Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 2003
Commission File Number: 001-9383
WESTAMERICA BANCORPORATION
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 94-2156203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1108 Fifth Avenue, San Rafael, California 94901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (707) 863-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ x ] No [ ]
Indicate the number of shares outstanding of each of the registrant classes
of common stock, as of the latest practicable date:
Title of Class Shares outstanding as of November 6, 2003
Common Stock, 32,653,021
No Par Value
Page 2
TABLE OF CONTENTS
Page
----------
Forward Looking Statements 3
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements 4
Notes to Unaudited Condensed Consolidated Financial Statements 9
Financial Summary 11
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3 - Quantitative and Qualitative Disclosure about Market Risk 27
Item 4 - Controls and Procedures 27
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 28
Item 2 - Not applicable 28
Item 3 - Not applicable 28
Item 4 - Not applicable 28
Item 5 - Not applicable 28
Item 6 - Exhibits and Reports on Form 8-K 28
(a) - Exhibits
Exhibit 3 (ii) - By-laws, as amended (composite copy) 30
Exhibit 4 - Note Purchase Agreement by and between the Company and 47
The Northwestern Mutual Life Insurance Company dated as of
October 30, 2003 pursuant to which registrant issued its 5.31%
Senior Notes due October 31, 2013 in the principal amount of
$15 million and form of 5.31% Senior Note due October 31, 2013
Exhibit 11 - Computation of Earnings Per Share 102
Exhibit 31.1 - Certification of Chief Executive Officer pursuant to 103
Securities Exchange Act Rule 13a-(14)(a)
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to 104
Securities Exchange Act Rule 13a-(14)(a)
Exhibit 32.1 - Certification Required by 18 U.S.C. Section 1350 105
Exhibit 32.2 - Certification Required by 18 U.S.C. Section 1350 106
(b) - Reports on Form 8-K 28
Page 3
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements about Westamerica
Bancorporation for which it claims the protection of the safe harbor provisions
contained in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on Management's current knowledge and
belief and include information concerning the Company's possible or assumed
future financial condition and results of operations. A number of factors, some
of which are beyond the Company's ability to predict or control, could cause
future results to differ materially from those contemplated. These factors
include but are not limited to (1) continued weakness in the national and
California economies; (2) increased economic uncertainty created by concerns
regarding terrorist attacks and geopolitical risks; (3) the prospect of
additional terrorist attacks in the United States and the uncertain effect of
these events on the national and regional economies; (4) changes in the interest
rate environment; (5) changes in the regulatory environment; (6) significantly
increasing competitive pressure in the banking industry; (7) operational risks
including data processing system failures or fraud; (8) the effect of
acquisitions and integration of acquired businesses; (9) volatility of rate
sensitive assets and liabilities; (10) asset/liability management risks and
liquidity risks; and (11) changes in the securities markets.
The reader is directed to the Company's Annual Report on Form 10-K for the year
ended December 31, 2002, for further discussion of factors which could affect
the Company's business and cause actual results to differ materially from those
expressed in any forward-looking statement made in this report. The Company
undertakes no obligation to update any forward-looking statements in this
report.
Page 4
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
At
At September December 31,
---------------------
2003 2002 2002
---------------------------------
Assets:
Cash and cash equivalents $189,269 $175,666 $222,577
Money market assets 633 633 633
Investment securities available for sale 1,245,311 1,003,200 947,848
Investment securities held to maturity,
with market values of:
$575,862 at September 30, 2003 569,996
$414,978 at September 30, 2002 399,735
$450,771 at December 31, 2002 438,985
Loans, gross 2,364,418 2,508,272 2,494,638
Allowance for loan losses (54,180) (54,447) (54,227)
----------------------------------
Loans, net of allowance for loan losses 2,310,238 2,453,825 2,440,411
Premises and equipment, net 35,566 38,054 37,396
Interest receivable and other assets 131,780 139,451 137,017
----------------------------------
Total Assets $4,482,793 $4,210,564 $4,224,867
==================================
Liabilities:
Deposits:
Noninterest bearing $1,213,577 $1,105,313 $1,146,828
Interest-bearing:
Transaction 559,031 521,417 559,875
Savings 1,039,406 1,008,847 952,319
Time 724,115 650,325 635,043
----------------------------------
Total deposits 3,536,129 3,285,902 3,294,065
Short-term borrowed funds 433,348 335,989 349,736
Federal Home Loan Bank advance 105,000 170,000 170,000
Notes Payable 9,643 24,607 24,607
Liability for interest, taxes and
other expenses 47,751 58,626 44,960
----------------------------------
Total Liabilities 4,131,871 3,875,124 3,883,368
----------------------------------
Shareholders' Equity:
Authorized - 150,000 shares of common stock
Issued and outstanding:
32,723 at September 30, 2003 220,527
33,601 at September 30, 2002 222,493
33,411 at December 31, 2002 217,198
Accumulated other comprehensive income:
Unrealized gain on securities
available for sale, net of tax 16,004 19,797 19,152
Retained earnings 114,391 93,150 105,149
----------------------------------
Total Shareholders' Equity 350,922 335,440 341,499
----------------------------------
Total Liabilities and
Shareholders' Equity $4,482,793 $4,210,564 $4,224,867
==================================
See accompanying notes to unaudited consolidated financial statements.
Page 5
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
Three months Nine months ended
September 30, September 30,
2003 2002 2003 2002
--------------------------------------------
Interest Income:
Loans $37,491 $44,145 $117,324 $132,023
Money market assets and funds sold 2 6 6 10
Investment securities available for sale
Taxable 8,390 8,191 24,346 24,813
Tax-exempt 3,825 3,653 11,450 11,218
Investment securities held to maturity
Taxable 1,035 2,238 5,222 4,282
Tax-exempt 4,216 2,323 10,334 6,235
---------------------------------------------
Total interest income 54,959 60,556 168,682 178,581
---------------------------------------------
Interest Expense:
Transaction deposits 145 395 598 1,215
Savings deposits 1,439 2,761 4,710 8,320
Time deposits 2,400 3,937 8,054 13,345
Short-term borrowed funds 747 887 2,559 2,808
Federal Home Loan Bank advance 1,172 1,576 4,339 3,615
Debt financing and notes payable 385 443 1,173 1,345
---------------------------------------------
Total interest expense 6,288 9,999 21,433 30,648
---------------------------------------------
Net Interest Income 48,671 50,557 147,249 147,933
---------------------------------------------
Provision for loan losses 750 900 2,550 2,700
---------------------------------------------
Net Interest Income After
Provision For Loan Losses 47,921 49,657 144,699 145,233
---------------------------------------------
Noninterest Income:
Service charges on deposit accounts 6,735 6,294 19,809 18,262
Merchant credit card 993 971 2,755 2,839
Financial services commissions 249 284 666 1,048
Mortgage banking 185 303 712 707
Trust fees 245 220 760 774
Securities gains (Impairment) 2,150 0 2,443 (4,278)
FHLB advance prepayment fees (2,166) 0 (2,166) 0
Other 2,622 2,383 7,445 6,986
---------------------------------------------
Total Noninterest Income 11,013 10,455 32,424 26,338
---------------------------------------------
Noninterest Expense:
Salaries and related benefits 13,495 13,844 40,792 41,987
Occupancy 3,076 3,074 9,116 8,903
Equipment 1,319 1,479 4,074 4,339
Data processing 1,520 1,529 4,597 4,543
Professional fees 529 501 1,400 1,316
Other 5,595 5,537 16,567 16,479
---------------------------------------------
Total Noninterest Expense 25,534 25,964 76,546 77,567
---------------------------------------------
Income Before Income Taxes 33,400 34,148 100,577 94,004
---------------------------------------------
Provision for income taxes 9,327 11,271 29,822 30,121
---------------------------------------------
Net Income $24,073 $22,877 $70,755 $63,883
=============================================
Other Comprehensive Income:
Change in unrealized gain on
securities available for sale, net (9,997) 5,614 (3,148) 7,897
---------------------------------------------
Other Comprehensive Income $14,076 $28,491 $67,607 $71,780
=============================================
Average Shares Outstanding 32,770 33,621 32,959 33,751
Diluted Average Shares Outstanding 33,273 34,118 33,442 34,309
Per Share Data:
Basic Earnings $0.73 $0.68 $2.15 $1.89
Diluted Earnings 0.72 0.67 2.12 1.86
Dividends Paid 0.26 0.22 0.74 0.66
See accompanying notes to unaudited consolidated financial statements.
