Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 2003
Commission File Number: 001-9383
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) 863-6000
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ x ] No [ ]
Indicate the number of shares outstanding of each of the registrant classes
of common stock, as of the latest practicable date:
Title of Class Shares outstanding as of August 8, 2003
Common Stock, 32,705,360
No Par Value
Page 2
TABLE OF CONTENTS
Page
---------
Forward Looking Statements 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements 3
Notes to Unaudited Condensed Consolidated Financial Statements 7
Financial Summary 9
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3 - Quantitative and Qualitative Disclosure about Market Risk 25
Item 4 - Controls and Procedures 25
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 26
Item 2 - Not applicable 26
Item 3 - Not applicable 26
Item 4 - Submission of Matters to a Vote of Security Holders 26
Item 5 - Not applicable 26
Item 6 - Exhibits and Reports on Form 8-K 26
(a) - Exhibits
Exhibit 11 - Computation of Earnings Per Share 30
Exhibit 31.1 - Certification of Chief Executive Officer pursuant to 31
Securities Exchange Act Rule 13a-(14)(a)
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to 32
Securities Exchange Act Rule 13a-(14)(a)
Exhibit 32.1 - Certification Required by 18 U.S.C. Section 1350 33
Exhibit 32.2 - Certification Required by 18 U.S.C. Section 1350 34
(b) - Reports on Form 8-K 28
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) continued weakness in the national and
California economies; (2) increased economic uncertainty created by concerns
regarding terrorist attacks and geopolitical risks; (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 assets and liabilities; (10) asset/liability management 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, 2002, 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. The Company
undertakes no obligation to update any forward-looking statements in this
report.
Page 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
At
At June 30, December 31,
--------------------------
2003 2002 2002
---------------------------------------
Assets:
Cash and cash equivalents $201,560 $183,589 $222,577
Money market assets 633 633 633
Investment securities available for sale 1,251,341 986,392 947,848
Investment securities held to maturity,
with market values of:
$599,484 at June 30, 2003 588,231
$287,841 at June 30, 2002 279,640
$450,771 at December 31, 2002 438,985
Loans, gross 2,406,889 2,507,968 2,494,638
Allowance for loan losses (54,159) (54,324) (54,227)
---------------------------------------
Loans, net of allowance for loan losses 2,352,730 2,453,644 2,440,411
Premises and equipment, net 36,408 39,078 37,396
Interest receivable and other assets 133,789 129,526 137,017
---------------------------------------
Total Assets $4,564,692 $4,072,502 $4,224,867
=======================================
Liabilities:
Deposits:
Non-interest bearing $1,194,847 $1,081,967 $1,146,828
Interest bearing:
Transaction 554,568 528,226 559,875
Savings 962,967 979,289 952,319
Time 741,249 725,958 635,043
---------------------------------------
Total deposits 3,453,631 3,315,440 3,294,065
Short-term borrowed funds 393,287 228,635 349,736
Federal Home Loan Bank advance 170,000 140,000 170,000
Notes Payable 21,393 24,607 24,607
Liability for interest, taxes and
other expenses 169,070 43,447 44,960
---------------------------------------
Total Liabilities 4,207,381 3,752,129 3,883,368
=======================================
Shareholders' Equity:
Authorized - 150,000 shares of common stock
Issued and outstanding:
32,937 at June 30, 2003 219,060
33,753 at June 30, 2002 226,551
33,411 at December 31, 2002 217,198
Accumulated other comprehensive income:
Unrealized gain on securities
available for sale, net of tax 26,001 14,184 19,152
Retained earnings 112,250 79,638 105,149
---------------------------------------
Total Shareholders' Equity 357,311 320,373 341,499
---------------------------------------
Total Liabilities and
Shareholders' Equity $4,564,692 $4,072,502 $4,224,867
=======================================
See accompanying notes to consolidated financial statements.
Page 4
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
2003 2002 2003 2002
----------------------------------------------------
Interest Income:
Loans $39,419 $43,912 $79,832 $87,878
Money market assets and funds sold 2 4 5 4
Investment securities available for sale
Taxable 8,254 8,350 15,957 16,632
Tax-exempt 3,854 3,693 7,625 7,555
Investment securities held to maturity
Taxable 1,673 1,073 4,185 2,042
Tax-exempt 3,397 2,055 6,119 3,913
----------------------------------------------------
Total interest income 56,599 59,087 113,723 118,024
----------------------------------------------------
Interest Expense:
Transaction deposits 211 413 453 820
Savings deposits 1,562 2,817 3,271 5,559
Time deposits 2,697 4,415 5,654 9,407
Short-term borrowed funds 962 895 1,812 1,921
Federal Home Loan Bank advance 1,592 1,247 3,167 2,039
Debt financing and notes payable 385 442 789 903
----------------------------------------------------
Total interest expense 7,409 10,229 15,146 20,649
----------------------------------------------------
Net Interest Income 49,190 48,858 98,577 97,375
----------------------------------------------------
Provision for loan losses 900 900 1,800 1,800
----------------------------------------------------
Net Interest Income After
Provision For Loan Losses 48,290 47,958 96,777 95,575
----------------------------------------------------
Noninterest Income:
Service charges on deposit accounts 6,648 5,967 13,073 11,969
Merchant credit card 900 963 1,762 1,868
Mortgage banking 301 217 527 404
Trust fees 277 243 516 554
Financial services commissions 210 425 418 764
Securities gains (Impairment) 277 (4,260) 293 (4,278)
Other 2,423 2,329 4,822 4,602
----------------------------------------------------
Total Noninterest Income 11,036 5,884 21,411 15,883
----------------------------------------------------
Noninterest Expense:
Salaries and related benefits 13,598 14,281 27,297 28,143
Occupancy 3,044 2,898 6,039 5,829
Data processing 1,518 1,516 3,077 3,015
Equipment 1,381 1,425 2,755 2,859
Professional fees 457 443 870 815
Other 5,478 5,346 10,973 10,941
----------------------------------------------------
Total Noninterest Expense 25,476 25,909 51,011 51,602
----------------------------------------------------
Income Before Income Taxes 33,850 27,933 67,177 59,856
----------------------------------------------------
Provision for income taxes 10,179 8,586 20,494 18,850
----------------------------------------------------
Net Income $23,671 $19,347 $46,683 $41,006
====================================================
Comprehensive Income:
Change in unrealized gain on
securities available for sale, net 5,591 6,122 6,849 2,284
----------------------------------------------------
Comprehensive Income $29,262 $25,469 $53,532 $43,290
===================================================
Average Shares Outstanding 33,000 33,565 33,054 33,817
Diluted Average Shares Outstanding 33,492 34,180 33,528 34,406
Per Share Data:
Basic Earnings $0.72 $0.58 $1.41 $1.21
Diluted Earnings 0.71 0.57 1.39 1.19
Dividends Paid 0.24 0.22 0.48 0.44
See accompanying notes to consolidated financial statements.
