its investment portfolio. CONDUCT OF BUSINESS PENDING THE MERGER~~Merger

In the merger agreement, Westamerica Bancorporation and ~~First Counties~~Redwood Empire Bancorp make certain covenants. Each agrees to do the following: - Take all necessary action to complete the merger; - Cooperate in preparing and filing a registration statement with the SEC to register the Westamerica common stock being offered to shareholders of First Counties under this proxy statement/prospectus; and -


	•	Take further necessary actions to complete the merger;

	•	Cooperate in preparing and filing a registration statement with the SEC to register the Westamerica Bancorporation common stock being offered to shareholders of Redwood Empire under this proxy statement/ prospectus;

	•	Cooperate in obtaining all necessary government approvals;

	•	Provide each other access to their financial statements;


	•	Cooperate in the preparation of any press releases;

	•	Coordinate with respect to the declaration of dividends;

	•	Give each other notice of a breach of a representation, warranty or covenant in the merger agreement; and

	•	Give prompt notice to the other of any material adverse change or other event that might prevent the merger from occurring.

In the merger agreement, ~~First Counties~~Redwood Empire Bancorp agrees to the following additional actions: ~~- Give Westamerica reasonable access to its books and records, subject to a confidentiality obligation; 28~~ 36 - Conduct a shareholders meeting no later than July 1, 2000, to consider approval of the merger agreement; - Conduct its operations in the ordinary course of business; - Maintain its licenses and insurance coverage; - Comply with legal and contractual obligations; - Maintain its assets in good condition, reasonable wear and tear accepted; - Advise Westamerica of any accumulation by any person or group of five percent or more of the outstanding shares of First Counties' common stock; - Maintain an adequate allowance for loan losses; - Provide Westamerica with copies of all board materials and loan underwriting packages; and - Advise Westamerica of any new classified loans. Without the prior written consent of Westamerica, which Westamerica shall not unreasonably withhold, First Counties has agreed not to take any of the following actions: - Make a dividend or similar distribution on account of its common stock; - Sell any new shares of common stock or grant any new options; - Amend its articles or bylaws; - Encourage or cooperate with any party intending to make a competing proposal to acquire or merge with First Counties; - Sell any material assets except in the ordinary course; - Incur any debt except in the ordinary course; - Make new loans over $50,000 without prior notice to Westamerica and resolution of any objection that Westamerica might have; - Increase the compensation of any officers or employees; - Loosen its loan underwriting standards; - Make any capital expenditure over $20,000 per item or $100,000 in the aggregate; - Enter into any new employment agreement; - Terminate any employee plans; - Change its fiscal year or accounting method; - Foreclose on any commercial real property without an environmental report regarding the property; - Incur merger expenses in excess of $200,000, except for an additional $17,500 that may be expended for employee retention payments under certain circumstances; or - Materially change its loan or deposit pricing practices. 29 37


	•	Conduct a shareholders meeting as promptly as reasonably practicable after the registration statement filed with the SEC to register the Westamerica Bancorporation common stock being offered to shareholders of Redwood Empire under this proxy statement/ prospectus becomes effective;

	•	Delivery within 30 days’ of execution of the merger agreement support agreements signed by all directors of Redwood Empire;

	•	Give Westamerica reasonable access to its properties, books and records;

	•	Not create any new branches or enter into any new leases of real property;

	•	Not make or approve any increase in the compensation payable or to become payable by Redwood Empire to some of its directors, officers, employees or agents;

	•	Conduct its operations in the ordinary course of business;

	•	Subject to continuing fiduciary duties, not solicit or knowingly encourage any sale or other disposition of 15% or more of the assets or equity shares of Redwood Empire;

	•	Not change its employee benefit plans;

	•	Not change its capital structure;

	•	Not pay or declare any dividend except consistent with past practice;

	•	Not change its accounting methods, except as required by generally accepted accounting principles;

	•	Exercise commercially reasonable efforts to have all of its directors and certain shareholders enter into an “affiliate” agreement providing that they will comply with securities laws in the disposition of their stock received in the merger;

	•	Exercise best efforts to have all of its directors enter into noncompetition or nonsolicitation agreements;

	•	Consult with Westamerica before making certain credit decisions;

	•	Continue its internal asset review process in accordance with certain specified procedures;

	•	Notify Westamerica promptly after certain loan classification decisions;

	•	Make accounting adjustments as Westamerica may reasonably request immediately before completion of the merger;

	•	Use commercially reasonable efforts to obtain third party consents where failure to obtain them would reasonably be expected to have a material adverse effect on Redwood Empire or Westamerica; and

	•	Conduct a cash reconciliation just before the completion of the merger.

~~In the merger agreement, Westamerica Bancorporation agrees to ~~timely file all regulatory reports and tax returns and file regulatory applications related~~the following additional actions:~~


	•	Reserve, issue and register its common stock to be issued to the shareholder and optionholders of Redwood Empire as set forth in the merger agreement and to cause such share to be approved for listing on the Nasdaq National Market;

	•	Not solicit or knowingly encourage any sale or other disposition of 15% or more of the assets or equity shares in Westamerica unless the proposal is conditioned upon the completion of the merger or would not materially interfere with the completion of the merger;

	•	Provide continuing indemnification to the directors and officers of Redwood Empire;


	•	Allow employees of Redwood Empire to retain credit for length of service for employee benefit purposes; and

	•	Not intentionally take any action which would disqualify the merger as a tax-free reorganization under the Internal Revenue Code.

Conditions to the merger no later than May 15, 2000. In addition, Westamerica agrees that without First Counties' prior written consent it will not: - Pay any extraordinary dividend; - Take any action that would result in any of its representations becoming untrue, any conditions to the merger not being satisfied, or otherwise materially delay or impair completion of the merger; or - Take any action that would disqualify the merger as a tax-free reorganization. CONDITIONS TO COMPLETION OF THE MERGER Completion of the merger is subject to satisfaction of certain conditions. The obligations of both parties to proceed are subject to the following conditions: - Receipt of approval by the shareholders of First Counties; - Receipt of required regulatory approvals and third party consents; - The absence of any legal impediment or burdensome condition to completion of the merger; - Receipt of an order from the SEC declaring the registration statement ofMerger

Westamerica effective; - Receipt of an opinion that the merger will qualify as a tax-free reorganization under the Internal Revenue Code; - Receipt of customary legal opinions; and - The absence of any injunction or other legal proceeding restraining the merger. In addition, Westamerica'sBancorporation’s obligation to complete the merger is subject to satisfaction of the following conditions: - The representations of First Counties shall be accurate; - First Counties will have performed its obligations under the merger agreements; - The parties will have obtained all required consents from third parties; - First Counties will not have suffered any material adverse change since December 31, 1999; - Westamerica will have received the Affiliate Agreements and Director Shareholder Agreements from the directors of First Counties; - First Counties will have shareholders' equity equal to at least its 1999 year-end shareholders' equity plus at least 85% of budgeted 2000 net income, less permitted merger expenses; and - First Counties will have incurred merger expenses not to exceed $200,000 plus an additional $17,500 for employee retention payments under certain circumstances.


	•	The representations and warranties of Redwood Empire shall be materially accurate;

	•	Redwood Empire will have performed its obligations under the merger agreement;

	•	Redwood Empire will not have suffered any material adverse change since December 31, 2003;

	•	Receipt of approval by the shareholders of Redwood Empire, with the total number of shares of Redwood Empire Bancorp common stock held by persons who have demanded and perfected dissenters’ rights not exceeding 9% of the outstanding shares of Redwood Empire Bancorp common stock;

	•	Receipt of an officer’s certificate signed on behalf of Redwood Empire by its president/chief executive officer and its chief financial officer;

	•	Receipt of a customary legal opinion of Redwood Empire’s counsel;

	•	The absence of any legal impediment or burdensome condition to completion of the merger;

	•	Receipt of an order from the SEC declaring the registration statement of Westamerica effective;

	•	Receipt of all required consents and approvals from governmental authorities and third parties;

	•	Receipt of an opinion that the merger will qualify as a tax-free reorganization under the Internal Revenue Code;

	•	Receipt of Redwood Empire’s most recently prepared unaudited financial statements not later than five business days prior to the effective date;

	•	Receipt of an undertaking letter signed by certain shareholders of Redwood Empire agreeing to vote their Redwood Empire shares of common stock in favor of the merger and to provide irrevocable proxies to Westamerica for this purpose;

	•	Redwood Empire will have shareholders’ equity equal to at least $23,531,400 (after deduction of actual and estimated merger-related expenses of approximately $3,823,600, net of the related tax benefit) plus $515,000 per month from May 31, 2004, through the month-end preceding the completion of the merger, except that if Westamerica elects to defer the closing of the merger until February 2005, as provided in the merger agreement, and Redwood Empire met this shareholder equity requirement when certain conditions to the merger have been satisfied, then this equity requirement will be deemed to have been satisfied for the time period thereafter;

	•	Redwood Empire’s performing loans will equal or exceed $400,000,000 and its non-interest bearing deposits will equal or exceed $100,000,000, except that if Westamerica Bancorporation elects to defer the closing of the merger until February 2005, as provided in the merger agreement, and Redwood Empire met these loans and deposits requirements when certain conditions to the merger have been satisfied, then these loans and deposits requirements will be deemed to have been satisfied for the time period thereafter;

	•	Receipt of an accountant’s assurance letter from Crowe Chizek and Company LLC with respect to the financial statements of Redwood Empire;

	•	Redwood Empire will be in compliance with all requirements arising from its most recent safety and soundness examination; and

	•	Each director of Redwood Empire will have signed and delivered noncompetition or nonsolicitation agreements to Westamerica within 30 days of the execution of the merger agreement.

The obligation of ~~First Counties~~Redwood Empire to complete the merger is subject to satisfaction of the following conditions: - The representations of Westamerica shall be accurate; - Westamerica shall have performed its obligations under the merger agreement; - Westamerica shall have taken necessary steps to provide substitute stock options to First Counties' option holders; 30 38 - Westamerica shall not have suffered any material adverse change; and - First Counties shall have received a fairness opinion from its financial advisor which is not thereafter revoked before mailing of this proxy statement/prospectus. EXTENSION; WAIVER


	•	The representations of Westamerica will be accurate;

	•	Westamerica will have performed its obligations under the merger agreement;

	•	Westamerica will not have suffered any material adverse change since December 31, 2003;

	•	Receipt of an officer’s certificate signed on behalf of Westamerica by its chief financial officer;

	•	Receipt of approval by the shareholders of Redwood Empire;

	•	Receipt of a customary legal opinion of Westamerica’s counsel;

	•	Receipt of an order from the SEC declaring the registration statement of Westamerica effective;

	•	Receipt of all required consents and approvals from governmental authorities;

	•	Receipt of an opinion that the merger will qualify as a tax-free reorganization under the Code;

	•	No legal impediment to the merger will have arisen, and no litigation, proceeding or investigation shall be pending or threatened before any governmental agency relating to the merger;

	•	Receipt of a fairness opinion from its financial advisor which is not revoked before mailing of this proxy statement/ prospectus.

At any time prior to the closing of the merger, the parties, by action taken or authorized by each of their ~~respective~~ board of directors, may, to the extent legally allowed, (1) extend the time for the performance of any of the obligations or other acts of the other parties, (2) waive any inaccuracies in the representations and warranties contained in the merger agreement or in any document delivered pursuant to it, and (3) waive compliance with any of the agreements or conditions contained in the merger agreement. To ~~"waive"~~“waive” means to give up rights. Any agreement on the part of a party to the merger agreement to any such extension or waiver shall be valid only if ~~set forth~~ in the form of a written instrument signed on ~~behalf of~~by such party. ~~TERMINATION~~

The merger agreement may be terminated under the following circumstances: - by mutual consent of the parties' boards of directors; - by either party if the conditions to completion of the merger are not satisfied through no fault of the terminating party; - by Westamerica if First Counties


	•	by mutual consent of the parties’ boards of directors;

	•	by either party on or after May 25, 2005, if the conditions to completion of the merger are not satisfied through no fault of the terminating party;

	•	by Westamerica Bancorporation if on or after May 25, 2005, any conditions to completion of the merger have not been fulfilled, or, such unfulfilled conditions have been waived by Westamerica Bancorporation and Redwood Empire fails to complete the merger;

	•	by Redwood Empire if on or after May 25, 2005, any conditions to completion of the merger have not been fulfilled, or, such unfulfilled conditions have been waived by Redwood Empire and Westamerica Bancorporation fails to complete the merger;

	•	By Westamerica Bancorporation or Redwood Empire upon the failure of the shareholders of Redwood Empire to give the requisite approval of this Agreement at the duly convened Redwood Empire shareholders’ meeting;

	•	By either party upon a material breach of the merger agreement by the other party if the breaching party has not cured the breach within 60 days after written notice from the nonbreaching party;

	•	by either party if any government approval required for the merger has been denied and such denial has become final and nonappealable or any governmental agency of competent jurisdiction has issued a final nonappealable order permanently enjoining or prohibiting the merger;

	•	By Westamerica Bancorporation if Redwood Empire shall have breached in any material respect any of its obligations not to solicit, encourage or facilitate a competing proposal;


	•	By Redwood Empire if Westamerica shall have failed to comply with its obligation not to solicit any merger, sale, or other agreement with a third party that would interfere with the merger agreement;

	•	By Westamerica if the board of directors of Redwood Empire fails to recommend adoption of the merger agreement at the Redwood Empire shareholders’ meeting, or withdraws or modifies or qualifies (or proposed to do so) in a manner adverse to Westamerica its favorable recommendation of the merger agreement or recommends any competing transaction to the shareholders of Redwood Empire or takes any action or made any other statement in connection with the meeting or the merger having such effect;

	•	By Redwood Empire if its board of directors in the exercise of its fiduciary duties and after consulting with its financial adviser and counsel, determines that a competing proposal is superior to the merger agreement and determines to pursue the competing proposal, provided that Redwood Empire is obligated to pay Westamerica Bancorporation a termination fee of $4,500,000 at the time of such a termination;

	•	By Westamerica if its board of directors in the exercise of its fiduciary duties and after consulting with a financial adviser and counsel, determines that a competing proposal that would impair Westamerica’s ability to complete the merger with Redwood Empire is superior to the merger agreement and determines to pursue the competing proposal, provided that Westamerica is obligated to pay Redwood Empire a termination fee of $4,500,000 at the time of such a termination;

	•	by Westamerica if its average closing price is above $60.66, and by Redwood Empire if Westamerica’s average closing price is below $40.44.

If Redwood Empire Bancorp enters into, solicits or publicly supports a proposal by a third party for a competing transaction for the acquisition of or merger with First Counties; - by either party if the other party breaches the merger agreement or the other party's representations are untrue, the other party cannot cure the breach or inaccuracy and the breach or inaccuracy has or is reasonably likely to have a material adverse effect on the nonbreaching party or on the merger; - by either party if the other party suffers a material adverse change in its business or financial condition; - by either party if the merger is not completed by September 29, 2000, or by October 31, 2000, if any applicable waiting period for a regulatory approval requires additional time; - by Westamerica if First Counties' fairness opinion is revoked; - by either party if Westamerica's average closing price is less than $18.00, unless: - Westamerica elects to increase the exchange ratio to equal (i) $16.7943, divided by (ii) Westamerica's average closing price, or - the boards of directors of Westamerica and First Counties mutually agree to an exchange ratio that is higher than 0.8880 but lower than the exchange ratio in the preceding item. EXPENSES; LIQUIDATED DAMAGES Generally, each party has agreed to bear its own expenses in this transaction. However, First Counties will be liable to Westamerica for liquidated damages of $300,000 if: - Either First Counties or Westamerica terminates the merger agreement because First Counties' fairness opinion is revoked; - Westamerica terminates the merger agreement because First Counties' shareholders do not approve the merger, a representation of First Counties is materially inaccurate, First Counties 31 39 materially breaches the merger agreement or First Counties' closing disclosure schedule shows a material adverse event affecting First Counties. Westamerica will be liable to First Counties for liquidated damages of $300,000 if First Counties terminates the merger agreement because a representation of Westamerica is materially inaccurate, Westamerica materially breaches the merger agreement or Westamerica's closing disclosure schedule shows a material adverse event affecting Westamerica. If, either while the merger agreement is in effect or within one year after it is terminated, First Counties enters intoencourages a competing transaction or ~~publicly announces its support for a competing transaction for~~if the ~~acquisition~~board of ordirectors of Redwood Empire Bancorp fails to recommend the merger, ~~with First Counties, it~~Westamerica Bancorporation may terminate the merger agreement and Redwood Empire Bancorp will be liable ~~to Westamerica for liquidated damages of an additional $1,450,000,~~ for a ~~total~~break-up fee of ~~$1,750,000. First Counties will not owe the larger amount if the merger agreement was previously terminated on account of a breach or misrepresentation by~~$4,500,000. If Westamerica ~~or because a condition was not satisfied through neither party's fault. If First Counties terminates the merger agreement because Westamerica~~Bancorporation enters into a competing transaction that precludes Westamerica Bancorporation from completing the merger, ~~with First Counties,~~Redwood Empire Bancorp may terminate the merger agreement and Westamerica Bancorporation will be liable ~~to First Counties~~ for ~~liquidated damages~~a break-up fee of ~~$1,000,000 rather than $300,000. AMENDMENT~~ $4,500,000.

The merger agreement may be amended by the parties at any time ~~before or after~~prior to the effective time without the approval of the ~~merger agreement by the~~ shareholders of ~~First Counties.~~Redwood Empire Bancorp. However, ~~after~~the amendment of any terms relating to the form or amount of consideration to be delivered to the Redwood Empire Bancorp shareholders would require the approval by the shareholders of First Counties, no amendment shall be made which by law requires further approval by such shareholders without such further approval. First Counties has the authority to agree to a different exchange ratio without further shareholder approval under the circumstances described in "The merger agreement: conversion of First Counties common stock" on page 25. The merger agreement may not be amended except by an instrument in writing signed on behalf of each of the ~~parties. 32~~ 40 Redwood Empire Bancorp shareholders.

~~OPERATIONS FOLLOWING THE MERGER ~~Westamerica may operate First Counties as a separate bank subsidiary for several months following~~~~

Immediately upon completion of the merger, while completing the conversion of information systems and facilities. In that case, the directors and officers of Westamerica Bank, or persons designated by them, will become the directors and officers of First Counties as of the closing. When Westamerica completes this conversion, First CountiesRedwood Empire Bancorp will merge with and into Westamerica Bancorporation, National Bank of the Redwoods will merge with and into Westamerica Bank and branches of National Bank of the Redwoods will either become or be consolidated with branches of Westamerica Bank.

Although we cannot assure you that any specific level of cost savings will be achieved or as to the timing thereof, Westamerica Bancorporation has advised that it currently expects the surviving corporation to achieve certain cost savings in combined operations following completion of the merger. Westamerica Bancorporation expects to achieve savings through consolidation of certain branch ~~operations where First Counties and Westamerica have branches in the same immediate vicinity~~offices and through elimination of certain ~~administrative~~executive and back-office positions. 33 41

Westamerica Bancorporation is a bank holding company registered under the ~~BHC~~Bank Holding Company Act. The company was incorporated under the laws of the State of California as ~~"Independent~~“Independent Bankshares ~~Corporation"~~Corporation” on February 11, 1972. Its ~~principal executive offices~~headquarters are located at 1108 Fifth Avenue, San Rafael, California 94901, telephone number (415) 257-8000. Its principal administrative offices are located at 4550 Mangels Boulevard, Fairfield, California 94585-1200, and its telephone number is (415) 257-8000. The principal communities served are located in northern and central California, from Mendocino, Lake and Nevada counties in the North, to Kern and San Luis Obispo counties in the South. The company's strategic focus is on the banking needs of small businesses. The company chose this particular focus in the late 1980's, as it recognized that concentrating on a few niche markets was the key to the company's profitable survival in the consolidating banking business.(707) 863-8000. Westamerica Bancorporation provides a full range of banking services to individual and corporate customers in Northern and Central California through its subsidiary ~~banks,~~bank, Westamerica ~~Bank~~Bank. The principal communities served are located in Northern and ~~Bank~~Central California, from Mendocino, Lake, Colusa and Nevada Counties in the North to Kern county in the South. Westamerica Bancorporation’s strategic focus is on the banking needs of ~~Lake County. The banks are subject to competition from other financial institutions and regulations from certain agencies, and undergo periodic examinations by those regulatory authorities.~~small businesses. In addition, Westamerica Bancorporation also owns ~~100%~~100 percent of the capital stock ~~of Westamerica Commercial Credit, Inc., a company engaged in financing accounts receivable and inventory lines of credit and term business loans, and 100%~~ of Community Banker Services Corporation, a company engaged in providing the Company and its subsidiaries data processing services and other support functions.

Westamerica Bancorporation was ~~originally formed~~incorporated under the laws of the State of California in 1972 as “Independent Bankshares Corporation” 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 operationsNorthern California banks. Westamerica Bancorporation operated as a ~~bank~~multi-bank holding ~~company. Subsequently,~~company until mid-1983, at which time 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 its common stock for the outstanding shares of the acquired banks. In mid-1983, Westamerica consolidated thethen six subsidiary banks were merged 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 tobank named Westamerica Bank ~~a national banking association organized~~ and existing under the laws of the United States. In August, 1988, Westamerica formed a new bank, but named it Bank of Lake County, National Association, and effected the sale of Westamerica Bank's assets and liabilities of its three Lake County branches to the newly formed bank. In August, 1988, the sale of Bank of Lake County, National Association to Napa Valley Bancorp was consummated. On February 28, 1992, Westamerica acquired John Muir National Bank through a merger of such bank with and into Westamerica Bank in exchange for the issuance of the Company's common stock for all the outstanding shares of John Muir National Bank. The business transaction was accounted for on a pooling-of-interests basis. On April 15, 1993, Westamerica acquired Napa Valley Bancorp, a bank holding company, whose subsidiaries included Napa Valley Bank, 88% interest in Bank of Lake County, 50% interest in Sonoma Valley Bank, Suisun Valley Bank and Napa Valley Bancorp Services Corporation, which was established to provide data processing and other services to Napa Valley Bancorp's subsidiaries. This business transaction was accounted for on a pooling-of-interests basis. Shortly after, Suisun Valley 34 ~~42 Bank was merged into Westamerica Bank,~~ the name of ~~Napa Valley Bancorp Services Corporation~~the holding company was changed to ~~Community Banker Services Corporation and~~Westamerica Bancorporation.

Westamerica Bancorporation acquired five additional banks within its immediate market area during the Company sold its 50 percent interest in Sonoma Valley Bank. The company retained its 88% interest in Bank of Lake County. In June 1993, Westamerica accepted from Westamerica Bank a dividend in the form of all outstanding shares of capital stock of the bank's subsidiary, Weststar Mortgage Corporation, a California corporation establishedearly 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, Westamerica completed the purchase of the remaining 12% investment in Bank of Lake County from outside investors, becoming the sole owner of Bank of Lake County. On January 31, 1995, Westamerica acquired PV Financial, parent company of PV National Bank, through a merger of such bank with and into Westamerica Bank in exchange for the issuance of shares of the Company's common stock for all the outstanding shares of PV Financial. The business combination was accounted for on a pooling-of-interests basis. On June 6, 1995, the merger of CapitolBank Sacramento with and into Westamerica Bank became effective.mid 1990’s. Under the terms of the merger agreements, Westamerica issued shares of its common stock in exchange for all of CapitolBank Sacramento's common stock. The business combination was accounted for on a pooling-of-interests basis. On July 17, 1995, Westamerica acquired North Bay Bancorp, parent company of Novato National Bank. Under the terms of the merger agreement, the companyBancorporation issued shares of its common stock in exchange for all of the outstanding shares of ~~common stock of North Bay Bancorp.~~the acquired institutions. The subsidiary ~~bank was~~banks acquired were merged with and into Westamerica Bank. ~~The~~These business ~~combination was~~combinations were accounted for onas a ~~pooling-of-interests basis. On~~pooling-of-interests.

In April, ~~12, 1996, Napa Valley Bank was merged into~~1997, Westamerica Bank. In November 1996, Westamerica finalized the formation of a new subsidiary, Westamerica Commercial Credit, Inc., which engages in financing accounts receivable and inventory lines of credit and term business loans. On April 12, 1997, WestamericaBancorporation acquired ValliCorp Holdings, Inc., parent company of ValliWide Bank, the largest independent bank holding company headquartered in Central California. The acquisition became effective through the issuance of shares of ~~the Company's~~Westamerica Bancorporation’s common stock in exchange for all of the outstanding shares of ~~ValliCorp Holdings, Inc.~~ValliCorp. The business combination was accounted for ~~on a pooling-of-interests basis. ValliWide Bank remained~~ as a ~~separate subsidiary bank of Westamerica. On June 20, 1997,~~pooling-of-interests. ValliWide Bank ~~ceased to exist as a subsidiary of the Company, when it~~ was merged with and into Westamerica Bank. ~~On January 22, 1998,~~

In August, 2000, Westamerica Bancorporation acquired First Counties Bank. The acquisition was valued at approximately $19.7 million and was accounted for using the ~~board~~purchase accounting method. The assets and liabilities of ~~directors~~First Counties Bank were fully merged into Westamerica Bank in September 2000. First Counties Bank had $91 million in assets and offices in Lake, Napa, and Colusa Counties.

In June of 2002 Westamerica Bancorporation acquired Kerman State Bank. The acquisition was valued at approximately $14.6 million and was accounted for using the purchase accounting method. The assets and liabilities of Kerman State Bank were fully merged into Westamerica Bank immediately upon consummation of the ~~company authorized a three-to-one split of the company's common stock~~merger. Kerman State Bank had $95 million in ~~which each share of the company's common stock was converted into~~assets and three ~~shares, with record and effective dates of February 10 and February 25, 1998, respectively.~~ offices in Fresno County.

At ~~December 31, 1999,~~June 30, 2004, Westamerica Bancorporation had consolidated assets of approximately ~~$3.89~~$4.6 billion, deposits of approximately ~~$3.07~~$3.5 billion and ~~shareholders'~~shareholders’ equity of approximately ~~$300.6~~$329.8 million. ~~CERTAIN ADDITIONAL BUSINESS RISKS The company's~~

Westamerica Bancorporation’s business, financial condition and operating results can be impacted by a number of factors including, but not limited to, those ~~set forth~~listed below, any one of which could cause ~~the 35~~ ~~43 company's~~Westamerica Bancorporation’s actual results to vary materially from recent results or from ~~the company's~~Westamerica Bancorporation’s anticipated future results. Shares of Westamerica common stock eligible for future sale could have a dilutive effect on the market for its common stock and could adversely affect the market price. The articles of incorporation of the company authorize the issuance of 150 million shares of common stock (and two classes of 1 million shares each, denominated "Class B Common Stock" and "Preferred Stock," respectively) of which approximately 37.1 million were outstanding at December 31, 1999. Pursuant to its stock option plans, at December 31, 1999, the company had exercisable options outstanding of 1.5 million. As of December 31, 1999, 1.1 million shares of Company Common Stock remained available for grants under the company's stock option plans (and stock purchase plan). Sales of substantial amounts of company common stock in the public market could adversely affect the market price of common stock.

A portion of the loan portfolio of Westamerica Bancorporation is dependent on real estate. At December 31, ~~1999,~~2003, real estate served as the principal source of collateral with respect to approximately 56% of ~~the company's~~Westamerica Bancorporation’s loan portfolio. A worsening of current economic conditions, increased economic uncertainty created by the most recent terrorist attacks on the United States and the actions taken

in response, or rising interest rates could have an adverse effect on the demand for new loans, the ability of borrowers to repay outstanding loans, the value of real estate and other collateral securing loans and the value of the ~~available-for-sale~~available for sale securities portfolio, as well as ~~the company's~~Westamerica Bancorporation’s financial condition and results of operations in general and the market value of ~~the company's~~Westamerica Bancorporation’s common stock. Acts of nature, including earthquakes and floods, which may cause uninsured damage and other loss of value to real estate that secures these loans, may also negatively impact ~~the company's~~Westamerica Bancorporation’s financial condition. The company is subject to certain operations risks, including, but not limited to, data processing system failures and errors and customers or employee fraud. The company maintains a system of internal controls to mitigate against such occurrences and maintains insurance coverage for such risks, but should such an event occur that is not prevented or detected by the company's internal controls, uninsured or in excess of applicable insurance limits, it could have a significant adverse impact on the company's business, financial condition or results of operations. EMPLOYEES At December 31, 1999, the company and its subsidiaries employed 1,094 full-time equivalent staff. Employee relations are believed to be good. BRANCH OFFICES AND FACILITIES Westamerica's banks are engaged in the banking business through 90 offices in 22 counties in Northern and Central California, including eleven offices in Marin County, eleven in Fresno County, nine in Sonoma County, eight in Napa County, six in Solano County, six in Kern County, five in Stanislaus County, five in Contra Costa County, four in Lake County, four in San Luis Obispo County, three in Mendocino County, three in Sacramento County, two in Nevada County, two in Placer County, two in Tulare County, two in Tuolumne County, one in San Francisco County, one in Kern County, one in Madera County, one in Merced County, one in Yolo County, one in Kings County and one in Alameda County. All offices are constructed and equipped to meet prescribed security requirements. The company owns 37 branch office locations and one administrative building and leases 52 banking offices. Most 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. 36 ~~44 THE EFFECT OF GOVERNMENT POLICY ON BANKING~~

As a consequence of the extensive regulation of commercial banking activities in the United States, the business of Westamerica Bancorporation is particularly susceptible to being affected by the 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. Any change in applicable laws or regulations may have a material adverse effect on the business and prospects of ~~Westamerica. REGULATION AND SUPERVISION OF BANK HOLDING COMPANIES~~Westamerica Bancorporation.

Westamerica Bancorporation is also subject to certain operations risks, including, but not limited to, data processing system failures and errors and customer or employee fraud. Westamerica Bancorporation maintains a system of internal controls to mitigate against such occurrences and maintains insurance coverage for such risks, but should such an event occur that is not prevented or detected by Westamerica Bancorporation’s internal controls, is not insured or is in excess of applicable insurance limits, it could have a significant adverse impact on Westamerica Bancorporation’s business, financial condition or results of operations.

Shares of Westamerica Bancorporation common stock eligible for future sale could have a dilutive effect on the market for Westamerica Bancorporation common stock and could adversely affect the market price. The articles of incorporation of Westamerica Bancorporation authorize the issuance of 150 million shares of common stock (and two classes of one million shares each, denominated “Class B Common Stock” and “Preferred Stock”, respectively) of which approximately 34.2 million were outstanding at December 31, 2003. Pursuant to its stock option plans, at December 31, 2003, Westamerica Bancorporation had exercisable options outstanding for 1.6 million shares. As of December 31, 2003, 1.4 million additional shares of Westamerica Bancorporation common stock remained available for grants under Westamerica Bancorporation’s stock option plans (and stock purchase plan). Sales of substantial amounts of Westamerica Bancorporation common stock in the public market could adversely affect its market price of common stock.

~~At December 31, 2003, Westamerica Bancorporation and its subsidiaries employed 1,066 full-time equivalent staff. Employee relations are believed to be good.~~

Westamerica Bank is engaged in the banking business through 88 offices in 22 counties in Northern and Central California including 13 offices in Fresno County, 12 in Marin County, nine in Sonoma County, seven in Napa County, six each in Kern and Stanislaus Counties, five each in Lake, Contra Costa and Solano Counties, three each in Alameda and Sacramento Counties, two each in Mendocino, Nevada, Placer and Tulare Counties, and one each in Colusa, Merced, San Francisco, Tuolumne, Kings, Madera, and Yolo Counties. Westamerica Bank believes all of its offices are constructed and equipped to meet prescribed security requirements.

Westamerica owns 30 branch office locations and one administrative facility and leases 68 facilities. Most 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.

The earnings and growth of Westamerica Bancorporation are affected not only by local market area factors and general economic conditions, but also by government monetary and fiscal policies. Such policies influence the growth of loans, investments and deposits and also affect interest rates charged on loans and paid on deposits. The nature and impact of future changes in such policies on the business and earnings of Westamerica Bancorporation cannot be predicted. Additionally, state and federal tax policies can impact banking organizations. As a consequence of the extensive regulation of commercial banking activities in the United States, the business of Westamerica Bancorporation is particularly susceptible to being affected by the 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. Any change in applicable laws or regulations may have a material adverse effect on the business and prospects of Westamerica Bancorporation.

The following is not intended to be an exhaustive description of the statutes and regulations applicable to Westamerica Bancorporation’s or the ~~Company's or its subsidiary banks'~~Westamerica Bank’s business. The description of statutory and regulatory provisions is qualified in its entirety by reference to the particular statutory or regulatory provisions.

Moreover, major new legislation and other regulatory changes affecting Westamerica ~~its subsidiaries,~~Bancorporation, Westamerica Bank, banking, and the financial services industry in general have occurred in the last several years and can be expected to occur in the future. The nature, timing and impact of new and amended laws and regulations cannot be accurately predicted. ~~The company~~

Westamerica Bancorporation is a bank holding company subject to the ~~BHC~~Bank Holding Company Act. ~~The company~~Westamerica Bancorporation reports to, registers with, and may be examined by, the FRB. The FRB also has the authority to examine ~~Westamerica's~~Westamerica Bancorporation’s subsidiaries. The ~~company~~costs of any examination by the FRB are payable by Westamerica Bancorporation.

Westamerica Bancorporation is ~~also~~ a bank holding company within the meaning of Section 3700 of the California Financial Code. As such, Westamerica Bancorporation and ~~its subsidiary banks~~Westamerica Bank are subject to examination by, and may be required to file reports with, the ~~Commissioner.~~Commissioner of Financial Institutions of the State of California.

The FRB has significant supervisory and regulatory authority over Westamerica Bancorporation and its affiliates. The FRB requires Westamerica Bancorporation to maintain certain levels of capital. See ~~"Capital~~“Capital Standards."” The FRB also has the authority to take enforcement action against any bank holding company such as Westamerica Bancorporation that commits any unsafe or unsound practice, or violates certain laws, regulations or conditions imposed in writing by the FRB. See “Prompt Corrective Action and Other Enforcement Mechanisms.” Under the ~~BHC~~Bank Holding Company Act, a company generally must obtain the prior approval of the FRB before it exercises a controlling influence over a bank, or acquires directly or indirectly, more than 5% of the voting shares or substantially all of the assets of any bank or bank holding company. Thus, Westamerica Bancorporation is required to obtain the prior approval of the FRB before it acquires, merges or consolidates with any bank or bank holding ~~company; any~~company. Any company seeking to acquire, merge or consolidate with Westamerica Bancorporation also would be required to obtain the prior approval of the FRB. ~~The company~~

Westamerica Bancorporation is generally prohibited under the ~~BHC~~Bank Holding Company Act from acquiring ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than banking, managing banks, or providing services to affiliates of Westamerica Bancorporation. However, a bank holding company, with the holding company. FINANCIAL SERVICES MODERNIZATION LEGISLATION On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act of 1999, also referred to as Financial Services Modernization Act. The Financial Services Modernization Act repeals the two affiliation provisionsapproval of the ~~Glass-Steagall Act: Section 20, which restricted~~FRB, may engage, or acquire the ~~affiliation~~voting shares of ~~Federal Reserve member banks with firms "engaged principally"~~companies engaged, in ~~specified securities activities; and Section 32, which restricts officer, director or employee interlocks between a member 37~~ 45 bank and any company or person "primarily engaged" in specified securities activities. In addition, the Financial Services Modernization Act also contains provisions that expressly preempt any state law restricting the establishment of financial affiliations, primarily related to insurance. The general effect of the law is to establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial services providers by revising and expanding the BHC Act framework to permit a holding company system to engage in a full range of financial activities through a new entity known as a Financial Holding Company. "Financial activities" is broadly defined to include not only banking, insurance and securities activities, but also merchant banking and additional activities that the FRB ~~in consultation with~~has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. A bank holding company must demonstrate that the ~~Secretary~~benefits to the public of the ~~Treasury, determines to be financial~~proposed activity will outweigh the possible adverse effects associated with such activity.

A bank holding company may acquire banks in ~~nature, incidental to such financial activities or complementary activities that do not pose a substantial risk~~states other than its home state without regard to the ~~safety~~permissibility of such acquisitions under state law, but subject to any state requirement that Westamerica Bank has been organized and ~~soundness~~operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company, prior to or following the proposed acquisition, controls no more than 10% of the total amount of deposits of insured depository institutions in the United States and no more than 30% of such deposits in that state (or such lesser or greater amount set by state law). Banks may also merge across states lines, thereby creating interstate branches. Furthermore, a bank is now able to open new branches in a state in which it does not already have banking operations, if the ~~financial system generally. Generally, the Financial Services Modernization Act: - Repeals historical restrictions~~laws of such state permit such de novo branching.

Under California law, (a) out-of-state banks that wish to establish a California branch office to conduct core banking business must first acquire an existing five year old California bank or industrial bank by merger or purchase, (b) California state-chartered banks are empowered to conduct various authorized branch-like activities on an agency basis through affiliated and ~~eliminates many federal and state law barriers to, affiliations among banks, securities firms, insurance companies,~~unaffiliated insured depository institutions in California and other ~~financial services providers; - Provides~~states and (c) the commissioner is authorized to approve an interstate acquisition or merger that would result in a ~~uniform framework for~~deposit concentration exceeding 30% if the functional regulation of the activities of banks, savings institutions and their holding companies; - Broadens the activities that may be conducted by national banks, banking subsidiaries of bank holding companies and their financial subsidiaries; - Provides an enhanced framework for protecting the privacy of consumer information; - Adopts a number of provisions related to the capitalization, membership, corporate governance, and other measures designed to modernize the Federal Home Loan Bank system; - Modifies the laws governing the implementation of the Community Reinvestment Act, sometimes referred to as CRA; and - Addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions. In order for a company to take advantage of the ability to affiliate with other financial services providers, it must become a "Financial Holding Company" as permitted under an amendment to the BHC Act. To become a Financial Holding Company, a company would file a declaration with the FRB, electing to engage in activities permissible for Financial Holding Companies and certifyingCommissioner finds that the ~~company~~transaction is ~~eligible to do so because all of its insured depository institution subsidiaries are well-capitalized~~consistent with public convenience and ~~well-managed (see the section "Capital Standards"). In addition, the FRB must also determine that each~~advantage. However, a state bank chartered in a state other than California may not enter California by purchasing a California branch office of a ~~holding company's insured depository institution subsidiaries has at least~~California bank or industrial bank without purchasing the entire entity or by establishing a "satisfactory" CRA rating. Westamerica meets the requirements to make an election to become a Financial Holding Company and management is examining strategic business plans to determine whether, based upon market conditions, relative financial condition, regulatory capital requirements, general economic conditions, and other factors, it would be desirable to utilize any of the expanded powers provided in the Financial Services Modernization Act. No such election has been made as of the date of this document. The Financial Services Modernization Act also permits national banks to engage in expanded activities through the formation of financial subsidiaries. A national bank may have a subsidiary engaged in any activity authorized for national banks directly or any financial activity, except for insurance underwriting, insurance investments, real estate investment or development, or merchant banking, which may only be conducted through a subsidiary of a Financial Holding Company. Financial activities include all activities permitted under new sections of the BHC Act or permitted by regulation. 38 46 A national bank seeking to have a financial subsidiary, and each of its depository institution affiliates, must be "well-capitalized" and "well-managed." The total assets of all financial subsidiaries may not exceed the lesser of 45% of a bank's total assets, or $50 billion. A national bank must exclude from its assets and equity all equity investments, including retained earnings, in a financial subsidiary. The assets of the subsidiary may not be consolidated with the bank's assets. The bank must also have policies and procedures to assess financial subsidiary risk and to protect the bank from such risks and potential liabilities. Management does not believe that the Financial Services Modernization Act will have a material adverse effect on Westamerica's operations in the near-term. However, to the extent that it permits banks, securities firms and insurance companies to affiliate, the financial services industry may experience further consolidation. The Act may result in increased competition among smaller companies offering financial products and larger ones, many of which may have substantially more financial resources.de novo California bank.

The FRB generally prohibits a bank holding company from declaring or paying a cash dividend ~~which~~that would impose undue pressure on the capital of subsidiary banks or would be funded only through borrowing or other arrangements ~~that~~which might adversely affect a bank holding ~~company's~~company’s financial position. ~~The FRB's~~Under the FRB policy, ~~is that~~ a bank holding company should not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of earnings retention appears consistent with its capital needs, asset quality and overall financial condition. See the section entitled “Restrictions on dividends and other distributions” for additional restrictions on the ability of Westamerica Bancorporation and Westamerica Bank to pay dividends.

Transactions between Westamerica Bancorporation and ~~its bank subsidiaries~~Westamerica Bank are subject to a number of other restrictions. FRB policies forbid the payment by bank subsidiaries of management fees, which are unreasonable in amount or exceed the fair market value of the services rendered (or, if no market exists, actual costs plus a reasonable profit). Subject to certain limitations, depository institution subsidiaries of bank holding companies may extend credit to, invest in the securities of, purchase assets from, or issue a guarantee, acceptance, or letter of credit on behalf of, an affiliate, provided that the aggregate of such transactions with affiliates may not exceed 10% of the capital stock and surplus of the institution, and the aggregate of such transactions with all affiliates may not exceed 20% of the capital stock and surplus of such institution. Westamerica Bancorporation may only borrow from ~~the banks~~Westamerica Bank if the loan is secured by marketable obligations with a value of a designated amount in excess of the loan. Further, Westamerica Bancorporation may not sell a low-quality asset to a depository institution subsidiary. Comprehensive amendments to federal ~~regulation~~regulations governing bank holding companies and change in bank control ~~("Regulation Y")~~(Regulation Y) became effective in 1997, and are intended to improve the competitiveness of bank holding companies by, among other things: -(i) expanding the list of permissible nonbanking activities in which well-run bank holding companies may engage without prior FRB approval, -(ii) streamlining the procedures for well-run bank holding companies to obtain approval to engage in other nonbanking activities and -(iii) eliminating most of the anti-tying restrictions ~~imposed upon~~prescribed for bank holding companies and their nonbank subsidiaries. Amended Regulation Y also provides for a ~~streamlining~~streamlined and expedited review process for bank acquisition proposals submitted by well-run bank holding companies and eliminates certain duplicative reporting requirements when there has been a further change in bank control or in bank directors or officers after an earlier approved change. These changes to Regulation Y are subject to numerous qualifications, limitations and restrictions. In order for a bank holding company to qualify as ~~"well-run,"~~“well-run,” both it and the insured depository institutions ~~that~~which it controls must meet the ~~"well capitalized"~~“well capitalized” and ~~"well managed"~~“well managed” criteria ~~set forth~~ in Regulation Y. ~~BANK SUPERVISION AND REGULATION~~

To qualify as “well capitalized,” the bank holding company must, on a consolidated basis: (i) maintain a total risk-based capital ratio of 10% or greater; (ii) maintain a Tier 1 risk-based capital ratio of 6% or greater;

and (iii) not be subject to any order by the FRB to meet a specified capital level. Its lead insured depository institution must be well capitalized as that term is defined in the capital adequacy regulations of the applicable bank regulator, 80% of the total risk-weighted assets held by its insured depository institutions must be held by institutions which are well capitalized, and none of its insured depository institutions may be undercapitalized.

To qualify as “well managed”: (i) each of the bank holding company, its lead depository institution and its depository institutions holding 80% of the total risk-weighted assets of all its depository institutions at their most recent examination or review must have received a composite rating, rating for management and rating for compliance which were at least satisfactory; (ii) none of the bank holding company’s depository institutions may have received one of the two lowest composite ratings; and (iii) neither the bank holding company nor any of its depository institutions during the previous 12 months may have been subject to a formal enforcement order or action.

Transactions between Westamerica Bancorporation and Westamerica Bank are restricted under Regulation W, which became effective on April 1, 2003. The regulation codifies prior interpretations of the FRB and its staff under Sections 23A and 23B of the Federal Reserve Act. In general, subject to certain specified exemptions, a bank or its subsidiaries are limited in their ability to engage in “covered transactions” with affiliates: (a) to an amount equal to 10% of the bank’s capital and surplus, in the case of covered transactions with any one affiliate; and (b) to an amount equal to 20% of the bank’s capital and surplus, in the case of covered transactions with all affiliates. Westamerica Bancorporation is considered to be an affiliate of Westamerica Bank.

A “covered transaction” includes, among other things, a loan or extension of credit to an affiliate; a purchase of securities issued by an affiliate; a purchase of assets from an affiliate, with some exceptions; and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate.

On March 11, 2000, the Gramm-Leach-Bliley Act (the “GLBA”), or the Financial Services Act of 1999 became effective. The GLBA repealed provisions of the Glass-Steagall Act, which had prohibited commercial banks and securities firms from affiliating with each other and engaging in each other’s businesses. Thus, many of the barriers prohibiting affiliations between commercial banks and securities firms have been eliminated.

The Bank Holding Company Act was also amended by the GLBA to allow new “financial holding companies” (“FHCs”) to offer banking, insurance, securities and other financial products to consumers. Specifically, the GLBA amended section 4 of ~~Lake County~~the Bank Holding Company Act in order to provide for a framework for the engagement in new financial activities. A bank holding company may elect to become a FHC if all its subsidiary depository institutions are well capitalized and well managed. If these requirements are met, a bank holding company may file a certification to that effect with the FRB and declare that it elects to become a FHC. After the certification and declaration is filed, the FHC may engage either de novo or though an acquisition in any activity that has been determined by the FRB to be financial in nature or incidental to such financial activity. Bank holding companies may engage in financial activities without prior notice to the FRB if those activities qualify under the new list of permissible activities in section 4(k) of the Bank Holding Company Act. However, notice must be given to the FRB within 30 days after a FHC has commenced one or more of the financial activities. Westamerica Bancorporation has not elected to become a FHC.

Under the GLBA, Federal Reserve member banks, subject to various requirements, as well as national banks, are permitted to engage through “financial subsidiaries” in certain financial activities permissible for affiliates of FHCs. However, to be able to engage in such activities Westamerica Bank must also be well capitalized and well managed and have received at least a “satisfactory” rating in its most recent CRA examination. Westamerica Bancorporation cannot be certain of the effect of the foregoing recently enacted legislation on its business, although there is likely to be consolidation among financial services institutions and increased competition for Westamerica Bancorporation.

Westamerica Bank is a California ~~chartered banks~~state-chartered bank, is insured by the Federal Deposit Insurance Corporation (the ~~"FDIC"~~“FDIC”), and asis a member bank of the FRB. As such, ~~are~~Westamerica Bank is subject to regulation, 39 47 supervision and regular examination by the ~~DFI~~California Department of Financial Institutions and the ~~FDIC.~~

FRB. As ~~members~~a member bank of the ~~Federal Reserve System, the banks'~~FRB, Westamerica Bank’s primary federal regulator is the FRB. The regulations of these agencies affect most aspects of ~~their~~Westamerica Bank’s business and prescribe permissible types of loans and investments, the amount of required reserves, requirements for branch offices, the permissible scope of ~~their~~its activities and various other requirements.

In addition to federal banking law, ~~the banks are~~Westamerica Bank is also subject to applicable provisions of California law. Under California law, ~~a state chartered bank~~Westamerica Bank is subject to various restrictions on, and requirements regarding, its operations and administration including the maintenance of branch offices and automated teller machines, capital ~~and reserve~~ requirements, deposits and borrowings, stockholder rights and duties, and ~~investments~~investment and lending activities.

California law permits a state chartered bank to invest in the stock and securities of other corporations, subject to a state-chartered bank receiving either general authorization or, depending on the amount of the proposed investment, specific authorization from the Commissioner. The ~~FDIC~~Federal Deposit Insurance Corporation Improvement Act ~~("FDICIA"~~(“FDICIA”), however, imposes limitations on the activities and equity investments of state chartered, federally insured banks. FDICIA also prohibits a state bank from engaging as a principal in any activity that is not permissible for a national bank, unless ~~the bank~~Westamerica Bank is adequately capitalized and the FDIC approves the activity after determining that such activity does not pose a significant risk to the deposit insurance fund. The FDIC rules on activities generally permit subsidiaries of banks, without prior specific FDIC authorization, to engage in those ~~that~~activities which have been approved by the FRB for bank holding companies because such activities are so closely related to banking as to be a proper incident thereto. Other activities generally require specific FDIC prior approval, and the FDIC may impose additional restrictions on such activities on a case-by-case basis in approving applications to engage in otherwise impermissible activities. ~~CAPITAL STANDARDS~~

The federal banking agencies have risk-based capital adequacy guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banking ~~organization's~~organization’s operations for both transactions reported on the balance sheet as assets, and transactions such as letters of credit and recourse ~~agreements,~~arrangements, which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. government securities, to 100% for assets with relatively higher credit risk, such as certain loans.

A banking ~~organization's~~organization’s risk-based capital ratios are obtained by dividing its qualifying capital by its total risk-adjusted assets and off balance sheet items. The regulators measure risk-adjusted assets and off balance sheet items against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital generally consists of common stock, retained earnings, and certain types of qualifying preferred stock, less most other intangible assets. Tier 2 capital may consist of a limited amount of the allowance for loan and lease losses, certain types of preferred stock not qualifying as Tier 1 capital, term subordinated debt and certain other instruments with some characteristics of equity.

The federal banking agencies ~~require~~take into consideration concentrations of credit risk and risks from nontraditional activities, as well as an institution’s ability to manage those risks, when determining the adequacy of an institution’s capital. This evaluation is made as a ~~minimum ratio~~part of ~~qualifying total capital to risk-adjusted~~the institution’s regular safety and soundness examination. The federal banking agencies also consider interest rate risk (when the interest rate sensitivity of an institution’s assets ~~and~~does not match the sensitivity of its liabilities or its off balance sheet ~~items~~position) in evaluation of ~~8%, and~~ a ~~minimum ratio of Tier 1~~bank’s capital to adjusted average risk-adjusted assets and off balance sheet items of 4%. In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to adjusted average total assets, referred to as the leverage capital ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets must be 3%. For all banking organizations not rated in the highest category, the minimum leverage ratio must be at least 100 to 200 basis points above the 3% minimum. The effective minimum leverage ratio, for all practical purposes, must be at least 4% or 5%. adequacy.

As of December 31, ~~1999, Westamerica's~~2003, Westamerica Bancorporation’s and ~~the Banks'~~Westamerica Bank’s respective ratios exceeded applicable regulatory requirements. 40 ~~48 INFORMATION ABOUT FIRST COUNTIES BANK GENERAL First Counties~~

FDICIA requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. The law required each federal banking agency to promulgate regulations defining the following five categories in which an insured depository institution will be placed, based on the level of its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

~~Under the prompt corrective action provisions of FDICIA, an insured depository institution generally will be classified in the following categories based on the capital measures indicated below:~~

An institution that, based upon its capital levels, is classified as “well capitalized,” “adequately capitalized” or “undercapitalized” may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions.

In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal banking agencies for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease-and-desist order that can be judicially enforced, the termination of insurance of deposits (in the case of a depository institution), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the issuance of removal and prohibition orders against institution-affiliated parties and the enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the agency would be harmed if such equitable relief was ~~originally organized~~not granted. Additionally, a holding that Westamerica Bancorporation is unable to serve as a ~~national~~source of strength to its subsidiary banking ~~association under~~organizations could serve as an additional basis for a regulatory action against the ~~name~~holding Westamerica Bancorporation.

FDICIA also implemented certain specific restrictions on transactions and required federal banking regulators to adopt overall safety and soundness standards for depository institutions related to internal control, loan underwriting and documentation and asset growth. Among other things, FDICIA limits the interest rates paid on deposits by undercapitalized institutions, restricts the use of ~~Clear Lake National~~brokered deposits, limits the aggregate extensions of credit by a depository institution to an executive officer, director, principal shareholder or related interest, and reduces deposit insurance coverage for deposits offered by undercapitalized institutions for deposits by certain employee benefits accounts. The federal banking agencies may require an institution to submit to an acceptable compliance plan as well as have the flexibility to pursue other more appropriate or effective courses of action given the specific circumstances and severity of an institution’s noncompliance with one or more standards.

Federal banking agencies require banks to maintain adequate valuation allowances for potential credit losses. Westamerica Bank has an internal staff that continually reviews loan quality and ~~commenced operations on April 22, 1985. First Counties converted~~ultimately reports to its ~~charter to~~board of directors. This analysis includes a ~~state-chartered commercial bank, incorporated under the laws~~detailed review of the ~~state~~classification and categorization of problem loans, assessment of the overall quality and collectibility of the loan portfolio, consideration of loan loss experience, trends in problem loans, concentration of credit risk, and current economic conditions, particularly in Westamerica Bank’s market areas. Based on this analysis, management, with the review and approval of the Westamerica Bank board of directors, determines the adequate level of allowance required. The allowance is allocated to different segments of the loan portfolio, but the entire allowance is available for the loan portfolio in its entirety.

The power of the board of directors of an insured depository institution to declare a cash dividend or other distribution with respect to capital is subject to statutory and regulatory restrictions which limit the amount available for such distribution depending upon the earnings, financial condition and cash needs of the institution, as well as general business conditions. FDICIA prohibits insured depository institutions from paying management fees to any controlling persons or, with certain limited exceptions, making capital distributions, including dividends, if, after such transaction, the institution would be undercapitalized.

In addition to the restrictions imposed under federal law, banks chartered under California law generally may only pay cash dividends to the extent such payments do not exceed the lesser of retained earnings of the bank or the bank’s net income for its last three fiscal years (less any distributions to shareholders during this period). In the event a bank desires to pay cash dividends in excess of such amount, the bank may pay a cash dividend with the prior approval of the Commissioner in an amount not exceeding the greatest of the bank’s retained earnings, the bank’s net income for its last fiscal year or the bank’s net income for its current fiscal year.

The federal banking agencies also have the authority to prohibit a depository institution from engaging in business practices which are considered to be unsafe or unsound, possibly including payment of dividends or other payments under certain circumstances even if such payments are not expressly prohibited by statute.

~~Premiums for Deposit Insurance and ~~changed its name to First Counties Bank on January 28, 1998. First Counties'~~Assessments for Examinations~~

Westamerica Bank’s deposits are insured by the Bank Insurance Fund (“BIF”) administered by the FDIC. FDICIA established several mechanisms to increase funds to protect deposits insured by the BIF administered by the FDIC. The FDIC is authorized to borrow up to $30 billion from the United States Treasury; up to 90% of the fair market value of assets of institutions acquired by the FDIC as receiver from the Federal Financing Bank; and from depository institutions which are members of the BIF. Any borrowings not repaid by asset sales are to be repaid through insurance premiums assessed to member institutions. Such premiums must be sufficient to repay any borrowed funds within 15 years and provide insurance fund reserves of $1.25 for each $100 of insured deposits. 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 insurance premiums will be.

Westamerica Bank is subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act (“CRA”) activities. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of their local communities, including low and moderate income neighborhoods. In addition to substantive penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other activities.

The GLBA, in addition to the ~~maximum amount~~previously described changes in permissible nonbanking activities permitted to banks, bank holding companies and FHCs, also required the federal banking agencies, among other federal regulatory agencies, to adopt regulations governing the privacy of consumer financial information. The FRB adopted such regulations with an effective date of November 13, 2000, and a date of full compliance with the regulations of July 1, 2001. Westamerica Bank is subject to the FRB’s regulations.

The regulations impose three main requirements established by the GLBA. First, a banking organization must provide initial notices to customers about their privacy policies, describing the conditions under which they may disclose nonpublic personal information to nonaffiliated third parties and affiliates, such as Westamerica Bancorporation. Second, banking organizations must provide annual notices of their privacy policies to their current customers. Third, banking organizations must provide a reasonable method for consumers to opt-out of disclosures to nonaffiliated third parties.

On October 26, 2001, the President of the United States signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 or the “USA PATRIOT Act.” Title III of the Act is the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001. It includes numerous provisions for fighting international money laundering and blocking terrorist access to the U.S. financial system. The goal of Title III is to prevent the U.S. financial system and the U.S. clearing mechanisms from being used by parties suspected of terrorism, terrorist financing and money laundering.

The provisions of Title III of the USA PATRIOT Act that affect banking organizations, including Westamerica Bank, are generally set forth as amendments to the Bank Secrecy Act. These provisions relate principally to U.S. banking organizations’ relationships with foreign banks and with persons who are resident outside the United States. The USA PATRIOT Act does not immediately impose any new filing or reporting obligations for banking organizations, but does require certain additional due diligence and recordkeeping practices. Some requirements take effect without the issuance of regulations. Other provisions were implemented through regulations promulgated by the U.S. Department of the Treasury, in consultation with the FRB and other federal financial institutions regulators.

On July 30, 2002, the U.S. Congress enacted the Sarbanes-Oxley Act of 2002. The stated goals of Sarbanes-Oxley are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. Sarbanes-Oxley generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reports under the ~~FDIC. Its primary regulators~~Securities Exchange Act of 1934.

Sarbanes-Oxley includes specific additional disclosure requirements and new corporate governance rules, requires the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules and mandates further studies of certain issues. Sarbanes-Oxley represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees and public company shareholders.

Sarbanes-Oxley addresses, among other matters: (i) independent audit committees for reporting companies whose securities are listed on national exchanges or automated quotation systems and expanded duties and responsibilities for audit committees; (ii) certification of financial statements by the ~~DFI~~chief executive officer and the ~~FDIC. First Counties conducts its operations~~chief financial officer; (iii) the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by directors and senior officers in the 12-month period following initial publication of any financial statements that later require restatement; (iv) a prohibition on insider trading during pension plan black out periods; (v) disclosure of off-balance sheet transactions; (vi) a prohibition on personal loans to directors and officers under most circumstances; (vii) expedited electronic filing requirements related to trading by insiders in an issuer’s securities on Form 4; (viii) disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code; (ix) accelerated filing of periodic reports; (x) the formation of the Public Company Accounting Oversight Board (“PCAOB”) to oversee public accounting firms and the audit of public companies that are subject to the securities laws; (xi) auditor independence; (xii) internal control evaluation and reporting; and (xiii) various increased criminal penalties for violations of securities laws.

Given the extensive role of the SEC, the PCAOB and the exchanges in implementing rules relating to Sarbanes-Oxley’s new requirements, the federalization of certain elements traditionally within the sphere of state corporate law, the impact of Sarbanes-Oxley on reporting companies will be significant. Many of the new rules promulgated by the SEC, the PCAOB and the exchanges became final during 2003 and are being implemented during 2004. As a result, it is impossible to predict with any precision how these new rules, regulations and changes in corporate law and governance will finally impact public companies including Westamerica Bancorporation.

Various legislation and regulations, including proposals to change substantially the financial institution regulatory system, is from time to time introduced in Congress and by regulatory agencies. These regulations and legislation may change the regulatory operating environment of Westamerica Bancorporation in substantial and unpredictable ways. For example, it could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions.

While the effect of such proposed legislation on the business of Westamerica Bancorporation cannot be accurately predicted at this time, it seems likely that a significant amount of consolidating in banking industry will continue.

Additional information about Westamerica Bancorporation and its ~~administrative headquarters are located at its main office at 15145 Lakeshore Drive, Clearlake,~~subsidiaries is included in documents incorporated by reference in this document. See “Where You Can Find Additional Information” on page 78.

Redwood Empire Bancorp is a California corporation, headquartered in Santa Rosa, California. Its branch offices are located at 13300 East Highway 20, Clearlake Oaks, California, 21058 Calistoga Road, Middletown, California, 1255 Lincoln Avenue, Calistoga, California and 457 7th Street, Williams, California. First Counties has an inactiveprincipal subsidiary ~~FCOBCBIA,~~is National Bank of the Redwoods, a national bank which was ~~formed~~chartered in ~~order to invest~~1985. In addition, National Bank of the Redwoods has three wholly-owned California chartered subsidiaries, Valley Mortgage Corporation, Allied Diversified Credit, and Redwood Merchant Services, Inc., all of which are currently inactive.

Redwood Empire Bancorp operates in Community Bankers Insurance Agency, LLC, for the purpose of providing non-deposit products to First Counties customers. Although First Counties conducts substantially the same business operations as a typical independent bank, its special emphasis has been in thetwo principal industry segments: core community banking and merchant card services. Redwood Empire Bancorp’s core community banking industry segment includes commercial, ~~banking, agricultural and~~commercial real estate, construction, ~~areas, providing such~~and permanent residential lending along with all depository activities. As of December 31, 2003, Redwood Empire Bancorp’s merchant card services industry group provided credit card settlement services for approximately 35,000 merchants located throughout the United States.

National Bank of the Redwoods provides its core community banking services through seven retail branches, of which five are located in Sonoma County, one in Mendocino County and one in Lake County, all in Northern California. National Bank of the Redwoods generally extends commercial loans to ~~small to medium-sized~~professionals and businesses with annual revenues of less than $20 million. These commercial loans are primarily for working capital and ~~industries. Its operations~~asset acquisitions. National Bank of the Redwoods emphasizes the origination of commercial real estate loans within its primary market area. Such loans are either owner-occupied or investor owned and are usually supported by long-term leases. Properties which secure loans within the commercial real estate portfolio include office buildings, retail centers and industrial buildings. National Bank of the Redwoods also originates commercial and residential construction loans for its portfolio along with permanent single family and multi-family residential loans. National Bank of the Redwoods’ primary targeted lending market area includes the California counties north of San Francisco.

