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, 2002
Commission File Number: 1-9383
WESTAMERICA BANCORPORATION
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 94-2156203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1108 Fifth Avenue, San Rafael, California 94901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (707) 863-8000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate the number of shares outstanding of each of the registrant classes
of common stock, as of the latest practicable date:
Title of Class Shares outstanding as of April 25, 2002
Common Stock, 33,483,652
No Par Value
TABLE OF CONTENTS
Page
Forward Looking Statements 1
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements 2
Financial Summary 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 27
Item 4 - Submission of Matters to a Vote of Security Holders 27
Item 6 - Exhibits and Reports on Form 8-K 27
Exhibit 11 - Computation of Earnings Per Share 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) a continued slowdown in the national and
California economies; (2) increased economic uncertainty created by the recent
terrorist attacks on the United States and the actions taken in response; (3)
the prospect of additional terrorist attacks in the United States and the
uncertain effect of these events on the national and regional economies; (4)
changes in the interest rate environment; (5) changes in the regulatory
environment; (6) significantly increasing competitive pressure in the banking
industry; (7) operational risks including data processing system failures or
fraud; (8) the effect of acquisitions and integration of acquired businesses;
(9) volatility of rate sensitive deposits; (10) asset/liability matching risks
and liquidity risks; and (11) changes in the securities markets.
The reader is directed to the Company's annual report on Form 10-K for the year
ended December 31, 2001, for further discussion of factors which could affect
the Company's business and cause actual results to differ materially from those
expressed in any forward-looking statement made in this report.
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
At March 31, December 31,
2002 2001 2001
------------------------------------
Assets:
Cash and cash equivalents $173,029 $188,704 $179,182
Money market assets 534 250 534
Investment securities available for sale 975,256 890,042 948,970
Investment securities held to maturity,
with market values of:
$218,202 at March 31, 2002 213,343
$231,646 at March 31, 2001 225,057
$214,866 at December 31, 2001 209,169
Loans, gross 2,461,696 2,456,438 2,484,457
Allowance for loan losses (52,147) (52,644) (52,086)
---------- ---------- ----------
Loans, net of allowance for loan losses 2,409,549 2,403,794 2,432,371
Other real estate owned 834 1,866 523
Premises and equipment, net 38,893 42,567 39,821
Interest receivable and other assets 150,856 125,326 117,397
---------- ---------- ----------
Total Assets $3,962,294 $3,877,606 $3,927,967
========== ========== ==========
Liabilities:
Deposits:
Noninterest bearing $1,033,063 $954,593 $1,048,458
Interest bearing:
Transaction 540,131 519,957 519,324
Savings 924,731 821,285 863,523
Time 753,199 900,642 803,330
---------- ---------- ----------
Total deposits 3,251,124 3,196,477 3,234,635
Short-term borrowed funds 185,326 275,471 271,911
Federal Home Loan Bank advance 115,000 0 40,000
Notes Payable 24,607 27,821 27,821
Liability for interest, taxes and
other expenses 78,600 46,919 39,241
----------- ---------- ----------
Total Liabilities 3,654,657 3,546,688 3,613,608
=========== ========== ==========
Shareholders' Equity:
Authorized - 150,000 shares of common stock
Issued and outstanding:
33,831 at March 31, 2002 211,608
35,689 at March 31, 2001 213,358
34,220 at December 31, 2001 209,074
Accumulated other comprehensive income:
Unrealized gain on securities
available for sale 8,062 12,940 11,900
Retained earnings 87,967 104,620 93,385
---------- ---------- ----------
Total Shareholders' Equity 307,637 330,918 314,359
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $3,962,294 $3,877,606 $3,927,967
========== ========== ==========
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
Three months ended
March 31,
2002 2001
---------------------
Interest Income:
Loans $43,966 $50,906
Money market assets and funds sold 0 3
Investment securities available for sale
Taxable 8,292 10,025
Tax-exempt 3,852 2,971
Investment securities held to maturity
Taxable 970 1,240
Tax-exempt 1,858 1,992
------- -------
Total interest income 58,938 67,137
------- -------
Interest Expense:
Transaction deposits 407 892
Savings deposits 2,742 4,462
Time deposits 4,992 12,112
Short-term borrowed funds 1,026 3,513
Federal Home Loan Bank advance 793 0
Debt financing and notes payable 461 518
------- -------
Total interest expense 10,421 21,497
------- -------
Net Interest Income 48,517 45,640
------- -------
Provision for loan losses 900 900
------- -------
Net Interest Income After
Provision For Loan Losses 47,617 44,740
------- -------
Noninterest Income:
Service charges on deposit accounts 6,002 5,560
Merchant credit card 905 946
Financial services commissions 339 243
Mortgage banking 187 221
Trust fees 311 292
Other 2,255 3,024
------- -------
Total Noninterest Income 9,999 10,286
------- -------
Noninterest Expense:
Salaries and related benefits 13,863 13,321
Occupancy 2,931 2,916
Equipment 1,434 1,590
Data processing 1,499 1,521
Professional fees 371 453
Other real estate owned 49 43
Other 5,546 5,732
------- -------
Total Noninterest Expense 25,693 25,576
------- -------
Income Before Income Taxes 31,923 29,450
Provision for income taxes 10,264 9,026
------- -------
Net Income $21,659 $20,424
======= =======
Comprehensive Income:
Change in unrealized gain on
securities available for sale, net (3,838) 5,771
------- -------
Comprehensive Income $17,821 $26,195
======= =======
Average Shares Outstanding 34,071 36,000
Diluted Average Shares Outstanding 34,634 36,605
Per Share Data:
Basic Earnings $0.64 $0.57
Diluted Earnings 0.63 0.56
Dividends Paid 0.22 0.19
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
Accumulated
Compre-
Common hensive Retained
Stock Income Earnings Total
-----------------------------------------------
Balance, December 31, 2000 $206,952 $7,169 $123,626 $337,747
Net income for the period 20,424 20,424
Stock issued, including
stock option tax benefits 12,143 12,143
Purchase and retirement of stock (5,737) (32,539) (38,276)
Dividends (6,891) (6,891)
Unrealized gain on securities available