Page 6
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
Accumulated
Other
Compre-
Common hensive Retained
Stock Income Earnings Total
--------------------------------------------
Balance, December 31, 2001 $209,074 $11,900 $93,385 $314,359
Net income for the period 63,883 63,883
Stock issued in connection with
purchase of Kerman State Bank 14,620 14,620
Stock issued, including
stock option tax benefits 10,761 10,761
Purchase and retirement of stock (11,962) (41,935) (53,897)
Dividends (22,183) (22,183)
Unrealized gain on securities available
for sale, net 7,897 7,897
---------------------------------------------
Balance, September 30, 2002 $222,493 $19,797 $93,150 $335,440
=============================================
Balance, December 31, 2002 $217,198 $19,152 $105,149 $341,499
Net income for the period $70,755 70,755
Stock issued, including
stock option tax benefits 10,123 10,123
Purchase and retirement of stock (6,794) (37,080) (43,874)
Dividends (24,433) (24,433)
Unrealized gain on securities available
for sale, net (3,148) (3,148)
---------------------------------------------
Balance, September 30, 2003 $220,527 $16,004 $114,391 $350,922
=============================================
See accompanying notes to unaudited consolidated financial statements.
Page 7
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the nine months
ended September 30,
2003 2002
-----------------------
Operating Activities:
Net income $70,755 $63,883
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of fixed assets 3,105 3,396
Amortization of intangibles 1,479 1,429
Loan loss provision 2,550 2,700
Amortization of deferred net loan fees 148 375
Decrease in interest income receivable 300 445
Decrease (increase) in other assets 58,158 (12,169)
Increase (decrease) in income taxes payable 3,266 (1,863)
Decrease in interest expense payable (689) (1,376)
(Decrease) increase in other liabilities (51,707) 13,049
(Gain) loss on sales of investment securities (2,443) 18
Federal Home Loan Bank advance prepayment fee 2,166 0
Writedown of equipment 140 470
Originations of loans for resale (7,797) (9,494)
Proceeds from sale of loans originated for resale 7,949 9,883
Net gain on sale of property acquired
in satisfaction of debt (94) (108)
Writedown on property acquired in satisfaction of debt 307 37
Impairment of investment securities 0 4,260
-----------------------
Net Cash Provided by Operating Activities 87,593 74,935
-----------------------
Investing Activities:
Net cash obtained in mergers and acquisitions 0 5,368
Net repayments of loans 125,521 32,692
Purchases of investment securities available for sale (835,207)(1,555,621)
Purchases of investment securities held to maturity (365,878) (204,805)
Purchases of property, plant and equipment (3,273) (1,562)
Proceeds from maturity of securities available for sale 423,784 1,512,295
Proceeds from maturity of securities held to maturity 197,298 30,864
Proceeds from sale of securities available for sale 153,128 982
Proceeds from sale of property and equipment 1,859 548
Proceeds from property acquired in satisfaction of debt 1,132 391
-----------------------
Net Cash Used In Investing Activities (301,636) (178,848)
-----------------------
Financing Activities:
Net increase (decrease) in deposits 242,062 (32,300)
Net increase in short-term borrowings 83,612 74,353
Net (payments to) advances from Federal Home Loan Bank (67,166) 130,000
Repayments of notes payable (14,964) (3,214)
Exercise of stock options/issuance of shares 5,498 7,638
Repurchases/retirement of stock (43,874) (53,897)
Dividends paid (24,433) (22,183)
-----------------------
Net Cash Provided By Financing Activities 180,735 100,397
-----------------------
Net Decrease In Cash and Cash Equivalents (33,308) (3,516)
-----------------------
Cash and Cash Equivalents at Beginning of Period 222,577 179,182
-----------------------
Cash and Cash Equivalents at End of Period $189,269 $175,666
=======================
Page 8
Supplemental Disclosure of Noncash Activities:
Loans transferred to other repossessed collateral $1,800 $375
Unrealized (loss) gain on securities available for sale ($3,148) $7,897
Supplemental Disclosure of Cash Flow Activity:
Interest paid for the period 21,122 29,319
Income tax payments for the period 27,105 30,638
Income tax benefit from stock option exercises 3,514 2,182
The acquisition of Kerman State Bank
involved the following:
Common Stock issued - 14,620
Liabilities assumed - 85,085
Fair value of assets acquired, other than cash -
and cash equivalents - (90,170)
Core deposit intangible - (2,500)
Goodwill - (1,667)
Net cash and cash equivalents received - 5,368
See accompanying notes to unaudited consolidated financial statements.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. The results of operations reflect interim
adjustments, all of which are of a normal recurring nature and which, in the
opinion of Management, are necessary for a fair presentation of the results for
the interim period presented. The interim results for the three and nine months
ended September 30, 2003 and 2002 are not necessarily indicative of the results
expected for the full year. These unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and accompanying notes as well as other information included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2002.
Note 2: Significant Accounting Policies
Certain accounting policies underlying the preparation of these financial
statements require Management to make estimates and judgments. These estimates
and judgments may affect reported amounts of assets and liabilities, revenues
and expenses, and disclosures of contingent assets and liabilities. The most
significant of these involve the Allowance for Loan Losses, which is discussed
in Note 1 to the audited consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002.
Note 3: Goodwill and Other Intangible Assets
The Company has recorded goodwill and core deposit intangibles associated with
purchase business combinations and, effective January 1, 2002, accounts for them
in accordance with Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets. Accordingly, goodwill is no longer being amortized,
but is periodically evaluated for impairment. During 2003, no impairment of
goodwill has been recorded. Core deposit intangibles are amortized to
their estimated residual values over their expected useful lives; such lives and
residual values are also periodically reassessed to determine if any
amortization period adjustments are indicated. The Company determined that no
such adjustments were required as of September 30, 2003.
The following table summarizes the Company's goodwill and core deposit
intangible assets, which are included with interest receivable and other assets
in the Consolidated Balance Sheets, as of January 1, 2003 and September 30, 2003
(dollars in thousands).
January 1 September 30
(Dollar in Thousands) 2003 Additions Reductions 2003
---------------------------------------------
Goodwill $22,968 $0 $0 $22,968
Accumulated Amortization ($3,972) $0 $0 ($3,972)
---------------------------------------------
Net $18,996 $0 $0 $18,996
=============================================
Core Deposit Intangibles $7,783 $0 $0 $7,783
Accumulated Amortization ($3,603) $0 $578 ($4,181)
---------------------------------------------
Net $4,180 $0 $578 $3,602
=============================================
At September 30, 2003, the estimated aggregate amortization of intangibles, in
thousand of dollars, for the remainder of 2003 and annually through 2008 is
$165, $543, $469, $427, $427 and $427, respectively. The weighted average
amortization period for core deposit intangibles is 8.5 years.
Page 10
Note 4: Stock Options
As permitted by Statement of Financial Accounting Standards ("SFAS") No. 123
"Accounting for Stock-Based Compensation", the Company accounts for its
stock option plans using the intrinsic value method. Accordingly,
compensation expense is recorded on the grant date only if the current
price of the underlying stock exceeds the exercise price of the option.