The primary sources of funds for National Bank of the Redwoods’ commercial and residential lending programs are local deposits, proceeds from loan sales, loan payments, and other borrowings. National Bank of the Redwoods attracts deposits primarily from local businesses, professionals and retail customers. National Bank of the Redwoods’ primary deposit market areas include the ~~acceptance~~counties of ~~checking~~Sonoma, Mendocino and ~~savings deposits,~~Lake. Sonoma, Mendocino and Lake Counties have benefited from the ~~making~~migration of ~~commercial, installment~~population and term extensions of credit. First Counties offers travelers' checks, safe deposit boxes, notary public and other customary bank services to its customers. At December 31, 1999, First Counties had assets of $91 million and shareholders' equity of $8.8 million. BANKING SERVICES First Counties is a locally owned and operated commercial bank, and its primary service areas are Lake, Napa and Colusa counties. The mission of First Counties is to profitably deliver high quality customer services that meetbusinesses into the financial needs of its community, its businesses and its citizens. Products are designed, and employees are hired and trained, to meet the needs of customers. First Counties offers a broad range of products and services, including commercial checking, business loans (secured and unsecured), merchant banking, treasury tax deposits, coin and currency service, SBA loans and a full range of agricultural loans and consumer loans,area, as well as ~~all~~growth in established firms and industries. These counties have generally exceeded the ~~traditional personal deposits~~growth in population and ~~loans~~economic activity of California as a ~~commercial bank. First Counties' marketing stresses~~whole. National Bank of the "local" aspect of its operations. First Counties makes loan decisions locally, offers competitive interest rates, offers friendly, flexible service and is committed to the community. First Counties takes pride in providing personalized service to the local community. First Counties offers a wide variety of business and personal loans designed to meet individual financial needs, including commercial loans, equipment loans, lines of credit, consumer loans, real estate construction, long term financing and agricultural loans. First Counties offers traditional personal services, such as certificates of deposit, IRA accounts, direct deposit, and several types of checking accounts, business checking and merchant account services, as well as ATM's at each branch. Most of First Counties deposits have traditionally been obtained from individuals, professionals, and small businesses. At December 31, 1999, First Counties had a total of 9,741 accounts consisting of: noninterest-bearing accounts with an average balance of approximately $4,800, money market checking and savings accounts with an average balance of approximately $5,097, regular certificates of 41 ~~49 deposit with an average balance of approximately $19,935, and jumbo certificates of deposit with an average balance of approximately $116,213. First Counties has~~Redwoods generally does not ~~obtained any~~purchase deposits through deposit brokers and ~~has~~had no ~~present intention of using~~ brokered deposits. There is no concentration of deposits or any customer with 5% or more of First Counties' deposits. First Counties conducts a commercial deposit and loan business which includes accepting demand, savings and time deposits and making commercial, real estate, agricultural and installment loans. It issues cashiers checks, sells travelers checks, and provides safe deposit boxes and other customary banking services. First Counties does not offer trust services or international banking services and does not plan to do so in the near future. There have been no significant changes in the kinds of services rendered, the principal markets for, or the methods of distribution of, such services during the last three fiscal years. The following is a general description of its loan programs. Commercial Loans. Commercial loans are made for the purpose of providing working funds, financing the purchase of equipment or inventory and for other business purposes. Such loans include loans with maturities ranging from 30 to 360 days, and "term loans", which are loans with maturities normally ranging from one to five years. Short term business loans are generally used to finance current transactions and typically provide for periodic interest payments, with principal being payable at maturity or periodically. Term loans normally provide for monthly payments of both principal and interest. First Counties occasionally extends lines of credit to business customers. On business credit lines, First Counties specifies a maximum amount which it stands ready to lend to the customer during a specified period in return for which the customer agrees to maintain its primary banking relationship with First Counties. The purpose for which such loans will be used and the security therefore, if any, are generally determined before First Counties' commitment is extended. Normally, First Counties does not make loan commitments in material amounts for periods in excess of one year. Real Estate Loans. Real estate loans are primarily made for the purpose of purchasing, improving or constructing single family residences, and commercial and industrial properties. Construction loans are generally written with terms of six to twelve months and usually do not exceed a loan to appraised value ratio of 75 to 80%. The risk associated with the speculative construction lending includes the borrower's inability to complete and sell the project, the borrower's incorrect estimate of necessary construction funds and/or time for completion, and economic changes, including depressed real estate values and increased interest rates. Management has established underwriting criteria to minimize losses on speculative construction loans by lending only to experienced developers with proven track records. To date First Counties has not suffered any losses through its speculative real estate construction loans. Agricultural Loans. Agricultural loans are made for the purpose of providing production loans and for financing the purchase of agricultural equipment and agricultural real estate. Such loans are provided to well established agricultural borrowers. Such loans include loans with maturities ranging from 30 to 360 days, and term loans, which are loans with maturities normally ranging from one to twenty years. Production loans are used to finance current year crop expenses and typically provide for periodic interest payments, with principal being payable at maturity or periodically. Term loans normally provide for payments of both principal and interest. Repayment may be normally, quarterly, semi-annually or annually. Consumer Loans. Most consumer loans are short-term loans, made for a period of up to five years. Automobile loans are normally made with up to a five-year amortization period. 42 50 EMPLOYEES At December 31, 1999, First Counties employed 58 employees (54.31 full-time equivalents). First Counties believes its employee relations are excellent. PROPERTIES First Counties owns the real property located at 457 7th Street, Williams, California. The building situated on this property consist of approximately 5,000 square feet, and houses First Counties' Williams branch as well as its agricultural lending office. First Counties leases the premises of its administrative office and head office located at 15145 Lakeshore Drive, Clearlake, California. The lease is presently for a term expiring March 31, 2005. The office space at this branch consists of approximately 10,000 square feet. First Counties leases the premises of the Clearlake Oaks branch. The lease is presently for a term expiring on July 28, 2001. The office space at this branch consists of approximately 2,200 square feet. The Middletown branch lease expires April 30, 2003. The office space is approximately 1,800 square feet. The Calistoga office of First Counties is leased from Russell D. Jeter, a director of First Counties. The building is approximately 1,656 square feet and has an adjoining parking lot. The option period (one of two five year options) expires August 31, 2004. Total lease expenses for all of First Counties' leased premises were $192,812 and $170,197 for the years ended December 31, 1999, and 1998. LEGAL PROCEEDINGS First Counties is not involved in any legal proceedings other than in the normal course of business to collect delinquent loans. SUPERVISION AND REGULATION As a California state-licensed bank, First Counties is subject to regulation, supervision and periodic examination by the DFI and the FDIC. First Counties is not a member of the Federal Reserve System, but is nevertheless subject to certain regulations of the FRB. First Counties' deposits are insured by the FDIC to the maximum amount permitted by law, which is currently $100,000 per depositor in most cases. The regulations of these state and federal bank regulatory agencies govern most aspects of First Counties' business and operations, including but not limited to, the scope of its business, its investments, its reserves against deposits, the nature and amount of any collateral for loans, the timing of availability of deposited funds, the issuance of securities, the payment of dividends, bank expansion and bank activities, including real estate development and insurance activities, and the maximum rates of interest allowed on certain deposits. First Counties is also subject to the requirements and restrictions of various consumer laws and regulations. COMPETITION The banking business in California generally, and in the primary service area of First Counties specifically, is highly competitive with respect to loans, leases, and deposits, and is dominated by a relatively small number of major banks with many offices operating over a wide geographic area. Among the advantages such major banks have over First Counties is the ability to finance wide-ranging advertising campaigns and to allocate their investment assets to regions of highest yield and demand. Such banks offer certain services such as trust services and international banking services which are not offered directly by First Counties (but are offered indirectly through correspondent institutions) and, by virtue of their greater total capitalization (legal lending limits to an individual customer are limited to a percentage of a bank's total capital accounts), such banks have substantially higher lending limits. Other entities, both governmental and in private industry, seeking to raise capital through the issuance and sale of debt or equity securities, as well as money market 43 51 mutual funds, also provide competition for First Counties in the acquisition of deposits. Those competitors include savings and loan associations and finance companies that provide consumer loans, loan production offices, and financial conglomerates which provide deposit-like investment plans and credit and checking services that can attract bank customers. In addition, thrift and loans and credit unions in California offer competitive deposit and lending services. 44 52 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FIRST COUNTIES The following discussion should be read in conjunction with the financial statements, including the notes thereto, of First Counties (the bank), which are included in this proxy statement/prospectus. RESULTS OF OPERATIONS SUMMARY 1999 Compared to 1998. Net income increased to $953 thousand in 1999, representing an increase of 30.7% over net income of $729 thousand in 1998. Basic earnings per share in 1999 were $1.16 ($1.15 diluted) compared to $.99 ($.97 diluted) in 1998. During 1999, the bank benefited from a decrease in the provision for loan losses of $139 thousand, which resulted from an improvement in credit quality and a general slow down in net loan growth, and an increase in non-interest income resulting from the recovery of costs on repossessed assets totaling $471 thousand. Although non-interest expenses increased by $514 thousand over 1998, the bank's efficiency ratio increased only slightly to 69.6% in 1999 from 68.2% in 1998. 1998 Compared to 1997. Net income increased to $729 thousand in 1998, representing an increase of 10.3% over net income of $661 thousand in 1997. Basic earnings per share in 1998 were $0.99 ($.97 diluted) compared to $1.16 ($1.14 diluted) in 1997. The decrease in earnings per share resulted from an increase in the weighted-average common stock outstanding from the issuance of common stock during 1998. Total non-interest income remained relatively consistent with 1997 and included a $149 thousand decrease in gain on sale of loans. Cost control measures implemented during 1998 led to an increase of only $342 thousand in non-interest expenses, which resulted in a decrease in the efficiency ratio to 68.2% in 1998 from 69.4% in 1997. NET INTEREST INCOME First Counties' primary source of revenue is net interest income, which is the difference between interest income and fees derived from loans and other earning assets and the interest paid by First Counties on deposits and other interest-bearing liabilities. Net interest income of $4.6 million in 1999 increased by 5.3% over net interest income of $4.4 million in 1998. Interest income increased by $334 thousand in 1999 over 1998, primarily due to increases in the average balances of Federal funds sold and investments of $3.0 million and $4.6 million, respectively. These increases were partially offset by a 40 basis point decrease in the average yield on Federal funds sold and a 24 basis point decrease in the average yield on investments. Average loans for 1999 increased $1.6 million over 1998, but the corresponding revenue increase was offset by a 30 basis point decrease in the average yield. The decreases in average yields were reflections of increased competition and economic market conditions during 1999. Net interest expense increased by $101 thousand in 1999, primarily due to increases in average balances of time deposits of $3.8 million, which was offset by a 36 basis point decrease in the average yield on time deposits and a 17 basis point decrease in the average yield on NOW and money market deposits. Net interest income of $4.4 million in 1998 increased by 15.5% over net interest income of $3.8 million in 1997. Interest income increased by $536 thousand in 1998 over 1997, primarily due to increases in the average balances of Federal funds sold and loans of $1.5 million and $2.5 million, respectively, coupled with a 34 basis point increase in the average yield on loans. A 9 basis point decrease in the average yield on Federal funds sold and a 29 basis point decrease in the average yield on investments offset the increases. Net interest expense decreased by $52 thousand in 1998, primarily due to a decrease in the average balance of time deposits of $404 thousand, coupled with a 20 basis point decrease in the average yield on time deposits. 45 53 The following schedule presents, for the periods indicated, unaudited information regarding average earning assets, liabilities and shareholders' equity, the amounts of interest income and expense and the yields on earning assets and rates on deposits. SUMMARY OF AVERAGE BALANCES, YIELDS, RATES AND INTEREST DIFFERENTIAL
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------------ 1999 1998 1997 ---------------------------- ---------------------------- ---------------------------- INTEREST RATES INTEREST RATES INTEREST RATES AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ BALANCE EXPENSE PAID BALANCE EXPENSE PAID BALANCE EXPENSE PAID ------- -------- ------- ------- -------- ------- ------- -------- ------- (DOLLARS IN THOUSANDS)(UNAUDITED) ASSETS Interest-bearing time deposits..................... $ 467 $ 24 5.14% $ 436 $ 23 5.28% $ 426 $ 24 5.63% Federal funds sold............. 9,376 458 4.88 6,349 335 5.28 4,819 259 5.37 Investment securities.......... 15,167 812 5.35 10,523 588 5.59 9,968 586 5.88 Loans.......................... 58,713 5,907 10.06 57,129 5,921 10.36 54,647 5,474 10.02 FHLB stock..................... 258 14 5.43 242 14 5.79 86 2 6.13 ------- ------ ------- ------ ------- ------ Total earning assets....... 83,981 7,215 8.59 74,679 6,881 9.21 69,946 6,345 9.02 Nonearning assets, net of allowance for loan losses.... 7,081 6,031 5,326 ------- ------- ------- Total assets............... $91,062 $80,710 $75,272 ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing deposits: NOW and money market......... $23,520 $ 377 1.60% $19,913 $ 353 1.77% $17,745 $ 318 1.79% Savings...................... 6,727 135 2.01 5,906 118 2.00 5,390 108 2.00 Time......................... 41,695 2,096 5.02 37,851 2,036 5.38 38,255 2,133 5.58 ------- ------ ------- ------ ------- ------ Total interest-bearing liabilities.............. 71,942 2,608 3.63 63,670 2,507 3.94 61,389 2,559 4.17 ------ ------ ------ Demand deposits................ 9,936 9,135 8,100 Other liabilities.............. 815 868 768 ------- ------- ------- Total liabilities.......... 82,693 73,673 70,257 Shareholders' equity........... 8,369 7,037 5,013 ------- ------- ------- Total liabilities and shareholders' equity..... $91,062 $80,710 $75,272 ======= ======= ======= Net interest income............ $4,607 $4,374 $3,786 ====== ====== ====== Net interest margin............ 5.49% 5.86% 5.41% ----- ----- -----
Average loan balances include nonperforming loans. Interest income includes proceeds from loans on nonaccrual status only to the extent cash payment have been received and applied as interest income. Tax-exempt securities are not material and yields thereon are calculated at their nominal values. 46 54 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. ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSES
INCREASE (DECREASE) DUE TO CHANGE IN --------------------------------------------------- 1999 OVER 1998 1998 OVER 1997 ------------------------ ----------------------- VOLUME RATE TOTAL VOLUME RATE TOTAL ------ ----- ----- ------ ---- ----- (IN THOUSANDS) (UNAUDITED) INCREASE (DECREASE)IN INTEREST INCOME: Interest-bearing time deposits -- other banks............ $ 2 $ (1) $ 1 $ (1) $ -- $ (1) Federal funds sold................... 163 (40) 123 78 (2) 76 Securities........................... 262 (38) 224 43 (29) 14 Loans................................ 132 (146) (14) 241 206 447 ---- ----- ---- ---- ---- ---- Total average earning assets....... $559 $(225) $334 $361 $175 $536 ---- ----- ---- ---- ---- ---- INCREASE (DECREASE) IN INTEREST EXPENSE: NOW and money market................. $ 79 $ (54) $ 25 $ 39 $ (5) $ 34 Savings deposits..................... 14 3 17 10 -- 10 Time certificates.................... 251 (192) 59 (21) (75) (96) ---- ----- ---- ---- ---- ---- Total average interest-bearing liabilities..................... 344 (243) 101 28 (80) 52 ---- ----- ---- ---- ---- ---- Net increase (decrease) in interest income............................. $215 $ 18 $233 $333 $255 $588 ==== ===== ==== ==== ==== ====
PROVISION FOR LOAN LOSSES The provision for loan losses corresponds directly to the level of the allowance that management deems sufficient to offset potential loan losses. The balance in the loan loss allowance reflects the amount which, in management's judgment, is adequate to provide for these potential loan losses after weighting the mix of the loan portfolio, current economic conditions, past loan experience and such other factors as deserve recognition in estimating loan losses. Management allocated $241 thousand as a provision for loan losses in 1999 compared to $380 thousand in 1998 and $332 thousand in 1997. The reduction in the provision from 1999 to 1998 and the increase in 1998 from 1997 were primarily the result of the changes in the level of charged off loans which totaled $105 thousand in 1999 compared to $331 thousand in 1998 and $178 thousand in 1997. The level of classified assets remained consistent during 1999 and 1998 at approximately 40% of total capital, up from approximately 38% of total capital at December 31, 1997. The provision also includes allocations for the 5.6% growth in the loan portfolio in 1999 from 1998 and the 11.5% growth between 1998 and 1997. For further information regarding the allowance for loan losses, see the "Summary of loan loss experience" on page 53. 47 ~~55 NON-INTEREST INCOME The following table sets forth the components of non-interest income.~~
YEAR ENDED DECEMBER 31, ------------------------- 1999 1998 1997 ------- ----- ----- (IN THOUSANDS) (UNAUDITED) Service charges on deposit accounts......................... $ 487 $460 $466 Gain on sale of government-guaranteed loans................. -- 55 204 Cost recoveries on repossessed assets....................... 471 -- -- Merchant card discount and ATM fees......................... 85 74 56 Gains on sale of other real estate.......................... 45 36 40 Earnings on cash surrender value of insurance policies...... 35 34 34 Commissions on sale of non-deposit investment products...... 12 13 5 Other....................................................... 210 197 173 ------ ---- ---- Total..................................................... $1,345 $869 $978 ====== ==== ====
Non-interest income totaled $1.3 million in 1999 which was $476 thousand, or 54.8%, greater than in 1998. This increase was primarily the result of the recovery of $471 thousand in costs related to a loan to rehabilitate 74 modular homes which went into default in 1998. The bank took possession of the modular homes and incurred holding costs, including the write down of the units to their recoverable value, interest, park space rental fees, legal fees, administrative costs and the costs of ultimately selling the units at auction in December of 1999. Because there were subordinate lien holders on the collateral, the bank was only allowed to recover its principal and any related costs. Service charges and fees related to deposit account activity increased slightly to $487 thousand in 1999 from $460 thousand in 1998. Other non-interest income increased to $386 thousand in 1999 from $354 thousand in 1998 primarily due to increased merchant card discount and ATM fees which totaled $85 thousand in 1999 and $74 thousand in 1998. Other significant components of non-interest income were gains realized on the sale of other real estate, totaling $45 thousand in 1999 and $36 thousand in 1998, earnings on the cash surrender value of life insurance policies, totaling $35 thousand in 1999 and $34 thousand in 1998 and commissions from the sale of non-deposit investment products totaling $12 thousand in 1999 and $13 thousand in 1998. Non-interest income decreased $109 thousand, or 11.1%, to $869 thousand in 1998 from $978 thousand in 1997 primarily due to the bank's change in strategies regarding the sale or retention of government-guaranteed loans. During 1997, the bank originated $4.2 million in government-guaranteed loans and sold the guaranteed portion, totaling $3.6 million, in the secondary market recognizing a gain of $204 thousand. While $3.6 million in such loans were originated in 1998, the guaranteed portion sold totaled only $891 thousand which resulted in gains of $55 thousand. The remaining loans were retained in the bank's loan portfolio to generate interest income. The bank continued this strategy in 1999 and retained all $2.2 million in originated government-guaranteed loans. Service charges and fees related to deposit account activity remained stable and other non-interest income increased to $354 thousand in 1998 from $309 thousand in 1997. Significant components of non-interest income were gains realized on the sale of other real estate, totaling $36 thousand in 1998 and $40 thousand in 1997, earnings on the cash surrender value of life insurance policies, totaling $34 thousand in 1998 and 1997 and commissions from the sale of non-deposit investment products totaling $13 thousand in 1998 and $5 thousand in 1997. 48 56 NON-INTEREST EXPENSE The following table compares the various elements of non-interest expense in dollars for the years ended December 31, 1999, 1998, and 1997, and as a percentage of average assets. Total non-interest expense, as a percentage of average assets, was 4.62% in 1999, 4.57% in 1998, and 4.45% in 1997.
YEAR ENDED DECEMBER 31, ----------------------------------------------------------- 1999 1998 1997 ----------------- ----------------- ----------------- (DOLLARS IN THOUSANDS) (UNAUDITED) ~~Average assets................. $91,062 $80,710 $75,272~~
~~EXPENSES AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT -------- ------ ------- ------ ------- ------ -------~~ Salaries and related benefits..................... $2,006 2.20% $1,805 2.24% $1,715 2.28% Occupancy and operations....... 879 0.97% 731 0.91% 619 0.82% Professional................... 140 0.15% 151 0.19% 113 0.15% Other.......................... 1,181 1.30% 1,005 1.24% 903 1.20% ------ ---- ------ ---- ------ ---- Total........................ $4,206 4.62% $3,692 4.57% $3,350 4.45% ====== ==== ====== ==== ====== ====
Non-interest expense of $4.2 million in 1999 was $514 thousand higher than 1998. This 13.9% increase was primarily due to expenses related to the continued growth of the bank. Salaries and employee benefits increased by $201 thousand in 1999, reflecting additional staff in the administrative area as well as salary adjustments to existing employees to be competitive within the industry and reward performance. Occupancy and equipment expense increased by $148 thousand in 1999, reflecting increased depreciation expense of $81 thousand and increased rent expense of $23 thousand related primarily to the new Williams branch. Other expenses also increased by $176 thousand in 1999, primarily due to increased costs associated with loan collection and other real estate of $85 thousand and telephone costs of $27 thousand. Non-interest expense of $3.7 million in 1998 was $342 thousand greater than 1997. This 10.2% increase was primarily due to expenses related to the continued growth of the bank. Salary and benefits expense increased $90 thousand in 1998, reflecting additional staff for the Williams branch which opened in 1998, and salary adjustments. Occupancy and equipment expense increased $112 thousand in 1998, reflecting increased depreciation expense of $59 thousand, increased maintenance contract expense of $16 thousand and other expenses associated with opening the Williams branch. Other expenses also increased by $102 thousand in 1998, primarily due to increased professional fees due to a stock offering and the change from a national to a state-chartered bank, as well as increased advertising expense and supplies associated with the opening of the Williams branch. INCOME TAXES Income tax expense was $552 thousand in 1999, $442 thousand in 1998 and $421 thousand in 1997, with effective tax rates of 36.6%, 37.7% and 38.9%, respectively. 49 57 FINANCIAL CONDITION SUMMARY 1999 Compared to 1998. Total assets at December 31, 1999 were $90.9 million, representing a 5.7% increase over total assets of $86.0 million at December 31, 1998. This increase was primarily due to an increase in net loans of $3.1 million and an increase in investments of $1.1 million, which were offset by a decrease in other real estate and repossessed assets of $741 thousand. Loan growth was the result of increased marketing efforts with local business and the purchase of participation loans from other financial institutions, which resulted in a $1.8 million net increase in commercial loans. Total deposits at December 31, ~~1999 were $81.1 million, representing a 4.9% increase over total~~2003. In addition to deposits, of $77.3 million at December 31, 1998. The net increase in interest bearing deposits of $2.6 million was primarily due to growth in money market and NOW accounts of $2.7 million, which was offset by a decrease in time deposits of $582 thousand. Non-interest bearing deposits remained relatively stable with an increase of $1.2 million. Total shareholders' equity at December 31, 1999 was $8.8 million compared to $8.0 million at December 31, 1998, a 9.9% increase. This increase in the bank's capital was due to total comprehensive income of $699 thousand and the exercise of stock options by employees totaling $140 thousand. 1998 Compared to 1997. Total assets at December 31, 1998 were $86.0 million, representing a 10.4% increase over total assets of $77.9 million at December 31, 1997. This increase was primarily due to an increase in net loans of $5.9 million, an increase in Federal funds sold of $1.0 million, an increase in other real estate of $366 thousand and an increase in premises and equipment of $293 thousand. These increases were offset by a decrease in investments of $508 thousand. Loan growth was the result of increased focus on the agricultural and real estate construction markets, which resulted in a $5.9 million net increase in loans. The increase in premises and equipment resulted from a strategic decision to purchase land and a building in Williams, California. Total deposits at December 31, 1998 were $77.3 million, representing a 7.8% increase over total deposits of $71.7 million at December 31, 1997. The net increase in interest bearing deposits of $4.3 million resulted from growth in all categories, to include an increase in savings, money market and NOW accounts of $3.2 million and an increase in time deposits of $1.1 million. Growth in non- interest bearing deposits remained consistent with an increase of $1.3 million. Total shareholders' equity at December 31, 1998 was $8.0 million compared to $5.3 million at December 31, 1997, a 51.1% increase. The increase in equity was due to the issuance of common stock through a public offering totaling $2.0 million, total comprehensive income of $727 thousand and the exercise of stock options by employees totaling $44 thousand. INVESTMENT PORTFOLIO First Counties maintains a securities portfolio consisting of U.S. Treasuries, U.S. Government agencies, state and political subdivisions and other debt securities. Investment securities are held in safekeeping by an independent custodian. The objectiveNational Bank of the investment securities held to maturity is to strengthen the portfolio yield and to provide collateral to pledge for federal, state and local deposits. The investments held to maturity had an average term to maturity of 75 months at December 31, 1999. All held to maturity investments are fixed rate securities. 50 ~~58 Investment securities available for sale are generally used to supplement the bank's liquidity. Unrealized net gains and losses on these securities are recorded~~Redwoods may obtain other borrowed funds through its membership in other comprehensive income (loss) as an adjustment to shareholders' equity, net of taxes, and are not reflected in current earnings. If a security is sold, any gain or loss is recorded as a charge to earnings and the equity adjustment is reversed. At December 31, 1999, the bank held $13.9 million classified as investment securities available for sale. At December 31, 1999, an unrealized loss of $400 thousand, net of taxes of $151 thousand related to these securities, was recognized as other comprehensive loss in shareholders' equity. The bank had no trading securities at December 31, 1999 and 1998. 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 bank's investment securities as of December 31, 1999 and 1998.
DECEMBER 31, ------------------ 1999 1998 ------- ------- (IN THOUSANDS) (UNAUDITED) U.S. Treasuries............................................. $ 3,036 $ 2,514 U.S. Government agencies.................................... 9,492 8,445 Municipals.................................................. 2,089 2,198 Other investments........................................... 181 163 FHLB stock.................................................. 265 248 ------- ------- Total..................................................... $15,063 $13,568 ======= =======
The following table sets forth the relative maturities and yields of the bank's investment securities (stated at amortized cost) at December 31, 1999 and 1998. Weighted average yields have been computed by dividing annual interest income, adjusted for amortization of premium and accretion of discount, by the amortized cost of the related security. Yields on securities of state and political subdivisions have not been adjusted to a fully taxable equivalent basis.
DECEMBER 31, 1999 ------------------------------------------------------------------------------------- ONE YEAR AFTER ONE YEAR AFTER FIVE YEARS AFTER TEN OR LESS TO FIVE YEARS TO TEN YEARS YEARS TOTAL -------------- -------------- ---------------- -------------- --------------- AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD ------ ----- ------ ----- ------- ------ ------ ----- ------- ----- (DOLLARS IN THOUSANDS) (UNAUDITED) AVAILABLE FOR SALE U.S. Treasuries........... $1,005 4.53% $2,031 5.49% $ 3,036 5.17% U.S. Government agencies................ 647 5.84% 6,845 5.38% $2,000 6.64% 9,492 5.68% Municipals................ 158 3.60% 423 4.03% 752 4.43% 1,333 4.21% Other..................... 156 6.19% 156 6.19% ------ ------ ------ ------- Total................... $1,810 4.92% $9,455 5.36% $2,752 6.04% -- -- $14,017 5.44% ====== ==== ====== ==== ====== ==== ======= ==== HELD TO MATURITY Municipals................ $ 145 4.43% $ 100 3.04% $ 412 4.77% $100 5.5% $ 757 4.54% ------ ------ ------ ---- ------- Total................... $ 145 4.43% $ 100 3.04% $ 412 4.77% $100 5.5% $ 757 4.54% ====== ==== ====== ==== ====== ==== ==== ==== ======= ====
51 ~~59 LOAN PORTFOLIO The following table shows the composition of the bank's loan portfolio by type of loan for the dates indicated:~~
DECEMBER 31, ----------------------------- 1999 1998 1997 ------- ------- ------- (IN THOUSANDS) (UNAUDITED) Commercial........................................ $12,432 $10,623 $12,206 Agricultural...................................... 9,122 9,112 6,405 Real estate mortgage.............................. 28,337 27,210 25,950 Real estate construction.......................... 5,503 5,605 2,419 Consumer.......................................... 5,794 5,376 4,933 ------- ------- ------- Total........................................ 61,188 57,926 51,913 Less: Deferred loan fees.............................. 303 245 228 Allowance for loan losses....................... 1,164 1,028 979 ------- ------- ------- Total net loans.............................. $59,721 $56,653 $50,706 ======= ======= =======
The bank's largest historical lending categories continue to be commercial and residential real estate loans, commercial loans and agricultural loans. These categories represented the following percentages of total loans: approximately 46%, 20% and 15% at December 31, 1999, 47%, 18% and 16% at December 31, 1998 and 50%, 24% and 12% at December 31, 1997. The decrease of $1.6 million in commercial loans in 1998 from 1997 was a result of increased competition in First Counties' market area. Management determined that to maintain the proper mix in the portfolio, adjustments were necessary, primarily to retain government guaranteed loans rather than sell into the secondary market. This resulted in the $1.8 million increase in commercial loans in 1999 over 1998. Real estate-mortgage loan increases are attributed to management's decision to supplement local loan demand with participation purchases from lenders outside the bank's market area. Management intends to continue to diversify the mix of its loan portfolio by increasing its agricultural loans in the coming year. To accomplish this growth, the bank established a branch in the agricultural community of Williams, California in 1998 and has added staff specialized in this lending area. The following table sets forth the amounts of commercial, agricultural and real estate construction loans outstanding as of December 31, 1999 which, based on the remaining scheduled repayments of principal, have the ability to be repriced or are due in less than one year, in one to five years, or in more than five years. It also shows the amounts of total loans outstanding as of December 31, 1999 which have fixed interest rates and floating interest rates and have remaining 52 ~~60 scheduled repayments of principal in less than one year, in one to five years, or in more than five years.~~
DECEMBER 31, 1999 -------------------------------------------- AFTER 1 BUT WITHIN WITHIN AFTER 1 YEAR 5 YEARS 5 YEARS TOTAL ------- ----------- ------- ------- (IN THOUSANDS) (UNAUDITED) Commercial............................. $ 7,964 $ 3,873 $ 595 $12,432 Agricultural........................... 4,347 3,061 1,714 9,122 Real estate construction............... 5,133 248 124 5,505 Loans with fixed interest rates........ 3,611 8,717 1,161 13,489 Loans with floating interest rates..... 35,586 10,345 1,768 47,699
~~The following table shows the bank's loan commitments at the dates indicated:~~
DECEMBER 31, --------------------------- 1999 1998 1997 ------- ------ ------ (IN THOUSANDS) (UNAUDITED) Commercial.......................................... $ 4,548 $2,498 $2,232 Agricultural........................................ 1,563 2,393 2,172 Real estate......................................... 6,231 2,994 2,398 Consumer............................................ 1,553 1,514 1,069 ------- ------ ------ Total............................................. $13,895 $9,399 $7,871 ======= ====== ======
Based upon prior experience and prevailing economic conditions, it is anticipated that approximately 90% of the commitments at December 31, 1999 will be exercised during 2000. All commercial commitments in the preceding table are commitments to grant such loans. The commitments related to agricultural loans are generally drawn down and repaid during the year. SUMMARY OF LOAN LOSS EXPERIENCE As a natural corollary to the bank's lending activities, some loan losses are experienced. The risk of loss varies with the type of loan being made and the creditworthiness of the borrower over the term of the loan. To the extent possible, the degree of perceived risk is taken into account in establishing the structure of, and interest rate and security for, specific loans and for various types of loans. First Counties attempts to minimize its credit risk exposure by the use of thorough loan application and approval procedures. First Counties maintains an internal program of systematic review of existing loans. Loans are initially graded for their overall quality at origination, and the grades are subsequently reevaluated when potential issues are identified. First Counties also utilizes the services of an external loan file review firm to evaluate its assigned grades. Loans that management has determined require further monitoring are included on First Counties' Management Watch List and Classified Loan Report. In addition, all problem loans are reviewed on a monthly basis by the Directors' Loan Committee. 53 ~~61 The bank's classified assets for the periods indicated are summarized below:~~
DECEMBER 31, -------------------------- 1999 1998 1997 ------ ------ ------ (IN THOUSANDS) (UNAUDITED) Classified loans..................................... $3,526 $2,014 $1,118 Other real estate and repossessed assets............. 424 1,165 798 ------ ------ ------ Total.............................................. $3,950 $3,179 $1,916 ====== ====== ======
The majority of the bank's classified loans are secured by real estate or crops, the value of which are taken into consideration in determining the allocation for these loans in the allowance for loan losses. In addition, First Counties aggressively marketed the properties it held in other real estate during 1999, selling six properties for total proceeds of $471 thousand. Of the remaining six properties, three closed escrow in January 2000. In addition, modular homes held as repossessed assets at December 31, 1998, with a carrying value of $600 thousand, were sold at auction during December 1999. First Counties recovered all related principal and costs. Loans for which it is probable that First Counties will be unable to collect all amounts due (including principal and interest) are considered to be impaired. The average recorded investment in impaired loans totaled $411 thousand and $398 thousand at December 31, 1999 and 1998, respectively. In addition, when principal or interest on a loan is past due 90 days or more, loans are placed on non-accrual status unless the loans are both well secured and in the process of collection. Interest previously accrued on loans placed on non-accrual status is charged against interest income. 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. 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. First Counties also classifies certain loans on non-accrual status as impaired. The following table summarizes the bank's non-accrual loans at the dates indicated:
DECEMBER 31, -------------- 1999 1998 ---- ------ (IN THOUSANDS) (UNAUDITED) Commercial.................................................. $168 $ 51 Real estate................................................. 574 2,624 Consumer.................................................... -- 75 ---- ------ Total nonaccrual.......................................... $742 $2,750 ==== ======
First Counties had no loans which were 90 days or more past due and still accruing interest or troubled debt restructurings at December 31, 1999 and 1998, respectively. The reduction in non-accrual loans in 1999 was primarily the result of one significant government-guaranteed loan totaling $1.7 million which performed in accordance with the terms of the contract for a twelve-month period and was placed back on accrual status. First Counties' allowance for loan losses provides for loan losses which can be reasonably anticipated. The amount of the allowance is determined by the bank's management after considering the current financial condition of its borrowers, the value of collateral securing loans, recommendations of the regulatory agencies, the bank's historical loss experience, prevailing economic conditions 54 62 and their impact on various industries and borrowers and other factors. The allowance for loan loses is established through charges to operating expenses in the form of provisions for loan losses. Because these estimates and evaluations are primarily based on judgmental factors, no assurance can be given that First Counties may not sustain loan losses substantially higher in relation to the size of the allowance or that subsequent evaluations of the loan portfolio may not require substantial changes in the allowance. In June 1998, following an examination of the bank by the FDIC, First Counties charged off $240 thousand related to a loan to rehabilitate modular homes. In October 1998, on the basis of additional support for the carrying value of this loan, First Counties reversed approximately $193 thousand of this amount. The reversed amount is included in the recoveries noted above. Management believes that the bank has adequately reserved for all individual items in its portfolio which may result in a material loss to the bank. At December 31, 1999, 1998 and 1997, the allowance was 1.90%, 1.77% and 1.89%, respectively, of the loans then outstanding. 55 ~~63 The following schedule summarizes the loan loss experience of the bank for the years indicated:~~
YEAR ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ------- ------- ------- (IN THOUSANDS) (UNAUDITED) BALANCES Loans: Average loans........................................... $57,130 $55,640 $53,266 Loans at end of period.................................. 59,721 56,653 50,706 Allowance at beginning of period.......................... 1,028 979 824 Loans charged off: Commercial.............................................. 0 391 9 Agricultural............................................ 0 0 0 Real estate -- mortgage................................. 109 146 180 Real estate -- construction............................. 0 0 0 Consumer................................................ 40 20 28 ------- ------- ------- Total loans charged off.............................. 149 557 217 Recoveries of loans previously charged off: Commercial.............................................. 5 196 32 Agricultural............................................ 0 0 0 Real estate -- mortgage................................. 38 24 0 Real estate -- construction............................. 0 0 0 Consumer................................................ 1 6 8 Total recoveries..................................... 44 226 40 ------- ------- ------- Net loans charged off................................ 105 331 177 Provision for loan losses................................. 241 380 332 ------- ------- ------- Allowance at end of period................................ $ 1,164 $ 1,028 $ 979 ======= ======= ======= RATIOS: Net loan charge-offs to average loans..................... 0.18% 0.59% 0.33% Net loan charge-offs to loans at end of period............ 0.18% 0.58% 0.35% Allowance for loan losses to average loans................ 2.04% 1.85% 1.84% Allowance for loan losses to loans at end of period....... 1.95% 1.81% 1.93% Net loan charge-offs to allowance for loan losses......... 9.02% 32.20% 18.18% Net loan charge-offs to provision for loan losses......... 43.57% 87.11% 53.61%
56 ~~64 The following table presents the allocation of the allowance for loan losses as of December 31 for the years indicated:~~
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES AT DECEMBER 31, --------------------------------------------------------- 1999 1998 1997 ----------------- ----------------- ----------------- % OF % OF % OF TOTAL TOTAL TOTAL LOANS IN LOANS IN LOANS IN AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY ------ -------- ------ -------- ------ -------- (DOLLARS IN THOUSANDS) (UNAUDITED) Commercial............................. $ 230 20% $ 213 18% $336 24% Agricultural........................... 253 15 173 16 85 12 Real estate mortgage................... 528 46 504 47 453 50 Real estate construction............... 69 9 65 10 32 5 Consumer............................... 84 10 73 9 73 9 ------ --- ------ --- ---- --- Total........................ $1,164 100% $1,028 100% $979 100% ====== === ====== === ==== ===
DEPOSITS First Counties primarily attracts deposits from small and middle-market agricultural and commercial businesses and individuals living in its geographical service area, as well as through retail certificates of deposit, savings and checking accounts. The following table shows the bank's average deposits for each of the periods indicated below, based upon average daily balances:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 1999 1998 1997 ------------------ ------------------ ------------------ AVERAGE PERCENT AVERAGE PERCENT AVERAGE PERCENT BALANCE OF TOTAL BALANCE OF TOTAL BALANCE OF TOTAL ------- -------- ------- -------- ------- -------- (DOLLARS IN THOUSANDS) (UNAUDITED) Demand deposits....................... $ 9,936 12% $ 9,135 13% $ 8,100 11% NOW accounts.......................... 17,636 22 13,733 19 10,886 16 Savings deposits...................... 6,727 8 5,906 8 5,390 8 Money market deposits................. 5,884 7 6,180 8 6,859 10 Time deposits......................... 41,695 51 37,851 52 38,254 55 ------- --- ------- --- ------- --- Total deposits.............. $81,878 100% $72,805 100% $69,489 100% ======= === ======= === ======= ===
In 1999, total average deposits increased 12.5% from 1998 primarily due to increases in NOW accounts and time deposits as a result of new programs to attract deposits and general growth. Average NOW accounts increased $3.9 million, or 28.4%, from 1998, while average savings and time deposits increased $0.8 million, or 13.9%, and $3.8 million, or 10.2%, respectively, over 1998. Time deposits of less than $100 thousand increased $6.7 million, or 21.9%, primarily as a result of programs offering competitively priced rates on these deposits. Average time deposits of $100 thousand or more decreased by $2.8 million, or 39.3%. First Counties does not try to attract time deposits of $100 thousand or more, as large depositors sought higher yields in the stock market. The average balance of non-interest bearing demand deposits also increased 8.8% over 1998 as a result of requiring deposit relationships from loan customers. 57 65 In 1998, total average deposits increased 4.8% from 1997 primarily due to increases in NOW accounts and non-interest bearing demand deposit accounts as a result of general growth due to requiring deposit relationships from loan customers. Average NOW accounts increased $2.8 million, or 26.2%, from 1997, and average demand deposit accounts increased $1.0 million, or 12.8%. These increases were primarily due to requiring deposit relationships from loan customers. Total average time deposits decreased only 1.1%, primarily due to runoff of time deposits of $100 thousand or more, as large depositors sought higher yields in the stock market. ASSET AND LIABILITY MANAGEMENT Liquid assets consist of cash and due from banks, deposits in other financial institutions, available-for-sale investments not previously pledged, federal funds sold and loans available-for-sale. Liquidity of the bank was 29.6%, 27.3% and 35.6% at December 31, 1999, 1998 and 1997, respectively, based on liquid assets divided by total liabilities. The bank's management believes it maintains adequate liquidity levels. The bank's profitability generated additional liquidity from its operations in 1999, 1998 and 1997 indicated by net cash provided from operations of $1.4 million, $809 thousand and $1.7 million, respectively. Significant additional cash flows are provided by financing activities including the acceptance of customer deposits, the sale of stock and the exercise of stock options totaling $3.9 million, $7.6 million and $7.5 million for 1999, 1998 and 1997, respectively. During 1998, the bank sold 200 thousand shares of common stock, which infused $2.0 million, net of stock offering costs, into capital. During 1999, 1998 and 1997, cash flows from deposits increased $3.8 million, $5.6 million and $7.7 million, respectively. Cash was utilized in 1999 and 1997 to pay dividends to its shareholders of $39 thousand and $103 thousand, respectively. The bank uses cash to invest in loans and investment securities. Net disbursements of loans were $3.4 million, $7.4 million and $985 thousand in 1999, 1998 and 1997, respectively. In 1999 and 1997, the investment portfolio was increased by net purchases of $1.5 million and $4.0 million, while the investment portfolio decreased by $570 thousand in 1998. The bank's strategy is to increase loan volume without increasing credit risk. Excess cash flows are invested in lower-risk investment securities or other liquid assets. The bank has Federal funds lines of credit with its correspondent banks, Union Bank of California and Pacific Coast Bankers' Bank, of $2.5 million. The bank also has a line of credit with the Federal Home Loan Bank ~~subject to various pledging options. The amount~~ of San Francisco and its retention of treasury, tax and loan funds at the credit line varies according to the bank's mortgage loan base and other factors. When the bank has excess funds over its reserve requirements or short-term liquidity needs, the bank increases/or decreases its securities investments and/or sells federal funds. Policies have been developed by the bank's management and approved by the boardFederal Reserve Bank of directors which establish guidelines for the investments and liquidity of the bank. These policies include an Investment Policy and an Asset/Liability Policy. The goals of these policies are to provide liquidity to meet the financial requirements of the bank's customers, maintain adequate reserves as required by regulatory agencies and maximize earnings of the bank. 58 66 It is management's policy to restrict the maturities of a majority of its certificates of deposit in denominations of $100 thousand or more to less than one year. The maturities of such time certificates of deposit ("TCD's"), as well as other time deposits, were as follows:
DECEMBER 31, 1999 ------------------------------ TCD'S OVER OTHER $100 THOUSAND TIME DEPOSITS ------------- ------------- (IN THOUSANDS) (UNAUDITED) Less than three months...................................... $3,101 $12,035 Over three months through twelve months..................... 3,782 18,941 Over twelve months through five years....................... 206 1,540 Over five years............................................. -- -- ------ ------- Total............................................. $7,089 $32,516 ====== =======
While the deposits of the bank may fluctuate up and down somewhat with local and national economic conditions, management of the bank does not believe that such deposits, or the business of the bank in general, are seasonal in nature. Liability management is monitored by the bank's board of directors which meets monthly. Although the bank's Year 2000 transition did not present any material business disruption, there are some remaining Year 2000 related risks. Management believes that appropriate actions to address these remaining Year 2000 issues and contingency plans are in place to minimize the financial impact to the bank. Management, however, cannot be certain that Year 2000 issues affecting customers, suppliers or service providers of the bank will not have a material adverse impact on it. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss from adverse changes in market prices and rates. The bank's market risk arises primarily from interest rate risk inherent in its loan and deposit functions and management actively monitors and manages this interest rate risk exposure. The bank does not have any market risk sensitive instruments entered into for trading purposes. Management uses several different tools to monitor its interest rate risk. One measure of exposure to interest rate risk is gap analysis. A positive gap for a given period means that the amount of interest-earning assets maturing or otherwise repricing within such period is greater than the amount of interest-bearing liabilities maturing or otherwise repricing within the same period. The bank's overall cumulative positive gap is the result of the majority of loans held in the portfolio having longer maturity dates. On the liability side, the majority of the bank's time deposits have average terms of approximately nine months while savings accounts and other interest-bearing transaction accounts are recorded for gap analysis in the next day to three month category because they do not have a contractual maturity date. Taking into consideration that savings accounts and other interest-bearing transaction accounts typically do not react immediately to changes in interest rates, management has taken the following steps to manage its positive gap position. The bank has reduced interest rates on time deposits and focused on increasing noninterest-bearing deposits and floating rate loans. In addition, the bank holds the majority of its investment securities in the available-for-sale category for purposes of liquidity and asset and liability management. 59 67 The following table sets forth the distribution of repricing opportunities of the bank's interest-earning assets and interest-bearing liabilities, the interest rate sensitivity gap (i.e. interest rate sensitive assets less interest rate sensitive liabilities), the cumulative interest rate sensitivity gap and the cumulative gap as a percentage of total interest-earning assets asSan Francisco.

As of December 31, ~~1999. The table also sets forth~~2003, Redwood Empire Bancorp provided VISA, Mastercard, American Express and Discover credit card processing and settlement services for approximately 35,000 merchants located throughout the ~~time periods during which interest-earning assets~~United States. In 2003, its processing volume exceeded $1.8 billion. Redwood Empire Bancorp’s merchant card services customer base is made up of merchants located in its primary market area and ~~interest-bearing liabilities will mature or may reprice in accordance~~merchants who have been acquired by Redwood Empire Bancorp through the use of independent sales agents and independent sales organizations.

Redwood Empire Bancorp is regulated by various government agencies, with ~~their contractual terms. The interest rate relationships between~~ the ~~repriceable assets and repriceable liabilities are not necessarily constant. The table should, therefore, be used only as a guide as to~~primary regulators being the ~~possible effect changes in interest rates might have on~~FRB, the ~~net margins~~Office of the ~~bank.~~
DECEMBER 31, 1999 --------------------------------------------------------- OVER THREE MONTHS OVER NEXT DAY THROUGH ONE YEAR TO THREE TWELVE THROUGH OVER MONTHS MONTHS FIVE YEARS FIVE YEARS TOTAL -------- ---------- ---------- ---------- ------- ASSETS: Federal funds sold.................... $ 6,010 $ -- $ -- $ -- $ 6,010 Interest-bearing deposits............. 100 396 -- -- 496 Investment securities................. -- 1,955 9,555 3,264 14,774 Loans................................. 28,563 10,634 19,062 2,929 61,188 FHLB stock............................ 265 -- -- -- 265 -------- -------- ------- ------- ------- Total interest-earning assets..................... 34,938 12,985 28,617 6,193 82,733 -------- -------- ------- ------- ------- LIABILITIES: Savings deposits...................... 30,514 -- -- -- 30,514 Time deposits......................... 15,139 22,721 1,745 -- 39,605 -------- -------- ------- ------- ------- Total interest-bearing liabilities................ 45,653 22,721 1,745 -- 70,119 -------- -------- ------- ------- ------- Net (interest-bearing liabilities) interest-earning assets............... $(10,715) $ (9,736) $26,872 $ 6,193 $12,614 Cumulative net (interest-bearing liabilities) interest-earning assets (GAP)................................. $(10,715) $(20,451) $ 6,421 $12,614 Cumulative GAP as a percentage of total interest-earning assets............... (12.95)% (24.72)% 7.76% 15.25%
60 ~~68 The following table sets forth the distribution~~Comptroller of the expected maturities of the bank's interest-earning assets and interest-bearing liabilities as of December 31, 1999 as well as the fair value of these instruments. Expected maturities are based on contractual agreements. Savings accounts and interest-bearing transaction accounts, which have no stated maturity, are included in the 2000 maturity category. EXPECTED MATURITIES
2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE ------- ------ ------ ------ ------ ---------- ------- ---------- (DOLLARS IN THOUSANDS) (UNAUDITED) Federal funds sold.................... $ 6,010 -- -- -- -- -- $ 6,010 $ 6,010 Weighted average rate............... 5.66% 5.66% Interest-bearing deposits in banks.... $ 496 -- -- -- -- -- $ 496 $ 496 Weighted average rate............... 6.01% 6.01% Investment securities(1).............. $ 1,955 $3,002 $4,164 $1,000 $1,389 $3,264 $14,774 $14,666 Weighted average rate............... 4.88% 5.35% 5.35% 5.55% 5.11% 5.85% 5.39% Fixed rate loans...................... $ 3,611 $3,015 $2,206 $1,634 $1,862 $1,161 $13,489 $15,043 Weighted average rate............... 8.79% 9.26% 9.42% 9.35% 9.28% 9.56% 9.21% Variable rate loans(2)................ $35,586 $2,703 $3,118 $2,202 $2,322 $1,768 $47,699 $47,699 Weighted average rate............... 10.25% 10.33% 9.63% 9.95% 8.81% 9.16% 10.10% FHLB stock............................ $ 265 -- -- -- -- -- $ 265 $ 265 Weighted average rate............... 5.29% 5.29% Total interest-bearing assets......... $47,923 $8,720 $9,488 $4,836 $5,573 $6,193 $82,733 $84,179 Savings deposits(3)................... $30,514 -- -- -- -- -- $30,514 $30,514 Weighted average rate............... 2.01% 2.01% Time deposits......................... $37,859 $1,381 $ 365 -- -- -- $39,605 $39,585 Weighted average rate............... 5.02% 5.45% 5.45% 5.04% Total interest-bearing liabilities.... $68,373 $1,381 $ 365 -- -- -- $70,119 $70,099
- ------------------------- (1) Interest rates on tax exempt obligations have not been tax effected to include the related tax benefits in calculating the weighted average yield. (2) All variable rate loans reprice in one year or less. (3) Savings deposits include interest-bearing transaction accounts. 61 69 In addition, the bank utilizes a model to project changes in net interest income that would occur based on forecasted changes in the interest rate environment. The model compares net interest margin in a flat interest rate scenario to forecasted financial results based on interest rates with an increase of 200 basis points and a decrease of 200 basis points over a 12 month forecast period. The model shows that the bank's net interest income will benefit from increasing interest rates, while decreasing interest rates will have an adverse impact on earnings. The projected drop in net interest income of 6.7% with a 200 basis point drop in interest rates is within reasonable tolerances. The following table summarizes the simulated change in net interest income, based on the 12-month period ending December 31, 2000:
ESTIMATED INCREASE CHANGES IN INTEREST ESTIMATED NET INTEREST (DECREASE) IN NET INTEREST RATES (BASIS POINTS) INCOME AMOUNT INCOME AMOUNT PERCENT - -------------------- ---------------------- -------------------------- ------- (DOLLARS IN THOUSANDS) (UNAUDITED) +200 $5,480 $ 323 6.3% -- 5,157 -- -200 4,812 (345) (6.7)
The bank analyzes its position to be able to maintain its net interest margin while ensuring adequate liquidity in times of both rising and falling interest rates. In adjusting the bank's asset/ liability position, management monitors its interest rate risk while striving to enhance net interest margins. Depending on the level of interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, management may increase the interest rate risk position in order to increase its net interest margin. The bank's results of operations and net portfolio values remain vulnerable to increases in the interest rate environment and to fluctuations in the margin between long- and short-term interest rates. CAPITAL RESOURCES The current and projected capital position of the bankCurrency and the ~~impact of capital plans~~Federal Deposit Insurance Corporation.

Redwood Empire Bancorp and long term strategies are reviewed regularly by management. The bank's capital position represents the level of capital available to support continued operations and expansion. The bank's primary capital resource is shareholders' equity, which increased $798 thousand or 9.9%its subsidiaries had 159 full-time-equivalent employees at December 31, ~~1999 from December 31, 1998. This increase~~2003. Redwood’s headquarters are located at 111 Santa Rosa Avenue, Santa Rosa, California 95404-4905, and its telephone number is (707) 573-4800.

Additional information about Redwood Empire Bancorp and its subsidiaries is included in equity is primarily attributable to 1999 net income of $953 thousand less cash dividends paid of $39 thousand. Shareholders' equity accounts increased $2.7 million or 51.1% from December 31, 1997 to December 31, 1998. This increasedocuments incorporated by reference in ~~equity was primarily attributable to net income of $783 thousand and the proceeds from a public stock offering of approximately $2 million.~~this document. See “Where You Can Find Additional ~~capital was raised in order to expand the bank's service area by opening a branch in Williams, California. 62~~ 70 The bank is subject to various regulatory requirements administered by federal banking agencies. Under capital adequacy guidelines, the bank must meet specific capital guidelines that involve quantitative measures of the bank's liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The following table sets forth the leverage, tier 1 risk-based capital, and total risk-based capital ratios as of December 31, 1999 and 1998:
MINIMUM REGULATORY 1999 1998 REQUIREMENT ----- ----- ----------- Leverage Ratio.................................... 9.8% 9.8% 4.0% Tier 1 Risk-Based Capital Ratio................... 15.2% 14.0% 4.0% Total Risk-Based Capital Ratio.................... 16.5% 15.3% 8.0%
~~All ratios exceed the regulatory minimum requirements as well as the regulatory minimum requirements for a "well capitalized" institution. 63~~ 71 Information” on page 78.

~~MARKET PRICE AND DIVIDEND INFORMATION ~~MARKET QUOTATIONS Westamerica's~~~~

Westamerica Bancorporation’s common stock is traded on the Nasdaq National Market ~~("Nasdaq")~~ under the symbol ~~"WABC." First Counties'~~“WABC.” Redwood Empire Bancorp common stock is thinly traded in the over-the-counter market on the ~~OTC Bulletin Board~~Nasdaq National Market under the symbol ~~"FTCB."~~“REBC.” The following table ~~sets forth~~lists for Westamerica Bancorporation and Redwood Empire Bancorp common stock the high and low closing sale prices, as reported on ~~Nasdaq, and for First Counties the high and low bid prices as reported to First Counties by brokers handling trades in its common stock.~~Nasdaq. The quotations shown have been adjusted to reflect stock dividends and represent inter-dealer prices, without retail mark-up, mark-down or commissions and, to the extent they represent bid prices, may not necessarily represent actual transactions.
WESTAMERICA FIRST COUNTIES COMMON STOCK COMMON STOCK ---------------- ---------------- HIGH LOW HIGH LOW ------ ------ ------ ------ 1998 First Quarter...................................... $35.25 $30.67 $ 9.30 $ 9.07 Second Quarter..................................... 36.38 28.50 12.02 10.77 Third Quarter...................................... 33.63 23.63 11.56 10.88 Fourth Quarter..................................... 37.25 23.88 9.76 9.05 1999 First Quarter...................................... $37.50 $31.63 $12.26 $10.12 Second Quarter..................................... 37.13 30.00 11.88 10.00 Third Quarter...................................... 36.50 28.94 11.38 10.38 Fourth Quarter..................................... 35.13 26.63 11.75 10.88 2000 First Quarter...................................... $27.75 $21.00 $20.50 $10.75 Second Quarter (through )........... 27.81 26.06 18.38 17.13

~~Redwood Empire Bancorp common stock high and low closing sale prices are restated to reflect a three-for-two stock split announced on July 16, 2003.~~

As of February 28, 2004, there were approximately 8,900 shareholders of record of the Westamerica Bancorporation common stock. As of December 31, ~~1999,~~2003 there were ~~8,754~~approximately 1,099 shareholders of record of ~~Westamerica's~~Redwood Empire Bancorp’s common stock. ~~DIVIDENDS AND DIVIDEND POLICY~~

Westamerica Bancorporation has paid cash dividends on its common stock in every quarter since its formation in 1972. Although ~~Westamerica's~~Westamerica Bancorporation’s board of directors will consider the advisability and amount of proposed dividends each quarter, it is currently the intention of the board of directors of Westamerica Bancorporation to continue payment of cash dividends on a quarterly basis. Future dividends will be determined in light of ~~Westamerica's~~Westamerica Bancorporation’s earnings, financial condition, future capital needs, regulatory requirements and such other factors as the board of directors may deem relevant. There is no assurance, however, that any dividends will be paid because they are dependent upon earnings, financial condition and capital requirements of Westamerica Bancorporation and its subsidiaries. As of December 31, ~~1999, $118.7~~2003, $174.2 million was available for payment of dividends by Westamerica Bancorporation to its shareholders, under applicable laws and regulations. 64 72

There are regulatory limitations on cash dividends that may be paid by Redwood Empire Bancorp as well as regulatory limitations on cash dividends that may be paid by National Bank of the Redwoods to Redwood Empire Bancorp which could limit Redwood Empire Bancorp’s ability to pay dividends. Federal regulatory agencies also have the authority to prohibit the payment of dividends by National Bank of the Redwoods if a finding is made that such payment would constitute an unsafe or unsound practice, or if National Bank of the

Redwoods became critically undercapitalized. Redwood Empire Bancorp currently expects that it will continue to pay comparable cash dividends; however, future dividends are subject to approval by Redwood Empire Bancorp’s board of directors and will depend upon a number of factors, including future earnings, financial condition, regulatory restrictions, cash needs and general business conditions.

The following table ~~sets forth~~shows the per share cash dividend declared by Westamerica Bancorporation and by ~~First Counties~~Redwood Empire Bancorp during each quarter since January 1, ~~1998.~~
~~FIRST WESTAMERICA COUNTIES ----------- --------~~ 1998 First Quarter............................................... $0.12 $ -- Second Quarter.............................................. 0.12 -- Third Quarter............................................... 0.14 -- Fourth Quarter.............................................. 0.14 -- 1999 First Quarter............................................... $0.16 $ -- Second Quarter.............................................. 0.16 -- Third Quarter............................................... 0.16 0.05 Fourth Quarter.............................................. 0.18 -- 2000 First Quarter............................................... $0.18 $ -- Second Quarter (through )...................... -- --
~~Westamerica's primary source of funds for payment of~~2002.

Redwood Empire Bancorp dividends are restated to its shareholders will be the receipt of dividends and management fees from its subsidiaries. The payment of dividends by banks is subject to various legal and regulatory restrictions. First Counties paidreflect a ~~cash dividend of $0.05 per share in 1999. 65~~ 73 three-for-two stock split announced on July 16, 2003.

The authorized capital stock of Westamerica Bancorporation consists of 150,000,000 shares of common stock, no par value, 1,000,000 shares of Class B common stock and 1,000,000 shares of preferred stock. As of December 31, ~~1999,~~2003, there were ~~37,124,734~~approximately 34,200,000 shares of common stock outstanding and no shares of either Class B common stock or preferred stock outstanding. In addition, options to acquire an additional ~~1,066,707~~1,600,000 shares of Westamerica Bancorporation common stock were issued and outstanding. ~~COMMON STOCK~~

Holders of Westamerica Bancorporation common stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders, except that, upon giving the notice required by the Westamerica Bancorporation bylaws, shareholders may cumulate their votes for the election of directors. Shareholders are entitled to receive ratably such dividends as may be legally declared by ~~Westamerica's~~Westamerica Bancorporation’s board of directors. There are legal and regulatory restrictions on the ability of Westamerica Bancorporation to declare and pay dividends. See ~~"Market~~“Market Price and Dividend Information --— Dividends and Dividend Policy."” Westamerica Bancorporation is also subject to certain restrictions on its ability to pay dividends and the amount thereof under the terms a certain debt agreement. See ~~"--~~“— Debt Agreement."” In the event of a liquidation, common shareholders are entitled to share ratably in all assets remaining after payment of liabilities and liquidation preference for securities with a priority over the Westamerica Bancorporation common stock. Attached to each outstanding share of Westamerica Bancorporation common stock is a Right which entitles the holder to certain rights as ~~set forth~~described in the Amended and Restated Rights Agreement. See ~~"Certain differences~~“Certain Differences in ~~rights~~Rights of ~~shareholders -- shareholder rights plan" on page 69.~~Shareholders — Shareholder Rights Plan.” Shareholders of Westamerica Bancorporation common stock have no preemptive or conversion rights. Westamerica Bancorporation common stock is not subject to calls or assessments. The transfer agent and registrar for Westamerica Bancorporation common stock is ~~Harris Trust Company of California.~~ Computershare Investor Services ~~LLC will replace Harris Trust Company of California as transfer agent on July 1, 2000. PREFERRED STOCK AND CLASS~~LLC.

The Westamerica Bancorporation board of directors is authorized to fix the rights, preferences, privileges and restrictions of the preferred stock and the Class B common stock and may establish series of such stock and determine the variations between series. If and when any preferred stock is issued, the holders of preferred stock may have a preference over holders of Westamerica Bancorporation common stock upon the payment of dividends, upon liquidation of Westamerica Bancorporation, in respect of voting rights and in the redemption of the capital stock of ~~Westamerica.~~Westamerica Bancorporation. The Westamerica Bancorporation articles of incorporation provide that except as otherwise provided by law or by the Westamerica Bancorporation board of directors, shares of Class B common stock shall have no voting rights. The issuance of any preferred stock or Class B common stock may have the effect of delaying, deferring or preventing a change in control of Westamerica Bancorporation without further action of its shareholders. The issuance of such stock with voting and conversion rights may adversely affect the voting power of the holders of Westamerica Bancorporation common stock. Westamerica Bancorporation has no present plans to issue any shares of preferred stock or Class B common stock. ~~DEBT AGREEMENT~~

Westamerica Bancorporation is a party to a certain debt agreement containing restrictions on the payment of dividends and the amount thereof, as well as financial and other covenants, as described below. In 1996 Westamerica Bancorporation issued and sold $22,500,000 aggregate principal amount of its 7.11% Senior Notes due February 1, 2006, payable semiannually, pursuant to a Senior Note Agreement dated as of February 1, 1996. The Senior Notes require that commencing February 1, 2000 and ending February 1, 2005 Westamerica Bancorporation shall make principal repayments of the lesser of $3,214,286 or the principal amount then outstanding. The Senior Note Agreement contains covenants and other 66 74 provisions usual and customary for senior indebtedness of this type including, but not limited to, capital debt maintenance ratios, maintenance of specified levels of consolidated tangible net worth, limitations on indebtedness, a fixed charge coverage ratio and restrictions on the payment of dividends or other distributions. Westamerica Bancorporation is in full compliance with the terms of the Debt Agreement. The Senior Note Agreement does not

prohibit Westamerica Bancorporation from executing and delivering the merger agreement or consummating the merger, nor does it currently limit the payment of regular quarterly dividends. ~~AUTOMATIC DIVIDEND REINVESTMENT SERVICE AND EMPLOYEE STOCK PURCHASE PLAN~~

~~Automatic Dividend Reinvestment Service and Employee Stock Purchase Plan~~

Pursuant to the Westamerica Bancorporation Automatic Dividend Reinvestment Service and the Employee Stock Purchase Plan, Westamerica Bancorporation provides eligible shareholders and employees of Westamerica Bancorporation and its subsidiaries a method of investing cash dividends and optional cash payments in additional shares of Westamerica Bancorporation common stock without payment of any brokerage commission or service charge. The Automatic Dividend Reinvestment Service and the Employee Stock Purchase Plan include certain dollar limitations on optimal cash payments.

~~DESCRIPTION OF ~~FIRST COUNTIES COMMON~~REDWOOD EMPIRE BANCORP CAPITAL STOCK ~~The~~~~

Redwood Empire Bancorp currently has an authorized ~~capital stock of First Counties consists~~capitalization of 10,000,000 shares of common stock ~~no par value. As of March 14, 2000, there were 825,871~~and 2,000,000 shares of ~~common stock outstanding. In addition, options to acquire an additional 77,423~~preferred stock. Of these authorized capital shares, [ ] shares of ~~First Counties~~ common stock were issued and ~~outstanding. COMMON STOCK~~outstanding and an additional [ ] shares of Redwood Empire Bancorp’s common stock were reserved for issuance pursuant to Redwood Empire Bancorp’s Stock option plan or for exercise of option outside of the option plan [as of ].

The balance of Redwood Empire Bancorp’s authorized common stock is available to be issued when and as the board of directors of Redwood Empire Bancorp determines it advisable to do so. Common shares could be issued for the purpose of raising additional capital, in connection with acquisitions or formation of other businesses, or for other appropriate purposes. The board of directors of Redwood Empire Bancorp has the authority to issue common shares to the extent of the present number of authorized unissued shares without obtaining the approval of existing holders of common shares. If additional shares of Redwood Empire Bancorp’s common stock were to be issued, the existing holders of Redwood Empire Bancorp shares would own a proportionately smaller portion of the total number of issued and outstanding common shares.

Redwood Empire Bancorp is authorized to issue 2,000,000 million shares of preferred stock, without par value. The Redwood Empire Bancorp board of directors has the authority to issue Redwood Empire Bancorp preferred stock in one or more series and to fix the dividend rights, dividend rate, liquidation preference, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), and the number of shares constituting any such series, without any further action by the shareholders unless such action is required by applicable rules or regulations or by the terms of other outstanding series of Redwood Empire Bancorp preferred stock. Subject to the limits and restrictions stated in any resolution originally fixing the number of shares constituting any series of Redwood Empire Bancorp preferred stock, the Redwood Empire Bancorp board of directors may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issuance of shares of that series. Any shares of Redwood Empire Bancorp preferred stock which may be issued may rank prior to shares of Redwood Empire Bancorp common stock as to payment of dividends and upon liquidation. Redwood Empire Bancorp has not issued any shares of preferred stock and has no current intention of doing so.

All voting rights with respect to Redwood Empire Bancorp are vested in the holders of Redwood Empire Bancorp’s common stock. Holders of ~~First Counties~~Redwood Empire Bancorp common stock are entitled to one vote for each share held ~~of record on all matters submitted to a vote of shareholders,~~ except that ~~upon giving~~in the ~~notice required~~election of directors each shareholder has cumulative voting rights and is entitled to as many votes as shall equal the number of shares held by such shareholder multiplied by the ~~First Counties bylaws,~~number of directors to be elected and such shareholder may cast all his or her votes for a single candidate or distribute such votes among any or all of the candidates he or she chooses. No shareholder shall be entitled to cumulate votes (in other words, cast for any candidate a number of votes greater than the number of shares of

stock held by such shareholder) unless such candidate or candidates’ names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder’s intention to cumulate votes. If any shareholder has given such notice, all shareholders may cumulate their votes for the election of directors. Shareholders are entitled to receive ratably such dividends as may be legally declared by First Counties board of directors. There are legal and regulatory restrictions on the ability of First Counties to declare and pay dividends. See "Market Price and Dividend Information -- Dividends and Dividend Policy" on page 64. In the event of a liquidation, common shareholders are entitled to share ratablycandidates in ~~all assets after payment of creditors.~~ nomination.

Shareholders of ~~First Counties~~Redwood Empire Bancorp common stock have no preemptive rights. Also, there are no applicable conversion rights, redemption rights or ~~conversion rights. First Counties~~sinking fund provisions.

Upon liquidation of Redwood Empire Bancorp and satisfaction of creditor claims, the shareholders of Redwood Empire Bancorp’s common stock ~~is not subject~~have the right to ~~calls or assessments. The transfer agent and registrar for First Counties common stock is U. S. Stock Transfer Corporation. 67~~ 75 receive their pro rata portion of the assets of Redwood Empire Bancorp distributable to shareholders.

The following is a general discussion of the material differences between the rights of Westamerica Bancorporation shareholders under the Westamerica Bancorporation articles and bylaws and the rights of ~~First Counties~~Redwood Empire Bancorp shareholders under the ~~First Counties~~Redwood Empire Bancorp articles and bylaws and applicable California law. ~~GENERAL~~

Westamerica isBancorporation and Redwood Empire Bancorp are both incorporated under and subject to all the provisions of the General Corporation Law of California. ~~First Counties is incorporated under and subject to all of the provisions of the California Banking Law and substantially all of the provisions of the California General Corporation Law.~~ Upon consummation of the merger, except for those persons, if any, who dissent from the merger and perfect appraisal rights under the California Law, ~~or receive all cash in the merger,~~ the shareholders of ~~First Counties~~Redwood Empire Bancorp will become shareholders of ~~Westamerica. DECLARATION OF DIVIDENDS Under California Law, the directors of~~ Westamerica may declare and pay dividends upon the shares of its capital stock either (i) out of its retained earnings, or (ii) out of capital, provided the company would, after making the distribution, meet two conditions, which generally stated are as follows: (i) the corporation's assets must equal at least 125% of its liabilities; and (ii) the corporation's current assets must equal at least its current liabilities or, if the average of the corporation's earnings before taxes on income and before interest expense for the two preceding fiscal years was less than the average of the corporation's interest expense for such fiscal years, then the corporation's current assets must equal at least 125% of its current liabilities. Under the California Banking Law, First Counties may pay a dividend equal to its retained earnings or its net income from the last three years, whichever is less, or, with the prior approval of the Commissioner, it may pay dividends up to the greatest of its retained earnings, its net income for its last fiscal year or its net income for its current fiscal year. CUMULATIVE VOTING Shareholders of both Westamerica and First Counties are entitled to cumulate their votes for the election of directors. Cumulative voting allows a shareholder to cast a number of votes equal to the number of directors to be elected multiplied by the number of shares held in the shareholder's name on the record date. This total number of votes may be cast for one nominee or may be distributed among as many candidates as the shareholder desires. The candidates (up to the number of directors to be elected) receiving the highest number of votes are elected. A California corporation that is a "listed corporation" may, by amending its articles or bylaws, eliminate cumulative voting for directors. Because Westamerica's common stock is quoted on the Nasdaq National Market, it qualifies as a listed corporation. Such an amendment requires the approval of holders of a majority of the outstanding shares of Westamerica common stock. Westamerica has no present plan to propose an amendment to eliminate cumulative voting. CLASSIFIED BOARD OF DIRECTORS At present, the Westamerica bylaws and the First Counties bylaws provide directors will be elected for a one-year term at each Annual Meeting of Shareholders. A California corporation that is a "listed corporation" may, by amending its articles or bylaws, provide for a staggered or classified board of directors. Such an amendment requires the approval of holders of a majority of the outstanding shares of Westamerica common stock. Because Westamerica common stock is quoted on 68 76 the Nasdaq National Market, it qualifies as a listed corporation. Westamerica has no present plan to propose an amendment to provide for a classified board of directors. DISSENTERS' RIGHTS IN MERGERS AND OTHER REORGANIZATIONS Under California Corporation Law, a dissenting shareholder of a corporation participating in certain business combinations may, under varying circumstances, receive cash in the amount of the fair market value of his or her shares in lieu of the consideration he or she would otherwise receive under the terms of the transaction. The California General Corporation Law generally does not require dissenters' rights of appraisal with respect to shares which, immediately prior to the merger, are (i) listed on any national securities exchange certified by the Commissioner or (ii) listed on the National Market System of the Nasdaq Stock Market. Westamerica common stock is listed on Nasdaq National Market. Westamerica shareholders generally have more limited dissenters' rights in connection with business combinations than do First Counties shareholders. Dissenters' rights are not available to the shareholders of a corporation surviving a merger if no vote of the shareholders of the surviving corporation is required. SHAREHOLDERS RIGHTS PLANBancorporation.

In December 1986, Westamerica Bancorporation declared a dividend distribution of one common share purchase right (a ~~"Right"~~“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 Westamerica Bancorporation approved a further amendment and restatement of Rights. The Amended and Restated Rights Agreement entitles the holders of each share of Westamerica Bancorporation common stock to the right (each, a ~~"Westamerica Right"~~“Westamerica Bancorporation Right”), when exercisable, to purchase from Westamerica Bancorporation one share of its common stock at a price of $21.667 per share, subject to adjustment in certain circumstances. A Westamerica Bancorporation Right is attached to each share of Westamerica Bancorporation common stock. The Westamerica Bancorporation Rights only become exercisable and trade separately from Westamerica Bancorporation common stock following the earlier of (i) a public announcement that a person or a group of affiliated or associated persons has become the beneficial owner of Westamerica Bancorporation securities having 15% or more of ~~Westamerica's~~Westamerica Bancorporation’s voting power (an ~~"Acquiring Person"~~“Acquiring Person”) or (ii) 10 days following the commencement of, or a public announcement of an intention to make, a tender or exchange offer which would result in any person having beneficial ownership of securities having 15% or more of such voting power. Upon becoming exercisable, each holder of a Westamerica Bancorporation Right (other than an Acquiring Person whose rights will become null and void) will, for at least a 60-day period thereafter, have the right (subject to the following sentence), upon payment of the exercise price of $21.667, to receive upon exercise that number of shares of Westamerica Bancorporation common stock having a market value of twice the exercise price of the Westamerica Bancorporation Right, to the extent available. 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 Westamerica Bancorporation common stock), exchange all or part of the then outstanding and exercisable Westamerica Bancorporation Rights (except for Westamerica Bancorporation Rights which have become void) for shares of Westamerica Bancorporation common stock equivalent to one share of Westamerica Bancorporation common stock per Westamerica Bancorporation Right or, alternatively, for substitute

~~consideration consisting of cash, securities of Westamerica Bancorporation or other assets (or any combination thereof).~~

As a precaution to ensure that it continues to be able to take appropriate action to protect the interests of Westamerica Bancorporation and its shareholders, ~~Westamerica's~~Westamerica Bancorporation’s board of directors approved the amendment of its ~~existing~~ Shareholder Rights Plan onin October 28, 1999, to ~~become effective November 19, 1999, to~~ update the ~~existing~~ plan and extend its ~~maturity~~term until December 31, 2004. The ~~new~~plan as amended ~~plan~~ is very similar in purpose and effect to the plan as it existed prior to amendment. It would help the ~~Board~~board of directors of Westamerica Bancorporation to maximize shareholder value in the event of a change of control of Westamerica Bancorporation and otherwise to resist actions that the board considers likely to injure 69 77 Westamerica Bancorporation or its shareholders. The Shareholder Rights Plan as amended and restated is referred to as the ~~"1999~~“1999 Rights Agreement."”

In addition to extending the maturity date of the plan an additional five years, the other material changes reflected in the 1999 Rights Agreement include: (1) an increase in the exercise price to $75; (2) a decrease in the redemption price of each Right to $.001; (3) a reduction of the amount of securities required to be acquired or a person or entity to become an ~~"Acquiring Person"~~“Acquiring Person”, thus triggering the ~~shareholders'~~shareholders’ rights, from 15% to 10%; and (4) the replacement of ChaseMellon Shareholder Services, LLC (successor in interest to Chemical Trust Company of California) with Harris Trust and Savings Bank (now Harris Trust Company of California) as the Rights Agent.

Westamerica Bancorporation intends to ~~substitute Computershare Investor Services LLC~~amend certain provisions, including the exercise price, and to extend the term of the amended plan beyond its current termination date of December 31, 2004.

Redwood Empire Bancorp has no shareholder rights plan or similar provisions in it articles of incorporation, bylaws or otherwise that would provide similar restrictions on the acquisition of Redwood Empire Bancorp.

The bylaws of Westamerica Bancorporation and Redwood Empire Bancorp require different quorums for shareholder actions. Redwood Empire Bancorp’s bylaws require the presence of a majority of shares entitled to vote in person or by proxy for a quorum. Westamerica Bancorporation’s bylaws require the presence of one-third of the shares entitled to vote in person or by proxy for a quorum.