for sale, net 5,771 5,771
--------- ------- --------- ---------
Balance, March 31, 2001 $213,358 $12,940 $104,620 $330,918
========= ======= ========= =========
Balance, December 31, 2001 $209,074 $11,900 $93,385 $314,359
Net income for the period 21,659 21,659
Stock issued, including
stock option tax benefits 5,965 5,965
Purchase and retirement of stock (3,431) (19,539) (22,970)
Dividends (7,538) (7,538)
Unrealized loss on securities available
for sale, net (3,838) (3,838)
--------- ------- --------- ---------
Balance, March 31, 2002 $211,608 $8,062 $87,967 $307,637
========= ======= ========= =========
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the three months
ended March 31,
2002 2001
------------------------
Operating Activities:
Net income $21,659 $20,424
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of fixed assets 1,138 1,197
Amortization of intangibles and other assets 418 854
Loan loss provision 900 900
Amortization of deferred net loan fees 250 55
(Increase) decrease in interest income receivable (83) 3,034
Increase in other assets (34,196) (7,246)
Increase in income taxes payable 10,465 9,094
Decrease in interest expense payable (168) (659)
Increase (decrease) in other liabilities 33,338 (2,025)
Write-downs of equipment 68 17
Originations of loans for resale (3,720) (880)
Proceeds from sale of loans originated for resale 4,446 547
Net loss on sale of loans originated for resale -- 12
Net gain (loss) on sale of property acquired in satisfaction of de 32 (59)
Write-down on property acquired in satisfaction of debt -- 47
--------- ---------
Net Cash Provided by Operating Activities 34,547 25,312
--------- ---------
Investing Activities:
Net repayments of loans 20,571 25,387
Purchases of investment securities available for sale (552,980) (33,566)
Purchases of investment securities held to maturity (4,965) (98)
Purchases of property, plant and equipment (640) (1,601)
Proceeds from maturity of securities available for sale 513,876 74,540
Proceeds from maturity of securities held to maturity 6,023 3,077
Proceeds from sale of securities available for sale 962 217
Proceeds from sale of property and equipment 364 --
Proceeds from property acquired in satisfaction of debt 32 287
--------- ---------
Net Cash (Used In) Provided By Investing Activities (16,757) 68,243
--------- ---------
Financing Activities:
Net increase (decrease) in deposits 16,489 (40,267)
Net decrease in short-term borrowings (11,585) (111,471)
Repayments of notes payable (3,214) (3,215)
Exercise of stock options/issuance of shares 4,875 8,787
Repurchases/retirement of stock (22,970) (38,276)
Dividends paid (7,538) (6,891)
--------- ---------
Net Cash Used In Financing Activities (23,943) (191,333)
--------- ---------
Net Decrease In Cash and Cash Equivalents (6,153) (97,778)
--------- ---------
Cash and Cash Equivalents at Beginning of Period 179,182 286,482
--------- ---------
Cash and Cash Equivalents at End of Period $173,029 $188,704
========= =========
Supplemental Disclosure of Noncash Activities:
Loans transferred to other real estate owned $375 $77
Supplemental Disclosure of Cash Flow Activity:
Unrealized (loss) gain on securities available for sale, net ($3,838) $5,771
Interest paid for the period 10,252 22,062
Income tax payments for the period -- --
Income tax benefit from stock option exercises 1,085 3,356
WESTAMERICA BANCORPORATION
Financial Summary
(dollars in thousands, except per share amounts)
Three months ended
March 31,
2002 2001
----------------------------
Net Interest Income $48,517 $45,640
Provision for Loan Losses (900) (900)
Noninterest Income 9,999 10,286
Noninterest Expense (25,693) (25,576)
Provision for income taxes (10,264) (9,026)
------- -------
Net Income $21,659 $20,424
======= =======
Average Shares Outstanding 34,071 36,000
Diluted Average Shares Outstanding 34,634 36,605
Shares Outstanding at Period End 33,831 35,689
Basic Earnings Per Share $0.64 $0.57
Diluted Earnings Per Share 0.63 0.56
Average Balances:
Total Assets $3,911,060 $3,872,584
Earning Assets 3,631,344 3,572,761
Total Loans 2,470,989 2,457,755
Total Deposits 3,206,717 3,175,414
Shareholders' Equity 301,014 320,105
Financial Ratios for the Period:
Return On Assets 2.25% 2.14%
Return On Equity 29.18% 25.88%
Net Interest Margin 5.86% 5.56%
Net Loan Losses to Average Loans 0.14% 0.09%
Efficiency Ratio 41.0% 43.0%
Balances at Period End:
Total Assets $3,962,294 $3,877,606
Earning Assets 3,599,216 3,519,402
Total Loans 2,461,696 2,456,438
Total Deposits 3,251,124 3,196,477
Shareholders' Equity 307,637 330,918
Financial Ratios at Period End:
Allowance for Loan Losses to Loans 2.12% 2.14%
Book Value Per Share $9.09 $9.27
Equity to Assets 7.76% 8.53%
Total Capital to Risk Assets 10.67% 11.39%
Dividends Paid Per Share $0.22 $0.19
Dividend Payout Ratio 35% 34%
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Westamerica Bancorporation and subsidiaries (the "Company") reported first
quarter 2002 net income of $21.7 million or $.63 diluted earnings per share.
These results compare to net income of $20.4 million or $.56 diluted earnings
per share and $21.8 million or $.62 diluted earnings per share, respectively,
for the first and fourth quarters of 2001.
Following is a summary of the components of net income for the periods indicated
(dollars in thousands):
For the three months ended
March 31, December 31,
2002 2001 2001
-------------------------------------
Net interest income (FTE) $52,712 $49,259 $52,381
Provision for loan losses (900) (900) (900)
Noninterest income 9,999 10,286 10,785
Noninterest expense (25,693) (25,576) (25,685)
Provision for income taxes (FTE) (14,459) (12,645) (14,810)
-------- -------- --------
Net income $21,659 $20,424 $21,771
======== ======== ========
Average total assets $3,911,060 $3,872,584 $3,884,291
Net income (annualized) to average total assets 2.25% 2.14% 2.22%
Net income for the first quarter of 2002 was $1.2 million (6%) over the same
quarter of 2001. The increase was primarily from net interest income (FTE)
(up $3.5 million or 7%), the net result of a 30 basis point (bp) improvement
in net margin, and to a lesser extent, growth of average earning assets
(up $59 million). Noninterest income decreased $287 thousand (3%), partially
offsetting the net interest improvement. The resulting net revenue was
slightly reduced by an increase in noninterest expenses, which were $117
thousand above the year-ago quarter. The provision for income taxes (FTE)
increased $1.8 million (14%), in-line with the increase in pretax income.
