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 March 31, 2000 Commission File Number: 1-9383 WESTAMERICA BANCORPORATION (Exact Name of Registrant as Specified in its Charter) CALIFORNIA (State or other jurisdiction of incorporation or organization) 94-2156203 (I.R.S. Employer Identification No.) 1108 Fifth Avenue, San Rafael, California 94901 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code (415) 257-8000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ x ] No [ ] Indicate the number of shares outstanding of each of the registrant classes of common stock, as of the latest practicable date: Title of Class Common Stock, No Par Value Shares outstanding as of May 1, 2000 36,273,615 WESTAMERICA BANCORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) - -------------------------------------------------------------------------------------- (Unaudited) At March 31, At December 31, 2000 1999 1999 - -------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $206,226 $194,609 $255,738 Money market assets 250 250 250 Investment securities available for sale 976,020 996,076 982,337 Investment securities held to maturity, with market values of: $234,735 at March 31, 2000 $241,281 at March 31, 1999 $235,147 at December 31, 1999 237,156 235,527 237,154 Loans, gross, net of allowance for loan losses of: $51,990 at March 31, 2000 $51,703 at March 31, 1999 $51,574 at December 31, 1999 2,259,276 2,236,982 2,269,272 Other real estate owned 2,908 3,862 3,269 Premises and equipment, net 43,320 45,305 44,016 Interest receivable and other assets 103,999 114,466 101,151 - -------------------------------------------------------------------------------------- Total assets $3,829,155 $3,827,077 $3,893,187 ====================================================================================== LIABILITIES Deposits: Non-interest bearing $932,675 $801,035 911,556 Interest bearing: Transaction 510,557 565,040 485,860 Savings 844,498 874,909 840,644 Time 831,282 855,777 827,284 - -------------------------------------------------------------------------------------- Total deposits 3,119,012 3,096,761 3,065,344 Short-term borrowed funds 352,447 265,656 462,345 Liability for interest, taxes and other expenses 26,702 59,851 23,406 Notes payable 38,036 47,600 41,500 - -------------------------------------------------------------------------------------- Total liabilities 3,536,197 3,469,868 3,592,595 - -------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Authorized - 150,000 shares of common stock Issued and outstanding: 36,412 at March 31, 2000 39,313 at March 31, 1999 37,125 at December 31, 1999 183,039 196,915 186,435 Accumulated other comprehensive income: Unrealized (loss) gain on securities available for sale (6,585) 16,065 (4,521) Retained earnings 116,504 144,229 118,678 - -------------------------------------------------------------------------------------- Total shareholders' equity 292,958 357,209 300,592 - -------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $3,829,155 $3,827,077 $3,893,187 ====================================================================================== WESTAMERICA BANCORPORATION CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (in thousands, except per share data) - --------------------------------------------------------------------------- (Unaudited) Three months ended March 31, 2000 1999 - --------------------------------------------------------------------------- INTEREST INCOME Loans $47,227 $46,239 Money market assets and funds sold 4 -- Investment securities available for sale Taxable 11,649 11,499 Tax-exempt 2,852 2,514 Investment securities held to maturity Taxable 1,245 1,431 Tax-exempt 2,069 1,951 - --------------------------------------------------------------------------- Total interest income 65,046 63,634 INTEREST EXPENSE Transaction deposits 916 949 Savings deposits 4,503 5,052 Time deposits 10,450 9,461 Funds purchased 4,509 2,659 Debt financing and notes payable 692 829 - --------------------------------------------------------------------------- Total interest expense 21,070 18,950 - --------------------------------------------------------------------------- NET INTEREST INCOME 43,976 44,684 Provision for loan losses 945 1,195 - --------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 43,031 43,489 NON-INTEREST INCOME Service charges on deposit accounts 5,221 4,805 Merchant credit card 939 844 Financial services commissions 413 565 Mortgage banking 210 232 Trust fees 162 173 Other 3,010 2,528 - --------------------------------------------------------------------------- Total non-interest income 9,955 9,147 NON-INTEREST EXPENSE Salaries and related benefits 12,337 12,918 Occupancy 3,059 2,942 Equipment 1,621 1,741 Data processing 1,542 1,464 Professional fees 360 413 Other real estate owned 29 34 Other 5,474 5,461 - --------------------------------------------------------------------------- Total non-interest expense 24,422 24,973 - --------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 28,564 27,663 Provision for income taxes 9,338 9,258 - --------------------------------------------------------------------------- NET INCOME $19,226 $18,405 =========================================================================== Comprehensive income: Unrealized loss on securities available for sale, net (2,064) (4,119) COMPREHENSIVE INCOME $17,162 $14,286 =========================================================================== Average shares outstanding 36,625 39,632 Diluted average shares outstanding 37,058 40,272 PER SHARE DATA Basic earnings $0.52 $0.46 Diluted earnings 0.52 0.46 Dividends paid 0.18 0.16 WESTAMERICA BANCORPORATION STATEMENTS OF CASH FLOWS (In thousands) - -------------------------------------------------------------------------------------------- (Unaudited) For the three months ended March 31, 2000 1999 - -------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $19,226 $18,405 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,918 2,066 Loan loss provision 945 1,195 Amortization of deferred net loan (cost)/fees 138 568 Decrease (increase) in interest income receivable 61 (552) (Increase) decrease in other assets (3,532) 107 Increase in income taxes payable 9,338 7,564 Increase (decrease) in interest expense payable 170 (390) (Decrease) increase in other liabilities (4,791) 8,208 Write down/(gain on sales) of equipment 21 (46) Originations of loans for resale (1,021) (7,554) Proceeds from sale of loans originated for resale 1,021 7,228 Net gain on sale of property acquired in satisfaction of debt (135) (105) Write down on property acquired in satisfaction of debt 2 -- - -------------------------------------------------------------------------------------------- Net cash provided by operating activities 23,361 36,694 - -------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Net repayments of loans 8,627 7,916 Purchases of investment securities available for sale (22,626) (116,585) Purchases of investment securities held to maturity (1,751) (14,158) Purchases of property, plant and equipment (563) (707) Proceeds from maturity of securities available for sale 24,962 100,879 Proceeds from maturity of securities held to maturity 1,749 5,624 Proceeds from sale of securities available for sale 419 182 Proceeds from sale of property and equipment 20 46 Proceeds from property acquired in satisfaction of debt 780 816 - -------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 11,617 (15,987) - -------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net increase (decrease) in deposits 53,668 (92,244) Net (decrease) increase in short-term borrowings (109,898) 61,985 (Repayments) additions to notes payable (3,464) 100 Exercise of stock options/issuance of shares 355 5,378 