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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2002
Commission File Number: 1-9383
WESTAMERICA BANCORPORATION
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 94-2156203
(state or other jurisdiction of) (I.R.S. Employer
incorporation or organization) Identification No.)
1108 Fifth Avenue, San Rafael, California 94901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (707) 863-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Title of Class Shares outstanding as of November 6, 2002
Common Stock, 33,520,630
No Par Value
Page 1
TABLE OF CONTENTS
Page
Forward Looking Statements 2
PART I - FINANCIAL INFORMATION 3
Item 1 - Financial Statements 3
Financial Summary 8
Computation of Certain Performance Measures 9
As Reported and Adjusted for Unusual Items
Notes to Unaudited Condensed Consolidated Financial Statements 10
Item 2 - Management's Discussion and Analysis of Financial Condition 12
and Results of Operations
Item 3 - Quantitative and Qualitative Disclosure about Market Risk 29
Item 4 - Controls and Procedures 31
PART II - OTHER INFORMATION 32
Item 1 - Legal Proceedings 32
Item 2 - Changes in Securities 32
Item 3 - Defaults upon Senior Securities 32
Item 4 - Submission of Matters to a Vote of Security Holders 32
Item 5 - Other Information 32
Item 6 - Exhibits and Reports on Form 8-K 32
Exhibit 11 - Computation of Earnings Per Share 36
Exhibit 99.1 - Certification Required by 18 U.S.C. Section 1350 37
Exhibit 99.2 - Certification Required by 18 U.S.C. Section 1350 38
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements about
Westamerica Bancorporation for which it claims the protection of the safe harbor
provisions contained in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on Management's current knowledge and
belief and include information concerning the Company's possible or assumed
future financial condition and results of operations. A number of factors, some
of which are beyond the Company's ability to predict or control, could cause
future results to differ materially from those contemplated. These factors
include but are not limited to (1) a continued slowdown in the national and
California economies and the possibility of declining real estate valuations;
(2) increased economic uncertainty created by the recent terrorist attacks on
the United States and the actions taken in response; (3) the prospect of
additional terrorist attacks in the United States and the uncertain effect of
these events on the national and regional economies; (4) changes in the
interest rate environment; (5) changes in the regulatory environment; (6)
significantly increasing competitive pressure in the banking industry; (7)
operational risks including data processing system failures or fraud; (8) the
effect of acquisitions and integration of acquired businesses; (9) volatility
of rate sensitive deposits; (10) asset/liability matching risks and liquidity
risks; and (11) changes in the securities markets.
The reader is directed to the Company's annual report on Form 10-K for the year
ended December 31, 2001, for further discussion of factors which could affect
the Company's business and cause actual results to differ materially from those
expressed in any forward-looking statement made in this report.
Page 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
At
At September 30, December 31,
2002 2001 2001
---------------------------------------
Assets:
Cash and cash equivalents $175,666 $195,575 $179,182
Money market assets 633 250 534
Investment securities available for sale 1,003,201 908,337 948,970
Investment securities held to maturity,
with market values of:
$414,978 at September 30, 2002 399,735
$220,982 at September 30, 2001 213,215
$214,866 at December 31, 2001 209,169
Loans, gross 2,508,272 2,480,695 2,484,457
Allowance for loan losses (54,447) (52,461) (52,086)
---------------------------------------
Loans, net of allowance for loan losses 2,453,825 2,428,234 2,432,371
Other real estate owned 470 547 523
Premises and equipment, net 38,054 41,832 39,821
Interest receivable and other assets 137,980 122,358 117,397
---------------------------------------
Total Assets $4,209,564 $3,910,348 $3,927,967
=======================================
Liabilities:
Deposits:
Non-interest bearing $1,105,313 $1,014,589 $1,048,458
Interest bearing:
Transaction 521,417 511,252 519,324
Savings 1,008,847 873,423 863,523
Time 650,325 858,652 803,330
---------------------------------------
Total deposits 3,285,902 3,257,916 3,234,635
Short-term borrowed funds 335,989 256,032 271,911
Federal Home Loan Bank advance 170,000 0 40,000
Notes Payable 24,607 45,438 27,821
Liability for interest, taxes and
other expenses 57,626 27,821 39,241
---------------------------------------
Total Liabilities 3,874,124 3,587,207 3,613,608
=======================================
Shareholders' Equity:
Authorized - 150,000 shares of common stock
Issued and outstanding:
33,601 at September 30, 2002 222,493
34,714 at September 30, 2001 211,748
34,220 at December 31, 2001 209,074
Accumulated other comprehensive income:
Unrealized gain on securities
available for sale 19,797 16,537 11,900
Retained earnings 93,150 94,856 93,385
---------------------------------------
Total Shareholders' Equity 335,440 323,141 314,359
=======================================
Total Liabilities and
Shareholders' Equity $4,209,564 $3,910,348 $3,927,967
=======================================
See accompanying notes to consolidated financial statements.
Page 3
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
----------------------------------------------------
Interest Income:
Loans $44,145 $48,098 $132,023 $148,344
Money market assets and funds sold 6 18 10 24
Investment securities available for sale
Taxable 8,191 8,968 24,844 28,271
Tax-exempt 3,653 3,515 11,187 9,681
Investment securities held to maturity
Taxable 2,238 1,104 4,282 3,565
Tax-exempt 2,323 1,951 6,235 5,891
----------------------------------------------------
Total interest income 60,556 63,654 178,581 195,776
----------------------------------------------------
Interest Expense:
Transaction deposits 395 639 1,215 2,255
Savings deposits 2,761 4,476 8,320 13,222
Time deposits 3,937 8,448 13,345 31,139
Short-term borrowed funds 887 1,803 2,808 7,726
Federal Home Loan Bank advance 1,576 0 3,615
Debt financing and notes payable 443 499 1,345 1,516
----------------------------------------------------
Total interest expense 9,999 15,865 30,648 55,858
----------------------------------------------------
Net Interest Income 50,557 47,789 147,933 139,918
----------------------------------------------------
Provision for loan losses 900 900 2,700 2,700
----------------------------------------------------
Net Interest Income After
Provision For Loan Losses 49,657 46,889 145,233 137,218
----------------------------------------------------
Noninterest Income:
Service charges on deposit accounts 6,294 5,806 18,262 17,274
Merchant credit card 971 1,047 2,839 3,032
Financial services commissions 284 375 1,048 994
Mortgage banking 303 260 707 722
Trust fees 220 221 774 752
Impairment of investment securities 0 0 (4,260) 0
Other 2,383 2,881 6,968 9,095
----------------------------------------------------
Total Noninterest Income 10,455 10,590 26,338 31,869
----------------------------------------------------
Noninterest Expense:
Salaries and related benefits 13,844 13,471 41,987 40,040
Occupancy 3,074 3,073 8,903 8,900
Equipment 1,479 1,513 4,339 4,587
Data processing 1,529 1,502 4,543 4,577
Professional fees 501 370 1,316 1,221
Other real estate owned 2 18 52 159
Other 5,535 5,816 16,427 17,482
----------------------------------------------------
Total Noninterest Expense 25,964 25,763 77,567 76,966
----------------------------------------------------
Income Before Income Taxes 34,148 31,716 94,004 92,121
----------------------------------------------------
Provision for income taxes 11,271 10,391 30,121 29,613
----------------------------------------------------
Net Income $22,877 $21,325 $63,883 $62,508
====================================================
Comprehensive Income:
Change in unrealized gain on
securities available for sale, net 5,614 6,278 7,897 9,368
----------------------------------------------------
Comprehensive Income $28,491 $27,603 $71,780 $71,876
====================================================
Average Shares Outstanding 33,621 35,002 33,751 35,475
Diluted Average Shares Outstanding 34,118 35,524 34,309 36,025
Per Share Data:
Basic Earnings $0.68 $0.61 $1.89 $1.76
Diluted Earnings 0.67 0.60 1.86 1.74
Dividends Paid 0.22 0.21 0.66 0.61
See accompanying notes to consolidated financial statements.