Comparing the first three months of 2002 to the prior quarter, net income
decreased $112 thousand (0.5%). Improved net interest income (up $331
thousand or 0.6%) was attributable to a higher margin (up 7 bp)
and, to a lesser extent, higher average earning assets (up $27 million).
This increase was partially offset by lower noninterest income (down $786
thousand). Noninterest expense remained essentially unchanged between the
two quarters. The FTE provision for income taxes was down $351 thousand
from the fourth quarter of 2001.
Net Interest Income
Following is a summary of the components of net interest income for the periods
indicated (dollars in thousands):
For the three months ended
March 31 December 31,
2002 2001 2001
-------------------------------------
Interest income $58,938 $67,137 $61,280
Interest expense (10,421) (21,497) (13,029)
FTE adjustment 4,195 3,619 4,130
-------- -------- --------
Net interest income (FTE) $52,712 $49,259 $52,381
======== ======== ========
Average earning assets $3,631,344 $3,572,761 $3,604,579
Net interest margin (FTE) 5.86% 5.56% 5.79%
The Company's primary source of revenue is net interest income, or the
difference between interest income earned on loans and investments and
interest expense paid on interest-bearing deposits and borrowings. Net
interest income (FTE) during the first quarter of 2002 increased $3.5
million (7%) from the same period in 2001 to $52.7 million. Approximately
one-half of the increase was due to the growth of average earning assets
(up $59 million), with the remainder due to a higher interest margin. The
increase in the net interest margin was the net effect of a 98 bp drop in
the asset yield, which was more than offset by a 128 bp drop in the cost of
funds.
Comparing the first quarter of 2002 with the previous quarter, net interest
income (FTE) increased $331 thousand (0.6%), primarily due to a higher
interest margin, partially offset by increases in average balances of funds
purchased and Federal Home Loan Bank advances. The margin expansion was the
result of a 20 bp decrease in asset yields, which was more than offset by a
27 bp lower cost of funds.
Interest and Fee Income
Interest & fee income (FTE) for the first quarter of 2002 decreased $7.6
million (11%) from the same period in 2001. The decrease was caused by
lower yields, partially offset by the positive effect of growth of
average earning assets.
The average yield on the Company's earning assets decreased from 8.00% in the
first quarter of 2001 to 7.02% in the 2002 period (down 98 bp). This decrease
in yields was reflective of general interest markets during much of 2001 and
into 2002. This was particularly evident in variable-rate categories of loans
such as commercial (261 bp decline in yield), construction (392 bp decline) and
personal lines of credit (392 bp decline). Except for direct consumer loans
(up 11 bp), other categories of loans with longer maturities and/or fixed rates
of interest also declined, but by a relatively lesser degree. These include
commercial real estate loans (42 bp decrease), residential real estate loans
(45 bp decrease) and indirect consumer loans (down 52 bp). The net result was
that the yield on the loan portfolio declined 114 bp to 7.38%.
The investment portfolio yield decreased 52 bp to 6.18%, which was mostly caused
by declines in participation certificates (down 132 bp), other securities (down
135 bp) and U.S. Agency (down 56 bp).
Average earning assets grew $59 million, despite reductions in residential real
estate loans (down $20 million or 6%), direct consumer loans (down $19 million
or 30%), and personal credit lines (down $6 million or 8%). Much of this
contraction was replaced with growth in the commercial real estate and indirect
consumer loan portfolios, which increased by $25 million (3%) and $23 million
(6%), respectively. All other categories of loans increased by $10 million.
Additionally, the investment portfolio increased: municipal securities (up $51
million or 13%), US Agency obligations (up $12 million or 7%), and other
securities (up $35 million or 13%). Partially offsetting this growth were
declines in US Treasury securities (down $45 million or 24%) and
participation certificates (down $8 million or 11%).
Comparing the first quarter of 2002 to the previous quarter, interest & fee
income (FTE) fell $2.3 million (4%). Like the first quarter comparison, the
decrease resulted from declining yields, partially offset by a higher volume
of the investment portfolio.
The average yield on earning assets for the first three months of 2002 was
7.02% compared to 7.22% in the fourth quarter of 2001. Loan yields, especially
those more sensitive to market rates, declined 16 bp: the yield on commercial
loans was down 47 bp, construction yields declined 66 bp, personal lines of
credit fell 58bp and indirect consumer loans were down 20 bp.
The investment portfolio yield decreased 24 bp: the U.S. Treasury securities
yield declined 29 bp, other securities declined 68 bp, and participation
certificates were were lower by 11 bp. Partially offsetting this decline
was an increase in municipal securities (up 7 bp).
The positive volume component of the change was caused by a $27 million (0.7%)
increase in average earning assets, including higher US Agency obligations (up
$13 million or 7%) and other securities (up $31 million or 11%), partially
offset by a decrease in US Treasury securities (down $9 million or 6%).
Total investments increased by $37 million (3%). A reduction in the loan
portfolio of $10 million (0.4%) offset the investment expansion.
Interest Expense
Interest expense decreased $11 million (52%) in the first three months of 2002
compared to the year-ago period. The decrease was the combined effect of a more
favorable mix of interest-bearing liabilities and a drop in the average rate
paid. More expensive time deposits (down $110 million) were replaced with less
expensive transaction accounts (up $88 million). A portion of short-term funds
(down $53 million) were refinanced with Federal Home Loan Bank borrowing
(up $86 million), with an average maturity of three years.
The average rate paid on interest-bearing liabilities decreased from 3.41% in
the first quarter of 2001 to 1.65% in 2002. Rates paid on those liabilities that
move with general market conditions declined accordingly: the average rate on
Fed Funds dropped 391 bp and the rate paid on repurchase agreements declined
338 bp. Rates on deposits declined as well, including those CDs over $100
thousand, which declined 323 bp, and on high-yield Money Market accounts,
which were lowered an average of 283 bp.