Had compensation cost been determined based on the fair value method
established by SFAS 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
Three months ended Nine months ended
September 30, September 30,
-------------------------------------------
2003 2002 2003 2002
-------------------------------------------
(In thousands, except per share data)
Compensation cost based on fair
value method, net of tax effect $589 $900 $1,767 $2,700
Net income:
As reported $24,073 $22,877 $70,755 $63,883
Pro forma 23,484 21,977 68,988 61,183
Basic earnings per share:
As reported $0.73 $0.68 $2.15 $1.89
Pro forma $0.72 $0.65 $2.09 $1.81
Diluted earnings per share:
As reported $0.72 $0.67 $2.12 $1.86
Pro forma $0.71 $0.64 $2.06 $1.78
Page 11
WESTAMERICA BANCORPORATION
Financial Summary
(Unaudited)
(dollars in thousands, except per share amounts)
Three months ended Nine months ended
September 30, September 30,
--------------------------------------------
2003 2002 2003 2002
--------------------------------------------
Net Interest Income (FTE) $54,264 $54,914 $162,650 $160,723
Provision for loan losses (750) (900) (2,550) (2,700)
Noninterest income:
Investment securities gains (impairment) 2,150 0 2,443 (4,278)
FHLB advance prepayment fees (2,166) 0 (2,166) 0
Other 11,029 10,455 32,147 30,616
---------------------------------------------
Total noninterest income 11,013 10,455 32,424 26,338
Noninterest expense (25,534) (25,964) (76,546) (77,567)
Provision for income taxes (FTE) (14,920) (15,628) (45,223) (42,911)
---------------------------------------------
Net income $24,073 $22,877 $70,755 $63,883
=============================================
Average shares outstanding 32,770 33,621 32,959 33,751
Diluted average shares outstanding 33,273 34,118 33,442 34,309
Shares outstanding at period end 32,723 33,601 32,723 33,601
As Reported:
Basic earnings per share $0.73 $0.68 $2.15 $1.89
Diluted earnings per share 0.72 0.67 2.12 1.86
Return on assets 2.18% 2.20% 2.20% 2.14%
Return on equity 29.25% 29.59% 29.38% 28.51%
Net interest margin 5.31% 5.71% 5.44% 5.79%
Net loan losses to average loans 0.12% 0.12% 0.15% 0.13%
Efficiency ratio* 39.1% 39.7% 39.2% 41.5%
Average Balances:
Total assets $4,373,156 $4,117,310 $4,293,136 $3,987,215
Earning assets 4,072,793 3,828,919 3,995,287 3,706,432
Total loans 2,331,855 2,492,030 2,377,121 2,470,522
Total deposits 3,500,911 3,333,300 3,392,758 3,255,656
Shareholders' equity 326,529 306,685 322,003 299,553
Balances at Period End:
Total assets $4,482,793 $4,210,564
Earning assets 4,180,358 3,911,840
Total loans 2,364,418 2,508,272
Total deposits 3,536,129 3,285,902
Shareholders' equity 350,922 335,440
Financial Ratios at Period End:
Allowance for loan losses to loans 2.29% 2.17%
Book value per share $10.72 $9.98
Equity to assets 7.83% 7.97%
Total capital to risk assets 11.61% 10.73%
Dividends Paid Per Share $0.26 $0.22 $0.74 $0.66
Dividend Payout Ratio 36% 33% 35% 35%
The above financial summary has been derived from the Company's unaudited
consolidated financial statements. This information should be read in
conjunction with such financial statements, notes and the other information
included elsewhere herein.
*The efficiency ratio is defined as noninterest expense divided by total revenue
(net interest income on a tax-equivalent basis and noninterest income).
Page 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Westamerica Bancorporation and subsidiaries (the "Company") reported
third quarter 2003 net income of $24.1 million or diluted earnings per
share of $0.72. These results compare with third quarter 2002 net income
of $22.9 million or $0.67 per share.
On a year-to-date basis, the Company reported net income for the nine
months ended September 30, 2003 of $70.8 million or diluted earnings per
share of $2.12, compared with $63.9 million or $1.86 per share for the
same period of 2002. The year-to-date results in 2002 included after-tax
expenses in connection with the acquisition of Kerman State Bank ("KSB")
($230 thousand) and after-tax securities impairment charge ($2.5
million) incurred in the second quarter of 2002.
Following is a summary of the components of income from certain
securities and loans is presented on a fully taxable equivalent ("FTE")
basis to reflect its exemption from federal income taxation for the
periods indicated (dollars in thousands).
Three months ended Nine months ended
September 30, September 30,
---------------------------------------------
2003 2002 2003 2002
---------------------------------------------
Net interest income (FTE) $54,264 $54,914 $162,650 $160,723
Provision for loan losses (750) (900) (2,550) (2,700)
Noninterest income:
Securities gains (impairment) 2,150 0 2,443 (4,278)
FHLB advance prepayment fees (2,166) 0 (2,166) 0
Other 11,029 10,455 32,147 30,616
---------------------------------------------
Total noninterest income 11,013 10,455 32,424 26,338
Noninterest expense (25,534) (25,964) (76,546) (77,567)
Provision for income taxes (FTE) (14,920) (15,628) (45,223) (42,911)
---------------------------------------------
Net income $24,073 $22,877 $70,755 $63,883
=============================================
Net income for the third quarter of 2003 was $1.2 million or 5.2% more
than the same quarter of 2002 primarily due to lower net interest income
(down $650 thousand), higher noninterest income (up $558 thousand or
5.3%), a decline in noninterest expense of $430 thousand or 1.7% and
lower income taxes which were down $708 thousand or 4.5% on an FTE
basis. The decrease in net interest income (FTE) was attributable to a
40 basis point ("bp") decline in the net interest margin, partially
offset by the effect of higher average earning assets which were up
$243.9 million. Noninterest income increased primarily due to growth in
fee income, and included $2.2 million securities gains, neutralized by
$2.2 million FHLB advance prepayment fees. Noninterest expense declined
mostly because of lower personnel costs. The lower tax provision was the
result of higher low-income housing investments and other tax credits.
Comparing the first nine months of 2003 to the prior year, net income
rose $6.9 million or 10.8%. The increase was primarily attributable to
higher noninterest income (up $6.1 million or 23.2%) resulting from a
securities impairment charge in 2002, and increased deposit fee income,
improved net interest income (FTE) (up $1.9 million or 1.2%) and $1.0
million savings from noninterest expense, partially reduced by higher
taxes (up $2.3 million or 5.4% on an FTE basis). The increase in net
interest income was mostly caused by higher average earning assets (up
$288.9 million or 7.8%), partially reduced by a 35 bp net interest
margin reduction. The decrease in noninterest expense was mainly due to
lower personnel costs. Noninterest expense in 2002 included a $400
thousand expense relating to the KSB acquisition.
Net Interest Income
Following is a summary of the components of net interest income for the periods
indicated (dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
--------------------------------------------
2003 2002 2003 2002
--------------------------------------------
Interest and fee income $54,959 $60,556 $168,682 $178,581
Interest expense (6,288) (9,999) (21,433) (30,648)
FTE adjustment 5,593 4,357 15,401 12,790
---------------------------------------------
Net interest income (FTE) $54,264 $54,914 $162,650 $160,723
=============================================
Average earning assets $4,072,793 $3,828,919 $3,995,287 $3,706,432
Net interest margin (FTE) 5.31% 5.71% 5.44% 5.79%
Page 13
Net interest income (FTE) during the third quarter of 2003 decreased
$650 thousand (1.2%) from the same period in 2002, to $54.3 million. The
decrease was mainly attributable to the effect of a lower net interest
margin earned (the rate component), partially offset by a $243.9 million
increase in average earning assets (the volume component). The decrease
in the net interest margin was the net effect of an 82 bp drop in the
asset yield, which was partly recovered by a 59 bp decline in the cost
of funds.
Comparing the first nine months of 2003 with the prior year, net
interest income (FTE) rose $1.9 million or 1.2%. The increase was caused
by the net effect of higher average earning assets (up $288.9 million)
and a declining margin. The margin reduction was the result of a 74 bp
decrease in the asset yield reduced by a 55 bp decline in the cost of
funds.
Interest and Fee Income
Interest & fee income (FTE) for the third quarter of 2003 decreased $4.4
million (6.7%) from the same period in 2002. The decline was the net
effect of higher average earning assets in 2003, more than offset by
lower yields earned on those assets. Average earning assets grew $243.9
million (6.4%). The earning asset growth was led by expansion in the
investment portfolio of $404.0 million as follows: mortgage backed
securities and collateralized mortgage obligations (up $204.4 million),
US Agency obligations (up $185.5 million) and municipal securities (up
$184.1 million). Offsetting the increase were declines in U.S. Treasury
securities (down $85.4 million) and other securities (down $83.7
million). The growth in the earning assets was diminished by a $160.2
million reduction in loans including commercial real estate loans (down
$116.9 million), commercial loans (down $32.0 million), direct consumer
loans (down $15.9 million) and construction loans (down $11.9 million).
The exception to the lower loan amount was an increase in residential
real estate loans (up $17.0 million).