Page 4
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
Compre-
Common hensive Retained
Stock Income Earnings Total
----------------------------------------------------
Balance, December 31, 2000 $206,952 $7,169 $123,626 $337,747
Net income for the period 62,508 62,508
Stock issued, including
stock option tax benefits 17,563 17,563
Purchase and retirement of stock (12,767) (69,493) (82,260)
Dividends (21,785) (21,785)
Unrealized gain on securities available
for sale, net 9,368 9,368
----------------------------------------------------
Balance, September 30, 2001 $211,748 $16,537 $94,856 $323,141
====================================================
Balance, December 31, 2001 $209,074 $11,900 $93,385 $314,359
Net income for the period $63,883 63,883
Stock issued in connection with
purchase of Kerman State Bank 14,620 14,620
Stock issued, including
stock option tax benefits 10,761 10,761
Purchase and retirement of stock (11,962) (41,935) (53,897)
Dividends (22,183) (22,183)
Unrealized gain on securities available
for sale, net 7,897 7,897
----------------------------------------------------
Balance, September 30, 2002 $222,493 $19,797 $93,150 $335,440
====================================================
See accompanying notes to consolidated financial statements.
Page 5
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine months
ended September 30,
2002 2001
--------------------------
Operating Activities:
Net income $63,883 $62,508
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of fixed assets 3,396 3,686
Amortization of intangibles 1,429 2,584
Loan loss provision 2,700 2,700
Amortization of deferred net loan (cost)/fees 375 796
Decrease in interest income receivable 445 4,446
(Increase) in other assets (12,169) (8,927)
(Decrease) increase in income taxes payable (1,863) 3,836
(Decrease) in interest expense payable (1,376) (4,372)
Increase in other liabilities 12,108 5,738
Writedown of equipment 470 238
Originations of loans for resale (9,494) (4,418)
Proceeds from sale of loans originated for resale 9,982 4,417
Net (gain) loss on sale of loans originated for resale (99) 10
Net gain on sale of property acquired
in satisfaction of debt (108) (155)
Writedown on property acquired in satisfaction of debt 37 78
Impairment of investment securities 4,260 0
--------------------------
Net Cash Provided by Operating Activities 73,976 73,165
--------------------------
Investing Activities:
Net cash obtained in mergers and acquisitions 5,368 0
Net originations (repayments) of loans 32,692 (2,152)
Purchases of investment securities available for sale (1,555,621) (208,411)
Purchases of investment securities held to maturity (204,805) (3,780)
Purchases of property, plant and equipment (1,562) (3,576)
Proceeds from maturity of securities available for sale 1,512,295 236,864
Proceeds from maturity of securities held to maturity 30,864 18,600
Proceeds from sale of securities available for sale 1,000 651
Proceeds from sale of property and equipment 548 0
Proceeds from property acquired in satisfaction
of debt 391 1,898
--------------------------
Net Cash (Used In) Provided By Investing Activities (178,830) 40,094
--------------------------
Financing Activities:
Net (decrease) increase in deposits (32,300) 21,170
Net increase (decrease) in short-term borrowings 74,353 (130,910)
Net increase in FHLB advances 130,000 0
Repayments of notes payable (3,214) (3,215)
Exercise of stock options/issuance of shares 8,579 12,834
Repurchases/retirement of stock (53,897) (82,260)
Dividends paid (22,183) (21,785)
--------------------------
Net Cash Provided By (Used In) Financing Activities 101,338 (204,166)
--------------------------
Net (Decrease) In Cash and Cash Equivalents (3,516) (90,907)
--------------------------
Cash and Cash Equivalents at Beginning of Period 179,182 286,482
--------------------------
Cash and Cash Equivalents at End of Period $175,666 $195,575
==========================
Page 6
Supplemental Disclosure of Noncash Activities:
Loans transferred to other real estate owned $375 $303
Unrealized gain on securities available for sale 7,897 9,368
Supplemental Disclosure of Cash Flow Activity:
Interest paid for the period 29,319 52,145
Income tax payments for the period 30,638 27,181
Income tax benefit from stock option exercises 2,182 4,729
The acquisition of Kerman State Bank
involved the following:
Common Stock issued 14,620 --
Liabilities assumed 85,085 --
Fair value of assets acquired, other than cash
and cash equivalents (90,170) --
Core deposit intangible (2,500)
Goodwill (1,667) --
Net cash and cash equivalents received 5,368 --
See accompanying notes to consolidated financial statements.
Page 7
WESTAMERICA BANCORPORATION
Financial Summary
(dollars in thousands, except per share amounts)
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------
2002 2001 2002 2001
----------------------------------------------------
Net Interest Income (FTE) $54,914 $51,778 $160,723 $151,306
Provision for loan losses (900) (900) (2,700) (2,700)
Noninterest income:
Noninterest income excluding impairment 10,455 10,590 30,598 31,869
Impairment of investment securities 0 0 (4,260) 0
----------------------------------------------------
Total noninterest income 10,455 10,590 26,338 31,869
Noninterest expense (25,964) (25,763) (77,567) (76,966)
Provision for income taxes (FTE) (15,628) (14,380) (42,911) (41,001)
----------------------------------------------------
Net income $22,877 $21,325 $63,883 $62,508
====================================================
Average shares outstanding 33,621 35,002 33,751 35,475
Diluted average shares outstanding 34,118 35,524 34,309 36,025
Shares outstanding at period end 33,601 34,714 33,601 34,714
Basic earnings per share $0.68 $0.61 $1.89 $1.76
Diluted earnings per share 0.67 0.60 1.86 1.74
Financial Ratios for the Period:
Return on assets 2.20% 2.20% 2.14% 2.17%
Return on equity 29.59% 27.48% 28.51% 26.69%
Net interest margin 5.71% 5.78% 5.79% 5.68%
Net loan losses to average loans 0.12% 0.15% 0.13% 0.14%
Efficiency ratio 39.7% 41.3% 41.5% 42.0%
Average Balances:
Total assets $4,117,310 $3,849,715 $3,987,215 $3,848,996
Earning assets 3,828,919 3,566,979 3,706,432 3,560,543
Total loans 2,492,030 2,467,547 2,470,522 2,460,526
Total deposits 3,333,300 3,247,687 3,255,656 3,203,475
Shareholders' equity 306,685 307,889 299,553 313,072
Balances at Period End:
Total assets $4,209,564 $3,910,348
Earning assets 3,857,393 3,550,036
Total loans 2,508,272 2,480,695
Total deposits 3,285,902 3,257,916
Shareholders' equity 335,440 323,141
Financial Ratios at Period End:
Allowance for loan losses to loans 2.17% 2.11%
Book value per share $9.98 $9.31
Equity to assets 7.97% 8.26%
Total capital to risk assets 10.80% 10.93%
Dividends Paid Per Share $0.22 $0.21 $0.66 $0.61
Dividend Payout Ratio 33% 35% 35% 35%
Page 8
WESTAMERICA BANCORPORATION
Computation of Certain Performance Measures
As Reported and Adjusted for Unusual Items
Three months Nine months
ended September 30, ended September 30,
(In thousands) 2002 2001 2002 2001
----------------------------------------------------
Financial Ratios for the Period:
Net income $22,877 $21,325 $63,883 $62,508
Return on assets 2.20% 2.20% 2.14% 2.17%
Return on equity 29.59% 27.48% 28.51% 26.69%
Net interest margin 5.71% 5.78% 5.79% 5.68%
Net loan losses to average loans 0.12% 0.15% 0.13% 0.14%
Efficiency ratio 39.7% 41.3% 41.5% 42.0%
Excluding Securities Impairment & Merger Costs:
Net income $22,877 $21,325 $66,582 $62,508
Return on assets 2.20% 2.20% 2.23% 2.17%
Return on equity 29.59% 27.48% 29.72% 26.69%
Net interest margin 5.71% 5.78% 5.79% 5.68%
Net loan losses to average loans 0.12% 0.15% 0.13% 0.14%
Efficiency ratio 39.7% 41.3% 40.3% 42.0%
Page 9
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. The results of
operations reflect interim adjustments, all of which are of a normal
recurring nature and which, in the opinion of management, are
necessary for a fair presentation of the results for the interim
periods presented. The interim results for the three and nine months
ended September 30, 2002 and 2001 are not necessarily indicative of the
results expected for the full year. These unaudited consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and accompanying notes as well as
other information included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2001.
Note 2: Critical Accounting Policies.
Certain accounting policies underlying the preparation of these
financial statements require management to make estimates and
judgments. These estimates and judgments may affect reported amounts
of assets and liabilities, revenues and expenses, and disclosures of
contingent assets and liabilities. The most significant of these
involve the Allowance for Loan Losses, which is discussed in
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Note 3: Acquisition
The acquisition of Kerman State Bank ("KSB"), a three-branch depository
institution headquartered in Fresno County, California, was completed on
June 21, 2002. At the time of the acquisition, KSB had total assets of $95
million and total deposits of $84 million. Pursuant to the terms of the
merger agreement, 0.2487 shares of Westamerica common stock were issued for
each outstanding share of KSB, for a total of 355 thousand shares issued.