Page 5
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
Accumulated
Other
Compre-
Common hensive Retained
Stock Income Earnings Total
----------------------------------------------------
Balance, December 31, 2001 $209,074 $11,900 $93,385 $314,359
Net income for the period 41,006 41,006
Stock issued in connection with
purchase of Kerman State Bank 14,620 14,620
Stock issued, including
stock option tax benefits 9,737 9,737
Purchase and retirement of stock (6,880) (39,832) (46,712)
Dividends (14,921) (14,921)
Unrealized gain on securities available
for sale, net 2,284 2,284
----------------------------------------------------
Balance, June 30, 2002 $226,551 $14,184 $79,638 $320,373
====================================================
Balance, December 31, 2002 $217,198 $19,152 $105,149 $341,499
Net income for the period $46,683 46,683
Stock issued, including
stock option tax benefits 6,296 6,296
Purchase and retirement of stock (4,434) (23,695) (28,129)
Dividends (15,887) (15,887)
Unrealized gain on securities available
for sale, net 6,849 6,849
----------------------------------------------------
Balance, June 30, 2003 $219,060 $26,001 $112,250 $357,311
====================================================
See accompanying notes to consolidated financial statements.
Page 6
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the six months
ended June 30,
2003 2002
--------------------------
Operating Activities:
Net income $46,683 $41,006
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of fixed assets 2,139 2,264
Amortization of intangibles 1,014 869
Loan loss provision 1,800 1,800
Amortization of deferred net loan (cost)/fees 117 396
Decrease (increase) in interest income receivable 362 (1,956)
Decrease (increase) in other assets 57,823 (2,484)
Increase (decrease) in income taxes payable 2,978 (1,484)
(Decrease) in interest expense payable (382) (132)
(Decrease) increase in other liabilities (53,321) 3,060
(Gain) loss on sales of investment securities (293) 18
Writedown of equipment 102 268
Originations of loans for resale (5,257) (7,028)
Proceeds from sale of loans originated for resale 5,007 7,567
Net gain on sale of property acquired
in satisfaction of debt (9) (107)
Writedown on property acquired in satisfaction of debt 0 34
Impairment of investment securities 0 4,260
--------------------------
Net Cash Provided by Operating Activities 58,763 48,351
--------------------------
Investing Activities:
Net cash obtained in mergers and acquisitions 0 5,368
Net repayments of loans 84,213 33,674
Purchases of investment securities available for sale (499,669) (777,488)
Purchases of investment securities held to maturity (243,158) (68,696)
Purchases of property, plant and equipment (1,750) (1,069)
Proceeds from maturity of securities available for sale 257,382 741,284
Proceeds from maturity of securities held to maturity 93,912 14,849
Proceeds from sale of securities available for sale 69,305 982
Proceeds from sale of property and equipment 498 364
Proceeds from property acquired in satisfaction of debt 293 391
--------------------------
Net Cash (Used In) Investing Activities (238,974) (50,341)
--------------------------
Financing Activities:
Net increase (decrease) in deposits 159,565 (2,762)
Net increase (decrease) in short-term borrowings 43,551 (33,001)
Net increase in Federal Home Loan Bank advances 0 100,000
Repayments of notes payable (3,214) (3,214)
Exercise of stock options/issuance of shares 3,308 7,007
Repurchases/retirement of stock (28,129) (46,712)
Dividends paid (15,887) (14,921)
--------------------------
Net Cash Provided By Financing Activities 159,194 6,397
--------------------------
Net (Decrease) Increase In Cash and Cash Equivalents (21,017) 4,407
--------------------------
Cash and Cash Equivalents at Beginning of Period 222,577 179,182
--------------------------
Cash and Cash Equivalents at End of Period $201,560 $183,589
==========================
Page 7
For the six months
ended June 30,
2003 2002
--------------------------
Supplemental Disclosure of Noncash Activities:
Loans transferred to other repossessed collateral $1,800 $375
Unrealized gain on securities available for sale $6,849 $2,284
Supplemental Disclosure of Cash Flow Activity:
Interest paid for the period 14,764 20,564
Income tax payments for the period 18,461 18,991
Income tax benefit from stock option exercises 1,887 1,938
The acquisition of Kerman State Bank
involved the following:
Common Stock issued 0 14,620
Liabilities assumed 0 85,085
Fair value of assets acquired, other than cash
and cash equivalents 0 (90,170)
Core deposit intangible 0 (2,500)
Goodwill 0 (1,667)
Net cash and cash equivalents received 0 5,368
See accompanying notes to consolidated financial statements.
Page 8
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 period presented. The interim results for the six months ended June
30, 2003 and 2002 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, 2002.
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: Goodwill and Other Intangible Assets
The Company has recorded goodwill and core deposit intangibles associated with
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. During 2003, no impairment of
goodwill has been recorded. 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 June 30, 2003.
The following table summarizes the Company's goodwill and core deposit
intangible assets, which are included with interest receivable and other assets
in the Consolidated Balance Sheets, as of January 1, 2003 and June 30, 2003
(dollars in thousands).
January 1 June 30
(Dollar in Thousands) 2003 Additions Reductions 2003
-------------------------------------------------
Goodwill $22,968 $0 $0 $22,968
Accumulated Amortization ($3,972) $0 $0 ($3,972)
-------------------------------------------------
Net $18,996 $0 $0 $18,996
=================================================
Core Deposit Intangibles $7,783 $0 $0 $7,783
Accumulated Amortization ($3,603) $0 $414 ($4,017)
-------------------------------------------------
Net $4,180 $0 $414 $3,766
=================================================
At June 30, 2003, the estimated aggregate amortization of intangibles, in
thousand of dollars, for the remainder of 2003 and annually through 2008 is
$329, $543, $469, $427, $427 and $427, respectively. The weighted average
amortization period for core deposit intangibles is 8.5 years.
Page 9
Note 4: Stock Options
As permitted by Statement of Financial Accounting Standards ("SFAS") No.
123 "Accounting for Stock-Based Compensation", the Company accounts for
its stock option plans using the intrinsic value method. Accordingly,
compensation expense is recorded on the grant date only if the current
price of the underlying stock exceeds the exercise price of the option.
Had compensation cost been determined based on the fair value method
established by SFAS 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------
(In thousands, except per share data)
Compensation cost based on fair
value method, net of tax effect $589 $900 $1,178 $1,800
Net income:
As reported $23,671 $19,347 $46,683 $41,006
Pro forma $23,082 $18,447 $45,505 $39,206
Basic earnings per share:
As reported $0.72 $0.58 $1.41 $1.21
Pro forma 0.70 0.55 1.38 1.16
Diluted earnings per share:
As reported $0.71 $0.57 $1.39 $1.19
Pro forma 0.69 0.54 1.36 1.14
Page 10
WESTAMERICA BANCORPORATION
Financial Summary
(dollars in thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------
Net Interest Income (FTE) $54,324 $53,096 $108,386 $105,808
Provision for loan losses (900) (900) (1,800) (1,800)
Noninterest income:
Noninterest income before securities 10,759 10,144 21,118 20,161
gains (impairment)
Securities gains (impairment) 277 (4,260) 293 (4,278)
----------------------------------------------------
Total noninterest income 11,036 5,884 21,411 15,883
Noninterest expense (25,476) (25,909) (51,011) (51,602)
Provision for income taxes (FTE) (15,313) (12,824) (30,303) (27,283)
----------------------------------------------------
Net income $23,671 $19,347 $46,683 $41,006
====================================================
Average shares outstanding 33,000 33,565 33,054 33,817
Diluted average shares outstanding 33,492 34,180 33,528 34,406
Shares outstanding at period end 32,937 33,753 32,937 33,753
As Reported:
Basic earnings per share $0.72 $0.58 $1.41 $1.21
Diluted earnings per share 0.71 0.57 1.39 1.19
Return on assets 2.21% 1.97% 2.21% 2.11%
Return on equity 29.27% 26.67% 29.44% 27.94%
Net interest margin 5.43% 5.82% 5.51% 5.84%
Net loan losses to average loans 0.15% 0.13% 0.16% 0.13%
Efficiency ratio 39.0% 43.9% 39.3% 42.4%
Average Balances:
Total assets $4,304,387 $3,933,274 $4,253,125 $3,922,167
Earning assets 4,007,049 3,659,033 3,956,535 3,645,189
Total loans 2,375,491 2,448,546 2,399,754 2,459,768
Total deposits 3,370,433 3,226,951 3,338,681 3,216,834
Shareholders' equity 324,350 290,960 319,741 295,987
Balances at Period End:
Total assets $4,564,692 $4,072,502
Earning assets 4,247,094 3,774,633
Total loans 2,406,889 2,507,968
Total deposits 3,453,631 3,315,440
Shareholders' equity 357,311 320,373
Financial Ratios at Period End:
Allowance for loan losses to loans 2.25% 2.17%
Book value per share $10.85 $9.49
Equity to assets 7.83% 7.87%
Total capital to risk assets 11.32% 10.65%
Dividends Paid Per Share $0.24 $0.22 $0.48 $0.44
Dividend Payout Ratio 34% 39% 34% 37%
The above financial summary has been derived from the Company's
consolidated financial statements. This information should be read in
conjunction with the consolidated financial statements, notes and the
other information included elsewhere herein.