The average yield on the Company's earning assets decreased for the
third quarter from 6.74% in 2002 to 5.92% in 2003 (down 82 bp). This
downward trend in yields was reflective of a change in the earning asset
mix and general interest rate declines during 2002 and into 2003, as
evident in residential real estate loans (121 bp decline in yield),
indirect consumer loans (115 bp decline) and commercial loans (44 bp
decline). As a result, the loan portfolio yield decreased 63 bp. The
investment portfolio yield also declined 84 bp, the net result of
declines in U.S. Treasury securities (down 175 bp), mortgage backed
securities and collateralized mortgage obligations (down 178 bp), U.S.
Agency obligations (down 121 bp) and municipal securities (down 55 bp).
Comparing the first nine months of 2003 to 2002, interest and fee income
(FTE) decreased by $7.3 million (3.8%). The decline was due to the net
effect of a higher volume of earning assets and the impact of lower
yields. The positive volume component was the result of a $288.9 million
(7.8%) increase in average earning assets, including mortgage backed
securities and collateralized mortgage obligations (up $247.6 million ),
U.S. Agency obligations (up $204.0 million), municipal securities (up
$125.0 million), indirect consumer loans (up $27.1 million) and
residential real estate loans (up $8.7 million). The following
components decreased: U.S. Treasury securities (down $109.9 million),
other securities (down $84.0 million), commercial real estate loans
(down $72.7 million), commercial loans (down $24.5 million),
construction loans (down $16.7 million) and direct consumer loans (down
$14.9 million).
The average yield on earning assets for the first nine months of 2003
was 6.15% compared to 6.89% in 2002. Major decreases in loan yields were
a 117 bp decline in residential real estate loans, a 34 bp decline in
the yield on commercial loans and a 106 bp decrease in the yield on
consumer loans. As a result, the composite loan yield declined 70 bp.
The investment portfolio yield decreased 81 bp, affected primarily by
lower yields on U.S. Treasury securities (down 152 bp), mortgage backed
securities and collateralized mortgage obligations (down 148 bp), U.S.
Agency obligations (down 126 bp) and municipal securities (down 40 bp).
Interest Expense
Interest expense decreased $3.7 million (37.1%) in the third quarter of
2003 compared to the same year-ago period. The decrease resulted from a
drop in the average rate paid on interest-bearing liabilities from 1.48%
in 2002 to 0.89% in 2003. The average rate on short-term borrowings
dropped 56 bp, rates on CDs over $100 thousand declined an average of
102 bp, rates on retail CDs declined 80 bp, and rates on money market
savings accounts were lowered 59 bp.
The effect of a $133.2 million (5.0%) increase in average
interest-bearing liabilities in the third quarter caused an increase in
volume-related expense and partially offset the above-mentioned
rate-related decline in interest expense. Short-term borrowings rose by
$111.3 million whereas Federal Home Loan Bank ("FHLB") advances
decreased by $42.4 million. Interest-bearing deposits rose by $67.7
million, the net result of increases in money market savings (up $95.4
million), CDs over $100 thousand (up $51.7 million) money market
checking (up $32.5 million) and regular savings (up $18.8 million),
partially reduced by decreases in preferred money market savings (down
$94.0 million) and retail CDs (down $33.9 million).
Page 14
During the first nine months of 2003, interest expense decreased $9.2
million (30.1%) from 2002, again due to a lower average rate paid on
interest-bearing liabilities (1.03% in 2003 compared with 1.58% in the
same period in 2002). All deposit categories declined including money
market savings (from 1.40% in the first nine months of 2002 to 0.80% in
the same period of 2003), CDs over $100 thousand (from 2.41% to 1.42%)
and retail CDs with maturities varying from one month to over three
years (from 2.56% to 1.75%). Interest rates on short-term borrowings
declined from 1.53% to 0.93%.
Interest-bearing liabilities grew $186.2 million or 7.2% for the nine
months ended September 30, 2003 and caused a volume-related increase in
interest expense, which partially offset the rate-related decline in
interest expense. Increases in money market savings (up $101.8 million),
money market checking (up $31.7 million), short-term borrowings (up
$120.0 million) and FHLB advances (up $26.5 million) were partially
offset by declines in preferred money market savings (down $75.8
million) and retail CDs (down $30.3 million).
In all periods, the Company has continuously attempted to reduce
high-rate time deposits while increasing the balances of more
profitable, lower-cost transaction accounts in order to minimize the
effect of adverse cyclical trends.
Net Interest Margin (FTE)
The following summarizes the components of the Company's net interest
margin for the periods indicated:
Three months ended Nine months ended
September 30, September 30,
---------------------------------------------
2003 2002 2003 2002
---------------------------------------------
Yield on earning assets 5.92% 6.74% 6.15% 6.89%
Rate paid on interest-bearing
liabilities 0.89% 1.48% 1.03% 1.58%
---------------------------------------------
Net interest spread 5.03% 5.26% 5.12% 5.31%
Impact of all other net
noninterest bearing funds 0.28% 0.45% 0.32% 0.48%
---------------------------------------------
Net interest margin 5.31% 5.71% 5.44% 5.79%
=============================================
During the third quarter of 2003, the net interest margin fell 40 bp
compared to the same period in 2002. Yields on earning assets declined
faster than rates paid on interest-bearing liabilities, resulting in a
23 bp decline in net interest spread. The unfavorable impact of lower
rates earned on loans and the investment portfolio, triggered by market
trends, were partially mitigated by decreases in rates paid on deposits
and short-term funds. The decline in the net interest spread was further
widened by the lower value of noninterest-bearing funding sources. While
the average balance of these sources increased $77.3 million or 10.1%,
their value decreased 17 bp because of the lower market rates of
interest at which they could be invested.
Similarly, on a year-to-date basis, the net interest margin decreased 35
bp when compared to the same period in 2002. Earning asset yields
decreased 74 bp and the cost of interest-bearing liabilities fell by 55
bp, resulting in a 19 bp decline in the interest spread.
Noninterest-bearing funding sources increased $68.6 million or 9.5% and
because of lower market rates of interest their margin contribution
decreased by 16 bp, with their value decreasing to 32 bp.
Page 15
Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present, for the periods indicated, information
regarding the Company's consolidated average assets, liabilities and
shareholders' equity, the amounts of interest income from average
earning assets and the resulting yields, and the amount of interest
expense paid on interest-bearing liabilities. Average loan balances
include nonperforming loans. Interest income includes proceeds from
loans on nonaccrual status only to the extent cash payments have been
received and applied as interest income. Yields on securities and
certain loans have been adjusted upward to reflect the effect of income
exempt from federal income taxation at the current statutory tax rate
(dollars in thousands).
For the three months ended
September 30, 2003
----------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
----------------------------------
Assets:
Money market assets and funds sold $937 $2 0.85%
Investment securities:
Available for sale
Taxable 853,547 8,390 3.93%
Tax-exempt 310,816 5,785 7.44%
Held to maturity
Taxable 197,023 1,035 2.10%
Tax-exempt 378,615 6,527 6.90%
Loans:
Commercial
Taxable 367,465 5,191 5.60%
Tax-exempt 211,364 3,842 7.21%
Commercial real estate 867,422 17,310 7.92%
Real estate construction 37,311 667 7.09%
Real estate residential 351,973 4,306 4.89%
Consumer 496,320 7,497 5.99%
-----------------------
Total loans 2,331,855 38,813 6.61%
-----------------------
Total earning assets 4,072,793 60,552 5.92%
Other assets 300,363
------------
Total assets $4,373,156
============
Liabilities and shareholders' equity
Deposits:
Noninterest bearing demand $1,203,378 $-- --
Savings and interest-bearing
transaction 1,599,917 1,584 0.39%
Time less than $100,000 303,334 1,191 1.56%
Time $100,000 or more 394,282 1,209 1.21%
-----------------------
Total interest-bearing deposits 2,297,533 3,984 0.69%
Short-term borrowed funds 363,394 747 0.81%
Federal Home Loan Bank advance 124,086 1,172 3.72%
Debt financing and notes payable 21,262 385 7.24%
-----------------------
Total interest-bearing liabilities 2,806,275 6,288 0.89%
Other liabilities 36,974
Shareholders' equity 326,529
------------
Total liabilities and shareholders' equity $4,373,156
============
Net interest spread (1) 5.03%
Net interest income and interest margin (2) $54,264 5.31%
=======================
(1) Net interest spread represents the average yield earned on earning assets
minus the average rate paid on interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference between
interest income and expense, divided by the average balance of earning
assets.