Based on the Company's closing stock price of $41.18 on June 21, the
acquisition was valued at approximately $14.6 million. The Company recorded
goodwill and a core deposit intangible of $1.7 million and $2.5 million,
respectively, in accordance with the purchase method of accounting.
Acquisition expenses consisting primarily of employee severance costs
charged to expenses were $400 thousand.
Note 4: Goodwill and Other Intangible Assets
The Company has recorded goodwill and core deposit intangibles
acquired in prior years' purchase business combinations and, effective
January 1, 2002, accounts for them in accordance with Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets. Accordingly, goodwill is no longer being amortized, but is
periodically evaluated for impairment. The Company determined that
no impairment existed as of September 30, 2002. Core deposit intangibles
are amortized to their estimated residual values over their expected
useful lives; such lives and residual values are also periodically
reassessed to determine if any amortization period adjustments are
indicated. The Company determined that no such adjustments were
required as of September 30, 2002.
Page 10
The following table summarizes the Company's goodwill and core deposit
intangible assets as of January 1, 2002 and September 30, 2002 (dollars in
thousands).
At At
January 1, September 30,
2002 Additions Reductions 2002
-------------------------------------------------
Goodwill $20,301 $1,667 $0 $21,968
Accumulated Amortization (3,972) 0 0 (3,972)
-------------------------------------------------
Net $16,329 $1,667 $0 $17,996
=================================================
Core Deposit Intangibles $5,283 $2,500 $0 $7,783
Accumulated Amortization (2,599) 0 703 (3,302)
-------------------------------------------------
Net $2,684 $2,500 $703 $4,481
=================================================
The KSB acquisition in the second quarter of 2002 resulted in the addition
of $1.7 million of goodwill and $2.5 million of core deposit intangibles.
At September 30, 2002, the estimated aggregate amortization of core deposit
intangibles, in thousands of dollars, for the remainder of 2002 and
annually through 2007 is $301, $743, $543, $469, $427, and $427,
respectively. The weighted average amortization period for core
deposit intangibles is 8.8 years.
Page 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Westamerica Bancorporation and subsidiaries (the "Company") reported third
quarter 2002 net income of $22.9 million or $0.67 diluted earnings per share,
reflecting a full quarter of results after the second quarter merger with
Kerman State Bank ("KSB"). These results compare with net income of $21.3
million or $0.60 diluted earnings per share for the third quarter of 2001.
On a year-to-date basis, the Company reported net income for the nine months
ended September 30, 2002 of $63.9 million or $1.86 diluted earnings per share,
compared with $62.5 million or $1.74 per share for the same period of 2001.
The year-to-date results in 2002 included after-tax expenses in connection
with the KSB acquisition ($230 thousand) and after-tax securities impairment
charge ($2.5 million) incurred in the second quarter of 2002.
Following is a summary of the components of fully taxable equivalent ("FTE")
net income for the periods indicated (dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------
2002 2001 2002 2001
----------------------------------------------------
Net interest income (FTE) $54,914 $51,778 $160,723 $151,306
Provision for loan losses (900) (900) (2,700) (2,700)
Noninterest income:
Noninterest income excluding impairment 10,455 10,590 30,598 31,869
Impairment of investment securities 0 0 (4,260) 0
----------------------------------------------------
Total noninterest income 10,455 10,590 26,338 31,869
Noninterest expense (25,964) (25,763) (77,567) (76,966)
Provision for income taxes (FTE) (15,628) (14,380) (42,911) (41,001)
----------------------------------------------------
Net income $22,877 $21,325 $63,883 $62,508
====================================================
Net income for the third quarter of 2002 was $1.6 million (7.3%) more than the
same quarter of 2001 primarily as a result of higher net interest income (FTE)
(up $3.1 million or 6.1%). The improvement resulted from volume growth of
earning assets (up $261.9 million), partially reduced by the effect of
declining yields on those assets. The growth of net interest income exceeded a
decline in noninterest income and an increase in noninterest expense. The
provision for income taxes (FTE) increased $1.2 million (8.7%) primarily due
to higher pretax earnings.
Comparing the first nine months of 2002 to the prior year, net income rose
$1.4 million (2.2%). The increase in net interest income (up $9.4 million or
6.2%) was greater than the decline (down $5.5 million or 17.4%) in noninterest
income. The increase in net interest income was due to both a higher margin
(up 12 basis points ("bp")) and higher average earning assets (up $145.9
million). The decline in noninterest income resulted from the pretax
securities impairment charge of $4.3 million incurred in the second quarter.
The net revenue improvement was partially reduced by a $600 thousand (0.8%)
increase in noninterest expense, which included the pretax KSB acquisition
costs of $400 thousand incurred in the second quarter of 2002. The provision
for income taxes (FTE) increased $1.9 million (4.7%).
Page 12
Net Interest Income
Following is a summary of the components of net interest income for the
periods indicated (dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------
2002 2001 2002 2001
----------------------------------------------------
Interest income $60,556 $63,654 $178,581 $195,776
Interest expense (9,999) (15,865) (30,648) (55,858)
FTE adjustment 4,357 3,989 12,790 11,388
----------------------------------------------------
Net interest income (FTE) $54,914 $51,778 $160,723 $151,306
====================================================
Average earning assets $3,828,919 $3,566,979 $3,706,432 $3,560,543
Net interest margin (FTE) 5.71% 5.78% 5.79% 5.68%
The Company's primary source of revenue is net interest income, or the
difference between interest income on earning assets and interest expense on
interest-bearing liabilities. Net interest income (FTE) during the third
quarter of 2002 increased $3.1 million (6.1%) from the same period in 2001 to
$54.9 million. The increase was the net result of a $261.9 million increase in
average earning assets (the volume component), partially reduced by a lower
margin earned on those assets (the rate component). The decrease in the net
interest margin was the net effect of an 80 bp drop in the asset yield, which
was reduced by a 73 bp drop in the cost of funds.
Comparing the first nine months of 2002 with the previous year, net interest
income (FTE) increased $9.4 million (6.2%), with approximately 85% of the
increase attributable to volume growth and the remaining to an 11 bp increase
in the net interest margin. The margin expansion was the result of a decrease
of 88 bp in asset yields combined with a 99 bp decline in the cost of funds.
Interest and Fee Income
Interest & fee income (FTE) for the third quarter of 2002 decreased $2.7
million (4.0%) from the same period in 2001. The decrease was the net effect
of higher average earning assets in the 2002 period and lower yields earned on
those assets. Average earning assets grew $261.9 million (7.3%) A substantial
portion of the growth was led by expansion in investments as follows: U.S.
Agency obligations (up $142.3 million), participation certificates (up $115.9
million), municipal securities (up $41.4 million) and other securities (up
$19.8 million). Although commercial loan demand remained weak (the $21.0
million growth was attributable to the KSB acquisition), indirect consumer
loans were up $51.5 million. The growth was reduced by declines in U.S.
Treasury securities (down $81.0 million), construction (down $19.8 million),
residential real estate (down $16.6 million) and direct consumer (down $17.2
million) loans.
The average yield on the Company's earning assets decreased for the quarter
from 7.53% in 2001 to 6.74% in 2002 (down 79 bp). This downward trend in
yields was reflective of general interest rate markets during much of 2001 and
into 2002, as is particularly evident in variable-rate loans such as
commercial (131 bp decline in yield), construction (176 bp decline) and
personal lines of credit (194 bp decline). Fixed-rate loan yields are less
sensitive to market rate fluctuations; for example, commercial real estate
(down 17 bp), residential real estate (down 74 bp) and indirect consumer (down
95 bp) loans. As a result, the loan portfolio yield decreased 74 bp. Yields on
investment securities decreased by 82 bp, as maturing securities were replaced
at current, lower market rates. Participation certificates, U.S. Agency
obligations and other securities yields declined 134 bp, 129 bp and 121 bp,
respectively.
Comparing the first nine months of 2002 to 2001, interest & fee income (FTE)
decreased by $15.8 million (7.6%). Consistent with the third quarter
comparison, the decline was due to the combined effect of a higher volume of
earning assets and the impact of lower yields. The positive volume component
of the change was caused by an $145.9 million (4.1%) increase in average
Page 13
earning assets, including higher U.S. agency obligations (up $77.7 million),
participation certificates ($43.6 million), municipal securities (up $46.1
million), other securities (up $28.0 million), indirect consumer loans (up
$39.3 million) and commercial real estate loans (up $13.7 million). Declining
were U.S. Treasury securities (down $59.5 million), residential real estate
loans (down $20.6 million), direct consumer loans (down $22.1 million) and
construction loans (down 7.9 million).