Westamerica Bancorporation and Redwood Empire Bancorp vary as ~~Rights Agent on or about July 1, 2000. 70~~ ~~78 PROPOSAL TWO -- ELECTION OF DIRECTORS There are eight nominees for election~~ to the First Counties Board this year. The nominees are Salah M. Darwish, Russell D. Jeter, R. Alyn Johnson, James E. Jonas, Jerry L. Maltby, Calvin D. McCarley, David G. Perry and Dennis P. Pluth. Information regarding the business experiencerange of ~~each nominee is provided below. All~~ directors ~~are elected annually~~allowed to serve until the next Annual Meeting and until their respective successors are elected. THE BOARD OF DIRECTORS OF FIRST COUNTIES RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE NOMINEES. INFORMATION ON DIRECTORS AND NAMED EXECUTIVE OFFICERS The following table sets forth certain information concerning the directors as well as the named executive officers of First Counties:
YEAR FIRST PRINCIPAL OCCUPATION DURING NAME AND TITLE AGE APPOINTED LAST FIVE YEARS -------------- --- ---------- --------------------------- (DIRECTOR NOMINEES) Salah M. Darwish 56 1986 President and Chief Executive Officer of Thompson and Director Darwish Cardiopulmonary Contractors, Inc. Russell D. Jeter 43 1985 Real Estate Developer and contractor with Jeter Director Construction. R. Alyn Johnson 63 1994 Retired with part-time position in public relations for V. Director Sattui Winery. James E. Jonas 61 1985 President and co-owner of Jim Jonas, Inc., a petroleum Chairman products distributor. Jerry L. Maltby 55 1998 Rice farmer and cattle rancher with Broken Box Ranch; Director president of Prentis Rice Corporation. Calvin D. McCarley 64 1986 Retired. Also, a rancher and private investor. Director David G. Perry 60 1990 President and Chief Executive Officer of the Bank. Director, President & CEO Dennis P. Pluth 63 1994 Broker/Associate and former Owner and President of Shore Director Line Realty, Inc. (EXECUTIVE OFFICERS) Thomas E. Becker, 52 1995 Senior Vice President/Branch Administrator of First Senior Vice President, Counties since May, 1999. Vice President Branch Administrator Evelyn Jean Chrisman, 46 1991 Executive Vice President/Chief Credit Officer of First Executive Vice President, Counties since May, 1999. Senior Vice President of First Chief Credit Officer Counties since January, 1998. Compliance Officer of First Counties since 1996 and CRA Officer of First Counties since 1991. Millie A. Hammes, 43 1985 Executive Vice President/Chief Financial Officer of First Executive Vice President, Counties since May, 1999. Senior Vice President/Chief Chief Financial Officer Financial Officer since 1995.
None of the directors were selected pursuant to any arrangement or understanding other than with the directors and executive officers of First Counties acting within their capacities as such. There are no family relationships between any of the directors of First Counties. No director of First Counties serves as a director of any company which has a class of securities registered under, or which is subject to the periodic reporting requirements of, the Exchange Act, or of any company registered as an investment company under the Investment Company Act of 1940. 71 79 FIRST COUNTIES' BOARD OF DIRECTORS AND COMMITTEES First Counties' board of directors held 14 meetings during 1999. In addition to meeting as a group to review First Counties' business, members of the board of directors devoted their time and talents to certain standing committees. None of the directors attended less than 75% of the board of directors' meetings and committee meetings (of which they were a member) that were held in 1999. First Counties has an Audit Committee which met four times during 1999. The Audit Committee consisted of Messrs. Johnson (chairman), Darwish, Jeter, Jonas, Maltby, McCarley and Pluth. The Audit Committee is responsible for overseeing the internal auditing functions and interfacing with First Counties' independent outside auditors. First Counties also has a Personnel Committee which met twice in 1999. The Personnel Committee consists of all of the members ofon the board of directors. ~~The Personnel Committee is responsible for determining the compensation~~Westamerica Bancorporation’s bylaws allow between eight and fifteen directors. Redwood Empire Bancorp’s bylaws allow between five and nine directors.

Westamerica Bancorporation’s bylaws allow any shareholder or voting trust certificate holder to view its shareholder ledger upon written demand. Redwood Empire Bancorp’s bylaws restrict this right to holders of the executive officers and setting the guidelines for the compensation of the employees of First Counties. During 1999 First Counties did not have a Nominating Committee. SHAREHOLDINGS OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Management of First Counties knows of no person who owns, beneficially or of record, either individually or together with associates, 5 percent or moreat least 5% of the outstanding voting shares of ~~common stock, except as set forth in the table below.~~Redwood Empire Bancorp.

The following ~~table sets forth,~~unaudited pro forma condensed combined financial information and explanatory notes present how the combined financial statements of Westamerica Bancorporation and Redwood Empire Bancorp may have appeared had the businesses actually been combined at the beginning of the period presented. The unaudited pro forma condensed combined financial information shows the impact of the merger of Westamerica Bancorporation and Redwood Empire Bancorp on the companies’ respective historical financial positions and results of operations under the purchase method of accounting with Westamerica Bancorporation treated as the acquirer. Under this method of accounting, the assets and liabilities of Redwood Empire Bancorp will be recorded by Westamerica Bancorporation at their estimated fair values as of ~~March 22, 2000,~~ the ~~number~~date the merger is completed. The unaudited pro forma condensed combined financial information combines the historical financial information of Westamerica Bancorporation and ~~percentage~~Redwood Empire Bancorp as of ~~shares of common stock beneficially owned, directly or indirectly, by each of First Counties' directors, named executive officers~~ and principal shareholders and by the directors and executive officers of First Counties as a group. The shares "beneficially owned" are determined under SEC Rules, and do not necessarily indicate ownership for any other purpose. In general, beneficial ownership includes shares over which the person has sole or shared voting or investment power and shares which such person has the right to acquire within 60 days of March 22, 2000. Unless otherwise indicated, the persons listed below have sole voting and investment powers of the shares beneficially owned.
SHARES BENEFICIALLY PERCENT OF HELD CLASS(1) ------------ ----------- DIRECTORS Salah M. Darwish............................................ 32,818(2) 4.0% Russell D. Jeter............................................ 62,126(3) 7.5 R. Alyn Johnson............................................. 1,212 Less than 1% James E. Jonas.............................................. 20,522(4) 2.5 Jerry L. Maltby............................................. 10,684(5) 1.3 Calvin D. McCarley.......................................... 36,552(6) 4.4 David G. Perry.............................................. 45,506(7) 5.4 Dennis P. Pluth............................................. 12,437 1.5 All Directors and Executive Officers as a Group (11 in all)...................................................... 259,107(8) 29.4 PRINCIPAL SHAREHOLDER Pat Hopper.................................................. 80,074(9) 9.7
- ------------------------- (1) Includes shares subject to options held by the executive officers that are exercisable within 60 days of the record date. These are treated as issued and outstanding for the purpose of computing the percentage of Mr. Perry and the directors and executive officers as a group, but not for the purpose of computing the percentage of class of any other person. 72 80 (2) Mr. Darwish has shared voting and investment powers as to 15,145 of these shares. (3) Mr. Jeter has shared voting and investment powers as to 40,776 of these shares. Mr. Jeter's address is: c/o First Counties Bank, 15145 Lakeshore Drive, Clearlake, California 95422. (4) Mr. Jonas has shared voting and investment powers as to 17,664 of these shares. (5) Mr. Maltby has shared voting and investment powers as to 7,928 of these shares. (6) Mr. McCarley has shared voting and investment powers as to 12,185 of these shares. (7) Mr. Perry has 21,045 shares acquirable by exercise of stock options. Mr. Perry's address is: c/o First Counties Bank, 15145 Lakeshore Drive, Clearlake, California 95422. (8) Includes 54,371 shares acquirable by exercise of stock options within 60 days of March 22, 2000 held by the executive officers of the First Counties. (9) Mr. Hopper's address is 2624 Pebble Gold Avenue, Henderson, Nevada 89014-1950. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS From January 1999 through May 1999, the directors of First Counties, other than Mr. Jonas, received $400 per board meeting attended. During this period, Mr. Jonas received $450 per board meeting attended as First Counties' Chairman of the Board. Also during this period, the directors other than Mr. Perry received $50 per each committee meeting attended which was not held in conjunction with a board meeting. From June 1999 through December 1999, the directors of First Counties, other than Mr. Jonas, received $600 per board meeting attended. During this period, Mr. Jonas received $700 per meeting attended. Also, the directors other than Mr. Perry received $50 per committee meeting attended which was not held in conjunction with a board meeting. Further, the chairman of the Directors Loan Committee received $100 per month in addition to the regular $50 per meeting attended. During 2000, directors will receive the same fees as those received in June 1999. The following table describes the compensation paid to the chief executive officer in the last three years (excluding directors' fees described above). No other officer was paid $100,000 in total compensation in 1999.
SHARES OTHER ANNUAL ALL OTHER UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION(1) COMPENSATION(2) OPTIONS GRANTED - --------------------------- ---- -------- --------------- --------------- --------------- David G. Perry.............. 1999 $112,960 $ 750 $1,512 19,950 President, CEO and 1998 110,320 5,500 1,512 1,102 Director of First Counties 1997 105,570 6,000 1,625
- ------------------------- (1) Consists of an annual automobile allowance. (2) Represents First Counties' contribution for the cost of premiums for disability insurance and 401(k) employer matching contribution. The following table provides information on options granted to Mr. Perry in 1999.
PERCENT OF TOTAL NUMBER OF SHARES OPTIONS GRANTED UNDERLYING TO EMPLOYEES IN EXERCISE EXPIRATION NAME OPTIONS FISCAL YEAR PRICE DATE ---- ------------------ ------------------ -------- ---------- ~~David G. Perry...................... 19,950 34.5% $10.11 March 2009~~
73 ~~81 The following table describes the aggregated option exercises by Mr. Perry in 1999 and the value of unexercised options held by him at December 31, 1999.~~
VALUE OF NUMBER OF UNEXERCISED UNEXERCISED IN-THE-MONEY SHARES OPTIONS/SARS AT OPTIONS/SARS AT ACQUIRED ON YEAR END (#) YEAR END ($) EXERCISE VALUE REALIZED EXERCISABLE/ EXERCISABLE/ NAME (#) ($) UNEXERCISABLE UNEXERCISABLE ---- ----------- -------------- --------------- --------------- ~~David G. Perry.............. 20,456 $119,667 21,052/0 $213,447/0 Options only~~
Employment Agreement. Mr. Perry has an employment agreement with First Counties to serve as its President and Chief Executive Officer. The agreement provides for Mr. Perry to serve for a term of five years beginning June 9, 1998, at a base annual salary of $110,000 per year with adjustments in the discretion of First Counties' board of directors. The agreement also provides Mr. Perry with disability, medical and dental insurance benefits and a suitable automobile for use in the performance of his duties. Mr. Perry shall also receive director's fees for monthly board meetings at the same level of fees paid to outside directors. In the event Mr. Perry is terminated by First Counties without cause, he will be entitled to severance pay equal to twelvesix months of his then current base annual salary and will be provided with insurance benefits for twelve months following the date of termination. In addition, in the event of any merger or consolidation where First Counties is not the surviving or resulting corporation, or upon transfer of all or substantially all of the assets of First Counties, and Mr. Perry is not retained by the resulting corporation in a position satisfactory to him, Mr. Perry shall be paid twice the base annual income and shall have the right to exercise all outstanding stock options within 90 days. Executive Salary Continuation Agreement. On January 2, 1997, First Counties' Board of Directors entered into an Executive Salary Continuation Agreement with Mr. Perry. The purpose of the Executive Salary Continuation Agreement is to provide special incentive to Mr. Perry for his continuing employment with First Counties on a long term basis. The Executive Salary Continuation Agreement provides Mr. Perry with salary continuation benefits of up to $50,000 per year for 15 years after retirement. Normal retirement in the Executive Salary Continuation Agreement is age 65. In the event of death prior to retirement, Mr. Perry's beneficiary will receive the full salary continuation benefits. In the event of disability wherein Mr. Perry does not continue employment with First Counties, Mr. Perry is entitled to a total yearly payment equal to $6,250 per year of service beginning January 2, 1997, up to a total yearly payment of $50,000. If Mr. Perry terminates employment with First Counties for a reason other than death, disability, or cause, prior to the normal retirement age, he will be entitled to salary continuation benefits calculated as set forth above for disability. In the event of a transfer of controlling ownership or sale of First Counties, Mr. Perry will be paid in cash in a lump sum on the date of the consummation of the transfer of controlling ownership or sale of First Counties, the present value of $50,000 being paid for a period of 15 years in 180 monthly installments beginning on the first day of the month following the consummation of the transfer of controlling ownership or sale of First Counties. In connection with the merger agreement, the parties amended this agreement to provide for payments of $50,000 per year to begin onended June 30, ~~2002, instead of a lump sum payment upon completion of the merger. CERTAIN TRANSACTIONS Some of the First Counties' directors~~2004 and ~~executive officers and their immediate families, as well as the companies with which they may have interest in, have had loans with First Counties in the 74~~ 82 ordinary course of the First Counties' business. In addition, First Counties expects to have loans with these persons in the future. In management's opinion, all these loans and commitments to lend were made in the ordinary course of business, were made in compliance with applicable laws on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with other persons of similar creditworthiness and, in the opinion of management, did not involve more than a normal risk of collectibility or present other unfavorable features. The outstanding balance under extensions of credit by First Counties to directors and executive officers of First Counties and to the companies that these directors and executive officers may have an interest was $1,123,902, and $769,994 as of December 31, 1999 and 1998, respectively. The Calistoga office of First Counties located at 1255 Lincoln Ave., Calistoga, California, is leased from Russell D. Jeter, a director of First Counties. The building is approximately 1,656 square feet and has an adjoining parking lot. The option period, (one of two five-year options) expires August 31, 2004. The annual base rental is currently $30,000. First Counties paid Mr. Jeter $26,865 in rent in 1999 and $25,297 in rent in 1998. Other than as disclosed above, there have been no transactions since January 1, 1999, nor are there any presently proposed transactions, to which First Counties was or is to be a party in which any of First Counties officers and directors had or have a direct or indirect material interest other than the proposed merger. 75 83 INDEPENDENT PUBLIC ACCOUNTANTS The board of directors of First Counties selected the firm of Perry-Smith LLP, independent public accountants, to audit and express an opinion on its consolidated financial statements for the years ended December 31, 1999 and 1998. Representatives of Perry-Smith LLP are expected to be present at the meeting with the opportunity to make a statement, if they desire to do so, and they are expected to be available to respond to appropriate questions. Audit services performed by Perry-Smith LLP for the year ended December 31, ~~1999, consisted~~2003. The unaudited pro forma condensed combined balance sheet as of ~~their examinations~~June 30, 2004 assumes the merger was completed on that date. The unaudited pro forma condensed combined statements of income give effect to the merger as if the merger had been completed on January 1, 2003. The pro forma information is based on an assumed Westamerica average closing price of $55.25 (the average closing price for the 20 trading days ended October 11, 2004) and a corresponding exchange ratio of 0.3122.

The merger agreement was announced on August 25, 2004 and provides for each outstanding share of Redwood Empire Bancorp common stock other than shares beneficially owned by Redwood Empire Bancorp and Westamerica Bancorporation to be converted into the right to receive $28.74, consisting of $11.49 in cash and $17.25 in shares of Westamerica Bancorporation common stock, subject to adjustment. The unaudited pro forma condensed combined financial information has been derived from and should be read in conjunction with the historical consolidated financial statements and the related notes of ~~First Counties~~both Westamerica Bancorporation and ~~its subsidiaries, consultation~~Redwood Empire Bancorp which are incorporated in this document by reference. See “Where You Can Find Additional Information” on page 78.

The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined companies had the companies actually been combined at the beginning of each period presented and had the impact of possible revenue enhancements, expense efficiencies, asset dispositions and share repurchases, among other factors, been considered. In addition, as explained in more detail in the accompanying notes to the unaudited pro forma condensed combined financial information, the allocation of the purchase price reflected in the pro forma condensed combined financial information is subject to adjustment and may vary from the actual purchase price allocation that will be recorded upon completion of the merger.

The Pro Forma Combined Balance Sheet is based on the previously-reported balance sheets of Westamerica and Redwood Empire as of June 30, 2004, combined as though the merger had taken place on those dates.

The Pro Forma Combined Statement of Income is based on the statements of income of Westamerica and Redwood Empire for the year ended December 31, 2003 and six months ended June 30, 2004, combined as though the Merger had taken place at the beginning of the periods.

Westamerica’s merger with Redwood Empire will be accounted for by Westamerica under the purchase method of accounting in accordance with SFAS No. 141. Under this method of accounting, the purchase price is allocated to assets acquired and ~~reporting matters.~~ liabilities assumed based on their estimated fair values at the Effective Time. The fair values of Redwood Empire’s assets and liabilities are preliminary and will likely be revised as updated information becomes available prior to the Merger Date.

The positive effects of potential cost savings and revenue enhancements which may be achieved subsequent to the Westamerica and Redwood Empire merger have not been reflected in the pro forma combined financial statements.

Pursuant to the merger agreement between Westamerica and Redwood Empire, each share of Redwood Empire Bancorp common stock outstanding at the merger closing will be converted into 0.3122 shares of Westamerica Common Stock, subject to certain adjustments. The value of Westamerica common stock to be issued in connection with the merger is approximately $85,342,000 based on the average closing prices of Westamerica common stock for the 20 days preceding October 12, 2004, taken from the prices listed on the NASDAQ National Market System. In addition, outstanding Redwood Empire stock options will be converted into Westamerica stock options. The fair value of the Westamerica options to be issued is approximately $6,100,000, calculated using a trinomial option pricing model and assuming a weighted average exercise price of $21.61, estimated weighted average remaining life of 24 months, a dividend yield of 2.22%, a risk-free rate of return of 3.26%, and volatility of 17.8%. In addition, Redwood Empire shareholders will be paid cash of $11.49 per share, for a total of approximately $56,848,000.

~~The following summarizes the total purchase price as of June 30, 2004 (in 000’s, except per share amounts):~~

~~The Westamerica/ Redwood Empire purchase price has been allocated as follows (in 000’s):~~

~~As previously stated, the purchase method of accounting requires that the purchase price be allocated to assets acquired and liabilities assumed based upon their fair values.~~

~~Based upon a preliminary assessment, the book values of Redwood Empire’s assets and liabilities approximate their fair values as of June 30, 2004.~~

~~The portion of the purchase price allocated to Intangible assets is comprised of $13,400,000 attributable to value of core deposits being acquired.~~

~~The pro forma adjustment to Intangible assets is comprised of the following ($ in 000’s):~~

The portion of intangible assets attributable to the value of core deposits being acquired is approximately 4% of Redwood Empire’s noninterest bearing transaction deposits, 4.5% of savings & money market deposits, and 1% of time deposits, for an overall draft processing operations is based on discounted expected future revenues, factoring in expected rates of attrition. The estimated fair values are subject to change as additional information becomes available and preliminary merger plans are finalized prior to the merger date.

The pro forma adjustment to Intangible assets attributable to core deposit intangibles results in an adjustment to Other expenses for annual amortization of approximately $1,914,000 per year (a seven-year life is assumed for pro forma financial purposes only). The pro forma adjustment to Intangible assets attributable to Redwood Empire’s merchant draft processing activity results in an adjustment to Other expenses for annual amortization of approximately $200,000 per year (a 25-year life is assumed for pro forma financial purposes only).

~~The pro forma adjustment to other assets is comprised of a credit for the deferred tax liability created in connection with the core deposit intangible related to the merger.~~

The liability for merger-related costs of $3,800,000 has been recorded in the Pro Forma Combined Balance Sheet reflecting management’s estimate of separation and benefit costs related to Redwood Empire’s employees to be terminated, premises expected to be vacated, and other merger costs. This estimated liability is based on preliminary plans which are subject to change as final plans are formulated prior to the merger closing.

~~The income tax provisions for adjustments reflected in the Pro Forma Combined Statements of Income have been computed at Westamerica’s combined federal and state marginal tax rate of 42%.~~

The board of directors of ~~First Counties~~Redwood Empire Bancorp knows of no other matters which will be brought before the meeting, but if such matters are properly presented, proxies solicited relating to the meeting will be voted in accordance with the judgment of the persons holding such proxies. All shares represented by duly executed proxies will be voted at the meeting.

The deadline for submitting shareholder proposals for publication in Westamerica Bancorporation’s proxy statement for its 2005 Annual Meeting of Shareholders and action on the proxy form for such meeting is 5:00 p.m. on November 15, 2004. Redwood Empire Bancorp does not anticipate that the merger will have occurred by that time, therefore, Redwood Empire Bancorp shareholders will not be able to submit such shareholder proposals for the Westamerica Bancorporation 2005 Annual Meeting of Shareholders based on ownership of Westamerica Bancorporation common stock they receive as merger consideration.

If the merger occurs, there will be no Redwood Empire Bancorp Annual Meeting of Shareholders for 2005. In case the merger is not completed, Redwood Empire Bancorp shareholders who expect to present a proposal at the 2005 Annual Meeting of Shareholders for publication in Redwood Empire Bancorp’s proxy statement and action on the proxy form for such meeting must submit their proposal by December 10, 2004. The proposal must be mailed to the Redwood Empire Bancorp Corporate Secretary at 111 Santa Rosa Avenue, Santa Rosa, California 95404-4905. If Redwood Empire Bancorp fails to receive notice of the proposal by such date, Redwood Empire Bancorp will not be required to include the proposal in its proxy statement. In addition to these advance notice requirements, there are other requirements that a shareholder must meet in order to have a proposal included in the proxy statement under the rules of the Securities and Exchange Commission.

The consolidated financial statements of Westamerica Bancorporation and subsidiaries as of December 31, ~~1999~~2003 and ~~1998~~2002 and for each of the years in the three-year period ended December 31, ~~1999, incorporated by reference in this proxy statement/prospectus~~2003, have been incorporated by reference herein and in the registration statement in reliance upon the report of KPMG LLP, independent ~~certified~~registered public ~~accountants,~~accounting firm, incorporated by reference ~~herein,~~in this document, and upon the authority of said firm as experts in accounting and auditing.

The consolidated financial statements of ~~First Counties~~Redwood Empire Bancorp as of December 31, ~~1999~~2003 and ~~1998~~2002 and for each of the years in the three-year period ended December 31, ~~1999, included~~2003, incorporated by reference in this ~~proxy statement/prospectus~~document have been audited by ~~Perry-Smith LLP,~~Crowe Chizek and Company LLC, independent ~~certified~~registered public ~~accountants,~~accounting firm as stated in their reports with respect ~~thereto,~~to such statements, and are ~~included herein~~incorporated by reference in this document in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.

Certain legal matters with respect to Westamerica Bancorporation, including the validity of the Westamerica Bancorporation common stock to be issued in connection with the merger, will be passed upon for Westamerica Bancorporation by Bingham McCutchen ~~Doyle, Brown & Enersen~~ LLP, San Francisco, California. Certain legal matters with respect to ~~First Counties~~Redwood Empire Bancorp will be passed upon by ~~Gary Steven Findley & Associates, Anaheim,~~Pillsbury Winthrop LLP, San Francisco, California.

Information concerning: ~~- directors and executive officers, - executive compensation, - principal stockholders, 76~~ ~~84 - certain relationships and related transactions, and -~~


	•	directors and executive officers;

	•	executive compensation;

	•	principal stockholders;

	•	certain relationships and related transactions; and

	•	and other related matters concerning Westamerica Bancorporation and Redwood Empire Bancorp,

is included or incorporated by reference in ~~its~~the annual ~~report~~reports on Form 10-K of Westamerica Bancorporation and Redwood Empire Bancorp for the year ended December 31, ~~1999. Westamerica's~~2003. The annual ~~report~~reports on Form 10-K isare incorporated by reference into this proxy statement/prospectus.

Westamerica ~~files~~Bancorporation and Redwood Empire Bancorp file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any reports, statements or other information that Westamerica Bancorporation or Redwood Empire Bancorp files at the ~~Commission's~~Commission’s public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. You may also obtain copies of this information by mail from the Public Reference Section of the Commission, 450 5th Street, N.W., Room 1024, Washington, DC 20545 at prescribed rates. Please call the Commission at (800) SEC-0330 for further information on the public reference rooms. The Commission also maintains an Internet World Wide Web site at ~~"http:~~“http://~~www.sec.gov"~~www.sec.gov” at which reports, proxy and information statements and other information regarding Westamerica Bancorporation and Redwood Empire Bancorp are available. ~~Reports, proxy statements and other information concerning First Counties may be inspected at the offices of the Nasdaq Stock Market, 1735 K Street, Washington, DC 20006.~~

Westamerica Bancorporation has filed with the Securities and Exchange Commission a registration statement on Form S-4 under the Securities Act relating to the shares of Westamerica Bancorporation common stock to be issued in connection with the merger. This ~~proxy statement/prospectus~~document is part of that registration statement and also constitutes the prospectus of Westamerica ~~filed as part~~Bancorporation and the proxy statement of ~~the registration statement and~~Redwood Empire Bancorp. This document does not ~~contain~~include all the information ~~set forth~~contained in the registration statement and exhibits ~~thereto.~~to the registration statement. You may copy and read the registration statement and its exhibits at the public reference facilities maintained by the Securities Exchange Commission at the address ~~set forth~~provided above.

The Commission allows Westamerica Bancorporation and Redwood Empire Bancorp to ~~"incorporate~~“incorporate by ~~reference"~~reference” information into this proxy statement/prospectus, which means that Westamerica Bancorporation and Redwood Empire Bancorp can disclose important information to you by referring you to another document filed separately with the Commission. The information incorporated by reference is deemed to be part of this proxy statement/prospectus, except for any information superseded by information contained directly in this proxy statement/prospectus. This proxy statement/prospectus incorporates by reference the documents ~~set forth~~listed below that Westamerica Bancorporation or Redwood Empire Bancorp has previously filed

~~with the Commission. These documents contain important information about Westamerica Bancorporation and ~~its~~Redwood Empire Bancorp and their financial condition.~~

Westamerica ~~incorporates~~Bancorporation and Redwood Empire Bancorp incorporate by reference ~~any~~certain additional documents that itthey may file with the Commission between the date of this proxy statement/prospectus and the date of the ~~First Counties~~Redwood Empire Bancorp special meeting. These include periodic reports, such as annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports filed on Form 8-K, as well as proxy statements. Westamerica Bancorporation has supplied all information contained or incorporated by reference in the proxy statement/prospectus relating to Westamerica Bancorporation and ~~First Counties~~Redwood Empire Bancorp has supplied all such information relating to ~~First Counties. 77~~ 85 This proxy statement/prospectus incorporates by reference documents relating to Westamerica which are not presented in this proxy statement/prospectus or delivered herewith. Those documents relating to Westamerica are available from Westamerica without charge, excluding all exhibits unless specifically incorporated by reference in this proxy statement/prospectus, by requesting them in writing or by telephone from Westamerica Bancorporation, Kris Irvine, Assistant Corporate Secretary, 4550 Mangels Boulevard, Fairfield, California 94585, (707) 863-6826. If you would like to request documents from Westamerica, please do so by , 2000, to receive them before the meeting. In deciding how to vote on the merger, you should rely only on the information contained or incorporated by reference in this proxy statement/prospectus. Neither Westamerica nor First Counties has authorized any person to provide you with any information that is different from what is contained in this proxy statement/prospectus. This proxy statement/prospectus is dated , 2000. You should not assume that the information contained in this proxy statement/prospectus is accurateRedwood Empire Bancorp.

Dated as of any date other than such date, and neither the mailing to you of this proxy statement/prospectus nor the issuance to you of shares of Westamerica common stock will create any implication to the contrary. This proxy statement/prospectus does not constitute an offer to sell or a solicitation of any offer to buy any securities, or the solicitation of a proxy in any jurisdiction in which, or to any person to whom, it is unlawful. 78 86 INDEPENDENT AUDITOR'S REPORT The Board of Directors and Shareholders First Counties Bank We have audited the accompanying consolidated balance sheet of First Counties Bank as of December 31, 1999 and 1998 and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of First Counties Bank as of December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ PERRY-SMITH LLP CERTIFIED PUBLIC ACCOUNTANTS Sacramento, California February 2, 2000, except for Note 16, as to which the date is March 14, 2000 F-1 ~~87 FIRST COUNTIES BANK CONSOLIDATED BALANCE SHEET DECEMBER 31, 1999~~August 25, 2004

AGREEMENT AND ~~1998~~
~~1999 1998 ----------- -----------~~ ASSETS Cash and due from banks..................................... $ 5,883,643 $ 3,986,339 Federal funds sold.......................................... 6,010,000 6,600,000 Interest-bearing deposits in banks.......................... 496,000 496,000 Investment securities (market value of $14,666,300 in 1999 and $13,603,300 in 1998) (Note 2)......................... 14,663,663 13,576,669 Loans, less allowance for loan losses of $1,164,273 in 1999 and $1,028,261 in 1998 (Notes 3, 7 and 11)................ 59,720,909 56,652,546 Other real estate and repossessed assets.................... 423,835 1,164,740 Bank premises and equipment, net (Note 4)................... 851,727 954,397 Accrued interest receivable and other assets (Notes 3, 10, 12 and 13)................................................ 2,834,428 2,553,291 ----------- ----------- $90,884,205 $85,983,982 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest bearing...................................... $10,937,976 $ 9,731,007 Interest bearing (Note 5)................................. 70,119,421 67,540,815 ----------- ----------- Total deposits.................................... 81,057,397 77,271,822 Accrued interest payable and other liabilities.............. 983,763 667,303 ----------- ----------- Total liabilities................................. 82,041,160 77,939,125 Commitments and contingencies (Note 7) Shareholders' equity (Note 8): Common stock -- no par value; authorized -- 10,000,000 shares; issued and outstanding -- 825,801 shares in 1999 and 761,757 shares in 1998................................. 5,876,948 5,319,770 Retained earnings......................................... 3,214,936 2,719,569 Accumulated other comprehensive (loss) income (Notes 2 and 14).................................................... (248,839) 5,518 ----------- ----------- Total shareholders' equity........................ 8,843,045 8,044,857 ----------- ----------- $90,884,205 $85,983,982 =========== ===========
~~The accompanying notes are an integral part of these consolidated financial statements. F-2~~ ~~88 FIRST COUNTIES BANK CONSOLIDATED STATEMENT~~PLAN OF ~~INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997~~
~~1999 1998 1997 ---------- ---------- ----------~~ Interest income: Interest and fees on loans.......................... $5,907,056 $5,920,834 $5,474,172 Interest on Federal funds sold...................... 458,086 334,885 259,325 Interest on deposits in banks....................... 24,032 23,052 23,537 Interest on investment securities: Taxable.......................................... 728,462 516,581 532,176 Exempt from Federal income taxes................. 97,187 85,591 55,974 ---------- ---------- ---------- Total interest income....................... 7,214,823 6,880,943 6,345,184 Interest expense on deposits (Note 5)................. 2,607,823 2,506,721 2,559,205 ---------- ---------- ---------- Net interest income......................... 4,607,000 4,374,222 3,785,979 Provision for loan losses (Note 3).................... 241,000 380,353 332,450 ---------- ---------- ---------- Net interest income after provision for loan losses................................... 4,366,000 3,993,869 3,453,529 ---------- ---------- ---------- Non-interest income: Service charges and fees............................ 487,208 459,543 465,508 Gain on sale of loans............................... 55,204 203,755 Cost recoveries on repossessed assets............... 471,484 Other income........................................ 386,133 354,183 308,948 ---------- ---------- ---------- Total non-interest income................... 1,344,825 868,930 978,211 ---------- ---------- ---------- Other expenses: Salaries and employee benefits (Notes 3 and 13)..... 2,006,397 1,805,194 1,714,755 Occupancy and equipment (Notes 4 and 7)............. 878,531 731,426 618,972 Other (Note 9)...................................... 1,320,540 1,154,995 1,015,778 ---------- ---------- ---------- Total other expenses........................ 4,205,468 3,691,615 3,349,505 ---------- ---------- ---------- Income before income taxes..................... 1,505,357 1,171,184 1,082,235 Income taxes (Note 10)................................ 552,000 442,000 421,000 ---------- ---------- ---------- Net income..................................... $ 953,357 $ 729,184 $ 661,235 ========== ========== ========== Basic earnings per share (Note 8)..................... $ 1.16 $ .99 $ 1.16 ========== ========== ========== Diluted earnings per share (Note 8)................... $ 1.15 $ .97 $ 1.14 ========== ========== ==========
~~The accompanying notes are an integral part of these consolidated financial statements. F-3~~ ~~89 FIRST COUNTIES BANK CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997~~
ACCUMULATED COMMON STOCK ADDITIONAL OTHER --------------------- PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE SHARES AMOUNT CAPITAL EARNINGS INCOME(LOSS) EQUITY INCOME -------- ---------- ----------- ---------- ------------- ------------- ------------- Balance, January 1, 1997....... 516,437 $1,291,092 $ 1,654,618 $1,810,883 $ 4,611 $4,761,204 Comprehensive income: Net income................... 661,235 661,235 $ 661,235 Other comprehensive income, net of tax: Unrealized gains on available-for-sale investment securities (Note 14).............. 3,485 3,485 3,485 --------- Total comprehensive income............... $ 664,720 ========= Cash dividend, $.20 per share........................ (103,287) (103,287) -------- ---------- ----------- ---------- --------- ---------- Balance, December 31, 1997..... 516,437 1,291,092 1,654,618 2,368,831 8,096 5,322,637 Comprehensive income: Net income................... 729,184 729,184 $ 729,184 Other comprehensive loss, net of tax: Unrealized losses on available-for-sale investment securities (Note 14).............. (2,578) (2,578) (2,578) --------- Total comprehensive income............... $ 726,606 ========= Reclassification due to organizational change to a state-chartered bank......... 1,654,618 (1,654,618) Sale of common stock, net of stock offering costs of $46,993...................... 200,000 1,953,007 1,953,007 Issuance of common stock under stock option plan (Note 8)... 9,195 44,247 44,247 5% stock dividend.............. 36,282 378,446 (378,446) Fractional shares redeemed..... (157) (1,640) (1,640) -------- ---------- ----------- ---------- --------- ---------- Balance, December 31, 1998..... 761,757 5,319,770 2,719,569 5,518 8,044,857 Comprehensive income: Net income................... 953,357 953,357 $ 953,357 Other comprehensive loss, net of tax: Unrealized losses on available-for-sale investment securities (Note 14).............. (254,357) (254,357) (254,357) --------- Total comprehensive income............... $ 699,000 ========= Issuance of common stock under stock option plan (Note 8)... 25,105 140,137 140,137 5% stock dividend.............. 39,111 418,879 (418,879) Fractional shares redeemed..... (172) (1,838) (1,838) Cash dividend, $.05 per share........................ (39,111) (39,111) -------- ---------- ----------- ---------- --------- ---------- Balance, December 31, 1999..... 825,801 $5,876,948 $ -- $3,214,936 $(248,839) $8,843,045 ======== ========== =========== ========== ========= ==========
~~The accompanying notes are an integral part of these consolidated financial statements. F-4~~ ~~90 FIRST COUNTIES BANK CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997~~
~~1999 1998 1997 ----------- ----------- -----------~~ Cash flows from operating activities: Net income................................................ $ 953,357 $ 729,184 $ 661,235 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses............................... 241,000 380,353 332,450 Depreciation and amortization........................... 412,933 272,190 264,755 Deferred loan origination fees and costs, net........... 57,334 17,601 34,214 Gain on called investment securities.................... (377) (802) (1,634) Loss (gain) on sale or write down of other real estate, net................................................... 12,057 127,526 (2,144) Recoveries on repossessed assets........................ (421,016) Decrease (increase) in servicing assets, net............ 23,614 47,639 (20,815) (Decrease) increase in unamortized discount on retained portion of sold loans, net............................ (21,762) (35,313) 42,358 Increase in cash surrender value of life insurance policies.............................................. (29,869) (29,608) (20,200) Dividends on Federal Home Loan Bank stock............... (16,600) (13,900) Decrease (increase) in accrued interest receivable and other assets.......................................... 96,855 (381,294) 145,699 Increase (decrease) in accrued interest payable and other liabilities..................................... 316,460 (206,361) 302,087 Deferred taxes.......................................... (253,000) (98,000) (71,000) ----------- ----------- ----------- Net cash provided by operating activities............. 1,370,986 809,215 1,667,005 ----------- ----------- ----------- Cash flows from investing activities: Proceeds from matured and called available-for-sale investment securities................................... 4,920,000 17,400,000 4,250,000 Proceeds from matured and called held-to-maturity investment securities................................... 600,000 1,125,000 1,405,509 Proceeds from sale of stock in Federal Reserve Bank....... 89,886 Purchases of available-for-sale investment securities..... (7,009,214) (18,044,880) (9,044,290) Purchases of held-to-maturity investment securities....... (412,861) Purchase of Federal Home Loan Bank stock.................. (234,300) Net increase in interest-bearing deposits in banks........ (1,000) (99,000) Net increase in loans..................................... (3,435,353) (7,352,598) (985,230) Purchases of equipment.................................... (264,160) (589,439) (245,666) Proceeds from sale of equipment........................... 10,000 1,500 Purchases of other real estate............................ (63,663) Proceeds from sale of other real estate................... 487,235 549,360 182,437 Proceeds from sale of repossessed assets.................. 807,811 Capitalized cost on repossessed assets.................... (54,764) Insurance deposits in connection with salary continuation plans................................................... (470,000) ----------- ----------- ----------- Net cash used in investing activities................. (3,948,445) (6,813,671) (5,715,564) ----------- ----------- ----------- Cash flows from financing activities: Net increase in demand, interest bearing and savings deposits................................................ 4,367,906 4,565,580 2,734,256 Net (decrease) increase in time deposits.................. (582,331) 1,035,096 4,916,786 Proceeds from exercise of stock options................... 140,137 44,247 Cash paid for fractional shares........................... (1,838) (1,640) Net proceeds from the sale of stock....................... 1,953,007 Cash paid for dividends................................... (39,111) (103,287) ----------- ----------- ----------- Net cash provided by financing activities............. 3,884,763 7,596,290 7,547,755 ----------- ----------- ----------- Increase in cash and cash equivalents................. 1,307,304 1,591,834 3,499,196 Cash and cash equivalents at beginning of year.............. 10,586,339 8,994,505 5,495,309 ----------- ----------- ----------- Cash and cash equivalents at end of year.................... $11,893,643 $10,586,339 $ 8,994,505 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest expense........................................ $ 2,628,048 $ 2,489,684 $ 2,463,836 Income taxes, net of refunds............................ $ 397,000 $ 886,941 $ 310,000 Non-cash investing activities: Real estate and other assets acquired through foreclosure and repossession, net................................... $ 228,917 $ 1,294,750 $ 645,537 Receivable in connection with sale of repossessed assets.................................................. $ 50,468 Net change in unrealized gain on available-for-sale investment securities................................... $ (408,715) $ (4,233) $ 5,589
~~The accompanying notes are an integral part of these consolidated financial statements. F-5~~ 91 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General First Counties Bank (the "Bank") operates five branches in Clearlake, Clearlake Oaks, Williams, Middletown and Calistoga, California. The Bank's primary source of revenue is providing loans to customers who are predominately small and middle-market agricultural and commercial businesses and individuals living in the Bank's geographical service area. The accounting and reporting policies of the Bank conform with generally accepted accounting principles and prevailing practices within the banking industry. During 1999, FCOBCBIA Corporation was incorporated as a wholly-owned subsidiary of the Bank to invest in Community Bankers Insurance Agency, LLC and provide insurance and other products which are not insured by the Federal Deposit Insurance Corporation. Principles of Consolidation The consolidated financial statements include the accounts of the Bank and its wholly-owned subsidiary. All material intercompany transactions and accounts have been eliminated in consolidation. Investment Securities Investments are classified into the following categories: - Available-for-sale securities, reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of taxes, as accumulated other comprehensive income (loss) within shareholders' equity. - Held-to-maturity securities, which management has the positive intent and ability to hold, reported at amortized cost, adjusted for the accretion of discounts and amortization of premiums. Management determines the appropriate classification of its investments at the time of purchase and may only change the classification in certain limited circumstances. All transfers between categories are accounted for at fair value. Gains or losses on the sale of securities are computed on the specific identification method. Interest earned on investment securities is reported in interest income, net of applicable adjustments for accretion of discounts and amortization of premiums. In addition, unrealized losses that are other than temporary are recognized in earnings for all investments. Loans Loans are stated at principal balances outstanding. Interest is accrued daily based upon outstanding loan balances. However, when, in the opinion of management, loans are considered to be impaired and the future collectibility of interest and principal is in serious doubt, a loan is placed on nonaccrual status and the accrual of interest income is suspended. Any interest accrued but unpaid is charged against income. Payments received are applied to reduce principal to the extent necessary to ensure collection. Subsequent payments on these loans, or payments received on nonaccrual loans for which the ultimate collectibility of principal is not in doubt, are applied first to earned but unpaid interest and then to principal. F-6 92 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Loans (continued) An impaired loan is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical matter, at the loan's observable market price or the fair value of collateral if the loan is collateral dependent. A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due (including both principal and interest) in accordance with the contractual terms of the loan agreement. Substantially all loan origination fees, commitment fees, direct loan origination costs and purchase premiums and discounts on loans are deferred and recognized as an adjustment of yield, to be amortized to interest income over the contractual term of the loan. The unamortized balance of deferred fees and costs is reported as a component of net loans. Allowance for Loan Losses The allowance for loan losses is maintained to provide for losses related to impaired loans and other losses that can be expected to occur in the normal course of business. The allowance is based on estimates made by management, to include consideration of the character of the loan portfolio, specifically identified problem loans, potential losses inherent in the portfolio taken as a whole and business and economic conditions in the Bank's service area. These estimates are particularly susceptible to changes in the economic environment and market conditions. The allowance is established through a provision for loan losses which is charged to expense. Sales and Servicing of Government Guaranteed Loans Sales of loans are recognized when the transferred loans are put beyond the reach of the Bank and its creditors, even in receivership. Servicing rights acquired through 1) a purchase or 2) the origination of loans which are sold with servicing rights retained are recognized as separate assets or liabilities. Servicing assets or liabilities are recorded at the difference between the contractual servicing fees and adequate compensation for performing the servicing, and are subsequently amortized in proportion to and over the period of the related net servicing income or expense. Servicing assets are periodically evaluated for impairment. Fair values are estimated using discounted cash flows based on current market interest rates. For purposes of measuring impairment, servicing assets are stratified based on note rate and term. The amount of impairment recognized is the amount by which the servicing assets for a stratum exceed their fair value. In addition, assets (accounted for as interest-only (IO) strips) are recorded at the fair value of the difference between note rates and rates paid to purchasers (the interest spread) and contractual servicing fees, if applicable. IO strips are carried at fair value with gains or losses recorded as a component of shareholders' equity, similar to available-for-sale investment securities. The Bank's investment in the loan is allocated between the retained portion of the loan, the servicing asset, the IO strip, and the sold portion of the loan based on their relative fair values on the date the loan is sold. The gain on the sold portion of the loan is recognized as income at the time of sale. The carrying value of the retained portion of the loan is discounted based on the estimated value of a comparable non-guaranteed loan. The servicing asset is amortized over the estimated life of the F-7 93 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Sales and Servicing of Government Guaranteed Loans (continued) related loan. Significant future prepayments of these loans will result in the recognition of additional amortization of related servicing assets and an adjustment to the carrying value of related IO strips. Included in the portfolio are loans which are 85% to 90% guaranteed by the Small Business Administration, Farmers Home Administration and Federal Mortgage Acceptance Corporation. The guaranteed portion of these loans may be sold to a third party, with the Bank retaining the unguaranteed portion. The Bank generally receives a premium in excess of the adjusted carrying value of the loan at the time of sale. The Bank may be required to refund a portion of the sales premium if the borrower defaults or the loan prepays within ninety days of the settlement date. At December 31, 1999 the Bank had not received any premiums which were subject to these recourse provisions. Loans Serviced for Others Government guaranteed loans with unpaid balances of approximately $10,385,000 and $8,954,000 were being serviced for others at December 31, 1999 and 1998, respectively. In addition, other loans with unpaid balances of approximately $1,449,000 were also being serviced for others at December 31, 1998. There were no other loans being serviced for others at December 31, 1999. Other Real Estate Other real estate includes real estate acquired in full or partial settlement of loan obligations. When property is acquired, any excess of the Bank's recorded investment in the loan balance and accrued interest income over the estimated fair market value of the property is charged against the allowance for loan losses. A valuation allowance for losses on other real estate is maintained to provide for temporary declines in value. The allowance is established through a provision for losses on other real estate which is included in other expenses. Subsequent gains or losses on sales or writedowns resulting from permanent impairments are recorded in other income or expenses as incurred. Bank Premises and Equipment Bank premises and equipment are carried at cost. Depreciation is determined using the straight-line method over the estimated useful lives of the related assets, which range from three to fifteen years. Leasehold improvements are amortized over the life of the asset or the life of the related lease, whichever is shorter. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred. Income Taxes Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial statement and tax basis of existing assets and liabilities. On the balance sheet, net deferred tax assets are included in accrued interest receivable and other assets. F-8 94 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash Equivalents For the purpose of the statement of cash flows, cash and due from banks and Federal funds sold are considered to be cash equivalents. Generally, Federal funds are sold for one day periods. Earnings Per Share Basic earnings per share (EPS), which excludes dilution, is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock which shares in the earnings of the Bank. The treasury stock method has been applied to determine the dilutive effect of stock options in computing diluted EPS. Stock-Based Compensation Stock options are accounted for under the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Bank's stock at the date of grant over the exercise price. However, if the fair value of stock-based compensation computed under a fair value based method, as prescribed in Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, is material to the financial statements, pro forma net income and earnings per share are disclosed as if the fair value method had been applied. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. New Financial Accounting Standard In June 1998, the Financial Accounting Standards Board issued SFAS 133, Accounting for Derivative Instruments and Hedging Activity, which was subsequently amended by SFAS 137 to delay the effective date to all fiscal quarters of fiscal years beginning after June 15, 2000. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that entities recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Management does not believe that the adoption of SFAS 133 will have a significant impact on its financial position and results of operations when implemented. Reclassifications Certain reclassifications have been made to prior years' balances to conform to classifications used in 1999. F-9 95 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. INVESTMENT SECURITIES The amortized cost and estimated market value of investment securities at December 31, 1999 and 1998 consisted of the following: Available-for-Sale:
1999 --------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------- ---------- ---------- ----------- U.S. Treasury securities................ $ 3,036,362 $ (51,062) $ 2,985,300 U.S. Government agencies................ 9,491,893 (319,293) 9,172,600 Obligations of states and political sub- divisions............................. 1,332,716 (26,316) 1,306,400 Federal Home Loan Bank stock............ 264,800 264,800 Other investments....................... 180,591 (3,091) 177,500 ----------- -------- --------- ----------- $14,306,362 $ -- $(399,762) $13,906,600 =========== ======== ========= ===========
1998 --------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------- ---------- ---------- ----------- U.S. Treasury securities................. $ 2,014,366 $14,388 $ (2,854) $ 2,025,900 U.S. Government agencies................. 8,444,766 1,689 (26,255) 8,420,200 Obligations of states and political subdivisions........................... 1,340,007 16,793 1,356,800 Federal Home Loan Bank stock............. 248,200 248,200 Other investments........................ 162,508 5,192 167,700 ----------- ------- -------- ----------- $12,209,847 $38,062 $(29,109) $12,218,800 =========== ======= ======== ===========
Net unrealized (losses) gains on available-for-sale investment securities totaling $(399,762) and $8,953 were recorded, net of $150,923 and $(3,435) in tax benefits (liabilities), as accumulated other comprehensive (loss) income within shareholders' equity at December 31, 1999 and 1998, respectively. There were no sales or transfers of available-for-sale investment securities for the years ended December 31, 1999, 1998 and 1997. Held-to-Maturity:
1999 ----------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE --------- ---------- ---------- --------- Obligations of states and political subdivisions............................... $757,063 $4,143 $(1,506) $759,700 ======== ====== ======= ========
~~F-10~~ ~~96 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. INVESTMENT SECURITIES (CONTINUED) Held-to-Maturity: (continued)~~
1998 ------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ---------- ---------- ---------- ---------- U.S. Treasury securities...................... $ 499,832 $ 168 $ 500,000 Obligations of states and political subdivisions................................ 858,037 26,463 884,500 ---------- ------- ------- ---------- $1,357,869 $26,631 $ -- $1,384,500 ========== ======= ======= ==========
There were no sales or transfers of held-to-maturity investment securities for the years ended December 31, 1999, 1998 and 1997. The amortized cost and estimated market value of investment securities at December 31, 1999 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.
AVAILABLE-FOR-SALE HELD-TO-MATURITY ------------------------- --------------------- ESTIMATED ESTIMATED AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE ----------- ----------- --------- --------- Within one year............................. $ 1,810,287 $ 1,793,100 $145,023 $145,200 After one year through five years........... 9,454,659 9,196,900 100,000 101,600 After five years through ten years.......... 2,751,616 2,626,800 412,040 410,900 After ten years............................. 100,000 102,000 ----------- ----------- -------- -------- 14,016,562 13,616,800 757,063 759,700 Federal Home Loan Bank stock................................ 264,800 264,800 Other investments........................... 25,000 25,000 ----------- ----------- -------- -------- $14,306,362 $13,906,600 $757,063 $759,700 =========== =========== ======== ========
Investment securities with amortized costs totaling $2,011,800 and $2,003,900 and market values totaling $1,980,300 and $2,018,400 were pledged to secure public deposits at December 31, 1999 and 1998, respectively. F-11 ~~97 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. LOANS Outstanding loans are summarized below:~~
DECEMBER 31, -------------------------- 1999 1998 ----------- ----------- Commercial................................. $12,432,216 $10,623,387 Agricultural............................... 9,121,842 9,111,977 Real estate -- mortgage.................... 28,337,384 27,209,807 Real estate -- construction................ 5,503,000 5,605,188 Installment................................ 4,859,160 4,145,354 Other...................................... 934,593 1,230,773 ----------- ----------- 61,188,195 57,926,486 Deferred loan fees and costs, net.......... (303,013) (245,679) Allowance for loan losses.................. (1,164,273) (1,028,261) ----------- ----------- $59,720,909 $56,652,546 =========== ===========
~~Changes in the allowance for loan losses were as follows:~~
~~1999 1998 1997 ---------- ---------- --------~~ Balance, beginning of year.................. $1,028,261 $ 979,011 $824,131 Provision charged to operations............. 241,000 380,353 332,450 Losses charged to allowance................. (149,389) (556,896) (216,934) Recoveries.................................. 44,401 225,793 39,364 ---------- ---------- -------- Balance, end of year...................... $1,164,273 $1,028,261 $979,011 ========== ========== ========
The recorded investment in loans that were considered to be impaired totaled $113,600 and $167,200 at December 31, 1999 and 1998, respectively. The related allowance for loan losses for these loans at December 31, 1999 and 1998 was $11,400 and $16,700, respectively. The average recorded investment in impaired loans for the years ended December 31, 1999, 1998 and 1997 was $410,800, $397,600 and $890,700, respectively. The Bank recognized no interest income on these loans during those same periods. At December 31, 1999 and 1998, nonaccrual loans totaled $742,000 and $2,750,000, respectively. The portion of these nonaccrual loans guaranteed by the Farmers Home Administration at December 31, 1999 and 1998 is $331,000 and $1,985,000, respectively. Interest foregone on nonaccrual loans totaled $65,000, $56,000 and $222,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Salaries and employee benefits totaling $168,965, $152,587 and $153,320 have been deferred as loan origination costs for the years ended December 31, 1999, 1998 and 1997, respectively. F-12 98 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. LOANS (CONTINUED) Sales and Servicing of Government Guaranteed Loans A summary of the activity in government guaranteed loans is as follows:
DECEMBER 31, ------------------------------------ 1999 1998 1997 ---------- ---------- ---------- Loans originated.............................. $2,227,161 $3,637,463 $4,192,200 Loans sold (guaranteed portion)............... $ 891,031 $3,573,341 Premium received at sale...................... $ 61,398 $ 255,087 Servicing assets recognized................... $ 17,449 $ 48,348 Amortization charged against earnings......... $ 23,614 $ 65,088 $ 27,533 Balance of servicing assets at year end....... $ 146,792 $ 170,406 $ 218,045
Servicing assets were recognized based on an allocation of the investment in the loan between the sold portion of the loan, the retained portion of the loan and the servicing assets based on the relative fair value of each component. For servicing contracts in effect prior to January 1, 1997, previously recognized excess servicing receivables that did not exceed contractually specified servicing fees were combined with servicing assets recognized in 1998. The interest-only strip component of loans sold for the years ended December 31, 1999, 1998 and 1997 was not material and was combined with servicing assets. No impairment gains or losses were recognized. 4. BANK PREMISES AND EQUIPMENT Bank premises and equipment consisted of the following:
DECEMBER 31, ------------------------- 1999 1998 ----------- ----------- Land........................................... $ 4,590 $ 4,590 Building....................................... 237,306 186,561 Furniture, fixtures and equipment.............. 1,937,845 1,727,923 Leasehold improvements......................... 196,540 193,047 ----------- ----------- 2,376,281 2,112,121 Less accumulated depreciation and amortization.............................. (1,524,554) (1,157,724) ----------- ----------- $ 851,727 $ 954,397 =========== ===========
Depreciation and amortization included in occupancy and equipment expense totaled $366,830, $286,168 and $227,273 for the years ended December 31, 1999, 1998 and 1997, respectively. F-13 99 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. INTEREST-BEARING DEPOSITS Interest-bearing deposits consisted of the following:
DECEMBER 31, -------------------------- 1999 1998 ----------- ----------- Savings...................................... $ 6,836,364 $ 6,407,505 Money market................................. 8,223,653 6,378,300 NOW accounts................................. 15,454,636 14,567,911 Time, $100,000 or more....................... 7,089,015 5,621,609 Other time................................... 32,515,753 34,565,490 ----------- ----------- $70,119,421 $67,540,815 =========== ===========
~~Aggregate annual maturities of time deposits are as follows:~~
~~YEAR ENDING DECEMBER 31, ------------~~ 2000............................................... $37,859,392 2001............................................... 1,380,767 2002............................................... 364,609 ----------- $39,604,768 ===========
~~Interest expense recognized on interest-bearing deposits consisted of the following:~~
YEAR ENDED DECEMBER 31, ------------------------------------ 1999 1998 1997 ---------- ---------- ---------- Savings....................................... $ 134,608 $ 117,924 $ 107,826 Money market.................................. 180,619 162,172 147,186 NOW accounts.................................. 197,194 190,299 171,377 Time, $100,000 or more........................ 226,094 405,966 509,496 Other time.................................... 1,869,308 1,630,360 1,623,320 ---------- ---------- ---------- $2,607,823 $2,506,721 $2,559,205 ========== ========== ==========
6. SHORT-TERM BORROWING ARRANGEMENT The Bank is eligible to borrow a total of $2,500,000 on an overnight basis from two of its correspondent banks. Interest on borrowings is based on the daily Federal funds rate. The Bank also has a line of credit with the Federal Home Loan Bank subject to various pledging options. The amount of the credit line varies according to the Bank's mortgage loan base and other factors. There were no short-term borrowings outstanding at December 31, 1999 or 1998. 7. COMMITMENTS AND CONTINGENCIES Federal Reserve Requirements Banks are required to maintain reserves with the Federal Reserve Bank equal to a percentage of their reservable deposits. Reserve balances held with the Federal Reserve Bank totaled $557,000 and $503,000 at December 31, 1999 and 1998, respectively. F-14 100 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) Leases The Bank leases certain premises under noncancelable operating leases. Under the terms of the leases, the Bank is responsible for property taxes and common area maintenance. Monthly rent may be increased annually based upon increases in the consumer price index. The Bank has two five-year options to renew its Clearlake branch lease after the current lease ends April 1, 2005. The Bank has an option to renew its Calistoga branch lease for a term of five years after the current lease ends August 1, 2004. The Bank also has two two-year options to renew its Clearlake Oaks branch lease after the current lease ends July 28, 2001. Future minimum lease payments are as follows:
~~YEAR ENDING DECEMBER 31, ------------~~ 2000................................................ $177,624 2001................................................ 166,614 2002................................................ 151,200 2003................................................ 151,200 2004................................................ 141,200 Thereafter............................................ 75,300 -------- $863,138 ========
Rental expense included in occupancy and equipment expense totaled $192,812, $170,197 and $170,910 for the years ended December 31, 1999, 1998 and 1997, respectively. One branch facility is leased from a member of the Board of Directors. Rent paid to the Director totaled $26,865, $25,277 and $25,297 for the years ended December 31, 1999, 1998 and 1997, respectively. Financial Instruments With Off-Balance-Sheet Risk The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet. The Bank's exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and letters of credit as it does for loans included on the balance sheet. The following financial instruments represent off-balance-sheet credit risk:
DECEMBER 31, ------------------------- 1999 1998 ----------- ---------- ~~Commitments to extend credit.................. $13,790,000 $9,339,000 Letters of credit............................. $ 105,000 $ 60,000~~
~~F-15~~ 101 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) Financial Instruments With Off-Balance-Sheet Risk (continued) Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, equipment, income-producing commercial and agricultural properties and residential properties. Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. At December 31, 1999, commercial loan commitments represent 32% of total commitments. Approximately 56% of these commitments are secured by various forms of collateral and the remaining 44% are unsecured. Agricultural loan commitments represent 11% of total commitments and represent agricultural production lines of credit secured by liens on crops and equipment. Real estate loan commitments represent 40% of total commitments and are generally secured by property with a loan-to-value ratio not to exceed 80%. Secured and unsecured consumer commitments represent the remaining 17% of total commitments. In addition, the majority of the Bank's commitments have variable interest rates. Significant Concentrations of Credit Risk The Bank grants real estate mortgage, real estate construction, commercial, agricultural and consumer loans to customers throughout Lake, Colusa and Napa counties. Although the Bank has a diversified loan portfolio, a substantial portion of its portfolio is secured by commercial, agricultural and residential real estate. However, personal and business income represent the primary source of repayment for a majority of these loans. Correspondent Banking Agreements The Bank maintains funds on deposit with other federally insured financial institutions under correspondent banking agreements. Uninsured deposits totaled $307,800 at December 31, 1999. 8. SHAREHOLDERS' EQUITY Stock Dividends On May 20, 1999, the Board of Directors declared a 5% stock dividend, payable June 18, 1999 to shareholders of record on May 30, 1999. All data with respect to earnings per share and weighted average number of shares outstanding has been retroactively adjusted to reflect the stock dividends. F-16 102 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. SHAREHOLDERS' EQUITY (CONTINUED) Dividends Upon declaration by the Board of Directors, all shareholders of record will be entitled to receive dividends. The California Financial Code restricts the total dividend payment of any bank in any calendar year to the lesser of (1) the bank's retained earnings or (2) the bank's net income for its last three fiscal years, less distributions made to shareholders during the same three-year period. At December 31, 1999, retained earnings of $2,201,378 were free of such restrictions. Stock Options During 1995, the Bank established a stock option plan for which 110,117 shares of common stock are reserved. The plan includes both incentive and non-qualified options. The plan requires that the option price may not be less than the fair market value of the stock at the date the option is granted, and that the stock must be paid for in full at the time the option is exercised. All options expire on a date determined by the Board of Directors, but not later than ten years from the date of grant. During 1999, the Board of Directors determined that all options which had previously been exercisable at the Board's direction were fully vested and immediately exercisable. The Bank has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation expense has been recognized in connection with the stock option plan. Had compensation cost been determined based on the fair value at grant date for awards in 1999, 1998 and 1996 consistent with the disclosure provisions of SFAS 123, the Bank's net income and income per share would have been decreased to the pro forma amounts indicated below. Compensation cost is included in pro forma income when options are vested.
YEAR ENDED DECEMBER 31, 1999 ------------ Net earnings -- as reported................................ $953,357 Net earnings -- pro forma.................................. $743,803 Basic earnings per share -- as reported.................... $ 1.16 Basic earnings per share -- pro forma...................... $ .91 Diluted earnings per share -- as reported.................. $ 1.15 Diluted earnings per share -- pro forma.................... $ .90
~~F-17~~ 103 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. SHAREHOLDERS' EQUITY (CONTINUED) Stock Options (continued) The weighted average fair value of options granted in 1999 and 1998 is estimated to be $4.73 and $4.94, respectively, using an option-pricing model and the following assumptions:
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1999 1998 ------------ --------------- Dividend yield............................. N/A N/A Expected volatility........................ 54% to 62% 60% to 65% Risk-free interest rate.................... 5.40% 5.00% Expected option life....................... 10 years 8.5 to 10 years
~~A summary of the combined activity within the plans follows:~~
1999 1998 1997 ------------------ ------------------ ----------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------- -------- ------- -------- ------ -------- Options outstanding beginning of year.............................. 48,805 $ 7.87 45,676 $ 5.90 45,676 $5.90 Options granted................... 55,000 $10.35 22,900 $10.48 Options exercised................. (25,105) $ 5.35 (9,195) $ 4.37 Options canceled.................. (2,048) $10.48 (12,900) $ 8.05 Options resulting from stock dividend....................... 4,161 $10.07 2,324 $ 7.87 ------- ------ ------- ------ ------ ----- Options outstanding, end of year.... 80,813 $10.39 48,805 $ 7.87 45,676 $5.90 ======= ====== ======= ====== ====== ===== Options exercisable, end of year.... 80,813 $10.39 20,682 $ 5.85 6,600 $8.62 ======= ====== ======= ====== ====== =====
~~Weighted average exercise prices are adjusted for stock dividends. A summary of information about options outstanding at December 31, 1999 follows:~~
NUMBER OF WEIGHTED NUMBER OF OPTIONS AVERAGE OPTIONS OUTSTANDING REMAINING EXERCISABLE DECEMBER 31, CONTRACTUAL DECEMBER 31, RANGE OF EXERCISE PRICES 1999 LIFE 1999 ------------------------ ------------ ----------- ------------ $ 9.30....................................... 2,092 6.8 years 2,092 $10.58....................................... 23,152 8.5 years 23,152 $10.11....................................... 19,950 9.2 years 19,950 $10.48....................................... 35,619 9.4 years 35,619 ------ ------ 80,813 80,813 ====== ======
Regulatory Capital The Bank is subject to certain regulatory capital requirements administered by the Federal Deposit Insurance Corporation (FDIC). Failure to meet these minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if F-18 104 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. SHAREHOLDERS' EQUITY (CONTINUED) Regulatory Capital (continued) undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Each of these components is defined in the regulations. Management believes that the Bank meets all its capital adequacy requirements as of December 31, 1999. In addition, the most recent notifications from the FDIC as of December 31, 1999, 1998 and 1997 categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth below. There are no conditions or events since that notification that management believes have changed the Bank's category.
1999 1998 1997 ------------------ ------------------ ------------------ AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ---------- ----- ---------- ----- ---------- ----- LEVERAGE RATIO First Counties Bank............. $8,975,148 9.8% $7,915,165 9.8% $5,201,641 6.9% Minimum requirement for "Well- Capitalized" institution...... $4,556,000 5.0% $4,029,000 5.0% $3,757,000 5.0% Minimum regulatory requirement................... $3,645,000 4.0% $3,223,000 4.0% $3,006,000 4.0% TIER 1 RISK-BASED CAPITAL RATIO First Counties Bank............. $8,975,148 15.2% $7,915,165 14.0% $5,201,641 10.3% Minimum requirement for "Well- Capitalized" institution...... $3,538,000 6.0% $3,394,000 6.0% $3,044,000 6.0% Minimum regulatory requirement................... $2,359,000 4.0% $2,263,000 4.0% $2,029,000 4.0% TOTAL RISK-BASED CAPITAL RATIO First Counties Bank............. $9,755,776 16.5% $8,622,269 15.3% $5,835,845 11.6% Minimum requirement for "Well- Capitalized" institution...... $5,897,000 10.0% $5,625,000 10.0% $5,039,000 10.0% Minimum regulatory requirement................... $4,717,000 8.0% $4,500,000 8.0% $4,031,000 8.0%
~~F-19~~ 105 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. SHAREHOLDERS' EQUITY (CONTINUED) Earnings Per Share A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations is as follows:
WEIGHTED AVERAGE NET NUMBER OF PER SHARE FOR THE YEAR ENDED INCOME SHARES OUTSTANDING AMOUNT ------------------ -------- ------------------ --------- DECEMBER 31, 1999 Basic earnings per share.................. $953,357 819,034 $1.16 ===== Effect of dilutive stock options.......... 6,644 -------- ------- Diluted earnings per share................ $953,357 825,678 $1.15 ======== ======= ===== DECEMBER 31, 1998 Basic earnings per share.................. $729,184 736,648 $ .99 ===== Effect of dilutive stock options.......... 17,229 -------- ------- Diluted earnings per share................ $729,184 753,877 $ .97 ======== ======= ===== DECEMBER 31, 1997 Basic earnings per share.................. $661,235 569,372 $1.16 ===== Effect of dilutive stock options.......... 8,181 -------- ------- Diluted earnings per share................ $661,235 577,553 $1.14 ======== ======= =====
Options to purchase 23,153 shares of common stock at $10.58 per share were outstanding during the first and second quarters of 1999 and 37,800 shares of common stock at $10.48 per share were outstanding the second quarter of 1999 which were not included in the computation of diluted earnings per share because their exercise price was equal to or greater than the average market price of the common shares. In 1998, options to purchase 23,153 shares of common stock at $10.58 per share were outstanding during the fourth quarter of 1998 which were not included in the computation of diluted earnings per share because their exercise price was greater than the average market price of the common shares. 9. OTHER EXPENSES Other expenses consisted of the following:
YEAR ENDED DECEMBER 31, -------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Stationery and supplies................... $ 179,753 $ 173,464 $ 130,781 Professional fees......................... 140,123 151,143 113,000 Advertising and promotion................. 69,173 59,218 41,853 Loan collection and other real estate costs................................... 190,001 104,907 84,542 Telephone................................. 87,279 60,511 51,582 Other operating expenses.................. 654,211 605,752 594,020 ---------- ---------- ---------- $1,320,540 $1,154,995 $1,015,778 ========== ========== ==========
~~F-20~~ 106 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. INCOME TAXES The provision for income taxes for the years ended December 31, 1999, 1998 and 1997 consisted of the following:
~~FEDERAL STATE TOTAL -------- -------- --------~~ 1999 Current........................................ $566,000 $239,000 $805,000 Deferred....................................... (203,000) (50,000) (253,000) -------- -------- -------- Income tax expense............................. $363,000 $189,000 $552,000 ======== ======== ======== 1998 Current........................................ $393,000 $147,000 $540,000 Deferred....................................... (72,000) (26,000) (98,000) -------- -------- -------- Income tax expense............................. $321,000 $121,000 $442,000 ======== ======== ======== 1997 Current........................................ $358,000 $134,000 $492,000 Deferred....................................... 4,000 (75,000) (71,000) -------- -------- -------- Income tax expense............................. $362,000 $ 59,000 $421,000 ======== ======== ========
~~Deferred tax assets (liabilities) are comprised of the following at December 31, 1999 and 1998:~~
~~1999 1998 -------- --------~~ Deferred tax assets: Allowance for loan losses....................... $433,000 $370,000 Unrealized loss on available-for-sale investment securities................................... 151,000 Deposit purchase premium........................ 51,000 43,000 Future benefit of State tax deduction........... 72,000 46,000 Deferred compensation........................... 70,000 41,000 Other real estate............................... 112,000 28,000 Bank premises and equipment..................... 31,000 -------- -------- Total deferred tax assets.................... 920,000 528,000 -------- -------- Deferred tax liabilities: Unrealized gain on available-for-sale investment securities................................... (3,000) Bank premises and equipment..................... (12,000) Future liability of State deferred tax asset.... (52,000) (34,000) Adjustment for change in tax accounting method....................................... (26,000) (51,000) Other........................................... (12,000) (7,000) -------- -------- Total deferred tax liabilities............... (90,000) (107,000) -------- -------- Net deferred tax assets.................... $830,000 $421,000 ======== ========
~~F-21~~ 107 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. INCOME TAXES (CONTINUED) The provision for income taxes differs from amounts computed by applying the statutory Federal income tax rates to operating income before income taxes. The items comprising these differences for the years ended December 31, 1999, 1998 and 1997 consisted of the following:
RATE -------------------- 1999 1998 1997 ---- ---- ---- Federal income tax expense, at statutory rate.............. 34.0% 34.0% 34.0% State franchise tax, net of Federal tax effect............. 7.0% 7.0% 7.5% Benefit of tax-exempt income............................... (3.8)% (4.2)% (3.2)% Other...................................................... (.6)% .9% .6% ---- ---- ---- Total income tax expense................................. 36.6% 37.7% 38.9% ==== ==== ====
11. RELATED PARTY TRANSACTIONS During the normal course of business, the Bank enters into transactions with related parties, including Directors and officers. These transactions include borrowings from the Bank with substantially the same terms, including rates and collateral, as loans to unrelated parties. The following is a summary of the aggregate activity involving related party borrowers during 1999: Balance, January 1, 1999................................... $ 1,076,714 Disbursements............................................ 7,242,362 Amounts repaid........................................... (7,195,174) ----------- Balance, December 31, 1999................................. $ 1,123,902 =========== Undisbursed commitments to related parties, December 31, 1999..................................................... $ 896,400 ===========
The Bank also leases a branch facility from a member of the Board of Directors (see Note 7). 12. INTANGIBLES Deposit premiums of $205,000 and $50,000 in related capitalized legal expenses resulting from the acquisition of assets and liabilities of other banks are included on the balance sheet in accrued interest receivable and other assets and are being amortized over seven years. Amortization expense totaled $35,621 for the year ended December 31, 1999 and $36,401 for each of the years ended December 31, 1998 and 1997. 13. EMPLOYEE BENEFIT PLAN Salary Deferral Plan Effective May 1, 1995, the Bank adopted the Employee 401(k) Salary Deferral Plan which is available to employees meeting certain age and service requirements. Under the Plan, employees are able to defer a selected percentage of their annual compensation. The Bank's contribution consists of the following: - A contribution which matches the participant's contribution based on a percentage determined by the Board of Directors. F-22 108 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. EMPLOYEE BENEFIT PLAN (CONTINUED) Salary Deferral Plan (continued) For the years ended December 31, 1999, 1998 and 1997, the Bank's contribution totaled $16,000, $13,931 and $13,400, respectively. Salary Continuation Plans In December 1996, the Board of Directors approved salary continuation plans for two key executives. Under these plans, the Bank is obliged to provide the executives, or designated beneficiaries, with annual benefits for fifteen years after retirement or death. These benefits are substantially equivalent to those available under insurance policies to be purchased by the Bank on the lives of the executives. In addition, the estimated present value of the future benefits are accrued until the employees' expected retirement dates. The expense recognized under these plans totaled $63,116, $46,116 and $46,116 for the years ended December 31, 1999, 1998 and 1997, respectively. In connection with the plans, the Bank has purchased life insurance policies with cash surrender values totaling $672,177 and $642,308 at December 31, 1999 and 1998, respectively, which are included on the balance sheet in accrued interest receivable and other assets. The income earned on these policies totaled $34,958, $34,164 and $34,164 for the years ended December 31, 1999, 1998 and 1997, respectively. 14. COMPREHENSIVE INCOME Comprehensive income is reported in addition to net income for all periods presented. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of other comprehensive income (loss) that historically has not been recognized in the calculation of net income. Unrealized gains and losses on the Bank's available-for-sale investment securities are included in other comprehensive income (loss). Total comprehensive income and the components of accumulated other comprehensive income (loss) are presented in the Statement of Changes in Shareholders' Equity. At December 31, 1999, 1998 and 1997, the Bank held securities classified as available-for-sale which had unrealized (losses) gains as follows:
TAX BEFORE BENEFIT AFTER TAX (EXPENSE) TAX --------- --------- --------- FOR THE YEAR ENDED DECEMBER 31, 1999 Other comprehensive loss: Unrealized holding losses.................. $(408,715) $154,358 $(254,357) ========= ======== ========= FOR THE YEAR ENDED DECEMBER 31, 1998 Other comprehensive loss: Unrealized holding losses.................. $ (4,233) $ 1,655 $ (2,578) ========= ======== ========= FOR THE YEAR ENDED DECEMBER 31, 1997 Other comprehensive income: Unrealized holding gains................... $ 5,589 $ (2,104) $ 3,485 ========= ======== =========
~~F-23~~ 109 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS Estimated fair values are disclosed for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Bank's entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates. Because no market exists for a significant portion of the Bank's financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented. The following methods and assumptions were used by the Bank to estimate the fair value of its financial instruments at December 31, 1999 and 1998: Cash and cash equivalents: For cash and cash equivalents, the carrying amount is estimated to be fair value. Interest-bearing deposits in banks: The fair values of interest-bearing deposits in banks are estimated by discounting their future cash flows using rates at each reporting date for instruments with similar remaining maturities offered by comparable financial institutions. Investment securities: For investment securities, fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities and indications of value provided by brokers. Loans: For variable-rate loans that reprice frequently with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans are estimated using discounted cash flow analyses, using interest rates being offered at each reporting date for loans with similar terms to borrowers of comparable creditworthiness. The carrying amount of accrued interest receivable approximates its fair value. Life insurance deposits: The fair values of life insurance deposits are based on the current cash surrender value provided by the insurers. Deposits: The fair values for demand deposits are, by definition, equal to the amount payable on demand at the reporting date represented by their carrying amount. Fair values for fixed-rate certificates of deposit are estimated using discounted cash flow analyses using interest rates being offered at each reporting date by the Bank for certificates with similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value. Commitments to extend credit and letters of credit: The fair values of commitments to extend credit and letters of credit are primarily for variable rate loans. For these commitments, there is no difference between the committed amounts and their fair values. Commitments to fund fixed rate loans and letters of credit are at rates which approximate fair value. F-24 110 FIRST COUNTIES BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The estimated fair values of the Bank's financial instruments are as follows:
DECEMBER 31, 1999 DECEMBER 31, 1998 ------------------------- ------------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ----------- ----------- ----------- ----------- Financial assets: Cash and due from banks.............. $ 5,883,643 $ 5,883,643 $ 3,986,339 $ 3,986,339 Federal funds sold................... 6,010,000 6,010,000 6,600,000 6,600,000 Interest-bearing deposits in banks... 496,000 496,000 496,000 496,000 Investment securities................ 14,663,663 14,666,300 13,576,669 13,603,300 Loans................................ 59,720,909 61,275,000 56,652,546 58,135,000 Accrued interest receivable.......... 784,605 784,605 756,846 756,846 Life insurance deposits.............. 672,177 672,177 642,308 642,308 ----------- ----------- ----------- ----------- $88,230,997 $89,787,725 $82,710,708 $84,219,793 =========== =========== =========== =========== Financial liabilities: Deposits............................. $81,057,397 $81,037,000 $77,271,822 $77,570,000 Accrued interest payable............. 404,810 404,810 425,035 425,035 ----------- ----------- ----------- ----------- $81,462,207 $81,441,810 $77,696,857 $77,995,035 =========== =========== =========== =========== Off-balance-sheet financial instruments: Commitments to extend credit......... $13,790,000 $13,790,000 $ 9,339,000 $ 9,339,000 Letters of credit.................... 105,000 105,000 60,000 60,000 ----------- ----------- ----------- ----------- $13,895,000 $13,895,000 $ 9,399,000 $ 9,399,000 =========== =========== =========== ===========
16. SUBSEQUENT EVENT On March 14, 2000, the Boards of Directors of First Counties Bank and Westamerica Bancorporation executed an agreement and plan of reorganization and merger between the two companies. As a result, First Counties Bank will be merged with and into Westamerica Bank, a wholly-owned subsidiary of Westamerica Bancorporation. Under the agreement, each share of First Counties Bank will be converted into the right to receive .888 shares of the common stock of Westamerica Bancorporation, subject to adjustment based on the average closing price of Westamerica Bancorporation's common stock for twenty days prior to the close of the merger. The transaction will be accounted for under the purchase method of accounting. It is expected that this merger will be accomplished in the third quarter of 2000, subject to shareholder and regulatory approval. F-25 ~~111 APPENDIX A~~REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION, AND MERGER DATED: MARCH 14, 2000 BY AND AMONG WESTAMERICA BANCORPORATION, WESTAMERICA BANK AND FIRST COUNTIES BANK ~~112 AGREEMENT AND PLAN OF REORGANIZATION AND MERGER This AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (the "Agreement") is entered into~~dated as of ~~March 14, 2000, by and~~August 25, 2004, is among WESTAMERICA BANCORPORATION, a California corporation ~~("WEST"~~(“Westamerica”);, WESTAMERICA BANK, a California banking corporation ~~and wholly owned subsidiary of WEST ("WAB"~~(“WAB”) ~~and FIRST COUNTIES BANK,~~, REDWOOD EMPIRE BANCORP, a California corporation (“Redwood Empire”), and NATIONAL BANK OF THE REDWOODS, a national banking ~~corporation ("FCOB"~~association (“NBR”). ~~RECITALS: WHEREAS, the respective~~

A. The Boards of Directors of ~~FCOB~~Westamerica, WAB, Redwood Empire and ~~WEST have determined that~~NBR deem it isadvisable and in the best interests of ~~FCOB and WEST~~Westamerica, WAB, Redwood Empire, NBR and their respective shareholders that Westamerica, WAB, Redwood Empire and NBR enter into a business combination whereby Redwood Empire shall merge with and into Westamerica (the “Merger”) and NBR shall thereafter merge with and into WAB (the “Bank Merger” and together with the Merger, the “Mergers”).