Comparing the first quarter of 2002 to the previous quarter, interest expense
decreased $2.6 million (20%) in 2002 from 2001, again due to a more favorable
mix of interest-bearing liabilities and lower rates paid.
Rates paid averaged 1.65% during the first three months of 2002 compared to
2.05% in the fourth quarter of 2001. The most significant decline was on
short-term funds, which decreased from 2.23% to 1.62%. Rates on all deposit
categories decreased as well, with the average rate paid on all interest-bearing
deposits dropping from 1.95% to 1.51%.
Interest-bearing liabilities grew $38 million (1.5%) over the fourth quarter of
2001: increases in short-term funds (up $19 million or 8%) and Federal Home Loan
Bank borrowing (up $62 million or 253%) were partially offset by a $45 million
(5%) decline in time deposits.
In all periods, the Company has attempted to continue 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
quarterly trends.
Net Interest Margin (FTE)
The following summarizes the components of the Company's net interest margin for
for the periods indicated:
For the three months ended
March 31, December 31,
2002 2001 2001
---------------------------------
Yield on earning assets 7.02% 8.00% 7.22%
Rate paid on interest-bearing
liabilities 1.65% 3.41% 2.05%
----- ----- -----
Net interest spread 5.37% 4.59% 5.17%
Impact of all other net
noninterest bearing funds 0.49% 0.97% 0.62%
----- ----- -----
Net interest margin 5.86% 5.56% 5.79%
===== ===== =====
During the first quarter of 2002, the Company's rapid reaction to declining
market rates resulted in a substantial increase in the net interest margin.
The margin decreased 30 basis points compared to the first quarter of 2001.
The unfavorable impact of lower rates earned on loans and the investment
portfolio, triggered by market trends, was more than offset by managed decreases
in rates paid on deposits and short-term funds. The result was a 73 bp increase
in the net interest spread. Partially offsetting the increase in spread was
the lower value of noninterest bearing funding sources. While the average
balance of these sources increased $30 million (2%), their value decreased
48 bp because of the lower market rates of interest at which they could be
invested.
The net interest margin increased 7 bp when compared to the fourth quarter of
2001. Earning asset yields decreased 20 bp, while the cost of interest-bearing
liabilities was managed down. The interest spread increased 20 bp as a result.
Noninterest bearing funding sources decreased $11 million (0.7%) and because of
lower market rates of interest their value decreased by 13 bp.
Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present, for the periods indicated, information regarding
the Company's consolidated average assets, liabilities and shareholders' equity,
the amount of interest income from average earning assets and the resulting
yields, and the amount of interest expense paid on interest-bearing liabilities.
Average loan balances include nonperforming loans. Interest income includes
proceeds from loans on 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 on
them which is exempt from federal income taxation at the current statutory
tax rate (dollars in thousands).
For the three months ended
March 31, 2002
Interest Rates
Average Income/ Earned/
Balance Expense Paid
-------------------------------------
Assets:
Money market assets and funds sold $819 $0 0.00%
Investment securities:
Available for sale
Taxable 642,469 8,292 5.23%
Tax-exempt 308,603 5,835 7.56%
Held to maturity
Taxable 67,431 970 5.83%
Tax-exempt 141,033 2,816 7.99%
Loans:
Commercial:
Taxable 397,012 6,026 6.16%
Tax-exempt 193,197 3,695 7.76%
Commercial real estate 985,025 19,570 8.06%
Real estate construction 70,724 1,302 7.47%
Real estate residential 335,933 5,573 6.64%
Consumer 489,098 9,054 7.51%
---------- -------
Total loans 2,470,989 45,220 7.42%
---------- -------
Total earning assets 3,631,344 63,133 7.02%
Other assets 279,716
----------
Total assets $3,911,060
==========
Liabilities and shareholders' equity
Deposits:
Noninterest bearing demand $1,013,418 $-- --
Savings and interest-bearing
transaction 1,414,010 3,149 0.90%
Time less than $100,000 350,383 2,395 2.77%
Time $100,000 or more 428,906 2,597 2.46%
---------- -------
Total interest-bearing deposits 2,193,299 8,141 1.51%
Short-term borrowed funds 255,552 1,026 1.63%
Federal Home Loan Bank advances 86,183 793 3.68%
Debt financing and notes payable 25,678 461 7.28%
---------- --------
Total interest-bearing liabilities 2,560,712 10,421 1.65%
Other liabilities 35,916
Shareholders' equity 301,014
----------
Total liabilities and shareholders' equity $3,911,060
==========
Net interest spread (1) 5.37%
Net interest income and interest margin (2) $52,712 5.86%
======= =====
For the three months ended
March 31, 2001
Interest Rates
Average Income/ Earned/
Balance Expense Paid
-------------------------------------
Assets:
Money market assets and funds sold $553 $3 2.17%
Investment securities:
Available for sale
Taxable 657,753 10,025 6.18%
Tax-exempt 230,126 4,420 7.68%
Held to maturity
Taxable 76,586 1,240 6.57%
Tax-exempt 149,988 2,962 7.90%
Loans:
Commercial:
Taxable 396,657 9,793 10.01%
Tax-exempt 190,485 3,656 7.78%
Commercial real estate 960,294 20,004 8.42%
Real estate construction 63,356 1,753 11.10%
Real estate residential 355,835 6,307 7.11%
Consumer 491,128 10,593 8.65%
---------- -------
Total loans 2,457,755 52,106 8.55%
---------- -------
Total earning assets 3,572,761 70,756 8.02%
Other assets 299,823
----------
Total assets $3,872,584
==========
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand 960,184 $-- --
Savings and interest-bearing
transaction 1,325,526 5,354 1.62%
Time less than $100,000 398,172 5,143 5.17%
Time $100,000 or more 491,532 6,969 5.69%
---------- -------
Total interest-bearing deposits 2,215,230 17,466 3.16%
Short-term borrowed funds 308,294 3,513 4.57%
Federal Home Loan Bank advances 0 0 0
Debt financing and notes payable 28,893 518 7.19%
---------- -------
Total interest-bearing liabilities 2,552,417 21,497 3.41%
Other liabilities 39,878
Shareholders' equity 320,105
----------
Total liabilities and shareholders' equity $3,872,584
==========