The average yield on earning assets for the first three quarters of 2002 was
6.89% compared with 7.77% in 2001. Loan yields, especially those more
sensitive to market rates, declined: the yield on commercial loans was down
193 bp, construction yields declined 250 bp, and personal lines of credit were
down 286 bp. Much smaller declines occurred in fixed-rate loan yields, so
that the total loan yield declined 90 bp. The investment portfolio yield
decreased 88 bp, affected primarily by lower yields on participation
certificates (down 166 bp), other securities (down 139 bp)
and U.S. agency (down 95 bp).
Interest Expense
Interest expense fell $5.9 million (37.0%) in the third quarter of 200
compared with the year-ago period. The decrease primarily resulted from a drop
in the average rate paid on interest-bearing liabilities from 2.53% in the
third quarter of 2001 to 1.48% in 2002. Rates paid on those liabilities that
move with general market conditions declined accordingly: the average rate on
Fed Funds dropped 180 bp, those on CDs over $100 thousand declined 176 bp, and
those on preferred money market accounts were lowered an average of 186 bp.
Average interest-bearing liabilities increased $182.1 million (7.3%) in the
third quarter, resulting in a $790 thousand increase in volume-related
interest expense. Higher rate CDs and long-term notes payable declined $176.0
million and $3.2 million, respectively. Much of this decline was replaced at
lower interest rates in money market accounts (up $136.4 million), savings
accounts (up $34.9 million) and Federal Home Loan Bank ("FHLB") loans (up
$166.5 million).
During the first nine months of 2002, interest expense decreased $25.2 million
(45.1%) in 2002 from 2001, again due to a lower average rate paid on
interest-bearing liabilities (1.57% in the first nine months of 2002 compared
with 2.96% in the year-ago period). All deposit categories declined including
preferred money market (from 3.71% in the first three quarters of 2001 to
1.50% in the same period of 2002) and CDs (from 4.74% to 2.47%). Interest
rates on short-term borrowings also declined from 3.84% to 1.53%.
Interest-bearing liabilities grew $79.7 million (3.2%) for the nine months
ended September 30, 2002. However, a change in the mix of liabilities from
higher-rate to lower-rate components resulted in reduction of volume-related
interest expense by $549 thousand. Declines in CDs (down $156.1 million),
short-term borrowings (down $22.0 million) and long-term notes payable (down
$3.2 million) were less than growth in money market accounts (up $104.7
million), savings accounts (up $28.3 million) and FHLB loans (up $128.2
million).
In all reported periods, the Company has attempted to reduce high-rate time
deposits while increasing the balances of more profitable, lower-cost
transaction accounts in order to reduce the effect of adverse cyclical trends.
Page 14
Net Interest Margin (FTE)
The following summarizes the components of the Company's net interest margin
for the periods indicated:
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------
2002 2001 2002 2001
----------------------------------------------------
Yield on earning assets 6.74% 7.53% 6.89% 7.77%
Rate paid on interest-bearing
liabilities 1.48% 2.53% 1.57% 2.96%
----------------------------------------------------
Net interest spread 5.26% 5.00% 5.32% 4.81%
Impact of all other net
noninterest bearing funds 0.45% 0.78% 0.47% 0.87%
----------------------------------------------------
Net interest margin 5.71% 5.78% 5.79% 5.68%
====================================================
The net interest margin fell 7 basis points during the third quarter of 2002
compared to the third quarter of 2001. The unfavorable impact of lower rates
earned on loans and the investment portfolio, triggered by market trends, was
less than decreases in rates paid on deposits and short-term funds. The result
was a 25 bp increase in the net interest spread. Partially offsetting the
increase in spread was the lower value of noninterest bearing funding sources.
While the average balance of these sources increased $85.5 million during the
third quarter of 2002, their value decreased 32 bp because of the lower market
interest rates at which they could be invested.
On a year-to-date basis, the net interest margin increased 11 bp when compared
with the same period in 2001. The effect of lower yields on earning assets was
exceeded by the declining cost of interest-bearing liabilities, resulting in a
51 bp improvement in the interest spread. Noninterest bearing funding sources
increased $58.5 million and their value decreased 40 bp.
Page 15
Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present, for the periods indicated, information regarding
the Company's consolidated average assets, liabilities and shareholders'
equity, the amount of interest income from average earning assets and the
resulting yields, and the amount of interest expense paid on interest-bearing
liabilities. Average loan balances include nonperforming loans. Interest
income includes proceeds from loans on nonaccrual status only to the extent
cash payments have been received and applied as interest income. Yields on
securities and certain loans have been adjusted upward to reflect the effect
of income thereon exempt from federal income taxation at the current statutory
tax rate (dollars in thousands).
Three months ended
September 30, 2002
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------
Assets:
Money market assets and funds sold $1,716 $6 1.39%
Investment securities:
Available for sale
Taxable 680,305 8,191 4.78%
Tax-exempt 303,685 5,544 7.30%
Held to maturity
Taxable 174,272 2,238 5.09%
Tax-exempt 176,911 3,522 7.96%
Loans:
Commercial
Taxable 413,196 6,454 6.20%
Tax-exempt 197,600 3,724 7.48%
Commercial real estate 984,278 19,984 8.06%
Real estate construction 49,176 927 7.48%
Real estate residential 335,007 5,107 6.10%
Consumer 512,773 9,216 7.13%
--------------------------
Total loans 2,492,030 45,412 7.24%
--------------------------
Total earning assets 3,828,919 64,913 6.74%
Other assets 288,391
-------------
Total assets $4,117,310
=============
Liabilities and shareholders' equity
Deposits:
Noninterest bearing demand $1,103,431 $-- --
Savings and interest-bearing
transaction 1,550,070 3,157 0.81%
Time less than $100,000 337,193 2,009 2.36%
Time $100,000 or more 342,606 1,928 2.23%
--------------------------
Total interest-bearing deposits 2,229,869 7,094 1.26%
Short-term borrowed funds 252,045 887 1.40%
Federal Home Loan Bank advance 166,505 1,576 3.70%
Debt financing and notes payable 24,607 442 7.18%
--------------------------
Total interest-bearing liabilities 2,673,026 9,999 1.48%
Other liabilities 34,167
Shareholders' equity 306,686
-------------
Total liabilities and shareholders' equity $4,117,310
=============
Net interest spread (1) 5.26%
Net interest income and interest margin (2) $54,914 5.71%
==========================
(1) Net interest spread represents the average yield earned on earning assets minus the
average rate paid on interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference between
interest income and expense, divided by the average balance of earning assets.
Page 16
Three months ended
September 30, 2001
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------
Money market assets and funds sold $2,759 $18 2.59%
Investment securities:
Available for sale
Taxable 597,555 9,171 6.09%
Tax-exempt 281,854 5,338 7.58%
Held to maturity
Taxable 73,915 901 4.84%
Tax-exempt 143,349 2,878 8.03%
Loans:
Commercial
Taxable 401,421 8,032 7.94%
Tax-exempt 188,353 3,705 7.80%
Commercial real estate 978,748 20,064 8.12%
Real estate construction 68,954 1,575 9.06%
Real estate residential 351,639 6,009 6.84%
Consumer 478,432 9,952 8.25%
--------------------------
Total loans 2,467,547 49,337 7.94%
--------------------------
Total earning assets 3,566,979 67,643 7.53%
Other assets 282,736
-------------
Total assets $3,849,715
=============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,013,148 $-- --
Savings and interest-bearing
transaction 1,378,731 5,115 1.47%
Time less than $100,000 386,732 3,954 4.06%
Time $100,000 or more 469,076 4,494 3.80%
--------------------------
Total interest-bearing deposits 2,234,539 13,563 2.41%
Short-term borrowed funds 228,594 1,803 3.12%
Federal Home Loan Bank advance 0 0 0.00%
Debt financing and notes payable 27,821 499 7.17%
--------------------------
Total interest-bearing liabilities 2,490,954 15,865 2.53%
Other liabilities 37,724
Shareholders' equity 307,889
-------------
Total liabilities and shareholders' equity $3,849,715
=============
Net interest spread (1) 5.00%
Net interest income and interest margin (2) $51,778 5.78%
==========================
(1) Net interest spread represents the average yield earned on earning assets minus the
average rate paid on interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference between
interest income and expense, divided by the average balance of earning assets.