Retirement of stock (18,538) (24,675) Dividends paid (6,613) (6,376) - -------------------------------------------------------------------------------------------- Net cash used in financing activities (84,490) (55,832) - -------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (49,512) (35,125) Cash and cash equivalents at beginning of period 255,738 229,734 - -------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $206,226 $194,609 ============================================================================================ Supplemental disclosure of non-cash activities: Loans transferred to other real estate owned $286 $258 Depreciation of fixed assets charged against reserves -- 37 Supplemental disclosure of cash flow activity: Unrealized (loss) gain on securities available for sale (2,064) (4,119) Interest paid for the period 20,900 19,340 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In addition to historical information, this discussion includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company's actual results may differ materially from those included in the forward-looking statements. The forward-looking statements involve risks and uncertainties which include, but are not limited to, changes in general economic conditions; competitive conditions in the geographic and business areas in which the Company conducts its operations; regulatory or tax changes that affect the cost of or demand for the Company's products; the resolution of legal proceedings and related matters. The reader is directed to Westamerica Bancorporation's annual report on Form 10-K for the year ended December 31, 1999, particularly the section entitled "Cautionary Statement," for the purpose of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 for a 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. For further information on the subject, please refer to the "Forward-Looking Statement Disclosure" section of this report. Westamerica Bancorporation (the "Company"), parent company of Westamerica Bank, Bank of Lake County, Community Banker Services Corporation and Westamerica Commercial Credit Inc., reported first quarter 2000 net income of $19.2 million or $.52 diluted earnings per share. These results compare to net income of $18.4 million or $.46 diluted earnings per share and $19.5 million or $.51 diluted earnings per share, respectively, for the first and fourth quarters of 1999. Following is a summary of the components of net income for the periods indicated: - ------------------------------------------------------------------------- For the three months ended March 31, December 31, -------------------- ------------ (In millions) 2000 1999 1999 - ------------------------------------------------------------------------- Net interest income* $47.4 $47.6 $48.1 Provision for loan losses (0.9) (1.2) (1.2) Non-interest income 10.0 9.1 11.4 Non-interest expense (24.4) (25.0) (25.7) Provision for income taxes* (12.9) (12.1) (13.1) - ------------------------------------------------------------------------- Net income $19.2 $18.4 $19.5 ========================================================================= Average total assets $3,822.6 $3,774.5 $3,882.7 Net income (annualized) as a percentage of average total assets 2.02% 1.98% 2.00% ========================================================================= * Fully taxable equivalent basis (FTE) During the first three months of 2000, the Company's net income was $19.2 million, $800 thousand higher than the same period in 1999. Improvements in non-interest income, reduced operating costs and a lower loan loss provision from continued improvements in credit quality were partially offset by lower net interest income, mainly resulting from increased cost of funds in connection with increases in higher-costing short-term borrowings, partially offset by higher earning-asset volume and yields. Completing the change, the provision for income taxes was higher than in the first quarter of 1999 primarily as a result of higher pretax earnings. Comparing the first quarter of 2000 to the prior quarter, net income decreased $300 thousand. Included in this change is lower service and fee income and reduced net interest income, principally due to lower earning-asset average balances and lower low-cost deposits resulting in higher cost of funds, partially offset by higher earning-asset yields. Partially offsetting these changes, non-interest expense was lower than the prior quarter and so were the provisions for loan losses and income taxes. Net Interest Income Following is a summary of the components of net interest income for the periods indicated: - ------------------------------------------------------------------------- For the three months ended March 31, December 31, - ------------------------------------------------------------------------- (In millions) 2000 1999 1999 - ------------------------------------------------------------------------- Interest income $65.1 $63.6 $65.1 Interest expense (21.1) (18.9) (20.3) FTE adjustment 3.4 2.9 3.3 - ------------------------------------------------------------------------- Net interest income (FTE) $47.4 $47.6 $48.1 ========================================================================= Average earning assets $3,524.3 $3,463.0 $3,555.2 Net interest margin (FTE) 5.39% 5.53% 5.39% ========================================================================= 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 first quarter of 2000 decreased $208 thousand from the same period in 1999 to $47.4 million. Comparing the first quarter of 2000 with the previous quarter, net interest income (FTE) decreased $728 thousand. Interest Income During the first quarter of 2000 interest income (FTE) increased $1.9 million from the same period in 1999. Higher earning-asset yields and average balances were the primary reasons for the change. Loan yields increased 9 basis points from prior year, mostly in categories where loans are tied to the prime rate which, on average rose 91 basis points from the first quarter of 1999. In addition, following market trends, investment securities yields rose 4 basis points from 1999. Adding to the favorable impact of higher yields, average earning-asset balances increased $61.4 million from the first quarter of 1999, as loans and investments increased $20.4 million and $41.0 million, respectively. The increase in loan balances was mainly concentrated in the sought-after indirect lending and commercial loans with real estate collateral categories, partially offset by decreases in commercial, real estate residential and direct consumer loans. The increase in the investment securities portfolio is the result of increases in U.S. Agency and tax-free securities, combined with balance runoffs in U.S Treasury and asset-backed securities and collateralized mortgage obligations. Comparing the first quarter of 2000 with the fourth quarter of 1999, interest income (FTE) remained at $68.4 million. The effect of a 13 basis point increase in average yields was partially offset by a $30.9 million seasonal reduction in earning-assets average balances, accounting for the quarter-to-quarter change. The increase in average yields reflect market trends, as does an increase of 32 basis points in the Company's index rate. Lower earning-asset average balances were comprised of a $18.2 million decrease in investment securities, particularly asset-backed and U.S Treasury securities, and a $12.7 million decrease in loans, for the most part in the commercial category, partially offset by an increase in indirect dealer paper. All categories of loan yields increased from prior quarter for a combined total of 15 basis points; investment yields increased by 7 basis points from the same period