Net interest spread (1) 4.60%
Net interest income and interest margin (2) $49,259 5.56%
======= =====
For the three months ended
December 31, 2001
Interest Rates
Average income/ earned/
Balance expense paid
--------------------------------------
Assets:
Money market assets and funds sold $474 $1 0.84%
Investment securities:
Available for sale
Taxable 608,707 8,528 5.56%
Tax-exempt 302,678 5,767 7.62%
Held to maturity
Taxable 71,041 1,007 5.62%
Tax-exempt 140,795 2,772 7.88%
Loans:
Commercial:
Taxable 392,827 6,766 6.83%
Tax-exempt 188,997 3,702 7.77%
Commercial real estate 981,917 19,764 7.98%
Real estate construction 72,536 1,464 8.01%
Real estate residential 357,373 6,011 6.73%
Consumer 487,235 9,628 7.84%
---------- -------
Total loans 2,480,885 47,335 7.57%
---------- -------
Total earning assets 3,604,580 65,410 7.22%
Other assets 279,711
----------
Total assets $3,884,291
==========
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,025,804 $-- --
Savings and interest-bearing
transaction 1,410,218 4,419 1.24%
Time less than $100,000 371,515 3,187 3.40%
Time $100,000 or more 452,445 3,367 2.95%
---------- -------
Total interest-bearing deposits 2,234,178 10,973 1.95%
Short-term borrowed funds 236,678 1,334 2.24%
Federal Home Loan Bank advances 24,435 223 3.62%
Debt financing and notes payable 27,821 499 7.12%
---------- -------
Total interest-bearing liabilities 2,523,112 13,029 2.05%
Other liabilities 33,622
Shareholders' equity 301,753
----------
Total liabilities and shareholders' equity $3,884,291
==========
Net interest spread (1) 5.17%
Net interest income and interest margin (2) $52,381 5.79%
======= =====
(1) Net interest spread represents the average yield earned on earning assets minus the
average rate paid on interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference between
interest income and expense (annualized), divided by the average balance of earning
assets.
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 due to 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 March 31, 2002
compared with three months
ended March 31, 2001
Volume Rate Total
---------------------------------
Interest and fee income:
Money market assets and funds sold $3 ($6) ($3)
Investment securities:
Available for sale
Taxable (228) (1,505) (1,733)
Tax-exempt 1,484 (69) 1,415
Held to maturity
Taxable (141) (129) (270)
Tax-exempt (178) 32 (146)
Loans:
Commercial:
Taxable 9 (3,776) (3,767)
Tax-exempt 52 (13) 39
Commercial real estate 546 (980) (434)
Real estate construction 238 (689) (451)
Real estate residential (347) (387) (734)
Consumer (122) (1,416) (1,538)
------- ------- -------
Total loans 376 (7,261) (6,885)
------- ------- -------
Total earning assets 1,315 (8,937) (7,622)
------- ------- -------
Interest expense:
Deposits:
Savings and interest-bearing
transaction 491 (2,696) (2,205)
Time less than $100,000 (535) (2,213) (2,748)
Time $100,000 or more (682) (3,690) (4,372)
------- ------- -------
Total interest-bearing deposits (726) (8,599) (9,325)
------- ------- -------
Short-term borrowed funds (537) (1,949) (2,486)
Federal Home Loan Bank advances 792 1 793
Debt financing and notes payable (58) 1 (57)
------- -------- --------
Total interest-bearing liabilities (529) (10,546) (11,075)
------- -------- --------
Increase in Net Interest Income $1,844 $1,609 $3,453
======= ======== ========
Three months ended March 31, 2002
compared with three months
ended December 31, 2001
Volume Rate Total
-----------------------------------
Interest and fee income:
Money market assets and funds sold ($1) $0 ($1)
Investment securities:
Available for sale
Taxable 283 (519) (236)
Tax-exempt 111 (43) 68
Held to maturity
Taxable (41) 4 (37)
Tax-exempt 5 39 44
Loans:
Commercial:
Taxable (63) (677) (740)
Tax-exempt 8 (15) (7)
Commercial real estate 74 (268) (194)
Real estate construction (34) (128) (162)
Real estate residential (362) (76) (438)
Consumer 17 (591) (574)
------- ------- -------
Total loans (360) (1,755) (2,115)
------- ------- -------
Total earning assets (3) (2,274) (2,277)
------- ------- -------
Interest expense:
Deposits:
Savings and interest-bearing
transaction (1) (1,269) (1,270)
Time less than $100,000 (153) (639) (792)
Time $100,000 or more (167) (603) (770)
------- ------- -------
Total interest-bearing deposits (321) (2,511) (2,832)
------- ------- -------
Short-term borrowed funds 80 (388) (308)
Federal Home Loan Bank advances 586 (16) 570
Debt financing and notes payable (38) 0 (38)
------- ------- -------
Total interest-bearing liabilities 307 (2,915) (2,608)
------- ------- -------
Increase (Decrease) in Net Interest Income ($310) $641 $331
======= ======= =======
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 first quarter of 2002, unchanged from the first and the fourth
quarters of 2001.
For further information regarding net credit losses and the allowance for loan
losses, see the "Classified Assets" 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
March 31, December 31,
2002 2001 2001
----------------------------------
Service charges on deposit accounts $6,002 $5,560 $5,841
Merchant credit card fees 905 946 961
ATM fees and interchange 517 493 582
Financial services commissions 339 243 381
Debit card fees 406 312 440
Mortgage banking income 187 221 198
Official check sales income 157 350 200
Trust fees 311 292 215
Gains on sale of foreclosed property 0 59 1
Other noninterest income 1,175 1,810 1,966
------ ------- -------
Total $9,999 $10,286 $10,785
====== ======= =======
Noninterest income for the first quarter of 2002 decreased $287 thousand (3%)
from the same period in 2001. Service charges on deposit accounts, specifically
in the area of deficit fees charged on analyzed accounts, increased $442
thousand (8%). Deficit fees are service charges collected from business
customers that typically pay for such services with compensating balances.
In the current period of low interest rates, the earnings value of the balances
has decreased resulting in more customers being required to pay for services
with explicit fees. Offsetting the increase in deficit fees were declines in DDA
activity (down $284 thousand or 17%) as well as overdraft and returned item
charges (down $116 thousand or 5%).