B. This Agreement and the Merger Agreement, as defined herein, have been approved by the Boards of Directors of Westamerica, WAB, Redwood Empire and NBR, and will be submitted for ~~FCOB to be merged with WAB,~~approval of the shareholders of Redwood Empire at a special meeting of Redwood Empire’s shareholders upon the terms and subject to the conditions set forth ~~in this Agreement and in accordance with~~herein.

C. The Merger is intended to qualify as a tax-free reorganization within the ~~California Corporations Code, the California Financial Code and other applicable laws; WHEREAS, each~~meaning of the Boards of Directors of FCOB and WEST have approved this Agreement and the transactions contemplated hereby; WHEREAS, FCOB's Board of Directors has resolved to recommend approval of the merger of FCOB and WAB to its shareholders; and WHEREAS, upon the consummation of the Merger of FCOB with and into WAB, WAB shall remain a wholly-owned subsidiary of WEST. NOW, THEREFORE, in consideration of these premises and the representations, warranties and agreements herein contained, FCOB and WEST hereby agree as follows: ARTICLE 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: "Acquisition Event" shall mean any of the following: (a) FCOB's Board of Directors shall have approved or FCOB shall have authorized, recommended, publicly proposed or publicly announced an intention to authorize, recommend or propose, or shall have entered or announced an intention to enter into a letter of intent, an agreement-in-principle or a definitive agreement with any Person (other than WEST or any of its respective Subsidiaries) to effect, an Acquisition Transaction or failed to publicly oppose a Tender Offer or an Exchange Offer (as defined below). As used herein, the term "Acquisition Transaction" shall mean (i) a merger, consolidation or similar transaction involving FCOB, (ii) the disposition, by sale, lease, exchange, dissolution or liquidation, or otherwise, of all or substantially all of the assets of FCOB or any asset or assets of FCOB the disposition or lease of which would result in a material change in the business or business operations of FCOB, a transfer of any shares of stock or other securities of FCOB by FCOB, or a material change in the assets, liabilities or results of operations or the future prospects of FCOB, including, but not limited to a grant of an option entitling any Person to acquire any shares of stock of FCOB or any assets material to the business of FCOB; or (iii) the issuance, other than pursuant to outstanding stock options, sale or other disposition by FCOB (including, without limitation, by way of merger, consolidation, share exchange or any similar transaction) of shares of FCOB Common Stock or other Equity Securities, or the grant of any option, warrant or other right to acquire shares of FCOB Common Stock or other Equity Securities, representing directly, or on an as-exercised, as-exchanged or as-converted basis (in the case of options, warrants, rights or A-1 113 exchangeable or convertible Equity Securities), 15% or more of the voting securities of FCOB; or (b) Prior to termination of this Agreement (i) any Person (other than a person who is a party to a Director Shareholder Agreement) shall have increased the number of shares of FCOB Common Stock over which such person has beneficial ownership (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) by a number that is greater than 1% of the then outstanding shares of FCOB Common Stock if, after giving effect to such increase, such Person owns, beneficially, more than 5% of the outstanding shares of FCOB Common Stock, or (ii) any "group" (as such term is defined under the Exchange Act) shall have been formed which beneficially owns, or has the right to acquire beneficial ownership of, more than 5% of the then outstanding shares of FCOB Common Stock. "Acquisition Proposal" shall have the meaning given such term in Section 6.2.5 and 6.4.12. "Affected Party" shall have the meaning given to it in Section 5.7. "Affiliate" or "affiliate" shall mean, with respect to any other Person, any Person that, directly or indirectly, controls or is controlled by or is under common control with such Person. "Affiliate Agreements" shall have the meaning given such term in Section 5.3.3. "Average Closing Price" shall mean the average of the daily closing price of a share of WEST Common Stock reported on the NASDAQ National Market System during the 20 consecutive trading days ending at the end of the third trading day immediately preceding the Effective Time. "Benefit Arrangement" shall have the meaning given such term in Section 3.21.4. "BHCA" shall mean the Bank Holding Company Act of 1956, as amended. "Business Day" shall mean any day, other than a Saturday, Sunday or any other day, such as a legal holiday, on which California state banks in California are not open for substantially all their banking business. "CDFI" shall mean the California Department of Financial Institutions. "California Corporations Code" shall mean the General Corporation Law of the State of California. "California Financial Code" shall mean the Financial Code of the State of California. "Classified Assets" shall have the meaning given to such term in Section 6.1.15. "Closing" shall have the meaning given to such term in Section 2.1. "Closing Date" shall have the meaning given to such term in Section 2.1. "Closing Schedules" shall have the meaning given to such term in Section 5.7. "Default" shall mean, as to any party to this Agreement, a failure by such party to perform, in any material respect, any of the agreements or covenants of such party contained in Articles 5 or 6. "Derivatives Contract" shall have the meaning given such term in Section 3.26. "Determination Date" shall mean the last business day of the calendar month immediately preceding the calendar month in which the Effective Time occurs. "Director Shareholder Agreement" shall have the meaning given such term in Section 7.2.10. A-2 ~~114 "Dissenting Shares" shall mean shares of FCOB Common Stock which come within all of the descriptions set forth in Subparagraphs (1), (2), (3) and (4) of Paragraph (b)~~provisions of Section ~~1300~~368 of the California Corporations Code. "Dissenting Shareholder Notices" shall mean the notice required to be given to record holders of Dissenting Shares pursuant to Paragraph (a) of Section 1301 of the California Corporations Code. "Effective Time" shall have the meaning given such term in Section 2.1. "Employee Plan" shall have the meaning given such term in Section 3.21.3. "Environmental Laws" shall mean and include any and all laws, statutes, ordinances, rules, regulations, orders, or determinations of any Governmental Entity pertaining to health or to the environment, including, without limitation, the Clean Air Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the Federal Water Pollution Control Act Amendments, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), the Hazardous Materials Transportation Act of 1975, as amended, the Safe Drinking Water Act, as amended, and the Toxic Substances Control Act, as amended. "Equity Securities" shall have the meaning given to such term in the Exchange Act. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Exchange Agent" shall mean Harris Trust Company of California or such other Person as WEST shall have appointed to perform the duties set forth in Section 2.8. "Exchange Offer" shall mean the commencement (as such term is defined in Rule 14d-2 under the Exchange Act) of an exchange offer or the filing by any Person of a registration statement under the Securities Act with respect to an exchange offer to purchase any shares of FCOB Common Stock such that, upon consummation of such offer, such Person would own or control 15% or more of the then outstanding shares of FCOB Common Stock. "Exchange Ratio" shall mean 0.888 as adjusted by Section 2.6 or Section 8.1.13. "FCOB" shall mean First Counties Bank. "FCOB Certificates" shall have the meaning given such term in Section 2.8.1. "FCOB Collateralizing Real Estate" shall have the meaning given such term in Section 3.23.1. "FCOB Common Stock" shall mean the common stock, no par value, of FCOB. "FCOB Fairness Opinion" shall have the meaning given to such term in Section 7.3.7. "FCOB Filings" shall have the meaning given such term in Section 3.6. "FCOB Financial Statements" shall have the meaning given to such term in Section 3.7.3. "FCOB Material Adverse Event" shall have the meaning given such term in Section 8.1.8. "FCOB Properties" shall have the meaning given such term in Section 3.23.1. "FCOB Stock Options" shall mean any options to purchase any shares of FCOB Common Stock or any other Equity Securities of FCOB granted on or prior to the Effective Time, whether pursuant to the FCOB Stock Option Plan or otherwise. "FCOB Stock Option Plan" shall mean FCOB's written Stock Option Plan as described in Section 3.24 hereto. A-3 115 "FCOB Superior Proposal" shall have the meaning set forth in Section 6.2.5. "FDIC" shall mean the Federal Deposit Insurance Corporation. "FDI Act" shall mean the Federal Deposit Insurance Act. "Federal Reserve" shall mean the Board of Governors of the Federal Reserve System. "GAAP" shall mean generally accepted accounting principles. "Governmental Entity" shall mean any court, federal, state, local or foreign government or any administrative agency or commission or other governmental authority or instrumentality whatsoever. "Hazardous Substances" shall have the meaning given such term in Section 3.23.4. "IRC" shall mean the Internal Revenue Code of 1986, as ~~amended. "Proxy Statement/Prospectus" shall have the meaning given to such term in Section 3.7.2. "Knowledge" shall mean,~~amended (the “IRC”), with respect to ~~any representation or warranty contained~~the shares of Westamerica common stock to be issued in ~~this Agreement;~~connection with the actual knowledge, after reasonable inquiry, of any director or executive officer of FCOB or WEST. "Last Regulatory Approval" shall mean the final Requisite Regulatory Approval required, from any Governmental Entity under applicable federal laws of the United States and laws of any state having jurisdiction overMerger.

D. Pursuant to the Merger and subject to ~~permit~~ the ~~parties~~terms and conditions hereof, each share of Redwood Empire common stock (other than fractional shares or any shares as to ~~consummate~~which dissenters’ rights have been perfected) shall be converted into the ~~Merger. "Material Adverse Effect" shall mean a material adverse effect: (i) on the business, assets, results~~right to receive cash and that number of ~~operations, financial condition or prospects~~shares of ~~a Person and its subsidiaries, if any, taken~~Westamerica common stock determined in accordance with Section 2.1, below, subject to adjustment as a whole (unless specifically indicated otherwise); or (ii) on the ability of a Person that is a party to this Agreement to perform its obligations under this Agreement or to consummate the transactions contemplated by this Agreement. "Merger" shall have the meaningmore fully set forth in ~~Section 2.1. "Merger Agreement" shall have the meaning given to such term~~this Agreement.

NOW, THEREFORE, in Section 2.1. "New Certificates" shall have the meaning given to such term in Section 2.8.1. "OCC" shall mean Office of the Comptroller of the Currency. "OREO" shall have the meaning given such term in Section 3.13. "Perfected Dissenting Shares" shall mean Dissenting Shares as to which the recordholder has made demand on FCOB or WEST in accordance with Paragraph (b) of Section 1301 of the California Corporations Code and has not withdrawn such demand prior to the Effective Time. "Persons" or "persons" shall mean an individual, corporation, partnership, limited liability company, joint venture, trust or unincorporated organization, Governmental Entity or any other legal entity whatsoever. "Registration Statement" shall have the meaning given to such term in Section 3.7.2. "Regulatory Authority" shall mean any Governmental Entity, the approval of which is legally required for consummation of the Merger. "Requisite Regulatory Approvals" shall have the meaning set forth in Section 7.1.2. "Returns" shall mean all returns, declarations, reports, statements, and other documents required to be filed with respect to federal, state, local and foreign Taxes, and the term "Return" means any oneconsideration of the foregoing ~~Returns. A-4~~ 116 "SEC" shall mean the Securities and Exchange Commission. "Securities Act" shall mean the Securities Act of 1933, as amended. "Subsidiary" shall mean, with respect to any corporation (the "parent"), any other corporation, association or other business entity of which more than 50% of the shares of the Voting Stock are owned or controlled, directly or indirectly, by the parent or by one or more Subsidiaries of the parent, or by the parent and one or more of its Subsidiaries. "Surviving Corporation" shall have the meaning given to such term in Section 2.1. "Taxes" shall mean all federal, state, local and foreign net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties, or other taxes, together with any interest and any penalties, additions to tax, or additional amounts with respect thereto,premises and the term "Tax" means any one of the foregoing Taxes. "Tax Filings" shall mean any applications, reports, statements or other Returns related to any Persons taxes required to be filed with any local, state or federal Governmental Entity beforemutual agreements, representations and warranties contained herein and in the Merger ~~may become effective, including, but not limited to, any filing required to be made with~~Agreement, the ~~California Franchise Tax Board to obtain a Tax Clearance Certificate for the~~parties hereto agree as follows:

(a) Merger. "Tender Offer" shall mean the commencement (as such term is defined in Rule 14d-2 under the Exchange Act) of a tender offer or the filing by any person of a registration statement under the Securities Act with respect to, a tender offer to purchase any shares of FCOB Common Stock such that, upon consummation of such offer, such person would own or control 15% or more of the then outstanding voting securities of FCOB. "Understanding" shall have the meaning set forth in Section 6.1.5. "Voting Securities" or "Voting Stock" shall mean the stock or other securities or any other interest entitling the holders thereof to vote in the election of the directors, trustees or Persons performing similar functions of the Person in question, including, without limitation, nonvoting securities that are convertible or exchangeable into voting securities, but shall not include any stock or other interest so entitling the holders thereof to vote only upon the happening of a contingency (other than a conversion or exchange thereof into voting securities), whether or not such contingency has occurred. "WAB" shall mean Westamerica Bank. "WEST" shall mean Westamerica Bancorporation. "WEST Common Stock" shall mean the common stock, no par value per share, of WEST. "WEST Filings" shall have the meanings given such term in Section 4.5. "WEST Financial Statements" shall mean the financial statements of WEST for the year ended December 31, 1999. "WEST Market Value Per Share" shall mean the last trade of WEST Common Stock prior to the Effective Time. "WEST Material Adverse Event" shall have the meaning given to such term in Section 8.1.9 A-5 ~~117 ARTICLE 2. THE MERGER SECTION 2.1 The Merger.~~ Subject to the terms and conditions of this Agreement, ~~as promptly as practicable following~~ the ~~receipt of~~Merger shall become effective upon the Last Regulatory Approval and the expiration of all applicable waiting periods, FCOB shall be merged with WAB, with WAB being the Surviving Corporation of the merger, all pursuant to the Agreement of Merger attached to this Agreement as Exhibit 2.1 (the "Merger Agreement") and in accordancefiling with the ~~applicable provisions of the~~ California Financial Code and the California Corporations Code (the "Merger"). The closing of the Merger (the "Closing") shall take place at a location and time and Business Day to be designated by WEST and reasonably concurred to by FCOB (the "Closing Date") which shall not, however, be later than thirty (30) days after receipt of the Last Regulatory Approval, expiration of all applicable waiting periods and FCOB shareholder approval. The Merger shall be effective when the Merger Agreement (together with any other documents required by law to effectuate the Merger) shall have been filed with the Secretary of State of a duly executed Agreement of Merger substantially in the ~~State~~form attached hereto as Exhibit A (the “Merger Agreement”) and officers’ certificates prescribed by Section 1103 of the California ~~and the CDFI. When used~~General Corporation Law (the “GCL”), or at such time thereafter as is provided in ~~this Agreement, the term "Effective Time" shall mean the time of filing of~~ the Merger Agreement (the “Effective Time”). The date on which the Effective Time occurs as specified in the Merger Agreement shall be referred to herein as the “Effective Date.”

(b) Bank Merger. The Bank Merger shall become effective upon the filing with the California Secretary of State and the ~~CDFI,~~California Department of Financial Institutions (the “DFI”) of a duly executed Agreement of Merger satisfactory to Westamerica (the “Bank Merger Agreement”) and ~~"Surviving Corporation" shall mean WAB. SECTION 2.2~~officers’ certificates prescribed by Section 1103 of the GCL.

(a) Merger. Subject to the terms and conditions of this Agreement and the Merger Agreement, on the Effective Date, Redwood Empire shall be merged with and into Westamerica and Westamerica shall be the surviving corporation (the “Surviving Corporation”) in the Merger. ByAll assets, rights, goodwill, privileges, immunities, powers, franchises and interests of Redwood Empire and Westamerica in and to every type of property (real, personal and mixed) and choses in action, as they exist as of the Effective Date, including appointments, designations and nominations and all other rights and interests as trustee, executor, administra-

tor, registrar of stocks and bonds, guardian of estate, assignee, receiver and in every other fiduciary capacity, shall pass and be transferred to and vest in the Surviving Corporation by virtue of the Merger on the Effective Date without any deed, conveyance or other transfer; the separate existence of Redwood Empire shall cease and the corporate existence of Westamerica as the Surviving Corporation shall continue unaffected and unimpaired by the Merger; and the Surviving Corporation shall be deemed to be the same entity as each of Redwood Empire and Westamerica and shall be subject to all of their duties and liabilities of every kind and description. The Surviving Corporation shall be responsible and liable for all the liabilities and obligations of each of Westamerica and Redwood Empire; and any claim existing or action or proceeding pending by or against Westamerica or Redwood Empire may be prosecuted as if the Merger had not taken place, or the Surviving Corporation may be substituted in its place. Neither the rights of creditors nor any liens upon the property of either Westamerica or Redwood Empire shall be impaired by reason of the Merger.

(b) Bank Merger. Subject to the terms and conditions of this Agreement and the Bank Merger Agreement, promptly after the Effective Date, NBR shall be merged with and into WAB and WAB shall be the surviving corporation (the “Surviving Bank”) in the Bank Merger. The effect of the Bank Merger shall be as provided by applicable law. The Surviving Bank shall be responsible and liable for all the liabilities and obligations of each of WAB and NBR; and any claim existing or action or proceeding pending by or against WAB or NBR may be prosecuted as if the Bank Merger had not taken place, or the Surviving Bank may be substituted in its place. Neither the rights of creditors nor any liens upon the property of either WAB or NBR shall be impaired by reason of the Bank Merger.

(a) Cancellation of Shares held by Redwood Empire Subsidiaries. All shares of common stock of Redwood Empire (“Redwood Empire Shares” and each a “Redwood Empire Share”) that are owned directly or indirectly by any subsidiary of Redwood Empire (other than shares held in trust or otherwise for the benefit of a third party or as pledgee) shall be cancelled and retired and shall cease to exist, and no Merger Consideration (as defined below) shall be delivered in exchange therefor.

(b) Conversion. On the Effective Date, by virtue of the Merger and at the Effective Time, all of the rights, privileges, powers and franchises and all property and assets of every kind and description of FCOB and WAB shall be vested in and be held and enjoyed by the Surviving Corporation, without further act or deed, and all the estates and interests of every kind of FCOB and WAB, including all debts due to either of them, shall be as effectively the property of the Surviving Corporation as they were of FCOB and WAB immediately prior to the Effective Time, and the title to any real estate vested by deed or otherwise in either FCOB or WAB shall not revert or be in any way impaired by reason of the Merger; and all rights of creditors and liens upon any property of FCOB and WAB shall be preserved unimpaired and all debts, liabilities and duties of FCOB and WAB shall be debts, liabilities and duties of the Surviving Corporation and may be enforced against it to the same extent as if such debts, liabilities and duties had been incurred or contracted by it, and none of such debts, liabilities or duties shall be expanded, increased, broadened or enlarged by reason of the Merger. SECTION 2.3 Articles of Incorporation and Bylaws. The Articles of Incorporation and Bylaws of WAB in effect immediately prior to the Effective Time shall be the Articles of Incorporation and Bylaws of the Surviving Corporation until amended and the name of the Surviving Corporation shall be "Westamerica Bank." Section 2.4 WAB Stock. The authorized and issued capital stock of WAB immediately prior to the Effective Time, on and after the Effective Time, pursuant to the Merger Agreement and without any ~~further~~ action on the part of WAB shall remain unchanged and shall be held by WEST. SECTION 2.5 Conversion of FCOB Stock Options. At the Effective Time, each option with respect to FCOB Common Stock be converted into an option with respect to WEST Common Stock and become exercisable for the number of WEST Common Stock equal to the number of shares of FCOB Common Stock for which the holder ~~held options multiplied by the Exchange Ratio (except that WEST shall not be required to issue or compensate the options holders for~~of any ~~fraction of a share of WEST Shares which would result from exercise of all~~Redwood Empire Share, each outstanding Redwood Empire Share (other than fractional shares or any ~~part of said options), and be subject~~shares as to the same unaccelerated vesting schedule and other existing terms of the FCOB options and other comparable terms, including without limitation a per share WEST exercise price equal to the former per share exercise price of the FCOB options divided by the Exchange Ratio. A-6 ~~118 SECTION 2.6 Conversion of FCOB Common Stock. (a) Each share of FCOB Common Stock issued and outstanding prior to the Effective Time~~which dissenters’ rights have been perfected) shall be converted into the right to receive ~~WEST Common~~per share merger consideration (the “Merger Consideration”) in the amount of $28.74 per share, consisting of $11.49 in cash (the “Cash Portion”) and $17.25 in shares of the common stock, without par value, of Westamerica (“Westamerica common stock” or “Westamerica Shares”) (the “Stock Portion”), subject to the adjustments described in subsection (c) below.

(c) Conversion of Stock Portion. The number of Westamerica Shares into which the Stock Portion of each Redwood Empire Share shall be converted (the “Stock Portion Exchange Ratio”) shall be equal to the ~~amount~~following, in each case rounded to four decimal places:


	(i) if the Westamerica Average Closing Price is not less than $45.4950 and not more than $55.6050, a fraction (i) the numerator of which is $17.25 and (ii) the denominator of which is the Westamerica Average Closing Price (as defined below);

	(ii) if the Westamerica Average Closing Price is greater than $55.6050, a fraction (i) the numerator of which is $17.25 and (ii) the denominator of which is $55.6050.

	(iii) if the Westamerica Average Closing Price is less than $45.4950, a fraction (i) the numerator of which is $17.25 and (ii) the denominator of which is $45.4950.

	(iv) “Westamerica Average Closing Price” means the average of the closing prices of Westamerica Shares quoted on the Nasdaq National Market as reported in The Wall Street Journal on each of the last 20 trading days on which trades in Westamerica’s shares occur ending on the day which is the day prior to two Business Days prior to the Effective Date, whether or not trades occurred on those days, rounded to


	four decimal places. As used herein, “Business Day” shall mean a day on which banks in the State of California are not authorized or required by law to be closed.

	(v) For example, assuming the base market price for Westamerica common stock is $50.55, the top end of the collar is $55.6050, and the low end of the collar is $45.4950:


	(x) if the Westamerica Average Closing Price is $52.50, then the Stock Portion Exchange Ratio would have a numerator of $17.25 and a denominator of $52.50; the Stock Portion Exchange Ratio would therefore be 0.3286; the Stock Portion Exchange Ratio times one share of Westamerica common stock would have a nominal value at that time of 0.3286 multiplied by $52.50 or $17.25, and the Merger Consideration would consist of a Cash Portion of $11.49 plus a Stock Portion of $17.25 for a total of $28.74;

	(y) if the Westamerica Average Closing Price is $57.50, then the Stock Portion Exchange Ratio would have a numerator of $17.25 and a denominator of $55.6050; the Stock Portion Exchange Ratio would therefore be 0.3102; the Stock Portion Exchange Ratio times one share of Westamerica common stock would have a nominal value at that time of 0.3102 multiplied by $57.50 or $17.8365, and the Merger Consideration would consist of a Cash Portion of $11.49 plus a Stock Portion of $17.8365 for a total of $29.3265;

	(z) if the Westamerica Average Closing Price is $42.50, then the Stock Portion Exchange Ratio would have a numerator of $17.25 and a denominator of $45.4950; the Stock Portion Exchange Ratio would therefore be 0.3792; the Stock Portion Exchange Ratio times one share of Westamerica common stock would have a nominal value at that time of 0.3792 multiplied by $42.50 or $16.1160, and the Merger Consideration would equal a Cash Portion of $11.49 plus a Stock Portion of $16.1160 for a total of $27.6060.

Provided, if Westamerica is required to make a Lake County Divestiture (as defined in Section 7(i)), then the ~~Exchange Ratio. The Exchange Ratio~~Stock Portion, the Cash Portion and the Merger Consideration shall be adjusted as follows: (i) If the Average Closing Price is greater than $25.59, then the Exchange Ratio shall equal the product of (a) 0.888 and (b) a fraction, the numerator is equal to $25.59 and the denominator is equal to the Average Closing Price; ~~$25.59 Exchange Ratio = 0.888 X --------------------- Average Closing Price~~
(ii) If the Average Closing Price is less than $18.91, then the Exchange Ratio shall equal the product of (a) 0.888 and (b) a fraction, the numerator is equal to $18.91 and the denominator is equal to the Average Closing Price; ~~$18.91 Exchange Ratio = 0.888 X --------------------- Average Closing Price~~
The Exchange Ratio is also subject to adjustment pursuant to Section 8.1.13 if applicable. (b) The shares held by any shareholder who properly exercises dissenters' rights provided under the California Corporations Code, shall not be so converted and in lieu of such conversion shall be treatedreduced in accordance with the ~~provisions~~following table:

~~and references in this subsection (c) above to “$11.49,” “$17.25” and “$28.74” shall be deemed to be references to the applicable respective reduced values in the table above.~~

(d) Cancellation and Exchange of Redwood Empire Shares. Upon conversion of Redwood Empire Shares into the Merger Consideration in accordance with the foregoing, all Redwood Empire Shares shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each certificate previously representing any such shares shall thereafter represent the cash and Westamerica Shares (and cash for fractional shares) into which such Redwood Empire Shares have been converted. Certificates previously representing Redwood Empire Shares (other than dissenting shares) shall be exchanged for cash and certificates representing whole shares of Westamerica common stock issued in consideration therefor upon the surrender of such certificates in accordance with Section 2.3.

(e) Rights as Shareholders. From and after the Effective Date, the holders of certificates formerly representing Redwood Empire Shares shall cease to have any rights with respect thereto other than any dissenters’ rights they have perfected pursuant to Chapter 13 of the ~~California Corporations Code. SECTION 2.7~~GCL.

(f) Redwood Empire Dissenting Shares. Any Redwood Empire Shares held by “dissenting shareholders” within the meaning of Chapter 13 of the GCL and which the holders thereof have not withdrawn or caused to lose their status as “dissenting shareholders” shall not be converted into the Merger Consideration, but shall, after the Effective Date, be entitled to only such rights as are granted them by Chapter 13 of the

GCL. Each dissenting shareholder who is entitled to payment for such shareholder’s Redwood Empire Shares shall receive such payment therefor from the Surviving Corporation in an amount determined pursuant to Chapter 13 of the GCL.

2.2 Fractional Shares. No Notwithstanding any other provision hereof, no fractional shares of ~~WEST Common Stock~~Westamerica common stock shall be issued ~~in the Merger.~~to holders of Redwood Empire Shares. In lieu thereof, each such holder ~~of FCOB Common Stock who would otherwise be~~ entitled to ~~receive~~ a ~~fractional~~fraction of a share of Westamerica common stock shall receive, at the time of surrender of the certificate or certificates representing such holder’s Redwood Empire Shares, an amount in cash equal to the ~~product (rounded to the nearest hundredth) obtained~~Westamerica Average Closing Price multiplied by ~~multiplying (a) WEST Market Value Per Share by (b)~~ the fraction of a share of ~~WEST Common Stock~~Westamerica common stock to which such holder otherwise would ~~otherwise~~ be entitled. No such holder shall be entitled to dividends, voting rights, interest on the value of, or any other rights in respect of ~~any such fraction. SECTION 2.8 Exchange Procedures. On or as soon as practicable after~~a fractional share. Fractional shares shall be determined on an aggregate basis for each Redwood Empire shareholder and not on a per share basis.

(a) Prior to the Effective ~~Time, (i) WEST will~~Date, Westamerica shall appoint Computershare Investor Services, LLC, or its successor, or any other bank or trust company (having capital of at least $150 million) mutually acceptable to Redwood Empire and Westamerica, as exchange agent (the “Exchange Agent”) for the purpose of exchanging certificates representing the Redwood Empire Shares. At the Effective Date, Westamerica shall deliver to the Exchange ~~Agent: (i)~~Agent cash and certificates representing the number of Westamerica Shares required to be delivered to holders of Redwood Empire Shares as the aggregate Merger Consideration pursuant to Article 2 of this Agreement. Westamerica shall direct the Exchange Agent to mail, promptly after the Effective Date, to each holder of a certificate or certificates which immediately prior to the Effective Date represented outstanding Redwood Empire Shares a letter of transmittal and instructions for use in effecting the surrender of such certificates in exchange for certificates representing shares of ~~WEST Common Stock issuable~~Westamerica common stock and cash as provided in ~~the Merger; and (ii) cash for the payout~~this Agreement, both of ~~fractional shares. 2.8.1 Upon~~which shall be reasonably satisfactory to Redwood Empire. Each holder of Redwood Empire Shares converted pursuant to Section 2.1, upon surrender to the Exchange Agent ~~for cancellation~~ of one or more certificates for shares of FCOB Common Stock ("FCOB Certificates"), accompanied by a duly executed letter of transmittal in proper form, the Exchange Agent shall, as promptly as practicable thereafter, deliver to each holder of such ~~surrendered FCOB Certificates, certificates representing the appropriate number of shares of WEST Common Stock ("New Certificates") and/or checks~~Redwood Empire Shares for ~~payment of cash in lieu of fractional shares, in respect of the FCOB Certificates. In no event shall the holders of FCOB Certificates~~cancellation, will be entitled to receive ~~interest on~~the amount of cash ~~amounts due them hereunder. 2.8.2 Until~~and a ~~FCOB Certificate has been surrendered~~certificate representing the number of Westamerica Shares determined in accordance with Section 2.1. Each certificate representing Westamerica Shares will bear a notation incorporating by reference the Amended Rights Agreement of Westamerica, and ~~exchanged~~certificates representing the Westamerica Shares will evidence and entitle the holders thereof to certain rights as ~~herein provided, each share~~set forth in and subject to the terms of ~~FCOB Common Stock represented by such FCOB Certificate~~the Amended Rights Agreement (the “Rights”). Certificates issued for the Westamerica Shares shall ~~represent, on and after~~be deemed to be certificates for the Effective Time, the right to receive the Exchange Ratio into which each such share of FCOB Common Stock shown thereon has been converted as provided by Section 2.6, including the right to vote such shares of WEST Common Stock.Rights.

(b) No dividends or other distributions ~~that~~of any kind which are declared ~~on any shares~~payable to shareholders of ~~WEST Common Stock into which any shares~~record of ~~FCOB Common Stock have been converted at~~the Westamerica Shares after the Effective ~~Time~~Date will be paid to persons entitled to receive such certificates for Westamerica Shares until such persons surrender their certificates representing Redwood Empire Shares. Upon surrender of such certificate representing Redwood Empire Shares, the holder thereof shall be paid, to the holder of such FCOB shares until the FCOB Certificates evidencing such FCOB shares have been surrendered in exchange for New Certificates in the manner herein provided, but upon such surrender, suchwithout interest, any dividends or other distributions ~~from~~with respect to the Westamerica Shares as to which the record date and payment date occurred on or after the Effective ~~Time, will be paid to such holders. In no event shall~~Date and on or before the ~~A-7~~ 119 holders be entitled to receive such dividends or other distributions be entitled to receive interest on such dividends or other distributions. 2.8.3 No transfer taxes shall be payable bydate of surrender.

(c) If any ~~shareholder in respect of the issuance of New Certificates, except that if any New Certificate~~certificate for Westamerica Shares is to be issued in a name other than that in which the ~~FCOB Certificates~~certificate for Redwood Empire Shares surrendered ~~shall have been~~in exchange therefor is registered, it shall be a condition of such ~~issuance~~exchange that the ~~holder~~person requesting such ~~issuance shall properly endorse the certificate or certificates and~~exchange shall pay to ~~WEST or~~ the Exchange Agent any transfer costs, taxes ~~payable~~or other expenses required by reason ~~thereof,~~of the issuance of certificates for such Westamerica Shares in a name other than the registered holder of the certificate surrendered, or ~~of any prior transfer of~~ such ~~surrendered certificate, or~~persons shall establish to the satisfaction of ~~WEST or~~Westamerica and the Exchange Agent that such costs, taxes or other expenses have been paid or are not ~~payable. 2.8.4 Any WEST Common Stock~~applicable.

(d) All dividends or distributions, and any cash ~~delivered~~to be paid pursuant to Section 2.2 in lieu of fractional shares, if held by the Exchange Agent for payment or delivery to the holders of unsurrendered certificates representing Redwood Empire Shares and unclaimed at the end of one year from the Effective Date, shall (together with any interest earned thereon) at such time be paid or redelivered by the Exchange Agent to Westamerica, and after such time any holder of a certificate representing Redwood Empire Shares who has not surrendered such certificate to the Exchange Agent shall, subject to applicable law, look as a general

~~creditor only to Westamerica for payment or delivery of such dividends or distributions or cash, as the case may be.~~

2.4 No Further Transfers of Redwood Empire Shares. At the Effective Date, the stock transfer books of Redwood Empire shall be closed and ~~not distributed~~no transfer of Redwood Empire Shares theretofore outstanding shall thereafter be made.

2.5 Adjustments. If, between the date of this Agreement and the Effective Date, the outstanding shares of Westamerica common stock shall have been changed into a different number of shares or a different class by reason of any reclassification, recapitalization, split up, combination, exchange of shares or readjustment, or a stock dividend thereon shall be declared with a record date within such period, the Westamerica Average Closing Price and the number of Westamerica Shares to be issued and delivered in the Merger in exchange for the Stock Portion of each outstanding Redwood Empire Share and shall be correspondingly adjusted.

2.6 Treatment of Stock Options. Each person holding one or more options to purchase Redwood Empire Shares pursuant to ~~this Section 2.8 at~~ the ~~end~~Redwood Empire 1991 Stock Option Plan or 2001 Stock Option Plan (each as amended, collectively, the “Option Plan”) (or who was granted an option as a result of ~~nine months from~~his or her commencement of employment by Redwood Empire or NBR) (all such options being collectively hereinafter referred to as the ~~Effective Time,~~“Redwood Options”) shall ~~be returned to WEST,~~have the right, in ~~which event the Persons entitled thereto shall look only to WEST for payment thereof. 2.8.5 Notwithstanding anything to the contrary set forth in Sections 2.8.2~~his or her discretion, to:


	(a) Exercise prior to or at the Effective Time (which exercise may be made subject to the Effective Time having occurred) any Redwood Options outstanding that were exercisable prior to the Effective Time, including those that become exercisable on an accelerated basis under their terms or the terms of grant of which provide for such acceleration (any Redwood Empire Shares covered by any such options which are exercised at or immediately prior to the Effective Time, to be exchanged for the Merger Consideration upon the occurrence of the Effective Time); and/or

	(b) Have any options that are not exercised converted into an option to purchase shares of Westamerica common stock in the following manner:


	(i) Following the Effective Time, shares of Westamerica common stock shall be substituted under the options for Redwood Empire Shares based on the Option Exchange Ratio (as defined below) in a form acceptable to Westamerica. Specifically, each option shall be deemed to continue as an option to purchase the number of shares of Westamerica common stock equal to the Option Exchange Ratio multiplied by the number of Redwood Empire Shares previously covered by such option and rounded down to the nearest whole share at an option exercise price for each such share of Westamerica common stock equal to the previous option exercise price for each Redwood Empire Share divided by the Option Exchange Ratio and rounded up to the nearest whole cent. Except as specified below, each Redwood Empire stock option shall otherwise continue on terms and conditions that are consistent with those that were applicable at the Effective Time.

	(ii) The “Option Exchange Ratio” means a fraction, (a) the numerator of which is the sum of (1) the Cash Portion plus (2) the Stock Portion Exchange Ratio multiplied by the Westamerica Average Closing Price, and (b) the denominator of which is the applicable denominator used in Section 2.1(c) to determine the Stock Portion Exchange Ratio.

	(iii) Redwood Empire shall amend the terms of the Option Plan and obtain any required shareholder approval of such Option Plan amendments and shall amend, as necessary, any and all option agreements (including obtaining any required participant consents) prior to the Effective Time to make them consistent with this Section 2.6.

2.7 Effect on Westamerica Common Stock. At and 2.8.3 hereof, if any holder of FCOB Common Stock shall be unable to surrender such holder's FCOB Certificates because such FCOB Certificates have been lost or destroyed, such holder may deliver in lieu thereof an affidavit and indemnity undertaking in form and substance and, if required, with surety satisfactory to the Exchange Agent and WEST. 2.8.6 The Exchange Agent shall not be entitled to vote or exercise any rights of ownership with respect to the shares of WEST Common Stock held by it from time to time hereunder, except that it shall receive and hold all dividends or other distributions paid or distributed with respect to such shares of WEST Common Stock for the account of the Persons entitled thereto. 2.8.7 After the Effective Time, there shall be no further registration of transfers of the shares of FCOB Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, ~~FCOB Certificates representing such shares~~each outstanding share of ~~FCOB Common Stock are presented to WEST, they~~Westamerica common stock shall remain an outstanding share of Westamerica common stock and shall not be ~~canceled and exchanged for WEST Common Stock as provided in this Article 2. SECTION 2.9 Board of~~converted or otherwise affected by the Merger.

2.8 Directors of ~~WEST and WAB following~~ the ~~Effective Time. At the Effective Time, the then existing Board of Directors of WEST shall remain the Board of Directors. At~~Surviving Corporation. Immediately after the Effective Time, the Board of Directors of ~~WAB~~the Surviving Corporation shall ~~remain~~be comprised of the persons serving as directors of Westamerica

~~immediately prior to the Effective Time. Such persons shall serve until the earlier of their resignation or removal or until their respective successors are duly elected and qualified.~~

2.9 Executive Officers of the Surviving Corporation. Immediately after the Effective Time, the executive officers of the Surviving Corporation shall be comprised of the persons serving as executive officers of Westamerica immediately prior to the Effective Time. Such persons shall serve until the earlier of their resignation or termination.

2.10 Directors of the Surviving Bank. Immediately after the Effective Time, the Board of Directors of the Surviving ~~Corporation. SECTION 2.10 Change~~Bank shall be comprised of ~~Structure. WEST~~the persons serving as directors of WAB immediately prior to the Effective Time. Such persons shall serve until the earlier of their resignation or removal or until their respective successors are duly elected and ~~FCOB agree that WEST~~qualified.

(a) Reservation, Issuance and Registration of Westamerica Common Stock. Westamerica shall reserve and make available for issuance in connection with the Merger and in accordance with the terms of this Agreement (i) the Westamerica Shares; and (ii) the maximum number of shares of Westamerica common stock to which the option holders of Redwood Empire may ~~change~~be entitled pursuant to Section 2.6 above at or after the ~~structure~~Effective Date. All Westamerica Shares will, when issued and delivered pursuant to and in accordance with the terms of this Agreement, be duly authorized, validly issued, fully paid and nonassessable. Westamerica shall file and cause to be declared effective pursuant to the Securities Act of 1933, as amended (the “1933 Act”), one or more registration statements covering all such shares and shall cause all such shares to be issued in compliance with the 1933 Act and in compliance with all applicable state securities laws and regulations. Westamerica shall either: (i) as soon as practicable after the Effective Time, file a registration statement on Form S-3 or Form S-8, as the case may be (or any successor or other appropriate forms), with respect to the shares of Westamerica common stock subject to Redwood Options and use its commercially reasonable best efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such Redwood Options remain outstanding; or (ii) issue substitute options with substantially the same terms, and having the same economic benefits as the options for which they are issued as substitute options but subject, in the case of directors of Redwood Empire, to the effect of Section 3.2(r), under an existing Westamerica option plan for which Westamerica maintains an effective S-8 registration statement and use its commercially reasonable best efforts to maintain the effectiveness of such registration statement (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such substitute options remain outstanding.

(b) Nasdaq Listing. Westamerica shall cause the Westamerica Shares to be issued in the Merger and pursuant to the Redwood Options as provided in Section 2.6 to be approved for listing on the Nasdaq National Market, subject to official notice of issuance, prior to the Effective Time.

(c) Government Approvals. Prior to the Effective Date, Westamerica, with the cooperation of Redwood Empire, shall use its commercially reasonable best efforts in good faith to take or cause to be taken as promptly as practicable all such steps as shall be necessary to obtain (i) the prior approval of the Merger by the Board of Governors of the Federal Reserve System (the “FRB”) under the Bank Holding Company Act of 1956, as amended (the “BHCA”), and the Bank Merger Act, as amended, (ii) the DFI under the California Financial Code, and (iii) all other consents and approvals of government agencies as are required by law or otherwise, and shall do any and all acts deemed by Westamerica to be necessary or appropriate in order to cause the Merger and the Bank Merger to be consummated on the terms provided in this Agreement as promptly as practicable. All approvals referred to in clauses (i), (ii) and (iii) of this Section 3.1(c) are hereinafter referred to collectively as the “Government Approvals.” Westamerica and WAB shall use their commercially reasonable best efforts in good faith to file all applications for the Government Approvals within 45 calendar days after the execution of this Agreement, subject to the availability with reasonable efforts of the required financial and other information, to the cooperation of Redwood Empire and NBR where otherwise

necessary for a complete application and to the occurrence of unforeseen circumstances not within Westamerica’s reasonable control that impair Westamerica’s ability (despite the exercise of good faith efforts) to complete and file all such applications within such time, but in such event Westamerica shall nevertheless be obligated to make such filings as promptly as reasonably practicable. Westamerica agrees to use commercially reasonable best efforts to respond within five Business Days to comments or requests, if any, received from bank regulators in connection with any such applications, within ten Business Days to comments or requests, if any, received from the U.S. Department of Justice, and within ten Business Days to comments or requests, if any, received from the Securities and Exchange Commission (the “Commission”), and in each case sooner if reasonably practicable. If it is not reasonably practicable to respond within such times in any instance, Westamerica shall so advise Redwood Empire, which shall not unreasonably withhold, delay or condition its consent to a later filing so long as Westamerica continues to pursue such matters diligently and in a commercially reasonable manner.

(d) Notification of Breach of Representations, Warranties and Covenants. Westamerica shall promptly (and in any event within two Business Days) give oral and written notice to Redwood Empire upon becoming aware of the ~~consideration~~occurrence or impending or threatened occurrence of any event which would, or could reasonably be expected to, cause or constitute a breach or inaccuracy of any of the representations or warranties or a breach of any of the covenants of Westamerica or WAB contained or referred to in the Merger Agreement or this Agreement and shall use its best efforts to prevent the same or remedy the same promptly.

(i) Westamerica has delivered or has made available to Redwood Empire prior to the Effective Date true and correct copies of (x) all financial statements and proxy statements issued to Westamerica shareholders and/or directors after December 31, 2002 and prior to the date hereof, (y) its consolidated statements of income, changes in shareholders’ equity and statements of cash flows for March 31, 2004, and for the years ended December 31, 2003, 2002 and 2001, and (z) consolidated balance sheets at March 31, 2004 and at December 31, 2003, 2002 and 2001. Such consolidated financial statements at and for the years ended December 31, 2003, 2002 and 2001 have been audited by KPMG LLP and its predecessors, independent public accountants (“KPMG”), and include an opinion of such accounting firm to the effect that such financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) and present fairly, in all material respects, the consolidated financial position, results of operations and cash flows of Westamerica at the dates indicated and for the periods then ending. The opinions of KPMG do not contain any qualifications.

(ii) Westamerica shall deliver or make available to Redwood Empire at or prior to the Effective Date true and correct copies of (x) all financial statements and proxy statements issued to Westamerica shareholders and/or directors on or after the date hereof and through the Effective Date, (y) its consolidated statements of income, changes in shareholders’ equity and statements of cash flows for all quarters and years ended after March 31, 2004, and (z) consolidated balance sheets for all quarters and years ending after March 31, 2004. Such consolidated financial statements for years ending after March 31, 2004 and prior to the Effective Date shall be audited by KPMG, and shall include an opinion of KPMG to the effect that such financial statements have been prepared in accordance with GAAP and present fairly, in all material respects, the consolidated financial position, results of operations and cash flows of Westamerica at the date indicated and for such period then ending. Such opinion of KPMG shall not contain any qualifications.

(f) Press Releases. Westamerica and WAB shall not issue any press release or written statement for general circulation relating to the Merger, this Agreement or the Merger Agreement unless previously provided to Redwood Empire for review and approval (which approval will not be unreasonably withheld or delayed) and shall cooperate with Redwood Empire in the development and distribution of all news releases and other public information disclosures with respect to this Agreement or the Merger; provided that Westamerica may, without the consent of Redwood Empire, make any disclosure with regard to this Agreement or the Merger that it determines is required under any applicable law or regulation.

(g) Business Combinations. Prior to the Closing, Westamerica and WAB shall not initiate, solicit or knowingly encourage (including by way of furnishing information or assistance), or take any other action to

facilitate, any inquiries or the making of any proposal which constitutes, or would reasonably be expected to lead to, any Business Combination (as such term is defined below), unless such proposal is expressly conditioned upon, or the completion of such Business Combination would not materially interfere with, the performance by Westamerica or its successor in interest of its obligations under this Agreement; provided that the foregoing shall not preclude Westamerica from responding to an unsolicited bona fide written proposal for such a Business Combination from another person. Prior to the Closing, Westamerica and WAB shall not accept any offer from any third party regarding a Business Combination of Westamerica with any other entity unless


	(i) such offer is expressly conditioned upon, or the completion of such Business Combination would not materially interfere with, the performance by Westamerica or its successor in interest of its obligations under this Agreement or

	(ii) Westamerica has complied with the first sentence of this Section 3.1(g), Westamerica concludes in good faith (after consultation with a financial advisor of recognized reputation in similar transactions) that the proposed Business Combination constitutes or is reasonably likely to result in a Superior Proposal (as defined in Section 3.2(j)(iv) but substituting “Westamerica” for “Redwood Empire” in such definition) and the Board of Directors of Westamerica reasonably determines in good faith (after consultation with outside legal counsel) that failure to do so would be inconsistent with its fiduciary duties under applicable law, and Westamerica concurrently terminates this Agreement pursuant to Section 11(b)(xii) and pays to Redwood Empire the Termination Fee as provided in Section 11(d).

	In the event Westamerica fails to comply with the provisions of this Section 3.1(g), Redwood Empire shall be entitled to terminate this Agreement without any liability to Westamerica or any agent thereof pursuant to Section 11(b);provided, however, that the obligations and liabilities of Westamerica set forth in Section 11(d) hereof shall continue in full force and effect. For purposes of this Section 3.1(g), “Business Combination” shall mean any of the following involving Westamerica or any of its subsidiaries and any person other than Redwood Empire or any of its affiliates: any merger, consolidation, share exchange or other business combination; a sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets of Westamerica or its subsidiaries representing 15% or more of the consolidated assets of Westamerica and its subsidiaries; a sale of shares of capital stock (or securities convertible or exchangeable into or otherwise evidencing, or any agreement or instrument evidencing, the right to acquire capital stock), representing 15% or more of the voting power of Westamerica or its subsidiaries; or a tender offer or exchange offer for at least 15% or more of the outstanding shares of Westamerica; provided, for purposes of clause (ii) of this Section 3.1(g), references to “15% or more” shall be deemed to be references to “a majority.”

(h) Director and Officer Indemnification and Liability Insurance Coverage. From and after the Effective Date, the Surviving Corporation shall, to the fullest extent permitted by applicable law, indemnify, defend and hold harmless, and provide advancement of defense costs and other expenses to, each person who is now, or has been at any time prior to the date hereof or who becomes prior to the Effective Time, an officer or director of Redwood Empire or any of its subsidiaries (the “Indemnified Persons”) against all losses, claims, damages, costs, expenses, liabilities or judgments or amounts that are paid in settlement of or in connection with any claim, action, suit, proceeding or investigation based in whole or in part on or arising in whole or in part out of the fact that such person is or was a director or officer of Redwood Empire or any of its subsidiaries, and pertaining to any matter existing or occurring, or any acts or omissions occurring, at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time (including matters, acts or omissions occurring in connection with the approval of this Agreement and the consummation of the transactions contemplated hereby), to the same extent such persons are indemnified or have the right to advancement of expenses as of the date of this Agreement by Redwood Empire or any of its subsidiaries pursuant to Redwood Empire’s or any such subsidiaries’ Articles of Incorporation or Association, Bylaws and indemnification agreements, if any, in existence on the date hereof with any directors or officers of Redwood Empire and its subsidiaries. Upon the Effective Date, any former Redwood Empire officers who become officers of Westamerica (including any subsidiaries thereof) shall be included in Westamerica’s directors’ and officers’ insurance policy. Prior to the Effective Date, Redwood Empire may purchase tail insurance coverage

under its current policies of directors’ and officers’ liability insurance for a term not to exceed three years from the Effective Time with respect to claims arising from facts or events which occurred prior to the Effective Date; provided, however, that the total premium payment for such insurance shall not exceed $75,000. Except as required by applicable law or under the bylaws of Westamerica or WAB, neither Westamerica nor WAB will have any further obligation hereunder with respect to the indemnification of any person who now is or hereafter becomes a director or executive officer of Redwood Empire for acts or events occurring before the Effective Date. If the Surviving Corporation or any of its successors or assigns consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or transfers or conveys all or substantially all of its properties or assets to any person, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of the Surviving Corporation, as the case may be, shall assume the obligations set forth in this Section 3.1(h).

(i) Employee Benefits. For purposes of all Redwood Empire, NBR, Westamerica and WAB employee benefit plans (including vacation policies) under which an employee’s benefit depends, in whole or in part, on length of service, credit will be given to employees of Redwood Empire or its subsidiaries for service previously credited with Redwood Empire or its subsidiaries prior to the Effective Time. Westamerica shall also use its commercially reasonable best efforts to cause each welfare benefit plan of Westamerica or its subsidiaries to waive (i) any preexisting condition restriction that was waived under the terms of any analogous plan of Redwood Empire or its subsidiaries for Redwood Empire employees actually enrolled in such a plan immediately prior to the Effective Time or (ii) any waiting period limitation that would otherwise be applicable to such employee on or after the Effective Time to the extent such employee had satisfied any similar waiting period limitation under an analogous welfare benefit plan of Redwood Empire or its subsidiaries prior to the Effective Time.

(j) Dividends. After the date of this Agreement, each of Westamerica and Redwood Empire shall coordinate with the other as to the payment of dividends with respect to the Westamerica common stock and the Redwood Empire common stock and the record dates and payment dates relating thereto, it being the intention of the parties hereto that holders of Westamerica common stock and Redwood Empire common stock shall not receive two dividends, or fail to receive one dividend, for any single calendar quarter with respect to their shares of Westamerica common stock and/or Redwood Empire common stock or any shares of Westamerica common stock that any such holder receives in exchange for shares of Redwood Empire common stock in the Merger.

(k) Section 16. Assuming that Redwood Empire delivers to Westamerica the Section 16 Information (as defined below) reasonably in advance of the Effective Time, the Board of Directors of Westamerica, or a committee of non-employee directors thereof (as such term is defined for purposes of Rule 16b-3(d) under the 1934 Act), shall reasonably promptly thereafter and in any event prior to the Effective Time adopt a resolution providing that the receipt by the Redwood Empire Insiders (as defined below) of Westamerica common stock in exchange for shares of Redwood Empire common stock and of options to purchase Westamerica common stock upon conversion of Redwood Options, in each case pursuant to the transactions contemplated hereby and to the extent that such securities are listed in the Section 16 Information provided by Redwood Empire to Westamerica prior to the Effective Time, are intended to be exempt from liability pursuant to Section 16(b) under the 1934 Act such that any such receipt shall be so exempt. “Section 16 Information” shall mean information accurate in all material respects regarding the Redwood Empire Insiders, the number of shares of Redwood Empire common stock held by each of them and the number and description of Redwood Options held by each of them. “Redwood Empire Insiders” shall mean those officers and directors of Redwood Empire who are subject to the reporting requirements of Section 16(a) of the 1934 Act and who are listed in the Section 16 Information.

(l) Tax-Free Reorganization Treatment. Westamerica shall not, and shall not permit any of its subsidiaries to, intentionally take or cause to be taken any action, whether before or after the Effective Time, which would reasonably be expected to disqualify the Merger as a reorganization within the meaning of Section 368(a) of the Code.

(a) Approval by Redwood Empire Shareholders. Redwood Empire shall cause the Merger, this Agreement and the Merger Agreement to be submitted promptly for the approval of its shareholders at a special meeting to be called and held in accordance with applicable laws. Redwood Empire shall use its best efforts to cause such meeting of its shareholders to take place as promptly as reasonably practicable after the Commission declares the Westamerica Registration Statement effective. In connection with the call of such meeting, Redwood Empire shall cause such proxy materials, with any amendments thereto that may in the judgment of its counsel be necessary or desirable, to set forth each Redwood Empire director’s commitment to vote his or her shares of Redwood Empire stock in favor of the transactions contemplated hereby and to be mailed to its shareholders (the proxy materials, together with any amendments or supplements thereto, being herein referred to as the “Proxy Statement”). The Board of Directors of Redwood Empire shall at all times prior to and during such meeting of Redwood Empire shareholders recommend that the transactions contemplated hereby be adopted and approved and use its best efforts to obtain the requisite affirmative vote of the holders of the outstanding Redwood Empire Shares for the approval and adoption of this Agreement and the Merger;provided, however, that the Board of Directors of Redwood Empire may withdraw, modify or change its recommendation to the shareholders if the Board determines, in good faith, following consultation with legal counsel, that failure to do so would be inconsistent with its fiduciary duties under applicable law. Within 30 calendar days after the time of execution and delivery of this Agreement, members of the Board of Directors of Redwood Empire shall deliver to Westamerica undertakings in the form attached hereto as Exhibit B (each a “Director Support and Voting Agreement”) confirming such directors’ approval of the transactions contemplated hereby, setting forth such directors’ commitment to vote his or her shares of Redwood Empire stock in favor of the transactions contemplated by this Agreement and setting forth such directors’ commitment to use their best efforts to cause the shareholders of Redwood Empire to adopt and approve the transactions contemplated by this Agreement, subject to the proviso in the immediately preceding sentence and any regulatory constraints. Concurrently with the execution of this Agreement, Redwood Empire shall deliver to Westamerica the undertakings of B. John Barry, Thomas J. Barry, Jessica M. Barry, Michael B. Barry and Cheryl Sandeen in the form attached hereto as Exhibit B-1 (each a “Voting Agreement”) confirming such shareholders’ approval of the transactions contemplated by this Agreement and setting forth their respective commitments to vote their shares of Redwood Empire stock in favor of the transactions contemplated by this Agreement. Except with the prior approval of Westamerica or pursuant to Section 3.2(j), neither Redwood Empire nor any member of its Board of Directors shall, at the Redwood Empire shareholders’ meeting, submit any other matters for approval of its shareholders.

(b) Shareholder Lists and Other Information. After execution hereof, Redwood Empire shall from time to time make available to Westamerica, upon request, a list of its shareholders and their addresses, a list showing all transfers of Redwood Empire common stock and such other information as Westamerica shall reasonably request regarding both the ownership and prior transfers of Redwood Empire common stock.

(c) Government Approvals. Redwood Empire will cooperate in all reasonable respects with Westamerica and WAB in their undertaking to obtain the Government Approvals, and Redwood Empire further agrees, subject to the continuing fiduciary duty of the Board of Directors of Redwood Empire to the shareholders of Redwood Empire as provided in Section 3.2(a), to take such actions as may be reasonably requested by Westamerica to cause the Merger to be consummated on the terms provided in the Merger Agreement and this Agreement as promptly as is practicable.

(d) New Branches and Leases. Redwood Empire shall not create any new branches or enter into any acquisitions or leases of real property (except acquisition of real property through foreclosure or in lieu of foreclosure of a security interest), including new leases and lease extensions, without the prior written approval of Westamerica, which approval will not be unreasonably withheld, delayed or conditioned.

(e) Notification of Breach of Representations, Warranties and Covenants. Redwood Empire shall promptly (and in any event within two Business Days) give oral and written notice to Westamerica upon becoming aware of the occurrence or impending or threatened occurrence of any event which would, or could reasonably be expected to, cause or constitute a breach or inaccuracy of any of the representations or

~~warranties or a breach of any of the covenants of Redwood Empire or NBR contained or referred to in this Agreement and shall use its best efforts to prevent the same or remedy the same promptly.~~

(i) Redwood Empire has delivered or has made available to Westamerica prior to the Effective Date true and correct copies of (x) all financial statements and proxy statements issued to Redwood Empire shareholders and/or directors after December 31, 2003 and prior to the date hereof, (y) its consolidated statements of income, changes in shareholders’ equity and statements of cash flows for March 31, 2004, and or the years ended December 31, 2003, 2002 and 2001, and (z) consolidated balance sheets at March 31, 2004 and at December 31, 2003, 2002 and 2001. Such consolidated financial statements at and for the years ended December 31, 2003, 2002 and 2001 have been audited by Crowe Chizek and Company LLC, independent public accountants (“Crowe Chizek”), and include an opinion of such accounting firm to the effect that such financial statements have been prepared in accordance with GAAP and present fairly, in all material respects, the consolidated financial position, results of operations and cash flows of Redwood Empire at the dates indicated and for the periods then ending. The opinions of Crowe Chizek do not contain any qualifications.

(ii) Redwood Empire shall deliver or make available to Westamerica at or prior to the Effective Date true and correct copies of (x) all financial statements and proxy statements issued to Redwood Empire shareholders and/or directors on or after the date hereof and through the Effective Date, (y) its consolidated statements of income, changes in shareholders’ equity and statements of cash flows for all quarters and years ending after March 31, 2004, and (z) consolidated balance sheets for all quarters and years ending after March 31, 2004. Such consolidated financial statements for years ending after March 31, 2004, shall be audited by Crowe Chizek, and shall include an opinion of Crowe Chizek to the effect that such financial statements have been prepared in accordance with GAAP and present fairly, in all material respects, the consolidated financial position, results of operations and cash flows of Redwood Empire at the date indicated and for such period then ending. Such opinion of Crowe Chizek shall not contain any qualifications.

(iii) Redwood Empire shall deliver to Westamerica copies of all annual management letters and opinions, and shall make available to Westamerica for inspection all reviews, correspondence and other documents in the files of Redwood Empire, prepared by Crowe Chizek or any other certified public accountant engaged by Redwood Empire and delivered to Redwood Empire or any of its subsidiaries since January 1, 2001.

(iv) Redwood Empire has delivered or shall deliver to Westamerica true and complete copies of Redwood Empire’s Annual Report to Shareholders for the years ended December 31, 2003, 2002, 2001, 2000, and 1999, all proxy statements and other written material furnished to Redwood Empire’s shareholders since December 31, 1999, and all other material reports, including call reports, relating to Redwood Empire filed by Redwood Empire or NBR with the FRB, Office of the Comptroller of the Currency (“OCC”) or Federal Deposit Insurance Corporation (the “FDIC”), during 1999 through 2003 and in 2004 prior to the Effective Date. As of their respective dates, each of the documents described in the preceding sentence complied or shall comply in all material respects with all legal and regulatory requirements applicable thereto.

(v) To confirm satisfaction of the conditions in Section 7(o) and (p), at least two Business Days before the Closing Date or, if applicable, such earlier date specified in clause (ii) of the final paragraph of Article 7, Redwood Empire shall provide to Westamerica a certificate of its chief financial officer as to Redwood Empire’s Shareholders’ Equity, loans and deposits, and allowance for loan losses and written assurance of Redwood Empire’s independent accountants under, or consistent with the standards of, SAS 100 to the effect that the accountants are not aware that the financial statements of Redwood Empire as of the latest practicable date preceding the Effective Time or, if applicable, the earlier date described in clause (ii) of the final paragraph of Article 7 (the “SAS 100 Date”) from which Shareholders’ Equity is determined for purposes of Section 7(o) and (p) require any material modifications in order to comply with GAAP. Westamerica shall be permitted reasonable review and inquiry with respect to the calculation of Shareholders’ Equity and the supporting certificate.

(vi) Redwood Empire will maintain internal controls over financial reporting (as required by Rule 13a-15(f) under the 1934 Act). Redwood Empire will provide Westamerica with an assessment of such internal controls, cooperate with Westamerica in assessing the effectiveness of such internal controls and identify to Westamerica the framework used to evaluate the effectiveness of such internal controls.