mainly in the tax-free, participation certificates and U.S. Treasury securities categories. Interest Expense For the first quarter of 2000 interest expense was $2.12 million higher than the first quarter of 1999. Following a general increase in rates paid on deposits and borrowed funds reflective of a general increase market rates, total interest-bearing liability rates increased 33 basis points from the first quarter of 1999. The adverse effect on net interest income of interest-bearing liabilities rate increases was partially offset by a $26.1 million reduction in the corresponding average balances, including a reduction of $129.8 million in deposits, and reductions in debt financing and long-term debt of $5.0 million and $3.4 million, respectively, partially offset by an increase of $112.1 million in short-term borrowed funds. In addition, interest-free demand deposits increased $121.4 million from the first quarter of 1999, which includes the transfer, during the third quarter of 1999, of certain interest-bearing transaction deposits into the non-interest bearing category. Interest expense increased $721 thousand from the fourth quarter of 1999, as an increase of 17 basis points on the rates paid on interest-bearing liabilities and a $36.3 million decrease in demand deposit average balances were partially offset by a $13.0 million decrease in interest-bearing liability average balances. Reflecting market conditions, rates paid increased in almost all categories of interest-bearing liabilities, with the exception of long-term certificates of deposits and core savings and money market saving deposits. There were no significant changes to the average balance of short-term borrowed funds and the average balance of long-term debt decreased $2.3 million from the previous quarter. In all periods, the Company has attempted continuously to reduce high-rate time deposits while increasing the balances of more profitable, lower-cost transaction accounts minimizing the effect of adverse cyclical quarterly trends. Net Interest Margin (FTE) The following summarizes the components of the Company's net interest margin for the periods indicated: - ------------------------------------------------------------------------- For the three months ended March 31, December 31, - ------------------------------------------------------------------------- 2000 1999 1999 - ------------------------------------------------------------------------- Yield on earning assets 7.79% 7.75% 7.66% Rate paid on interest-bearing liabilities 3.28% 2.95% 3.12% - ------------------------------------------------------------------------- Net interest spread 4.51% 4.80% 4.54% Impact of all other net non-interest bearing funds 0.88% 0.73% 0.85% - ------------------------------------------------------------------------- Net interest margin 5.39% 5.53% 5.39% ========================================================================= During the first quarter of 2000, the Company's net interest margin was 14 basis points lower than the first quarter of 1999, as the unfavorable impact of an increase in the cost of funds, triggered by rising market rates, was partially offset by the effect of a moderate increase of 4 basis points in earning-asset yields. Further reducing the combined 29 basis points decrease in net interest spread from the first quarter of 1999, the net interest margin was favorably impacted by the effect of a 15 basis points increase resulting from higher volume of net non-interest bearing funds. This change reflects mostly a $121.4 million increase in interest-free demand deposit accounts, partially offset by the effect of the Company's share repurchase programs, which more than offset the capital contributions originated from higher net income, resulting in a $47.5 million decrease in average equity capital from the first quarter of 1999. The net interest margin remained unchanged from the prior quarter as the effects of a more rapid rise in the cost of funds than the yield on earning assets - a 16 basis points increase in the rates paid on interest-bearing liabilities was partially offset by a 13 basis points increase in earning-asset yields - was offset by a 3 basis points increase primarily due to the favorable impact of higher market rates on net non-interest bearing fund average balances. 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 non-performing loans. Interest income includes proceeds from loans on non-accrual status only to the extent cash payments have been received and applied as interest income. Yields on securities and certain loans have been adjusted upward to reflect the effect of income thereon exempt from federal income taxation at the current statutory tax rate. Distribution of assets, liabilities and shareholders' equity: - ------------------------------------------------------------------------------------- For the three months ended March 31, 2000 - ------------------------------------------------------------------------------------- Interest Rates Average income/ earned/ (Dollars in thousands) balance expense paid - ------------------------------------------------------------------------------------- Assets Money market assets and funds sold $466 $4 3.45 % Investment securities: Available for sale Taxable 767,670 11,649 6.10 Tax-exempt 220,651 4,192 7.64 Held to maturity Taxable 81,845 1,245 6.12 Tax-exempt 155,260 3,035 7.86 Loans: Commercial 1,483,244 32,043 8.69 Real estate construction 46,779 1,321 11.36 Real estate residential 335,441 5,779 6.93 Consumer 432,993 9,166 8.51 - ------------------------------------------------------------------------- Earning assets 3,524,349 68,434 7.79 Other assets 298,242 - ----------------------------------------------------------- Total assets $3,822,591 =========================================================== Liabilities and shareholders' equity Deposits: Non-interest bearing demand $916,153 $-- -- % Savings and interest-bearing transaction 1,326,499 5,419 1.64 Time less than $100,000 392,218 4,610 4.73 Time $100,000 or more 451,539 5,840 5.20 - ------------------------------------------------------------------------- Total interest-bearing deposits 2,170,256 15,869 2.94 Funds purchased 369,959 4,509 4.90 Debt financing and notes payable 39,174 692 7.11 - ------------------------------------------------------------------------- Total interest-bearing liabilities 2,579,389 21,070 3.28 Other liabilities 31,689 Shareholders' equity 295,360 - ----------------------------------------------------------- Total liabilities and shareholders' equity $3,822,591 =========================================================== Net interest spread (1) 4.51 % Net interest income and interest margin (2) $47,364 5.39 % ===================================================================================== (1) Net interest spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (2) Net interest margin is computed by calculating the difference between the weighted average yields on earning assets less the interest expense (annualized) divided by the average balance of earning assets. Distribution of assets, liabilities and shareholders' equity: - ------------------------------------------------------------------------------------- For the three months ended March 31, 1999 - ------------------------------------------------------------------------------------- Interest Rates Average income/ earned/ (Dollars in thousands) balance expense paid - ------------------------------------------------------------------------------------- Assets Money market assets and funds sold $250 $-- -- % Investment securities: Available for sale Taxable 758,674 11,499 6.15 Tax-exempt 191,536 3,593 7.61 Held to maturity Taxable 88,839 1,431 6.53 Tax-exempt 145,579 