Increases in ATM fees and debit card fees also contributed to noninterest
income. ATM fees increased $24 thousand (5%) due to increased Bank customer
use of other banks' machines and non-Bank customers accessing their accounts
through Westamerica Bank ATM's. In the current quarter, fees earned from check
card use totaled $406 thousand, up $94 thousand (30%) over a year ago.
The amount of financial services commissions was $96 thousand (40%) higher in
the first quarter of 2002 compared to 2001 primarily due to higher sales volume
of fixed annuities. Official check sales income declined $193 thousand (55%)
mainly because declining earnings credit rates depressed sales income despite
sales volume growth.
Comparing the first quarter of 2002 to the previous quarter, noninterest income
decreased $786 thousand (7%). The largest positive contributor was service
charges on deposit accounts, which increased $161 thousand (3%). As discussed
above, the primary reason for the increase is the current low interest rate
environment: lower earnings credits are given on compensating balances so that
customers are assessed hard-dollar fees for services. Also included in this
category are overdraft and returned item charges, which declined $111
thousand (5%).
The other positive factor was a $96 thousand (45%) increase in Trust fees with
$52 thousand court fees received and intensified marketing. The above increases
were not sufficient to offset decreases in other categories.
Merchant credit card fees fell $56 thousand (6%) primarily due to seasonally
high sales in the fourth quarter. ATM fees and debit card fees fell $65
thousand (11%) and $34 thousand (8%), respectively, mainly due to seasonally
high transaction volume in the fourth quarter.
Financial services commissions declined $42 thousand (11%) primarily because
of an $80 thousand decrease in fixed annuities sales, partially offset by a
$26 thousand increase in variable annuities sales.
Official check sales income also fell $43 thousand (21%) due to lower earning
credit rates. Other noninterest income fell $791 thousand (40%) as the previous
quarter included $331 thousand excess proceeds received on a charged-off loan.
Noninterest Expense
The following table summarizes the components of noninterest expense for the
periods indicated (dollars in thousands).
Three months ended
March 31, December 31,
2002 2001 2001
---------------------------------
Salaries and incentives $10,948 $10,220 $10,568
Employee benefits 2,941 3,130 2,305
Occupancy 2,931 2,916 3,043
Equipment 1,434 1,590 1,583
Data processing services 1,499 1,521 1,456
Courier service 889 927 898
Telephone 409 494 444
Postage 405 502 393
Professional fees 371 453 403
Merchant credit card 340 361 342
Stationery and supplies 345 362 381
Advertising/public relations 289 359 374
Employee recruiting 110 100 94
Loan expense 333 226 284
Operational losses 231 163 296
Deposit expense 138 159 181
Foreclosed property expense 49 43 7
Amortization of deposit intangibles 201 365 261
Amortization of goodwill 0 288 297
Other noninterest expense 1,830 1,397 2,075
------- ------- -------
Total $25,693 $25,576 $25,685
======= ======= =======
Average full time equivalent staff 1,081 1,083 1,083
Noninterest expense to revenues (FTE) 40.97% 42.95% 40.66%
Noninterest expense increased $117 thousand (0.4%) in the first quarter of 2002
compared to the same period in 2001. The largest category of increase was
salaries and incentives, which were up $728 thousand (7%). A major portion
of the increase is attributable to a $694 thousand increase in incentive
compensation expense.
Other major increases are found in loan expense (up $107 thousand or 47%),
operational losses (up $68 thousand or 42%) and other noninterest expense
(up $434 thousand or 31%). Loan expense went up primarily due to a $26
thousand increase in the cost of obtaining credit reports and a $35 thousand
increase in collateral repossession expense. Operational losses rose largely
because the first quarter of 2001 benefited from $40 thousand of recoveries.
Other noninterest expense rose mainly due to a $69 thousand (46%) increase
in sales contest expense, a $100 thousand provision for unusual losses and
a $143 thousand (126%) increase in staff relations expense.
Largely offsetting these increases, employee benefits expense declined $189
thousand (6%) primarily due to a $288 thousand decrease in payroll taxes and
a $43 thousand decline in workers compensation costs.
Other categories of decline were a $156 thousand (10%) decrease in equipment
primarily due to lower depreciation costs including the effect from sale of
branches in the fourth quarter of 2001 and an $85 thousand (17%) decline in
telephone expense. In addition, postage expense decreased $97 thousand (19%)
due to special mailings in 2001, professional fees were down $82 thousand
(18%) primarily because 2001 included legal fees in connection with loan
collection efforts, and advertising/public relations fell $70 thousand (19%)
primarily due to a decrease in promotional advertising. Last, the amortization
of deposit intangibles declined $164 thousand (44%) primarily due to the
expiration of the purchase premium incurred in connection with a 1993
acquisition and amortization of goodwill fell because of implementation of
FASB No.141 and 142. Goodwill will no longer be amortized but be periodically
evaluated for impairment.
Comparing the first three months of 2002 with the fourth quarter of 2001,
noninterest expense stayed essentially flat. Salaries and incentives rose
$380 thousand (4%) primarily due to salary increases for existing employees
and higher expenses recorded in connection with incentive and bonus programs.
Benefits rose $636 thousand (28%) primarily due to an increase in the accrual
for restricted performance shares, $109 thousand higher tax payments in the
first quarter and a $43 thousand increase in group insurance.
Other expenses which increased are a $43 thousand (3%) increase in data
processing and a $49 thousand (17%) increase in loan expense. Foreclosed
property expense rose $42 thousand (600%) primarily due to a $32 thousand
writedown.
Offsetting these increases were declines in occupancy (down $112 thousand or 4%)
largely due to $165 thousand lower utility expense, equipment (down $149
thousand or 9%) mainly due to a $66 thousand lower depreciation expense and $67
thousand equipment writeoff of certain assets in the fourth quarter.
Advertising/public relations fell $85 thousand (23%) primarily due to a $51
thousand drop in promotional advertising and a $20 thousand decrease in public
relations. Operational losses declined $65 thousand (22%) mainly due to a $71
thousand decrease in sundry losses. Amortization of deposit intangibles and
goodwill fell $62 thousand and $297 thousand for the same reason with the
year-to-year comparison. Other noninterest declined $243 thousand primarily
because the fourth quarter included $550 thousand provision for unusual losses.
Provision for Income Tax
During the first quarter of 2002, the Company recorded income tax expense of
$10.2 million, $1.2 million (14%) higher than the first quarter of 2001.