(g) Compensation. The Redwood Empire Disclosure Schedule discloses the name of the recipient and amount of any severance compensation owed or to be paid by Redwood Empire or any of its subsidiaries or any of their successors in connection with completion of the Merger. Except as disclosed in the Redwood Empire Disclosure Schedule, Redwood Empire shall stay within its 2004 compensation budget, shall operate in a manner consistent with past practices for June salary increases and shall provide to Westamerica a schedule setting forth those individuals with base salaries over $40,000 for whom increases in compensation have been approved, their current compensation and amounts of approved increases. Without limiting the generality of the foregoing provisions, Redwood Empire shall be entitled to pay (i) the Core Bank Incentive Bonuses to its employees, prorated for the portion of the fiscal year 2004 which shall have elapsed to the Effective Date, as disclosed in Section 3(g) of the Redwood Empire Disclosure Schedule to the extent that such bonuses are within Redwood Empire’s 2004 compensation budget, are consistent with the terms of its Core Bank Incentive Plan and have been accrued prior to or at the time of payment on the financial statements of Redwood Empire (except that general retention pool amounts shall be paid only after Redwood Empire has advised Westamerica of the proposed recipients), (ii) those bonuses to executive officers under the Executive Officer Bonus Program, prorated for the portion of the fiscal year 2004 which shall have elapsed to the Effective Date, as disclosed in Section 3(g) of the Redwood Empire Disclosure Schedule, and (iii) those retention payment amounts disclosed in the Redwood Empire Disclosure Schedule. Redwood Empire will continue to accrue on its financial statements on a monthly basis for the expense of amounts that will be payable to employees of Redwood Empire and its subsidiaries after Closing (which amounts Westamerica shall cause to be paid when due) under its Commercial Loan Officer 2004 Commission Plan, 2004 Business Development Officer Commission Plan and RMS 2004 Incentive Compensation Plan. Redwood Empire will not adjust base salaries or award other forms of compensation (including but not limited to compensation through any profit sharing, pension, retirement, severance, incentive or other employee benefit program or arrangement) to employees other than pursuant to the June 2004 compensation adjustment without the prior written consent of Westamerica (which consent shall not be unreasonably withheld, delayed or conditioned). Without the prior consent of Westamerica, which Westamerica shall not unreasonably withhold, delay or condition, Redwood Empire shall not hire any new employee.

(h) Conduct of Business in the Ordinary Course. Prior to the Effective Time:

(i) Except as provided otherwise in this Agreement, Redwood Empire and its subsidiaries shall conduct their respective businesses in the ordinary course as heretofore conducted. For purposes of this Agreement, the “Ordinary Course of Business” shall consist of the banking and related businesses as presently conducted by Redwood Empire and its subsidiaries and permitted under the BHCA, Federal Deposit Insurance Act (the “FDI Act”), National Bank Act and other applicable laws. Unless Westamerica has given its prior written consent to any act or omission to the contrary (which consent shall not be unreasonably withheld, delayed or conditioned), Redwood Empire and its subsidiaries shall, through the Effective Date, cause its officers to:


	(A) use their commercially reasonable best efforts to preserve its business and business organizations intact;

	(B) use their commercially reasonable best efforts to preserve the goodwill of customers and others having business relations with Redwood Empire and take no action that would impair the benefit to Westamerica of the goodwill of Redwood Empire and NBR or the other benefits of the Mergers;

	(C) consult with Westamerica as to the making of any decisions or the taking of any actions in matters other than in the Ordinary Course of Business;


	(D) maintain its properties in customary repair, working order and condition (reasonable wear and tear excepted);

	(E) comply with all laws, regulations and decrees applicable to the conduct of their businesses;

	(F) keep in force at not less than its present limits all policies of insurance (including deposit insurance of the FDIC) to the extent reasonably practicable in light of the prevailing market conditions in the insurance industry;

	(G) use their commercially reasonable best efforts, subject to Section 3.2(g), to keep available to Westamerica the services of its present officers and employees (it being understood that Redwood Empire or NBR shall have the right to terminate the employment of any officer or employee in accordance with its customary employment procedures);

	(H) comply with all orders, agreements and memoranda of understanding made by or with the FRB, the Federal Reserve Bank of San Francisco (the “FRBSF”), the OCC, the FDIC or any other regulatory authority of competent jurisdiction, and promptly (and in any event within two Business Days) forward to Westamerica all communications received from or sent by Redwood Empire or any of its subsidiaries to any such authority that are not prohibited by such authority from being so disclosed and inform Westamerica of any material restrictions imposed by any governmental authority on the business of Redwood Empire or any of its subsidiaries;

	(I) file in a timely manner (taking into account any extensions duly obtained) all reports, tax returns and other documents required to be filed with federal, state, local and other authorities;

	(J) conduct a Phase I environmental audit prior to foreclosure on any property and provide the results of such audit to and consult with Westamerica regarding the significance of the audit prior to the foreclosure on any such property;

	(K) not sell, lease, pledge, assign, encumber or otherwise dispose of any of its respective assets except in the Ordinary Course of Business, for adequate value, without recourse and consistent with its customary practice;

	(L) with respect to any extension of credit in excess of $10,000, not waive or release any right or collateral or cancel or compromise any debt or claim, except in the Ordinary Course of Business;

	(M) not make, renegotiate, renew, increase, extend or purchase any loans, advances or loan commitments, in each case to any of its respective officers, directors or any affiliated or related persons of such directors or officers except in the Ordinary Course of Business consistent with established loan procedures and in compliance with FRB Regulation O;

	(N) not take any action to create, relocate or terminate the operations of any banking office or branch, or to form any new subsidiary or affiliated entity;

	(O) not settle or otherwise take any action to release or reduce any of its respective rights with respect to any litigation involving a claim of more than $10,000 in which it is a party;

	(P) consult with Westamerica on problem loan workout strategies.


	(ii) Redwood Empire and NBR shall not, without first having obtained the written consent of Westamerica (which consent shall not be unreasonably withheld, delayed or conditioned), cause or permit the officers of Redwood Empire or any of its subsidiaries to:

(A) commit to any loan or extension of credit or any renewal of any outstanding credit in excess of $500,000, provided that Westamerica’s consent shall be deemed given unless it objects and states the basis of its objection in writing, or verbally with prompt written confirmation, within one Business Day after receipt of written notice directed to authorized Westamerica personnel, together with sufficient supporting information to allow Westamerica to make an informed judgment, and Westamerica shall not unreasonably withhold its consent; provided, further, that any consent given by Westamerica shall be binding only if given by authorized Westamerica personnel identified on a


	list signed by Westamerica’s President and delivered to Redwood Empire concurrently with the execution of this Agreement or as later modified by Westamerica; provided, however, as long as those new credits or renewals conform to Redwood Empire’s existing underwriting standards and applicable regulatory standards and are not classified or criticized, such extensions of credit or renewals shall be approved by Westamerica (or consent deemed given within one Business Day in the absence of written objection); provided further, however, Redwood Empire shall be permitted (without obtaining Westamerica’s prior consent) to change interest rates charged on any outstanding credit or on categories of outstanding or new credits so long as such changes in interest rates maintain or exceed preexisting spreads to market interest rates;

	(B) materially change the characteristics of its loan portfolio, including loan types, interest rates (except to maintain or exceed preexisting spreads to market interest rates), terms, duration and other terms offered;

	(C) purchase any investment security with a maturity in excess of two years or that would result in a lengthening of the overall duration of its investment portfolio, or sell any investment security in which a gain is recognized;

	(D) accept any deposits with a rate of interest in excess of the rate paid on similar accounts of comparable maturity by WAB plus five basis points or materially change the characteristics of its deposit portfolio, including deposit types, interest rates and terms offered, provided that Westamerica shall not withhold its consent to a request for an exception to this restriction if the request is based on a reasonable business purpose consistent with existing operations of Redwood Empire;

	(E) commit to any new capital commitments or expenditures in excess of $25,000 for any individual item or $50,000 in the aggregate other than commitments or expenditures disclosed in Section 4(o) of the Redwood Empire Disclosure Schedule;

	(F) commit to any new contract or extend any existing contract (including, but not limited to, data processing or servicing but excluding agreements to extend credit) that would obligate it for an aggregate amount over time in excess of $25,000 for any individual contract or $50,000 in the aggregate; provided that Westamerica’s consent shall be deemed given unless it objects and states the basis of its objection in writing, or verbally with prompt written confirmation, within two Business Days after receipt of written notice directed to authorized Westamerica personnel, together with sufficient supporting information to allow Westamerica to make an informed judgment;

	(G) accelerate the vesting of pension or other benefits except as contractually obligated as of the date hereof; or

	(H) except as for properties specified in Section 3(h)(ii)(H) of the Redwood Empire Disclosure Schedule, knowingly acquire, own, possess or have a collateral or contingent interest or purchase option in any properties or other assets which contain or have located within or thereon any hazardous or toxic waste material or substance unless the location of such hazardous or toxic waste material or other substance or its use thereon conforms in all respects with all federal, state and local laws, rules, regulations or other provisions regulating the discharge of materials into the environment.

(i) Press Releases. Redwood Empire and NBR shall not issue any press release or written statement for general circulation relating to this Agreement or the Merger unless previously provided to Westamerica for review and approval (which approval will not be unreasonably withheld or delayed) and shall cooperate with Westamerica in the development and distribution of all news releases and other public information disclosures with respect to this Agreement or the Merger; provided that Redwood Empire may, without the consent of Westamerica, make any disclosure with regard to this Agreement or the Merger that it determines is required under any applicable law or regulation.

(i) Redwood Empire and NBR shall not initiate, solicit or knowingly encourage (including by way of furnishing information or assistance), or take any other action to facilitate, any inquiries or the making of any

proposal which constitutes, or would reasonably be expected to lead to, any Competing Transaction (as such term is defined below), or negotiate or have any discussions with any person in furtherance of such inquiries or to obtain a Competing Transaction, or agree to or endorse any Competing Transaction, or approve or recommend, or propose to approve or recommend, or execute or enter into, any letter of intent, agreement in principle, merger agreement, asset purchase or share exchange or issuance agreement, option agreement, or other similar agreement related to any Competing Transaction or propose or agree to do any of the foregoing, or authorize any of Redwood Empire’s or any of its subsidiaries’ officers, directors or employees or any investment banker, financial advisor, attorney, accountant or any other representative retained by it or any of its affiliates (the “Representatives”) to take any such action, and will cause the Representatives and the Redwood Empire subsidiaries not to take any such action, and Redwood Empire shall promptly (within 24 hours) notify Westamerica (orally and in writing) of all of the relevant details relating to all inquiries and proposals which it may receive relating to any of such matters, including the identity of the offeror or person making the request or inquiry. For purposes of this Agreement, “Competing Transaction” shall mean any of the following involving Redwood Empire or any of its subsidiaries and any person other than Westamerica or any of its affiliates: any merger, consolidation, share exchange or other business combination; a sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets of Redwood Empire or its subsidiaries representing 15% or more of the consolidated assets of Redwood Empire and its subsidiaries; a sale of shares of capital stock (or securities convertible or exchangeable into or otherwise evidencing, or any agreement or instrument evidencing, the right to acquire capital stock), representing 15% or more of the voting power of Redwood Empire or its subsidiaries; or a tender offer or exchange offer for at least 15% of the outstanding shares of Redwood Empire.

(ii) Redwood Empire shall notify Westamerica (orally and in writing) within 24 hours of the receipt of any such inquiries, proposals or offers, the request for any such information, or the initiation or continuation of any such negotiations or discussions which are sought to be initiated or continued with Redwood Empire.

(iii) Notwithstanding any other provision in this Section 3.2(j) or any other provision of this Agreement, prior to the duly convened Redwood Empire shareholders’ meeting upon which the Merger shall be voted, and subject to compliance with the other terms of this Section 3.2(j) and to first entering into a confidentiality agreement having provisions that are no less favorable to Redwood Empire than those contained in that certain Confidentiality Agreement dated April 27, 2004, between Redwood Empire and Westamerica (the “Confidentiality Agreement”), the Board of Directors of Redwood Empire shall be permitted to engage in discussions or negotiations with, and provide nonpublic information or data to, any person in response to an unsolicited bona fide written proposal for a Competing Transaction by such person first made after the date hereof which the Board of Directors of Redwood Empire concludes in good faith (after consultation with a financial advisor of recognized reputation in similar transactions) constitutes or is reasonably likely to result in a Superior Proposal (as defined below), and to recommend such Superior Proposal to the holders of Redwood Empire common stock, if and only to the extent that, the Board of Directors of Redwood Empire reasonably determines in good faith (after consultation with outside legal counsel) that failure to do so would be inconsistent with its fiduciary duties under applicable law; provided, that Redwood Empire shall have given Westamerica (orally and in writing) at least 48 hours prior notice of its intent to do so before taking the first of any such actions with any one such person; provided, further, that Redwood Empire and the Board of Directors of Redwood Empire shall keep Westamerica informed of the status and terms of any such proposals, offers, discussions or negotiations on a prompt basis, including by providing a copy of all material documentation or correspondence relating thereto. Notwithstanding any other provision in this Section 3.2(j) or any other provision of this Agreement, Redwood Empire may waive any provision of any confidentiality agreement entered into as provided above if the Board of Directors of Redwood Empire, in the exercise of its fiduciary duties under applicable law, reasonably determines in good faith (after consultation with outside legal counsel) that the failure to take such action would be inconsistent with its fiduciary duties under applicable law and Redwood Empire also contemporaneously waives similar provisions of the Confidentiality Agreement.

(iv) For purposes of this Agreement, “Superior Proposal” shall mean a bona fide written proposal for a Competing Transaction which the Board of Directors of Redwood Empire concludes in good faith, after

consultation with a financial advisor of recognized reputation in similar transactions and its legal advisors, taking into account all legal, financial, regulatory and other aspects of the proposal and the person making the proposal (y) is more favorable to Redwood Empire’s shareholders from a financial point of view than the transactions contemplated by this Agreement, and (z) is fully financed or reasonably capable of being fully financed, reasonably likely to receive all required governmental approvals on a timely basis and otherwise reasonably capable of being completed on the terms proposed; provided that, for purposes of this definition of “Superior Proposal”, the term Competing Transaction shall have the meaning assigned to such term in this Section 3.2(j), except that the reference to “15% or more” in the definition of Competing Transaction shall be deemed to be a reference to “a majority”. Nothing in this Section 3.2(j) shall prohibit Redwood Empire or its Board of Directors from taking and disclosing to the Redwood Empire shareholders a position with respect to a Competing Transaction to the extent required under the Securities Exchange Act of 1934 (the “1934 Act”) or the rules and regulations thereunder, or from making such disclosure to the Redwood Empire shareholders which, after consultation with outside legal counsel, the Board determines is otherwise required under applicable law; provided, that taking any such action required to comply with any such obligations shall not in any way limit or modify the effect that any action so taken has under any other provision of this Agreement, including, without limitation, Section 11(b)(ix).

(k) Employee Benefit Plans. Redwood Empire agrees that any of its employee benefit plans shall, at the request of Westamerica, be terminated, frozen, modified or merged into the corresponding employee benefit plan of Westamerica, immediately before, on or after the Effective Date (but conditioned as to its effectiveness on actual completion of the Merger), as determined by Westamerica in its sole discretion and to the extent permitted by such plan without violating the rights of employees.

(l) Changes in Capital Stock. At or after the date hereof and at or prior to the Effective Time, except with the prior written consent of Westamerica, Redwood Empire shall not amend its Articles of Incorporation or Bylaws; make any change in its authorized, issued or outstanding capital stock or any other equity security; issue, sell, pledge, assign or otherwise encumber or dispose of, or purchase, redeem or otherwise acquire, any of its stock or other equity securities or enter into any agreement, call or commitment of any character so to do; grant, issue, or accelerate the vesting of any stock option relating to, right to acquire, or security convertible into, shares of its capital stock or other equity security; purchase, redeem, retire or otherwise acquire (other than in a fiduciary capacity) any shares of, or any security convertible into, its capital stock or other equity security, or agree to do any of the foregoing, or permit any of its subsidiaries to do any of the foregoing, except that nothing herein shall prohibit the issuance of shares with respect to options outstanding at the date of this Agreement (as provided for in Section 2.6).

(m) Dividends. Except for quarterly dividends not exceeding $0.21 per share and otherwise consistent with past practice and the provisions of Section 3.1(j), Redwood Empire shall not declare, set aside, or pay any dividend or other distribution in respect of its common stock (including, without limitation, any stock dividend or distribution).

(n) Accounting Methods. Redwood Empire shall not change its methods of accounting in effect at December 31, 2003, except as required by changes in GAAP as concurred in by its independent auditors or as required by this Agreement.

(o) Affiliates. At the time of mailing of the Proxy Statement to the shareholders of Redwood Empire, Redwood Empire shall deliver to Westamerica a letter identifying all persons who are, at the time this Agreement is submitted for approval to the shareholders of Redwood Empire, “affiliates” of Redwood Empire for purposes of Rule 145 under the 1933 Act. Redwood Empire shall use all commercially reasonable efforts to cause each person named in the letter delivered by it to deliver to Westamerica within 30 days after the date of this Agreement, or as soon thereafter as such persons are identified, a written “affiliates” agreement, in substantially the form attached hereto as Exhibit C, providing that such person shall dispose of the Westamerica common stock to be received by ~~FCOB shareholders under Section 2.6 hereof~~such person in the Merger only in accordance with applicable law.

(p) Additional Agreements. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with

full title to all properties, assets, rights, approvals, immunities and franchises of Redwood Empire, the proper officers and directors of each party to this Agreement shall take all such necessary or appropriate action.

(q) Access to Properties, Books and Records; Confidentiality. Prior to the Effective Time, subject to the terms of the Confidentiality Agreement, Redwood Empire shall give Westamerica and its counsel and accountants full access, during normal business hours and upon reasonable request, to all of its and its subsidiaries’ properties, books, contracts, commitments and records including, but not limited to, the corporate, financial and operational records, papers, reports, instructions, procedures, tax returns and filings, tax settlement letters, material contracts or commitments, regulatory examinations and correspondence and shall allow Westamerica to make copies of such materials (to the extent not legally prohibited) and shall furnish Westamerica with all such information concerning its affairs as Westamerica may reasonably request; provided, however, that Redwood Empire is not ~~modified~~required to provide any information if such provision would cause a loss of the attorney-client privilege enjoyed by Redwood Empire or any of its subsidiaries. Redwood Empire shall also use its commercially reasonable best efforts to cause Crowe Chizek to make available to Westamerica, its accountants, counsel and other agents, to the extent reasonably requested in connection with such review, Crowe Chizek’s work papers and documentation relating to its audits of the books and records of Redwood Empire.

(r) Noncompetition/Nonsolicitation Agreements. Redwood Empire shall use its best efforts to have each director of Redwood Empire execute a Confidentiality and Nonsolicitation Agreement in the form of Exhibit D (“Confidentiality and Nonsolicitation Agreement”), or a Noncompetition Agreement in the form attached hereto as Exhibit D-1 (“Noncompetition Agreement”), pursuant to which each director shall agree to certain nonsolicitation covenants and either (i) to refrain from certain activities in competition with Westamerica and WAB or (ii) to exercise any options to acquire shares of Redwood Empire common stock that are converted in the Merger to options to acquire shares of Westamerica common stock within 90 days after the Effective Date or to consent to the termination of such options upon the conclusion of such period.

(s) Classifications and Litigation Developments. Redwood Empire agrees to promptly (and in any event within two Business Days) advise Westamerica in writing of (i) all other real estate owned (“OREO”), loans, leases, other extensions of credit or commitments, or other interest-bearing assets of Redwood Empire or any of its subsidiaries that have been classified subsequent to the date hereof by any internal bank examiner or any bank regulatory agency as “Other Loans Especially Mentioned”, “Substandard”, “Doubtful”, “Loss”, or words of similar import in the case of loans (or that would have been so classified, in the case of other assets, had they been loans) and (ii) the classification of any loan as substandard, doubtful or loss, the filing or threatened filing of any and all legal actions or other proceedings or investigations which if determined adversely to Redwood Empire are reasonably likely to have a material adverse effect on Redwood Empire, compliance with its obligations under this Agreement or the satisfaction of any condition to closing under this Agreement, and any significant developments arising in connection with said actions, proceedings or investigations. Notwithstanding the above, Redwood Empire shall be under no obligation to disclose to Westamerica any such classification by any bank regulatory agency where such disclosure would violate any obligation of confidentiality of Redwood Empire imposed by such bank regulatory agency.

(t) Accounting Adjustment before Closing. Redwood Empire agrees to make such accounting adjustments as Westamerica shall reasonably request immediately before Closing to conform Redwood Empire’s accounting to Westamerica’s accounting and methodology for determining its allowance for loan losses, provided that any such adjustment shall be disregarded for purposes of Section 7(o).

(u) Consents. Where required by law or by agreements with third parties, Redwood Empire shall use commercially reasonable efforts to obtain from third parties, prior to the Effective Date, all consents to the transactions contemplated by this Agreement, where failure to obtain such consents would or would reasonably be expected to have a material adverse effect on Redwood Empire or Westamerica or that will or would reasonably be expected to prevent Westamerica from realizing any substantial portion of the economic benefits of the transactions contemplated by this Agreement.

(v) Cash Reconciliation. At the close of business on the last Business Day before the Effective Time, Redwood Empire shall conduct a cash reconciliation at its branches and shall permit Westamerica to observe or participate in such reconciliation.

(w) Tax Returns. Redwood Empire shall deliver to Westamerica copies of all its and its subsidiaries’ tax returns with respect to taxes payable to the United States of America and the ~~Closing~~State of California for the fiscal years ended December 31, 2003 (when available), 2002, 2001, 2000 and 1999.

(a) Information and Confidentiality. Each party shall use its best efforts to cause its officers, directors, employees, auditors, agents, and attorneys to cooperate with the other in the reasonable requests for information by the other parties hereto. Each party shall treat as confidential all such information in the same manner as each party treats similar confidential information of its own, and if this Agreement is terminated, each party shall continue to treat all such information as confidential and to cause its employees to keep all such information confidential and shall return such documents theretofore delivered by any other party as such other party shall request, and shall use such information, or cause it to be used, solely for the purposes of evaluating and completing the transactions contemplated hereby; provided that each party may disclose any such information to the extent required by federal or state securities laws or otherwise required by any governmental agency or authority, or by GAAP. The foregoing confidentiality obligations shall not apply in respect of any information publicly available or to any information previously known to the party in question, the use of which is not otherwise restricted.

(i) Redwood Empire shall continue to engage its internal asset review examiners to identify potential losses with respect to loans, leases and OREO. Redwood Empire shall have reviewed all nonperforming assets and other classified or criticized assets as of a date within three months preceding the Effective Date and all loans of $250,000 or more up to $500,000 originated after the date of this Agreement. Redwood Empire shall promptly provide a copy of reports of such reviews to Westamerica. All loans, leases or OREO of Redwood Empire may be reviewed by Westamerica as part of its ongoing due diligence and Westamerica may provide a report thereon to Redwood Empire setting forth Westamerica’s grading or other assessment thereof (including accounting treatment and loss recognition).

(ii) Redwood Empire may accept and implement Westamerica’s grading or other assessments (including accounting treatment and loss recognition) concerning loans, leases or OREO. In case of any dispute between Westamerica and Redwood Empire with respect to classification or grading of loans, the amount of reserve appropriate for a classified loan or the adequacy of Redwood Empire’s allowance for loan losses in accordance with the terms of this Agreement, Westamerica and Redwood Empire shall use their best efforts to resolve such dispute. If they do not resolve the dispute, Redwood Empire and Westamerica shall refer the matter for resolution by a mutually agreed (after mutual full disclosure of existing and prior relationships with each party) third party experienced in reviewing loans and loan portfolios (the “Independent Loan Reviewer”) or, in the case of OREO, a mutually agreed (after mutual full disclosure of existing and prior relationships with each party) third party experienced in appraising properties of the ~~Merger~~kind in question (the “Independent Appraiser”).

(iii) The Independent Loan Reviewer or Independent Appraiser shall immediately review and/or appraise said loan(s) or OREO utilizing GAAP, applicable regulatory accounting principles (“RAP”) and related standards as enforced by the FRB. If the Independent Loan Reviewer believes it necessary to retain an Independent Appraiser, Westamerica and Redwood Empire shall mutually agree on the Independent Appraiser.

(iv) Redwood Empire agrees to recognize on its books and records all additional loan provisions and loan losses and record all OREO at their net realizable value (and record related OREO expenses) based on the review/appraisal by the Independent Loan Reviewer or Independent Appraiser no later than the last day of month in which the determination is made. With respect to any OREO, based on all known information available from time to time, if it appears that Redwood Empire’s then current independent appraisals may not

be accurate or upon request of and at the expense of Westamerica, Redwood Empire shall promptly obtain updated independent appraisals by an Independent Appraiser and provide copies of all such appraisals to Westamerica. Any new or additional write-downs or OREO expenses shall be recorded immediately upon receiving any updated independent appraisal. Westamerica and Redwood Empire agree to accept the views of the Independent Loan Reviewer and Independent Appraiser with respect to loan grades, loan provisions, collateral and OREO values and related matters under this section. When this method results in a determination that a loan or asset should have a reserve amount or an additional reserve amount associated with it, the reserve shall be created by an addition to the allowance for loan losses and not ~~materially delayed. ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF FCOB FCOB represents~~by a reallocation of amounts in the existing allowance, except to the extent that the allowance and ~~warrants~~each portion of the allowance, including the unallocated portion, are justified under GAAP applied on a consistent basis both before and after any such reallocation. The parties agree that adjustments made under this section shall be deemed consistent with GAAP. With respect to ~~WEST~~any asset the value of which is in dispute, Westamerica shall consent to a sale by Redwood Empire or any of its subsidiaries of such asset to a director or shareholder of Redwood Empire at the higher of the appraised value established by this review process or the minimum price required by applicable law, or such higher price as ~~follows: SECTION 3.1 Organization; Corporate Power; Etc. FCOB~~Redwood Empire and the buyer may agree.

~~(v) Except as provided otherwise above, Redwood Empire and Westamerica shall each pay one half of all fees and expenses of the Independent Loan Reviewer and any Independent Appraiser.~~

3.4 Cooperation. All parties to this Agreement shall cooperate with each other and use their commercially reasonable best efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, and to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties that are necessary or advisable to consummate the transactions contemplated by this Agreement. The parties shall confer on a regular basis, report on operational matters, policies and banking practices and promptly advise the other orally and in writing of any change or event that has caused or could reasonably be expected to cause or constitute a material failure of a condition in this Agreement.

The following representations and warranties by Redwood Empire to Westamerica are qualified by the Redwood Empire Disclosure Schedule (the “Redwood Empire Disclosure Schedule”) delivered by Redwood Empire to Westamerica at the time this Agreement is signed. The Redwood Empire Disclosure Schedule shall refer to the representation or warranty to which exceptions or matters disclosed therein relate; provided, however, that an exception or matter disclosed with respect to one representation or warranty shall also be deemed disclosed with respect to each other warranty or representation to which the exception or matter reasonably relates. The inclusion of any item in such Redwood Empire Disclosure Schedule shall not be deemed an admission that such item is a ~~California state chartered banking~~material fact, event or circumstance or that such item has or had, or would reasonably be expected to have, individually or in the aggregate, a material adverse effect.

(a) Corporate Status and Power to Enter Into Agreements. Redwood Empire is a corporation duly ~~organized,~~incorporated, validly existing and in good standing under California law and is a registered bank holding company under the BHCA. NBR is a national banking association duly incorporated, validly existing and in good standing under the laws of the ~~State of~~United States and holds a currently valid license issued by the OCC to engage in the commercial banking business in California ~~and has all requisite corporate power and authority~~at the offices in which such business is conducted. Subject to ~~own, lease and operate its properties and assets and to carry on its business substantially as it is being conducted on~~ the ~~date of this Agreement. FCOB has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business substantially as it is being conducted on the date~~approval of this Agreement ~~except where the failure to have such power or authority would not have a Material A-8~~ ~~120 Adverse Effect on FCOB or the ability of FCOB to consummate~~and the transactions contemplated hereby by ~~this Agreement. FCOB has~~the FRB, Redwood Empire and NBR have all ~~requisite~~necessary corporate power ~~and authority~~ to enter into this Agreement and to carry out all of the terms and provisions hereof and thereof to be carried out by them. Neither Redwood Empire nor any of its subsidiaries is subject to ~~obtaining~~any order of or agreement or understanding with the FRB, OCC, FDIC or any other regulatory authority having jurisdiction over its business or any of its assets or properties. Neither the scope of the business of Redwood Empire or NBR nor the location of its properties requires it to be licensed to do business in any jurisdiction other than the State of California. NBR’s deposits are insured by the FDIC in the manner and to the full extent provided by law.

(b) Articles, Bylaws, Books and Records. The copies of the Articles of Incorporation and Bylaws of Redwood Empire and the Articles of Association and Bylaws of NBR that shall be delivered to Westamerica promptly after the date hereof are complete and accurate copies thereof as in effect on the date hereof. The minute books of Redwood Empire and NBR that shall be made available to Westamerica contain a materially complete and accurate record of all meetings of the Boards of Director (and committees thereof) and shareholders. The corporate books and records (including financial statements) of Redwood Empire and NBR fairly reflect the material transactions to which Redwood Empire or NBR is a party or by which its properties are subject or bound, and such books and records have been properly kept and maintained. The Articles of Incorporation and Bylaws of Redwood Empire and the Articles of Association and Bylaws of NBR and all amendments thereto have been duly approved by all requisite ~~Regulatory Approvals, FCOB will have~~corporate action and by the ~~requisite~~appropriate regulatory authority to the extent required by law.

(c) Compliance With Laws, Regulations and Decrees. Each of Redwood Empire and its subsidiaries: (i) has the corporate power to own or lease its properties and ~~authority~~ to ~~perform~~conduct its ~~respective obligations hereunder with respect to the consummation of the transactions contemplated hereby. SECTION 3.2 Licenses and Permits. Except~~business as ~~disclosed on Schedule 3.2, FCOB has~~currently conducted, (ii) in all material ~~licenses, certificates, franchises, rights~~respects has complied with, and ~~permits that are necessary for~~is not in default of, any laws, regulations, ordinances, orders or decrees applicable to the conduct of its business and ~~such licenses are in full force~~the ownership of its properties, including but not limited to all federal and ~~effect, except for~~state laws (including but not limited to the Bank Secrecy Act), rules and regulations relating to the offer, sale or issuance of securities, and the operation of a commercial bank, (iii) has not failed to file with the proper federal, state, local or other authorities any ~~failure~~material report or other document required to be ~~in full force~~so filed, (iv) has all approvals, authorizations, consents, licenses, clearances and ~~effect~~orders of, and has currently effective all registrations with, all governmental and regulatory authorities which are necessary to the business and operations of it as now being conducted, and (v) has not received notification, formally or informally, from any agency or department of any federal, state or local government or any regulatory agency or the staff thereof (A) asserting that ~~would~~it is not individually or in the aggregate, have a Material Adverse Effect on FCOB or on the ability of FCOB to consummate the transactions contemplated by this Agreement. The properties, assets, operations and businesses of FCOB are and have been maintained and conducted, in all material respects, in compliance with ~~all applicable~~any of the statutes, regulations or ordinances which such government or regulatory authority enforces, or (B) threatening to revoke any licenses, ~~certificates, franchises, rights~~franchise, permit or governmental authorization.

(d) Execution and permits. SECTION 3.3 Subsidiaries. Other than as set forth on Schedule 3.3, there is no corporation, partnership, joint venture or other entity in which FCOB owns, directly or indirectly (except as pledgee pursuant to loans or stock or other interest held asDelivery of the result of or in lieu of foreclosure pursuant to pledge or other security arrangement) any equity or other voting interest or position. SECTION 3.4 Authorization of Agreement; No Conflicts. 3.4.1Agreement.

(i) The execution and delivery of this Agreement has been duly authorized by the required majority approval of the respective Boards of Directors of Redwood Empire and NBR and, when this Agreement and the Merger ~~Agreement~~have been duly approved by ~~FCOB,~~the affirmative vote of the holders of a majority of the outstanding shares of Redwood Empire common stock at a meeting of shareholders duly called and held and by Redwood Empire as the sole shareholder of NBR, this Agreement and the ~~consummation of the transactions contemplated hereby~~Mergers will be duly and ~~thereby, have been duly~~validly authorized by all necessary corporate action on the part of ~~FCOB, subject only~~Redwood Empire and NBR. Actions taken by the Board of Directors of Company and to be taken by the ~~approval~~shareholders of Redwood Empire are sufficient to render inapplicable to this ~~Agreement, the Merger~~ Agreement and the ~~Merger by FCOB's shareholders.~~transactions contemplated hereby all state takeover statutes and any similar “takeover” or “interested stockholder” law.

(ii) This Agreement has been duly executed and delivered by ~~FCOB~~Redwood Empire and ~~constitutes a legal, valid~~NBR and binding obligation of FCOB, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and by general equitable principles. The Merger Agreement, upon the receipt of all Requisite Regulatory Approvals and the(assuming due execution and ~~filing of such Merger Agreement in accordance with~~delivery by Westamerica and WAB) constitutes the ~~applicable provisions of the California Corporations Code and the California Financial Code, will constitute a~~ legal ~~valid~~ and binding ~~obligation~~obligations of ~~FCOB, enforceable in accordance with its terms, except as the enforceability thereof may be limited by~~Redwood Empire and NBR (subject to applicable bankruptcy, insolvency ~~moratorium or other similar~~and civil laws affecting ~~the~~creditors’ rights ~~of creditors~~ generally, and bysubject, as to enforceability, to equitable principles of general ~~equitable principles. 3.4.2 Except as disclosed on Schedule 3.4, the~~applicability).

(iii) The execution and delivery by Redwood Empire and NBR of this ~~Agreement and the Merger~~ Agreement and the consummation of the transactions ~~contemplated hereby and thereby,~~provided for in this Agreement (A) do not ~~and will not conflict with, or result in any violation of or default or loss of a material benefit under,~~violate any provision of the Articles of Incorporation or Bylaws of ~~FCOB,~~Redwood Empire or Articles of Association or Bylaws of NBR, any ~~material mortgage, indenture, lease, agreement~~provision of federal or ~~other material instrument~~state law or any ~~permit, concession, grant, franchise, license, judgment, order, decree, statute, law, ordinance,~~governmental rule or regulation ~~applicable~~(assuming (1) receipt of the Government Approvals, (2) receipt of the requisite Redwood Empire shareholder approval, (3) due registration of the Westamerica Shares under the 1933 Act, (4) receipt of appropriate permits or approvals under state securities or “blue sky” laws, and (5) accuracy of the representations of Westamerica set forth herein), and (B) except as set forth in Section 4(d) of the Redwood Empire Disclosure Schedule, do not require any consent of any person under, conflict with or result in a breach of, or accelerate the performance required by any of the terms of, any material debt instrument, lease, license, covenant, agreement or understanding to ~~FCOB~~which Redwood

Empire or any of its assets or properties, other than any such conflict, violation, default or loss which (i) will not have a Material Adverse Effect on FCOB, or on WEST following consummation of the Merger; or (ii) will be cured or waived prior to the Effective Time. SECTION 3.5 Capital Structure. The authorized capital stock of FCOB consists of 10,000,000 shares of FCOB Common Stock, no par value per share. On the date of this Agreement, 825,871 shares of FCOB Common Stock were outstanding and 77,423 shares of FCOB Common Stock were reserved for issuance pursuant to outstanding FCOB Stock Options under the FCOB Stock Option Plan. All outstanding shares of FCOB Common Stock are validly issued, fully paid and nonassessable and do not possess any preemptive rights and were not issued in violation of any preemptive rights or any similar rights of any Person. Except for the FCOB Stock Options described A-9 ~~121 on Schedule 3.5 to this Agreement, FCOB does not have outstanding any options, warrants, calls, rights, commitments, securities or agreements of any character to which FCOB~~subsidiaries is a party or by which it is bound ~~obligating FCOB~~or any order, ruling, decree, judgment, arbitration award or stipulation to which Redwood Empire any of its subsidiaries is subject, or constitute a default thereunder or result in the creation of any lien, claim, security interest, encumbrance, charge, restriction or right of any third party of any kind whatsoever upon any of the properties or assets of Redwood Empire or any of its subsidiaries.

(e) Capitalization. The authorized capital of Redwood Empire consists of 10,000,000 shares of common stock, no par value, of which 4,952,123 shares are duly authorized, validly issued, fully paid and nonassessable and currently outstanding, and 2,000,000 shares of preferred stock no par value, of which no shares have been issued or are outstanding. All outstanding shares of common stock have been issued in compliance with all applicable securities laws. No other equity securities of Redwood Empire have been issued or are outstanding. There are currently outstanding Redwood Options to purchase 311,685 shares of Redwood Empire common stock issued pursuant to the Option Plan and options to purchase 32,000 shares of Redwood Empire common stock issued other than pursuant to the Option Plan as described in Section 4(e) of the Redwood Empire Disclosure Schedule. The weighted average exercise price of such options is $12.22 per share. Said options were granted and, upon issuance in accordance with the terms of the outstanding options said shares shall be issued, in compliance with all applicable securities laws. The authorized capital of NBR consists of 4,000,000 shares of common stock, par value $2.77 7/9 per share, all of the outstanding shares of which are duly authorized, validly issued, fully paid and nonassessable (except as provided in the National Bank Act) and owned by Redwood Empire. Otherwise, there are no outstanding (i) options, agreements, calls or commitments of any character which would obligate Redwood Empire or NBR to issue, ~~deliver~~sell, pledge, assign or ~~sell,~~otherwise encumber or ~~cause~~dispose of, or to bepurchase, redeem or otherwise acquire, any common stock or any other equity security of Redwood Empire or NBR, or (ii) warrants or options relating to, rights to acquire, or debt or equity securities convertible into, shares of common stock or any other equity security of Redwood Empire or NBR to which Redwood Empire or NBR is a party.

(f) Equity Interests. Except as set forth in Section 4(f) of the Redwood Empire Disclosure Schedule and for (i) Redwood Empire’s equity interest in NBR, Redwood Statutory Trust I, a Connecticut statutory trust, and Redwood Statutory Trust II, a Connecticut statutory trust, (ii) NBR’s equity interest in Valley Mortgage Corporation and Redwood Merchant Services, Inc., each of which is inactive, and (iii) securities acquired in foreclosure or in lieu of foreclosure in the Ordinary Course of Business, neither Redwood Empire nor NBR owns, directly or indirectly, any equity interest in any bank, corporation, or other entity. Section 4(f) of the Redwood Empire Disclosure Schedule sets forth the authorized capitalization, number and ownership of outstanding equity securities and existence of warrants or options relating to, rights to acquire, or debt or equity securities convertible into, equity securities of each of Redwood Empire’s subsidiaries other than NBR. All of the issued ~~delivered or sold, additional~~and outstanding shares of capital stock or other equity ownership interests of ~~FCOB~~each subsidiary of Redwood Empire or ~~obligating FCOB~~NBR (other than NBR) are owned by Redwood Empire or NBR, directly or indirectly, free and clear of any material liens, pledges, charges and security interests and similar encumbrances (“Liens”), and all of such shares or equity ownership interests are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights. No such significant subsidiary has or is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of capital stock or any other equity security of such subsidiary or any securities representing the right to ~~grant, extend~~purchase or ~~enter into~~otherwise receive any shares of capital stock or any other equity security of such ~~option, warrant, call, right, commitment or agreement. SECTION 3.6 FCOB~~subsidiary.

(g) Securities Law Filings. Since ~~January 1, 1997, FCOB~~December 31, 1998, Redwood Empire has filed and will file all ~~reports, registrations and statements, together with any amendments required to be made with respect thereto, that were~~documents required to be filed ~~with (a)~~by it under the ~~FDIC; (b)~~1933 Act, the ~~CDFI; (c)~~1934 Act, the ~~OCC; (d) any other applicable federal, state or local governmental or regulatory authority. All such reports, registrations~~Investment Company Act of 1940, the Investment Advisors Act of 1940 and ~~filings,~~the Trust Indenture Act of 1939, all as amended, and ~~all reports sent to FCOB's shareholders during the three-year period ended December 31, 1999 (whether or not filed with any Regulatory Authority), are collectively referred to~~that as ~~the "FCOB Filings". Except to the extent prohibited by law, copies of the FCOB Filings have been made available to WEST. As~~ of their respective ~~filing or mailing~~ dates, ~~each~~none of these documents contained as of the ~~past FCOB Filings (a) was true and complete in all material respects (or was amended so as to be so promptly following discovery of any discrepancy); and (b) complied in all material respects with all~~date of the statutes, rules and regulations enforced or promulgated by the governmental or regulatory authority with which it was filed (or was amended so as to be so promptly following discovery of any such noncompliance) and none contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. SECTION 3.7 Accuracy of Information Supplied. 3.7.1 No representation or warranty of FCOB contained herein or any statement, schedule, exhibit or certificate given or to be given by or on behalf of FCOB to WEST in connection herewith and none of the information supplied or to be supplied by FCOB to WEST hereunder contains or will containfiling thereof any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. 3.7.2 None of the information supplied or to be supplied by FCOB or relating to FCOB and approved by FCOB which is included or incorporated by reference in (i) the Registration Statement on Form S-4 to be filed with the SEC by WEST in connection with the issuance of shares of WEST Common Stock in the Merger (including the Proxy Statement of FCOB and the Prospectus of WEST ("Proxy Statement/Prospectus") constituting a part thereof, (the "Registration Statement") will, at the time the Registration Statement becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) the Proxy Statement/Prospectus and any amendment or supplement thereto will, at all times from the date of mailing to shareholders of FCOB through the date of the meeting of shareholders of FCOB to be held in connection with the Merger, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (iii) the applications and forms to be filed with securities or "blue sky" authorities, self regulatory authorities, or any Governmental Entity in connection with the Merger, the issuance of any shares of WEST Common Stock in connection with the Merger, or any Requisite Regulatory Approvals will, at the time filed or at the time they become effective, contain any untrue statement of a material fact or omitomitted to state any material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made or will be made not misleading. ~~The Proxy Statement/Prospectus (except for~~

(h) Financial Statements, Regulatory Reports. No financial statement or other document provided or to be provided to Westamerica as required by Section 3.2(f) hereof, as of the date of such ~~portions~~document, contained, or as to documents to be delivered after the date hereof, will contain, any untrue statement of a

material fact, or, at the date thereof, omitted or will omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which such statements were or will be made, not misleading; provided, however, that ~~relate only~~information as of a later date included with such financial statements or other documents provided or to ~~WEST~~be provided to Westamerica shall be deemed to modify information supplied to Westamerica as of any earlier date. Redwood Empire and NBR have filed all material documents and reports relating to Redwood Empire or NBR required to be filed with the FRB, the FDIC, the OCC, or any other governmental authority having jurisdiction over its ~~A-10~~ ~~122 Subsidiaries) will comply~~business or any of its assets or properties. All such reports conform in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. 3.7.3 FCOB has delivered or will deliver to WEST copies of: (a) the audited balance sheets as of December 31, 1999, 1998 and 1997 and the related statements of income, changes in shareholders' equity and cash flows for the years then ended and the related notes to such financial statements, all as audited by Perry-Smith & Company, independent public accountants (the "FCOB Financial Statements"), and FCOB will hereafter until the Closing Date deliver to WEST copies of additional financial statements of FCOB as provided in Sections 5.1.1(iii) and 6.1.11(iii). The FCOB Financial Statements have been prepared (and all of said additional financial statements will be prepared) in accordance with GAAP, or applicable regulatory accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) consistently followed throughout the periods coveredrequirements promulgated by such statements, and present (and, when prepared, will present) fairly the financial position of FCOB as of the respective dates indicated and the results of operations, cash flows and changes in shareholders' equity at the respective dates and for the respective periods covered by such financial statements (subject, in the case of the unaudited statements, to recurring adjustments normal in nature and amount). In addition, FCOB has delivered or made available to WEST copies of all management or other letters delivered to FCOB by its independent accountants in connection with any of the FCOB Financial Statements or by such accountants or any consultant regarding the internal controls or internal compliance procedures and systems of FCOB issued at any time since January 1, 1997, and will make available for inspection by WEST or its representatives, at such times and places as WEST may reasonably request, reports and working papers produced or developed by such accountants or consultants. SECTION 3.8 Compliance with Applicable Laws. Except as disclosed on Schedule 3.8, to the Knowledge of FCOB, the respective businesses of FCOB are not being conducted in violation of any law, ordinance or regulation, except for violations which individually or in the aggregate would not have a Material Adverse Effect on FCOB, or WEST at or following the Effective Time.regulatory agencies. Except as set forth in Section 4(h) of the Redwood Empire Disclosure Schedule, ~~3.8,~~all compliance or corrective action relating to ~~the Knowledge~~Redwood Empire or any of ~~FCOB no investigation~~its subsidiaries required by governmental authorities and regulatory agencies having jurisdiction over Redwood Empire or ~~review by~~ any ~~Governmental Entity~~of its subsidiaries has been taken. Neither Redwood Empire nor any of its subsidiaries is subject to any order, agreement or written directive from or with any regulatory authority with respect to ~~FCOB, other than regular bank examinations, is pending~~its assets or threatened, nor has any Governmental Entity indicated to FCOB an intention to conduct the same. SECTION 3.9 Litigation. Except as set forth in Schedule 3.9, to the Knowledge of FCOB there is no suit, action or proceeding or investigation pending or threatened against or affecting FCOB which, if adversely determined, would have a Material Adverse Effect on FCOB; nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against FCOB that has, or which, insofar as reasonably can be foreseen, in the future would have, any such Material Adverse Effect. Schedule 3.9 contains a true, correct and complete list, including identification of the applicable insurance policy covering such litigation, if any, subject to reservation of rights, if any, the applicable deductible and the amount of any reserve therefor, of all pending litigation in which FCOB is a named party of which FCOB has Knowledge, and except as disclosed on Schedule 3.9, all of the litigation shown on such Schedule is adequately covered by insurance in force,business except for ~~applicable deductibles,~~matters of general application. Redwood Empire and its subsidiaries have paid all assessments made or ~~has~~imposed by any governmental agency. The consolidated financial records of Redwood Empire have been, ~~adequately reserved for~~and are being and shall be, maintained in all material respects in accordance with ~~FCOB's prior business practices. SECTION 3.10 Agreements with Banking Authorities. Except as set forth in Schedule 3.10, FCOB is not a party~~all applicable legal and accounting requirements sufficient to any written agreement or memorandum of understanding with, or order or directive from, any Governmental Entity. SECTION 3.11 Insurance. FCOB has in full force and effect policies of insurance with respect to their assets and businesses against such casualties and contingencies and in such amounts, types and forms as are customarily appropriate for their businesses, operations, properties and assets. Schedule 3.11 contains a list ofinsure that all ~~policies of insurance and bonds carried and owned by FCOB. A-11~~ 123 FCOB is not in default under any such policy of insurance or bond such that it can be canceled and all material current claims outstanding thereunder have been filed in timely fashion. FCOB has filed claims with, or given notice of claim to, their insurers or bonding companies in timely fashion with respect to all material matters and occurrences for which they believe they have coverage. SECTION 3.12 Title to Assets other than Real Property. FCOB has good and marketable title to or a valid leasehold interest in all properties and assets (other than real property which is the subject to Section 3.13), used in its business, free and clear of all mortgages, covenants, conditions, restrictions, easements, liens, security interests, charges, claims, assessments and encumbrances, except for: (a) rights of lessors, lessees or sublessees in such matters as aretransactions reflected in a written lease; (b) encumbrances as set forth in the FCOB Financial Statements; (c) current Taxes (including assessments collected with Taxes) not yet due which have been fully reserved for; (d) encumbrances, if any, that are not substantial in character, amount or extent and do not detract materially from the value, or interfere with present use, or the ability of FCOB or its Subsidiary to sell or otherwise dispose of the property subject thereto or affected thereby; and (e) other matters as described in Schedule 3.12. All such properties and assets are, and require only routine maintenance to keep them, in good working condition, normal wear and tear excepted. SECTION 3.13 Real Property. Schedule 3.13 is an accurate list and general description of all real property owned or leased by FCOB, including Other Real Estate Owned ("OREO"). FCOB has good and marketable title to the real properties that it owns, as described in such Schedule, free and clear of all mortgages, covenants, conditions, restrictions, easements, liens, security interests, charges, claims, assessments and encumbrances, except for (a) rights of lessors, lessees or sublessees in such matters as are reflected in a written lease; (b) current Taxes (including assessments collected with Taxes) not yet due and payable; (c) encumbrances, if any, that are not substantial in character, amount or extent and do not materially detract from the value, or interfere with present use, or the ability of FCOB to dispose, of FCOB's interest in the property subject thereto or affected thereby; and (d) other matters as described in Schedule 3.13. FCOB has valid leasehold interests in the leaseholds they respectively hold, free and clear of all mortgages, liens, security interest, charges, claims, assessments and encumbrances, except for (a) claims of lessors, co-lessees or sublessees in such matters as are reflected in a written lease; (b) title exceptions affecting the fee estate of the lessor under such leases; and (c) other matters as described in Schedule 3.13. To the best of FCOB's Knowledge, the activities of FCOB with respect to all real property owned or leased by them for use in connection with their operationstherein are, in all material respects, ~~permitted~~executed in accordance with management’s general or specific authorization and ~~authorized by~~recorded in conformity with GAAP, or applicable zoning laws, ordinances and regulations and all laws and regulations of any Governmental Entity. Except as set forth in Schedule 3.13, FCOB enjoys quiet possession under all material leases to which they are the lessees and all of such leases are valid and in full force and effect, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and by general equitable principles. Materially all buildings and improvements on real properties owned or leased by FCOB are in good condition and repair, and do not require more than normal and routine maintenance, to keep them in such condition, normal wear and tear excepted. SECTION 3.14 Taxes. 3.14.1 Filing of Returns. Except as set forth on Schedule 3.14.1, FCOB has duly prepared and filed or caused to be duly prepared and filed all federal, state, and local Returns (for Tax or informational purposes) which were required to be filed by or in respect of FCOB or any of their properties, income and/or operations on or prior to the Closing Date. As ofRAP, at the time ~~they were filed,~~in effect. The data processing equipment, data transmission equipment, related peripheral equipment and software used by Redwood Empire in the ~~foregoing Returns accurately reflected~~operation of its business to generate and retrieve financial records are adequate for the ~~material facts regarding the income, business, asset, operations, activities, status, and any other information required to be shown thereon. Except as set A-12~~ ~~124 forth on Schedule 3.14.1, no extension~~current needs of ~~time within which FCOB may file any Return is currently~~Redwood Empire.

(i) Community Reinvestment Act. NBR has received a rating of “satisfactory” in ~~force. 3.14.2 Payment of Taxes. Except as disclosed on Schedule 3.14.2~~its most recent examination or interim review with respect to all amounts in respect of Taxes imposed on FCOB or for which FCOB is or could be liable, whether to taxing authorities (as, for example, under law) or to other Persons (as, for example, under Tax allocation agreements), with respect to all taxable periods or portions of periods ending on or before the ~~Closing Date, all applicable tax laws and agreements have~~Community Reinvestment Act. NBR has not been or will be fully complied with in all material respects, and all such amounts required to be paid by or on behalf of FCOB to taxing authorities or others on or before the date hereof have been paid. 3.14.3 Audit History. Except as disclosed on Schedule 3.14.3, there is no review or audit by any taxing authorityadvised of any material supervisory concerns regarding its compliance with the Community Reinvestment Act.

(j) Tax ~~liability of FCOB currently~~Returns. As used in ~~progress of which FCOB has Knowledge. Except as disclosed on Schedule 3.14.3, FCOB has not received any written notices within the three years preceding the Closing Date of any pending~~this Agreement, “tax” or threatened audit, by the Internal Revenue Service or any state, local or foreign agency, for any Returns or Tax liability of FCOB for any period. FCOB currently has no unpaid deficiencies assessed by the Internal Revenue Service or any state, local or foreign taxing authority arising out of any examination of any of the Returns of FCOB or any Subsidiaries filed for fiscal years ended on or after December 31, 1996 through the Closing Date, nor to the Knowledge of FCOB is there reason to believe that any material deficiency will be assessed. 3.14.4 Statute of Limitations. Except as disclosed on Schedule 3.14.4, no agreements are in force or are currently being negotiated by or on behalf of FCOB for any waiver or for the extension of any statute of limitations governing the time of assessments or collection of any Tax. No closing agreements or compromises exist concerning Taxes of FCOB. 3.14.5 Withholding Obligations. Except as set forth on Schedule 3.14.5, FCOB has withheld from each payment made to any of their respective officers, directors and employees, the amount of all applicable Taxes, including, but not limited to, income tax, social security contributions, unemployment contributions, backup withholding and other deductions required to be withheld therefrom by any Tax law and have paid the same to the proper taxing authorities within the time required under any applicable Tax law. 3.14.6 Tax Liens. There are no Tax liens, whether imposed by“taxes” means any federal, state, local, or foreign ~~taxing authority, outstanding against~~income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not and including any obligation to indemnify or otherwise assume or succeed to the tax liability of any other person.

(i) Each of Redwood Empire and NBR has timely filed all federal, state, county, local and foreign tax returns required to be filed by it, including, without limitation, estimated tax, use tax, excise tax, real property and personal property tax reports and returns, employer’s withholding tax returns, other withholding tax returns and Federal Unemployment Tax Returns, and all other reports or other information required to be filed by it with respect thereto, and each such return, report or other information was, when filed, complete and accurate in all material respects. Each of Redwood Empire and NBR has paid all taxes, fees and other governmental charges, including any interest and penalties thereon, when they have become due, except those that are being contested in good faith, which contested matters have been disclosed in the Redwood Empire Disclosure Schedule. Each of Redwood Empire and NBR has recorded adequate reserves for all unpaid tax liabilities, including all tax benefits previously claimed with respect to its ownership of NBR Real Estate Investment Trust or any other real estate investment trust or similar vehicle. Neither Redwood Empire nor NBR has been requested to give and neither has given any currently effective waivers extending the statutory period of limitation applicable to any tax return required to be filed by it for any period. There are no claims pending against Redwood Empire or NBR for any alleged deficiency in the payment of any taxes, and neither Redwood Empire nor NBR knows of any pending or threatened audits, investigations or claims for unpaid taxes or relating to any liability in respect of any taxes. Since December 31, 2003, there have been no events, including a change in ownership, that would result in a reappraisal and establishment of a new base-year full value for purposes of Article XIIIA of the California Constitution, of any real property owned in whole or in part by Redwood Empire or NBR or to the best of Redwood Empire’s or NBR’s knowledge,


	of any real property leased by Redwood Empire or NBR (disregarding for this purpose the acquisition of real property through foreclosure or in lieu of foreclosure of a security interest).

	(ii) Each of Redwood Empire and NBR has withheld and paid all material taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party.

	(iii) Neither Redwood Empire nor NBR has filed any consolidated federal income tax return as a member of an “affiliated group” (within the meaning of Section 1504 of the Code) where Redwood Empire was not the common parent of the group. Neither Redwood Empire nor NBR is or has been a party to any tax allocation agreement or arrangement pursuant to which it has any contingent, successor, or outstanding liability for the taxes of anyone other than Redwood Empire and NBR. Redwood Empire is not required to include in income any adjustment pursuant to Section 481(a) of the Code, no such adjustment has been proposed by the IRS and no pending request for permission to change any accounting method has been submitted by Redwood Empire.

	(iv) Neither Redwood Empire nor NBR has constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (x) in two years prior to the date of this Agreement or (y) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the transactions contemplated by this Agreement.

(k) Absence of Certain Changes. Since December 31, 2003, there has been (i) no material adverse change with respect to Redwood Empire, (ii) no amendment, modification, or termination of any existing, or entering into of any new, contract, agreement, plan, lease, license, permit or franchise that is material to Redwood Empire or any of its subsidiaries, except in the Ordinary Course of Business, and (iii) no disposition by Redwood Empire or any of its subsidiaries of one or more assets ~~owned by FCOB~~that, individually or in the aggregate, are material to it, except sales of assets in the Ordinary Course of Business. The incurrence and payment of Merger-related expenses not exceeding those disclosed in the Redwood Empire Disclosure Schedule shall not in themselves constitute a material adverse change for this purpose, but the determination of all other financial requirements in this Agreement shall include the effect of Merger-related expenses.

(l) No Undisclosed Liabilities. Except as set forth in Section 4(l) of the Redwood Empire Disclosure Schedule, and except for items for which reserves have been established in the unaudited consolidated balance sheets of Redwood Empire as of March 31, 2004, neither Redwood Empire nor any of its subsidiaries has incurred or discharged, and is not legally obligated with respect to, any indebtedness, liability (including, without limitation, a liability arising out of an indemnification, guarantee, hold harmless or similar arrangement) or obligation (accrued or contingent, whether due or to become due, and whether or not subordinated to the claims of its general creditors), other than as a result of operations in the Ordinary Course of Business after such date. Except as set forth in Section 4(l) of the Redwood Empire Disclosure Schedule, no agreement pursuant to which any loans or other assets have been or will be sold by Redwood Empire or any of its subsidiaries entitle the buyer of such loans or other assets, unless there is material breach of a representation or covenant by the seller, to cause Redwood Empire or any of its subsidiaries to repurchase such loan or other asset or the buyer to pursue any other form of recourse against Redwood Empire or any of its subsidiaries. Redwood Empire and its subsidiaries have not knowingly made and shall not make any representations or covenants in any such agreement that contained or shall contain any untrue statement of a material fact or omitted or shall omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which such representations and/or covenants were made or shall be made, not misleading. No cash, stock or other dividend or any other distribution with respect to the stock of Redwood Empire (other than regular quarterly cash dividends consistent with past practice) has been declared, set aside or paid, nor have any shares of the stock of Redwood Empire been purchased, redeemed or otherwise acquired, directly or indirectly, by Redwood Empire since December 31, 2003.

(m) Indemnification. Other than pursuant to the provisions of their respective Articles of Incorporation or Articles of Association, as the case may be, or Bylaws, or as disclosed in Section 4(m) of the Redwood Empire Disclosure Schedule, or pursuant to non-material contracts entered into in the Ordinary Course of

Business, neither Redwood Empire nor any of its subsidiaries is a party to any indemnification agreement with any of its present or past officers, directors, employees, agents or other persons who serve or served in any other capacity with any other enterprise at the request of Redwood Empire or any of its subsidiaries, and to the best knowledge of Redwood Empire, there are no claims for which any person would be entitled to indemnification by Redwood Empire or any of its subsidiaries if such provisions were deemed in effect.

(i) Section 4(n) of the Redwood Empire Disclosure Schedule sets forth each office, branch, facility and other place of business of Redwood Empire and its subsidiaries, its address, function and whether it is owned or leased by Redwood Empire. Redwood Empire and its subsidiaries have good and marketable title, free and clear of all liens and encumbrances and the right of possession, subject to existing leaseholds, to all real properties and good title to all other property and assets, tangible and intangible, reflected in the Redwood Empire consolidated balance sheet as of December 31, 2003 (except property held as lessee under leases disclosed in Section 4(n) of the Redwood Empire Disclosure Schedule and except personal property sold or otherwise disposed of since December 31, 2003 in the Ordinary Course of Business), except (a) liens for ~~Taxes that~~taxes or assessments not delinquent; (b) liens, encumbrances and imperfections of title not created or suffered to be created by Redwood Empire nor actually known to Redwood Empire; (c) such other liens and encumbrances and imperfections of title as do not materially and adversely affect the value of such property as reflected in the Redwood Empire consolidated balance sheet as of December 31, 2003, or as currently shown on the books and records of Redwood Empire and which do not interfere with or impair the present and continued use; or (d) exceptions disclosed in title reports and preliminary title reports, copies of which shall be provided to Westamerica. To the actual knowledge of Redwood Empire, all tangible properties of Redwood Empire and its subsidiaries conform in all material respects with all applicable ordinances, regulations and zoning laws. All tangible properties of Redwood Empire and its subsidiaries are ~~not yet due~~in a good state of maintenance and ~~payable. 3.14.7 Tax Reserves. FCOB~~repair, normal wear and tear excepted, and are adequate for the current business of Redwood Empire and its subsidiaries. Except for its main office at 111 Santa Rosa Avenue, in Santa Rosa, as to which Section 4(n) of the Redwood Empire Disclosure Schedule, to the knowledge of Redwood Empire, provides complete and accurate information, (A) no properties of Redwood Empire or any of its subsidiaries are the subject of any pending or, to Redwood Empire’s actual knowledge, threatened investigation, claim or proceeding relating to the use, storage or disposal on such property of or contamination of such property by any toxic or hazardous waste material or substance; nor, to Redwood Empire’s actual knowledge, are any properties in which Redwood Empire or any of its subsidiaries holds a collateral or contingent interest or purchase option subject to any such pending or threatened investigation, claim or proceeding, and (B) to Redwood Empire’s actual knowledge, except as set forth in Section 3(h)(ii)(H) of the Redwood Empire Disclosure Schedule, none of Redwood Empire and any of its subsidiaries owns, possesses or has ~~made full and adequate provision and reserve for~~a collateral or contingent interest or purchase option in any properties or other assets which contain or have located within or thereon any hazardous or toxic waste material or substance unless the location of such hazardous or toxic waste material or other substance or its use thereon conforms in all material respects with all federal, state and local laws, rules, regulations or ~~foreign Taxes~~other provisions regulating the discharge of materials into the environment. As to any asset not owned or leased by Redwood Empire or one of its subsidiaries, Redwood Empire and its subsidiaries have not controlled, directed or participated in the operation or management of any such asset or any facilities or enterprise conducted thereon in such a manner as to cause Redwood Empire or any of its subsidiaries to be deemed by a court of competent jurisdiction to be an owner or operator of such asset under applicable environmental laws.

(ii) All properties held by Redwood Empire and its subsidiaries under leases are held under valid, binding and enforceable leases (subject to applicable bankruptcy, insolvency and civil laws affecting creditors’ rights generally, and subject, as to enforceability, to equitable principles of general applicability), with such exceptions as are not material and do not interfere with the conduct of the business of Redwood Empire or its subsidiaries, and Redwood Empire and its subsidiaries enjoy quiet and peaceful possession of such leased property. Neither Redwood Empire nor any of its subsidiaries is in default in any respect under any material lease, agreement or obligation regarding its properties to which it is a party or by which it is bound.

(iii) Except as disclosed in Section 4(n) of the Redwood Empire Disclosure Schedule, none of Redwood Empire’s or any of its subsidiaries’ rights and obligations under the leases referred to in Section 4(n)(ii) above require the consent of any other party to the transaction contemplated by this Agreement.

(o) Material Contracts. Except as disclosed in Section 4(o) of the Redwood Empire Disclosure Schedule (and except for loans, loan commitments and letters of credit or similar obligations arising in the Ordinary Course of Business of NBR), neither Redwood Empire nor any of it subsidiaries is a party to or bound by any contract or other agreement which involves aggregate future payments by or to it of more than $25,000 and which is made for a fixed period expiring more than one year from the date hereof, and neither Redwood Empire nor any of it subsidiaries is a party to or bound by any agreement not made in the Ordinary Course of Business which is to be performed at or after the date hereof. Each of the contracts and agreements disclosed in Section 4(o) of the Redwood Empire Disclosure Schedule is a legal and binding obligation (subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general applicability), and no breach or default (and no condition which, with notice or passage of time, or both, could become a breach or default) exists with respect thereto. No power of attorney or similar authorization given directly or indirectly by Redwood Empire or any of its subsidiaries is currently outstanding.

(p) Classified Loans. Except as disclosed in Section 4(p) of the Redwood Empire Disclosure Schedule, there are no loans presently owned by Redwood Empire or any of its subsidiaries that have been classified by any bank examiner, outside loan reviewer, accountant or management as “Other Loans Especially Mentioned,” “Substandard,” “Doubtful,” or “Loss” or classified using categories with similar import and all loans or portions thereof classified “Loss” have been charged off. Notwithstanding the above, Redwood Empire shall not be under any obligation to disclose to Westamerica any such classification by any bank examiner where such disclosure would violate any obligation of confidentiality of Redwood Empire imposed by the FDIC, the OCC or other regulator. Redwood Empire and its subsidiaries regularly review and appropriately classify loans in accordance with all applicable legal and regulatory requirements and generally accepted banking practices. All loans and investments of Redwood Empire and its subsidiaries are legal, valid and binding obligations enforceable in accordance with their respective terms and are not subject to any setoffs, counterclaims or disputes (subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general applicability), except as disclosed in Section 4(p) of the Redwood Empire Disclosure Schedule or reserved for in the unaudited consolidated balance sheet of Redwood Empire as of March 31, 2004, and were duly authorized under and made in compliance with applicable federal and state laws and regulations. Redwood Empire and its subsidiaries have no extensions of credit, investments, guarantees, indemnification agreements or commitments for the ~~current period~~same (including without limitation commitments to issue letters of credit, to create acceptances, or to repurchase securities, federal funds or other assets) other than those documented on the books and records of Redwood Empire.

(q) Restrictions on Investments. Except for pledges to secure public and trust deposits and repurchase agreements in the Ordinary Course of Business and to secure advances from the Federal Home Loan Bank of San Francisco, none of the investments reflected in the Redwood Empire consolidated balance sheet as of December 31, 2003, and none of the investments made by Redwood Empire since December 31, 2003, are subject to any restriction, whether contractual or statutory, which materially impairs the ability of Redwood Empire or any of its subsidiaries freely to dispose of such investment at any time. With respect to all material repurchase agreements to which Redwood Empire, NBR or any Redwood Empire Subsidiary, is a party, Redwood Empire, NBR or Redwood Empire Subsidiary has a valid, perfected first lien or security interest in the government securities or other collateral securing each such repurchase agreement, and the value of the collateral securing each such repurchase agreement equals or exceeds the amount of the debt secured by such collateral under such agreement. Except for any securities sold subject to repurchase obligations in the normal course of business and any loans or loan participations subject to customary repurchase obligations, none of Redwood Empire, NBR or Redwood Empire Subsidiaries has sold or otherwise disposed of any assets in a transaction in which the acquirer of such assets or other person has the right, either conditionally or absolutely,

~~to require Redwood Empire, NBR or any Redwood Empire Subsidiary to repurchase or otherwise reacquire any such assets.~~

(i) Section 4(r) of the Redwood Empire Disclosure Schedule lists all bonus, incentive compensation, profit-sharing, pension, retirement, stock purchase, stock option, deferred compensation, severance, hospitalization, medical, dental, vision, group insurance, death benefits, disability and other fringe benefit plans, trust agreements, arrangements and commitments which Redwood Empire maintains, contributes to or has any outstanding liability in respect of (including but not limited to such plans, agreements, arrangements and commitments applicable to former employees or retired employees, or for which ~~Tax~~such persons are eligible), if any (the “Benefit Plans” and ~~information returns~~each a “Benefit Plan”), and any and all contracts of employment and has made available to Westamerica any Board of Directors’ minutes (or committee minutes) authorizing, approving or guaranteeing such Plans and contracts. There are ~~not yet required to be filed. The FCOB Financial Statements contain fair~~no agreements or understandings, either written or oral, between Redwood Empire and ~~sufficient accruals for~~any person which would result in the payment of ~~all Taxes for~~any consideration as a result of any of the periods covered by the FCOB Financial Statements and all periods prior thereto. 3.14.8 IRC Section 382 Applicability. FCOB, including any party joining in any consolidated return to which FCOB is not a member, has not undergone an "ownership change" as defined in IRC Section 382(g) within the "testing period" (as defined in IRC Section 382) ending immediately before the Effective Time, and not taking into account any transactions contemplated by this ~~Agreement. 3.14.9 Disclosure Information. Within 45 days~~Agreement other than as disclosed in Section 4(r) of the ~~date~~Redwood Empire Disclosure Schedule. Redwood Empire has heretofore delivered to Westamerica true, correct and complete copies of ~~this Agreement, FCOB will deliver to WEST a schedule setting forth the following information~~each Benefit Plan, and with respect to ~~FCOB~~each such Benefit Plan true, correct and ascomplete copies of (a) any associated trust, custodial, insurance or service agreements, (b) any annual report, actuarial report, or disclosure materials (including specifically any summary plan descriptions) submitted to any governmental agency or distributed to participants or beneficiaries thereunder in the current or any of the three (3) preceding calendar years and (c) the most ~~recent practicable date (as well~~recently received IRS determination letters and any governmental advisory opinions, rulings, compliance statements, closing agreements, or similar materials specific to such Benefit Plan.