2,776 7.73 Loans: Commercial 1,472,275 31,055 8.55 Real estate construction 56,140 1,489 10.76 Real estate residential 373,006 6,517 7.09 Consumer 376,680 8,162 8.79 - ------------------------------------------------------------------------- Earning assets 3,462,979 66,522 7.75 Other assets 311,487 - ----------------------------------------------------------- Total assets $3,774,466 =========================================================== Liabilities and shareholders' equity Deposits: Non-interest bearing demand $794,758 $-- -- % Savings and interest-bearing transaction 1,450,817 6,001 1.68 Time less than $100,000 423,983 4,727 4.52 Time $100,000 or more 425,325 4,734 4.51 - ------------------------------------------------------------------------- Total interest-bearing deposits 2,300,125 15,462 2.73 Funds purchased 257,855 2,659 4.18 Debt financing and notes payable 47,545 829 7.07 - ------------------------------------------------------------------------- Total interest-bearing liabilities 2,605,525 18,950 2.95 Other liabilities 31,314 Shareholders' equity 342,869 - ----------------------------------------------------------- Total liabilities and shareholders' equity $3,774,466 =========================================================== Net interest spread (1) 4.80 % Net interest income and interest margin (2) $47,572 5.53 % ===================================================================================== (1) Net interest spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (2) Net interest margin is computed by calculating the difference between the weighted average yields on earning assets less the interest expense (annualized) divided by the average balance of earning assets. Distribution of assets, liabilities and shareholders' equity: - ------------------------------------------------------------------------------------- For the three months ended December 31, 1999 - ------------------------------------------------------------------------------------- Interest Rates Average income/ earned/ (Dollars in thousands) balance expense paid - ------------------------------------------------------------------------------------- Assets Money market assets and funds sold $421 $4 3.64 % Investment securities: Available for sale Taxable 782,564 11,852 6.01 Tax-exempt 219,997 4,089 7.37 Held to maturity Taxable 83,653 1,265 6.00 Tax-exempt 157,418 3,039 7.66 Loans: Commercial 1,501,453 31,938 8.44 Real estate construction 51,534 1,455 11.20 Real estate residential 339,287 5,815 6.80 Consumer 418,912 8,984 8.51 - ------------------------------------------------------------------------- Earning assets 3,555,239 68,441 7.66 Other assets 327,486 - ----------------------------------------------------------- Total assets $3,882,725 =========================================================== Liabilities and shareholders' equity Deposits: Non-interest bearing demand $952,423 $-- -- % Savings and interest-bearing transaction 1,357,554 5,751 1.68 Time less than $100,000 397,765 4,483 4.47 Time $100,000 or more 422,705 5,024 4.71 - ------------------------------------------------------------------------- Total interest-bearing deposits 2,178,024 15,258 2.78 Funds purchased 369,528 4,299 4.62 Debt financing and notes payable 44,833 793 7.02 - ------------------------------------------------------------------------- Total interest-bearing liabilities 2,592,385 20,350 3.12 Other liabilities 31,678 Shareholders' equity 306,239 - ----------------------------------------------------------- Total liabilities and shareholders' equity $3,882,725 =========================================================== Net interest spread (1) 4.54 % Net interest income and interest margin (2) $48,091 5.39 % ===================================================================================== (1) Net interest spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (2) Net interest margin is computed by calculating the difference between the weighted average yields on earning assets less the interest expense (annualized) divided by the average balance of earning assets. Rate and volume variances. 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. As previously stated, appropriate amounts are calculated on a fully taxable equivalent basis using the current statutory federal tax rate. - ------------------------------------------------------------------------------------- Three months ended March 31, 2000 compared with three months ended March 31, 1999 - ------------------------------------------------------------------------------------- (In thousands) Volume Rate Total - ------------------------------------------------------------------------------------- Increase (decrease) in interest and fee income: Money market assets and funds sold $4 $0 $4 Investment securities: Available for sale Taxable 375 (225) 150 Tax-exempt 582 17 599 Held to maturity Taxable (103) (83) (186) Tax-exempt 207 52 259 Loans: Commercial 318 670 988 Real estate construction (253) 85 (168) Real estate residential (605) (133) (738) Consumer 1,268 (264) 1,004 - ------------------------------------------------------------------------------------- Total increase in loans 728 358 1,086 - ------------------------------------------------------------------------------------- Total increase in interest and fee income 1,793 119 1,912 - ------------------------------------------------------------------------------------- Increase (decrease) in interest expense: Deposits: Savings/interest-bearing (470) (112) (582) Time less than $ 100,000 (298) 181 (117) Time $ 100,000 or more 318 788 1,106 - ------------------------------------------------------------------------------------- Total (decrease) increase in interest-bearing deposits (450) 857 407 Funds purchased 1,325 525 1,850 Debt financing and notes payable (141) 4 (137) - ------------------------------------------------------------------------------------- Total increase in interest expense 734 1,386 2,120 - ------------------------------------------------------------------------------------- Increase (decrease) in net interest income $1,059 ($1,267) ($208) ===================================================================================== Rate and volume variances. - ------------------------------------------------------------------------------------- Three months ended March 31, 2000 compared with three months ended December 31, 1999 - ------------------------------------------------------------------------------------- (In thousands) Volume Rate Total - ------------------------------------------------------------------------------------- Increase (decrease) in interest and fee income: Money market assets and funds sold $-- $-- $-- Investment securities: Available for sale Taxable (1,181) 978 (203) Tax-exempt 8 95 103 Held to maturity Taxable (235) 215 (20) Tax-exempt 4 (8) (4) Loans: Commercial (73) 178 105 Real estate construction (158) 24 (134) Real estate residential 53 (89) (36) Consumer 178 4 182 - ------------------------------------------------------------------------------------- Total increase in loans 0 117 117 - ------------------------------------------------------------------------------------- Total (decrease) increase in interest and fee income (1,404) 1,397 (7) - ------------------------------------------------------------------------------------- Increase (decrease) in interest expense: Deposits: Savings/interest-bearing (168) (164) (332) Time less than $ 100,000 (41) 168 127 Time $ 100,000 or more 325 492 817 - ------------------------------------------------------------------------------------- Total increase in interest-bearing deposits 116 496 612 Funds purchased 5 205 210 Debt financing and notes payable (112) 11 (101) - ------------------------------------------------------------------------------------- Total increase in interest expense 9 712 721 - ------------------------------------------------------------------------------------- (Decrease) increase in net interest income ($1,413) $685 ($728) ===================================================================================== 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 $945 thousand for loan losses in the first quarter of 2000, $250 thousand lower than the same period of 1999 and from the previous quarter. For further information regarding net credit losses and the reserve for loan losses, see the "Asset Quality" section of this report. Non-interest Income The following table summarizes the components of non-interest income for the periods indicated. - ------------------------------------------------------------------------- For the three months ended March 31, December 31, - ------------------------------------------------------------------------- (In millions) 2000 1999 1999 - ------------------------------------------------------------------------- Service charges on deposit accounts $5.22 $4.81 $5.42 Merchant credit card 0.94 0.84 0.96 Financial services commissions 0.41 0.57 0.47 Mortgage banking income 0.21 0.23 0.22 Trust fees 0.16 0.17 0.20 Other non-interest income 3.02 2.53 4.18 - ------------------------------------------------------------------------- Total $9.96 $9.15 $11.45 ========================================================================= The $810 thousand increase in non-interest income during the first quarter of 2000 compared to the first quarter of 1999, was comprised primarily of $410 thousand higher service charges on deposit accounts including higher overdraft and returned item charges primarily due to the effect of a program implemented in the third quarter of 1999 through which charges escalate following a tiered system based on number of occurrences; and $100 thousand higher merchant credit card income primarily due to an 8 percent increase in sales volume and fee repricing. In addition, included in the $490 thousand increase in Other non-interest income, are $200 thousand realized through new product offerings (debit card), and higher safe deposit box fee income, increased fees from issuing official checks and higher settlement fees from ATM network servicers, $104 thousand, $65 thousand and $61 thousand, respectively. Partially offsetting these changes, financial services commissions were $160 thousand lower than the first quarter of 1999 due to lower sales volumes, and mortgage banking income was $20 thousand lower from the comparable period in the prior year mainly due to lower fees from originations of resalable loans, partially offset by higher net gains from loans sold in the secondary market. Comparing the first three months of 2000 to the fourth quarter of 1999, non-interest income decreased $1.49 million. The largest contributors to this change are included in the Other non-interest income category, as follows: a litigation settlement for $1.5 million recognized in the fourth quarter of 1999 was partially offset by $111 thousand higher gains on sales of properties acquired in satisfaction of debt and higher safe deposit box income and fees resulting from sales of official checks recorded in the first quarter of 2000. In addition, service charges on deposit accounts were $200 thousand lower than the prior quarter primarily from reduced overdraft and returned items fees due to lower seasonal volume following year-end spending patterns and lower account analysis charges; financial services commissions were $60 thousand lower due to reduced sales volume, and trust fees were $40 thousand lower than the fourth quarter of 1999 primarily due higher annual fees recognized at year-end. Completing the change from prior quarter, merchant credit card and mortgage banking income were $20 thousand and $10 thousand, respectively, lower than the fourth quarter of 1999. Non-interest expense The following table summarizes the components of non-interest expense for the periods indicated. - ------------------------------------------------------------------------- For the three months ended March 31, December 31, - ------------------------------------------------------------------------- (In millions) 2000 1999 1999 - ------------------------------------------------------------------------- Salaries and incentives $9.57 $10.01 $10.21 Other personnel 2.77 2.91 2.53 Occupancy 3.06 2.94 3.15 Equipment 1.62 1.74 1.70 Data processing services 1.54 1.46 1.52 Courier service 0.83 0.87 0.82 Postage 0.55 0.62 0.63 Merchant credit card 0.41 0.31 0.38 Stationery and supplies 0.40 0.37 0.41 Professional fees 0.36 0.41 0.52 Advertising/public relations 0.29 0.32 0.31 Operational losses 0.29 0.22 0.36 Loan expense 0.26 0.36 0.27 Other real estate owned 0.03 0.03 0.09 Other non-interest expense 2.44 2.40 2.77 - ------------------------------------------------------------------------- Total $24.42 $24.97 $25.67 ========================================================================= Average full time equivalent staff 1,076 1,119 1,085 Non-interest expense to revenues ("efficiency ratio")(FTE) 42.61% 44.03% 43.12% ========================================================================= Non-interest expense of $24.42 million in first quarter of 2000 was $550 thousand lower than the same quarter in 1999, as the Company continued to control costs through efficiencies and consolidation of operations, reflected in the continued improvements in the efficiency ratio. Included in this change are $580 thousand lower employee-related expenses, a result of reductions in personnel (43 lower full-time equivalent staff) and decreased incentive compensation program expenses; $120 thousand lower equipment costs, mainly due to lower expenses related to assets reaching fully depreciated lives; $100 thousand lower loan-related expenses, including lower appraisal fees and other costs incurred on behalf of customers resulting from weaker demand during the first quarter of 2000; $70 thousand lower postage expenses; $50 thousand lower professional fees, including lower legal expenses related to non-performing loans partially offset by higher expenses related to the creation of the Company's new subsidiaries, and lower consulting costs, as prior year included environmental work performed on the land adjacent to the Company's headquarters. In addition, courier costs were $40 thousand lower than the comparable quarter of 1999 and advertising and public relations expenses were $30 thousand lower that the first quarter of 1999, primarily due to reduced costs related to the publication of shareholder reports and customer entertainment, in part offset by increased branch and other promotional advertising. Partially offsetting these changes, the first quarter of 2000 includes $120 thousand higher occupancy costs mainly due to the combined effect of higher rental expenses net of sublease income and lower building repairs and maintenance costs; $100 thousand higher merchant credit card related costs primarily due to increased processing fees and volume; $80 thousand higher data processing costs due to a contract renewal with the Company's primary outside servicer which resulted in a base-rate adjustment; Company's primary outside servicer; and $70 thousand higher operational losses, mainly sundry losses incurred in the branches related to fraudulent activities. Completing the change from the first quarter of 1999, other was $40 thousand higher than prior year, primarily as a result of increased assessments from regulatory agencies, and stationery and supplies costs were $30 thousand higher than the comparable period in 1999 due to increased usage and