Page 17
Nine months ended
September 30, 2002
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------
Assets:
Money market assets and funds sold $1,265 $10 1.06%
Investment securities:
Available for sale
Taxable 660,480 24,813 5.02%
Tax-exempt 309,138 16,994 7.33%
Held to maturity
Taxable 106,272 4,282 5.39%
Tax-exempt 158,754 9,446 7.93%
Loans:
Commercial
Taxable 401,807 18,522 6.16%
Tax-exempt 196,334 11,190 7.60%
Commercial real estate 978,749 59,490 8.13%
Real estate construction 49,176 3,333 9.06%
Real estate residential 335,007 15,915 6.33%
Consumer 512,773 27,376 7.14%
--------------------------
Total loans 2,473,846 135,826 7.34%
--------------------------
Total earning assets 3,709,755 191,371 6.89%
Other assets 277,460
-------------
Total assets $3,987,215
=============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,056,367 $-- --
Savings and interest-bearing
transaction 1,477,495 9,535 0.86%
Time less than $100,000 341,370 6,511 2.55%
Time $100,000 or more 380,424 6,834 2.40%
--------------------------
Total interest-bearing deposits 2,199,289 22,880 1.39%
Short-term borrowed funds 244,898 2,808 1.51%
Federal Home Loan Bank advance 128,153 3,615 3.72%
Debt financing and notes payable 24,964 1,345 7.18%
--------------------------
Total interest-bearing liabilities 2,597,304 30,648 1.57%
Other liabilities 33,990
Shareholders' equity 299,554
-------------
Total liabilities and shareholders' equity $3,987,215
=============
Net interest spread (1) 5.32%
Net interest income and interest margin (2) $160,723 5.79%
==========================
(1) Net interest spread represents the average yield earned on earning assets minus the
average rate paid on interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference between
interest income and expense, divided by the average balance of earning assets.
Page 18
Nine months ended
September 30, 2001
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------
Assets:
Money market assets and funds sold $1,229 $23 2.50%
Investment securities:
Available for sale
Taxable 619,704 28,843 6.22%
Tax-exempt 256,904 14,597 7.58%
Held to maturity
Taxable 75,419 2,988 5.30%
Tax-exempt 146,761 8,700 7.90%
Loans:
Commercial
Taxable 400,796 26,733 8.92%
Tax-exempt 190,078 11,083 7.80%
Commercial real estate 968,897 60,171 8.29%
Real estate construction 67,702 4,979 9.68%
Real estate residential 353,253 18,487 7.00%
Consumer 479,800 30,560 8.52%
--------------------------
Total loans 2,460,526 152,013 8.24%
--------------------------
Total earning assets 3,560,543 207,164 7.77%
Other assets 288,453
-------------
Total assets $3,848,996
=============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $980,974 $-- --
Savings and interest-bearing
transaction 1,344,565 15,477 1.54%
Time less than $100,000 392,812 13,712 4.67%
Time $100,000 or more 485,124 17,427 4.80%
--------------------------
Total interest-bearing deposits 2,222,501 46,616 2.80%
Short-term borrowed funds 266,928 7,726 3.84%
Federal Home Loan Bank advance 0 0 0.00%
Debt financing and notes payable 28,178 1,516 7.17%
--------------------------
Total interest-bearing liabilities 2,517,607 55,858 2.96%
Other liabilities 37,343
Shareholders' equity 313,072
-------------
Total liabilities and shareholders' equity $3,848,996
=============
Net interest spread (1) 4.81%
Net interest income and interest margin (2) $151,306 5.68%
==========================
(1) Net interest spread represents the average yield earned on earning assets minus the
average rate paid on interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference between
interest income and expense, divided by the average balance of earning assets.
Page 19
Summary of Changes in Interest Income and Expense due to
Average Asset & Liability Balances and Yields Earned & Rates Paid
The following tables set forth a summary of the changes in interest income and
interest expense attributable to average asset and liability balances (volume)
and 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 (dollars in thousands).
Three months ended September 30, 2002
compared with three months
ended September 30, 2001
---------------------------------------
Volume Rate Total
---------------------------------------
Interest and fee income:
Money market assets and funds sold ($5) ($7) ($12)
Investment securities:
Available for sale
Taxable 1,163 (2,143) (980)
Tax-exempt $406 (200) 206
Held to maturity
Taxable $1,286 51 1,337
Tax-exempt $669 (25) 644
Loans:
Commercial
Taxable $230 (1,808) (1,578)
Tax-exempt $178 (159) 19
Commercial real estate $113 (193) (80)
Real estate construction (403) (245) (648)
Real estate residential (275) (627) (902)
Consumer 681 (1,417) (736)
---------------------------------------
Total loans 524 (4,449) (3,925)
---------------------------------------
Total earning assets 4,043 (6,773) (2,730)
---------------------------------------
Interest expense:
Deposits:
Savings and interest-bearing
transaction 574 (2,532) (1,958)
Time less than $100,000 (457) (1,488) (1,945)
Time $100,000 or more (1,014) (1,552) (2,566)
---------------------------------------
Total interest-bearing deposits (897) (5,572) (6,469)
---------------------------------------
Short-term borrowed funds 169 (1,085) (916)
Federal Home Loan Bank advance 1,576 0 1,576
Debt financing and notes payable (58) 1 (57)
---------------------------------------
Total interest-bearing liabilities 790 (6,656) (5,866)
---------------------------------------
Increase in Net Interest Income $3,253 ($117) $3,136
=======================================
Page 20
Nine months ended September 30, 2002
compared with nine months
ended September 30, 2001
---------------------------------------
Volume Rate Total
---------------------------------------
Interest and fee income:
Money market assets and funds sold 1 (14) ($13)
Investment securities:
Available for sale
Taxable 1,805 (5,835) (4,030)
Tax-exempt 2,882 (485) 2,397
Held to maturity
Taxable 1,242 52 1,294
Tax-exempt 713 33 746
Loans:
Commercial
Taxable 67 (8,278) (8,211)
Tax-exempt 359 (252) 107
Commercial real estate 608 (1,289) (681)
Real estate construction (1,279) (367) (1,646)
Real estate residential (923) (1,649) (2,572)
Consumer 1,999 (5,183) (3,184)
---------------------------------------
Total loans 831 (17,018) (16,187)
---------------------------------------
Total earning assets 7,474 (23,267) (15,793)
---------------------------------------
Interest expense:
Deposits:
Savings and interest-bearing
transaction 1,407 (7,349) (5,942)
Time less than $100,000 (1,613) (5,588) (7,201)
Time $100,000 or more (3,194) (7,399) (10,593)
---------------------------------------
Total interest-bearing deposits (3,400) (20,336) (23,736)
---------------------------------------
Short-term borrowed funds (591) (4,327) (4,918)
Federal Home Loan Bank advance 3,615 0 3,615
Debt financing and notes payable (173) 2 (171)
---------------------------------------
Total interest-bearing liabilities (549) (24,661) (25,210)
---------------------------------------
Increase in Net Interest Income $8,023 $1,394 $9,417
=======================================
Page 21
Provision for Loan Losses
The level of the provision for loan losses during each of the periods
presented reflects the Company's continued efforts to reduce credit costs by
enforcing underwriting and administration procedures and aggressively pursuing
collection efforts with troubled debtors. The Company provided $900 thousand
for loan losses in the third quarters of 2002 and 2001. For the first nine
months of 2001 and 2002, $2.7 million was provided in each period.
Additionally, $2.1 million of reserves were acquired in connection with the
KSB acquisition in the second quarter of 2002. For further information
regarding net credit losses and the reserve for loan losses, see the
"Classified Loans" section of this report.
Noninterest Income
The following table summarizes the components of noninterest income for the
periods indicated (dollars in thousands).
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------
2002 2001 2002 2001
----------------------------------------------------
Noninterest income excluding impairment
Service charges on deposit accounts 6,294 $5,806 $18,262 $17,274
Merchant credit card 971 1,047 2,839 3,032
ATM fees and interchange 686 642 1,820 1,700
Debit card fees 470 388 1,337 1,076
Other service fees 387 403 1,097 1,210
Mortgage banking income 303 260 707 722
Financial services commissions 284 375 1,048 994
Trust fees 220 221 774 752
Gains on sale of foreclosed property 1 1 108 155
Other noninterest income 839 1,447 2,606 4,954
----------------------------------------------------
Total noninterest income excluding
impairment of investment securities 10,455 10,590 30,598 31,869
----------------------------------------------------
Impairment of investment securities 0 0 (4,260) 0
----------------------------------------------------
Total noninterest income $10,455 $10,590 $26,338 $31,869
====================================================
Noninterest income for the third quarter of 2002 was $10.5 million, down $135
thousand or 1.3% from the same period in 2001. The largest single difference
was that of service charges on deposit accounts, specifically in the area of
deficit fees charges on analyzed accounts, which increased $367 thousand
(18.1%). Deficit fees are service charges collected from business customers
that typically pay for such services with compensating balances. In the
current period of low interest rates, the earnings value of these balances has
decreased resulting in more customers being required to pay for services with
explicit fees. Additionally, checking activity income also increased ($136
thousand or 9.6%) primarily due to repricing of checking account fees.