Page 11
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Westamerica Bancorporation and subsidiaries (the "Company") reported second
quarter 2003 net income of $23.7 million or diluted earnings per share of $0.71.
These results compare with second quarter 2002 net income of $19.3 million or
$0.57 per share. The 2002 period included expenses in connection with the Kerman
State Bank ("KSB") acquisition of $240 thousand after-tax and a $2.5 million
after-tax securities impairment charge.
On a year-to-date basis, the Company reported net income for the six months
ended June 30, 2003 of $46.7 million or diluted earnings per share of $1.39,
compared with $41.0 million or $1.19 per share for the same period 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 Six months ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------
Net interest income (FTE) $54,324 $53,096 $108,386 $105,808
Provision for loan losses (900) (900) (1,800) (1,800)
Noninterest income:
Noninterest income before securities 10,759 10,144 21,118 20,161
gains (impairment)
Securities gains (impairment) 277 (4,260) 293 (4,278)
----------------------------------------------------
Total noninterest income 11,036 5,884 21,411 15,883
Noninterest expense (25,476) (25,909) (51,011) (51,602)
Provision for income taxes (FTE) (15,313) (12,824) (30,303) (27,283)
----------------------------------------------------
Net income $23,671 $19,347 $46,683 $41,006
====================================================
Net income for the second quarter of 2003 was $4.3 million or 22.3% more than
the same quarter of 2002 primarily due to higher noninterest income (up $5.2
million or 87.6%) and improved net interest income (FTE). The increase in
noninterest income was attributable to a securities impairment charge in 2002
and increased fee income. Improved net interest income (FTE) (up $1.2 million or
2.3%) was largely due to higher average earning assets (up $348.0 million),
partially offset by a 39 basis point ("bp") decline in the net margin.
Noninterest expense in 2003 declined $433 thousand or 1.7% mostly
because of lower personnel costs. The 2002 compensation expense included
$400 thousand expense relating the KSB acquisition.
Comparing the first six months of 2003 to the prior year, net income rose $5.7
million (13.8%). Similar to the quarter-to-quarter comparison, the increase was
primarily attributable to higher noninterest income (up $5.5 million or 34.8%)
resulting from a securities impairment charge in 2002, increased fee income and
improved net interest income (FTE) (up $2.6 million or 2.4%). The increase in
net interest income was mostly caused by higher earning assets (up $311.3
million or 8.5%), partially reduced by a 33 bp net interest margin reduction.
The $591 thousand or 1.1% decrease in noninterest expense was mainly due to
lower personnel costs.
Net Interest Income
Following is a summary of the components of net interest income for the periods
indicated (dollars in thousands):
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------
Interest and fee income $56,599 $59,087 $113,724 $118,024
Interest expense (7,409) (10,229) (15,146) (20,649)
FTE adjustment 5,134 4,238 9,808 8,433
----------------------------------------------------
Net interest income (FTE) $54,324 $53,096 $108,386 $105,808
====================================================
Average earning assets $4,007,049 $3,659,033 $3,956,535 $3,645,189
Net interest margin (FTE) 5.43% 5.82% 5.51% 5.84%
Page 12
The Company's primary source of revenue is net interest income, or the
difference between interest income earned on earning assets and interest
expense paid on interest-bearing liabilities. Net interest income (FTE)
during the second quarter of 2003 increased $1.2 million (2.3%) from the
same period in 2002 to $54.3 million. The increase was mainly
attributable to a $348.0 million increase in average earning assets, the
volume component, partly reduced by the effect of the lower margin
earned on those assets, the rate component. The decrease in the net
interest margin was the net effect of a 77 bp drop in the asset yield,
which was partially offset by a 38 bp decline in the cost of funds.
Comparing the first six months of 2003 with the prior year, net interest
income (FTE) increased $2.6 million or 2.4%. The increase was caused by
the higher earning assets (up $311.3 million), partially offset by the
effect of declining yields on earning assets. The margin reduction was
the result of a 70 bp decrease in the asset yield combined with a 37 bp
decline in the cost of funds.
Interest and Fee Income
Interest & fee income (FTE) for the second quarter of 2003 decreased
$1.6 million (2.5%) from the same period in 2002. The decline was the
net effect of higher average earning assets in 2003, more than offset by
lower yields earned on those assets. Average earning assets grew $348.0
million (9.5%). The earning asset growth was led by expansion in the
investment portfolio of $421.5 million as follows: mortgage backed
securities and collateralized mortgage obligations (up $307.2 million),
US Agency obligations (up $211.5 million) and municipal securities (up
$119.2 million). Offsetting the increase were declines in U.S. Treasury
securities (down $116.6 million) and other securities (down $99.8
million). A portion of the growth in the investment portfolio was
offset by a $73.1 million reduction in loans including commercial real
estate loans (down $62.6 million), commercial loans (down $22.6
million), construction loans (down $17.3 million) and direct consumer
loans (down $14.2 million). The notable exceptions were increases in
indirect consumer loans (up $28.0 million) and residential real estate
loans (up $14.8 million).
The average yield on the Company's earning assets decreased for the
quarter from 6.94% in 2002 to 6.17% in 2003 (down 77 bp). This downward
trend in yields was reflective of general interest rate markets during
2002 and into 2003, as evident in residential real estate loans (120 bp
decline in yield), indirect consumer loans (117 bp decline) and
commercial loans (31 bp decline). The average interest rate on
commercial real estate loans declined by 30 bp; however, the effective
yield on those loans rose by 5 bp due to higher prepayment fees. As a
result, the loan portfolio yield decreased 54 bp. The investment
portfolio yield declined 83 bp, the net result of declines in U.S.
Treasury securities (down 188 bp), mortgage backed securities and
collateralized mortgage obligations (down 143 bp), U.S. Agency
obligations (down 139 bp) and municipal securities (down 30 bp),
partially offset by a 155 bp increase in other securities, which was
caused by an FTE adjustment to other securities.
Comparing the first half of 2003 to 2002, interest and fee income (FTE)
decreased by $2.9 million (2.3%). 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 was caused by a $311.3 million
(8.5%) increase in average earning assets, including mortgage backed
securities and collateralized mortgage obligations (up $269.3 million or
338.9%), U.S. Agency obligations (up $213.2 million or 97.3%), municipal
securities (up $95.5 million or 21.4%), and indirect consumer loans (up
$40.3 million or 10.6%). Offsetting the growth were declines in U.S.