purchases of inventories. Comparing the first quarter of 2000 with the fourth quarter of 1999, non-interest expense decreased $1.25 million. Included in this change are $400 thousand lower employee-related expenses, primarily due to higher accruals related to incentive compensation recognized during the previous quarter partially offset by first quarter 2000 higher employee benefits expense and lower deferrals in connection with costs incurred originating new loans. In addition, professional fees were $160 thousand lower than the previous quarter, due to reduced legal expense related to non-performing loans and human resources issues, and lower consulting costs as the fourth quarter of 1999 included certain costs related to the transfer of the tax-deferred pension plan to a new servicer; occupancy expense was $90 thousand lower primarily due to lower costs of assets reaching fully depreciated lives and lower utilities expenses; equipment expense was $80 thousand lower than the previous quarter mainly due to lower repairs and maintenance costs and lower costs of assets reaching fully depreciated status; and postage expense was $80 thousand lower than the fourth quarter of 1999. In addition, operational losses were $70 thousand lower in the first quarter of 2000 as the fourth quarter of 1999 included additional charge-offs resulting from increased volume of pending sundry losses requiring resolution; and other real estate owned expense was $60 thousand lower primarily due to lower related property tax expense. The rest of the favorable changes from the fourth quarter of 1999 include a reduction of $330 thousand in other expenses, including an accrual established in 1999 to cover for possible incidentals related to Y2K compliance issues and its subsequent reversal in the first quarter of 2000, and an additional accrual recognized in the last quarter of 1999 in connection with pending litigations, and lower advertising and public relations, stationery and supplies and loan expense, $20 thousand, $10 thousand and $10 thousand, respectively, lower than the previous quarter. Partially offsetting these favorable changes from the fourth quarter of 1999, merchant credit card costs were $30 thousand higher, due to increased volume and a consequent increase in processing expense; data processing costs were $20 thousand higher, primarily due to a base-rate adjustment resulting from a contract renewal with the Company's primary servicer, and courier services costs were $10 thousand higher than the previous quarter. Provision for Income Tax During the first quarter of 2000, the Company recorded income tax expense of $9.3 million, unchanged from the first quarter of 1999 and $500 thousand lower than the $9.8 million recorded in the fourth quarter of 1999. The current provision represents an effective tax rate of 32.7 percent, compared to 33.5 percent, for the first and fourth quarters of 1999. The provision for income taxes for all periods presented is primarily attributable to the respective level of earnings and the incidence of allowable deductions. Asset Quality 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 increase diversification of earning assets into less risky investments. Asset reviews are performed using grading standards and criteria similar to those employed by bank regulatory agencies. Assets receiving lesser grades fall under the "classified assets" category, which includes all non-performing assets and potential problem loans, and receive an elevated level of attention to ensure collection. The following is a summary of classified assets on the dates indicated: - ------------------------------------------------------------------------- At At March 31, December 31, - ------------------------------------------------------------------------- (In millions) 2000 1999 1999 - ------------------------------------------------------------------------- Classified loans $36.3 $52.0 $41.3 Other classified assets 2.9 3.9 3.3 - ------------------------------------------------------------------------- Total classified assets $39.2 $55.9 $44.6 ========================================================================= Allowance for loan losses as a percentage of classified loans 143% 99% 125% ========================================================================= Classified loans at March 31, 2000, decreased $15.7 million or 30 percent to $36.3 million from March 31, 1999, reflecting the continued enforcing of the Company's strict credit standards and a stronger economy. The decrease was principally due to reductions of classified commercial and commercial real estate loans. Other classified assets decreased $1.0 million from March 31, 1999, due to sales and write-downs of properties acquired in satisfaction of debt ("other real estate owned") partially offset by new foreclosures on loans with real estate collateral. The $5.0 million decrease in classified loans from December 31, 1999, was principally due to reductions in commercial and commercial real estate loans. The $400 thousand reduction in other classified assets from December 31, 1999, was mainly due to sales and write-downs of other real estate owned properties. Non-performing Assets Non-performing assets include non-accrual loans, loans 90 days past due as to principal or interest and still accruing, and other real estate owned. Loans are placed on non-accrual status when reaching 90 days or more delinquent, unless the loan is well secured and in the process of collection. Interest previously accrued on loans placed on non-accrual status is charged against interest income. In addition, loans secured by real estate with temporarily impaired values and commercial loans to borrowers experiencing financial difficulties are placed on non-accrual status even though the borrowers continue to repay the loans as scheduled. Such loans are classified as "performing non-accrual" and are included in total non-performing assets. When the ability to fully collect non-accrual loan principal is in doubt, cash payments received are applied against the principal balance of the loan until such time as full collection of the remaining recorded balance is expected. Any subsequent interest received is recorded as interest income on a cash basis. The following is a summary of non-performing assets on the dates indicated: - ------------------------------------------------------------------------- At At March 31, December 31, - ------------------------------------------------------------------------- (In millions) 2000 1999 1999 - ------------------------------------------------------------------------- Performing non-accrual loans $4.29 $2.28 $3.46 Non-performing, non-accrual loans 3.41 6.21 5.50 - ------------------------------------------------------------------------- Total non-accrual loans 7.70 8.49 8.96 Loans 90 days past due and still accruing 0.37 0.30 0.58 - ------------------------------------------------------------------------- Total non-performing loans 8.07 8.79 9.54 - ------------------------------------------------------------------------- Restructured loans -- -- -- Other real estate owned 2.91 3.86 3.27 - ------------------------------------------------------------------------- Total non-performing assets $10.98 $12.65 $12.81 ========================================================================= Allowance for loan losses as a percentage of non-performing loans 644% 588% 540% ========================================================================= Performing non-accrual loans increased $2.01 million to $4.29 million at March 31, 2000, from $2.28 million at March 31, 1999, and $830 thousand from $3.46 million outstanding at December 31, 1999. Non-performing, non-accrual loans of $3.41 million at March 31, 