Page 16
For the three months ended
September 30, 2002
----------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
----------------------------------
Assets:
Money market assets and funds sold $1,716 $6 1.39%
Investment securities:
Available for sale
Taxable 680,305 8,191 4.82%
Tax-exempt 303,685 5,545 7.30%
Held to maturity
Taxable 174,272 2,238 5.14%
Tax-exempt 176,911 3,522 7.96%
Loans:
Commercial
Taxable 413,196 6,454 6.20%
Tax-exempt 197,600 3,723 7.47%
Commercial real estate 984,278 19,984 8.06%
Real estate construction 49,176 927 7.48%
Real estate residential 335,007 5,107 6.10%
Consumer 512,773 9,216 7.13%
-----------------------
Total loans 2,492,030 45,411 7.24%
-----------------------
Total earning assets 3,828,919 64,913 6.74%
Other assets 288,391
------------
Total assets $4,117,310
============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,103,431 $-- --
Savings and interest-bearing
transaction 1,550,071 3,156 0.81%
Time less than $100,000 337,192 2,009 2.36%
Time $100,000 or more 342,606 1,928 2.23%
-----------------------
Total interest-bearing deposits 2,229,869 7,093 1.26%
Short-term borrowed funds 252,045 887 1.37%
Federal Home Loan Bank advance 166,505 1,576 3.72%
Debt financing and notes payable 24,607 443 7.18%
-----------------------
Total interest-bearing liabilities 2,673,026 9,999 1.48%
Other liabilities 34,168
Shareholders' equity 306,685
------------
Total liabilities and shareholders' equity $4,117,310
============
Net interest spread (1) 5.26%
Net interest income and interest margin (2) $54,914 5.71%
=======================
Page 17
For the nine months ended
September 30, 2003
----------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
----------------------------------
Assets:
Money market assets and funds sold $848 $6 0.95%
Investment securities:
Available for sale
Taxable 771,838 24,346 4.21%
Tax-exempt 306,634 17,390 7.56%
Held to maturity
Taxable 238,606 5,222 2.92%
Tax-exempt 300,240 15,936 7.08%
Loans:
Commercial
Taxable 367,945 15,780 5.76%
Tax-exempt 205,729 11,246 7.34%
Commercial real estate 909,838 54,466 8.03%
Real estate construction 43,103 2,343 7.29%
Real estate residential 340,160 13,334 5.23%
Consumer 510,346 24,014 6.31%
-----------------------
Total loans 2,377,121 121,183 6.68%
-----------------------
Total earning assets 3,995,287 184,083 6.15%
Other assets 297,849
------------
Total assets $4,293,136
============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,150,518 $-- --
Savings and interest-bearing
transaction 1,553,206 5,308 0.46%
Time less than $100,000 311,104 4,061 1.75%
Time $100,000 or more 377,930 3,993 1.42%
-----------------------
Total interest-bearing deposits 2,242,240 13,362 0.80%
Short-term borrowed funds 364,850 2,559 0.94%
Federal Home Loan Bank advance 154,695 4,339 3.76%
Debt financing and notes payable 21,695 1,173 7.26%
-----------------------
Total interest-bearing liabilities 2,783,480 21,433 1.03%
Other liabilities 37,135
Shareholders' equity 322,003
------------
Total liabilities and shareholders' equity $4,293,136
============
Net interest spread (1) 5.12%
Net interest income and interest margin (2) $162,650 5.44%
=======================
Page 18
For the nine months ended
September 30, 2002
----------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
----------------------------------
Assets:
Money market assets and funds sold $1,266 $10 1.06%
Investment securities:
Available for sale
Taxable 660,480 24,813 5.01%
Tax-exempt 309,138 17,112 7.38%
Held to maturity
Taxable 106,272 4,282 5.37%
Tax-exempt 158,754 9,328 7.83%
Loans:
Commercial
Taxable 401,807 18,522 6.19%
Tax-exempt 196,334 11,190 7.65%
Commercial real estate 982,566 59,490 8.12%
Real estate construction 59,824 3,333 7.48%
Real estate residential 331,501 15,915 6.40%
Consumer 498,490 27,376 7.37%
-----------------------
Total loans 2,470,522 135,826 7.38%
-----------------------
Total earning assets 3,706,432 191,371 6.89%
Other assets 280,783
------------
Total assets $3,987,215
============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,056,367 $-- --
Savings and interest-bearing
transaction 1,477,495 9,535 0.87%
Time less than $100,000 341,370 6,511 2.56%
Time $100,000 or more 380,424 6,834 2.41%
-----------------------
Total interest-bearing deposits 2,199,289 22,880 1.39%
Short-term borrowed funds 244,898 2,808 1.54%
Federal Home Loan Bank advance 128,153 3,615 3.72%
Debt financing and notes payable 24,964 1,345 7.18%
-----------------------
Total interest-bearing liabilities 2,597,304 30,648 1.58%
Other liabilities 33,990
Shareholders' equity 299,554
------------
Total liabilities and shareholders' equity $3,987,215
============
Net interest spread (1) 5.31%
Net interest income and interest margin (2) $160,723 5.79%
=======================
Page 19
Summary of Changes in Interest Income and Expense due to
Changes in Average Asset & Liability Balances and Yields Earned & Rates Paid
The following tables set forth a summary of the changes in interest income and
interest expense from changes in average asset and liability balances (volume)
and changes in average interest rates for the periods indicated. Changes not
solely attributable to volume or rates have been allocated in proportion to the
respective volume and rate components (dollars in thousands).
Three months ended September 30, 2003
compared with three months
ended September 30, 2002
----------------------------------
Volume Rate Total
----------------------------------
Interest and fee income:
Money market assets and funds sold ($2) ($2) ($4)
Investment securities:
Available for sale
Taxable 1,863 (1,664) 199
Tax-exempt $132 108 240
Held to maturity
Taxable $261 (1,464) (1,203)
Tax-exempt $3,534 (529) 3,005
Loans:
Commercial
Taxable ($678) (585) (1,263)
Tax-exempt $253 (134) 119
Commercial real estate ($2,337) (337) (2,674)
Real estate construction (214) (46) (260)
Real estate residential 252 (1,053) (801)
Consumer (288) (1,431) (1,719)
----------------------------------
Total loans (3,012) (3,586) (6,598)
----------------------------------
Total earning assets 2,776 (7,137) (4,361)
----------------------------------
Interest expense:
Deposits:
Savings and interest-bearing
transaction 98 (1,670) (1,572)
Time less than $100,000 (186) (632) (818)
Time $100,000 or more 258 (977) (719)
----------------------------------
Total interest-bearing deposits 170 (3,279) (3,109)
----------------------------------
Short-term borrowed funds 308 (448) (140)
Federal Home Loan Bank advance (401) (3) (404)
Debt financing and notes payable (61) 3 (58)
----------------------------------
Total interest-bearing liabilities 16 (3,727) (3,711)
----------------------------------
Increase in Net Interest Income $2,760 ($3,410) ($650)
==================================
Page 20
Nine months ended September 30, 2003
compared with nine months
ended September 30, 2002
----------------------------------
Volume Rate Total
----------------------------------
Interest and fee income:
Money market assets and funds sold (3) (1) ($4)
Investment securities:
Available for sale
Taxable 3,840 (4,307) (467)
Tax-exempt (139) 417 278
Held to maturity
Taxable 3,550 (2,610) 940
Tax-exempt 7,588 (980) 6,608
Loans:
Commercial
Taxable (1,501) (1,241) (2,742)
Tax-exempt 524 (468) 56
Commercial real estate (4,360) (664) (5,024)
Real estate construction (911) (79) (990)
Real estate residential 404 (2,985) (2,581)
Consumer 638 (4,000) (3,362)
----------------------------------
Total loans (5,206) (9,437) (14,643)
----------------------------------
Total earning assets 9,630 (16,918) (7,288)
----------------------------------
Interest expense:
Deposits:
Savings and interest-bearing
transaction 466 (4,693) (4,227)
Time less than $100,000 (537) (1,914) (2,451)
Time $100,000 or more (45) (2,795) (2,840)
----------------------------------
Total interest-bearing deposits (116) (9,402) (9,518)
----------------------------------
Short-term borrowed funds 1,061 (1,310) (249)
Federal Home Loan Bank advance 744 (20) 724
Debt financing and notes payable (177) 5 (172)
----------------------------------
Total interest-bearing liabilities 1,512 (10,727) (9,215)
----------------------------------
Increase in Net Interest Income $8,118 ($6,191) $1,927
==================================
Page 21
Provision for Loan Losses
The level of the provision for loan losses during each of the periods presented
reflects the Company's continued efforts to reduce credit costs by enforcing
underwriting and administration procedures and aggressively pursuing collection
efforts with troubled debtors. The Company provided $750 thousand for
loan losses in the third quarter of 2003 and $900 thousand in the same
quarter of 2002. For the first nine months of 2003, $2.6 million was
provided while in 2002, $2.7 million was provided. The lower provision
reflects management's assessment of credit risk in the loan portfolio.