The second largest component of the change in the third quarter period was the
increased usage of card-based products. Since the Bank began issuing check (or
debit) cards in 2000, the number of cards in circulation and use have been
steadily increasing. In the current quarter, fees earned from check card use
totaled $470 thousand. Fees derived from the Bank's system of ATM machines
increased due to increased Bank customer use of other banks' machines and
non-Bank customers accessing their accounts through Westamerica Bank ATMs.
Mortgage Banking income rose over a year ago largely attributable to higher
gains on loan sales.
Decreases in three other categories reduced the effect of these increases.
Financial services commissions declined due to lower sales of annuities and
mutual funds. Merchant credit card income fell mostly due to a lower average
discount rate of 2.14% compared with 2.17% a year ago. Other service fees
declined. Other noninterest income fell $608 thousand (42.0%) primarily due to
lower gains on sales of assets and lower proceeds received on charged-off
loans.
Page 22
Noninterest income for the first nine months of 2002 was $5.5 million (17.4%)
lower than a year ago. The decline was primarily attributable to a $4.3
million charge from impairment of investment securities. Year-to-date 2001
benefited from additional $1.9 million of gains on sale of assets, $118
thousand interest on a tax refund and $255 thousand excess proceeds received
on charged-off loans, causing the 2002 other noninterest income to be lower.
Merchant Credit card income fell $193 thousand (6.4%) primarily due to lower
sales and a lower average discount rate of 2.16% compared with 2.19% over a
year ago. Other service fees declined $113 thousand (9.3%) due to
decreases in wire transfer fee income, automobile loan reconveyance fees and
foreign currency commissions.
The largest positive contributor to the increase in non-interest income was
service charges on deposits (up $989 thousand or 5.7%). Deficit fees were up
$1.4 million (24.5%) for the same reason mentioned above, reduced by lower
fees received on overdrafts and returned items (down $334 thousand or 4.9%).
Debit card and ATM fees rose $261 thousand (24.3%) and $120 thousand (7.1%)
due to higher usage. Financial services commissions were up primarily due to
higher sales of fixed annuities and life insurance.
Noninterest Expense
The following table summarizes the components of noninterest expense for the
periods indicated (dollars in thousands).
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------
2002 2001 2002 2001
----------------------------------------------------
Salaries and incentives $11,033 $10,656 $33,263 $31,372
Employee benefits 2,811 2,814 8,724 8,668
Occupancy 3,074 3,073 8,903 8,900
Equipment 1,479 1,513 4,339 4,587
Data processing services 1,529 1,502 4,543 4,577
Courier service 909 923 2,714 2,752
Professional fees 501 370 1,316 1,221
Telephone 428 480 1,257 1,474
Postage 397 415 1,199 1,318
Merchant credit card 373 399 1,059 1,123
Stationery and supplies 350 355 1,069 1,098
Advertising/public relations 321 319 900 1,031
Loan expense 307 296 1,004 823
Operational losses 210 278 632 689
Correspondent service charges 197 196 571 599
In-house meetings and travel 156 234 540 555
Deposit expense 136 126 434 429
Other real estate owned 2 18 52 159
Amortization of deposit intangibles 301 367 702 1,103
Amortization of goodwill 0 297 0 879
Other noninterest expense 1,450 1,132 4,346 3,609
----------------------------------------------------
Total $25,964 $25,763 $77,567 $76,966
====================================================
Average full time equivalent staff 1,067 1,074 1,075 1,082
Noninterest expense to revenues (FTE) 39.7% 41.3% 41.5% 42.0%
Noninterest expense for the third quarter was $26.0 million, $201 thousand
(0.8%) up from the comparable period of 2001. The largest increase was
salaries and incentives, which were up $377 thousand (3.5%). Professional
fees rose $131 thousand (35.4%) largely due to acquisition-related legal
fees. Other noninterest expense increased $318 thousand (28.1%) due
to an increase in ATM/Debit card related fees, amortization of low-income
housing investments and employee recruiting.
Page 23
In-house meeting and travel expense dropped mainly due to a sales contest
award trip in the prior period; operational losses decreased due to lower
sundry losses net of recoveries; and telephone expense decreased, through
continuing efficiency from telephone switching equipment installed in late
2000. The amortization of deposit intangibles declined due to the expiration
of the purchase premium incurred in connection with prior acquisitions,
partially offset by the KSB-related amortization. Amortization of goodwill was
eliminated in 2002 because of implementation of FASB No. 141 and 142. Goodwill
is no longer amortized but is instead periodically evaluated for impairment.
On a year-to-date basis, noninterest expense was $601 thousand (0.8%) more
than in the comparable period in 2001. Major increases were salaries and
incentives, loan expense, professional fees and employee benefits. A $1.9
million (6.0%) increase in salaries and incentives was attributable to the
$366 thousand in severance pay due to the KSB acquisition, an $802 thousand
increase in incentive compensation expenses and $951 thousand relating to
annual salary increases. A $181 thousand (22.0%) increase in loan expense was
mostly due to increases in collateral repossession expenses and appraisal
fees. Professional fees rose primarily due to acquisition-related expenses.
Employee benefits rose $56 thousand (0.7%), the net result of increases in the
group health insurance premiums (up $150 thousand) and a provision for
profit-sharing, reduced by a $128 thousand decline in workers compensation
costs. Increases in other noninterest expense included a $100 thousand
provision for unusual losses, a $141 thousand increase in staff relations, a
$125 thousand increase in amortization of low-income housing investments, $149
thousand in production of ATM/VISA cards.
Offsetting the increase were the following items: equipment costs declined
$248 thousand (5.4%) due to lower depreciation costs; telephone expense
declined $217 thousand (14.7%) owing to higher efficiency through new
switching equipment; postage decreased $119 thousand (9.0%), as the 2001
period included some extraordinary costs. Amortization of deposit based
intangibles decreased $401 thousand (36.4%). There was no amortization of
goodwill in the nine months of 2002 while $879 thousand was amortized in the
respective period in 2001.
Provision for Income Tax
During the third quarter of 2002, the Company recorded income tax expense of
$11.3 million, $880 thousand (8.5%) higher than the third quarter of 2001; on
a year-to-date basis, income tax expense was $30.1 million for 2002 compared
to $29.6 million for 2001. The current quarter provision represents an
effective tax rate of 33.0 percent, compared to 32.8 percent for the third
quarter of 2002; for the first nine months of 2002, the effective tax rate was
32.0 percent, compared to 32.1 percent recorded in 2001. The provision for
income taxes for all periods presented is primarily attributable to the
respective level of earnings and the incidence of allowable deductions, in
particular higher revenues recognized from tax-exempt loans and state and
municipal securities. In addition, year-to-date tax expense of 2002 reflected
$1.8 million tax benefits from the securities impairment writedown in the
second quarter.
Page 24
Classified Loans
The Company closely monitors the markets in which it conducts its lending
operations and continues its strategy to control exposure to loans with high
credit risk and to increase diversification of earning assets into less risky
investments. Loan reviews are performed using grading standards and criteria
similar to those employed by bank regulatory agencies. Loans receiving lesser
grades fall under the "classified" category, which includes all nonperforming
and potential problem loans, and receive an elevated level of attention to
ensure collection. "Other real estate owned" assets are recorded at the lower of
cost or market.
The following is a summary of classified loans and OREO on the dates indicated
(dollars in thousands):
At
At September 30, December 31,
--------------------------
2002 2001 2001
---------------------------------------
Classified loans $33,743 $30,171 $22,285
Other Real Estate Owned 470 547 523
---------------------------------------
Classified loans and OREO $34,213 $30,718 $22,808
=======================================
Allowance for loan losses /
classified loans 161% 174% 234%
Classified loans at September 30, 2002, increased $3.6 million (11.8%) from
September 30, 2001 largely due to $6.4 million in classified loans acquired
through the KSB acquisition and new downgrades, reduced by payoffs and
upgrades. Other real estate owned decreased $77 thousand (14.1%) from
September 30, 2001, due to sales and writedowns of properties acquired in
satisfaction of debt, partially offset by new foreclosures on loans with real
estate collateral. Similar to the quarter-to-quarter comparison, the $11.5
million (51.4%) increase in classified loans from December 31, 2001, was due
to $6.4 million in classified loans acquired through the KSB acquisition and
new downgrades, partially reduced by payoffs. The $53 thousand (10.1%)
reduction in other real estate owned from December 31, 2001, was due to sales
and writedowns of properties, partially offset by the addition of foreclosed
properties.