(ii) Except as ~~on an estimated pro forma basis as~~disclosed in Section 4(r) of the ~~Closing giving effect to~~Redwood Empire Disclosure Schedule, the consummation of the transactions contemplated ~~hereby): (a) FCOB's basis in~~by this Agreement will not: (i) entitle any current or former employee of Redwood Empire or any of its ~~assets; A-13~~ ~~125 (b)~~subsidiaries to severance pay, unemployment compensation or any similar payment; (ii) accelerate the time of payment or vesting, or increase the amount of any ~~net operating loss, net capital loss, unused investment~~compensation due to, or ~~other credit, unused foreign tax, or excess charitable contribution allocable to FCOB; and (c) the amount~~in respect of, any ~~deferred gain~~current or ~~loss allocable to FCOB and arising out~~former employee of any deferred intercompany transactions. SECTION 3.15 Performance of Obligations. FCOB has performed all material obligations required to be performed by it to date and FCOB is not in material default under or in breach of any term or provision of any covenant, contract, lease, indenture or any other agreement, written or oral, to which any is a party, is subject or is otherwise bound, and no event has occurred that, with the giving of notice or the passage of time or both, would constitute such a default or breach, where such default or breach or failure to perform would have a Material Adverse Effect on FCOB. To the Knowledge of FCOB, and except as disclosed on Schedule 3.15 or in the portion of Schedule 3.16 that identifies 90-day past due or classified or nonaccrual loans, no party with whom FCOB has an agreement that is of material importance to the businesses of FCOB is in default thereunder. SECTION 3.16 Loans and Investments. Except as set forth on Schedule 3.16, all loans, leases and other extensions of credit, and guaranties, security agreements or other agreements supporting any loans or extensions of credit, and investments of FCOB are, and constitute, in all material respects, the legal, valid and binding obligations of the parties thereto and are enforceable against such parties in accordance with their terms, except as the enforceability thereof may be limited by applicable law and otherwise by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and by general equitable principles. Except as described on Schedule 3.16, as of December 31, 1999, no loans or investments held by FCOB are: (i) more than ninety (90) days past due with respect to any scheduled payment of principal or interest, other than loans on a nonaccrual status; (ii) classified as "loss," "doubtful," "substandard" or "specially mentioned" by FCOB or any banking regulators; or (iii) on a nonaccrual status in accordance with FCOB's loan review procedures. Except as set forth on Schedule 3.16, none of such assets (other than loans) are subject to any restrictions, contractual, statutory or other, that would materially impair the ability of the entity holding such investment to dispose freely of any such assets at any time, except restrictions on the public distribution or transfer of any such investments under the Securities Act and the regulations thereunder or state securities laws and pledges or security interests given in connection with government deposits. All loans, leases or other extensions of credit outstanding, or commitments to make any loans, leases or other extensions of credit made by FCOB to any Affiliates of FCOB are disclosed on Schedule 3.16. For outstanding loans or extensions of credit where the original principal amounts are in excess of $50,000 and which by their terms are either secured by collateral or supported by a guaranty or similar obligation, the security interests have been duly perfected in all material respects and have the priority they purport to have in all material respects, other than by operation of law, and, in the case of each guaranty or similar obligation, each has been duly executed and delivered to FCOB and to FCOB's Knowledge, is still in full force and effect. SECTION 3.17 Brokers and Finders. Except as set forth on Schedule 3.17, FCOB is not a party to or obligated under any agreement with any broker or finder relating to the transactions contemplated hereby, and neither the execution of this Agreement, or the Merger Agreement, nor the consummation of the transactions provided for herein or therein, will result in any liability to any broker or finder. FCOB agrees to indemnify and hold harmless WEST and its affiliates, and to defend with counsel selected by WEST and reasonably satisfactory to FCOB, from and against any liability, cost or expense, including attorneys' fees, incurred in connection with a breach of this Section 3.17. SECTION 3.18 Material Contracts. Schedule 3.18 to this Agreement contains a complete and accurate written list of all material agreements, obligations or understandings, written and oral, to which FCOB is a party as of the date of this Agreement, except for loans and other extensions of A-14 126 credit made by FCOB in the ordinary course of its business and those items specifically disclosed in the FCOB Financial Statements. SECTION 3.19 Absence of Material Adverse Effect. Since January 1, 2000, the business of FCOB has been conducted only in the ordinary course, in the same manner as theretofore conducted, and no event or circumstance has occurred or is expected to occur which to FCOB's Knowledge has had or which, with the passage of time or otherwise, could reasonably be expected to have a Material Adverse Effect on FCOB. SECTION 3.20 Undisclosed Liabilities. Except as disclosed on Schedule 3.20, to FCOB's Knowledge FCOB has no liabilities or obligations, either accrued, contingent or otherwise, that are material to FCOB and that have not been: (a) reflected or disclosed in the FCOB Financial Statements; or (b) incurred subsequent to December 31, 1999 in the ordinary course of business. FCOB has no Knowledge of any basis for the assertion against FCOB of any liability, obligation or claim (including without limitation that of any Governmental Entity) that will have or cause, or could reasonably be expected to have or cause, a Material Adverse Effect on FCOB that is not fully and fairly reflected and disclosed in the FCOB Financial Statements or on Schedule 3.20. SECTION 3.21 Employees; Employee Benefit Plans; ERISA. 3.21.1 All material obligations of FCOB for payment to trusts or other funds or to any Governmental Entity or to any individual, director, officer, employee or agent (or his or her heirs, legatees or legal representatives) with respect to unemployment compensation benefits, profit-sharing, pension or retirement benefits or social security benefits, whether arising by operation of law, by contract or by past custom, have been properly accrued for the periods covered thereby on the FCOB Financial Statements and paid when due. All material obligations of FCOB, whether arising by operation of law, by contract or by past custom for vacation or holiday pay, bonuses and other forms of compensation which are payable to their respective directors, officers, employees or agents have been properly accrued on the FCOB Financial Statements for the periods covered thereby and paid when due. There are no unfair labor practice complaints, strikes, slowdowns, stoppages or other controversies pending or, to the Knowledge of FCOB, attempts to unionize or controversies threatened between FCOBRedwood Empire or any of its ~~Affiliates and~~subsidiaries; (iii) result in or ~~relating~~satisfy a condition to the payment of compensation that would, in combination with any other payment, result in an “excess parachute payment” within the meaning of ~~their employees that are likely to have a Material Adverse Effect on FCOB, taken~~IRC section 280G(b) or would not be fully deductible as a ~~whole. FCOB is not~~result of IRC section 162(m) or any corresponding provision of state, local or foreign tax law; or (iv) constitute or involve a ~~party to any collective bargaining agreement with respect to any~~prohibited transaction (as defined in ERISA section 406 or IRC section 4975), constitute or involve a breach of ~~their employees and, except as set forth on Schedule 3.21.1, FCOB is not a party to a written employment contract with any~~fiduciary responsibility within the meaning of ~~its employees and there are no understandings~~ERISA section 502(l) or otherwise violate Part 4 of Subtitle B of Title I of ERISA.

(iii) Except with respect to the ~~employment of any officer~~Redwood Options, each Benefit Plan can be amended, terminated or ~~employee of FCOB which are not terminable by FCOB~~otherwise discontinued after the Effective Date, without material liability ~~on not more~~to the Westamerica (other than ~~thirty (30) days' notice. Except as~~ordinary administration expenses and severance obligations disclosed in Section 4(r) of the FCOB Financial Statements for the periods covered thereby, all material sums due for employee compensation have been paid and all employer contributions for employee benefits, including deferred compensation obligations, and all material benefit obligations under any Employee Plan (as defined in Section 3.21.3 hereof)Redwood Empire Disclosure Schedule). Redwood Empire has not announced its intention, or undertaken (whether or not legally bound) to modify or terminate any Benefit ~~Arrangement (as defined in Section 3.21.4 hereof) have been duly and adequately paid~~Plan or ~~provided for in accordance with plan documents. Except as set forth on Schedule 3.21.1, no director, officer~~adopt any arrangement or ~~employee~~program which, once established, would come within the definition of ~~FCOB~~a Benefit Plan.

(iv) With respect to each Benefit Plan which is ~~entitled to receive any payment of any amount under any existing agreement, severance plan or other~~an employee benefit plan as a result of the consummation of any transaction contemplated by this Agreement or the Merger Agreement. To FCOB's Knowledge, FCOB has materially complied with all applicable federal and state statutes and regulations which govern workers' compensation, equal employment opportunity and equal pay, including, but not limited to, all civil rights laws, Presidential Executive Order 1124, the Fair Labor Standards Act of 1938, as amended, and the Americans with Disabilities Act. A-15 127 3.21.2 FCOB has delivered as Schedule 3.21.2 a complete list of: (a) All current employees of FCOB together with each employee's tenure with FCOB, title or job classification, and the current annual rate of compensation anticipated to be paid to each such employee; and (b) All Employee Plans and Benefit Arrangements, including all plans or practices providing for current compensation or accruals for active employees, including, but not limited to, all employee benefit plans, all pension, profit-sharing, retirement, bonus, stock option, incentive, deferred compensation, severance, long-term disability, medical, dental, health, hospitalization, life insurance or other insurance plans or related benefits. 3.21.3 Except as disclosed on Schedule 3.21.3, FCOB does not maintain, administer or otherwise contribute to any "employee benefit plan," as(as defined in Section 3(3) of ~~ERISA,~~ERISA) and which is subject to ~~any provisions~~the reporting, disclosure and record retention requirements set forth in the IRC and Part 1 of Subtitle B of Title I of ERISA and ~~covers any employee, whether active or retired,~~the regulations thereunder, each of ~~FCOB or any of its Subsidiaries (any~~ such ~~plan being herein referred to as an "Employee Plan"). True and complete copies of each such Employee Plan, including amendments thereto, have~~requirements has been ~~previously delivered or made available to WEST, together with (i) all agreements regarding plan assets with~~fully met on a timely basis.

(v) With respect to such Employee Plans, (ii) a true and complete copy of the annual reports for the most recent three years (Form 5500 Series including, if applicable, Schedules A and B thereto) prepared in connection with any such Employeeeach Benefit Plan ~~(iii) a true and complete copy of the actuarial valuation reports for the most recent three years, if any, prepared in connection with any such Employee Plan covering any active~~which is an employee ~~of FCOB or its Subsidiaries, (iv) a copy of the most recent summary~~benefit plan description of each such Employee Plan, together with any modifications thereto, and (v) a copy of the most recent favorable determination letter (if applicable) from the Internal Revenue Service for each Employee Plan. None of the Employee Plans is a "multiemployer plan" as(as defined in Section ~~3(37)~~3(3) of ~~ERISA or a "multiple employer plan" as covered in Section 412(c) of the IRC,~~ERISA) and ~~none of FCOB has been obligated to make a contribution to any such multiemployer or multiple employer plan within the past five years. None of the Employee Plans of FCOB~~which is ~~or for the last five years has been,~~ subject to Title IV of ERISA. Each Employee Plan that is intended to be qualified under Section 401(a) of the IRC is so qualified and each trust maintained pursuant thereto is exempt from income tax under Section 501(a) of the IRC, and FCOB is not aware of any fact which has occurred that would cause the loss of such qualification or exemption. 3.21.4 Except as disclosed in Schedule 3.21.4, FCOB does not maintain (other than base salary and base wages) any form of current or deferred compensation, bonus, stock option, stock appreciation right, severance pay, salary continuation, retirement or incentive plan or arrangement for the benefit of any director, officer or employee, whether active or retired, of FCOB or for any class or classes of such directors, officers or employees. Except as disclosed in Schedule 3.21.4, FCOB does not maintain any group or individual health insurance, welfare or similar plan or arrangement for the benefit of any director, officer or employee of FCOB, whether active or retired, or for any class or classes of such directors, officers or employees. Any such plan or arrangement described in this Section 3.21.4, copies of which have been delivered or made available to WEST, shall be herein referred to as a "Benefit Arrangement." 3.21.5 All Employee Plans and Benefit Arrangements are operated in material compliance with the requirements prescribed by any and all statutes, governmental or court orders, or governmental rules or regulations currently in effect, including but not limited to ERISA and the IRC, applicable to such plans or arrangements, and plan documents relating to any such plans or arrangement, materially comply with or will be amended to materially comply with applicable legal requirements. Neither FCOB, nor any Employee Plan nor any trusts created thereunder, nor any trustee, administrator nor any other fiduciary thereof has engaged in a "prohibited transaction," as defined in Section 406 of ERISA and Section 4975 of the IRC, that could subject FCOB or WEST A-16 128 to liability under Section 409 or 502(i) of ERISA or Section 4975 of the IRC or that would adversely affect the qualified status of such plans; each "plan official" within the meaning of Section 412 of ERISA of each Employee Plan is bonded to the extent required by such Section 412; with respect to each Employee Plan, to FCOB's Knowledge, no employee of FCOB, nor any fiduciary of any Employee Plan, has engaged in any breach of fiduciary duty as defined in Part 4 of Subtitle B of Title I of ERISA, ~~which could subject FCOB~~none of the following now exists or has existed within the six-year period ending on the date hereof:


	(1) Any act or omission constituting a material violation of Section 402 of ERISA;

	(2) Any act or omission constituting a violation of Section 403 of ERISA;


	(3) Any act or omission by Redwood Empire or any of its subsidiaries, or by any director, officer or employee thereof, constituting a violation of Sections 404 and 405 of ERISA;

	(4) To the knowledge of Redwood Empire or any of its subsidiaries, any act or omission by any other person constituting a violation of Sections 404 or 405 of ERISA;

	(5) Any act or omission which constitutes a violation of Sections 406 or 407 of ERISA and is not exempted by Section 408 of ERISA or which constitutes a violation of Section 4975(c) of the IRC and is not exempted by Section 4975(d) of the IRC; or

	(6) Any act or omission constituting a violation of Sections 503, 510 or 511 of ERISA.

(vi) All contributions, premiums or other payments due from Redwood Empire and its subsidiaries to (or under) any Benefit Plan have been fully paid or adequately provided for on the audited financial statements for the year ended December 31, 2003 and period ended March 31, 2004. All accruals thereon (including, where appropriate, proportional accruals for partial periods) have been made in accordance with GAAP consistently applied on a reasonable basis.

(vii) Each Benefit Plan complies with all applicable requirements of (A) the Age Discrimination in Employment Act of 1967, as amended, and the regulations thereunder and (B) Title VII of the Civil Rights Act of 1964, as amended, and the regulations thereunder.

(viii) Each Benefit Plan complies with all applicable requirements of the health care continuation coverage provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, and the regulations thereunder.

~~(ix) Redwood Empire has disclosed in Section 4(r) of the Redwood Empire Disclosure Schedule the names of each director, officer and employee of Redwood Empire and each of its subsidiaries.~~

(x) Neither Redwood Empire nor any of its ~~Subsidiaries~~subsidiaries has, prior to ~~liability if FCOB~~the Effective Date, in any material respect, violated any of the health care continuation requirements of COBRA, the requirements of FMLA, the requirements of the Health Insurance Portability and Accountability Act of 1996, the requirements of the Women’s Health and Cancer Rights Act of 1998, the requirements of the Newborns’ and Mothers’ Health Protection Act of 1996, or any amendment to each such ~~Subsidiary is~~act, or any similar provisions of state law applicable to its Employees.

(xi) As of the date hereof, Redwood Empire and any entity with which Redwood Empire could be considered a single employer under 29 U.S.C. section 2101(a)(1) or under any relevant case law, has not incurred any liability or obligation under the Worker Adjustment and Retraining Notification Act, as it may be amended from time to time, and within the 90-day period immediately following the date hereof, will not incur any such liability or obligation if, during such 90-day period, only terminations of employment in the normal course of operations occur.

(s) Compliance With ERISA. Neither Redwood Empire nor any of its subsidiaries has, since its inception, either maintained or contributed to an employee pension benefit plan, as defined in Section 3(2) of ERISA, including multi-employer plans, other than the Redwood Empire Bancorp 401(k) Profit Sharing Plan (the “Redwood Plan”). With respect to the Redwood Plan, as of the Effective Time (i) the form of the Redwood Plan, to the best of Redwood Empire’s knowledge, has in all material respects been (and currently is) in compliance with all the requirements of Section 401 or Section 408 of the IRC, as applicable; (ii) Redwood Empire shall not have amended the Redwood Plan or administered the Redwood Plan in a manner inconsistent with such requirements; (iii) no contributions have exceeded the limitations set forth in Section 415 of the IRC; (iv) all required and necessary filings with the Internal Revenue Service (“IRS”), Department of Labor and any other governmental agencies with respect to the Redwood Plan for all periods ending at or prior to the Effective Time will have been made on a timely basis by Redwood Empire and the plan administrator; (v) there shall have been no material violation of Parts 1 and 4 of Subtitle B of Title I of ERISA or of Section 4975 of the IRC; and (vi) there shall have been no action, claim or demand of any kind known to Redwood Empire brought or threatened by any potential claimant or representative of such claimant under the Redwood Plan or Trust where Redwood Empire may be either (A) liable directly on such action,

claim or demand, or (B) obligated to indemnify any person, group of persons or entity with respect to such ~~Person~~action, claim or demand, unless such action, claim or demand is covered by adequate reserves reflected in Redwood Empire’s December 31, 2003, financial statements or an insurer of Redwood Empire has agreed to defend against ~~liability. Except as disclosed in Schedule 3.21.5, FCOB has not failed to make any material contribution or~~and pay ~~any~~the amount ~~due and owing as required by law or the terms~~ of any ~~Employee Plan~~resulting liability without reservation.

(t) Absence of Certain Matters or Benefit Arrangement. 3.21.6 Except as set forth on Schedule 3.21.6, no Employee Plan or Benefit Arrangement has any material liability of any nature, accrued or contingent, including, without limitation, liabilities for federal, state, local or foreign taxes, interest or penalty other than liability for claims arising in the course of the administration of each such Employee Plan. Except as set forth on Schedule 3.21.6, to FCOB's Knowledge thereArrangements.

(i) There is no pending or threatened legal action, proceeding or investigation, ~~against any Employee Plan that could result in material liability to such Employee Plan,~~ other than routine claims for benefits, concerning any Benefit Plan or to the best knowledge of Redwood Empire any fiduciary or service provider thereof and, to the best knowledge of Redwood Empire, there is no basis for any such legal action, proceeding or investigation. ~~3.21.7 Each~~

(ii) No communication, report or disclosure has been made regarding any Benefit ~~Arrangement~~Plan which, at the time made, did not accurately reflect the material terms and operations of the Benefit Plan.

(iii) No Benefit Plan provides welfare benefits subsequent to termination of employment to employees or their beneficiaries except to the extent required by applicable state insurance laws and Title I, Part 6 of ERISA.

(iv) No Benefit Plan is a ~~group health~~multi-employer plan, ~~(within the meaning~~as defined in Section 3(37) of ~~such term under IRC~~ERISA, or a plan subject to Section ~~4980B(g)(2)) materially complies and has materially complied with the requirements of Section 601 through 608~~302 or Title IV of ERISA or Section ~~4980B~~412 of the ~~IRC governing continuation coverage requirements for employee-provided~~Code.

~~(v) No Benefit Plan includes any trust or other entity intended to qualify as a “voluntary employees’ beneficiary association” within the meaning of Section 501(c)(9) of the Code.~~

(u) Collective Bargaining and Employment Agreements. Except as provided in this Agreement or as disclosed in Section 4(u) of the Redwood Empire Disclosure Schedule, neither Redwood Empire nor any of its subsidiaries has any union or collective bargaining or written employment agreements, contracts or other agreements with any labor organization or with any member of management, or any management or consultation agreement not terminable at will by it without liability, and no such contract or agreement has been requested by, or is under discussion by management with, any group ~~health plans. 3.21.8~~of employees, any member of management or any other person. There are no material controversies pending between Redwood Empire or any of its subsidiaries and any current or former employees, and to the best of its knowledge, there are no efforts presently being made by any labor union seeking to organize any of such employees.

(v) Compensation of Officers and Employees. Except as disclosed in Section 4(v) of the Redwood Empire Disclosure Schedule, 3.21.8, FCOB does not maintain any Employee Plan or Benefit Arrangement pursuant to which any benefit or other payment will be required to be made by FCOB or Affiliates or pursuant to which any other benefit will accrue or vest in any director,no officer or employee of ~~FCOB~~Redwood Empire or ~~Affiliate thereof,~~any of its subsidiaries is receiving aggregate direct remuneration at a rate exceeding $40,000 per annum. Except as disclosed in ~~either case as a result~~Section 4(v) of the Redwood Empire Disclosure Schedule, the consummation of the transactions contemplated by this Agreement will not (either alone or upon the occurrence of any additional or further acts or events) result in any payment (whether of severance pay or otherwise) becoming due from Redwood Empire or any of its subsidiaries or Westamerica to any employee of Redwood Empire or any of its subsidiaries. Except as disclosed in Section 4(v) of the Redwood Empire Disclosure Schedule, no employee of Redwood Empire or any of its subsidiaries is entitled under any existing contract or arrangement to receive or will receive from Redwood Empire or any of its subsidiaries a partial-year bonus if the Merger ~~Agreement. SECTION 3.22 Powers~~or Bank Merger is completed before December 31, 2004.

(w) Legal Actions and Proceedings. Except as disclosed in Section 4(w) of ~~Attorney. No power~~the Redwood Empire Disclosure Schedule, neither Redwood Empire nor any of ~~attorney~~its subsidiaries is a party to, or ~~similar authorization given~~so far as Redwood Empire is aware, threatened with, and to its knowledge, there is no reasonable basis for, any legal action or other proceeding or investigation before any court, any arbitrator of any kind or any government agency; and neither Redwood Empire nor any of its subsidiaries is subject to any potential adverse claim, the outcome of which could involve the payment or receipt by ~~FCOB thereof is presently~~Redwood Empire or any of its subsidiaries of any amount in ~~effect~~excess of $25,000, unless an insurer of Redwood Empire has agreed to defend against and pay the amount of any resulting liability without reservation, or, ~~outstanding other than powers~~if any such legal action, proceeding, investigation or claim will not involve the payment by Redwood Empire or any of ~~attorney given~~its subsidiaries of a monetary amount, which could materially adversely affect Redwood Empire or any of its subsidiaries or its business or property or the

transactions contemplated hereby except as disclosed in Section 4(w) of the Redwood Empire Disclosure Schedule. As of the date hereof, Redwood Empire has no knowledge of any pending or threatened claims or charges under the Community Reinvestment Act, before the Equal Employment Opportunity Commission, the California Department of Fair Housing & Economic Development, the California Unemployment Appeals Board (except claims or charges in the ordinary course of business that are not expected to have a material adverse effect), or any human relations commission. There is no labor dispute, strike, slow-down or stoppage pending or, to the best of the knowledge of Redwood Empire, threatened against Redwood Empire or any of its subsidiaries.

(x) Intellectual Property. To the best knowledge of Redwood Empire, Redwood Empire and NBR own or have a valid license to use all trademarks, trade names and service marks (including any registrations or applications for registration of any of the foregoing) (collectively, “Intellectual Property”) necessary to carry on their business substantially as currently conducted, except where such failures to own or validly license such Intellectual Property would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on Redwood Empire. Neither Redwood Empire nor NBR has received any notice of infringement of or conflict with, and to Redwood Empire’s knowledge, there are no infringements of or conflicts with, the rights of others with respect to ~~routine matters. SECTION 3.23 Hazardous Materials.~~the use of any Intellectual Property that, individually or in the aggregate, in either such case, would reasonably be expected to have a material adverse effect on Redwood Empire.

(i) Except as ~~set forth~~would not have a material adverse effect on ~~Schedule 3.23: 3.23.1 Except for ordinary~~Redwood Empire, all Derivative Transactions (as defined herein) entered into by Redwood Empire or any of its subsidiaries were entered into in accordance with applicable rules, regulations and ~~necessary quantities~~policies of ~~cleaning, pest control~~any governmental authority, and ~~office supplies,~~in accordance with the investment, securities, commodities, risk management and other ~~small quantities~~policies, practices and procedures employed by Redwood Empire and its subsidiaries, and were entered into with counterparties who are financially responsible and able to understand (either alone or in consultation with their advisers) and to bear the risks of ~~Hazardous Substances~~such Derivative Transactions; and to Redwood Empire’s knowledge, there are no material breaches, violations or defaults or allegations or assertions of such by any party thereunder.

(ii) “Derivative Transactions” means any swap transaction, option, warrant, forward purchase or sale transaction, futures transaction, cap transaction, floor transaction or collar transaction relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates, credit-related events or conditions or any indexes, or any other similar transaction or combination of any of these transactions, including collateralized mortgage obligations or other similar instruments or any debt or equity instruments evidencing or embedding any such types of transactions, and any related credit support, collateral or other similar arrangements related to such transactions; provided that, ~~are used~~for the avoidance of doubt, the term “Derivative Transactions” shall not include any Redwood Options.

(z) Facts Affecting Government Approvals. To the best knowledge of Redwood Empire, there is no fact, event or condition applicable to Redwood Empire or any of its subsidiaries that will, or reasonably could be expected to, adversely affect the likelihood of securing the Government Approvals required to complete the Merger and the other transactions contemplated by this Agreement.

(aa) Retention of Broker or Consultant. No broker, agent, finder, consultant or other party (other than legal, compliance, loan auditors and accounting advisors) has been retained by Redwood Empire or any of its subsidiaries or is entitled to be paid based upon any agreements, arrangements or understandings made by Redwood Empire or any of its subsidiaries in ~~the ordinary course of the respective businesses of FCOB and in compliance~~connection with applicable Environmental Laws, or ordinary rubbish, debris and nonhazardous solid waste stored in garbage cans or bins for regular disposal off-site, or petroleum contained in and de minimus quantities discharged from motor vehicles in their ordinary operation on any of the ~~FCOB Properties (as defined below), FCOB~~transactions contemplated by this Agreement, except that Redwood Empire has engaged Hovde Financial LLC in connection with this Agreement and has provided Westamerica with a true and complete copy of its engagement agreement with Hovde Financial LLC.

(bb) Insurance. Section 4(bb) of the Redwood Empire Disclosure Schedule lists all insurance policies and bonds maintained by Redwood Empire and any of its subsidiaries, including name of insurer, type of coverage, policy limit, annual premiums and expiration date. Redwood Empire and each of its subsidiaries is

and continuously since its inception has been, insured with reputable insurers against all risks normally insured against by banks, and all of the insurance policies and bonds maintained by Redwood Empire and its subsidiaries are in full force and effect, Redwood Empire and its subsidiaries are not in default thereunder and all material claims thereunder have been filed in due and timely fashion. In the best judgment of the management of Redwood Empire, such insurance coverage is adequate for Redwood Empire and its subsidiaries. Since December 31, 2003, there has not engaged in the generation, use, manufacture, treatment, transportation, storage (in tanks or otherwise), or the disposal, of Hazardous Substances other than as permitted by and only in compliance with applicable law. To FCOB's Knowledge, no material amount of Hazardous Substances has been ~~released, emitted or disposed~~any damage to, destruction of, or ~~otherwise deposited, on, in~~loss of any assets of Redwood Empire or from any real property which is now or has been previously owned since January 1, 1997, or which is currently or during the past three years was leased, by FCOB, including OREO (collectively, the "FCOB Properties"), or to FCOB's Knowledge, on or in any real property in which FCOB now holds any security interest, mortgage or other lien or interest ("FCOB Collateralizing Real Estate"), except for (i) matters disclosed on Schedule 3.23; and (ii) ordinary and necessary quantities of cleaning, pest control and office supplies used and stored in compliance with applicable Environmental Laws, or ordinary rubbish, debris and nonhazardous solid waste stored in garbage cans or bins for regular disposal off-site, or petroleum contained in, and de minimus quantities discharged from, motor A-17 ~~129 vehicles in their ordinary operation on such FCOB Properties. To FCOB's Knowledge, no activity has been undertaken on~~ any of ~~the FCOB Properties since January 1, 1997, and to the Knowledge of FCOB no activities have been or are being undertaken on any of the FCOB Collateralizing Real Estate,~~its subsidiaries not covered by insurance that would cause or contribute to: (a) any of the FCOB Properties or FCOB Collateralizing Real Estate becoming a treatment, storage or disposal facility within the meaning of RCRA or any similar state law or local ordinance; (b) a release or threatened release of any Hazardous Substances under circumstances which would violate any Environmental Laws; or (c) the discharge of Hazardous Substances into any soil, subsurface water or ground water or into the air, or the dredging or filling of any waters, that would require a permit or any other approval under the Federal Water Pollution Control Act, 33 U.S.C. sec. 1251 et seq., the Clean Air Act, as amended, 42 U.S.C. sec. 7401 et seq., or any similar federal or state law or local ordinance; the cumulative effect of which would have a material adverse effect on Redwood Empire.

(cc) Loan Loss Allowance. The allowance for loan losses in the ~~FCOB Property~~Redwood Empire consolidated balance sheets dated December 31, 2003 and each subsequent period end prior to the Effective Date and as of the Effective Date was and will be determined by application of Redwood Empire’s policies and procedures on a basis consistently applied from prior periods and is or ~~FCOB Collateralizing Real Estate involved. 3.23.2~~will be adequate in all material respects under the requirements of GAAP consistently applied, and all applicable state and federal laws and regulations to provide for possible loan losses on outstanding loans, net of recoveries. Redwood Empire has disclosed in Section 4(cc) of the Disclosure Schedule, and will promptly (and in any event within two Business Days) inform Westamerica of the amounts of all OREO, loans, leases, other extensions of credit or commitments, or other interest-bearing assets of Redwood Empire or any of its subsidiaries that have been classified as of the date hereof or hereafter by any internal bank examiner or any bank regulatory agency as “Other Loans Especially Mentioned”, “Substandard”, “Doubtful”, “Loss”, or words of similar import in the case of loans (or that would have been so classified, in the case of other assets, had they been loans). Notwithstanding the above, Redwood Empire shall be under no obligation to disclose to Westamerica any such classification by any bank regulatory agency where such disclosure would violate any obligation of confidentiality of Redwood Empire imposed by such bank regulatory agency.

(dd) Transactions With Affiliates. Except as ~~disclosed on Schedule 3.23, to~~may arise in the ~~Knowledge~~Ordinary Course of ~~FCOB, there are not, and never have been, any underground storage tanks located in or under~~Business, neither Redwood Empire nor any of its subsidiaries has extended credit, committed itself to extend credit, or transferred any asset to or assumed or guaranteed any liability of the ~~FCOB Properties~~employees or ~~the FCOB Collateralizing Real Estate. 3.23.3 FCOB has not received~~directors of Redwood Empire or any ~~written notice~~ of ~~and to the Knowledge of FCOB has not received~~its subsidiaries, or any ~~verbal notice~~spouse or child of any ~~pending~~of them, or ~~threatened claims, investigations, administrative proceedings, litigation, regulatory hearings or requests or demands for remedial or responsive actions or for compensation, with respect~~ to any of their “affiliates” or “associates” as such terms are defined in Rule 405 under the ~~FCOB Properties~~1933 Act. Neither Redwood Empire nor any of its subsidiaries has entered into any other transactions with the directors of Redwood Empire or ~~FCOB Collateralizing Real Estate, alleging noncompliance with~~NBR or ~~violation~~any spouse or child of any ~~Environmental Law or seeking relief under any Environmental Law and none~~ of the FCOB Properties or FCOB Collateralizing Real Estate is listed on the United States Environmental Protection Agency's National Priorities List of Hazardous Waste Sites, or, to the Knowledge of FCOB, any other list, schedule, log, inventory or record of hazardous waste sites maintained by any federal, state or local agency. 3.23.4 "Hazardous Substances" shall mean any hazardous, toxic or infectious substance, material, gas or waste which is regulated by any local, state or federal Governmental Entity,them, or any of their ~~agencies. SECTION 3.24 Stock Options. Schedule 3.5 to this Agreement contains a description~~affiliates or associates, except as disclosed in Section 4(dd) of the ~~FCOB Stock Option Plan~~Redwood Empire Disclosure Schedule. All such transactions have been on terms no less favorable to Redwood Empire than those which would prevail in an arm’s-length transaction with an independent third party.

(ee) Information in Westamerica Registration Statement. The information pertaining to Redwood Empire and ~~list~~its subsidiaries which has been or will be furnished to Westamerica for or on behalf of ~~all FCOB Stock Options outstanding, indicating~~Redwood Empire for each: (a) the grant date; (b) whether vested or unvested; (c) exercise price; and (d) a vesting schedule by optionee. SECTION 3.25 Parachute Payments. Except as set forth in Schedule 3.25, the consummation of the Merger will not entitle any director, officer or employee of FCOB to any payment that would constitute a parachute payment under IRC 280G SECTION 3.26 Risk Management Instruments. Neither FCOB nor any Subsidiary of FCOB is a party or has agreed to enter into an exchange traded or over-the-counter equity, interest rate, foreign exchange or other swap, forward, future, option, cap, floor or collar or any other contract that is not included on the balance sheet and is a derivatives contract (including various combinations thereof) (each, a "Derivatives Contract") or owns securities that (i) are referred to generally as "structured notes," "high risk mortgage derivatives," "capped floating rate notes" or "capped floating rate mortgage derivatives" or (ii) are likely to have changes in value as a result of interest or exchange rate changes that significantly exceed normal changes in value attributable to interest or exchange rate changes, except for those Derivatives Contracts and other instruments legally A-18 ~~130 purchased or entered into~~inclusion in the ordinary course of business consistent with safe and sound banking practices and regulatory guidance and previously disclosed to WEST. ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF WEST WEST and WAB represents and warrants to FCOB that: SECTION 4.1 Organization; Corporate Power; Etc. WEST is a California corporation duly organized, validly existing and in good standing underWestamerica Registration Statement, the laws of the State of California and has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business substantially as it is being conducted on the date of this Agreement. WEST is a bank holding company registered under the BHCA. Each of WEST's Subsidiaries has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business substantially as it is being conducted on the date of this Agreement, except where the failure to have such power or authority would not have a Material Adverse Effect on WEST taken as a wholeProspectus (as hereinafter defined) or the ability of WEST to consummate the transactions contemplated by this Agreement. WEST has all requisite corporate power and authority to enter into this Agreement and, subject to obtaining all Requisite Regulatory Approvals, WEST will have the requisite corporate power and authority to perform its respective obligations hereunder with respect to the consummation of the transactions contemplated hereby. WEST is the sole shareholder of WAB. WAB is a state chartered banking corporation licensed to conduct banking business in California. WAB is a member of the Federal Reserve System. WAB's deposits are insured by the FDIC in the manner and to the full extent provided by law. SECTION 4.2 Licenses and Permits. Except as disclosed on Schedule 4.2, WEST and WAB have all material licenses, certificates, franchises, rights and permits that are necessary for the conduct of their respective businesses, and such licenses are in full force and effect, except for any failure to be in full force and effect that would not, individuallyProxy Statement, or in the ~~aggregate, have a Material Adverse Effect on WEST taken as a whole, or on~~applications to be filed to obtain the ability of WEST to consummate the transactions contemplated by this Agreement. SECTION 4.3 Authorization of Agreement; No Conflicts 4.3.1 The execution and delivery of this Agreement and the Merger Agreement and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of WEST. This Agreement has been duly executed and delivered by WEST and constitutes a legal, valid and binding obligation of WEST, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and by general equitable principles. The Merger Agreement, upon the receipt of all Requisite RegulatoryGovernment Approvals and the due execution and filing of such Merger Agreement in accordance with the applicable provisions of the California Corporations Code, will constitute a legal, valid and binding obligation of WEST and WAB, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally or by general equitable principles. 4.3.2 Except as discussed on Schedule 4.3, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby(the “Applications”), does not and will not result in any violation of or default or loss of a material benefit under, any provision of the Articles of Incorporation or Bylaws of WEST, or any material mortgage, indenture, lease, agreement or other material instrument, or any permit, concession, grant, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to WEST or any of its assets or properties or any A-19 131 of its Subsidiaries, other than any such conflict, violation, default or loss which (i) will not have a Material Adverse Effect on WEST taken as a whole; or (ii) will be cured or waived prior to the Effective Time. SECTION 4.4 Capital Structure of WEST. The authorized capital stock of WEST consists of 150,000,000 shares of WEST Common Stock, no par value per share, 1,000,000 shares of WEST Class "B" Common Stock and 1,000,000 shares of WEST preferred stock. On December 31, 1999 37,124,734 shares of WEST Common Stock were outstanding, 1,066,707 shares of WEST Common Stock were reserved for issuance pursuant to employee stock option and other employee stock plans (the "WEST Stock Plans"), and no shares of WEST Class "B" Common Stock and WEST preferred stock were outstanding or were reserved for issuance by WEST. All outstanding shares of WEST Common Stock are validly issued, fully paid and nonassessable and do not possess any preemptive rights and were not issued in violation of any preemptive rights or any similar rights of any Person. The issuance of the shares of WEST Common Stock proposed to be issued pursuant to this Agreement at the Effective Time will have been duly authorized by all requisite corporate action of WEST, and such shares, when issued as contemplated by this Agreement, will constitute duly authorized, validly issued, fully paid and nonassessable shares of WEST Common Stock, and will not have been issued in violation of any preemptive or similar rights of any Person. As of the date of this Agreement, and except for this Agreement, the WEST Stockholders Rights Plan and the WEST Stock Plans, WEST does not have outstanding any options, warrants, calls, rights, commitments, securities or agreements of any character to which WEST is a party or by which it is bound obligating WEST to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of WEST or obligating WEST to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. SECTION 4.5 WEST Filings. Since January 1, 1997, WEST has filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that were required to be filed with (a) the Federal Reserve or any Federal Reserve Bank; (b) the CDFI; (c) the SEC; and (d) any other applicable federal, state or local governmental or regulatory authority. All such reports, registrations and filings including the WEST Financial Statements are collectively referred to as the "WEST Filings". Except to the extent prohibited by law, copies of the WEST Filings have previously been made available to FCOB. As of their respective filing or mailing dates, each of the past WEST Filings (a) was true and complete in all material respects (or was amended so as to be so promptly following discovery of any discrepancy); and (b) complied in all material respects with all of the statutes, rules and regulations enforced or promulgated by the governmental or regulatory authority with which it was filed (or was amended so as to be so promptly following discovery of any such noncompliance) and none contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. SECTION 4.6 Accuracy of Information Supplied. 4.6.1 No representation or warranty of WEST contained herein or any statement, schedule, exhibit or certificate given or to be given by or on behalf of WEST or any of its Subsidiaries to FCOB in connection herewith and none of the information supplied or to be supplied by WEST to FCOB hereunder contains or will contain any untrue statement of any material fact or omit ~~to state any material fact required to be stated therein~~ or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. 4.6.2 None of the information supplied or to be supplied by WEST or relating to WEST which is included or incorporated by reference in (i) the Registration Statement in connection the issuance of shares of WEST Common Stock in the Merger will ~~at the time the Registration Statement becomes effective under the Securities Act, contain any untrue statement of a material A-20~~ 132 fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) the Proxy Statement/Prospectus and any amendment or supplement thereto will, at all times from the date of mailing to shareholders of FCOB through the date of the meeting of shareholders of FCOB to be held in connection with the Merger, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (iii) the applications and forms to be filed with securities or "blue sky" authorities, self regulatory authorities, or any Governmental Entity in connection with the Merger, the issuance of any shares of WEST Common Stock in connection with the Merger, or any Requisite Regulatory Approvals will, at the time filed or at the time they become effective, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they ~~were~~are made, not ~~misleading. The Registration Statement (except for such portions thereof~~misleading; provided, however, that ~~relate only~~information of a later date shall be deemed to FCOB) will comply in all material respects with the applicable provisions of the Securities Act and the Exchange Act and the rules and regulations thereunder. 4.6.3 WEST has delivered or will deliver to FCOB copies of: (a) the audited balance sheets of WEST and its Subsidiariesmodify information as of ~~December 31, 1999, 1998 and 1997 and the related~~an earlier date. All financial statements of ~~income, changes~~Redwood Empire included in ~~shareholders' equity~~the Prospectus and ~~cash flows~~Proxy Statement will present fairly the consolidated financial condition and results of operations of Redwood Empire at the dates and for the ~~years then ended and the related notes to~~periods covered by such ~~financial~~ statements all as audited by KPMG, LLP and its predecessors, independent public accountants (the "WEST Financial Statements"). The WEST Financial Statements have been prepared (and all of said additional financial statements will be prepared) in accordance with GAAP ~~or applicable regulatory accounting principles,~~consistently applied ~~on a consistent basis during the periods involved (except as may be indicated in the notes thereto) consistently followed~~ throughout the periods covered by such ~~statements, and present~~statements. Redwood Empire shall promptly (and ~~when prepared, will present) fairly the financial position of WEST and its Subsidiaries as of the respective dates and for the respective periods covered by such financial statements (subject,~~ in ~~the case of the unaudited statements,~~any event within two Business Days) advise Westamerica in writing if, prior to recurring adjustments normal in nature and amount). SECTION 4.7 Compliance With Applicable Laws. Except as disclosed on Schedule 4.7, to the best of WEST's Knowledge, the respective businesses of WEST and its Subsidiaries are not being conducted in violation of any law, ordinance or regulation, except for violations which individually or in the aggregate would not have a Material Adverse Effect on WEST and its Subsidiaries, taken as a whole. No investigation or review by any Governmental Entity with respect to WEST is pending or, to the Knowledge of WEST, threatened, nor has any Governmental Entity indicated to WEST an intention to conduct the same, other than regular bank examinations and those the outcome of which, as far as can be reasonably foreseen, will not have a Material Adverse Effect on WEST and its Subsidiaries, taken as a whole. SECTION 4.8 Performance of Obligations. WEST has performed all material obligations required to be performed by them to date and WEST is not in material default under or in material breach of any term or provision of any covenant, contract, lease, indenture or any other agreement, written or oral, to which it is a party, is subject or is otherwise bound, and no event has occurred that, with the giving of notice or the passage of time or both, would constitute such a default or breach, where such default or breach or failure to perform would have a Material Adverse Effect on WEST. SECTION 4.9 Absence of Material Adverse Effect. Since January 1, 2000, no event or circumstance has occurred or is expected to occur which to WEST's Knowledge has had or which, with the passage of time or otherwise, could reasonably be expected to have a Material Adverse Effect on WEST and its Subsidiaries, taken as a whole. A-21 133 SECTION 4.10 Undisclosed Liabilities. Except as disclosed on Schedule 4.10, none of WEST or any of its Subsidiaries to WEST's Knowledge has any liabilities or obligations, either accrued, contingent or otherwise, that are material to WEST and its Subsidiaries, taken as a whole, and that have not been: (a) reflected or disclosed in the WEST Financial Statements; or (b) incurred subsequent to December 31, 1999 in the ordinary course of business. WEST has no Knowledge of any basis for the assertion against WEST or any of its Subsidiaries, of any liability, obligation or claim (including without limitation that of any Governmental Entity) that will have or cause, or could reasonably be expected to have or cause, a Material Adverse Effect on WEST and its Subsidiaries, taken as a whole, that is not fairly reflected in the WEST Financial Statements or on Schedule 4.10. ARTICLE 5. ADDITIONAL AGREEMENTS SECTION 5.1 Access to Information, Due Diligence, etc. 5.1.1 Upon reasonable notice, FCOB shall permit WEST and its accountants, counsel and other representatives reasonable access to their officers, employees, properties, books, contracts, commitments and records and from the date hereof through the Effective Time, ~~and~~Redwood Empire shall furnish or provide access to WEST as soon as practicable, (i) a copy of each of FCOB's Filings filed subsequent to the date of this Agreement promptly after such document has been filed with the appropriate Governmental Entity, provided, however, that copiesobtain knowledge of any ~~Returns relating~~facts that would make it necessary to ~~Taxes of FCOB shall be furnished to WEST at least 15 Business Days prior to~~amend the proposed date of filing thereof and shall not be filed without the prior approval of WEST, which approval shall not be unreasonably withheld or delayed; (ii) unless otherwise prohibited by law, a copy of each report, schedule and other documents filed or received by FCOB during such period with any Regulatory Authority or the Internal Revenue Service, as to documents other than related to employees or customers and other than those distributed to banks generally; (iii) as promptly as practicable following the end of each calendar month after the date hereof, a balance sheet of FCOB as of the end of such month; and (iv) all other information concerning FCOB's business, properties, assets, financial condition, results of operations, liabilities, personnel and otherwise as WEST may reasonably request. 5.1.2 Until the Effective Time, a representative of WEST shall be entitled and shall be invited to attend meetings of the Board of Directors of FCOB and of the Loan Committee of FCOB, and at least five (5) days' prior written notice of the dates, times and places of such meetings shall be given to WEST except that in the case of special meetings WEST shall receive the same number of days' prior notice as FCOB's directors receive for such meetings; provided, however, that such representative shall excuse himself or herself from any portion of any such meetings that (i) relate to approval of, or the exercise of any rights under, this Agreement by FCOB, (ii) involve discussions between such Board of Directors or such Loan Committee and legal counsel for FCOB that are entitled to be protected from disclosure under an attorney-client privilege which would be lost due to the presence of such representative of WEST, or (iii) constitute the Executive Session of any Board of Directors meeting. 5.1.3 WEST and FCOB each agrees to keep confidential and not divulge to any other party or Person (other than to the employees, attorneys, accountants and consultants of each who have a need to receive such information and other than as may be required by law) any information received from the other, unless and until such documents and other information otherwise becomes publicly available or unless the disclosure of such information is authorized by each party. In the event of termination of this Agreement for any reason, the parties shall promptly return, or at the A-22 134 election of the other party destroy, all nonpublic documents obtained from the other and any copies or notes of such documents (except as otherwise required by law) and, upon the request of the other party, confirm such destruction to the other in writing. SECTION 5.2 Shareholder Approval. 5.2.1 FCOB shall promptly call a meeting of its shareholders to be held at the earliest practicable date after the date on which the initialWestamerica Registration Statement, ~~is declared effective by~~ the ~~SEC, but~~Proxy Statement or any Application, or to supplement the Prospectus, in ~~no event later than July 1, 2000, for~~order to make the purpose of approving this Agreement and authorizing the Merger Agreement and the Merger. FCOB's Board of Directors will recommend to the shareholders approval of this Agreement, the Merger Agreement and the Merger; provided, however, that FCOB's Board of Directors may withdraw its recommendation if such Board of Directors believes in good faith (based on a written opinion of a financial advisor that is experienced in evaluating the fairness of Acquisition Proposals) that a FCOB Superior Proposal (defined below) has been made and shall have determined in good faith, after consultation with and based on written advice of its outside legal counsel, that the withdrawal of such recommendation is necessary for FCOB's Board of Directorsstatements therein not misleading or to comply with ~~its fiduciary duties under~~ applicable law. ~~5.2.2 If the Merger is approved~~

(ff) Accuracy of Representations and Warranties. No representation or warranty by ~~vote of the shareholders of FCOB, then, within ten (10) days thereafter FCOB shall send a Dissenting Shareholder Notice to each recordholder of~~Redwood Empire or NBR and no statement by Redwood Empire or NBR in any Dissenting Shares. SECTION 5.3 Taking of Necessary Action 5.3.1 Subject to the terms and conditions of this Agreement, each of the parties hereto agrees, subject to applicable laws and the fiduciary duties of FCOB'scertificate, agreement, schedule or ~~WEST's Boards of Directors, as advised~~other document furnished in writing by their respective counsel, to use all reasonable efforts promptly to take or cause to be taken all action and promptly to do or cause to be done all things necessary, proper or advisable under applicable laws and regulations to consummate and make effectiveconnection with the transactions contemplated by this Agreement ~~and the Merger Agreement, including, without limitation, the delivery of any certificate~~contains or ~~other document reasonably requested by counsel to a party to this Agreement. Without limiting the foregoing, WEST and FCOB~~ will use their reasonable efforts to obtain all consents of third parties and Government Entities necessary or, in the reasonable opinion of WEST or FCOB advisable for the consummation of the transactions contemplated by this Agreement. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the Merger Agreement, or to vest the Surviving Corporation with full title to all properties, assets, rights, approvals, immunities and franchises of FCOB, the proper officers or directors of WEST, WAB or FCOB, as the case may be, shall take all such necessary action. Notwithstanding the foregoing, nothing in this Agreement shall be construed to require FCOB to take any action (or omit to take any action) which may affect the Exchange Ratio, except as may be specifically provided for or required by this Agreement. 5.3.2 The obligations of FCOB contained in Section 6.2.5 of this Agreement shall continue to be in full force and effect despite any Default under Section 6.2.5 or FCOB's receipt of a FCOB Superior Proposal (defined below) and any Default under Section 6.2.5 by FCOB shall entitle WEST to such legal or equitable remedies as may be provided in this Agreement or by law notwithstanding that any action or inaction of the Board of Directors or officers of the defaulting party which is required to enable such party to fulfill such obligations may be excused based on the continuing fiduciary obligations of such party's Board of Directors and officers to its shareholders. 5.3.3 FCOB shall use its best efforts to cause each director, executive officer and other person who is an "Affiliate" of FCOB (for purposes of Rule 145 under the Securities Act) to deliver to WEST, on the date of this Agreement, a written agreement in the form attached hereto as Exhibit 5.3 (the "Affiliates Agreement"). A-23 135 SECTION 5.4 Registration Statement and Applications. 5.4.1 WEST and FCOB will cooperate and jointly prepare and file as promptly as practicable the Registration Statement, the statements, applications, correspondence or forms to be filed with appropriate State securities law regulatory authorities, and the statements, correspondence or applications to be filed to obtain the Requisite Regulatory Approvals to consummate the transactions contemplated by this Agreement. Each of WEST and FCOB shall use all reasonable efforts to have the S-4 Registration Statement declared effective under the Securities Act as promptly as practicable after such filing, and FCOB shall thereafter mail the Proxy Statement/Prospectus to the shareholders of FCOB. Each party will furnish all financial or other information, certificates, consents and opinions of counsel concerning it and its Subsidiaries received by such party. 5.4.2 Each party shall provide to the other at the request of the other party: (i) immediately prior to the filing thereof, copies of all material statements, applications, correspondence or forms to be filed with state securities law regulatory authorities, the SEC and other appropriate regulatory authorities to obtain the Requisite Regulatory Approvals; and (ii) promptly after delivery to, or receipt from, such regulatory authorities all written communications, letters, reports or other documents relating to the transactions contemplated by this Agreement. SECTION 5.5 Expenses. 5.5.1 Whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring the same. 5.5.2 FCOB shall use its best efforts to ensure that its attorneys, accountants, financial advisors, investment bankers and other consultants engaged by them in connection with the transaction contemplated by this Agreement submit full and final bills on or before the Closing Date and that such expenses are properly reflected on the books of FCOB. SECTION 5.6 Notification of Certain Events. 5.6.1 FCOB shall provide to WEST, as soon as practicable, written notice (sent via facsimile and overnight mail or courier) of the occurrence or failure to occur of any of the events, circumstances or conditions that are the subject of Sections 6.1 and 6.2, which notice shall provide reasonable detail as to the subject matter thereof. 5.6.2 WEST shall provide to FCOB, as soon as practicable, written notice (sent via facsimile and overnight mail or courier) of the occurrence or failure to occur of any of the events, circumstances or conditions that are the subject of Section 6.3 and 6.4, which notice shall provide reasonable detail as to the subject matter thereof. 5.6.3 Each party shall promptly advise the others in writing of any change or event which could reasonably be expected to have a Material Adverse Effect on such party or on its ability to consummate the transactions contemplated by this Agreement or the Merger Agreement. 5.6.4 FCOB and WEST shall immediately notify the other in writing in the event that such party becomes aware that the Registration Statement or Proxy Statement/Prospectus at any time contains

contain any untrue statement of a material fact or omits or will omit to state aany material fact ~~required to be stated therein or~~ necessary ~~in order~~ to make ~~the~~such representation, warranty or statement ~~therein, in light of the circumstances under which they were made,~~ not misleading to Westamerica; provided, however, that information as of a later date shall be deemed to modify information as of an earlier date.

(gg) No Brokered Deposits. NBR does not now have and shall not accept prior to or have on the Effective Date any “brokered deposits” as such deposits are defined by the FDIC.

(hh) Internal Controls. Redwood Empire has (a) designed disclosure controls and procedures (as defined in Rule 13a-15(e) under the 1934 Act) to ensure that ~~the Registration Statement or the Proxy Statement/Prospectus otherwise~~information relating to it that is required to be ~~amended~~disclosed in its reports under the 1934 Act is recorded, processed, summarized and ~~supplemented, which notice shall specify,~~reported, within the time periods specified in ~~reasonable detail,~~ the ~~circumstances thereof. WEST shall promptly amend~~Commission’s rules and ~~supplement such materials~~forms; (b) evaluated the effectiveness of its disclosure controls and ~~disseminate the new or modified information so as to fully comply~~procedures and presented in its periodic reports most recently filed with the ~~Securities Act. If~~Commission the ~~amendment~~conclusions of its senior officers about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by such report based on that evaluation; and (c) disclosed in such report any change in its internal control over financial reporting that occurred during its most recent reporting period that has materially affected, or ~~supplement so required relates~~is reasonably likely to ~~information concerning~~materially affect, its internal control over financial reporting. Redwood Empire has disclosed, based on its most recent evaluation of internal control over financial reporting, to its auditors and the audit committee of its board of directors: (i) all significant deficiencies and material weaknesses in the design or ~~A-24~~ ~~136 provided by FCOB, the out-of-pocket costs~~operation of internal control over financial reporting which are reasonably likely to adversely affect its ability to record, process, summarize and ~~expenses~~report financial information; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in Redwood Empire’s internal control over financial reporting.


	(a) Corporate Status and Power to Enter Into Agreement. Westamerica is a corporation duly incorporated, validly existing and in good standing under California law and is a registered bank holding company under the BHCA. WAB is a California banking corporation duly incorporated, validly existing and in good standing under the laws of the State of California and holds a currently valid license issued by the DFI to engage in the commercial banking business in California at the offices in which such business is conducted. Subject to the approval of this Agreement and the transactions contemplated hereby by the FRB, Westamerica and WAB have all necessary corporate power to enter into this Agreement and to carry out all of the terms and provisions hereof and thereof to be carried out by them. Neither Westamerica nor any of its subsidiaries is subject to any order of the FRB, the FDIC, the DFI or any other regulatory authority having jurisdiction over its or their business or any of its or their assets or properties. Neither the scope of the business of Westamerica or WAB nor the location of its properties requires it to be licensed to do business in any jurisdiction other than the State of California. Westamerica is the sole shareholder of WAB. WAB is a member of the Federal Reserve System. WAB’s deposits are insured by the FDIC in the manner and to the full extent provided by law.

	(b) Corporate Status and Power of Westamerica and WAB. Prior to and as of the Effective Time, Westamerica and WAB will be corporations duly incorporated, validly existing and in good standing under the laws of the State of California and will have the corporate power to enter into the Merger Agreement and to carry out all of the terms and provisions thereof to be carried out by each of them.

	(c) Articles, Bylaws, Books and Records. The copies of the Articles of Incorporation and Bylaws of Westamerica to be delivered to Redwood Empire are complete and accurate copies thereof as in effect on the date hereof. The corporate books and records (including financial statements) of Westamerica fairly reflect the material transactions to which Westamerica or any of its subsidiaries is a party or by which any of their properties are subject or bound, and such books and records have been properly kept and maintained. The Articles of Incorporation and Bylaws of Westamerica and all amendments thereto have been duly approved by all requisite corporate action and said Articles of Incorporation and all amendments thereto have been duly filed with the California Secretary of State.

(d) Compliance With Laws, Regulations and Decrees. Westamerica and each of its subsidiaries (i) has the corporate power to own or lease its properties and to conduct its business as currently conducted, (ii) has complied with, and is not in default of any laws, regulations, ordinances, orders or decrees applicable to the conduct of its business and the ownership of its properties, including but not limited to all federal and state laws (including but not limited to the Bank Secrecy Act), rules and regulations relating to the offer, sale or issuance of securities, and the operation of its subsidiary commercial banks, other than where such noncompliance or default is not likely to result in a material limitation on the conduct of the business of Westamerica or its subsidiaries, taken as a whole, or is not likely to otherwise have a material adverse effect on Westamerica, (iii) has not failed to file with the proper federal, state, local or other authorities any material report or other document required to be so filed, (iv) has all material approvals, authorizations, consents, licenses, clearances and orders of, and has currently effective all registrations with, all governmental and regulatory authorities which are necessary in all material respects to the respective businesses and operations of Westamerica and its subsidiaries as they are now being conducted, and (v) has received no notification, formally or informally, from any agency or department of any federal, state or local government or any regulatory agency or the staff thereof (A) asserting that Westamerica or its subsidiaries are not in material compliance with any of the statutes, regulations or ordinances which such governmental or regulatory authority enforces, or (B) threatening to revoke any material licenses, franchise, permit or governmental authorization of Westamerica or its subsidiaries.


	(i) The execution and delivery of this Agreement has been duly and validly authorized by the Boards of Directors of Westamerica and WAB and this Agreement will be duly and validly authorized by all necessary corporate action on the part of Westamerica and WAB.

	(ii) This Agreement has been duly executed and delivered by Westamerica and WAB and (assuming due execution and delivery by Redwood Empire and NBR) constitutes a legal and binding obligation of Westamerica and WAB (subject to applicable bankruptcy, insolvency and civil laws affecting creditors’ rights generally, and subject, as to enforceability, to equitable principles of general applicability).

	(iii) The execution and delivery by Westamerica and WAB of this Agreement and the consummation of the transactions herein contemplated (A) do not and will not violate any provision of the Articles of Incorporation or Bylaws of Westamerica or WAB, any provision of federal or state law or any governmental rule or regulation (assuming (1) receipt of the Government Approvals, (2) due registration of the Westamerica Shares under the 1933 Act, (3) receipt of appropriate permits or approvals under state securities or “blue sky” laws, and (4) accuracy of the representations of Redwood Empire set forth herein), and (B) do not require any consent of any person under, conflict with or result in a breach of, or accelerate the performance required by any of the terms of, any material debt instrument, lease, license, covenant, agreement or understanding to which Westamerica or WAB is a party or by which it is bound or any order, ruling, decree, judgment, arbitration award or stipulation to which Westamerica or WAB is subject, or constitute a default thereunder or result in the creation of any lien, claim, security interest, encumbrance, charge, restriction or right of any third party of any kind whatsoever upon any of the properties or assets of Westamerica and WAB.

	(f) Securities Law Filings. Since December 31, 1998, Westamerica has filed and will file all documents required to be filed by it under the 1933 Act, the 1934 Act, the Investment Company Act of 1940, the Investment Advisors Act of 1940 and the Trust Indenture Act of 1939, all as amended, and that as of their respective dates, none of these documents contained as of the date of the Agreement or will contain any untrue statement of material fact or omitted or will omit to state material any fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made or will be made not misleading.

	(g) Financial Statements, Regulatory Reports. No financial statement or other document provided or to be provided to Redwood Empire as required by Section 3.1(e) hereof, as of the date of such


	document, contained, or as to documents delivered after the date hereof, will contain, any untrue statement of a material fact, or, at the date thereof, omitted or will omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which such statements were or will be made, not misleading; provided, however, that information as of a later date shall be deemed to modify information as of any earlier date. Since 2001, Westamerica has filed all material documents and reports relating to Westamerica or its subsidiaries required to be filed by it with the FDIC, the FRB, the DFI or any other governmental authority having jurisdiction over its business or any of its assets or properties. All such reports conform in all material respects with the requirements promulgated by such regulatory agencies. All compliance or corrective action relating to Westamerica or its subsidiaries required by governmental authorities and regulatory agencies having jurisdiction over Westamerica or its subsidiaries has been taken. Westamerica and its subsidiaries have received no notification, formally or informally, from any agency or department of any federal, state or local government or any regulatory agency or the staff thereof (A) asserting that Westamerica or any of its subsidiaries are not in material compliance with any of the statutes, regulations or ordinances which such governmental or regulatory authority enforces, or (B) threatening to revoke any license, franchise, permit or governmental authorization of Westamerica or any of its subsidiaries. Neither Westamerica nor any of its subsidiaries is subject to any order, agreement, or written directive with any regulatory authority with respect to its assets or business except for matters of general application. Westamerica and its subsidiaries have paid all assessments made or imposed by any governmental agency. The financial records of Westamerica have been, and are being and shall be, maintained in all material respects in accordance with all applicable legal and accounting requirements sufficient to insure that all transactions reflected therein are, in all material respects, executed in accordance with management’s general or specific authorization and recorded in conformity with GAAP at the time in effect.

	(h) Community Reinvestment Act. Westamerica has received a rating of “satisfactory” in its most recent examination or interim review with respect to the Community Reinvestment Act. Westamerica has not been advised of any material supervisory concerns regarding its compliance with the Community Reinvestment Act.

	(i) Material Adverse Change. Since December 31, 2003, there has been no material adverse change with respect to Westamerica.

	(j) Information in Westamerica Registration Statement. The information pertaining to Westamerica and each of its subsidiaries which will appear in the Westamerica Registration Statement, the Prospectus or the Proxy Statement, in the form filed with the Commission, or in the Applications, will contain no untrue statement of any material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading; provided, however, that the information as of a later date shall be deemed to modify information as of an earlier date. All financial statements of Westamerica included in the Prospectus or the Proxy Statement will present fairly the consolidated financial condition and results of operations of Westamerica and its consolidated subsidiaries at the dates and for the periods covered by such statements in accordance with GAAP consistently applied throughout the periods covered by such statements. Westamerica shall promptly (and in any event within two Business Days) advise Redwood Empire in writing if prior to the Effective Time Westamerica shall obtain knowledge of any facts that would make it necessary to amend the Westamerica Registration Statement, the Proxy Statement or any Application, or to supplement the Prospectus, in order to make the statements therein not misleading or to comply with applicable law.

	(k) Accuracy of Representations and Warranties. No representation or warranty by Westamerica or WAB and no statement by Westamerica or WAB in any certificate, agreement, schedule or other document furnished in connection with the transactions contemplated by this Agreement or the Merger Agreement contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary to make such representation, warranty or statement not misleading to Redwood Empire; provided, however, that information as of a later date shall be deemed to modify information as of an earlier date.


	(i) Westamerica shall deliver upon request to Redwood Empire an accurate list setting forth all profit sharing, pension, retirement, stock purchase, stock option, deferred compensation, severance, hospitalization, group insurance, death benefits, disability and other fringe benefit plans, trust agreements, arrangements and commitments of Westamerica, if any, together with copies of plans that are documented.

	(ii) Each employee benefit plan (as defined in Sections 3(3) of ERISA) which is required to be provided in response to this Section 5(l) is in material compliance with the requirements of ERISA.

	(m) Compliance With ERISA. Neither Westamerica nor any of its subsidiaries has, since its inception, either maintained or contributed to an employee pension benefit plan, as defined in Section 3(2) of ERISA, including multi-employer plans, other than the Westamerica Bancorporation Tax Deferred Savings/ Retirement Plan (ESOP) and Deferred Profit Sharing Plan (the “Westamerica Plan”). With respect to the Westamerica Plan, as of the Effective Time (i) the form of the Westamerica Plan, to the best of Westamerica’s knowledge, has in all material respects been (and currently is) in compliance with all the requirements of Section 401 or Section 408 of the IRC, as applicable; (ii) Westamerica shall not have amended the Westamerica Plan or administered the Westamerica Plan in a manner inconsistent with such requirements; (iii) no contributions have exceeded the limitations set forth in Section 415 of the IRC; (iv) all required and necessary filings with the IRS, Department of Labor and any other governmental agencies with respect to the Westamerica Plan for all periods ending at or prior to the Effective Time will have been made on a timely basis by Westamerica and the plan administrator; (v) there shall have been no material violation of Parts 1 and 4 of Subtitle B of Title I of ERISA or of Section 4975 of the IRC; and (vi) there shall have been no action, claim or demand of any kind known to Westamerica brought or threatened by any potential claimant or representative of such claimant under the Westamerica Plan or Trust where Westamerica may be either (A) liable directly on such action, claim or demand, or (B) obligated to indemnify any person, group of persons or entity with respect to such action, claim or demand, unless such action, claim or demand is covered by adequate reserves reflected in Westamerica’s December 31, 2003, financial statements or an insurer of Westamerica has agreed to defend against and pay the amount of any resulting liability without reservation.

	(n) Legal Actions and Proceedings. Except as disclosed to Redwood Empire in writing, neither Westamerica nor any of its subsidiaries is a party to, or so far as Westamerica is aware, threatened with, and to its knowledge, there is no reasonable basis for, any legal action or other proceeding or investigation before any court, any arbitrator of any kind or any government agency; and neither Westamerica nor any of its subsidiaries is subject to any potential adverse claim, the outcome of which could involve the payment or receipt by Westamerica or any of its subsidiaries of any amount in excess of $5,000,000, unless an insurer of Westamerica has agreed to defend against and pay the amount of any resulting liability without reservation, or, if any such legal action, proceeding, investigation or claim will not involve the payment by Westamerica or any of its subsidiaries of a monetary amount, which could materially adversely affect Westamerica or any of its subsidiaries or its business or property or the transactions contemplated hereby except as disclosed in writing to Redwood Empire. Westamerica has no knowledge of any pending or threatened claims or charges under the Community Reinvestment Act, before the Equal Employment Opportunity Commission, the California Department of Fair Housing & Economic Development, the California Unemployment Appeals Board (except claims or charges in the ordinary course of business that are not expected to have a material adverse effect), or any human relations commission. There is no labor dispute, strike, slow-down or stoppage pending or, to the best of the knowledge of Westamerica, threatened against Westamerica or any of its subsidiaries.

	(o) Facts Affecting Government Approvals. To the best knowledge of Westamerica, there is no fact, event or condition applicable to Westamerica or any of its subsidiaries that will, or reasonably could be expected to, adversely affect the likelihood of securing the Government Approvals required to complete the Merger and the other transactions contemplated by this Agreement.


	(p) Taxes. Westamerica has timely filed all federal, state, county, local and foreign tax returns required to be filed by it, and each such return, report or other information was, when filed, complete and accurate in all material respects. Westamerica has paid all taxes, fees and other governmental charges, including any interest and penalties thereon, when they have become due, except those that are being contested in good faith. Westamerica has not been requested to give and has not given any currently effective waivers extending the statutory period of limitation applicable to any tax return required to be filed by it for any period. There are no claims pending against Westamerica for any alleged deficiency in the payment of any taxes, and Westamerica does not know of any pending or threatened audits, investigations or claims for unpaid taxes or relating to any liability in respect of any taxes.

	(q) Capitalization. All outstanding shares of Westamerica capital stock have been duly issued and are validly outstanding, fully paid and nonassessable. None of the shares of Westamerica’s capital stock has been issued in violation of the preemptive rights of any person. The shares of Westamerica common stock to be issued in connection with the Merger have been duly authorized and, when issued in accordance with the terms of this Agreement, will be validly issued, fully paid, nonassessable and free and clear of any preemptive rights.

	(r) Internal Controls. Westamerica has (a) designed disclosure controls and procedures (as defined in Rule 13a-15(e) under the 1934 Act) to ensure that information relating to it that is required to be disclosed in its reports under the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms; (b) evaluated the effectiveness of its disclosure controls and procedures and presented in its periodic reports most recently filed with the Commission the conclusions of its senior officers about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by such report based on that evaluation; and (c) disclosed in such report any change in its internal control over financial reporting that occurred during its most recent reporting period that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting. Westamerica has disclosed, based on its most recent evaluation of internal control over financial reporting, to its auditors and the audit committee of its board of directors: (i) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect its ability to record, process, summarize and report financial information; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in Westamerica’s internal control over financial reporting.

(a) Preparation and Filing of ~~preparing, filing and disseminating such amendment or supplement~~Registration Statement. Westamerica shall ~~be borne by FCOB. SECTION 5.7 Closing Schedules. FCOB has delivered to WEST on or before~~as promptly as reasonably practicable after the date of this Agreement ~~all~~prepare and file with the Commission (i) a registration statement on the appropriate form (the “Westamerica Registration Statement”) under and pursuant to the provisions of the ~~Schedules~~1933 Act for the purpose of registering the Westamerica Shares and, (ii) shall prepare and file, as soon as practicable, one or more registration statements or amendments to existing registration statements under the 1933 Act for the purpose of registering the maximum number of shares of common stock of Westamerica to which the option holders of Redwood Empire may be entitled pursuant to Section 2.6 above at or after the Effective Date. Westamerica and Redwood Empire shall promptly prepare the Proxy Statement for the purpose of submitting this Agreement ~~which FCOB is~~and the Merger to the shareholders of Redwood Empire for approval. Redwood Empire shall cooperate in all reasonable respects with regard to the preparation of the Proxy Statement. The Proxy Statement in definitive form shall serve as the prospectus (the “Prospectus”) to be included in the Westamerica Registration Statement. Westamerica and Redwood Empire shall each provide promptly to the other such information concerning its business and financial condition and affairs as may be required or appropriate for inclusion in the Westamerica Registration Statement, the Prospectus or the Proxy Statement, and shall cause its counsel and auditors to cooperate with the other’s counsel and auditors in the preparation of the Westamerica Registration Statement, the Prospectus and the Proxy Statement.