Treasury securities (down $122.2 million or 91.0%), other securities
(down $84.2 million or 27.5%), commercial real estate loans (down $50.7
million or 5.2%), commercial loans (down $20.7 million or 3.5%),
construction loans (down $19.1 million or 29.4%) and direct consumer
loans (down $14.4 million or 34.6%).
Page 13
The average yield on earning assets for the first six months of 2003 was
6.28% compared to 6.98% in 2002. All earning asset yields fell except
for an 88 bp increase in other securities due to the above-mentioned FTE
adjustment to other securities. The yield on residential real estate
loans was down 116 bp, indirect consumer loan yields also declined 115
bp and the yield on commercial loans decreased 29 bp. The yield on
commercial real estate loans increased by 3 bp, the net result of higher
prepayment fees, partially offset by a 24 bp decrease in the average
interest rate on those loans. As a result, the composite loan yield
declined 63 bp. The investment portfolio yield decreased 80 bp, affected
primarily by lower yields on U.S. Treasury securities (down 162 bp),
mortgage backed securities and collateralized mortgage obligations (down
141 bp), U.S. Agency obligations (down 133 bp) and municipal securities
(down 30 bp).
Interest Expense
Interest expense decreased $2.8 million (27.6%) in the second quarter of 2003
compared to the year-ago period. The decrease resulted from a drop in
the average rate paid on interest-bearing liabilities from 1.60% in 2002
to 1.05% in 2003. The average rate on bankers money fund dropped 88 bp,
rates on CDs over $100 thousand declined an average of 113 bp, rates on
retail CDs declined 78 bp, and rates on money market savings accounts
were lowered 62 bp.
The effect of a $255.7 million (10.0%) increase in average interest-bearing
liabilities in the second quarter caused an increase in volume-related expense
and partially offset the above-mentioned rate-related decline in
interest expense. Short-term borrowings rose by $155.6 million and
Federal Home Loan Bank ("FHLB") advances also increased by $38.2
million. Interest bearing deposits rose by $65.1 million, the net result
of increases in money market savings (up $99.6 million), CDs over $100
thousand (up $28.1 million) money market checking (up $27.5 million) and
regular savings (up $24.3 million), partially reduced by decreases in
preferred money market savings (down $79.1 million) and retail CDs (down
$24.6 million).
During the first half of 2003, interest expense decreased $5.5 million
(26.7%) from 2002, again due to a lower average rate paid on
interest-bearing liabilities (1.09% in the first half of 2003 compared
with 1.62% in 2002). All deposit categories declined including money
market savings (from 1.45% in the first six months of 2002 to 0.85% in
the same period of 2003), CDs over $100 thousand (from 2.48% to 1.52%)
and retail CDs with maturities varying from 1 month to over 3 years
(from 2.64% to 1.84%). Interest rates on short-term borrowings declined
from 1.61% to 1.00%.
Interest-bearing liabilities grew $212.6 million or 8.3% for the six
months ended June 30, 2003 and caused a volume-related increase in
interest expense, which partially offset the rate-related decline in
interest expense. Increases in money market savings (up $105.0 million),
short-term borrowings (up $124.3 million) and Federal Home Loan Bank
advances (up $61.0 million) were partially offset by declines in
preferred money market (down $66.7 million) and CDs over $100 thousand
(down $29.6 million).
In all periods, the Company has continuously attempted to reduce high-rate time
deposits while increasing the balances of more profitable, lower-cost
transaction accounts in order to minimize the effect of adverse cyclical trends.
Net Interest Margin (FTE)
The following summarizes the components of the Company's net interest
margin for the periods indicated:
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------
Yield on earning assets 6.17% 6.94% 6.28% 6.98%
Rate paid on interest-bearing
liabilities 1.05% 1.60% 1.09% 1.62%
----------------------------------------------------
Net interest spread 5.12% 5.34% 5.19% 5.36%
Impact of all other net
noninterest bearing funds 0.31% 0.48% 0.32% 0.48%
----------------------------------------------------
Net interest margin 5.43% 5.82% 5.51% 5.84%
====================================================
During the second quarter of 2003, net interest margin fell 39 bp compared to
the same period in 2002. Yields on earnings assets declined faster than rates
paid on interest-bearing liabilities, resulting in a 22 bp decline in
net interest spread. The unfavorable impact of lower rates earned on
loans and the investment portfolio, triggered by market trends, was
partially mitigated by decreases in rates paid on deposits and
short-term funds. The decline in the net interest spread was further
widened by the lower value of noninterest bearing funding sources. While
the average balance of these sources increased $41 million or 6%, their
value decreased 17 bp because of the lower market rates of interest at
which they could be invested.
Similarly, on a year-to-date basis, the net interest margin decreased 33 bp when
compared to the same period in 2002. Earning asset yields decreased 70 bp and
the cost of interest-bearing liabilities fell by 53 bp, resulting in a
17 bp decline in the interest spread. Noninterest bearing funding
sources increased $64 million or 9% and because of lower market rates of
interest their margin contribution decreased by 16 bp, with their value
decreasing to 32 bp.
Page 14
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 amounts of interest income from average
earning assets and the resulting yields, and the amount of interest
expense paid on interest-bearing liabilities. Average loan balances
include 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
exempt from federal income taxation at the current statutory tax rate
(dollars in thousands).