Page 25
Nonperforming Loans
Nonperforming loans include nonaccrual loans and loans 90 days past due as to
principal or interest and still accruing. Loans are placed on nonaccrual
status when they reach 90 days or more delinquent, unless the loan is well
secured and in the process of collection. Interest previously accrued on loans
placed on nonaccrual status is charged against interest income. In addition,
loans secured by real estate with temporarily impaired values and commercial
loans to borrowers experiencing financial difficulties are placed on
nonaccrual status even though the borrowers continue to repay the loans as
scheduled. Such loans are classified as "performing nonaccrual" and are
included in total nonperforming loans. When the ability to fully collect
nonaccrual loan principal is in doubt, cash payments received are applied
against the principal balance of the loan until such time as full collection
of the remaining recorded balance is expected. Any subsequent interest
received is recorded as interest income on a cash basis.
The following is a summary of nonperforming loans and other real estate owned
on the dates indicated (dollars in thousands):
At
At September 30, December 31,
--------------------------
2002 2001 2001
---------------------------------------
Performing nonaccrual loans $3,845 $1,350 $3,055
Nonperforming, nonaccrual loans 5,827 7,156 5,058
---------------------------------------
Total nonaccrual loans 9,672 8,506 8,113
Loans 90 days past due and
still accruing 257 409 550
---------------------------------------
Total nonperforming loans 9,929 8,915 8,663
Other real estate owned 470 547 523
---------------------------------------
Total nonperforming loans and OREO $10,399 $9,462 $9,186
=======================================
Allowance for loan losses /
nonperforming loans 548% 588% 601%
Performing nonaccrual loans at September 30, 2002 rose $2.5 million (184.8%)
from the same period in the previous year and $790 thousand (25.9%) from
December 31, 2001. The increase from both periods was the net result of $2.0
million of KSB loans and new downgrades and other loans being
removed from nonaccrual status or being paid off.
Nonperforming nonaccrual loans at September 30, 2002 decreased $1.3 million
(18.6%) from the same period a year ago but increased $769 thousand (15.2%)
from year-end, 2001. The change in both periods was the net result of the
addition of $933 thousand of KSB nonaccruing loans and other loans being
placed in nonperforming nonaccrual status and other loans being removed
from nonaccrual status or being paid off.
Other real estate owned at September 30, 2002 was $77 thousand (14.1%) lower
than the previous year and $53 thousand (10.1%) from December 31, 2001, the
net result of property sales and principal reductions and the addition of new
foreclosed property.
The Company had no restructured loans as of September 30, 2002, 2001 and
December 31, 2001.
The amount of gross interest income that would have been recorded for
nonaccrual loans for the three and nine month periods ended September 30,
2002, if all such loans had performed in accordance with their original terms,
was $183 thousand and $445 thousand, respectively, compared with $152 thousand
and $518 thousand, respectively, for the third quarter and the first nine
months of 2001.
The amount of interest income that was recognized on nonaccrual loans from all
cash payments, including those related to interest owed from prior years, made
during the three and nine months ended September 30, 2002, totaled $50
Page 26
thousand and $376 thousand, respectively, compared to $347 thousand and $917
thousand, respectively, for the respective periods in 2001. These cash
payments represent annualized yields of 2.15 percent and 6.28 percent,
respectively, for the third quarter and the first nine months of 2002 compared
to 19.35 percent and 16.07 percent, respectively, for the third quarter and
the first three quarters of 2001.
Total cash payments received during the third quarter of 2002 which were
applied against the book balance of nonaccrual loans outstanding at September
30, 2002, totaled approximately $85 thousand. Cash payments received totaled
$211 thousand for the nine months ended September 30, 2002.
Management believes the overall credit quality of the loan portfolio continues
to be strong; however, the total nonperforming assets could fluctuate from
period to period. The performance of any individual loan can be impacted by
external factors including but not limited to the interest rate environment,
local, regional and national economic conditions or factors particular to the
borrower. Based on information available to management at the date of this
report, the Company expects the current level of nonperforming assets should
remain approximately constant; however, the Company can give no assurance that
additional increases in nonaccrual loans will not occur in the future.
Allowance for Loan Losses
The Company's allowance for loan losses is maintained at a level estimated to
be adequate to provide for losses that can be estimated based upon specific
and general conditions. These include credit loss experience, the amount of
past due, nonperforming and classified loans, recommendations of regulatory
authorities, prevailing economic conditions and other factors. The allowance
is allocated to segments of the loan portfolio based in part on quantitative
analyses of historical credit loss experience, in which criticized and
classified loan balances are analyzed using a linear regression model to
determine standard allocation percentages. The results of this analysis are
applied to current criticized and classified loan balances to allocate the
allowance to the respective segments of the loan portfolio. In addition, loans
with similar characteristics not usually criticized using regulatory
guidelines due to their small balances and numerous accounts, are analyzed
based on the historical rate of net losses and delinquency trends, grouped by
the number of days the payments on these loans are delinquent. A portion of
the allowance is also allocated to impaired loans.
Management considers the $54.4 million allowance for loan losses, which
constituted 2.17 percent of total loans at September 30, 2002, to be adequate
as a reserve against inherent losses. However, while the Company's policy is
to charge off in the current period those loans on which the loss is
considered probable, the risk exists of future losses which cannot be
precisely quantified or attributed to particular loans or classes of loans.
Management continues to evaluate the loan portfolio and assess current
economic conditions that will dictate future required allowance levels.
Page 27
The following table summarizes the loan loss provision, net credit losses and
allowance for loan losses for the periods indicated (dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------
2002 2001 2002 2001
----------------------------------------------------
Balance, beginning of period $54,324 $52,468 $52,086 $52,279
Loan loss provision 900 900 2,700 2,700
Loans charged off (1,634) (1,611) (4,632) (5,501)
Recoveries of previously
charged off loans 857 704 2,243 2,983
----------------------------------------------------
Net credit losses (777) (907) (2,389) (2,518)
----------------------------------------------------
Acquired from Kerman State Bank 0 0 2,050 0
Balance, end of period $54,447 $52,461 $54,447 $52,461
====================================================
Allowance for loan losses /
loans outstanding 2.17% 2.11%
Capital Resources
The current and projected capital position of the Company and the impact of
capital plans and long-term strategies is reviewed regularly by Management.
Quarterly, the Company repurchases approximately 250 thousand of its shares of
Common Stock in the open market with the intention of lessening the dilutive
impact of issuing new shares to meet stock performance, option plans, and
other ongoing requirements. In addition to these systematic repurchases, other
programs have been implemented to optimize the Company's use of equity capital
and enhance shareholder value. Pursuant to these programs, the Company
repurchased an additional 1.30 million and 2.15 million shares during the
first nine months of 2002 and 2001, respectively.
The Company's primary capital resource is shareholders' equity, which was
$335.4 million at September 30, 2002. This amount represents an increase of
$21.1 million (6.7 percent) from December 31, 2001, is primarily reflective of
the effect of the generation of comprehensive income ($71.8 million), and
proceeds from the issuance of stock ($25.4 million including $14.6 million
stock issued in connection with the KSB acquisition), partially offset by
common stock repurchases ($53.9 million) and dividends ($22.2 million). The
net effect of slight net growth in equity capital and assets acquired from
KSB, the Company's ratio of equity to total assets declined to 7.97 percent at
September 30, 2002, from 8.26 percent a year ago. The equity to assets ratio
was 8.00 percent on December 31, 2001.