2000, decreased $2.80 million from March 31, 1999, and $2.09 million from December 31, 1999. The increases in performing non-accrual loans from prior periods presented resulted primarily from the addition of one commercial loan with real estate collateral, while the decrease in non-performing non-accrual loans from prior year and prior quarter-end reflects payoffs and sales of commercial and commercial real estate loans. The $95 thousand and $360 thousand decreases in other real estate owned balances from March 31 and December 31, 1999, respectively, were due to write-downs and liquidations net of foreclosures of properties acquired in satisfaction of debt. The amount of gross interest income that would have been recorded for non-accrual loans for the three months ended March 31, 2000, if all such loans had been current in accordance with their original terms, was $229 thousand, compared to $152 thousand and $213 thousand, respectively, for the first and fourth quarters of 1999. The amount of interest income that was recognized on non-accrual loans from all cash payments, including those related to interest owed from prior years, made during the three months ended March 31, 2000, totaled $372 thousand, compared to $112 thousand for the comparable period in 1999 and $297 thousand for the fourth quarter of 1999. These cash payments represent annualized yields of 19.5 percent for the first quarter of 2000 compared to 6.13 percent and 11.75 percent, respectively, for the first and fourth quarters of 1999. Total cash payments received, including those recorded in prior years, which were applied against the book balance of non-accrual loans outstanding at March 31, 2000, totaled approximately $290 thousand. The overall credit quality of the loan portfolio continues to be strong and improving; however, the total non-performing 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 non-performing assets; however, the Company can give no assurance that additional increases in non-accrual 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, non-performing 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 reserve to the respective segments of the loan portfolio. In addition, loans with similar characteristics not usually criticized using regulatory guidelines due to their small balances and numerous accounts, are analyzed based on the historical rate of net losses and delinquency trends, grouped by the number of days the payments on these loans are delinquent. A portion of the allowance is also allocated to impaired loans. Management considers the $52.0 million allowance for loan losses, which constituted 2.25 percent of total loans at March 31, 2000, 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: - ------------------------------------------------------------------------- For the three months ended March 31, December 31, - ------------------------------------------------------------------------- (In millions) 2000 1999 1999 - ------------------------------------------------------------------------- Balance, beginning of period $51.6 $51.3 $51.6 Loan loss provision 0.9 1.2 1.2 Loans charged off (1.8) (1.5) (1.9) Recoveries of previously charged-off loans 1.3 0.7 0.7 - ------------------------------------------------------------------------- Net credit losses (0.5) (0.8) (1.2) - ------------------------------------------------------------------------- Balance, end of period $52.0 $51.7 $51.6 ========================================================================= Allowance for loan losses as a percentage of loans outstanding 2.25% 2.26% 2.22% ========================================================================= 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 or fall evenly by 200 basis points over the 12-month forecast interval triggering a response in the other forecasted rates. It is the policy of the Company to require that such simulated NII changes should be always less than 10 percent or steps must be taken to reduce interest-rate risk. According to the same policy, if the simulated changes in NII reach 7.5 percent, a closer look at the risk will be put in place to determine what steps could be taken to control risk should it grow worse. The results of the model indicate that the mix of interest rate sensitive assets and liabilities at March 31, 2000 would not result in a fluctuation of NII that would exceed the parameters established by Company policy. At March 31, 2000 and 1999, 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 1999 Form 10-K substantially conform with the accounting policy requirements of these rule amendments, no further interim disclosure has been provided. The rule amendments that require expanded disclosure of quantitative and qualitative information about market risk were effective with the 1997 Form 10-K. At March 31, 2000, there were no substantial changes in the information on market risk that was disclosed in the Company's Form 10-Ks since 1997. Liquidity The Company's principal source of asset liquidity is marketable investment securities available for sale. At March 31, 2000, investment securities available for sale totaled $976 million, representing a decrease of $20.1 million from March 31, 1999. In addition, the Company generates significant liquidity from its operating activities. The Company's profitability during the first three months of 2000 and 1999 generated substantial cash flows, which are included in the total provided from operations of $23.4 million and $36.7 million, respectively. Additional cash flows may be provided by financing activities, primarily the acceptance of deposits and borrowings from banks. During the first quarter of 2000, the effect of the Company's stock repurchase programs and dividends paid to shareholders were $18.5 million and $6.6 million, respectively. These cash outflows, added to a $109.9 million reduction in short-term borrowed funds and a $3.5 million reduction in long-term debt partially offset by a $53.7 million increase in deposits, are included in the net cash used in financing activities during the first three months of 2000, totaling $84.5 million. This compares to the first quarter of 1999, when the cash used in financing activities totaled $55.8 million. This amount includes cash outflows related to the Company's stock repurchase programs and dividends paid to shareholders of $24.7 million and $6.4 million, respectively, in addition to a $92.2 million reduction in deposit balances, partially offset by a $62.0 million increase in short-term borrowings and $5.4 million increase in equity from the issuance of stock. The Company uses cash flows from operating and financing activities primarily to invest in loans and investment securities. Purchases of investment securities net of maturities decreased $2.8 million during the first three months of 2000 compared to an increase of $24.1 million during the comparable period in 1999. Proceeds from net repayments of loans totaled $8.6 million and $7.9 million for the first three months of 2000 and 1999, respectively. The Company anticipates increasing its cash level from operations through 2000 due to increased profitability and retained earnings. For the same period, it is anticipated that demand for loans will continue to increase, particularly in the commercial and real estate categories. The growth in deposit balances is expected to follow the anticipated growth in loan balances. Line of Credit On July 31, 1998, the Company entered into an agreement with a well-established financial institution, establishing a line of credit for general corporate purposes including the repurchase of stock. The line of credit, which had a one-year term and an available commitment ranging from $60.0 million to $37.5 million, was canceled in the third quarter of 1999. The Company replaced this available source of cash inflow with increased cash dividends from its affiliates. 