For the three months ended
June 30, 2003
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------
Assets:
Money market assets and funds sold $633 $2 1.26%
Investment securities:
Available for sale
Taxable 778,908 8,254 4.24%
Tax-exempt 306,094 5,839 7.63%
Held to maturity
Taxable 252,332 1,673 2.65%
Tax-exempt 293,591 5,300 7.22%
Loans:
Commercial
Taxable 367,588 5,366 5.86%
Tax-exempt 203,231 3,635 7.17%
Commercial real estate 915,817 18,419 8.07%
Real estate construction 42,243 791 7.51%
Real estate residential 338,462 4,458 5.27%
Consumer 508,150 7,996 6.31%
--------------------------
Total loans 2,375,491 40,665 6.86%
--------------------------
Total earning assets 4,007,049 61,733 6.17%
Other assets 297,338
-------------
Total assets $4,304,387
=============
Liabilities and shareholders' equity
Deposits:
Noninterest bearing demand $1,130,608 $-- --
Savings and interest-bearing
transaction 1,537,163 1,773 0.46%
Time less than $100,000 311,932 1,343 1.73%
Time $100,000 or more 390,730 1,354 1.38%
--------------------------
Total interest-bearing deposits 2,239,825 4,470 0.80%
Short-term borrowed funds 382,677 962 1.00%
Federal Home Loan Bank advance 170,000 1,592 3.72%
Debt financing and notes payable 21,393 385 7.16%
--------------------------
Total interest-bearing liabilities 2,813,895 7,409 1.05%
Other liabilities 35,534
Shareholders' equity 324,350
-------------
Total liabilities and shareholders' equity $4,304,387
=============
Net interest spread (1) 5.12%
Net interest income and interest margin (2) $54,324 5.43%
==========================
(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 15
For the three months ended
June 30, 2002
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------
Assets:
Money market assets and funds sold $1,037 $4 1.54%
Investment securities:
Available for sale
Taxable 667,372 8,350 5.00%
Tax-exempt 306,419 5,610 7.32%
Held to maturity
Taxable 77,340 1,073 5.55%
Tax-exempt 158,319 3,121 7.89%
Loans:
Commercial
Taxable 395,215 6,043 6.13%
Tax-exempt 198,205 3,746 7.63%
Commercial real estate 978,395 19,936 8.02%
Real estate construction 59,573 1,105 7.31%
Real estate residential 323,563 5,235 6.47%
Consumer 493,595 9,102 7.40%
--------------------------
Total loans 2,448,546 45,167 7.40%
--------------------------
Total earning assets 3,659,033 63,325 6.94%
Other assets 274,241
-------------
Total assets $3,933,274
=============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,052,252 $-- --
Savings and interest-bearing
transaction 1,468,404 3,230 0.88%
Time less than $100,000 369,762 1,817 2.31%
Time $100,000 or more 336,534 2,598 2.79%
--------------------------
Total interest-bearing deposits 2,174,700 7,645 1.41%
Short-term borrowed funds 227,098 895 1.57%
Federal Home Loan Bank advance 131,770 1,247 3.72%
Debt financing and notes payable 24,607 442 7.18%
---------------------------------------
Total interest-bearing liabilities 2,558,175 10,229 1.60%
Other liabilities 31,887
Shareholders' equity 290,960
-------------
Total liabilities and shareholders' equity $3,933,274
=============
Net interest spread (1) 5.34%
Net interest income and interest margin (2) $53,096 5.82%
==========================
Page 16
For the six months ended
June 30, 2003
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------
Assets:
Money market assets and funds sold $633 $5 1.58%
Investment securities:
Available for sale
Taxable 731,165 15,957 4.36%
Tax-exempt 304,501 11,545 7.58%
Held to maturity
Taxable 260,263 4,185 3.22%
Tax-exempt 260,219 9,469 7.28%
Loans:
Commercial
Taxable 368,184 10,588 5.80%
Tax-exempt 202,912 7,405 7.36%
Commercial real estate 931,046 37,156 8.05%
Real estate construction 45,999 1,677 7.35%
Real estate residential 334,253 9,028 5.40%
Consumer 517,360 16,517 6.44%
--------------------------
Total loans 2,399,754 82,371 6.78%
--------------------------
Total earning assets 3,956,535 123,532 6.28%
Other assets 296,590
-------------
Total assets $4,253,125
=============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,124,087 $-- --
Savings and interest-bearing
transaction 1,529,851 3,724 0.49%
Time less than $100,000 314,988 2,869 1.84%
Time $100,000 or more 369,755 2,785 1.52%
--------------------------
Total interest-bearing deposits 2,214,594 9,378 0.85%
Short-term borrowed funds 365,578 1,812 1.00%
Federal Home Loan Bank advance 170,000 3,167 3.76%
Debt financing and notes payable 21,911 789 7.26%
--------------------------
Total interest-bearing liabilities 2,772,083 15,146 1.09%
Other liabilities 37,214
Shareholders' equity 319,741
-------------
Total liabilities and shareholders' equity $4,253,125
=============
Net interest spread (1) 5.19%
Net interest income and interest margin (2) $108,386 5.51%
==========================
Page 17
For the six months ended
June 30, 2002
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------
Assets:
Money market assets and funds sold $785 $4 1.02%
Investment securities:
Available for sale
Taxable 650,568 16,632 5.11%
Tax-exempt 311,864 11,440 7.34%
Held to maturity
Taxable 72,528 2,042 5.63%
Tax-exempt 149,676 5,925 7.92%
Loans:
Commercial
Taxable 396,114 12,069 6.14%
Tax-exempt 195,701 7,466 7.69%
Commercial real estate 981,710 39,506 8.02%
Real estate construction 65,148 2,407 7.24%
Real estate residential 329,748 10,808 6.56%
Consumer 491,347 18,158 7.45%
--------------------------
Total loans 2,459,768 90,414 7.41%
--------------------------
Total earning assets 3,645,189 126,457 6.98%
Other assets 276,978
-------------
Total assets $3,922,167
=============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,032,835 $-- --
Savings and interest-bearing
transaction 1,441,206 6,379 0.89%
Time less than $100,000 343,459 4,501 2.64%
Time $100,000 or more 399,334 4,906 2.48%
--------------------------
Total interest-bearing deposits 2,183,999 15,786 1.46%
Short-term borrowed funds 241,325 1,921 1.61%
Federal Home Loan Bank advance 108,977 2,039 3.72%
Debt financing and notes payable 25,143 903 7.18%
--------------------------
Total interest-bearing liabilities 2,559,444 20,649 1.62%
Other liabilities 33,901
Shareholders' equity 295,987
-------------
Total liabilities and shareholders' equity $3,922,167
=============
Net interest spread (1) 5.36%
Net interest income and interest margin (2) $105,808 5.84%
==========================
Page 18
Summary of Changes in Interest Income and Expense due to
Changes in 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 from changes in average asset and liability balances (volume)
and changes in average interest rates for the periods indicated. Changes
not solely attributable to volume or rates have been allocated in
proportion to the respective volume and rate components (dollars in
thousands).
Three months ended June 30, 2003
compared with three months
ended June 30, 2002
---------------------------------------
Volume Rate Total
---------------------------------------
Interest and fee income:
Money market assets and funds sold ($1) ($1) ($2)
Investment securities:
Available for sale
Taxable 1,284 (1,380) (96)
Tax-exempt ($6) 235 229
Held to maturity
Taxable $1,398 (798) 600
Tax-exempt $2,462 (283) 2,179
Loans:
Commercial
Taxable ($411) (266) (677)
Tax-exempt $93 (204) (111)
Commercial real estate ($1,261) (256) (1,517)
Real estate construction (324) 10 (314)
Real estate residential 231 (1,008) (778)
Consumer 262 (1,368) (1,105)
---------------------------------------
Total loans (1,410) (3,092) (4,502)
---------------------------------------
Total earning assets 3,727 (5,319) (1,592)
---------------------------------------
Interest expense:
Deposits:
Savings and interest-bearing
transaction 145 (1,602) (1,457)
Time less than $100,000 (263) (211) (474)
Time $100,000 or more 364 (1,608) (1,244)
---------------------------------------
Total interest-bearing deposits 246 (3,421) (3,175)
---------------------------------------
Short-term borrowed funds 468 (401) 67
Federal Home Loan Bank advance 361 (16) 345
Debt financing and notes payable (57) 0 (57)
---------------------------------------
Total interest-bearing liabilities 1,018 (3,838) (2,820)
---------------------------------------
Increase in Net Interest Income $2,709 ($1,481) $1,228
=======================================
Page 19
Six months ended June 30, 2003
compared with six months
ended June 30, 2002
---------------------------------------
Volume Rate Total
---------------------------------------
Interest and fee income:
Money market assets and funds sold (1) 2 $1
Investment securities:
Available for sale
Taxable 1,922 (2,597) (675)
Tax-exempt (274) 379 105
Held to maturity
Taxable 3,341 (1,198) 2,143
Tax-exempt 4,057 (513) 3,544
Loans:
Commercial
Taxable (824) (657) (1,481)
Tax-exempt 270 (331) (61)