The following summarizes the ratios of capital to risk-adjusted assets for the
periods indicated:
At Well-
At September 30, December 31, Minimum Capitalized
-------------------- Regulatory Regulatory
2002 2001 2001 Requirement Requirement
-----------------------------------------------------------
Tier I Capital 9.47% 9.59% 9.29% 4.00% 6.00%
Total Capital 10.73% 10.93% 10.63% 8.00% 10.00%
Leverage ratio 7.12% 7.46% 7.30% 4.00% 5.00%
The risk-based capital ratio decreased at September 30, 2002, compared to the
prior year due to combination of asset growth from the KSB acquisition, an
increase in intangible assets and a decrease in the total level of tangible
(excluding goodwill and purchase premiums) shareholders' equity as a result of
the Company's common stock repurchases and dividends paid to shareholders,
partially offset by increased net income. The risk-based capital ratio
increased at September 30, 2002 from December 31, 2001 primarily due to an
increase in tangible shareholders equity from stock issued for the KSB
acquisition, partially offset by the Company's common stock repurchases,
dividends paid and asset growth from the KSB acquisition.
Page 28
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Asset and Liability Management
The fundamental objective of the Company's management of assets and
liabilities is to maximize economic value while maintaining adequate liquidity
and a conservative level of interest rate risk.
The primary analytical tool used by the Company to gauge interest rate risk is
a simulation model to project changes in net interest income ("NII") that
result from forecast changes in interest rates. The analysis calculates the
difference between a NII forecast over a 12-month period using a flat interest
rate scenario, and a NII forecast using a rising or falling rate scenario
where the Fed Funds rate is made to rise evenly by 200 basis points or fall
evenly by 100 basis points over the 12-month forecast interval triggering a
response in the other forecasted rates. Company policy requires that such
simulated changes in NII should be within certain specified ranges or steps
must be taken to reduce interest rate risk. The results of the model indicate
that the mix of interest rate sensitive assets and liabilities at September
30, 2002 would not result in a fluctuation of NII that would exceed the
parameters established by Company policy.
At September 30, 2002 and 2001, the Company had no derivative financial
instruments outstanding. As the Company believes that the derivative financial
instrument disclosures contained within the notes to the financial statements
of its 2001 Form 10-K substantially conform with accounting policy
requirements, no further interim disclosure has been provided. At September
30, 2002, there were no substantial changes in the information on market risk
that was disclosed in the Company's Form 10-K for the year ended December 31,
2001.
Liquidity
The Company generates significant liquidity from its operating activities. The
Company's profitability during the first nine months of 2002 and 2001
generated substantial cash flows, which are included in the totals provided
from operations of $74.8 million and $73.2 million, respectively.
Additional cash flows are provided by or used in investing activities. During
the first nine months of 2002 the Company had net cash outflows in its
investing activities. Purchases net of sales and maturities of investment
securities of $216.3 million were reduced by net repayments of loans of $32.7
million and $5.4 million cash obtained in the KSB acquisition, resulting in
net cash used of $178.8 million. At September 30, 2002, investment securities
available for sale totaled $1,003.2 million, representing an increase of $54.2
million from December 31, 2001.
The Company realized net cash inflows from its investing activities during the
first nine months of 2001. Sales & maturities of investment securities net of
purchases were $43.9 million during the nine months of 2001, which was reduced
by net disbursements of loans of $2.2 million, resulting in net cash provided
from investing activities of $40.1 million.
Additional cash flows may be provided by financing activities, primarily the
acceptance of deposits and borrowings from banks. During the first three
quarters of 2002 financing activities provided $100.5 million cash. This
amount includes cash outflows related to a $32.3 million decrease in deposits,
the Company's stock repurchase programs and dividends paid to shareholders of
$53.9 million and $22.2 million, respectively, reduced by $74.4 million
proceeds from short-term borrowings and $130.0 million from FHLB advances.
Page 29
At September 30, 2002, the Company had customary lines for overnight
borrowings from other financial institutions totaling $660 million and a $20
million line of credit under which $9.6 million was outstanding. Additionally,
as a member of the Federal Reserve System, the Company has access to borrowing
from the Federal Reserve. The Company may also borrow from the FHLB which it
collateralizes with its residential real estate loans. At September 30, 2002,
the Company had excess collateral providing available borrowing capacity from
the FHLB of approximately $73 million.
Since January 1, 2000, the Company has reduced its long-term debt by $16.9
million, reducing its debt-to-equity ratio from 14% at January 1, 2000 to 4%
at September 30, 2002. The Company's long-term debt rating from Fitch Ratings
is A- with a stable outlook. Management is confident the Company could access
additional long-term debt financing if desired.
Unlike the same period in 2002, financing activities for the first nine
months of 2001 required cash. The effect of the Company's stock repurchase
programs and dividends paid to shareholders were $82.3 million and $21.8
million, respectively. These cash outflows, added to a $130.9 million
reduction in short-term borrowed funds, partially offset by a $21.2 million
increase in deposits and $12.8 million proceeds from stock issuance are
included in the net cash used in financing activities of $204.2 million.
Westamerica Bancorporation ("the Parent Company") is separate and apart from
Westamerica Bank ("the Bank") and must provide for its own liquidity. In
addition to its operating expenses, the Parent Company is responsible for the
payment of dividends to its shareholders and interest on outstanding senior
debt. Substantially all of the Parent Company's revenues are obtained from
service fees and dividends received from the Bank. Payment of such dividends
to the Parent Company by the Bank is limited under regulations for Federal
Reserve member banks. The amount that can be paid in any calendar year,
without prior approval from regulatory agencies, cannot exceed the net profits
(as defined) for that year plus the net profits of the preceding two calendar
years less dividends paid. The Company believes that such restrictions will
not have an impact on the Parent Company's ability to meet its ongoing cash
obligations.
Page 30
Item 4. Controls and Procedures
The Company's principal executive officer and principal financial officer have
evaluated the effectiveness of the Company's "disclosure controls and
procedures," as such term is defined in Rule 13a-14(c) of the Securities
Exchange Act of 1934, as amended, within 90 days of the filing date of this
Quarterly Report on Form 10-Q. Based upon their evaluation, the principal
executive officer and principal financial officer concluded that the Company's
disclosure controls and procedures are effective. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls, since the date the controls were
evaluated.
Page 31
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Due to the nature of the banking business, the Subsidiary
Bank is at times party to various legal actions; all
such actions are of a routine nature and arise in the normal
course of business of the Subsidiary Bank.
Item 2 - Changes in Securities
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 11: Computation of Earnings Per Share on Common
and Common Equivalent Shares and on Common
Shares Assuming Full Dilution
Exhibit 99.1: Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
Exhibit 99.2: Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K
None
Page 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
WESTAMERICA BANCORPORATION
(Registrant)
Date: November 8, 2002
/s/ DENNIS R. HANSEN
--------------------
Dennis R. Hansen
Senior Vice President
and Controller
Chief Accounting Officer
Page 33
CERTIFICATION UNDER
SECTION 302 OF
THE SARBANES OXLEY ACT OF 2002
I, David L. Payne, Chief Executive Officer of the Company, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Westamerica
Bancorporation;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the periods covered by
this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ David L. Payne
- --------------------
David L. Payne
Chairman, President and Chief Executive Officer
November 8, 2002
Page 34
CERTIFICATION UNDER
SECTION 302 OF
THE SARBANES OXLEY ACT OF 2002
I, Jennifer J. Finger, Chief Financial Officer of the Company, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Westamerica
Bancorporation;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the periods covered by
this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Jennifer J. Finger
- --------------------
Jennifer J. Finger
Senior Vice President and Chief Financial Officer
November 8, 2002
Page 35
Exhibit 11
WESTAMERICA BANCORPORATION
Computation of Earnings Per Share on Common and
Common Equivalent Shares and on Common Shares
Assuming Full Dilution
Three months Nine months
ended September 30, ended September 30,
(In thousands, except per share data) 2002 2001 2002 2001
----------------------------------------------------
Weighted average number of common
shares outstanding - basic 33,621 35,002 33,751 35,475
Add assumed exercise of options reduced
by the number of shares that could have
been purchased with the proceeds of
such exercise 497 522 558 550
----------------------------------------------------
Weighted average number of common
shares outstanding - diluted 34,118 35,524 34,309 36,025
====================================================
Net income $22,877 $21,325 $63,883 $62,508
Basic earnings per share $0.68 $0.61 $1.89 $1.76
Diluted earnings per share $0.67 $0.60 $1.86 $1.74
Page 36
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Westamerica Bancorporation (the
"Company") on Form 10-Q for the period ending September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
David L. Payne, Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirement of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ David L. Payne
- --------------------
David L. Payne
Chairman, President and Chief Executive Officer
November 8, 2002
Page 37
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Westamerica Bancorporation (the
"Company") on Form 10-Q for the period ending September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Jennifer J. Finger, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirement of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Jennifer J. Finger
- --------------------
Jennifer J. Finger
Senior Vice President and Chief Financial Officer
November 8, 2002
Page 38