The current quarter provision represents an effective tax rate of 32.2 percent,
compared to 30.6 percent and 32.9 percent for the first and fourth quarters
of 2001.
The provision for income taxes for all periods is primarily attributable to the
respective levels of earnings and deductions from tax-exempt loans and state
and municipal securities, which increased $681 thousand in the first quarter
of 2002 over the same period last year and $91 thousand over the fourth quarter
of 2001.
Classified Assets
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
nonperforming 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
(dollars in thousands):
At
At March 31, December 31,
2002 2001 2001
-----------------------------------
Classified loans $26,687 $33,365 $22,284
Other classified assets 834 1,866 523
------- ------- -------
Total classified assets $27,521 $35,231 $22,807
======= ======= =======
Allowance for loan losses /
classified loans 195% 158% 234%
Classified loans at March 31, 2002, decreased $6.7 million (20%) from a year
ago, primarily reflecting the effectiveness of the Company's high underwriting
standards and active workout policies. Other classified assets decreased $1.0
million (55%) from March 31, 2001, due to sales and write-downs of foreclosed
properties, partially offset by new foreclosures on loans with real estate
collateral. There was a $4.4 million increase (20%) in classified loans from
December 31, 2001 mainly due to new downgrades, partially offset by payoffs.
Nonperforming Assets
Nonperforming assets include nonaccrual loans, loans 90 days past due as to
principal or interest and still accruing, and other real estate owned. Loans
are placed on nonaccrual 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 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 assets.
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 assets on the dates indicated
(dollars in thousands):
At
At March 31, December 31,
2002 2001 2001
------------------------------------
Performing nonaccrual loans $3,195 $2,861 $3,055
Nonperforming, nonaccrual loans 4,395 4,204 5,058
------ ------ ------
Total nonaccrual loans 7,590 7,065 8,113
Loans 90 days past due and
still accruing 252 409 550
------ ------ ------
Total nonperforming loans 7,842 7,474 8,663
Other real estate owned 834 1,866 523
------- ------- -------
Total nonperforming assets $8,676 $9,340 $9,186
======= ======= =======
Allowance for loan losses /
nonperforming loans 665% 704% 601%
Performing nonaccrual loans at March 31, 2002 increased $334 thousand (12%) and
$140 thousand (5%) from a year ago and from year-end, 2001, respectively. The
change resulted from new loans placed on nonaccrual, offset by charge-offs,
payoffs and loans being returned to accrual status.
Nonperforming nonaccrual loans at March 31, 2002 increased $191 thousand (5%)
from the previous year, the net result of loans being added to nonaccrual,
partially offset by others being returned to full-accrual status or being
paid off. The $663 thousand (13%) decrease from December 31, 2001 was primarily
due to the foreclosure on one loan and subsequent transfer to other real estate
owned.
Other real estate owned at March 31, 2002 was $1.0 million (55%) lower
than the previous year, primarily resulting from the sale of three large
properties with a total carrying value of $1.2 million. Comparing to the
2001 year-end, a $311 thousand increase in other real estate owned is
primarily due to an addition of a property valued at $343 thousand.
The amount of gross interest income that would have been recorded for
nonaccrual loans for the three months ended March 31, 2002, if all such
loans had been current in accordance with their original terms, was
$133 thousand, compared to $179 thousand and $157 thousand, respectively,
for the first and fourth quarters of 2001.
The amount of interest income that was recognized on nonaccrual loans from
all cash payments, including those related to interest owed from prior
years, made during the three months ended March 31, 2002, totaled $110
thousand, compared to $336 thousand and $45 thousand, respectively, for
the first and fourth quarters of 2001. These cash payments represent
annualized yields of 9.39 percent for first three months of 2002
compared to 18.75 percent and 10.25 percent, respectively, for the
first and the fourth quarter of 2001.
Total cash payments received, including those recorded in prior years, which
were applied against the book balance of nonaccrual loans outstanding at
March 31, 2002, totaled approximately $188 thousand.
The overall credit quality of the loan portfolio continues to be strong;
however, the total nonperforming assets could fluctuate from period to period.
The performance of any individual loan can be impacted by external factors
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
estimated to be adequate to provide for losses that can be estimated
based upon specific and general conditions. These include credit
loss experience, the amount of past due, nonperforming and classified
loans, recommendations of regulatory authorities, prevailing economic
conditions and other factors. The allowance is allocated to segments
of the loan portfolio based in part on quantitative analyses of
historical credit loss experience, in which criticized and classified
loan balances are analyzed using a linear regression model to determine
standard allocation percentages. The results of this analysis are
applied to current criticized and classified loan balances to allocate
the allowance to the respective segments of the loan portfolio. In
addition, loans with similar characteristics not usually criticized
using regulatory guidelines due to their small balances and numerous
accounts, are analyzed based on the historical rate of net losses
and delinquency trends, grouped by the number of days the payments
on these loans are delinquent. A portion of the allowance is also
allocated to impaired loans. Management considers the $52.1 million
allowance for loan losses, which constituted 2.12 percent of total loans
at March 31, 2002, to be adequate as an allowance 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
March 31, December 31,
2002 2001 2001
----------------------------------
Balance, beginning of period $52,086 $52,279 $52,461
Loan loss provision 900 900 900
Loans charged off (1,645) (1,607) (1,952)
Recoveries of previously
charged off loans 806 1,072 677
-------- -------- --------
Net credit losses (839) (535) (1,275)
-------- -------- --------
Balance, end of period $52,147 $52,644 $52,086
======== ======== ========
Allowance for loan losses /
loans outstanding 2.12% 2.14% 2.10%
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 100 basis points over the
12-month forecast interval triggering a response in the other forecasted rates.
Company policy requires that such simulated changes in NII should be within
certain specified ranges or steps must be taken to reduce interest rate risk.
The results of the model indicate that the mix of interest rate sensitive
assets and liabilities at March 31, 2002 would not result in a fluctuation
of NII that would exceed the parameters established by Company policy.
At March 31, 2002 and 2001, the Company had no derivative financial
instruments outstanding. As the Company believes that the derivative
financial instrument disclosures contained within the notes to the
financial statements of its 2001 Form 10-K substantially conform
with accounting policy requirements, no further interim disclosure
has been provided. 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, 2002,
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, 2002,
investment securities available for sale totaled $975 million,
representing an increase of $26 million from December 31, 2001.