Additionally, $2.1 million of reserves were acquired in connection with
the KSB acquisition in the second quarter of 2002. For further
information regarding net credit losses and the allowance for loan
losses, see the "Classified Loans" section of this report.
Noninterest Income
The following table summarizes the components of noninterest income for
the periods indicated (dollars in thousands).
Three months ended Nine months ended
September 30, September 30,
---------------------------------------------
2003 2002 2003 2002
---------------------------------------------
Service charges on deposit accounts $6,735 $6,294 $19,809 $18,262
Merchant credit card 993 971 2,755 2,839
ATM fees and interchange 644 686 1,805 1,820
Debit card fees 556 470 1,613 1,337
Other service fees 404 387 1,153 1,097
Mortgage banking income 185 303 712 707
Trust fees 245 220 760 774
Financial services commissions 249 284 666 1,048
Securities gains (impairment) 2,150 0 2,443 (4,278)
FHLB advance prepayment fees (2,166) 0 (2,166) 0
Other noninterest income 1,018 840 2,874 2,732
---------------------------------------------
Total noninterest income $11,013 $10,455 $32,424 $26,338
=============================================
Noninterest income for the third quarter of 2003 was $11.0 million, up
$558 thousand or 5.3% compared with the same quarter of 2002. During
this period $2.2 million securities gains were recorded and $2.2 million
in prepayment fees were paid to retire $65 million of FHLB advances. The
largest factor contributing to higher income was service charges on
deposits (up $441 thousand) mainly resulting from a new debit card
overdraft program introduced in January of 2003. The second largest
factor was a $178 thousand increase in other noninterest income largely
due to higher income from foreclosed property sales and letter-of-credit
fees, partially offset by lower income earned on outstanding official
checks and interest recoveries from charged-off loans. Mortgage banking
income declined $118 thousand due to less refinancing activity and lower
gains on loan sales.
Noninterest income for the nine months of 2003 was $32.4 million, up
$6.1 million or 23.1% from 2002, mainly due to the 2002 securities
impairment charge and growth in fee income. In 2003 $2.4 million in
gains on sale of securities were recorded, partially offsetting the $2.2
million prepayment penalty paid to reduce FHLB advances by $65 million.
Similar to the quarter-to-quarter comparison, service charges on
deposits represent the largest increase. (up $1.5 million) due to a new
debit card overdraft program. Another factor was a $276 thousand growth
in debit card fees due to increased usage offset by lower debit card
processing rates. Other noninterest income was $142 thousand more than
the previous year due to gains on asset sales and higher
letter-of-credit fees, partly reduced by lower official check income and
interest recoveries on charged-off loans. Decreases in noninterest
income included a $382 thousand decline in financial services
commissions due to lower sales of fixed annuities, mutual funds and life
insurance.
Page 22
Noninterest Expense
The following table summarizes the components of noninterest expense for
the periods indicated (dollars in thousands).
Three months ended Nine months ended
September 30, September 30,
---------------------------------------------
2003 2002 2003 2002
---------------------------------------------
Salaries and related benefits $13,495 $13,844 $40,792 $41,987
Occupancy 3,076 3,074 9,116 8,903
Equipment 1,319 1,479 4,074 4,339
Data processing services 1,520 1,529 4,597 4,543
Courier service 941 909 2,796 2,714
Telephone 519 428 1,368 1,258
Postage 381 397 1,202 1,199
Professional fees 529 501 1,400 1,316
Merchant credit card 317 373 975 1,059
Stationery and supplies 331 350 957 1,069
Advertising/public relations 243 321 775 900
Employee recruiting 117 112 226 292
Loan expense 339 307 995 1,000
Operational losses 237 210 638 632
Repossessed collateral expense 12 2 14 52
Amortization of deposit intangibles 165 301 578 702
Other noninterest expense 1,993 1,827 6,043 5,602
---------------------------------------------
Total $25,534 $25,964 $76,546 $77,567
=============================================
Average full time equivalent staff 1,016 1,067 1,032 1,075
Noninterest expense to revenues (FTE) 39.12% 39.72% 39.24% 41.47%
Noninterest expense for the third quarter of 2003 was $25.5 million,
$430 thousand or 1.7% lower than in 2002. The largest decline was in
salaries and related benefits, which were down $349 thousand (2.5%),
primarily due to a $297 thousand decrease in salaries as a result of a
decline in the number of full-time equivalent employees and lower
performance-related incentives. Higher costs of workers compensation (up
$155 thousand) partially offset the decline. Equipment expense fell $160
thousand compared with 2002 mostly due to lower depreciation.
Amortization of deposit intangibles declined $136 thousand primarily due
to the expiration of the deposit intangible in connection with a 1996
acquisition. Other noninterest expense increased $166 thousand largely
due to increases in charges from the Company's two main correspondent
banks.
Noninterest expense was $76.5 million for the nine months of 2003, which
was $1.0 million or 1.3% less than 2002. The largest decrease was
salaries and related benefits (down $1.2 million or 2.9%) as a result of
declines in salaries (down $878 thousand) due to a fewer number of
full-time equivalent employees and lower incentives (down $489
thousand). Additionally, the 2002 period included $366 thousand
severance pay relating to the KSB acquisition. A $264 thousand increase
in workers compensation expense reduced the effect of savings in
salaries and other benefits. Equipment expense fell by $265 thousand
from 2002 primarily due to lower depreciation. Advertising and public
relations expense fell by $125 thousand primarily due to lower spending
on marketing research and overall business development. Amortization of
deposit intangibles declined $124 thousand largely due to the expiration
of the deposit intangibles from a prior acquisition. Other discretionary
spendings fell including a $112 thousand decline in stationery and
supplies expense. Other noninterest expense rose $441 thousand largely
due to the combined effect of a $172 thousand increase in low-income
housing operating losses, a $139 thousand increase in charges from the
Company's two main correspondent banks, and a $125 thousand decline in
settlement expense. Occupancy expense rose $213 thousand mainly due to a
$120 thousand increase in utilities and increases in insurance and
property taxes. Telephone expense rose $110 thousand mostly due to
installation of new data lines.
Provision for Income Tax
During the third quarter of 2003, the Company recorded income tax
expense of $9.3 million, $1.9 million (17.2%) lower than the third
quarter of 2002; on a year-to-date basis, the income tax provision was
$29.8 million for 2003 compared to $30.1 million for 2002. The current
quarter provision represents an effective tax rate of 27.9%, compared to
33.0% for the third quarter of 2002; for the first nine months of 2003,
the effective tax rate was 29.7%, compared to 32.0% recorded in 2002.
The provision for income taxes for all periods presented is primarily
attributable to the respective level of earnings and the incidence of
allowable deductions, in particular higher revenues recognized from
state and municipal securities and tax credits generated from low-income
housing investments, and for California franchise taxes, higher
excludable interest income on loans within enterprise zones.
Page 23
Classified Loans
The Company closely monitors the markets in which it conducts its
lending operations and continues its strategy to control exposure to
loans with high credit risk and to increase diversification of earning
assets. Loan reviews are performed using grading standards and criteria
similar to those employed by bank regulatory agencies. Loans receiving
lesser grades fall under the "classified" category, which includes all
nonperforming and potential problem loans, and receive an elevated level
of attention to ensure collection. Repossessed collateral is recorded at
the lower of cost or market.