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. Since the beginning of 1994 and through March 31, 2000, the Board of Directors of the Company has authorized the repurchase of 5,252,150 shares of the Company's common stock from time to time, subject to appropriate regulatory and other accounting requirements. The Company acquired 250,000 shares of its common stock in the open market during the first three months of 2000, 1,000,000 in 1999, 996,000 in 1998, 1,040,886 in 1997, and 1,207,800, 721,350 and 93,000 in 1996, 1995 and 1994, respectively. So far, these repurchases have been made periodically in the open market with the intention to lessen the dilutive impact of issuing new shares to meet stock performance, option plans, acquisitions and other requirements. In addition to these systematic repurchases, a new plan to repurchase up to 1,750,000 of the Company's shares of common stock (the "Program") was approved by the Board of Directors on August 26, 1999. The Company's strong capital position and healthy profitability contributed to the initiation of the Program, which was being implemented to optimize the Company's use of equity capital and enhance shareholder value. Pursuant to the Program, the Company repurchased 797,261 shares of its common stock during 1999 at an average price of approximately $31 per share, and 469,500 during the first quarter of 2000 at an average price of approximately $24 per share. The Company's capital position represents the level of capital available to support continued operations and expansion. The Company's primary capital resource is shareholders' equity, which was $293.0 million at March 31, 2000. This amount, which is reflective of the effect of common stock repurchases and dividends paid to shareholders partially offset by the generation and retention of earnings, represents a decrease of $64.3 million or 18 percent from March 31, 1999, and a decrease of $7.6 million, or 3 percent, from December 31, 1999. As a consequence of the decrease in shareholders' equity, the Company's ratio of equity to total assets decreased to 7.65 percent at March 31, 2000, from 9.33 percent and 7.72 percent at March 31 and December 31, 1999, respectively. The ratio of Tier I capital to risk-adjusted assets was 9.82 percent at March 31, 2000, compared to 11.69 percent at March 31, 1999, and 9.82 percent at December 31, 1999. Total capital to risk-adjusted assets was 11.46 percent at March 31, 2000, compared to 13.62 percent at March 31, 1999, and 11.75 percent at December 31, 1999. The following summarizes the ratios of capital to risk-adjusted assets for the periods indicated: - ------------------------------------------------------------------------- At Minimum March 31, December 31, Regulatory -------------------- ------------ Capital 2000 1999 1999 Requirements - ------------------------------------------------------------------------- Tier I Capital 9.85% 11.69% 9.82% 4.00% Total Capital 11.48% 13.62% 11.75% 8.00% Leverage ratio 7.58% 9.16% 7.48% 4.00% The risk-based capital ratios decreased at March 31, 2000, compared to March 31, 1999, primarily due to the decrease in the total level of shareholders' equity due to the Company's common stock repurchases and dividends paid to shareholders, partially offset by increased net income. From December 31, 1999, there was no change in the Tier I capital ratio as the favorable effect of net income was offset by the reduction in equity due to common stock repurchases and dividends paid; the reduction in the Total Capital ratio includes a reduction in the allowable portion of a subordinated capital note issued by Westamerica Bank, which is discounted for regulatory capital purposes as it approaches maturity. Capital ratios are reviewed by Management on a regular basis to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet the Company's future needs. As shown in the table above, all ratios are in excess of the regulatory definition of "well capitalized". Forward-Looking Statement Disclosure Readers are cautioned that forward-looking statements contained in this report should be read in conjunction with the Company's disclosures under the heading "Cautionary Statement for the Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995." Cautionary Statement for the Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995." The Company is including the following cautionary statement to take advantage of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statement made by, or on behalf of, the Company. The factors identified in this cautionary statement are important factors (but not necessarily all important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company. Where any such forward-looking statement includes a statement of the assumptions of bases underlying such forward-looking statement, the Company cautions that, while it believes such assumptions or bases to be reasonable and makes them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. Where, in any forward-looking statement, the Company, expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result, or be achieved or accomplished. Taking into account the foregoing, the following are identified as important risk factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company: The dates on which the Company believes the Year 2000 project will be completed are based on Management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, or that there will not be a delay in, or increased costs associated with, the implementation of the Year 2000 Project. Specific factors that might cause differences between the estimates and actual results include, but are not limited to, the availability and cost of trained personnel, ability to locate and correct all computer related issues, timely responses to and corrections by third parties and suppliers, the availability to implement interfaces between new systems and the systems not being replaced, and similar uncertainties. Due to the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of the Year 2000 readiness of third parties, the Company cannot ensure its ability to timely and cost-effectively resolve problems associated with the Year 2000 issue that may affect its operations and business, or expose it to third-party liability. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WESTAMERICA BANCORPORATION (Registrant) Date: May 4, 2000 /s/ DENNIS R. HANSEN -------------------- Dennis R. Hansen Senior Vice President and Controller Chief Accounting Officer PART II - OTHER INFORMATION Item 1 - Legal Proceedings Due to the nature of the banking business, the Subsidiary Banks are at times party to various legal actions; all such actions are of a routine nature and arise in the normal course of business of the Subsidiary Banks. Item 2 - Changes in Securities None Item 3 - Defaults upon Senior Securities None Item 4 - Submission of Matters to a Vote of Security Holders 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 (b) Exhibit 27: Financial Data Schedule (c) Reports on Form 8-K On March 17, 2000, Westamerica Bancorporation (the "Company") filed a Report on Form 8-K announcing the signing of a Definitive Merger Agreement with First Counties Bank under which the Company will acquire all of the outstanding shares of common stock of First Counties Bank pursuant to a tax-free exchange of shares. The filing included the following: Item 5. Other events Item 7. Financial Statements and Exhibits: (c) Exhibits: (i) Press release dated March 15, 2000, (Exhibit 99); (ii) Agreement and Plan of Reorganization and Merger dated March 14, 2000 (Exhibit 2).