Commercial real estate (2,024) (326) (2,350)
Real estate construction (699) (31) (730)
Real estate residential 144 (1,924) (1,780)
Consumer 925 (2,566) (1,641)
---------------------------------------
Total loans (2,208) (5,835) (8,043)
---------------------------------------
Total earning assets 6,837 (9,762) (2,925)
---------------------------------------
Interest expense:
Deposits:
Savings and interest-bearing
transaction 371 (3,026) (2,656)
Time less than $100,000 (349) (1,283) (1,632)
Time $100,000 or more (341) (1,780) (2,121)
---------------------------------------
Total interest-bearing deposits (319) (6,089) (6,409)
---------------------------------------
Short-term borrowed funds 774 (883) (108)
Federal Home Loan Bank advance 1,137 (9) 1,128
Debt financing and notes payable (116) 2 (114)
---------------------------------------
Total interest-bearing liabilities 1,476 (6,979) (5,503)
---------------------------------------
Increase in Net Interest Income $5,361 ($2,783) $2,578
=======================================
Page 20
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 second quarter of 2003 and 2002. Additionally, $2.1
million of reserves were acquired from Kerman State Bank in the second
quarter of 2002. For the first six months of 2002 and 2003, $1.8 million
was provided in each period. For further information regarding net
credit losses and the allowance 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 Six months ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------
Service charges on deposit accounts $6,648 $5,967 $13,073 $11,969
Merchant credit card 900 963 1,762 1,868
ATM fees and interchange 601 617 1,161 1,134
Debit card fees 563 461 1,057 867
Other service fees 380 357 749 710
Mortgage banking income 301 217 527 404
Trust fees 277 243 516 554
Financial services commissions 210 425 418 764
Other noninterest income 879 894 1,855 1,891
Total noninterest income before ----------------------------------------------------
securities gains (impairment) 10,759 10,144 21,118 20,161
----------------------------------------------------
Securities gains (impairment) 277 (4,260) 293 (4,278)
----------------------------------------------------
Total noninterest income $11,036 $5,884 $21,411 $15,883
====================================================
Noninterest income for the second quarter of 2003 was $11.0 million, up
$5.2 million or 87.6%, primarily due to a $4.3 million securities
impairment charge in 2002, $277 thousand in securities gains in 2003 and
increased fee income in 2003. Excluding the impairment charge, the
largest factor contributing to higher income was service charges on
deposits (up $681 thousand) mainly resulting from a new debit card
overdraft program introduced in January of 2003. The second largest
factor was a $102 thousand increase in debit card fees. Partially
offsetting the increase was a $215 thousand decline in financial
services commissions which was caused by lower sales of fixed annuities,
mutual funds and life insurance.
Noninterest income for the first half of 2003 was $21.4 million, up $5.5
million or 34.8% from 2002, again mainly due to the 2002 securities
impairment charge and growth in fee income. Similar to the
quarter-to-quarter comparison, the primary contributing factor was
service charges on deposits (up $1.1 million) due to repricing of retail
checking services and a new debit card overdraft program. The secondary
factor was a $190 thousand growth in debit card fees due to increased
usage. Mortgage banking income rose $123 thousand primarily due to
higher net gains on the sales of mortgage loans ($167 million in the
first half of 2003 compared with $53 million in the same period in
2002). A $346 thousand decline in financial services commissions due to
lower sales of fixed annuities, mutual funds and life insurance and a
$106 thousand decline in merchant credit card income due to higher
interchange expense partially offset the increase in noninterest income.
Page 21
Noninterest Expense
The following table summarizes the components of noninterest expense for
the periods indicated (dollars in thousands).
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------
Salaries and related benefits $13,598 $14,281 $27,296 $28,143
Occupancy 3,044 2,898 6,039 5,829
Equipment 1,381 1,425 2,755 2,859
Data processing services 1,518 1,516 3,077 3,015
Courier service 926 916 1,855 1,805
Telephone 423 421 848 830
Postage 401 397 821 802
Professional fees 457 443 870 815
Merchant credit card 316 347 658 687
Stationery and supplies 308 373 626 718
Advertising/public relations 311 290 532 579
Employee recruiting 68 71 110 181
Loan expense 380 360 656 693
Operational losses 228 191 401 422
Repossessed collateral expense 1 1 2 50
Amortization of deposit intangibles 165 201 414 402
Other noninterest expense 1,951 1,778 4,051 3,772
----------------------------------------------------
Total $25,476 $25,909 $51,011 $51,602
====================================================
Average full time equivalent staff 1,033 1,078 1,040 1,079
Noninterest expense to revenues (FTE) 38.98% 43.93% 39.30% 42.40%
Noninterest expense for the second quarter of 2003 was $25.5 million,
$433 thousand lower than in 2002. The largest decline was in salaries
and related benefits, which were down $683 thousand (4.8%), primarily
due to a $569 thousand decrease in salaries as a result of a decline in
the number of full time equivalent ("FTE") employees. Also, the prior
year period included $366 thousand severance pay relating to the KSB
acquisition. Offsetting the decline was a $146 thousand increase in
occupancy expense, the net result of higher utilities, partially offset
by lower costs for building maintenance and lower sublease income.
Noninterest expense was $51.0 million for the first half of 2003, which was $591
thousand or 1.1% less than 2002. The largest decrease was salaries and related
benefits (down $847 thousand or 3.0%) as a result of declines in
salaries (down $581 thousand) due to a fewer number of FTE employees.
Additionally, the 2002 period included the above-mentioned severance
costs. Equipment expense fell by $104 thousand (3.6%) from 2002
primarily due to lower depreciation. An increase in employee benefits
(up $219 thousand), resulting from higher costs for workers
compensation, insurance and retirement plans, partially reduced the
decrease.
Provision for Income Tax
During the second quarter of 2003, the Company recorded income tax
provision of $10.2 million, $1.6 million (18.6%) higher than the second
quarter of 2002; on a year-to-date basis, income tax provision was $20.5
million for 2003 compared to $18.9 million for 2002. The current quarter
provision represents an effective tax rate of 30.1 percent, compared to
30.7 percent for the second quarter of 2002; for the first six months of
2003, the effective tax rate was 30.5 percent, compared to 31.5 percent
recorded in 2002. The provision for income taxes for all periods
presented is primarily attributable to the respective level of earnings
and the incidence of allowable deductions, particularly higher revenues
recognized from state and municipal securities and tax credits generated
from low-income housing investments.
Page 22
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. Repossessed collateral is recorded at the lower of cost or
market.
The following is a summary of classified loans and repossessed collateral on the
dates indicated (dollars in thousands):
At
At June 30, December 31,
--------------------------
2003 2002 2002
---------------------------------------
Classified loans $27,324 $30,029 $34,001
Repossessed collateral 1,888 473 381
---------------------------------------
Classified loans and repossessed collateral $29,212 $30,502 $34,382
=======================================
Allowance for loan losses /
classified loans 198% 181% 159%
Classified loans at June 30, 2003, decreased $2.7 million (9.0%) from
June 30, 2002, reflecting the effectiveness of the Company's high
underwriting standards and active workout policies. Repossessed
collateral increased $1.4 million (299.2%) from June 30, 2002, due to
six new foreclosures on loans with collateral recorded at $1.8 million,
partially offset by sales and writedowns of properties acquired in
satisfaction of debt. The $6.7 million (19.6%) decrease in classified
loans from December 31, 2002, was due to payoffs, upgrades, chargeoffs
and transfers to repossessed collateral, partly offset by new
downgrades. The $1.5 million (395.5%) increase in repossessed collateral
from December 31, 2002, was primarily due to six new foreclosures valued
at $1.8 million, partially offset by sales of three foreclosed
properties recorded at $293 thousand.