The following is a summary of classified loans and repossessed
collateral on the dates indicated (dollars in thousands):
At
At September 30, December 31,
---------------------
2003 2002 2002
----------------------------------
Classified loans $23,479 $33,743 $34,001
Repossessed collateral 742 470 381
----------------------------------
Classified loans and repossessed collateral $24,221 $34,213 $34,382
==================================
Allowance for loan losses /
classified loans 231% 161% 159%
Classified loans at September 30, 2003, decreased $10.3 million (30.4%)
from September 30, 2002, reflecting the effectiveness of the Company's
high underwriting standards and active workout policies. Repossessed
collateral increased $272 thousand or 57.9% from September 30, 2002, due
to five new foreclosures on loans totaling $1.5 million, partially
offset by sales, principal reductions and writedowns of properties
acquired in satisfaction of debt. A $10.5 million (30.9%) decrease in
classified loans from December 31, 2002, was due to payoffs, upgrades,
chargeoffs and transfers to repossessed collateral, partly offset by new
downgrades. The $361 thousand (94.8%) increase in repossessed collateral
from December 31, 2002, was primarily due to five new foreclosures
valued at $1.5 million, partially offset by sales, principal reductions
and writedowns of foreclosed properties.
Nonperforming Loans
Nonperforming loans include nonaccrual loans and loans 90 days past due
as to principal or interest and still accruing. Loans are placed on
nonaccrual status when they reach 90 days or more delinquent, unless the
loan is well secured and in the process of collection. Interest
previously accrued on loans placed on nonaccrual status is charged
against interest income. In addition, loans secured by real estate with
temporarily impaired values and commercial loans to borrowers
experiencing financial difficulties are placed on nonaccrual status even
though the borrowers continue to repay the loans as scheduled. Such
loans are classified as "performing nonaccrual" and are included in
total nonperforming loans. When the ability to fully collect nonaccrual
loan principal is in doubt, cash payments received are applied against
the principal balance of the loan until such time as full collection of
the remaining recorded balance is expected. Any subsequent interest
received is recorded as interest income on a cash basis.
Page 24
The following is a summary of nonperforming loans and repossessed
collateral on the dates indicated (dollars in thousands):
At
At September 30, December 31,
---------------------
2003 2002 2002
----------------------------------
Performing nonaccrual loans $2,145 $3,845 $3,464
Nonperforming, nonaccrual loans 5,484 5,827 5,717
----------------------------------
Total nonaccrual loans 7,629 9,672 9,181
Loans 90 days past due and
still accruing 272 257 738
----------------------------------
Total nonperforming loans 7,901 9,929 9,919
Repossessed collateral 742 470 381
----------------------------------
Total nonperforming loans and
repossessed collateral $8,643 $10,399 $10,300
==================================
Allowance for loan losses /
nonperforming loans 686% 548% 547%
Performing nonaccrual loans at September 30, 2003 fell $1.7 million
(44.2%) from the same period in the previous year and $1.3 million
(38.1%) from December 31, 2002. The decrease from both periods was due
to payoffs, chargeoffs, loans being returned to accrual status and loans
being placed on nonperforming nonaccrual, offset by new loans placed on
performing nonaccrual.
Nonperforming nonaccrual loans at September 30, 2003 decreased $343
thousand (5.9%) from the same period a year ago and $233 thousand (4.1%)
from year-end, 2002. The decreases resulted from loans being returned to
full-accrual status, transfers to repossessed collateral or being
charged off or paid off, partially offset by loans being added to
nonperforming nonaccrual.
Changes in repossessed collateral are discussed above.
The Company had no restructured loans as of September 30, 2003, 2002 and
December 31, 2002.
The amount of gross interest income that would have been recorded for
nonaccrual loans for the three and nine month periods ended September
30, 2003, if all such loans had performed in accordance with their
original terms, was $110 thousand and $415 thousand, respectively,
compared to $183 thousand and $445 thousand, respectively, for the third
quarter and the first nine months of 2002.
The amount of interest income that was recognized on nonaccrual loans
from all cash payments, including those related to interest owed from
prior years, made during the three and nine months ended September 30,
2003, totaled $299 thousand and $516 thousand, respectively, compared to
$50 thousand and $376 thousand, respectively, for the comparable periods
in 2002. These cash payments represent annualized yields of 17.36% and
8.77%, respectively, for the third quarter and the first nine months of
2003 compared to 2.15% and 6.28%, respectively, for the third quarter
and the first nine months of 2002.
Total cash payments received during the third quarter of 2003 which were
applied against the book balance of nonaccrual loans outstanding at
September 30, 2003, totaled zero, compared with approximately $85
thousand in 2002. Cash payments received totaled $283 thousand for the
nine months ended September 30, 2003, compared with approximately $211
thousand for 2002.
The overall credit quality of the loan portfolio continues to be strong;
however, total nonperforming assets could fluctuate from period to
period. The performance of any individual loan can be impacted by
external factors such as the interest rate environment or factors
particular to the borrower. The Company expects to maintain the level of
nonperforming assets; however, the Company can give no assurance that
additional increases in nonaccrual loans will not occur in the future.
Allowance for Loan Losses
The Company's allowance for loan losses is maintained at a level
considered adequate to provide for losses that can be estimated based
upon specific and general conditions. These include conditions unique to
individual borrowers, as well as overall credit loss experience, the
amount of past due, nonperforming and classified loans, recommendations
of regulatory authorities, prevailing economic conditions and other
factors.
Page 25
A portion of the allowance is specifically allocated to impaired and
other identified loans whose full collectibility is uncertain. Such
allocations are determined by Management based on loan-by-loan analyses.
A second allocation is based in part on quantitative analyses of
historical credit loss experience, in which criticized and classified
loan balances are analyzed using a linear regression model to determine
standard allocation percentages. The results of this analysis are
applied to current criticized and classified loan balances to allocate
the reserve to the respective segments of the loan portfolio. In
addition, loans with similar characteristics not usually criticized
using regulatory guidelines are analyzed based on the historical rate of
net losses and delinquency trends, grouped by the number of days the
payments on these loans are delinquent. Last, allocations are made to
general loan categories based on relevant economic conditions and
available data, including unemployment statistics, commercial office
vacancy rates, mortgage loan foreclosure trends, agriculture commodity
prices, and levels of government funding.
Management considers the $54.2 million allowance for loan losses, which
constituted 2.29% of total loans at September 30, 2003, to be adequate
as a reserve against inherent losses. However, while the Company's
policy is to charge off in the current period those loans on which the
loss is considered probable, the risk exists of future losses which
cannot be precisely quantified or attributed to particular loans or
classes of loans. Management continues to evaluate the loan portfolio
and assess current economic conditions that will dictate future required
allowance levels.
The following table summarizes the loan loss provision, net credit losses and
allowance for loan losses for the periods indicated (dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
---------------------------------------------
2003 2002 2003 2002
---------------------------------------------
Balance, beginning of period $54,159 $54,324 $54,227 $52,086
Loan loss provision 750 900 2,550 2,700
Loans charged off (1,422) (1,635) (5,291) (4,632)
Recoveries of previously
charged off loans 693 858 2,694 2,243
---------------------------------------------
Net credit losses (729) (777) (2,597) (2,389)
---------------------------------------------
Acquired from Kerman State Bank 0 0 0 2,050
Balance, end of period $54,180 $54,447 $54,180 $54,447
=============================================
Allowance for loan losses /
loans outstanding 2.29% 2.17%
Asset and Liability Management
The fundamental objective of the Company's management of assets and
liabilities is to maximize economic value while maintaining adequate
liquidity and a conservative level of interest rate risk. The Company
actively solicits loans and transaction deposit accounts. Asset and
liability management techniques include adjusting the duration,
liquidity, volume, rates and yields, and other attributes of its loan
products, investment portfolio, time deposits, and other funding sources
to achieve Company objectives.
The primary analytical tool used by the Company to gauge interest rate
risk is a simulation model to project changes in net interest income
("NII") that result from forecast changes in interest rates. The
analysis calculates the difference between a NII forecast over a
12-month period using a flat interest rate scenario, and a NII forecast
using a rising rate scenario where the Fed Funds rate is made to rise
evenly by 100 bp and 200 bp, and a falling rate scenario of 50 bp over
the 12-month forecast interval triggering a response in the other
forecasted rates. Company policy requires that such simulated changes in
NII should be within certain specified ranges or steps must be taken to
reduce interest rate risk. The results of the model indicate that the
mix of interest rate sensitive assets and liabilities at September 30,
2003 would not result in a fluctuation of NII that would exceed the
parameters established by Company policy.