In addition, the Company generates significant liquidity from its
operating activities. The Company's profitability during the first
three months of 2002 and 2001 generated substantial cash flows
which are included in the totals provided from operations of $35
million and $25 million, respectively.
The Company had net cash outflows in its investing activities during
the 2002 period. Purchases net of sales & maturities of investment
securities were $38 million during the first three months of 2002,
which was partially offset by net repayments of loans of $21
million, resulting in net cash used of $17 million.
In the quarter ended March 31, 2001, investing activities provided a
major source of cash. Less than 50% of proceeds from maturing
investment securities of $79 million were reinvested for a net
increase of cash of $44 million. Another primary source of cash was
$25 million from loan repayments.
Financing activities used cash during both three-month periods ended
March 31. In 2002, the effect of the Company's stock repurchase
programs and dividends paid to shareholders were $23 million and
$8 million, respectively. These cash outflows, added to a $12 million
reduction in short-term borrowed funds, partially offset by a $16
million increase in deposits, are included in the net cash used in
financing activities during the first three months of 2002 of $24
million.
This compares to the first three months of 2001, when the cash used in
financing activities totaled $191 million. This amount includes cash
outflows related to the Company's stock repurchase programs and dividends
paid to shareholders of $38 million and $7 million, respectively, plus a
$111 million reduction in short-term debt and a $40 million decrease
in deposits.
The Company anticipates increasing its cash level from operations through 2002
through increased profitability and retained earnings. For the same period,
it is anticipated that deposit balances will increase. Growth in loan balances,
particularly in the commercial and real estate categories, is expected to
follow the anticipated growth in deposit balances.
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 quarterly repurchases approximately 250 thousand
of its shares of Common Stock in the open market with the intention of
lessening the dilutive impact of issuing new shares to meet stock
performance, option plans, and other ongoing requirements. In addition
to these systematic repurchases, other programs have been implemented
to optimize the Company's use of equity capital and enhance shareholder
value. Pursuant to these programs, the Company repurchased an additional
308 thousand shares in the first quarter of 2002, 741 thousand shares in
the first quarter of 2001, and 258 thousand shares in the fourth quarter
of 2001.
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 $308 million at March 31, 2002.
This amount, which is reflective of the effect of common stock repurchases
and dividends paid to shareholders partially offset by the generation of
earnings and proceeds from the issuance of stock, represents a decrease
of $23 million or 7 percent from a year ago, and a decrease of $7 million,
or 2 percent, from December 31, 2001. As a consequence of the decrease in
shareholders' equity, the Company's ratio of equity to total assets decreased
to 7.76 percent at March 31, 2002, from 8.53 percent a year ago. The equity
to assets ratio was 8.00 percent on December 31, 2001.
The following summarizes the ratios of capital to risk-adjusted assets for the
periods indicated:
At Minimum
At March 31, December 31, Regulatory
2002 2001 2001 Requirement
---------------------------------------------
Tier I Capital 9.33% 9.97% 9.29% 4.00%
Total Capital 10.67% 11.39% 10.63% 8.00%
Leverage ratio 7.18% 7.76% 7.30% 4.00%
The risk-based capital ratios decreased at March 31, 2002, compared
to the prior year primarily due to the decrease in the total level
of tangible (excluding goodwill and purchase premiums) shareholders'
equity as a result of the Company's common stock repurchases and
dividends paid to shareholders, partially offset by increased net income.
Comparing to the 2001 year-end, the capital ratios improved slightly with
an increase in retained earnings, and the leverage ratio fell affected
by asset growth.
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".
Impact of Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 141, Business Combinations, and Statement No. 142, Goodwill
and Other Intangible Assets. Statement 141 requires that the purchase
method of accounting be used for all business combinations initiated
after June 30, 2001 and specifies criteria that intangible assets
acquired in a purchase method business combination must meet to be
recognized and reported apart from goodwill. Statement 142 requires
that goodwill and intangible assets with indefinite useful lives no
longer be amortized after 2001, but instead be periodically evaluated
for impairment. Intangible assets with definite useful lives are required
to be amortized over their respective estimated useful lives to their
estimated residual values, and also reviewed for impairment.
The Company was required to adopt the provisions of Statement 141 and
Statement 142 effective January 1, 2002. Accordingly, any goodwill and
any intangible asset determined to have an indefinite useful life that
are acquired in a purchase business combination will not be amortized,
but will continue to be evaluated for impairment in accordance with
the appropriate accounting literature. The Company was also required
to reassess the useful lives and residual values of all such intangible
assets and make any necessary amortization period adjustments by
March 31, 2002. No such adjustments were made.
In addition, to the extent an intangible asset is identified as having an
indefinite useful life, the Company was required to test the intangible asset
for impairment in the first quarter of 2002. No impairment loss was identified.
As of the date of adoption, the Company had unamortized goodwill in the amount
of $16.3 million and unamortized identifiable intangible assets in the amount
of $2.7 million. In accordance with the Statement 142 goodwill was not amortized
during the first quarter of 2002, compared to amortization expense of $288
thousand for the first quarter of 2001 and $297 thousand for the fourth quarter
of 2001. Amortization of identifiable intangible assets was $201 thousand for
the first quarter of 2002, and $365 thousand and $261 thousand for the first
and fourth quarters of 2001.
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: April 29, 2002 /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) Reports on Form 8-K
On March 8 2002, the Company filed a Report on Form 8-K
announcing the signing of a definitive agreement on February
25, 2002 to acquire Kerman State Bank.
Exhibit 11
WESTAMERICA BANCORPORATION
Computation of Earnings Per Share on Common and
Common Equivalent Shares and on Common Shares
Assuming Full Dilution
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For the three months
ended March 31,
(In thousands, except per share data) 2002 2001
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Weighted average number of common
shares outstanding - basic 34,071 36,000
Add exercise of options reduced by the
number of shares that could have been
purchased with the proceeds of such
exercise 563 605
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Weighted average number of common
shares outstanding - diluted 34,634 36,605
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Net income $21,659 $20,424
Basic earnings per share $0.64 $0.57
Diluted earnings per share $0.63 $0.56