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 repossessed
collateral on the dates indicated (dollars in thousands):
At
At June 30, December 31,
--------------------------
2003 2002 2002
---------------------------------------
Performing nonaccrual loans $1,353 $3,279 $3,464
Nonperforming, nonaccrual loans 5,484 6,980 5,717
---------------------------------------
Total nonaccrual loans 6,837 10,259 9,181
Loans 90 days past due and
still accruing 386 189 738
---------------------------------------
Total nonperforming loans 7,223 10,448 9,919
Repossessed collateral 1,888 473 381
---------------------------------------
Total nonperforming loans and
repossessed collateral $9,111 $10,921 $10,300
=======================================
Allowance for loan losses /
nonperforming loans 750% 520% 547%
Page 23
Performing nonaccrual loans at June 30, 2003 fell $1.9 million (58.7%)
from the same period in the previous year and $2.1 million (60.9%) from
December 31, 2002. The decrease from both periods was due to payoffs,
chargeoffs, loans being returned to accrual status and loans being
placed on nonperforming nonaccrual, offset by new loans placed on
performing nonaccrual.
Nonperforming nonaccrual loans at June 30, 2003 decreased $1.5 million
(21.4%) from the same period a year ago and $233 thousand (4.1%) from
year-end, 2002. The decreases resulted from loans being returned to
full-accrual status, transfers to repossessed collateral or being
charged off or paid off, partially offset by loans being added to
nonperforming nonaccrual.
Changes in repossessed collateral are discussed above.
The amount of gross interest income that would have been recorded for
nonaccrual loans for the three and six month periods ended June 30,
2003, if all such loans had performed in accordance with their original
terms, was $142 thousand and $305 thousand, respectively, compared to
$107 thousand and $240 thousand, respectively, for the second quarter
and the first half of 2002.
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 six months ended June 30, 2003,
totaled $146 thousand and $217 thousand, respectively, compared to $156
thousand and $326 thousand, respectively, for the comparable periods in
2002. These cash payments represent annualized yields of 7.35% and
5.22%, respectively, for the second quarter and the first six months of
2003 compared to 8.40% and 8.89%, respectively, for the second quarter
and the first half of 2002.
Total cash payments received during the second quarter of 2003 which
were applied against the book balance of nonaccrual loans outstanding at
June 30, 2003, totaled approximately $74 thousand. Cash payments
received totaled $259 thousand for the six months ended June 30, 2003.
The overall credit quality of the loan portfolio continues to be strong;
however, total nonperforming assets could fluctuate from period to
period. The performance of any individual loan can be impacted by
external factors such as the interest rate environment or factors
particular to the borrower. The Company expects to maintain the level of
nonperforming assets; 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
considered adequate to provide for losses that can be estimated based
upon specific and general conditions. These include conditions unique to
individual borrowers, as well as overall credit loss experience, the
amount of past due, nonperforming and classified loans, recommendations
of regulatory authorities, prevailing economic conditions and other
factors.
Page 24
A portion of the allowance is specifically allocated to impaired and
other identified loans whose full collectibility is uncertain. Such
allocations are determined by Management based on loan-by-loan analyses.
A second allocation is 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 reserve to the respective segments of the loan portfolio. In
addition, loans with similar characteristics not usually criticized
using regulatory guidelines 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. Last, allocations are made to
general loan categories based on relevant economic conditions and
available data, including unemployment statistics, commercial office
vacancy rates, mortgage loan foreclosure trends, agriculture commodity
prices, and levels of government funding.
Management considers the $54.2 million allowance for loan losses, which
constituted 2.25% of total loans at June 30, 2003, 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.
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 Six months ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------
Balance, beginning of period $54,154 $52,147 $54,227 $52,086
Loan loss provision 900 900 1,800 1,800
Loans charged off (1,841) (1,353) (3,869) (2,997)
Recoveries of previously
charged off loans 946 580 2,001 1,386
----------------------------------------------------
Net credit losses (895) (773) (1,868) (1,611)
----------------------------------------------------
Acquired from Kerman State Bank 0 2,050 0 2,050
Balance, end of period $54,159 $54,324 $54,159 $54,325
====================================================
Allowance for loan losses /
loans outstanding 2.25% 2.17%
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 Company
actively solicits loans and transaction deposit accounts. Asset and
liability management techniques include adjusting the duration,
liquidity, volume, rates and yields, and other attributes of its
investment portfolio, time deposits, and other funding sources to
achieve Company objectives.
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 rate scenario where the Fed Funds rate is made to rise
evenly by 100 bp and 200 bp, and a falling rate scenario of 50 bp 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 June 30, 2003
would not result in a fluctuation of NII that would exceed the
parameters established by Company policy.
Liquidity
The Company's principal source of asset liquidity is marketable
investment securities available for sale. At June 30, 2003, investment
securities available for sale totaled $1.25 billion, representing an
increase of $264.9 million from June 30, 2002. In addition, at June 30,
2003, the Company had customary lines for overnight borrowings from
other financial institutions totaling $660 million and a $20 million
line of credit, under which $500 thousand was outstanding at June 30, 2003.
Additionally, as a member of the Federal Reserve System, the Company
has the ability to borrow from the Federal Reserve. The Company may
also borrow from the FHLB which it collateralizes with its residential
real estate loans and securities. At June 30, 2003, the Company had
excess collateral providing available borrowing capacity from the FHLB
of approximately $65 million.
Page 25
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 6% at June 30, 2003. The Company's long-term debt rating from
Fitch Ratings was raised from A- to A, with a stable outlook, in June
2003. Management is confident the Company could access additional
long-term debt financing if desired.
In addition, the Company generates significant liquidity from its operating
activities. The Company's profitability during the first six months of
2003 and 2002 generated substantial cash flows, which are included in
the totals provided from operations of $59.1 million and $48.3 million,
respectively. Additional cash flows may be provided by financing
activities, primarily the acceptance of deposits and borrowings from
banks.
During the first six months of 2003 financing activities provided $159.2
million in cash. This amount includes cash outflows related to the
Company's stock repurchase programs and dividends paid to shareholders
of $28.1 million and $15.9 million, respectively, more than offset by
$159.6 million proceeds from an increase in deposits and $43.6 million
proceeds from short-term borrowings.
During the first six months of 2002 financing activities provided $6.4
million in cash. This amount includes cash outflows related to the
Company's stock repurchase programs and dividends paid to shareholders
of $46.7 million and $14.9 million, respectively, more than offset by
$67.0 million net proceeds from FHLB advances and short-term borrowings.
The Company had net cash outflows in its investing activities during
both six month periods ended June 30. In 2003, purchases net of sales
and maturities of investment securities were $322.5 million, which was
in part offset by net repayments of loans of $84.1 million. The
investment securities portfolio increase was generally financed by a
$159.6 million increase in deposits, and a $43.6 million increase in
short-term borrowings.
During the first six months of 2002 the Company had net cash outflows in
its investing activities. Purchases net of sales and maturities of
investment securities were $89.1 million and were partially offset by
net repayments of loans of $33.7 million and $5.4 million cash obtained
in the KSB acquisition, resulting in net cash used of $50.3 million. The
investment securities portfolio increase was primarily financed by $100
million in FHLB advances.
Capital Resources
The current and projected capital position of the Company and the impact
of capital plans and long-term strategies is reviewed regularly by
Management. The Company repurchases shares of its 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, 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 689 thousand
and 1.1 million shares during the first six months of 2003 and 2002,
respectively.