(b) Effectiveness of Registration Statement. Westamerica and Redwood Empire shall use their commercially reasonable best efforts to have the Westamerica Registration Statement and any amendments or

supplements thereto declared effective by the Commission under the 1933 Act as soon as practicable, and thereafter Redwood Empire shall distribute at its cost the Proxy Statement to holders of its common stock in accordance with applicable laws and its Articles of Incorporation and Bylaws.

(c) Sales and Resales of Common Stock. Westamerica shall not be required to ~~deliver~~maintain the effectiveness of the Westamerica Registration Statement for the purpose of sale or resale of the Westamerica Shares by any person.

(d) Rule 145. Securities representing Westamerica Shares issued to ~~WEST hereunder (the "FCOB Schedules"). WEST has delivered~~affiliates of Redwood Empire (as determined by counsel to ~~FCOB on~~Westamerica) under Rule 145 of the rules and regulations under the 1933 Act pursuant to the Merger Agreement may be subject to stop transfer orders and may bear a restrictive legend in substantially the following form:

The security represented by this instrument has been issued or transferred to the registered holder as the result of a transaction to which Rule 145 under the 1933 Act applies. The security represented by this instrument may not be sold, hypothecated, transferred or assigned, and the issuer shall not be required to give effect to any attempted sale, hypothecation, transfer or assignment, except (i) pursuant to a then current effective registration under the 1933 Act, or (ii) in a transaction which, in the opinion of counsel satisfactory to the issuer, is not required to be registered under the 1933 Act.

Should any opinion of counsel described in clause (ii) of the foregoing legend indicate that the legend and any stop transfer order then in effect with respect to the shares may be removed, Westamerica will upon request substitute unlegended securities and remove any stop transfer orders.

(e) Blue Sky Compliance. Westamerica agrees to use its commercially reasonable efforts to have the shares of Westamerica common stock to be issued in connection with the Merger qualified or ~~before~~registered for offer and sale, to the ~~date~~extent required if any, under the securities laws of each jurisdiction in which shareholders of Redwood Empire reside.

The obligations of Westamerica under this Agreement ~~all of the Schedules~~are, at its option, subject to ~~this Agreement which WEST is required to deliver to FCOB hereunder ( the "WEST Schedules"). Immediately~~fulfillment at or prior to the ~~Closing~~Effective Date ~~FCOB shall have prepared updates~~of each of the ~~FCOB Schedules~~following conditions; provided, ~~for~~however, that any one or more of such conditions, other than those set forth in ~~this Agreement and shall deliver to WEST revised schedules containing~~subsection (d), (g), (h) or (i) below, may be waived by the ~~updated information (or a certificate signed by FCOB's Chief Executive Officer stating that there have been no changes on the applicable schedules); and WEST shall have prepared updates~~Board of the WEST Schedules provided for in this Agreement and shall deliver to FCOB revised Schedules containing updated information (or a certificate signed by WEST's Chief Executive Officer stating that there has been no change on the applicable schedules). Such updated schedules shall sometimes be referred to collectively, as the "Closing Schedules." The Closing Schedules shall be dated asDirectors of ~~the day~~Westamerica at any time at or prior to the Effective Time:


	(a) Representations and Warranties. The representations and warranties of Redwood Empire in Section 4 hereof shall be true and correct in all material respects on the date hereof and as of the Effective Date, with the same effect as though such representations and warranties had been made on and as of such date (except to the extent that any representation or warranty speaks as of a specified date and except for changes expressly contemplated by this Agreement) and not contain any material inaccuracies or omissions, the circumstances as to which, either individually or in the aggregate have, or reasonably could be expected to have, a material adverse effect on Redwood Empire.

	(b) Compliance and Performance Under Agreement. Redwood Empire shall have performed and complied in all material respects with all terms of this Agreement required to be performed or complied with by it at or prior to the Effective Date. Each of the directors of Redwood Empire also shall have performed and complied in all material respects with all of the terms and conditions of the undertaking referred to in Section 3.2(a) above.

	(c) Material Adverse Change; Litigation. No material adverse change shall have occurred since December 31, 2003, with respect to Redwood Empire (whether or not in the Ordinary Course of Business) and neither Redwood Empire nor any of its subsidiaries shall be a party to or, so far as Redwood Empire is aware, threatened with, and to Redwood Empire’s knowledge there is no reasonable basis for, any legal action or other proceeding before any court, any arbitrator of any kind or any government agency that, in the reasonable judgment of Westamerica, is reasonably likely to result in a material adverse effect on Redwood Empire.


	(d) Approval of Agreement. This Agreement and the Mergers shall have been duly approved by the affirmative vote of the holders of a majority of the outstanding shares of Redwood Empire common stock at the meeting of shareholders duly called and held after distributing the Proxy Statement to all shareholders entitled to vote at such meeting as required by Section 6 hereof.

	(e) Officer’s Certificate. Westamerica shall have received a certificate, dated the Effective Date, signed on behalf of Redwood Empire by its President and Chief Executive Officer, and Chief Financial Officer to the effect that the conditions in Sections 7(a)-(d) have been satisfied.

	(f) Opinion of Counsel. Redwood Empire shall have delivered to Westamerica an opinion of its counsel in substantially the form attached hereto as Exhibit E.

	(g) Absence of Legal Impediment. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect. There shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger, by any governmental authority of competent jurisdiction which makes the consummation of the Merger or the Bank Merger illegal.

	(h) Effectiveness of Registration Statement. The Westamerica Registration Statement and any amendments or supplements thereto shall have become effective under the 1933 Act, no stop order suspending the effectiveness of such Registration Statement shall be in effect and no proceedings for such purpose shall have been initiated or threatened by or before the Commission.

	(i) Government Approvals. All Government Approvals shall be in effect, and all conditions or requirements prescribed by law or by any Government Approval shall have been satisfied; provided, however, that no Government Approval shall be deemed to have been received if it, or any other action taken after the date of this Agreement, or any statute, rule, regulation, order or decree enacted, entered, enforced or deemed applicable to the Merger, the Bank Merger or other related agreements by any federal or state governmental entity arising after the date of this Agreement, shall impose any condition or requirement that Westamerica, in its reasonable and good faith judgment, deems to be materially burdensome (in which case Westamerica shall promptly notify Redwood Empire); provided that Westamerica shall be required to use commercially reasonable efforts to remove such materially burdensome condition. For purposes of this Agreement, no condition shall be deemed to be “materially burdensome” if such condition does not materially differ from conditions generally imposed by the FRB or the DFI in orders approving transactions of the type contemplated by this Agreement and it does not (A) require the divestiture or cessation of any of the present businesses or operations conducted by Westamerica or Redwood Empire, (B) require the taking of any action inconsistent with the manner in which Westamerica or Redwood Empire has conducted its business previously, (C) have or is not reasonably likely to have a material adverse effect on Westamerica or Redwood Empire, (D) preclude satisfaction of any of the conditions to consummation of the transactions contemplated by this Agreement or (E) prevent Westamerica or WAB from realizing any substantial portion of the economic benefits of the transactions contemplated by this Agreement; provided, a requirement to divest deposits of either NBR or WAB in Lake County, California (a “Lake County Divestiture”), shall result in the adjustment of the Merger Consideration as provided in Section 2.1(c) and shall not be deemed “materially burdensome” for purposes of this section.

	(j) Tax Opinion. Westamerica shall have received an opinion of its counsel, subject to assumptions and exceptions normally included, in form and substance reasonably satisfactory to Westamerica, substantially to the effect that under federal income tax law and California income and franchise tax law:


	(i) The Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the IRC;

	(ii) Westamerica and Redwood Empire will each be a party to such reorganization within the meaning of Section 368(b) of the IRC;


	(iii) The Merger will not result in any recognized gain or loss to Westamerica or Redwood Empire;

	(iv) Except for the Cash Portion of the Merger Consideration and any cash received in lieu of any fractional share, no gain or loss will be recognized by holders of Redwood Empire Shares who receive Westamerica Shares in exchange for the Redwood Empire Shares which they hold;

	(v) The holding period of Westamerica Shares exchanged for Redwood Empire Shares will include the holding period of the Redwood Empire Shares for which the Westamerica Shares are exchanged, assuming the Redwood Empire Shares are capital assets in the hands of the holder thereof at the Effective Date; and

	(vi) The basis of the Westamerica Shares received in the exchange will be the same as the basis of the Redwood Empire Shares for which the Westamerica Shares are exchanged, decreased by the amount of any cash received and increased by the amount of any gain recognized on the exchange.


	The issuance of such opinion shall be conditioned on the receipt of tax representation letters from Westamerica and Redwood Empire, which letters shall be in such form and substance as may reasonably be required by the recipient’s counsel. Each such tax representation letter shall be dated on or before the date of such opinion and shall not have been withdrawn or modified in any material respect as of the date of such opinion.

	(k) Accountant’s Assurance. Westamerica shall have received the written assurance from Crowe Chizek and Company LLC prepared pursuant to the provisions of Section 3.2(f)(v).

	(l) Dissenting Shares. The aggregate number of shares of Redwood Empire common stock held by persons who have taken all of the steps required at or prior to the intended closing to perfect their right (if any) to be paid the value of such shares under the GCL shall not exceed 9% of the outstanding shares of Redwood Empire common stock.

	(m) Unaudited Financials. Not later than five Business Days prior to the Effective Date (and, if applicable, by the earlier date specified in clause (ii) of the final paragraph of Article 7), Redwood Empire shall have furnished Westamerica a copy of its most recently prepared unaudited year-to-date consolidated financial statements, including a balance sheet and year-to-date statement of income, each prepared in accordance with GAAP and the requirements of this Agreement; provided, that such financial statements shall not be required to include the footnotes that would be required for such financial statements to comply fully with GAAP. At least seven Business Days prior to the Effective Date, all attorneys, accountants, investment bankers and other advisors and agents for Redwood Empire shall have submitted to Redwood Empire (with a copy to Westamerica) estimates of their fees and expenses for all services rendered or to be rendered in any respect in connection with the transactions contemplated hereby to the extent not already paid, and based on such estimates, Redwood Empire shall have prepared and submitted to Westamerica a summary of such fees and expenses for the transaction which shall be reflected in the foregoing financial statement. At the Effective Time, (i) such advisors shall have submitted their final bills for such fees and expenses to Redwood Empire for services rendered, with a copy to be delivered to Westamerica, and based on such summary, Redwood Empire shall have prepared and submitted to Westamerica a final calculation of such fees and expenses, (ii) Redwood Empire shall have accrued and paid the amount of such fees and expenses as calculated above after Westamerica has been given an opportunity to review all such bills and calculation of such fees and expenses, and (iii) such advisors shall have released Westamerica from liability for any fees and expenses.

	(n) Affiliates’ Letter. No later than 30 calendar days after the date of execution of this Agreement (and at the date of mailing of the Proxy Statement to the shareholders of Redwood Empire for persons not previously deemed an affiliate for this purpose), Westamerica shall have received from each person who, in the opinion of Westamerica’s counsel, might be deemed to be an affiliate of Redwood Empire or


	Westamerica under Rule 144 or 145, a signed undertaking substantially in the form attached hereto as Exhibit C.

	(o) Shareholders’ Equity. The Shareholders’ Equity of Redwood Empire as of the SAS 100 Date or, if applicable, the earlier date specified in clause (ii) of the final paragraph of Article 7 shall be not less than the sum of: (i) $23,531,400 (after deduction of actual and estimated Merger-related expenses, net of the related tax benefit, including Merger-related expenses that are assumed by Westamerica and not actually paid by Redwood Empire, all as disclosed in Section 7(o) of the Redwood Empire Disclosure Schedule) and (ii) $515,000 for each complete calendar month (prorated for a final partial month) from May 31, 2004, through the Effective Date, but reduced in any month by the amount of cash dividends permitted by this Agreement (“Minimum Shareholders’ Equity”). “Shareholders’ Equity” for purposes of this Section 7(o) means shareholders’ equity determined in accordance with GAAP and as required by this Agreement, but excluding any revaluation at any time of securities available for sale and reduced by an amount equal to all of Redwood Empire’s actual and anticipated Merger-related expenses to the extent not previously paid or accrued as contemplated by subsection (m) above and any cash shortfall identified by the cash reconciliation described in Section 3.2(v), in each case after adjustment for any related tax benefit. In addition, it is agreed that amounts payable to employees of Redwood Empire or its subsidiaries who are terminated at or after the Effective Time, under the Redwood Empire Change of Control Compensation Policy, shall be disregarded in determining “Shareholders’ Equity” for purposes of this Section 7(o).

	(p) Loans and Noninterest-Bearing Deposits. As of the SAS 100 Date and as of the Effective Time or, if applicable, the earlier date specified in clause (ii) of the final paragraph of Article 7, the outstanding principal balance of all of Redwood Empire’s Performing Loans shall equal or exceed $400,000,000. For the 30-day period ending on the SAS 100 Date and the 30-day period ending three days before the Effective Date or, if applicable, the earlier date specified in clause (ii) of the final paragraph of Article 7, the average total balance of all noninterest-bearing deposit accounts maintained with Redwood Empire shall equal or exceed $100,000,000.

	(q) Consents. Redwood Empire shall have received, or Westamerica shall have satisfied itself that Redwood Empire will receive, all consents of other parties to the transactions contemplated by this Agreement that are required by material mortgages, notes, leases, franchises, agreements, licenses and permits applicable to Redwood Empire or any of its subsidiaries, in each case in form and substance reasonably satisfactory to Westamerica, and no such consent or license or permit shall have been withdrawn or suspended; provided, however, that Redwood Empire shall not be required to obtain any such consents where the failure to obtain such consents would not or would not reasonably be expected to have a material adverse effect on Redwood Empire or Westamerica or that would not or would not reasonably be expected to prevent Westamerica from realizing any substantial portion of the economic benefits of the transactions contemplated by this Agreement.

	(r) Support Undertakings. Westamerica shall have received the undertakings in the form of Exhibits B and B-1 required from each Redwood Empire director and each of the specified shareholders of Redwood Empire as required by Section 3.2(a).

	(s) Regulatory Examination. Prior to the Effective Date, Redwood Empire shall be in material compliance with all requirements arising from its most recent safety and soundness examination.

	(t) Noncompetition/Nonsolicitation Agreements. Within 30 calendar days of the execution of this Agreement, Westamerica shall have received an executed Confidentiality and Nonsolicitation Agreement substantially in the form of Exhibit D or a Noncompetition Agreement in substantially the form of Exhibit D-1 from each director of Redwood Empire.

	Notwithstanding the foregoing, if


	(i) Westamerica elects to defer the Effective Time until the first Business Day of February 2005 or later pursuant to Section 9(a) of this Agreement, and


	(ii) the requirements of Sections 7(o) and (p) have been satisfied as of a date that is at least five (5) days after the later of (A) receipt of the last Government Approval, and (B) expiration of the last waiting period related to any Government Approval, and

	(iii) as of the date described in clause (ii) above, Westamerica has received either a Confidentiality and Nonsolicitation Agreement or a Noncompetition Agreement from each director of Redwood Empire; the conditions in Sections 7(c) (absence of material adverse change or litigation), 7(d) (receipt of shareholder approval), 7(k) (accountant’s assurance, but as of the date described in clause (ii) above rather than two Business Days before the Closing Date as specified in Section 3.2(f)(v)) and 7(q) (third party consents) are also satisfied as of such date; and neither Redwood Empire nor NBR is in material default of any of its obligations under this Agreement or any related agreements as of such date,

~~then the requirements of Sections 7(o) and (p) shall ~~contain information as~~be deemed satisfied thereafter.~~

The obligations of Redwood Empire and NBR under this Agreement are, at their option, subject to the ~~day~~fulfillment at or prior to the ~~Closing Date~~Effective Time of each of the following conditions provided, however, that any one or asmore of such ~~earlier date as is practicable under~~conditions, other than those set forth in subsection (e), (g), (h) or (i) below, may be waived by the ~~circumstances. In~~Board of Directors of Redwood Empire at any time at or prior to the ~~event~~Effective Time:


	(a) Representations and Warranties. The representations and warranties of Westamerica and WAB in Section 5 hereof shall be true and correct in all material respects on the date hereof and as of the Effective Date with the same effect as though such representations and warranties had been made on and as of such date except as to any representation or warranty which specifically related to an earlier date.

	(b) Compliance and Performance Under Agreement. Westamerica and WAB shall have performed and complied in all material respects with all of the terms of this Agreement required to be performed or complied with by them at or prior to the Effective Time.

	(c) Material Adverse Change; Litigation. No material adverse change shall have occurred since December 31, 2003, with respect to Westamerica, and Westamerica shall not be engaged in, or a party to or so far as Westamerica is aware, threatened with, and to Westamerica’s knowledge no grounds shall exist for, any legal action or other proceeding before any court, any arbitrator of any kind or any government agency that, in the reasonable judgment of Redwood Empire, such legal action or proceeding is reasonably likely to result in a material adverse effect on Westamerica.

	(d) Officer’s Certificate. Redwood Empire shall have received a certificate, dated the Effective Date, signed on behalf of Westamerica by its Chief Financial Officer, certifying to the fulfillment of the conditions stated in Sections 8(a)-(c) hereof.

	(e) Approval of Agreement. This Agreement and the Merger shall have been duly approved by the affirmative vote of a majority of the outstanding shares of Redwood Empire common stock at a meeting of shareholders duly called and held.

	(f) Opinion of Counsel. Westamerica shall have delivered to Redwood Empire an opinion of its counsel in substantially the form attached hereto as Exhibit F.

	(g) Effectiveness of Registration Statement. The Westamerica Registration Statement and any amendments or supplements thereto shall have become effective under the 1933 Act. No stop order suspending the effectiveness of the Westamerica Registration Statement shall be in effect and no proceedings for such purpose shall have been initiated or threatened by or before the Commission.

	(h) Government Approvals. The Government Approvals shall have been received and shall be in effect, and all conditions or requirements prescribed by law or by any such approval shall have been satisfied.


	(i) Tax Opinion. Redwood Empire shall have received an opinion of its counsel, subject to assumptions and exceptions normally included, in form and substance reasonably satisfactory to Redwood Empire, substantially to the effect that under federal income tax law and California income and franchise tax law:


	(i) The Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the IRC;

	(ii) Westamerica and Redwood Empire will each be a party to such reorganization within the meaning of Section 368(b) of the IRC;

	(iii) The Merger will not result in any recognized gain or loss to Westamerica or Redwood Empire;

	(iv) Except for the Cash Portion of the Merger Consideration and any cash received in lieu of any fractional share, no gain or loss will be recognized by holders of Redwood Empire Shares who receive Westamerica Shares in exchange for the Redwood Empire Shares which they hold;

	(v) The holding period of Westamerica Shares exchanged for Redwood Empire Shares will include the holding period of the Redwood Empire Shares for which the Westamerica Shares are exchanged, assuming the Redwood Empire Shares are capital assets in the hands of the holder thereof at the Effective Date; and

	(vi) The basis of the Westamerica Shares received in the exchange will be the same as the basis of the Redwood Empire Shares for which the Westamerica Shares are exchanged, decreased by the amount of any cash received and increased by the amount of any gain recognized on the exchange.


	The issuance of such opinion shall be conditioned on the receipt of tax representation letters from Westamerica and Redwood Empire, which letters shall be in such form and substance as may reasonably be required by the recipient’s counsel. Each such tax representation letter shall be dated on or before the date of such opinion and shall not have been withdrawn or modified in any material respect as of the date of such opinion.

	(j) Absence of Legal Impediment. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect. There shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger, by any governmental authority of competent jurisdiction which makes the consummation of the Merger illegal.

	(k) Fairness Opinion. As of the date of this Agreement, Redwood Empire shall have received a fairness opinion commissioned by Redwood Empire’s Board of Directors which shall provide that the terms of the Merger, from a financial standpoint, are fair to the shareholders of Redwood Empire.

(a) Closing Schedules disclose an event, occurrence or circumstance that has had or could reasonably be expected to have a Material Adverse Effect on FCOB, on the one hand, or on WEST, on the other hand, or on consummationDate. The closing of the transactions contemplated by this Agreement ~~that was not disclosed in the previously delivered Schedules hereto, the party delivering such Closing Schedules~~ (the ~~"Affected Party"~~“Closing”) shall so notify the other party in the letter of transmittal for such Closing Schedules, the Closing Date shall be delayed for seven (7) Business Days and such other party shall be entitled to terminate this Agreement withinoccur on an agreed date no later than five ~~(5)~~ Business Days after ~~receiving~~satisfaction or waiver (subject to applicable law) of all the conditions (other than conditions that, by their terms, cannot be satisfied until the Closing) set forth in Articles 7 and 8; provided that a Closing that would otherwise occur in December 2004 or January 2005 shall be deferred, if Westamerica so elects by written notice to Redwood Empire given at least four Business Days before the date on which the Closing would otherwise occur, until the first Business Day of February 2005. The Closing shall, unless another date, time or place is agreed to in writing by Westamerica and Redwood Empire, be held at the offices of Bingham McCutchen LLP, Three Embarcadero Center, San Francisco, California, on the Effective Date.

(b) Delivery of Documents. At the Closing, the opinions, certificates and other documents required to be delivered by this Agreement shall be delivered.

(c) Filings. At the Closing, Westamerica and Redwood Empire shall instruct their respective representatives to make or confirm such ~~Closing Schedules that disclose such event, occurrence or circumstance. In~~filings as shall be required in the ~~event~~opinion of ~~any such termination, the terminating party shall have no liability for such termination. The Affected Party shall have no liability~~counsel to Westamerica and Redwood Empire to give effect to the terminating party in such an event unless (i) as a result of the existence of such event, occurrence or circumstance so disclosed in the Closing Schedules any of the representations or warranties of the Affected Party contained in this Agreement are found to have been untrue in any material respect as of the date of this Agreement, or (ii) the event, occurrence or circumstance could have been prevented in the exercise of reasonable diligence by any officers or directors of the Affected Party, in either of which cases the Affected Party shall be liable to the terminating party for Liquidated DamagesMerger.

Except as provided in Section ~~8.5 hereof. SECTION 5.8 Additional Accruals/Appraisals. Immediately prior~~11, each party hereto agrees to the Closing Date, at WEST's request, FCOB shall, consistent with GAAP and applicable banking regulations, establish such additional accruals and reserves as may be necessary to conform FCOB's accounting and credit and OREO loss reserve practices and methods to thosepay, without right of WEST, provided, however, that no accrual or reserve made by FCOB pursuant to this Section 5.8, or any litigation or regulatory proceeding arising out of any such accrual or reserve, or any other effect on FCOB resultingreimbursement from FCOB's compliance with this Section 5.8, shall constitute or be deemed to be a breach, violation of or failure to satisfy any representation, warranty, covenant, condition or other provision of this Agreement or otherwise be considered in determining whether any such breach, violation or failure to satisfy shall have occurred. SECTION 5.9 Employee Plans. Immediately prior to the Closing Date, at WEST's request, FCOB shall terminate any Employment Plan or Benefit arrangement, provided, however, that no accrual or reserve made by FCOB as a result of a termination requested by WEST pursuant to this Section 5.9, or any litigation or regulatory proceeding arising out of any such accrual or reserve, or any other effect on FCOB resulting from FCOB's compliance with this Section 5.9, shall constitute or be deemed to be a breach, violation of or failure to satisfy any representation, warranty, covenant, A-25 137 condition or other provision of this Agreement or otherwise be considered in determining whether any such breach, violation or failure to satisfy shall have occurred. ARTICLE 6. CONDUCT OF BUSINESS SECTION 6.1 Affirmative Conduct of FCOB. During the period from the date of execution of this Agreement through the Effective Time, FCOB shall carry on its business, and shall cause each of its respective Subsidiaries to carry on its business, in the ordinary course in substantially the manner in which heretofore conducted, subject to changes in law applicable to all state-chartered banks or all nonmember banks insured by the FDIC and directives from regulators, and use all commercially reasonable efforts to preserve intact its business organization, keep available the services of its officers and employees, (other than terminations in the ordinary course of business) and preserve its relationships with customers, depositors, suppliers and others having business dealings with it; and, to these ends, shall fulfill each of the following: 6.1.1 Use its commercially reasonable efforts, or cooperate with others, to expeditiously bring about the satisfaction of the conditions specified in Article 7 hereof; 6.1.2 Advise WEST promptly in writing of any change that would have a Material Adverse Effect on it, or of any matter which would make the representations and warranties set forth in Article 3 hereof not true and correct in any material respect as of the effective date of the Registration Statement and at the Effective Time; 6.1.3 Keep in full force and effect all of its existing material permits and licenses and those of its Subsidiaries; 6.1.4 Use its commercially reasonable efforts to maintain insurance or bonding coverage on all material properties for which it is responsible and on its business operations, and carry not less than the same coverage for fidelity, public liability, personal injury, property damage and other risks equal to that which is in effect as of the date of this Agreement; and notify WEST in writing promptly of any facts or circumstances which could affect its ability, or that of any of its Subsidiaries, to maintain such insurance or bonding coverage; 6.1.5 Perform its contractual obligations and not breach or come into default on any of such obligations, and not amend, modify, or, except as they may be terminated in accordance with their terms, terminate any material contract, agreement, understanding, commitment, or offer, whether written or oral, (collectively referred to as an "Understanding") or materially default in the performance of any of its obligations under any Understanding where such default would have a Material Adverse Effect on FCOB; 6.1.6 Duly observe and conform to all legal requirements applicable to its business, except for any failure to so observe and conform that would not, individually or in the aggregate, and, in the future will not, have a Material Adverse Effect on FCOB; 6.1.7 Duly and timely file as and when due all reports and Returns required to be filed with any Governmental Entity; 6.1.8 Maintain its tangible assets and properties in good condition and repair, normal wear and tear excepted in accordance with prior practices; 6.1.9 Promptly advise WEST in writing of any event or any other transaction within the Knowledge of FCOB, whereby any Person or related group of Persons acquires, or proposes to acquire, after the date of this Agreement, directly or indirectly, record or beneficial ownership (as defined in Rule 13d-3 promulgated by the SEC pursuant to the Exchange Act) or control of 5% or A-26 138 more of the outstanding shares of FCOB Common Stock either prior to or after the record date fixed for the FCOB shareholders' meeting or any adjourned meeting thereof to approve the transactions contemplated herein; 6.1.10 (a) Maintain a reserve for loan and lease losses ("Loan Loss Reserve") at a level which is adequate to provide for all known and reasonably expected losses on loans, leases and other extensions of credit outstanding and other inherent risks in FCOB's portfolio of loans and leases, in accordance with GAAP and applicable regulatory accounting principles and banking laws and regulations; (b) Charge off all loans, receivables and other assets, or portions thereof, deemed uncollectible in accordance with GAAP, regulatory accounting principles, and applicable law or regulation, or which have been classified as "loss" or as directed by any regulatory authority, unless such classification or direction has been disregarded in good faith by FCOB, FCOB has submitted in writing to such regulatory authority the basis upon which it has so disregarded such classification or direction, and such regulatory authority retracts its direction requiring such charge-off; 6.1.11 Furnish to WEST, as soon as practicable, and in any event within fifteen (15) days after it is prepared: (i) a copy of any report submitted to the Board of Directors of FCOB and access to the working papers related thereto, provided, however, that FCOB need not furnish WEST any materials relating to deliberations of FCOB's Board of Directors with respect to its approval of this Agreement, communications of FCOB's legal counsel with the Board of Directors or officers of FCOB regarding FCOB's rights against or obligations to WEST or its Subsidiaries under this Agreement, or books, records and documents covered by the attorney-client privilege or which are attorneys' work product; (ii) copies of all material reports, renewals, filings, certificates, statements, correspondence and other documents specific to FCOB or filed with or received from any CDFI, FDIC or any Governmental Entity; (iii) monthly unaudited balance sheets, statements of income and changes in shareholders' equity for FCOB and quarterly unaudited balance sheets, statements of income and changes in shareholders' equity for FCOB, in each case prepared on a basis consistent with past practice; and (iv) such other reports as WEST may reasonably request (which are otherwise deliverable under this Section 6.1.11) relating to FCOB. Each of the financial statements of FCOB delivered pursuant to this Section 6.1.11 shall be accompanied by a certificate of the Chief Financial Officer of FCOB to the effect that such financial statements fairly present the financial information presented therein of FCOB for the periods covered and as of the dates indicated, subject to recurring adjustments normal in nature and amount, necessary for a fair presentation and are prepared on a basis consistent with past practice; 6.1.12 FCOB agrees that through the Effective Time, as of their respect dates, (i) each FCOB Filing will be true and complete in all material respects; and (ii) each FCOB Filing will comply in all material respects with all of the statutes, rules and regulations enforced or promulgated by the Governmental Entity with which it will be filed and none will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they will be made, not misleading. Any financial statement contained in any of such FCOB Filings that is intended to present the financial position of FCOB during the periods involved to which it relates will fairly present in all material respects the financial position of FCOB and will be prepared in accordance with GAAP or consistent with applicable regulatory accounting principles and banking law and banking regulations, except as stated therein; 6.1.13 Maintain reserves for contingent liabilities in accordance with GAAP or applicable regulatory accounting principles and consistent with past practices; A-27 139 6.1.14 Inform WEST of the amounts and categories of any loans, leases or other extensions of credit, or other assets, that have been classified by any bank regulatory authority as "Specially Mentioned," "Renegotiated," "Substandard," "Doubtful," "Loss" or any comparable classification ("Classified Assets"). FCOB will furnish to WEST, as soon as practicable, and in any event within fifteen (15) days after the end of each calendar month, schedules including the following: (i) Classified Assets by type (including each credit or other asset in an amount equal to or greater than $10,000), and its classification category; (ii) nonaccrual credits by type (including each credit in an amount equal to or greater than $10,000); (iii) renegotiated loans by type (loans on which interest has been renegotiated to lower than market rates because of the financial condition of the borrowers); (iv) delinquent credits by type (including each delinquent credit in an amount equal to or greater than $10,000), including an aging into 30 - 89 and 90+ day categories; (v) loans or leases or other assets charged off, in whole or in part, during the previous month by type (including each such loan or lease or other asset in an amount equal to or greater than $10,000); and (vi) OREO or assets owned stating with respect to each its type; 6.1.15 Furnish to WEST, upon WEST's request, schedules with respect to the following: (i) participating loans and leases, stating, with respect to each, whether it is purchased or sold and the loan or lease type; (ii) loans or leases (including any commitments) by FCOB to any director or officer (at or above the Vice President level) of FCOB or to any Person holding 5% or more of the capital stock of FCOB, including, with respect to each such loan or lease, the identity and, to the best Knowledge of FCOB, the relation of the borrower to FCOB, the loan or lease type and the outstanding and undrawn amounts; and (iii) standby letters of credit, by type, (including each letter of credit in a face amount equal to or greater than $10,000); and 6.1.16 Make available to WEST copies of each credit authorization package, consisting of all applications for and financial information regarding loans, renewals of loans or other extensions of credit of $50,000 or more (on a noncumulative basis) for secured loans or secured extensions of credit, $50,000 in the case of unsecured loans or unsecured extensions of credit, and renewals of any classified or criticized loans which are considered by FCOB after the date of this Agreement, concurrently with submission to FCOB's loan committee. SECTION 6.2 Negative Covenants of FCOB. During the period from the date of execution of this Agreement through the Effective Time, FCOB agrees that without WEST's prior written consent, it shall not and its Subsidiaries shall not: 6.2.1 (a) Declare or pay any dividend or make any other distribution in respect of any of its capital stock; (b) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock; or (c) repurchase or otherwise acquire any shares of its capital stock; 6.2.2 Take any action that would or might result in any of the representations and warranties of FCOB set forth in the Agreement becoming untrue in any material respect or any of the conditions to the Merger set forth in Article 7 not being satisfied, except to the extent such actions are required to be undertaken by applicable law, regulation or at the direction of any Regulatory Authority; 6.2.3 Issue, deliver, sell, or grant, or authorize the issuance, delivery, sale or grant of, or purchase, any shares of the capital stock of FCOB or any securities convertible or exercisable into or exchangeable for such capital stock, or any rights, warrants or options, including options under any stock option plans or enter into any agreements to do any of the foregoing, except in connection with the issuance of FCOB Common Stock pursuant to the exercise of FCOB Stock Options; 6.2.4 Amend its Articles of Incorporation or Bylaws, except as required by applicable law or by the terms of this Agreement; A-28 140 6.2.5 Authorize or knowingly permit any of its representatives, directly or indirectly, to solicit or encourage any Acquisition Proposal (as hereinafter defined) or participate in any discussions or negotiations with, or provide any nonpublic information to, any Person or group of persons (other than WEST, and its representatives) concerning any such solicited Acquisition Proposal. FCOB shall notify WEST immediately if any inquiry regarding an Acquisition Proposal is received by FCOB, including the terms thereof. For purposes of this Section 6.2.5, "Acquisition Proposal" shall mean any (a) proposal pursuant to which any Person other than WEST would acquire or participate in a merger or other business combination or reorganization involving FCOB; (b) proposal by which any Person or group, other than WEST, would acquire the right to vote ten percent (10%) or more of the capital stock of FCOB entitled to vote for the election of directors; (c) acquisition of the assets of FCOB other than in the ordinary course of business; or (d) acquisition in excess of ten percent (10%) of the outstanding capital stock of FCOB, other than as contemplated by this Agreement. Notwithstanding the foregoing, nothing contained in this Agreement shall prevent FCOB or FCOB's Board of Directors from (i) furnishing nonpublic information to, or entering into discussions or negotiations with, any person or entity in connection with an unsolicited bona fide written Acquisition Proposal by such person or entity, or recommending an unsolicited bona fide written Acquisition Proposal to the shareholders of FCOB, if and only to the extent that (A) the Board of Directors of FCOB has determined and believes in good faith (after consultation with and the concurrence of its financial advisor) that such Acquisition Proposal would, if consummated, result in a transaction materially more favorable, from a financial point of view, to FCOB's shareholders than the transaction contemplated by this Agreement (any such more favorable Acquisition Proposal being referred to in this Agreement as a "FCOB Superior Proposal") and FCOB's Board of Directors has determined in good faith, after consultation with and based on written advice from its outside legal counsel, that such action is necessary for FCOB to comply with its fiduciary duties to shareholders under applicable law, and (B) prior to furnishing such nonpublic information to, or entering into discussions or negotiations with, such person or entity, FCOB's Board of Directors has received from such person or entity an executed confidentiality agreement, with terms no more favorable to such party than those contained in the Confidentiality Agreement between FCOB and WEST, or (ii) complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal, if such Rule is applicable thereto; 6.2.6 Acquire or agree to acquire by merging, consolidating with, or by purchasing all or a substantial portion of the assets of, or in any other manner, any business or any Person or otherwise acquire or agree to acquire any assets which are material to FCOB, other than in the ordinary course of business consistent with prior practice; 6.2.7 Sell, lease or otherwise dispose of any of its assets which are material, individually or in the aggregate, to FCOB, except in the ordinary course of business consistent with prior practice and after Notice to and consultation with WEST. WEST shall respond to FCOB within five (5) business days of Notice by FCOB which contains all appropriate documents; 6.2.8 Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities of FCOB or guarantee any debt securities of others other than in the ordinary course of business consistent with prior practice; 6.2.9 Enter into any Understanding, except: (a) deposits incurred, and short-term debt securities (obligations maturing within one year) issued, in its ordinary course of business consistent with prior practice, and liabilities arising out of, incurred in connection with, or related to the consummation of this Agreement; (b) commitments to make loans or other extensions of credit in the ordinary course of business consistent with prior practice; and (c) loan sales in the ordinary course of business, without any recourse, provided that no commitment to sell loans shall extend beyond the Effective Time; A-29 141 6.2.10 Make or enter into a commitment to make any loan or other extension of credit in a secured amount in excess of $50,000, and an unsecured amount in excess of $50,000 and a renewal of any criticized or classified loan; provided further for purposes of this Section 6.2.10, if WEST has not provided written objection to FCOB within five (5) days of Notice by FCOB, WEST shall have consented to such commitment, loan or extension of credit. Notice by FCOB for this Section 6.2.10 shall mean WEST's receipt of all written material presented to FCOB's loan committee or other persons authorized to approve such loans. Any objection of WEST for any loan or extension of credit under this Section 6.2.10 shall be in writing and shall include a full description of the rationale for objection. Further provided that WEST shall not object to any commitment, loan or extension of credit that is made by FCOB in the ordinary course of business and consistent with safe and sound underwriting practices. In case of any disagreement with respect to approval of a loan or extension of credit made under this Section 6.2.10, the disagreement shall be referred to FCOB's third party loan review consultant, whose decision shall bind the parties; 6.2.11 Except in the ordinary course of business consistent with prior practice or as required by an existing contract, and provided prior disclosure thereof has been made in Schedule 6.2.11, grant any general or uniform increase in the rates of pay of employees or employee benefits or any increase in salary or employee benefits of any officer, employee or agent or pay any bonus to any Person; 6.2.12 Sell, transfer, mortgage, encumber or otherwise dispose of any assets or other liabilities except in the ordinary course of business consistent with prior practice or as required by any existing contract; 6.2.13 Make the credit underwriting policies, standards or practices relating to the making of loans and other extensions of credit, or commitments to make loans and other extensions of credit, or the Loan Loss Reserve policies, less stringent than those in effect on December 31, 1999 or reduce the amount of the Loan Loss Reserves or any other reserves for potential losses or contingencies; 6.2.14 Make any capital expenditures, or commitments with respect thereto, except those in the ordinary course of business which do not exceed $20,000 individually or $100,000 in the aggregate; 6.2.15 Renew, extend or amend any existing employment contract or agreement, enter into any new employment contract or agreement or make any bonus or any special or extraordinary payments to any Person; 6.2.16 Acquire any investment security, other than U.S. Treasury Securities with a term to maturity of less than one year; 6.2.17 Except as otherwise required to correct a prior filing, compromise or otherwise settle or adjust any assertion or claim of a deficiency in Taxes (or interest thereon or penalties in connection therewith) or file any appeal from an asserted deficiency except in a form previously approved by WEST, which approval will not be unreasonably withheld, in writing, or file or amend any federal, foreign, state or local Tax Return or report or make any tax election or change any method or period of accounting unless required by GAAP or applicable law and, then, only after submitting such Tax return or report or proposed Tax election or change in any method or period of accounting, to WEST for its approval, which it shall not unreasonably withhold or delay; 6.2.18 Except as contemplated in this Agreement, terminate any Employee Plan or Benefit Arrangement; 6.2.19 Change its fiscal year or methods of accounting in effect at December 31, 1999, except as required by changes in GAAP or regulatory accounting principles as concurred to by FCOB's independent public accountants or by Section 5.8 of this Agreement; A-30 142 6.2.20 Take or cause to be taken any action which would disqualify the Merger as a "reorganization" within the meaning of Section 368(a) of the IRC as a tax-free reorganization; 6.2.21 Take or cause to be taken into OREO any commercial property without an environmental report reporting no adverse environmental condition on such property, with a copy of such report delivered to WEST prior to taking such property into OREO; 6.2.22 Make any new elections with respect to Taxes or any changes in current elections with respect to Taxes affecting the assets owned by FCOB. WEST shall be deemed to have consented in writing to any election FCOB shall desire to make if: (i) the electing Person shall have notified the Chief Executive Officer of WEST in writing of its desire to make such election, including in such notice a reasonably complete summary of the election it desires to make and the reasons it desires to make such election at least 20 Business Days prior to the due date (including extensions thereof) for filing such election; and (ii) WEST shall not have responded in writing to such notice by the fifth Business Day prior to the due date (including extensions thereof) for filing such election; 6.2.23 Incur any merger-related expenses (including attorneys', accountants' and advisors' fees, meeting costs, printing and mailing costs, and retention payments to employees not made under existing contract provisions), but not including contractual change-of-control payments to employees under existing agreements, in excess of $200,000 in the aggregate; provided, if FCOB determines in good faith that compliance with other terms of this Agreement requires it to make additional noncontractual retention payments to employees, FCOB may, after reasonable notice to and consultation with WEST, make such additional payments not to exceed $17,500 in the aggregate; or 6.2.24 Materially change its pricing practices on loans or deposit products. SECTION 6.3 Affirmative Conduct of WEST. During the period from the date of execution of this Agreement through the Effective Time, WEST shall carry on its business in a reasonable manner consistent with applicable laws and use all commercially reasonable efforts to preserve intact its business organization and preserve its relationships with customers; and, to these ends, shall fulfill each of the following: 6.3.1 Use its commercially reasonable efforts, or cooperate with others, to expeditiously bring about the satisfaction of the conditions specified in Article 7 hereof; 6.3.2 Advise FCOB promptly in writing of any change that would have a Material Adverse Effect on it or of any matter which would make the representations and warranties set forth in Article 4 hereof not true and correct in any material respect as of the effective date of the Registration Statement and at the Effective Time; 6.3.3 Duly observe and conform to all legal requirements applicable to its business, except for any failure to so observe and conform that would not, individually or in the aggregate, and, in the future will not, have a Material Adverse Effect on FCOB; 6.3.4 Duly and timely file as and when due all material regulatory reports and Returns required to be filed with any Governmental Entity; and 6.3.5 File all necessary applications with the Federal Reserve and CDFI for the transaction as soon as possible, but no later than May 15, 2000 and furnish to FCOB, as soon as practicable, and in any event within fifteen days after it has prepared all applications to be submitted to the Federal Reserve and CDFI for approval of the Merger. SECTION 6.4 Negative Covenants of WEST. During the period from the date of execution of this Agreement through the Effective Time, WEST agrees that without FCOB's prior written consent, it shall not and its Subsidiaries shall not: 6.4.1 Declare or pay any extraordinary dividend; A-31 143 6.4.2 Take any action that would or might result in any of the representations and warranties of WEST set forth in the Agreement becoming untrue in any material respect or any of the conditions to the Merger set forth in Article 7 not being satisfied or otherwise materially delay or impair completion of the Merger, except to the extent such actions are required to be undertaken by applicable law, regulation or at the direction of any Regulatory Authority; or 6.4.3 Take or cause to be taken any action which would disqualify the Merger as a "reorganization" within the meaning of Section 368(a) of the IRC as a tax-free reorganization. ARTICLE 7. CONDITIONS PRECEDENT TO CLOSING SECTION 7.1 Conditions to the Parties' Obligations. The obligations of all the parties to this Agreement to effect the Merger shall be subject to the fulfillment of the following conditions: 7.1.1 This Agreement, the Merger Agreement and the Merger shall have been validly approved by the holders of a majority of the outstanding shares of FCOB Common Stock entitled to vote; 7.1.2 All permits, approvals and consents required to be obtained, and all waiting periods required to expire, prior to the consummation of the Merger under applicable federal laws of the United States or applicable laws of any state having jurisdiction over the transactions contemplated by this Agreement and the Merger Agreement shall have been obtained or expired, as the case may be (all such permits, approvals and consents and the lapse of all such waiting periods being referred to as the "Requisite Regulatory Approvals"), without the imposition of any condition which in the reasonable judgment of any party to be affected by such condition is materially burdensome upon such party or its respective Affiliates or the Surviving Corporation; 7.1.3 There shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger, by any Government Entity which: (i) makes the consummation of the Merger illegal; (ii) requires the divestiture by WEST of any material asset or of a material portion of the business of WEST; or (iii) imposes any condition upon WEST or its Subsidiaries (other than general provisions of law applicable to all banks and bank holding companies) which in the judgment of WEST would be materially burdensome; 7.1.4 The Registration Statement shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued and shall remain in effect. No legal, administrative, arbitration, investigatory or other proceeding by any Governmental Entity or any other Person shall have been instituted and, at what otherwise would have been the Effective Time, remain pending by or before any Governmental Entity to restrain or prohibit the transactions contemplated hereby; 7.1.5 WEST and FCOB shall have received an opinion from KPMG, LLP, dated the Effective Time, subject to assumptions and exceptions normally included, and in form and substance reasonably satisfactory to WEST and FCOB, to the effect that the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the IRC and that WEST and FCOB will each be a party to that reorganization within the meaning of Section 368(b) of the IRC; 7.1.6 WEST and FCOB shall have received opinions of counsel for the other party ~~in substantially the forms previously agreed to by the parties as set forth in Exhibits 7.1.6A~~ and ~~7.1.6B, respectively, dated as of the Closing Date; A-32~~ ~~144 7.1.7 No action, suit~~whether or ~~proceeding shall have been instituted or threatened before any court or governmental body seeking to challenge or restrain~~not the transactions contemplated by this Agreement or the Merger Agreement ~~which presents a substantial risk that~~shall be consummated, the costs incurred by such ~~transactions will be restrained or that either~~ party ~~hereto may suffer material damages or other relief as a result~~incident to the performance of ~~consummating such transactions;~~its obligations under this Agreement and ~~SECTION 7.2 Conditions to WEST's Obligations. The obligations of WEST to effect~~ the Merger ~~shall be subject~~Agreement, including without limitation, costs incident to the ~~fulfillment (or waiver, in writing, by WEST)~~preparation of each of the following conditions: 7.2.1 Except as otherwise provided in this Section 7.2, (a) the representations and warranties of FCOB contained in Article 3 shall be true in all material respects as of the Effective Time as though made at the Effective Time, except to the extent they expressly refer to an earlier time and except where the failure to be true, individually or in the aggregate, would not have or would not be reasonably likely to have, a Material Adverse Effect on the Surviving Corporation or upon the consummation of the transactions contemplated hereby; (b) FCOB shall have duly performed and complied in all material respects with all agreements and covenants required by this Agreement, ~~to be performed or complied with by it prior to or at~~ the ~~Effective Time, except where~~Westamerica Registration Statement, Prospectus and the ~~failure to so perform and comply, individually or in~~Proxy Statement (including the aggregate, would not have or would not be reasonably likely to have a Material Adverse Effect on FCOB, or upon the consummation of the transactions contemplated hereby; (c) none of the events or conditions entitling WEST to terminate this Agreement under Article 8 shall have occurred and be continuing; and (d) FCOB shall have delivered to WEST certificates dated the date of the Effective Time and signed by the President and Chief Executive Officer to the effect set forth in Subsections 7.2.1(a), (b) and (c); 7.2.2 There shall have been obtained, without the imposition of any material burden or restriction on anyaudited financial statements of the parties ~~hereto not in existence on the date hereof, each consent~~contained or incorporated by reference therein) and incident to the consummation of the Merger and of the other transactions contemplated herein and in the Merger Agreement, including the fees and disbursements of counsel, accountants, consultants and financial advisers employed by such party in connection therewith. Notwithstanding the foregoing, Westamerica shall be solely responsible for all fees payable pursuant to state “blue-sky” securities laws and the fee required to be ~~obtained from any Person under any agreement, contract or license~~paid to ~~which FCOB is a party or by or under which it is bound or licensed,~~ the ~~withholding~~Commission to register the Westamerica Shares. Redwood Empire shall bear its own costs of ~~which might have a Material Adverse Effect on FCOB,~~distributing the ~~Surviving Corporation or WEST at or following the Effective Time, or on the~~Proxy Statement and other information relating to these transactions ~~contemplated by this Agreement; 7.2.3 FCOB shall have delivered~~to its Closing Schedules to WEST on the day immediately preceding the Closing Date and none of such Closing Schedules shall reflect any item that was not on the FCOB Schedules (or in the FCOB Financial Statements) delivered on the date of execution of this Agreement that has had, would have, or could be reasonably likely to have, a Material Adverse Effect on FCOB, the Surviving Corporation or WEST at or after the Effective Time, or on the consummation of the transactions contemplated hereby; 7.2.4 Between the date of thisshareholders.

(a) Amendment. This Agreement and the Effective Time, no event or circumstance shall have occurred which has had or could reasonably be expected to have a Material Adverse Effect on FCOB, and WEST shall have received a certificate signed on behalf of FCOB by the President and Chief Executive Officer of FCOB to such effect; 7.2.5 Counsel for WEST shall have approved, in the exercise of counsel's reasonable discretion, the validity of all transactions herein contemplated, as well as the form and substance of all opinions, certificates, instruments of transfer and other documents to be delivered to WEST hereunder or that are reasonably requested by such counsel; 7.2.6 The sale of the WEST Common Stock resulting from the Merger shall have been qualified or registered with the appropriate State securities law or "blue sky" regulatory authorities of all States in which qualification or registration is required under the State securities laws, and such qualifications or registration shall not have been suspended or revoked; A-33 145 7.2.7 FCOB shall have delivered to WEST not later than the date of this Agreement all of the executed Affiliate Agreements in the form attached hereto as Exhibit 5.3. 7.2.8 FCOB shall not be subject to any memorandum of understanding, cease and desist order, or other agreement with any Governmental Entity restricting the conduct of any of its respective businesses, prospects and operations, so as to have a Material Adverse Effect; 7.2.9 All of FCOB's director-shareholders shall have delivered to WEST on the date of this Agreement the Director-Shareholder Agreements in the form attached hereto as Exhibit 7.2.9; and 7.2.10 FCOB's shareholders' equity as of the Determination Date shall be no less than the December 31, 1999 shareholders' equity of FCOB plus eighty five percent (85%) of the budgeted income for FCOB as of such date pursuant to the Year 2000 budget provided by FCOB to WEST. For purposes of this Section 7.2.10 and the calculation of shareholders' equity as of the Determination Date, FCOB shall not be required to expense the following: (a) merger-related expenses permitted under Section 6.2.23 up to $200,000; (b) contractual change-of-control payments to employees under existing agreements; or (c) any other item that WEST agrees in writing need not be expensed for purposes of this Section 7.2.10. To confirm compliance with this Section, a reasonable period before Closing FCOB shall provide to WEST a certificate of its chief financial officer, dated after the Determination Date, as to FCOB's shareholders' equity as of the Determination Date, calculated in accordance with this Section, and written assurance of FCOB's independent accountants under, or consistent with the standards of, SAS 71 to the effect that the accountants are not aware that the financial statements of FCOB from which shareholders' equity is determined for purposes of this Section require any material modifications in order to comply with GAAP. WEST shall be permitted reasonable review and inquiry with respect to the calculation of shareholders' equity and the supporting certificate and accountant's assurance. SECTION 7.3 Conditions to FCOB's Obligations. The obligations of FCOB to effect the Merger shall be subject to the fulfillment (or waiver, in writing, by FCOB) of each of the following conditions: 7.3.1 Except as otherwise provided in this Section 7.3, (a) the representations and warranties of WEST contained in Article 4 shall be true in all material respects as of the Effective Time as though made at the Effective Time, except to the extent they expressly refer to an earlier time and except where the failure to be true, individually or in the aggregate, would not have or would not be reasonably likely to have, a Material Adverse Effect on WEST or upon consummation of the transactions contemplated hereby; (b) WEST shall have duly performed and complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with it prior to or at the Effective Time, except where the failure to so perform and comply, individually or in the aggregate, would not have or would not be reasonably likely to have a Material Adverse Effect on WEST, taken as a whole, or upon the consummation of the transactions contemplated hereby; (c) none of the events or conditions entitling FCOB to terminate this Agreement under Article 8 shall have occurred and be continuing; and (d) WEST shall have delivered to FCOB certificates dated the date of the Effective Time and signed by a duly authorized officer to the effect set forth in Subsections 7.3.1(a), (b) and (c); 7.3.2 Counsel for FCOB shall have approved, in the exercise of counsel's reasonable discretion, the validity of all transactions herein contemplated, as well as the form and substance of all opinions, certificates, instruments of transfer and other documents to be delivered to FCOB hereunder or that are reasonably requested by such counsel; 7.3.3 WEST has taken such action as appropriate to convert FCOB stock options to WEST stock options adjusted for the Exchange Ratio; A-34 146 7.3.4 WEST shall have delivered its Closing Schedules to FCOB on the day immediately preceding the Closing Date and none of such Closing Schedules shall reflect any item that was not on the WEST Schedules (or in the WEST Financial Statements) delivered on the date of execution of this Agreement that has had, or would have a Material Adverse Effect on WEST and its Subsidiaries, taken as a whole, at or after the Effective Time, or on the consummation of the transactions contemplated hereby; 7.3.5 The fairness opinion (the "FCOB Fairness Opinion") commissioned by FCOB's Board of Directors shall provide as of the date of mailing the Proxy Statement/Prospectus to FCOB's shareholders that the terms of the Merger, from a financial standpoint, are fair to the shareholders of FCOB, and shall not have been revoked, at any time prior to the meeting of FCOB's shareholders at which the Merger is to be voted on. WEST shall be provided immediate notification by FCOB of the revocation of the FCOB Fairness Opinion; and 7.3.6 The sale of the WEST Common Stock resulting from the Merger shall have been qualified or registered with the appropriate State securities law or "blue sky" regulatory authorities of all States in which qualification or registration is required under the State securities laws, and such qualifications or registration shall not have been suspended or revoked. ARTICLE 8. TERMINATION, AMENDMENTS AND WAIVERS SECTION 8.1 Termination. This Agreement may be ~~terminated~~amended by the parties at any time prior to the Effective ~~Time: 8.1.1 By mutual consent~~Time without the approval of the ~~Boards~~shareholders of ~~Directors~~Redwood Empire with respect to any of ~~WEST~~their terms except the terms relating to the form or amount of consideration to be delivered to the Redwood Empire shareholders in the Merger or any other principal terms of this Agreement or the Merger Agreement as contemplated by Section 1104 of the GCL.

(b) Termination. This Agreement and ~~FCOB; 8.1.2 By WEST~~the Merger Agreement may be terminated as follows:


	(i) By the mutual consent of the Boards of Directors of both Westamerica and Redwood Empire at any time prior to the consummation of the Merger.

	(ii) By the Board of Directors of Westamerica on or after nine months after the date of this Agreement, if (A) any of the conditions in Section 7 to which the obligations of Westamerica are subject have not been fulfilled, or (B) such conditions have been fulfilled or waived by Westamerica and Redwood Empire shall have failed to complete the Merger.

	(iii) By Westamerica or Redwood Empire upon the failure of the shareholders of Redwood Empire to give the requisite approval of this Agreement at the duly convened Redwood Empire shareholders’ meeting.

	(iv) By Redwood Empire, upon written notice to Westamerica, if there shall have been a breach by Westamerica or WAB of any of the covenants or agreements or any of the representations or warranties set forth in this Agreement on the part of Westamerica or WAB, which breach, either individually or in the aggregate, would result in the failure of any of the conditions set forth in Sections 8(a) or 8(b) and which breach has not been cured within 60 days following written notice thereof to Westamerica or, by its nature, cannot be cured within such time period.

	(v) By Westamerica, upon written notice to Redwood Empire, if there shall have been a breach by Redwood Empire or NBR of any of the covenants or agreements or any of the representations or warranties set forth in this Agreement on the part of Redwood Empire or NBR, which breach, either individually or in the aggregate, would result in the failure of any of the conditions set forth in Sections 7(a) or 7(b) and which breach has not been cured within 60 days following written notice thereof to Redwood Empire or, by its nature, cannot be cured within such time period.


	(vi) By Redwood Empire or Westamerica if any Government Approval required for the Merger has been denied and such denial has become final and nonappealable or any governmental agency of competent jurisdiction shall have issued a final nonappealable order permanently enjoining or prohibiting the Merger.

	(vii) By the Board of Directors of Redwood Empire on or after nine months after the date of this Agreement, if (A) any of the conditions contained in Section 8 to which the obligations of Redwood Empire are subject have not been fulfilled, or (B) such conditions have been fulfilled or waived but Westamerica shall have failed to complete the Merger.

	(viii) By Westamerica if Redwood Empire shall have breached in any material respect any of its obligations contained in Section 3.2(j).

	(ix) By Westamerica if the Board of Directors of Redwood Empire shall have failed to recommend adoption of this Agreement at the duly convened Redwood Empire shareholders’ meeting, or withdrawn or modified or qualified (or proposed to withdraw, modify or qualify) in a manner adverse to Westamerica its favorable recommendation of this Agreement or recommended any Competing Transaction to the shareholders of Redwood Empire or taken any action or made any other statement in connection with such meeting or the Merger having such effect.

	(x) By Redwood Empire if the Board of Directors of Redwood Empire shall, concurrently with such termination, authorize Redwood Empire to enter into an agreement with respect to a Competing Transaction; provided, however, that Redwood Empire may only exercise its right to terminate this Agreement pursuant to this Section 11(b)(x) if (w) Redwood Empire shall have complied in all material respects with Section 3.2(j)(iii); (x) the Board of Directors of Redwood Empire, after consultation with a financial advisor of recognized reputation in similar transactions, has reasonably determined in good faith that such Competing Transaction is a Superior Proposal (taking into account any proposal or offer which shall have been made by Westamerica to modify the terms of this Agreement); (y) the Board of Directors of Redwood Empire has reasonably determined in good faith (after consultation with outside legal counsel) that the failure to exercise such right of termination would be inconsistent with its fiduciary duties under applicable law; and (z) simultaneously with such termination, Redwood Empire shall make a payment to Westamerica of the Termination Fee (as defined below); provided, that for purposes of this Section 11(b)(x) the term “Competing Transaction” shall have the meaning set forth in Section 3.2(j)(i), except that the reference to “15% or more” in the definition of Competing Transaction shall be deemed to be a reference to “a majority”.

	(xi) By Redwood Empire if Westamerica shall fail to comply with its obligations under Section 3.1(g).

	(xii) By Westamerica if Westamerica enters into an agreement for a Superior Proposal pursuant to clause (ii) of Section 3.1(g), provided that Westamerica shall, simultaneously with such termination, make payment to Redwood Empire of the Termination Fee.

	(xiii) By the Board of Directors of Westamerica if the Westamerica Average Closing Price is greater than $60.66 or by the Board of Directors of Redwood Empire if the Westamerica Average Closing Price is less than $40.44.

Notwithstanding any of the foregoing provisions, no party shall be entitled to terminate this Agreement if the basis for the termination is caused by or ~~FCOB upon the~~exists because of such party’s failure to ~~satisfy any conditions specified in Section 7.1 if~~perform its obligations under this Agreement.

(c) Notice. The power of termination hereunder may be exercised by Westamerica or Redwood Empire, as the case may be, only by giving written notice, signed on behalf of such ~~failure is not caused~~party by ~~any action or inaction~~its Chairman of the ~~party requesting~~Board or President, to the other party.

(d) Termination and Expenses. In the event of termination of this ~~Agreement; 8.1.3 By WEST if an Acquisition Event involving FCOB shall have occurred; 8.1.4 By FCOB if there shall have been a material breach of any of the representations~~Agreement by either Redwood Empire or warranties of WEST set forth in this Agreement, which breach, in the reasonable opinion of FCOB, by its nature cannot be cured or is not cured prior to the Closing and which breach would, in the reasonable opinion of FCOB, individually or in the aggregate, have, or be reasonably likely to have, a Material Adverse Effect on WEST or upon the consummation of the transactions contemplated hereby; 8.1.5 By WEST if there shall have been a material breach of any of the representations or warranties of FCOB set forth in this Agreement, which breach, in the reasonable opinion of WEST, by its nature cannot be cured or is not cured prior to the Closing and which breach would, in the reasonable opinion of WEST, individually or in the aggregate, have, or be reasonably likely to have, a Material Adverse Effect on FCOB or upon the consummation of the transactions contemplated hereby; 8.1.6 By FCOB after the occurrence of a Default by WEST and the continuance of such Default for a period of 20 Business Days after written notice of such Default, if such Default, in the reasonable opinion of FCOB, cannot be cured prior to the Closing or, even though curable by the Closing, it is not cured prior to the Closing; 8.1.7 By WEST after the occurrence of a Default by FCOB and the continuance of such Default for a period of 20 Business Days after written notice of such Default, if such Default, in the A-35 147 reasonable opinion of WEST, cannot be cured prior to the Closing or, even though curable by the Closing, it is not cured prior to the Closing; 8.1.8 By WEST if the Closing Schedules delivered by FCOB disclose the occurrence of an event or the existence of any facts or circumstances, not disclosed in the Schedules or the FCOB Financial Statements delivered to WEST on or before the date hereof, that has had or could reasonably be expected to have a Material Adverse Effect on FCOB or after the Effective Time, on WEST, or on the consummation of the transactions contemplated hereby (a "FCOB Material Adverse Event"); 8.1.9 By FCOB if the Closing Schedules delivered by WEST disclose the occurrence of an event or the existence of any facts or circumstances, not disclosed in the Schedules or the WEST Financial Statements delivered to FCOB on or before the date hereof, that has had or could reasonably be expected to have a Material Adverse Effect on WEST or on the consummation of the transactions contemplated hereby (a "WEST Material Adverse Event"); 8.1.10 By FCOB upon the failure of any of the conditions specified in Section 7.3 to have been satisfied prior to September 29, 2000 (or October 31, 2000 if any applicable waiting period for Requisite Regulatory Approval requires additional time) provided that FCOB may not terminate this Agreement under this Section 8.1.10 if the relevant condition shall have failed to occur as a result of any act, delay or omission by FCOB; 8.1.11 By WEST upon the failure of any of the conditions specified in Section 7.2 to have been satisfied prior to September 29, 2000 (or October 31, 2000 if any applicable waiting period for Requisite Regulatory Approval requires additional time) provided that WEST may not terminate this Agreement under this Section 8.1.11 if the relevant conditions shall have failed to occur as a result of any act, delay or omission by WEST; 8.1.12 By WEST if FCOB's Fairness Opinion is revoked; 8.1.13 By WEST or FCOB, if the Average Closing Price is less than $18.00. However, if FCOB elects to exercise its termination right pursuant to the immediately preceding sentence, it shall give written notice to WEST no later than the end of the first Business Day following the Determination Date. Prior to the Effective Time, WEST shall have the option of adjusting the Exchange Ratio to equal the quotient obtained by dividing (i) $16.7943 by (ii) the Average Closing Price or a lower Exchange Ratio agreeable to a majority of the members of the Board of Directors of FCOB. If WEST makes an election contemplated by the preceding sentence, it shall give prompt written notice of such election and the revised Exchange Ratio, whereupon no termination shall have occurred pursuant to this Section 8.1.13 and this Agreement shall remain in effect in accordance with its terms (except as the Exchange Ratio shall have been so modified), and any references in this Agreement to the "Exchange Ratio" shall thereafter be deemed to refer to the Exchange Ratio as adjusted pursuant to this Section 8.1.13. SECTION 8.2 Effect of Termination; Survival. ExceptWestamerica as provided in Section ~~8.5, no termination under~~11(b), neither Redwood Empire nor Westamerica shall have any further obligation or liability to the other party except with respect to this Section ~~8.1~~11(d) and to maintain

the confidentiality of the other party’s information pursuant to Section 3.3; provided, however, that nothing herein shall relieve any party from liability for any reason or in any manner shall release, or be construed as so releasing, any party hereto from its obligations pursuant to Sections 5.1.3, 5.5, 8.5 or 9.5 hereof or from any liability or damage to any other party hereto arising out of, in connection with, or otherwise relating to, directly or indirectly, said party'swillful and material breach ~~Default~~of the warranties and representations made by it, or willful and material failure in performance of any of its covenants, agreements ~~duties~~ or obligations arising hereunder, or any breaches of any representation or warranty contained herein arising prior to the date of termination of this Agreement. SECTION 8.3 Amendment. This Agreement may be amended by the parties hereto, at any time before or after approval hereof by the shareholders of FCOB; provided, however, that after any such A-36 148 approval by such shareholders, no amendments shall be made which by law require further approval by such shareholders without such further approval. SECTION 8.4 Waiver. Any term or provision of this Agreement, other than regulatory approval or any of the provisions required by law, may be waived in writing at any time by the party which is, or whose shareholders are, entitled to the benefits thereof. SECTION 8.5 Liquidated Damages; Cancellation Fee. 8.5.1 In the event of the occurrence of an Acquisition Event involving FCOB, then FCOB shall pay to WEST the sum of One Million Seven Hundred Fifty Thousand Dollars ($1,750,000) in cash. 8.5.2hereunder. In the event of termination of this Agreement, ~~by FCOB~~any agreement related to the Bank Merger will also automatically terminate. If Westamerica shall terminate this Agreement pursuant to Section ~~8.1.10~~11(b)(viii) or ~~by WEST~~11(b)(ix) or if Redwood Empire shall terminate this Agreement pursuant to Section ~~8.1.12~~11(b)(x), Redwood Empire shall pay to Westamerica (by Fed wire transfer of immediately available funds to such account as ~~a result~~may be designated by Westamerica in writing to Redwood Empire) the sum of ~~the revocation of the FCOB Fairness Opinion; or a termination of~~$4,500,000 (the “Termination Fee”). If Redwood Empire terminates this Agreement ~~by WEST pursuant to (i) Section 8.1.2 (no approval by FCOB shareholders), or (ii)~~ pursuant to Section ~~8.1.5 (breach~~11(b)(xi) or if Westamerica shall terminate this Agreement pursuant to Section 11(b)(xii), then Westamerica shall pay to Redwood Empire, on demand (by Fed wire transfer of ~~representations or warranties of FCOB) or~~immediately available funds to such account as may be designated by Redwood Empire in writing to Westamerica), the Termination Fee. If (A) either party shall terminate this Agreement pursuant to Section 8.1.7 (Default) or Section 8.1.8 (disclosure in the Closing Schedules of a FCOB Material Adverse Event), where such breach of representation or warranty, Default or FCOB Material Adverse Event shall have been caused in whole or in material part by11(b)(iii) and (B) at any ~~action or inaction within the control of FCOB or any of its Subsidiaries, or any of their directors or executive officers (it being understood that any FCOB Material Adverse Event that occurred~~time after the date of this Agreement and ~~was outside~~at or before the date of the ~~control~~Redwood Empire shareholders’ meeting, a Competing Transaction (or a proposal therefor) shall have been publicly announced or otherwise publicly communicated to Redwood Empire’s shareholders; and if (C) within twelve (12) months of ~~FCOB, its directors and executive officers shall not come within this Section 8.5.2), then, FCOB shall pay to WEST~~ the ~~sum~~date of Three Hundred Thousand Dollars ($300,000), in cash; provided, however, that if an Acquisition Event occurs involving FCOB within one year following any termination by WEST to which this Section 8.5.2 applies, FCOB shall pay to WEST an additional One Million Four Hundred Fifty Thousand Dollars ($1,450,000) in cash. 8.5.3 In the event of asuch termination of this Agreement, by FCOB pursuant to 8.1.4 (breach of representations and warranties of WEST) or Section 8.1.6 (Default), or Section 8.1.9 (disclosure in Closing Schedules of a WEST Material Adverse Event), where such breach of representation or warranty, or such Default or WEST Material Adverse Event shall have been caused in whole or in material part by any action or inaction within the control of WESTRedwood Empire or any of its ~~Subsidiaries,~~subsidiaries executes any definitive agreement with respect to, or consummates, any Competing Transaction, then Redwood Empire shall pay to Westamerica the Termination Fee on the Business Day following such execution or consummation; provided, that for purposes of this sentence, the term “Competing Transaction” shall have the meaning set forth in Section 3.2(j)(i), except that the reference to “15% or more” in the definition of Competing Transaction shall be deemed to be a reference to “a majority”. In no event shall more than one Termination Fee be payable by either party under this Section 11(d). Westamerica and Redwood Empire (for themselves and their respective affiliates) hereby agree that, upon any termination of this Agreement under circumstances where Westamerica or Redwood Empire is entitled to a Termination Fee under this Section 11(d) and Westamerica or Redwood Empire receives such Termination Fee, Westamerica and Redwood Empire and their respective affiliates shall be precluded from any other remedy against Redwood Empire or Westamerica, at law or in equity or otherwise, and neither Westamerica or Redwood Empire nor any of their respective affiliates shall seek (and Westamerica and Redwood Empire shall cause their respective affiliates not to seek) to obtain any recovery, judgment, or damages of any kind, including consequential, indirect, or punitive damages, against Westamerica or Redwood Empire or their respective subsidiaries or any of their respective directors, officers, employees, partners, managers, members or ~~executive officers (it being understood that~~shareholders in connection with this Agreement or the transactions contemplated hereby.