The Company's primary capital resource is shareholders' equity, which
was $357.3 million at June 30, 2003. This amount represents an increase
of $15.8 million (4.6%) from December 31, 2002, the net result of the
issuance of stock ($6.3 million) and comprehensive income for the period
($53.5 million), partially offset by share repurchases ($28.1 million)
and dividends paid ($15.9 million). Due to the net effect of an increase
in equity capital combined with earnings asset growth the Company's
ratio of equity to total assets declined slightly to 7.83% at June 30,
2003, from 7.87% a year ago. The equity to assets ratio was 8.08% at
December 31, 2002.
The following summarizes the ratios of capital to risk-adjusted assets for the
periods indicated:
At
At June 30, December 31, Minimum
----------------------- Regulatory
2003 2002 2002 Requirement
-------------------------------------------------
Tier I Capital 10.06% 9.31% 9.71% 4.00%
Total Capital 11.32% 10.65% 10.97% 8.00%
Leverage ratio 7.17% 7.25% 7.27% 4.00%
The risk-based capital ratio increased at June 30, 2003, compared to the
prior year primarily due to an increase in shareholders' equity as a
result of increased net income, partially offset by the Company's common
stock repurchases and dividends paid to shareholders. The risk-based
capital ratio increased at June 30, 2003 from December 31, 2002
primarily due to the combination of an increase in shareholders' equity
as a result of increased net income and a reduction in risk-weighted
assets.
New Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation 46, which clarifies the application of Accounting
Research Bulletin ("ARB") 51, consolidated financial statements, to
certain entities (called variable interest entities) in which equity
investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support
from other parties. The disclosure requirements of this Interpretation
are effective for all financial statements issued after January 31,
2003. The consolidation requirements apply to all variable interest
entities created after January 31, 2003. In addition, public companies
must apply the consolidation requirements to variable interest entities
that existed prior to February 1, 2003 and remain in existence as of the
beginning of annual or interim periods beginning after June 15, 2003.
Given the nature of the Company's operations, management does not expect
this Interpretation to have a significant impact on the consolidated
financial statements.
Page 26
In April 2003, the FASB issued Statement NO. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities, to provide
clarification of certain terms and investment characteristics identified
in Statement 133. Statement 149 is to be applied prospectively and is
effective for contracts entered into or modified after June 30, 2003.
The Company does not expect the adoption of the Statement to have a
material impact on the consolidated financial statements.
In May 2003, the FASB issued Statement No.150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. The
provisions of this Statement are effective for financial instruments
entered into or modified after May 31, 2003, and otherwise are effective
at the beginning of the first interim period beginning after June 15,
2003, except for mandatorily redeemable financial instruments of
nonpublic entities. Given the nature of the Company's liability and
equity instruments, management does not expect this Statement to have a
material impact to the consolidated financial statements upon adoption
of the Statement on July 1, 2003.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company does not currently engage in trading activities or use derivative
instruments to control interest rate risk, even though such activities may be
permitted with the approval of the Company's Board of Directors.
Interest rate risk as discussed above is the most significant market risk
affecting the Company. Other types of market risk, such as foreign currency
exchange risk, equity price risk and commodity price risk, are not significant
in the normal course of the Company's business activities.
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, as of June 30, 2003. 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 27
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
Proxies for the Annual Meeting of shareholders held on April 24,
2003, were solicited pursuant Regulation 14A of the Securities
Exchange Act of 1934. The Report of Inspector of election indicates
that 27,676,414 shares of the Common Stock of the Company, out of
33,200,486 shares outstanding, were present, in person or by proxy,
at the meeting. With the exception of item No.2, below, there were no
"broker non-votes" on the following matters because they were
considered "routine" and therefore, on those matters, brokers were
able to vote shares for which no direction was provided by the
beneficial owner. The following matters were submitted to a vote of
the shareholders:
1. - Election of directors:
For Withheld
---------- --------
Etta Allen 27,009,072 667,342
Louis E. Bartolini 27,331,925 344,489
Arthur C. Latno, Jr. 26,971,735 704,679
Patrick D. Lynch 26,923,332 753,082
Catherine C. MacMillan 27,437,511 238,903
Patrick J. Mon Pere 27,413,299 263,115
Ronald A. Nelson 27,147,009 529,405
Carl R. Otto 27,446,116 230,298
David L. Payne 27,481,922 194,462
Edward B. Sylvester 27,484,562 191,852
Shareholders were to cast their vote for or to withhold their vote.
2. - Ratification of amendment of stock option plan.
A proposal to ratify the Amended and Restated Stock Option
Plan of 1995.
For : 17,417,508
Against : 9,792,204
Abstain : 437,200
Non-vote: 29,500
3. - Ratification of independent certified public accountant firm.
A proposal to ratify the selection of KPMG LLP as independent
certified public accountants for the Company for 2003.
For : 26,472,582
Against : 971,320
Abstain : 232,512
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
Page 28
Exhibit 31.1: Certification of Chief Executive
Officer pursuant to Securities
Exchange Act Rule 13a-(14)(a)
Exhibit 31.2: Certification of Chief Financial
Officer pursuant to Securities
Exchange Act Rule 13a-(14)(a)
Exhibit 32.1: Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
Exhibit 32.2: 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
On April 17, 2003, the Company filed a Report on Form 8-K
with respect to item 12, therein, reporting first quarter,
2003 financial results.
Page 29
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: August 12, 2003
/s/ DENNIS R. HANSEN
--------------------
Dennis R. Hansen
Senior Vice President
and Controller
(Chief Accounting Officer)
Page 30
Exhibit 11
WESTAMERICA BANCORPORATION
Computation of Earnings Per Share on Common and
Common Equivalent Shares and on Common Shares
Assuming Full Dilution
For the For the
three months six months
ended June 30, ended June 30,
----------------------------------------------------
(In thousands, except per share data) 2003 2002 2003 2002
----------------------------------------------------
Weighted average number of common
shares outstanding - basic 33,000 33,565 33,054 33,817
Add exercise of options reduced by the
number of shares that could have been
purchased with the proceeds of such
exercise 492 615 474 589
----------------------------------------------------
Weighted average number of common
shares outstanding - diluted 33,492 34,180 33,528 34,406
====================================================
Net income $23,671 $19,347 $46,683 $41,006
Basic earnings per share $0.72 $0.58 $1.41 $1.21
Diluted earnings per share $0.71 $0.57 $1.39 $1.19
Page 31
Exhibit 31.1
CERTIFICATION UNDER
SECTION 302 OF
THE SARBANES OXLEY ACT OF 2002
I, David L. Payne, Chief Executive Officer of the registrant, certify that:
1. I have reviewed this quarterly report for the period ended June 30, 2003 on
Form 10-Q of Westamerica Bancorporation;
2. Based on my knowledge, this 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 period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
/s/ David L. Payne
August 12, 2003 ----------------------
David L. Payne
Chairman, President and Chief Executive Officer
Page 32
Exhibit 31.2
CERTIFICATION UNDER
SECTION 302 OF
THE SARBANES OXLEY ACT OF 2002
I, Jennifer J. Finger, Chief Financial Officer of the registrant, certify that:
1. I have reviewed this quarterly report for the period ended June 30, 2003 on
Form 10-Q of Westamerica Bancorporation;
2. Based on my knowledge, this 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 period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
August 12, 2003 /s/ Jennifer J. Finger
--------------------------
Jennifer J. Finger
Senior Vice President and Chief Financial Officer
Page 33
Exhibit 32.1
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 June 30, 2003 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
August 12, 2003
Page 34
Exhibit 32.2
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 June 30, 2003 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
August 12, 2003