(a) Notices. Any notice or other communication required or permitted under this Agreement shall be effective only if it is in writing and delivered personally, or by overnight express or by facsimile or sent by first class United States mail, postage prepaid, registered or certified mail, addressed as follows:

~~Chief Executive Officer~~

~~Westamerica Bancorporation~~

~~4550 Mangels Boulevard~~

~~Fairfield, CA 94585-1200~~

~~Three Embarcadero Center~~

~~San Francisco, CA 94111~~

~~Attention: Thomas G. Reddy~~

~~To Redwood Empire:~~

~~President & Chief Executive Officer~~

~~Redwood Empire Bancorp~~

~~111 Santa Rosa Avenue~~

~~Santa Rosa, CA 95404-4905~~

~~50 Fremont Street~~

~~San Francisco, CA 94105~~

~~Patricia F. Young~~

~~or to such other address as either party may designate by notice to the other, and shall be deemed to have been given upon receipt.~~

(b) Binding Agreement. This Agreement is binding upon and is for the benefit of Westamerica, WAB, Redwood Empire and NBR and their respective successors and permitted assigns. This Agreement is not made for the benefit of any ~~WEST~~person, firm, corporation or association not a party hereto, and no other person, firm, corporation or association shall acquire or have any right under or by virtue of this Agreement except with respect to Section 3.1(h). No party may assign this Agreement or any of its rights, privileges, duties or obligations hereunder, whether voluntarily or by operation of law or otherwise) without the prior written consent of the other parties to this Agreement.

(c) Standard. No representation or warranty of Redwood Empire or NBR contained in Article 4 or of Westamerica or WAB contained in Article 5 shall be deemed untrue or incorrect for any purpose under this Agreement, and no party hereto shall be deemed to have breached a representation or warranty for any purpose under this Agreement, in any case as a consequence of the existence or absence of any fact, circumstance or event unless such fact, circumstance or event, individually or when taken together with all other facts, circumstances or events inconsistent with any representations or warranties contained in Article 4, in the case of Redwood Empire or NBR, or Article 5, in the case of Westamerica or WAB, has had or would be reasonably likely to have a material adverse effect with respect to Redwood Empire or NBR or Westamerica or WAB, respectively (disregarding for purposes of this Section 12(c) any materiality or material adverse effect qualification contained in any representations or warranties).

The term “material adverse effect” or “material adverse change” means, with respect to any party, a material adverse effect on or change in (i) the business, results of operations, financial condition or prospects of such party and its subsidiaries taken as a whole (provided, however, that, ~~occurs~~with respect to this clause (i), material adverse effect shall not be deemed to include effects to the extent resulting from (a) changes, after the date hereof, in GAAP or RAP requirements applicable to banks and their holding companies generally, (b) changes, after the date hereof, in laws, rules or regulations of general applicability or interpretations thereof by courts or governmental entities, (c) actions or omissions of a party taken with the prior written consent of the other or required hereunder, (d) changes, after the date hereof, in general economic or market conditions affecting banks or their holding companies generally, (e) public disclosure of the transactions contemplated hereby, or (f) any expenses not exceeding those disclosed in the Redwood Empire Disclosure Schedule incurred in connection with this Agreement or the transactions contemplated thereby, or (ii) with respect to any party, the ability of such party to timely consummate the transactions contemplated by this Agreement.

~~The phrases “known” and “knowledge” mean, with respect to any party hereto, the actual knowledge of such party’s executive officers.~~

(d) No Survival of Representations and Warranties. No investigation by Westamerica or Redwood Empire made before or after the date of this Agreement shall affect the representations and was outside of the control of WEST, its Subsidiaries and their directors and executive officers, shall not come within this Section 8.5.3), then, WEST shall pay to FCOB the sum of Three Hundred Thousand Dollars ($300,000)warranties which are contained in ~~cash; provided, however, if~~ this Agreement ~~is terminated by WEST~~and such representations and warranties shall survive such investigation, provided that, except with respect to covenants and agreements to be performed in whole or ~~FCOB due~~in part subsequent to the ~~fact that WEST enters into another merger or acquisition transaction where WEST as a condition~~Effective Date (as to ~~such transaction cannot complete~~which the ~~Merger or such action~~related representations and warranties shall ~~cause unreasonable delay, WEST~~survive until their performance) which covenants and agreements shall ~~pay to FCOB~~survive the sum of One Million Dollars ($1,000,000) in cash. 8.5.4 The parties have determined that the occurrence of any of the events or circumstances set forth in Sections 8.5.1, 8.5.2 and 8.5.3 would cause a substantial damage and loss and lost business opportunities to the party terminating this Agreement as a result thereof and that the payments contemplated by Sections 8.5.1, 8.5.2 and 8.5.3 above provide reasonable and fair compensation for such damage, loss and lost business opportunities and are not intended to be and do not constitute a penalty or forfeiture. Such payments will be made within 10 Business Days following a termination of the Agreement that gives rise to the payment of such liquidated damages pursuant to Sections 8.5.1, 8.5.2 or 8.5.3, as applicable. Upon the making and receipt of payments due under this Section 8.5, neither party, nor any Affiliates of any party, shall have any further obligation or liability of any kind under this Agreement to the other party, except pursuant to Section 5.1.3, 5.5, 8.5.2 (in case of an Acquisition Event) and 9.5. A-37 149 8.5.5 In the event of the termination of this Agreement by WEST or FCOB and for any reason other than as specified in Sections 8.5.1, 8.5.2 or 8.5.3 above, none of the parties hereto, nor any Affiliates of any such parties, shall have any further obligation or liability of any kind to the other party, except pursuant to Sections 5.1.3, 5.5 and 9.5. ARTICLE 9. GENERAL PROVISIONS SECTION 9.1 Nonsurvival of Representations and Warranties. None ofClosing, the representations, warranties, covenants and agreements of Westamerica and Redwood Empire contained in this Agreement ~~or in any instrument delivered pursuant to this Agreement~~ shall not survive the Effective Time, except for those covenants and agreements contained herein and therein which by their terms apply in whole or in part after the Effective Time or to a termination of this Agreement. SECTION 9.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, mailed by registered or certified mail (return receipt requested), sent by confirmed overnight courier or telecopied (with electronic confirmation and verbal confirmation for the person to whom such telecopy is addressed), on the date such notice is so delivered, mailed or sent, as the case may be, to the parties at the following addresses (or any such other address for a party as shall be specified by like notice): If to FCOB at: First Counties Bank 15145 Lakeshore Drive Clearlake, California 95422 Fax No. (707) 995-4008 Attention: David G. Perry, President/CEO with a copy to: Gary Steven Findley & Associates 1470 North Hundley Street Anaheim, California 92806 Fax No. (714) 630-7910 Attention: Gary Steven Findley, Esq. If to WEST at: Westamerica Bancorporation 4550 Mangels Boulevard Fairfield, California 94585-1200 Fax No. (707) 863-6226 Attention: David L. Payne, Chairman with a copy to: McCutchen, Doyle, Brown & Enersen, LLP Three Embarcadero Center #1800 San Francisco, CA 94111 Fax No. (415) 393-2286 Attention: Thomas G. Reddy SECTION 9.3 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or A-38 150 more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. SECTION 9.4 Entire Agreement/No Third Party Rights/Assignment. This Agreement (including the documents and instruments referred to herein): (a) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (b) except as expressly set forth herein, is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder; (c) shall not be assigned by a party, by operation of law or otherwise, without the consent of the other parties; and (d) subject to the foregoing, shall be binding upon and shall inure to the benefit of the parties hereto and their permitted successors and assigns. SECTION 9.5 Nondisclosure of Agreement. WEST and FCOB agree, except as required by law or the rules of the NASDAQ, so long as this Agreement is in effect, not to issue any public notice, disclosure or press release with respect to the transactions contemplated by this Agreement without seeking the consent of the other party, which consent shall not be unreasonably withheld. SECTION 9.6Closing.

(e) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without ~~regard~~giving effect to its choice of law principles.

(f) Attorneys’ Fees. In any applicable conflicts of law. SECTION 9.7 Headings/Table of Contents. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 9.8 Enforcement of Agreement. The parties hereto agree that irreparable damage will occur in the event that any of the provisions of this Agreement or the Bank Merger Agreement is not performed in accordance with its specific terms or is otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the State of California or any state having jurisdiction, this being in addition to any remedy to which they are entitledaction at law or suit in ~~equity. SECTION 9.9 Severability. Any term or provision of this Agreement which is invalid or unenforceable~~equity in ~~any jurisdiction shall, as~~relation to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. SECTION 9.10 Attorneys' Fees. If any legal action or any arbitration upon mutual agreement is brought for the enforcement of this Agreement or because of an alleged dispute, breach or default in connection with this Agreement, the prevailing party in such action or suit shall be entitled to ~~recover~~receive a reasonable ~~attorneys'~~sum for its attorneys’ fees and all other reasonable costs and expenses incurred in ~~that~~such action or ~~proceeding,~~suit.

(g) Entire Agreement; Severability. This Agreement and the documents, certificates, agreements, letters, schedules and exhibits attached or required to be delivered pursuant hereto set forth the entire

agreement and understanding of the parties in ~~addition~~respect of the transactions contemplated hereby, and supersede all prior agreements, arrangements and understandings relating to the subject matter hereof. Each provision of this Agreement shall be interpreted in a manner to be effective and valid under applicable law, but if any provision hereof shall be prohibited or ruled invalid under applicable law, the validity, legality and enforceability of the remaining provisions shall not, except as otherwise required by law, be affected or impaired as a result of such prohibition or ruling.

(h) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(i) Specific Performance. The parties hereby acknowledge and agree that the failure of either party to fulfill any of its covenants and agreements hereunder, including the failure to take all such actions as are necessary on its part to cause the consummation of the Mergers, will cause irreparable injury to the other for which damages, even if available, will not be an adequate remedy. Accordingly, each party hereto hereby consent to the issuance of injunctive relief by any court of competent jurisdiction to compel performance of the obligations hereunder and to the granting by any such court of the remedy of the specific performance by the non-performing party of their obligations hereunder.

(j) Waivers. Prior to or at the Effective Time, each of Westamerica and WAB on one hand and Redwood Empire and NBR on the other shall have the right to waive any default in the performance of any term of this Agreement by the other, to waive or extend the time for the compliance or fulfillment by the other of any and all of the other’s obligations under this Agreement and to waive any or all of the conditions precedent to its obligations under this Agreement, except any condition which, if not satisfied, would result in the violation of any law or applicable governmental regulation. No failure to exercise and no delay in exercising any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy or power hereunder preclude any other ~~relief~~or further exercise thereof or the exercise of any other right, remedy or power provided herein or by law or in equity. The waiver by any party of the time for performance of any act or condition hereunder does not constitute a waiver of the act or condition itself. Any requests for waivers or waivers granted pursuant to ~~which it may~~this Section 12(j) shall be ~~entitled. A-39~~ ~~151~~in accordance with the provisions of Section 12(a) hereof.

IN WITNESS WHEREOF, ~~WEST~~Westamerica, WAB, Redwood Empire and ~~FCOB~~NBR have each caused this Agreement and Plan of Reorganization to be signed by ~~their respective officers thereunto duly authorized,~~its Chairman of the Board or President and its corporate seal to be hereunto affixed and attested by the signature of its Secretary all as of the ~~date~~day and year first above written.


	By: By: -------------------------------- -------------------------------- Name: Name: -------------------------------- -------------------------------- By: By: -------------------------------- -------------------------------- Name: Name: -------------------------------- --------------------------------	/s/ DAVID L. PAYNE



	Chairman, President and Chief Executive Officer

	WESTAMERICA BANK


	By: ~~-------------------------------- Name: --------------------------------~~	/s/ DAVID L. PAYNE



	Chairman, President and Chief Executive Officer

	REDWOOD EMPIRE BANCORP


	By: ~~-------------------------------- Name: --------------------------------~~	/s/ PATRICK W. KILKENNY

~~A-40~~ ~~152 APPENDIX B March 14, 2000 Members~~
President and Chief Executive Officer
NATIONAL BANK OF THE REDWOODS

~~Board of Directors ~~First Counties Bank 15145 Lakeside Drive Clearlake, California 95422~~~~

~~Redwood Empire Bancorp~~

~~111 Santa Rosa Avenue~~

~~Santa Rosa, CA 95404-4905~~

We understand that Westamerica Bancorporation, a California corporation (“Westamerica”), Westamerica Bank, a California banking corporation (“WAB”), Redwood Empire Bancorp, a California corporation (“Redwood Empire”), and National Bank of the Redwoods, a national banking association (“NBR”) are about to enter into an Agreement and Plan of Reorganization (the “Agreement”) dated August 13, 2004, pursuant to which Redwood Empire will merge with and into Westamerica (the “Merger”); NBR shall thereafter merge with and into WAB (the “Bank Merger” and together with the Merger, the “Mergers”). As set forth in Section 2.1(b) of the Agreement, on the Effective Date of the Merger (as defined in the Agreement) each outstanding share of Redwood Empire common stock (“Redwood Empire Share”) will be converted into the right to receive per share merger consideration (the “Merger Consideration”) in the amount of $28.74 per share, consisting of $11.49 in cash (the “Cash Portion”) and $17.25 in shares of the common stock, without par value, of Westamerica (“Westamerica Common Stock” or “Westamerica Shares”) (the “Stock Portion”), subject to adjustments described in Section 2.1(c) of the Agreement. In connection therewith, you have requested our opinion ~~as investment bankers~~ as to the fairness, from a financial point of view, of the Merger Consideration (as defined in the Agreement) to the shareholders of ~~First Counties Bank, Clearlake, California ("FCOB"~~Redwood Empire.

Hovde Financial LLC (“Hovde”) of the terms of the proposed merger of FCOB with Westamerica Bancorporation, Fairfield, California ("WEST") and its wholly-owned subsidiary, Westamerica Bank, Fairfield, California ("WAB") and FCOB shareholders receivingshares of common stock of WEST, as defined in the Agreement and Plan of Merger and Reorganization (the "Agreement") entered into as of March 14, 2000. Pursuant to the Agreement and subject to the terms and conditions therein, each share of FCOB Stock issued and outstanding immediately prior to the Effective Time of the Merger shall, on and at the Effective Time of the Merger, pursuant to the Agreement and without any further action on the part of FCOB or the holders of FCOB Common Stock, be exchanged for and converted into the right to receive 0.888 shares of WEST Common Stock, the Exchange Ratio. The Exchange Ratio is subject to adjustment under the terms of the Agreement based upon Average Closing Price of WEST at the Effective Time. The Exchange Ratio is modified pursuant to a calculation contained in the Agreement. As part of its investment banking business, ~~The Findley Group~~ is continually engaged in the valuation ~~bank, bank holding company~~of businesses and ~~thrift~~their securities in connection with mergers and acquisitions, ~~nationwide. We have previously provided financial advisory~~negotiated underwritings, competitive bidding, secondary distributions of listed and ~~consulting services to FCOB. In arriving at our opinion, we have reviewed~~unlisted securities, private placements and ~~analyzed, among other things, the following: (i) the Agreement; (ii) certain publicly available financial~~valuations for estate, corporate and other ~~data~~purposes. We are familiar with ~~respect to FCOB~~Redwood Empire, having acted as its financial advisor in connection with, and ~~WEST, including consolidated financial concerning FCOB and WEST and~~having participated in the trading markets for the publicly traded securities of FCOB and WEST; (iv) publicly available information concerning other banks and bank holding companies, the trading markets for their securities and the nature and terms of certain other merger transactions we believe relevant to our inquiry; and (v) evaluations and analyses prepared and presentednegotiations leading to, the ~~Board of Directors of FCOB or a committee thereof~~Agreement.

We were retained by Redwood Empire to act as its financial advisor in connection with the Merger. We ~~have held discussions~~will receive compensation from Redwood Empire in connection with ~~senior management~~our services, a significant portion of ~~FCOB~~which is contingent upon the consummation of the Merger. Redwood Empire has agreed to indemnify us for certain liabilities arising out of our engagement.

~~Board of Directors~~

~~Redwood Empire Bancorp~~

During the course of our engagement and ~~WEST concerning their past and current operations, financial condition and prospects. We have reviewed with~~for the ~~senior management~~purposes of ~~FCOB earnings projections for FCOB, provided by FCOB, as a stand-alone entity, assuming~~ the ~~Merger does not occur.~~opinion set forth herein, we have:


	(i) reviewed the Agreement;

	(ii) reviewed certain historical publicly available business and financial information concerning Redwood Empire and Westamerica;

	(iii) reviewed certain internal financial statements and other financial and operating data concerning Redwood Empire and Westamerica;

	(iv) analyzed certain financial projections prepared by the managements of Redwood Empire and Westamerica;

	(v) conducted meetings with members of the senior management of Redwood Empire for the purpose of reviewing the future prospects of Redwood Empire, including financial forecasts related to the respective businesses, earnings, assets, liabilities and the amount and timing of cost savings and revenue enhancements (the “Synergies”) expected to be achieved as a result of the Merger;

	(vi) reviewed historical market prices and trading volumes for Redwood Empire Common Stock and Westamerica Common Stock;

	(vii) reviewed the terms of recent merger and acquisition transactions, to the extent publicly available, involving banks and bank holding companies that we considered relevant;

	(viii) evaluated the pro forma ownership of Westamerica Common Stock by Redwood Empire shareholders relative to the pro forma contribution of Redwood Empire’s assets, liabilities, equity and earnings to the combined company;

	(ix) analyzed the pro forma impact of the Merger on the combined company’s earnings per share, consolidated capitalization and financial ratios; and

	(x) performed such other analyses and considered such other factors as we have deemed appropriate.

We also reviewed with the senior management of FCOB the earnings projections for WEST that are publicly available and have estimated the cost savings expected to be achieved in each year resulting from the Merger. Certain financial projections for the combined companies and for FCOB as a stand-alone entity were derived by us based partially upon the projections and information described above, as well as our own assessment of general economic, market and financial conditions. In conducting our review and in arriving at our opinion, we have relied upon and assumed the accuracy and completeness of the financial and other information provided to us or publicly available, and we have not assumed any responsibility for independent verification of the same. We have relied upon the management of FCOB as to the reasonableness of the financial and operating forecasts, B-1 153 projections and projected operating cost savings and earnings enhancement opportunities (and the assumptions and bases therefor) provided to us, and we have assumed that such forecasts, projections and projected operating cost savings and earnings enhancement opportunities reflect the best currently available estimates and judgements of FCOB management. We have also assumed, without assuming any responsibility for the independent verification of the same, that the aggregate allowances for loan losses for FCOB and WEST are adequate to cover such losses. We have not made or obtained any evaluations or appraisals of the property of FCOB or WEST, nor have we examined any individual loan credit files. For purposes of this opinion, we have assumed that the Merger will have the tax, accounting and legal effects described in the Agreement and assumed the accuracy of the disclosures set forth in the Agreement. Our opinion as expressed herein is limited to the fairness, from a financial point of view, to the holders of the shares of FCOB Stock of the terms of the proposed merger of FCOB with and into WAB, with FCOB shareholders receiving shares of WEST Common Stock and does not address FCOB's underlying business decision to proceed with the Merger. We have considered such financial and other factors as we have deemed appropriate under the circumstances, including among others the following: (i) the historical and current financial position and results of operations of FCOB and WEST, including interest income, interest expense, net interest income, net interest margin, provision for loan losses, non-interest income, non-interest expense, earnings, dividends, internal capital generation, book value, intangible assets, return on assets, return on shareholders' equity, capitalization, the amount and type of non-performing assets, loan losses and the reserve for loan losses, all as set forth in the financial statements for FCOB and WEST; (ii) the assets and liabilities of FCOB and WEST, including the loan and investment portfolios, deposits, other liabilities, historical and current liability sources and costs and liquidity; and (iii) the nature and terms of certain other merger transactions involving banks and bank holding companies. We have also takentook into account our assessment of general economic, market and financial conditions and our experience in other transactions as well as our ~~experience in securities valuation and our~~ knowledge of the banking industry ~~generally.~~and our general experience in securities valuations.

In rendering this opinion, we have assumed, without independent verification, the accuracy and completeness of the financial and other information and representations contained in the materials provided to us by Redwood Empire and Westamerica and in the discussions with the management of Redwood Empire and Westamerica. In that regard, we have assumed that the financial forecasts, including, without limitation, the Synergies and projections for Redwood Empire and NBR and Westamerica and WAB regarding monthly earnings projections, projected loan and deposit balances, under-performing and nonperforming assets and net charge-offs have been reasonably prepared on a basis reflecting the best currently available information and judgments and estimates of Redwood Empire and Westamerica and that such forecasts will be realized in the amounts and at the times contemplated thereby. We are not experts in the evaluation of loan and lease portfolios for purposes of assessing the adequacy of the allowances for losses with respect thereto and have assumed that such allowances for Redwood Empire and Westamerica are in the aggregate adequate to cover such losses. We were not retained to and did not conduct a physical inspection of any of the properties or facilities of Redwood Empire or Westamerica. In addition, we have not reviewed individual credit files nor have we made an independent evaluation or appraisal of the assets and liabilities of Redwood Empire and Westamerica and we were not furnished with any such evaluations or appraisals.

~~Board of Directors~~

~~Redwood Empire Bancorp~~

We have assumed that the Merger will be consummated substantially in accordance with the terms set forth in the Agreement. We have further assumed that the Merger will be accounted for as a purchase under generally accepted accounting principles and that it will qualify as a tax-free reorganization for United States federal income tax purposes. We have assumed that the Merger is, and will be, in compliance with all laws and regulations that are applicable to Redwood Empire and Westamerica. In rendering this opinion, we have been advised by Redwood Empire and Westamerica and we have assumed that there are no factors that would impede any necessary regulatory or governmental approval of the Merger and we have further assumed that, in the course of obtaining the necessary regulatory and governmental approvals, no restriction will be imposed on Redwood Empire or Westamerica that would have a material adverse effect on Westamerica, as the surviving corporation, or the contemplated benefits of the Merger. We have also assumed that there would not occur any change in applicable law or regulation that would cause a material adverse change in the prospects or operations of Westamerica as the surviving corporation after the Merger.

Our opinion is ~~necessarily~~ based solely upon ~~conditions~~the information available to us and the economic, market and other circumstances as they exist ~~and can be evaluated on~~as of the date hereof. ~~Based~~Events occurring and information that becomes available after the date hereof could materially affect the assumptions and analyses used in preparing this opinion. We have not undertaken to reaffirm or revise this opinion or otherwise comment upon ~~and subject~~any events occurring or information that becomes available after the date hereof, except as otherwise agreed in our engagement letter.

We are not expressing any opinion herein as to the prices at which shares of Westamerica Common Stock issued in the Merger may trade if and when they are issued or at any future time, nor does our opinion constitute a recommendation to any holder of a Redwood Empire Share as to how such holder should vote with respect to the Agreement at any meeting of holders of Redwood Empire Shares. As you are aware, in the course of its daily trading activities, investment funds controlled by an affiliate (as such term is defined in Regulation 12G-2 promulgated under the Securities Exchange Act of 1934, as amended) of Hovde and their affiliates may from time to time effect transactions and hold securities of Redwood Empire and Westamerica and may be long or short in such securities.

This letter is solely for the information of the Board of Directors of Redwood Empire and is not to be used, circulated, quoted or otherwise referred to for any other purpose, nor is it to be filed with, included in or referred to in whole or in part in any registration statement, proxy statement or any other document, except in each case in accordance with our prior written consent which shall not be unreasonably withheld; provided, however, that we hereby consent to the inclusion and reference to this letter in any registration statement, proxy statement, information statement or tender offer document to be delivered to the holders of Redwood Empire Shares in connection with the Merger if and only if this letter is quoted in full or attached as an exhibit to such document and this letter has not been withdrawn prior to the date of such document.

Subject to the foregoing and based on our experience as investment bankers, our activities and assumptions as described above, and other factors we have deemed relevant, we are of the opinion as ~~investment bankers that, as~~ of the date hereof ~~the terms of~~that the Merger ~~of FCOB with and into WAB, with FCOB shareholders receiving shares of WEST Common Stock equal~~Consideration pursuant to the ~~Exchange Ratio as set forth in the~~ Agreement ~~are~~is fair, from a financial point of view, to the holders of the shares of FCOB Common Stock. This opinion may not be used or referred to by FCOB or quoted or disclosed to any person in any manner without our prior written consent, except that we consent to the submission of this opinion to the regulatory agencies as part of the applications and to the inclusion of this opinion in the Registration Statement of West to be filed with the Securities and Exchange Commission and in the related proxy materials provided to shareholders of FCOB in relation to approval of the Merger. This opinion is not intended to be and shall not be deemed to be a recommendation to any shareholder of FCOB as to how such shareholder should vote with respect to the Merger. Respectfully submitted, THE FINDLEY GROUP /s/ GARY STEVEN FINDLEY Gary Steven Findley Director B-2 ~~154~~Redwood Empire.

Section 1300. ~~RIGHT TO REQUIRE PURCHASE -- "DISSENTING SHARES" AND "DISSENTING SHAREHOLDER" DEFINED.~~ (a) If the approval of the outstanding shares (Section 152) of a corporation is required for a reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of Section 1201, each shareholder of the corporation entitled to vote on the transaction and each shareholder of a subsidiary corporation in a short-form merger may, by complying with this chapter, require the corporation in which the shareholder holds shares to purchase for cash at their fair market value the shares owned by the shareholder which are dissenting shares as defined in subdivision (b). The fair market value shall be determined as of the day before the first announcement of the terms of the proposed reorganization or short-form merger, excluding any appreciation or depreciation in consequence of the proposed action, but adjusted for any stock split, reverse stock split, or share dividend which becomes effective thereafter.

(b) As used in this chapter, ~~"dissenting shares"~~“dissenting shares” means shares which come within all of the following descriptions: (1) Which were not immediately prior to the reorganization or short-form merger either (A) listed on any national securities exchange certified by the Commissioner of Corporations under subdivision (o) of Section 25100 or (B) listed on the list of National Market System of the NASDAQ Stock Market, and the notice of meeting of shareholders to act upon the reorganization summarizes this section and Sections 1301, 1302, 1303 and 1304; provided, however, that this provisions


	(1) Which were not immediately prior to the reorganization or short-form merger either (A) listed on any national securities exchange certified by the Commissioner of Corporations under subdivision (o) of Section 25100 or (B) listed on the National Market System of the NASDAQ Stock Market, and the notice of meeting of shareholders to act upon the reorganization summarizes this section and Sections 1301, 1302, 1303 and 1304; provided, however, that this provision does not apply to any shares with respect to which there exists any restriction on transfer imposed by the corporation or by any law or regulation; and provided, further, that this provision does not apply to any class of shares described in subparagraph (A) or (B) if demands for payment are filed with respect to 5 percent or more of the outstanding shares of that class.

	(2) Which were outstanding on the date for the determination of shareholders entitled to vote on the reorganization and (A) were not voted in favor of the reorganization or, (B) if described in subparagraph (A) or (B) of paragraph (1) (without regard to the provisos in that paragraph), were voted against the reorganization, or which were held of record on the effective date of a short-form merger; provided, however, that subparagraph (A) rather than subparagraph (B) of this paragraph applies in any case where the approval required by Section 1201 is sought by written consent rather than at a meeting.

	(3) Which the dissenting shareholder has demanded that the corporation purchase at their fair market value, in accordance with Section 1301.

	(4) Which the dissenting shareholder has submitted for endorsement, in accordance with Section 1302.

~~(c) As used in this chapter, ~~"dissenting shareholder"~~“dissenting shareholder” means the recordholder of dissenting shares and includes a transferee of record. ~~SEC.~~~~

Section 1301. ~~DEMAND FOR PURCHASE.~~ (a) If, in the case of a reorganization, any shareholders of a corporation have a right under Section 1300, subject to compliance with paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to purchase their shares for cash, such corporation shall mail to each such shareholder a notice of the approval of the reorganization by its outstanding shares (Section 152) within 10 days after the date of such approval, accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of the price determined by the corporation to represent the fair market value of the dissenting shares, and a brief description of the procedure to be followed if the ~~C-1~~ ~~155~~ shareholder desires to exercise the ~~shareholder's~~shareholder’s right under such sections. The statement of price constitutes an offer by the corporation to purchase at the price stated any dissenting shares as defined in subdivision (b) of Section 1300, unless they lose their status as dissenting shares under Section 1309.

(b) Any shareholder who has a right to require the corporation to purchase the ~~shareholder's~~shareholder’s shares for cash under Section 1300, subject to compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the corporation to purchase such shares shall make written demand upon the corporation for the

purchase of such shares and payment to the shareholder in cash of their fair market value. The demand is not effective for any purpose unless it is received by the corporation or any transfer agent thereof (1) in the case of shares described in clause (i) or (ii) of paragraph (1) of subdivision (b) of Section 1300 (without regard to the provisos in that paragraph), not later than the date of the ~~shareholders'~~shareholders’ meeting to vote upon the reorganization, or (2) in any other case within 30 days after the date on which the notice of the approval by the outstanding shares pursuant to subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder.

(c) The demand shall state the number and class of the shares held of record by the shareholder which the shareholder demands that the corporation purchase and shall contain a statement of what such shareholder claims to be the fair market value of those shares as of the day before the announcement of the proposed reorganization or short-form merger. The statement of fair market value constitutes an offer by the shareholder to sell the shares at such price. ~~SEC.~~

Section 1302. ~~ENDORSEMENT OF SHARES.~~ Within 30 days after the date on which notice of the approval by the outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, the shareholder shall submit to the corporation at its principal office or at the office of any transfer agent thereof, (a) if the shares are certificated securities, the ~~shareholder's~~shareholder’s certificates representing any shares which the shareholder demands that the corporation purchase, to be stamped or endorsed with a statement that the shares are dissenting shares or to be exchanged for certificates of appropriate denomination so stamped or endorsed or (b) if the shares are uncertificated securities, written notice of the number of shares which the shareholder demands that the corporation purchase. Upon subsequent transfers of the dissenting shares on the books of the corporation, the new certificates, initial transaction statement, and other written statements issued therefor shall bear a like statement, together with the name of the original dissenting holder of the shares. ~~SEC.~~

Section 1303. ~~AGREED PRICE -- TIME FOR PAYMENT.~~ (a) If the corporation and the shareholder agree that the shares are dissenting shares and agree upon the price of the shares, the dissenting shareholder is entitled to the agreed price with interest thereon at the legal rate on judgments from the date of the agreement. Any agreements fixing the fair market value of any dissenting shares as between the corporation and the holders thereof shall be filed with the secretary of the corporation.

(b) Subject to the provisions of Section 1306, payment of the fair market value of dissenting shares shall be made within 30 days after the amount thereof has been agreed or within 30 days after any statutory or contractual conditions to the reorganization are satisfied, whichever is later, and in the case of certificated securities, subject to surrender of the certificates therefor, unless provided otherwise by agreement. ~~C-2~~ ~~156 SEC.~~

Section 1304. ~~DISSENTER'S ACTION TO ENFORCE PAYMENT.~~ (a) If the corporation denies that the shares are dissenting shares, or the corporation and the shareholder fail to agree upon the fair market value of the shares, then the shareholder demanding purchase of such shares as dissenting shares or any interested corporation, within six months after the date on which notice of the approval by the outstanding shares (Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but not thereafter, may file a complaint in the superior court of the proper county praying the court to determine whether the shares are dissenting shares or the fair market value of the dissenting shares or both or may intervene in any action pending on such a complaint.

~~(b) Two or more dissenting shareholders may join as plaintiffs or be joined as defendants in any such action and two or more such actions may be consolidated.~~

(c) On the trial of the action, the court shall determine the issues. If the status of the shares as dissenting shares is in issue, the court shall first determine that issue. If the fair market value of the dissenting shares is in issue, the court shall determine, or shall appoint one or more impartial appraisers to determine, the fair market value of the shares. ~~C-3~~ ~~157~~

~~INFORMATION NOT REQUIRED IN PROSPECTUS ~~ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.~~~~

Section 317 of the California General Corporation Law permits indemnification of directors, officers and employees of corporations under certain conditions and subject to certain limitations. Article VI of the Articles of Incorporation of the registrant contains provisions limiting the monetary liability of directors for breaches of the duty of care. Article VII of the Articles of Incorporation of the registrant contains provisions for the indemnification of directors, officers and employees to the fullest extent permitted, and in excess of that authorized, under Section 317. In addition, the registrant maintains officers and directors liability insurance for an annual aggregate maximum of $20,000,000. ~~ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.~~

Included in ~~Westamerica's~~Westamerica’s Form 10-K for the year ended December 31, ~~1999,~~2003, filed with the Commission on March 10, 2004, incorporated herein by ~~reference]. ITEM 22. UNDERTAKINGS.~~reference.


	(a) To file during any period in which offers of sales are being made, a post-effective amendment to this Registration Statement:


	(ii) to reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement; and;

	(iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement.


	(b) That, for the purpose of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

	(c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(2) The undersigned registrant hereby undertakes ~~to deliver or cause to be delivered with~~that, for purposes of determining any liability under the ~~Prospectus, to~~Securities Act, each ~~person to whom~~filing of the ~~Prospectus is sent or given, the latest~~registrant’s annual report pursuant to ~~security holders~~Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of any employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934 (the "1934 Act"); and, where interim financial information requiredregistration statement shall be deemed to be ~~presented by Article 3~~a new registration statement relating to the securities offered therein, and the offering of ~~Regulation S-X of the 1934 Act are not set forth in the Prospectus, to deliver, or cause~~all such securities at that time shall be deemed to be ~~delivered to each person to whom~~ the ~~Prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the Prospectus to provide such interim financial information. (2)~~initialbona fideoffering thereof.

(3) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, as amended (the ~~"1933 Act"~~“1933 Act”), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. ~~II-2~~ ~~159 (3)~~

(4) The registrant undertakes that every prospectus (i) that is filed pursuant to the paragraph ~~(2)~~(3) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the 1933 Act and is used in connection with an offering of securities subject to Rule 415 of the 1933 Act, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. ~~(4)~~

(5) Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 20 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. (5) Westamerica hereby undertakes that, for purposes of determining any liability under the 1933 Act, each filing of Westamerica's annual report pursuant to Section 13(a) or Section 15(d) 1934 Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the 1934 Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(6) ~~Westamerica~~The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the ~~Prospectus~~prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form S-4 within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the ~~Registration Statement~~registration statement through the date of responding to the request.

(7) ~~Westamerica~~The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning ~~its merger~~a transaction, ~~with Mercantile Bank~~and the company being acquired involved therein, that was not the subject of and included in this ~~Registration Statement~~registration statement when it became effective. (8) Westamerica hereby undertakes: (a) To file during any period in which offers of sales are being made, a post-effective amendment to this Registration Statement: (i) to include any prospectus required by Section 10(a)(3) of the 1933 Act; (ii) to reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement;

II-3 160 (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (b) That, for the purpose of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-4 ~~161~~

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-4 and has caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of San Rafael, California, on April 13, 2000. WESTAMERICA BANCORPORATION By /s/ DAVID L. PAYNE ------------------------------------ David L. Payne Chief Executive Officer October 14, 2004.

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.


California	6021 942156203 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.	94-2156203
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)






		Proposed Maximum	Proposed Maximum	Amount of
Title of Each Class of	Amount to	Offering Price	Aggregate Offering	Registration
Securities to Be Registered	Be Registered(1)	Per Unit(1)	Price(1), (2)	Fee(2)


Common Stock, no par value (and associated stock purchase rights)(3)	2,094,950	Not applicable	$95,142,754	$12,054.59


Prospectus of		Proxy Statement of
WESTAMERICA BANCORPORATION ~~FIRST COUNTIES BANK~~		REDWOOD EMPIRE BANCORP
1108 ~~FIFTH AVENUE 15145 LAKESHORE DRIVE SAN RAFAEL, CALIFORNIA~~Fifth Avenue		111 Santa Rosa Avenue
San Rafael, CA 94901 ~~CLEARLAKE, CALIFORNIA 95422~~		Santa Rosa, California 95404


Westamerica Bancorporation,		Redwood Empire Bancorp
Kris Irvine, Assistant Corporate Secretary,		Marta Idica, Corporate Secretary
4550 Mangels Boulevard,		111 Santa Rosa Avenue
Fairfield, California 94585		Santa Rosa, California 95404-4905
(707) 863-6826		(707) 573-4800


Time ~~[meeting~~		[meeting time] on ~~Thursday,~~ [meeting date], ~~2000~~ 2004

Place ~~15145 Lakeshore Drive Clearlake,~~		Redwood Empire Bancorp 111 Santa Rosa Avenue Santa Rosa, California ~~95422~~ 95404

Items of business		(1) To approve the Agreement and Plan of Reorganization ~~and Merger~~ (the ~~"merger agreement"~~“merger agreement”) dated ~~March 14, 2000,~~as of August 25, 2004, among ~~First Counties,~~Redwood Empire Bancorp, National Bank of the Redwoods, Westamerica Bancorporation and ~~Westamerica's wholly owned subsidiary~~ Westamerica ~~Bank; (2) To elect eight directors;~~Bank and ~~(3)~~the transactions contemplated by the merger agreement; and

		(2) To consider such other business as may properly come before the meeting.

Record date		You are entitled to vote if you were a ~~stockholder~~shareholder at the close of business on [record date], ~~2000.~~ 2004.

Voting by proxy		Please submit a proxy by mail as soon as possible so that your shares can be voted at the meeting in accordance with your instructions. For specific instructions, please refer to the Questions and Answers beginning on page ~~iii~~1 of this proxy statement and the instructions on the proxy card.


Thomas G. ~~REDDY GARY STEVEN FINDLEY MCCUTCHEN, DOYLE, BROWN & ENERSEN,~~Reddy Alison C. Wauk Bingham McCutchen LLP ~~GARY STEVEN FINDLEY & ASSOCIATES THREE EMBARCADERO CENTER 1470 NORTH HUNDLEY ST. SAN FRANCISCO, CALIFORNIA~~ Three Embarcadero Center, 18th Floor San Francisco, California 94111 ~~ANAHEIM,~~ (415) 393-2000 Fax (415) 393-2286		Rodney R. Peck Patricia F. Young Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA ~~92806~~ 94103 (415) 983-1000 Fax (415) 983-1200


		Page(s)

Questions and Answers ~~About~~about the ~~Merger...................... iii Summary.....................................................~~ Merger			1 ~~First Counties~~
Summary			2
	Redwood Empire Bancorp shareholders will receive ~~0.8880~~$28.74, consisting of ~~a share~~$11.49 in cash and $17.25 in shares of Westamerica Bancorporation common stock in the ~~merger.............. 1~~ merger, but this amount is subject to possible adjustment		2
	Comparative market price ~~data............................. 1~~ data		3
	The merger is intended to be a tax-free transaction in which ~~First Counties~~Redwood Empire Bancorp shareholders will not recognize gain or ~~loss........................................... 2 First Counties~~loss on the stock portion of the merger consideration		4
	Redwood Empire Bancorp’s board recommends shareholder ~~approval...... 2~~ approval		4
	Vote required		4
	Financial advisor gives opinion that consideration is fair to ~~First Counties shareholders......................... 2 Annual~~Redwood Empire Bancorp shareholders		4
	Dissenters’ rights of appraisal		4
	Benefits to certain officers and directors in the merger		5
	Shareholders of Westamerica Bancorporation and Redwood Empire Bancorp have different rights		5
	Information regarding Westamerica Bancorporation and Redwood Empire Bancorp		5
	Special shareholders meeting to be held on [meeting date], ~~2000................................................... 2~~ 2004		6
	Record date set at [record date], ~~2000;~~2004; vote required for approval of merger and election of directors........... 2 Dissenters' rights of appraisal........................... 3 Information regarding Westamerica and First Counties...... 3 Westamerica to use purchase accounting treatment.......... 3 Benefits to certain officers and directors in the merger................................................. 3		6
	Conditions that must be satisfied for the merger to ~~occur.................................................. 4~~ occur		6
	Regulatory approvals we must obtain for the merger to ~~occur.................................................. 4~~ occur		6
	Westamerica Bancorporation to use purchase accounting treatment		6
	Termination of the merger ~~agreement....................... 4~~ agreement		6
	Selected ~~financial information~~Financial Information about ~~Westamerica.......... 6~~ Westamerica Bancorporation		8
	Selected ~~financial information~~Financial Information about ~~First Counties....... 7~~ Redwood Empire Bancorp		10
	Selected Consolidated Unaudited Pro forma Financial Information		12
	Comparative per ~~Common Share Data......................... 8~~ common share data		15
Risk Factors			16
Information Regarding Forward-Looking ~~Statements............ 9 Annual~~Statements			17
Special Meeting of ~~First Counties Bank Shareholders.......... 10~~ Redwood Empire Bancorp Shareholders			18
	Date, time and place of ~~meeting........................... 10~~ meeting		18
	The ~~meeting............................................... 10~~ meeting		18
	The Redwood Empire Bancorp board of directors recommends a vote for the merger		18
	Record date and voting ~~rights............................. 10~~ rights		19
	Vote ~~required............................................. 11~~ required		19
	Voting by ~~proxy........................................... 11~~ proxy		19
	Revocability of ~~proxies................................... 11 Adjournments.............................................. 11~~ proxies		19
	Adjournments		19
	Solicitation of ~~proxies................................... 11~~ proxies		20
	Other ~~matters............................................. 11 Proposal One --~~ matters		20
Information about the Companies			21
The ~~Merger.................................. 13 General................................................... 13~~ Merger			22
	Background of ~~merger...................................... 13 Reasons~~the merger		22
	Redwood Empire Bancorp’s reasons for the ~~merger; recommendation of~~merger		23
	Westamerica Bancorporation’s reasons for the ~~board of directors.............................................. 14~~ merger		25
	Opinion of Redwood Empire Bancorp’s financial ~~advisor.............................. 16~~ advisor		25
	Regulatory approvals ~~required............................. 20~~ required		34


	Page(s)

Nasdaq ~~listing............................................ 21~~ listing		35
Interests of certain officers and directors in the ~~merger................................................. 21 Effect on First Counties' employee benefit plans.......... 21~~ merger		35
Accounting ~~treatment...................................... 21~~ treatment		38
Certain federal income tax ~~consequences................... 22 Dissenters'~~consequences		38
Dissenters’ rights of ~~appraisal........................... 23~~ appraisal		40
Resales of Westamerica Bancorporation common ~~stock....................... 24~~

		43
The Merger ~~Agreement........................................ 25~~ Agreement			43
	Structure of the merger; effective ~~time................... 25~~ time		43
	Conversion of ~~First Counties~~Redwood Empire Bancorp common ~~stock................. 25 Options................................................... 26~~ stock		44
	Options		47
	Exchange agent; exchange ~~procedure........................ 27~~ procedure		48
	Representations and ~~warranties............................ 27~~ warranties		48
	Conduct of business pending the ~~merger.................... 28~~ merger		49
	Conditions to completion of the ~~merger.................... 30~~ merger		51
	Extension; ~~waiver......................................... 31 Termination............................................... 31~~ waiver		52
	Termination		52
	Expenses; liquidated ~~damages.............................. 31 Amendment................................................. 32~~ damages
	Amendment		53
Operations Following the ~~Merger............................. 33~~ Merger			53
Information about ~~Westamerica............................... 34 General................................................... 34~~ Westamerica Bancorporation			54
	General		54
	Certain additional business risks		54
	Employees		55
	Branch offices and facilities		55
	The effect of government policy on ~~banking................ 37~~ banking		56
	Regulation and supervision of bank holding ~~companies...... 37~~ companies		56
	Bank supervision and ~~regulation........................... 39~~ regulation		58
	Capital ~~standards......................................... 40~~ standards		59
	Prompt corrective action and other enforcement mechanisms		59
	Safety and soundness standards		60
	Restrictions on dividends and other distributions		61
	Premiums for deposit insurance and assessments for examinations		61
	CRA and fair lending developments		61
	Financial privacy legislation		61
	USA PATRIOT Act		62
	Sarbanes-Oxley Act of 2002		62
	Recently enacted legislation and regulations
	Pending legislation and regulations		63
Information about First Counties Bank....................... 41 General................................................... 41 Competition............................................... 43 Management's Discussion and Analysis of Financial Condition and Results of Operations of First Counties............... 45 Financial Condition......................................... 50 Redwood Empire Bancorp			64
	General		64
Market Price and Dividend ~~Information....................... 64~~ Information			65
	Market ~~quotations......................................... 64~~ quotations		65
	Dividends and dividend ~~policy............................. 64~~ policy		65
Description of Westamerica Bancorporation Capital Stock			67
	Common ~~Stock..................... 66 Common stock.............................................. 66~~ stock		67
	Preferred stock and Class B common ~~stock.................. 66~~ stock		67
	Debt ~~agreement............................................ 66~~ agreement		67
	Automatic dividend reinvestment service and employee stock purchase ~~plan.......................................... 67~~ plan		68


		Page(s)

Description of ~~First Counties~~ Redwood Empire Bancorp Capital Stock			68
	General		68
	Common ~~Stock.................. 67~~ Stock		68
	Preferred Stock		68
	Voting rights		68
	Preemptive rights		69
	Liquidation rights		69
Certain Differences in Rights of Shareholders............... 68 General................................................... 68 Declaration of dividends.................................. 68 Cumulative voting......................................... 68 Classified board of directors............................. 68 Dissenters' rights in mergers and other reorganizations... Shareholders			69
	General		69
	Shareholders rights ~~plan..................................~~ plan		69 ~~Proposal Two -- Election~~
	Quorum for shareholder actions		70
	Number of ~~Directors.......................~~ directors		70
	Access to shareholder records		70
Unaudited Pro Forma Condensed Combined Financial Information			71 ~~Independent Public Accountants.............................. 76~~
Other ~~Matters............................................... 76 Experts..................................................... 76~~ Matters			77
Shareholder Proposals for Next Year			77
	Westamerica Bancorporation		77
	Redwood Empire Bancorp		77
Experts			77
Legal ~~Matters............................................... 76~~ Matters			77
Information Concerning Westamerica ~~Management............... 76~~ Bancorporation and Redwood Empire Bancorp Management			78
Where You Can Find Additional ~~Information................... 77~~ Information			78
Annex A — Agreement and Plan of Reorganization			A-1
Annex B — Fairness Opinion of Hovde Financial LLC			B-1
Annex C — Sections 1300-1304 of Chapter 13 of the California Corporations Code			C-1
EXHIBIT 5
EXHIBIT 23.(A)
EXHIBIT 23.(B)
Exhibit 99(a)


				Value of Stock		Value of Merger
Westamerica Average				Portion Based on		Consideration Based on
Closing Price is		Exchange Ratio		Average Closing Price		Average Closing Price

$	40.4400		0.3792	$	15.33	$	26.82
	42.9675		0.3792		16.29		27.78
	45.4950		0.3792		17.25		28.74
	48.0225		0.3592		17.25		28.74
	50.5500		0.3412		17.25		28.74
	53.0775		0.3250		17.25		28.74
	55.6050		0.3102		17.25		28.74
	58.1325		0.3102		18.03		29.52
	60.6600		0.3102		18.82		30.31



			Adjusted Merger Consideration Per Share

If the volume of deposits that			Up to		Over $10 Million		Over $20 Million		Over
Westamerica is required to	Initial Value		$10 Million		to $20 Million		to $30 Million		$30 Million
divest in Lake County is:
Stock portion	$	17.25	$	17.19	$	17.16	$	17.10	$	17.07
Cash portion		11.49		11.45		11.43		11.39		11.37
Merger consideration		28.74		28.64		28.59		28.49		28.44



					Redwood Empire Bancorp
					Equivalent Pro Forma Market
	Historical Market Price				Value

	Westamerica		Redwood				Stock and
	Bancorporation		Empire Bancorp		Stock Portion		Cash Portions

August 25, 2004	$	54.06	$	25.99	$	17.25	$	28.74
, 2004



		At and for the Six Months
		Ended June 30,					At and for the Year Ended December 31,

		2004			2003		2003			2002			2001		2000		1999


		(In thousands, except per share data)
Interest income		$	107,682		$	113,724	$	223,493		$	237,633		$	257,056	$	269,516	$	257,656
Interest expense			10,111			15,146		27,197			39,182			68,887		88,614		78,456

Net interest income			97,571			98,578		196,296			198,451			188,169		180,902		179,200
Provision for loan losses			1,500			1,800		3,300			3,600			3,600		3,675		4,780
Noninterest income:
	Securities gains (impairment)		2,183			293		2,443			(4,278	)		—		—		—
	Loss on extinguishment of debt		(2,204	)		0		(2,166	)		—			—		—		—
	Deposit services charges and other		22,547			21,118		42,639			40,829			42,655		41,130		40,174

Total noninterest income			22,526			21,411		42,916			36,551			42,655		41,130		40,174
Noninterest expense			49,982			51,011		101,703			103,323			102,651		100,198		100,133

Income before income taxes			68,615			67,178		134,209			128,079			124,573		118,159		114,461
Provision for income taxes			19,657			20,495		39,146			40,941			40,294		38,380		38,373

Net income		$	48,958		$	46,683	$	95,063		$	87,138		$	84,279	$	79,779	$	76,088

Earnings per share:
	Basic	$	1.53			1.41	$	2.89		$	2.59		$	2.39	$	2.19	$	1.97
	Diluted		1.51			1.39		2.85			2.55			2.36		2.16		1.94
Per share:
	Dividends paid	$	0.54		$	0.48	$	1.00		$	0.90		$	0.82	$	0.74	$	0.66
	Book value at period end		10.38			10.85		10.54			10.22			9.19		9.32		8.10
Average common shares outstanding			31,906			33,054		32,849			33,686			35,213		36,410		38,588
Average diluted common shares outstanding			32,502			33,528		33,369			34,225			35,748		36,936		39,194
Shares outstanding at period end			31,784			32,937		32,287			33,411			34,220		36,251		37,125
At Period End:
Loans, net		$	2,265,306		$	2,352,730	$	2,269,420		$	2,440,411		$	2,432,371	$	2,429,880	$	2,269,272
Investments			1,985,320			1,839,572		1,949,288			1,386,833			1,158,139		1,149,310		1,219,491
Total assets			4,611,811			4,564,692		4,576,385			4,224,867			3,927,967		4,031,381		3,893,187
Total deposits			3,505,429			3,453,631		3,463,991			3,294,065			3,234,635		3,236,744		3,065,344
Short-term borrowed funds			712,553			393,287		590,646			349,736			271,911		386,942		462,345
Federal Home Loan Bank advances			—			170,000		105,000			170,000			40,000		—		—
Debt financing and notes payable			21,429			21,393		24,643			24,607			27,821		31,036		41,500
Intangible assets			22,162			22,762		22,433			23,176			19,013		20,376		10,200
Shareholders’ equity			329,795			357,311		340,371			341,499			314,359		337,747		300,592



	At or for the Six
	Months Ended June 30,						At or for the Year Ended December 31,

	2004			2003			2003			2002			2001			2000			1999(2)


	(In thousands, except per share data)
Statements of Operations:
Total interest income	$	14,194		$	15,150		$	30,134		$	30,536		$	33,555		$	35,163		$	30,633
Net interest income		11,039			11,208			22,766			20,866			20,104			20,844			19,687
Provision for loan losses		—			—			—			—			—			150			750
Noninterest income		3,607			3,278			6,833			7,615			6,599			6,106			5,197
Income from continuing operations		3,539			4,197			7,649			7,961			7,307			6,466			4,599
Loss from discontinued operations		—			—			—			—			—			—			(437	)
Net income		3,539			4,197			7,649			7,961			7,307			6,466			4,162
Balance Sheets:
Total assets	$	515,421		$	525,874		$	528,900		$	513,181		$	448,742		$	453,439		$	423,046
Total loans		424,086			415,063			414,521			365,076			351,649			315,101			314,445
Allowance for loan losses		7,039			7,492			7,162			7,400			7,580			7,674			7,931
Total deposits		453,043			466,635			454,782			453,093			397,412			405,333			369,509
Subordinated debentures		20,000			10,000			20,000			10,000			10,000			—			—
Shareholders’ equity		28,268			30,276			27,680			28,807			26,687			35,459			37,444
Performance and Financial Ratios(3):
Return on average assets from continuing operations(3)		1.37	%		1.64	%		1.48	%		1.62	%		1.63	%		1.47	%		1.13	%
Return on average common equity from continuing operations(3)		25.52	%		29.31	%		27.25	%		28.98	%		26.41	%		17.75	%		11.70	%
Common dividend payout ratio		58.72	%		40.39	%		44.34	%		35.08	%		18.09	%		25.29	%		19.51	%
Average equity to average assets from continuing operations		5.39	%		5.59	%		5.43	%		5.58	%		6.17	%		8.30	%		9.66	%
Leverage ratio		6.82	%		7.26	%		6.47	%		6.59	%		7.46	%		7.72	%		8.66	%
Tier 1 risk-based capital ratio		8.03	%		9.13	%		7.93	%		8.69	%		9.52	%		9.99	%		11.74	%
Total risk-based capital ratio		11.86	%		10.51	%		11.94	%		10.36	%		11.16	%		11.25	%		13.01	%
Net interest margin from continuing operations(3)		4.58	%		4.62	%		4.66	%		4.49	%		4.78	%		5.08	%		5.30	%
Noninterest expense from continuing operations to net interest income and other noninterest income from continuing operations		59.75	%		55.14	%		55.41	%		56.20	%		54.12	%		59.18	%		66.07	%
Average earning assets to average total assets from continuing operations		93.65	%		94.68	%		94.44	%		94.34	%		93.72	%		93.50	%		91.20	%
Nonperforming assets to total assets		0.30	%		0.59	%		0.24	%		0.54	%		0.71	%		0.43	%		1.52	%
Net loan charge-offs to average loans(3)		-0.06	%		0.05	%		0.06	%		0.05	%		0.03	%		0.12	%		0.29	%
Allowance for loan losses to total loans		1.66	%		1.81	%		1.73	%		2.03	%		2.16	%		2.44	%		2.52	%
Allowance for loan losses to nonperforming loans		448	%		241	%		566	%		265	%		239	%		638	%		194	%



	Marta J. Idica,Corporate Secretary


					Redwood
		Westamerica			Empire			DR(CR)			Pro Forma
		Bancorporation			Bancorp			Adjustments			Combined

For the Period:
Interest income		$	107,682		$	14,194		$	0		$	121,876
Interest expense			10,111			3,155			0			13,266

Net interest income			97,571			11,039						108,610
Provision for loan losses			1,500			0						1,500
Noninterest income			22,526			3,607						26,133
Noninterest expense			49,982			8,751			1,057			59,790

Income before income taxes			68,615			5,895						73,453
Provision for income taxes			19,657			2,356			(444	)		21,569

Net income		$	48,958		$	3,539		$	(613	)	$	51,884

Earnings per share:
	Basic	$	1.53		$	0.72					$	1.55
	Diluted		1.51			0.69						1.52
Dividends paid per share			0.54			0.42			0.00			0.54
Average common shares outstanding			31,906			4,946			(3,401	)		33,451
Average diluted common shares outstanding			32,502			5,093			(3,438	)		34,157
At Period-End
Loans, net		$	2,265,306		$	417,052		$	0		$	2,682,358
Investments			1,985,320			53,523			0			2,038,843
Total assets			4,611,811			515,421			66,974			5,194,206
Total deposits			3,505,429			453,043			0			3,958,472
Short-term borrowed funds			712,553			1,939			0			714,492
Federal Home Loan Bank advances			0			0			0			0
Debt financing and notes payable			21,429			20,000			0			41,429
Intangible assets			22,162			1,669			131,550			155,381
Shareholders’ equity			329,795			28,268			(63,174	)		421,237
Shares outstanding			31,784			4,948			(3,403	)		33,329
Book value per share		$	10.38		$	5.71					$	12.64
Financial Ratios:
For the period:
	Return on assets		2.20	%		1.37	%					2.07	%
	Return on equity		30.82	%		25.52	%					25.41	%
	Net interest margin*		5.24	%		4.58	%					5.18	%
	Net loan losses to average loans		0.13	%		(0.06	)%					0.10	%
	Efficiency ratio*		38.04	%		59.75	%					40.94	%
At period-end:
	Equity to assets		7.15	%		5.48	%					8.11	%
	Total capital to risk-adjusted assets		11.83	%		11.86	%					9.53	%
	Allowance for loan losses to loans		2.33	%		1.66	%					2.22	%


			Westamerica		Redwood				Per Equivalent
			Bancorporation		Empire Bancorp		Pro Forma		Redwood Empire
			Historical		Historical		Combined		Bancorp Share

Income
	For the year ended December 31, 2003
		Basic	$	2.89	$	1.52	$	2.95	$	0.92
		Diluted		2.85		1.48		2.90		0.90
	For the six months ended June 30, 2004
		Basic		1.53		0.72		1.55		0.48
		Diluted		1.51		0.69		1.52		0.47
Cash Dividends Paid
	For the year ended December 31, 2003			1.00		0.67		1.00		0.31
	For the six months ended June 30, 2004			0.54		0.42		0.54		0.17
Book Value
	As of December 31, 2003			10.54		5.59		12.76		3.98
	As of June 30, 2004			10.38		5.71		12.64		3.95


			Maximum
			Potential Price
Deal Value Calculation	Current Terms		Adjustment

Total Deal Value(Actual)	$	147,959,444.79	$	146,370,702.39
Deal Value per Share	$	28.74	$	28.44


	Jun. 30, 2004			Acquisition			Acquisition
Price-to-Earnings Multiples	Data			Multiple			Multiple

LTM Earnings	$	6,991			21.2	x		20.9x
MRQ Earnings Annualized ($1.85 million)	$	7,404			20.0	x		19.8x
YTD Earnings Annualized ($3.53 million)	$	7,078			20.9	x		20.7x
12/31/04 Budgeted Earnings	$	8,191			18.1	x		17.9x
Price-to-Book Value
Total Common Equity	$	28,268			523.42	%		517.80	%
Price-to-Tangible Book Value
Total Goodwill	$	674
Total Tangible Equity	$	27,594			536.20	%		530.44	%
Price-to-Tangible Book Value Core Deposit Premium
% of Jumbo Deposits		16.04	%
Total Deposits	$	453,043
Total Core Deposits (excluding jumbo deposits)	$	380,375			31.64	%		31.23	%
Premium-to-Market Analysis
REBC Stock Price	$	24.52			17.21	%		15.99	%
REBC Stock Price — 20-Day Average	$	24.02			19.65	%		18.40	%


	Redwood Empire		Premium to
	Average		Average
	Closing Price		Trading Price

Last trading day	$	24.52		17.21	%
Last 5 Trading Days	$	24.56		17.02	%
Last 10 Trading Days	$	24.30		18.27	%
Last 20 Trading Days	$	24.07		19.40	%
Last 30 Trading Days	$	23.96		19.95	%
Last 45 Trading Days	$	23.78		20.86	%
Last 60 Trading Days	$	23.86		20.45	%
Last 90 Trading Days	$	24.51		17.26	%


	Beginning Index			Ending Index
	Value on			Value on
	August 2, 2003			August 2, 2004

Redwood Empire		100.00	%		103.03	%
Westamerica Bancorporation		100.00	%		115.96	%
Nasdaq Bank and Thrift Index		100.00	%		114.06	%
Russell 2000 Financial Services Index		100.00	%		116.58	%
S&P 500 Index		100.00	%		112.60	%
DJIA		100.00	%		110.81	%


Buyer Short Name		Seller Short Name

American River Bankshares		Bank of Amador
Community Bancorp Inc.		Cuyamaca Bank NA
Boston Private Financial		Encino State Bank
BNP Paribas Group		USDB Bancorp
North Valley Bancorp		Yolo Community Bank
Umpqua Holdings Corp.		Humboldt Bancorp
Hanmi Financial Corp.		Pacific Union Bank
First Community Bancorp		Harbor National Bank
Pacific Capital Bancorp		Pacific Crest Capital
UnionBanCal Corp.		Business Bancorp
Humboldt Bancorp		California Independent
Boston Private Financial		First State Bancorp
1867 Western Financial Corp.		Central Valley Bancorp
First Community Bancorp		Verdugo Banking Company
Western Sierra Bancorp		Central Sierra Bank


Buyer Short Name		Seller Short Name

Fulton Financial Corp.		First Washington Financial
National City Corp.		Wayne Bancorp Inc.
Southwest Bancorp. of Texas		Klein Bancshares Inc.
TierOne Corp.		United Nebraska Financial
South Financial Group Inc.		Florida Banks Inc.
Sun Bancorp Inc.		Community Bancorp of NJ
BMO Financial Group		New Lenox Holding Co.
South Financial Group Inc.		CNB Florida Bancshares Inc.


						Tangible
	Implied		LTM			Book Prem.
	Aggregate		Net			to Core			Common			Tangible
	Deal Value		Income			Deposits			Equity			Equity

	(In millions)
Redwood (Stated)	$	148.00		21.2	x		31.64	%		523.42	%		536.20	%
Redwood (Potential Divestiture)	$	146.40		20.9	x		31.23	%		517.80	%		530.44	%
California Merger Group		—		22.3	x		18.52	%		257.61	%		265.92	%
Western Merger Group		—		20.6	x		19.01	%		257.61	%		265.92	%
Nationwide Merger Group		—		23.3	x		19.86	%		311.92	%		313.92	%



	% Accretion — Dilution (Stated Offer)

	2004			2005			2006			2007			2008

Cash Earnings per Share		8.9	%		8.7	%		17.2	%		26.3	%		36.4	%
GAAP Earnings per Share		6.9	%		6.8	%		15.6	%		25.0	%		35.3	%
Book Value per Share		32.0	%		33.3	%		35.8	%		39.3	%		43.9	%
Tangible Book Value per Share		(3.4	)%		3.0	%		9.7	%		16.9	%		24.4	%
Dividends per Share		(24.9	)%		(25.1	)%		(19.4	)%		(12.4	)%		(5.5	)%



	% Accretion — Dilution (Potential Divestiture)

	2004			2005			2006			2007			2008

Cash Earnings per Share		7.8	%		7.5	%		16.0	%		24.9	%		35.0	%
GAAP Earnings per Share		5.8	%		5.7	%		14.3	%		23.7	%		33.8	%
Book Value per Share		30.3	%		31.7	%		34.1	%		37.7	%		42.2	%
Tangible Book Value per Share		(4.3	)%		2.0	%		8.7	%		15.7	%		23.2	%
Dividends per Share		(25.7	)%		(25.9	)%		(20.3	)%		(13.3	)%		(6.5	)%


	Redwood Empire			Westamerica
	Contribution			Contribution

Balance Sheet
Assets		10.05	%		89.95	%
Net Loans		15.55	%		84.45	%
Deposits		11.44	%		88.56	%
Common Equity		7.89	%		92.11	%
Tangible Common Equity		8.23	%		91.77	%
Income Statement
LTM Net Income — GAAP		6.70	%		93.30	%
2004 Calendar-year Estimated Net Income — GAAP		7.52	%		92.48	%


Institution Name	Ticker		State

Bank of Hawaii Corporation		BOH		HI
CVB Financial Corp.		CVBF		CA
East West Bancorp, Inc.		EWBC		CA
First Community Bancorp		FCBP		CA
Frontier Financial Corporation		FTBK		WA
Greater Bay Bancorp		GBBK		CA
Mid-State Bancshares		MDST		CA
Pacific Capital Bancorp		PCBC		CA
UCBH Holdings, Inc.		UCBH		CA
Umpqua Holdings Corporation		UMPQ		OR


							Price/		Price/		Price/		Price/
					Stock		Book		Tang. Bk		LTM		2004E
					Price		Value		Value		EPS		EPS
Institution Name	Ticker		State		($)		(%)		(%)		(x)		(x)

Bank of Hawaii Corporation		BOH		HI		45.560		341.53		360.18		16.6		15.4
CVB Financial Corp.		CVBF		CA		20.880		359.38		396.52		18.6		17.4
East West Bancorp, Inc.		EWBC		CA		34.350		408.44		447.82		25.4		23.7
First Community Bancorp		FCBP		CA		40.260		185.44		NA		19.7		18.2
Frontier Financial Corporation		FTBK		WA		33.890		270.90		278.65		15.7		15.0
Greater Bay Bancorp		GBBK		CA		26.090		214.20		332.64		16.1		14.9
Mid-State Bancshares		MDST		CA		24.460		210.86		265.86		17.1		16.9
Pacific Capital Bancorp		PCBC		CA		27.820		292.23		NA		15.0		14.5
UCBH Holdings, Inc.		UCBH		CA		39.100		402.68		514.61		24.4		22.5
Umpqua Holdings Corporation		UMPQ		OR		22.830		200.09		396.62		18.7		17.3
		Average						288.58		374.11		18.7		17.6
		Median						281.57		378.35		17.9		17.1
Westamerica Bancorporation		WABC		CA		50.940		490.75		526.11		19.4		17.5


			Unvested Shares						Value of Unvested
			Included in the						Options Accelerated
	Total Shares		Total Shares		Weighted		Value of Options		as a Result of
	Subject to		Subject to		Average		at $28.74		the Merger at
Name	Options		Options		Exercise Price		per Share		$28.74 per Share

John H. Brenengen		6,250		3,437	$	16.88	$	74,125	$	40,762
Stephen A. Fleming		50,000		37,500		25.41		166,500		124,875
Dana R. Johnson		26,160		7,664		12.55		423,530		124,080
Patrick W. Kilkenny		76,500		—		5.55		1,774,035		—
Mark H. Rodebaugh		4,750		3,625		20.17		40,707		31,066
Gregory J. Smith		19,150		6,568		13.29		295,867		101,475
William B. Stevenson		51,250		3,437		7.32		1,097,775		73,620
David B. Warner		1,000		1,000		23.00		5,740		5,740
Kim C. McClaran		1,500		750		20.03		13,065		6,532


Name	Amount

John H. Brenengen	$	16,000
Dana R. Johnson		90,000
Mark H. Rodebaugh		16,000
Gregory J. Smith		4,000
William B. Stevenson		23,500
David B. Warner		4,000


	Value of Unvested
	Options Accelerated as a
	Result of the Merger		Redwood Empire		Change in
	Based on $28.74		Bancorp Director		Control
Name	per Share		Severance Policy		Agreements		Total

John H. Brenengen	$	40,762	$	16,000	$	—	$	56,762
Stephen A. Fleming		124,875		—		516,327		641,202
Dana R. Johnson		124,080		90,000		400,000		614,080
Patrick W. Kilkenny		—		—		490,228		490,228
Mark H. Rodebaugh		31,066		16,000		—		47,066
Gregory J. Smith		101,475		4,000		—		105,475
William B. Stevenson		73,620		23,500		—		97,120
David B. Warner		5,740		4,000		—		9,740
Kim C. McClaran		6,532		—		110,000		116,532
Total	$	508,150	$	153,500	$	1,516,555	$	2,178,205


				Value of Stock Portion				Value of Merger
Westamerica Average				Based on				Consideration Based on
Closing Price is		Exchange Ratio		Average Closing Price		Cash Portion		Average Closing Price

$	40.4400		0.3792	$	15.33	$	11.49	$	26.82
	42.9675		0.3792		16.29		11.49		27.78
	45.4950		0.3792		17.25		11.49		28.74
	48.0225		0.3592		17.25		11.49		28.74
	50.5500		0.3412		17.25		11.49		28.74
	53.0775		0.3250		17.25		11.49		28.74
	55.6050		0.3102		17.25		11.49		28.74
	58.1325		0.3102		18.03		11.49		29.52
	60.6600		0.3102		18.82		11.49		30.31


		Total			Tier 1
		Risk-Based			Risk-Based			Leverage
		Capital			Capital			Ratio

Well capitalized			10.00	%		6.00	%		5.00	%
Adequately capitalized			8.00			4.00			4.00
Undercapitalized (less than)			8.00			4.00			4.00
Significantly undercapitalized (less than)			6.00			3.00			3.00
Critically undercapitalized
	Tangible equity/ total assets (less than)		2.00


Shares of REBC common stock outstanding		4,948
Conversion ratio		0.3122

Shares of WABC common stock to be issued		1,545
Market price per share of WABC Common Stock	$	55.25

Total market price of WABC common stock to be issued	$	85,342
Value of REBC stock options assumed		6,100
Shares of REBC common stock outstanding		4,948
Cash paid per share	$	11.49

Total cash paid		56,848
Estimated WABC accounting, legal and other costs		3,800

Total Purchase Price	$	152,090