Liquidity
The Company's principal source of asset liquidity is marketable
investment securities available for sale. At September 30, 2003,
investment securities available for sale totaled $1.2 billion,
Page 26
representing an increase of $242 million from September 30, 2002. In
addition, at September 30, 2003, the Company had customary lines for
overnight borrowings from other financial institutions in excess of $500
million and a $20 million line of credit, under which no amount was
outstanding at September 30, 2003. Additionally, as a member of the
Federal Reserve System, the Company has the ability to borrow from the
Federal Reserve. The Company may also borrow from the FHLB which it
collateralizes with its residential real estate loans and securities. At
September 30, 2003, the Company had excess collateral providing
available borrowing capacity from the FHLB of approximately $138 million.
Since January 1, 2000, the Company has reduced its long-term debt by
$31.9 million, reducing its debt-to-equity ratio from 14% at January 1,
2000 to 3% at September 30, 2003. The Company's long-term debt rating
from Fitch Ratings was raised from A- to A, with a stable outlook, in
June 2003. On October 31, 2003, the Company issued in a private
placement a $15 million senior note at a fixed rate of 5.31% over a
ten-year term. The note is due in full on October 31, 2013. Management
is confident the Company could access additional long-term debt
financing if desired.
In addition, the Company generates significant liquidity from its
operating activities. The Company's profitability during the first nine
months of 2003 and 2002 generated substantial cash flows, which are
included in the totals provided from operations of $87.6 million and
$74.9 million, respectively. The operating cash flow in 2003 was more
than sufficient to pay for $24.4 million in shareholder dividends and
$43.9 million of stock repurchases. In 2002, the operating activities
provided a substantial portion of cash for $22.2 million in shareholder
dividends and $53.9 million for the Company's stock repurchase programs.
During the first nine months of 2003, other financing activities
included the net result of a $242.1 million increase in deposits and
$83.6 million proceeds from short-term borrowings, reduced by a $67.2
million payment of FHLB advances and prepayment fees. During the first
three quarters of 2002, other financing activities included $74.4
million proceeds from short-term borrowings and $130.0 million from FHLB
advances, reduced by a $32.3 million decrease in deposits.
The Company had net cash outflows in its investing activities during
both nine month periods ended September 30. In 2003, purchases net of
sales and maturities of investment securities were $426.9 million, which
was in part offset by net repayments of loans of $125.5 million. The
investment securities portfolio increase was generally financed by a
$242.1 million increase in deposits, and a $83.6 million increase in
short-term borrowings.
During the first nine months of 2002 the Company had net cash outflows
in its investing activities. Purchases net of sales and maturities of
investment securities of $216.3 million were reduced by net repayments
of loans of $32.7 million and $5.4 million cash obtained in the KSB
acquisition, resulting in net cash used of $178.8 million. At September
30, 2002, investment securities available for sale totaled $1,003.2
million, representing an increase of $54.2 million from December 31, 2001.
Capital Resources
The current and projected capital position of the Company and the impact
of capital plans and long-term strategies is reviewed regularly by
Management. The Company repurchases shares of its common stock in the
open market with the intention of lessening the dilutive impact of
issuing new shares to meet stock performance, option plans, and other
ongoing requirements. In addition, other programs have been implemented
to optimize the Company's use of equity capital and enhance shareholder
value. Pursuant to these programs, the Company repurchased 1.0 million
and 1.3 million shares during the first nine months of 2003 and 2002,
respectively.
The Company's primary capital resource is shareholders' equity, which
was $350.9 million at September 30, 2003. This amount represents an
increase of $9.4 million (2.8%) from December 31, 2002, the net result
of the issuance of stock ($10.1 million) and comprehensive income for
the period ($67.6 million), partially offset by share repurchases ($43.9
million) and dividends paid ($24.4 million). Due to the net effect of an
increase in equity capital combined with earning asset growth the
Company's ratio of equity to total assets declined slightly to 7.83% at
September 30, 2003, from 7.97% a year ago. The equity to assets ratio
was 8.08% at December 31, 2002.
Page 27
The following summarizes the ratios of capital to risk-adjusted assets
for the periods indicated:
At
At September 30, December 31 Minimum
---------------------- Regulatory
2003 2002 2002 Requirement
---------------------------------------------
Tier I Capital 10.35% 9.47% 9.71% 4.00%
Total Capital 11.61% 10.73% 10.97% 8.00%
Leverage ratio 7.14% 7.12% 7.27% 4.00%
The risk-based capital ratio increased at September 30, 2003, compared
to the prior year primarily due to an increase in shareholders' equity
as a result of increased net income, partially offset by the Company's
common stock repurchases and dividends paid to shareholders. Also, a
decline in risk-weighted assets contributed to this improvement. The
risk-based capital ratio increased at September 30, 2003 from December
31, 2002 primarily due to the combination of an increase in
shareholders' equity as a result of increased net income and a reduction
in risk-weighted assets.
New Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation 46 ("FIN 46"), which clarifies the
application of Accounting Research Bulletin ("ARB") 51, consolidated
financial statements, to certain entities (called variable interest
entities) in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk
for the entity to finance its activities without additional subordinated
financial support from other parties. The consolidation requirements of
the standard apply to all variable interest entities created after
January 31, 2003. In addition, for variable interest entities that
existed prior to February 1, 2003 and remain in existence, a recent FASB
staff position on FIN 46 indicates that public companies must apply the
consolidation requirements as of the end of the first interim or annual
period ending after December 15, 2003. Given the nature of the Company's
operations, management does not expect this Interpretation to have a
significant impact on the consolidated financial statements.
In April 2003, the FASB issued Statement No.149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities, to provide
clarification of certain terms and investment characteristics identified
in Statement 133. Statement 149 is to be applied prospectively and is
effective for contracts entered into or modified after June 30, 2003.
The adoption of the Statement did not have a material impact on the
consolidated financial statements.
In May 2003, the FASB issued Statement No.150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity. The provisions of this Statement are generally effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise are generally effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of nonpublic entities. Given the nature of the
Company's liability and equity instruments, adoption of this Statement
did not have a material impact on the consolidated financial statements
upon adoption of the Statement on July 1, 2003.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company does not currently engage in trading activities or use derivative
instruments to control interest rate risk, even though such activities may be
permitted with the approval of the Company's Board of Directors.
Interest rate risk as discussed above is the most significant market risk
affecting the Company. Other types of market risk, such as foreign currency
exchange risk, equity price risk and commodity price risk, are not significant
in the normal course of the Company's business activities.
Item 4. Controls and Procedures
The Company's principal executive officer and principal financial officer have
evaluated the effectiveness of the Company's "disclosure controls and
procedures," as such term is defined in Rule 13a-14(c) of the Securities
Exchange Act of 1934, as amended, as of September 30, 2003. Based upon
their evaluation, the principal executive officer and principal
financial officer concluded that the Company's disclosure controls and
procedures are effective. There were no significant changes in the
Company's internal controls or in other factors that could significantly
affect these controls, since the date the controls were evaluated.
Page 28
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Due to the nature of the banking business, the Company's
Subsidiary Bank is at times party to various legal
actions; all such actions are of a routine nature and
arise in the normal course of business of the Subsidiary
Bank.
Item 2 - Changes in Securities
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 3 (ii): By-laws, as amended (composite copy)
Exhibit 4: Note Purchase Agreement by and between the Company
and The Northwestern Mutual Life Insurance Company
dated as of October 30, 2003 pursuant to which
registrant issued its 5.31% Senior Notes due
October 31, 2013 in the principal amount of
$15 million and form of 5.31% Senior Note due
October 31, 2013
Exhibit 11:Computation of Earnings Per Share on Common
and Common Equivalent Shares and on Common
Shares Assuming Full Dilution
Exhibit 31.1: Certification of Chief Executive
Officer pursuant to Securities
Exchange Act Rule 13a-(14)(a)
Exhibit 31.2: Certification of Chief Financial
Officer pursuant to Securities
Exchange Act Rule 13a-(14)(a)
Exhibit 32.1: Certification of Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Exhibit 32.2: Certification of Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K
On July 18, 2003, the Company filed a Report on Form 8-K
with respect to item 12, therein, reporting second quarter,
2003 financial results. Included in the report was a press
release dated July 15, 2003.
Page 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
WESTAMERICA BANCORPORATION
(Registrant)
Date: November 13, 2003
/s/ Dennis R. Hansen
---------------------
Dennis R. Hansen
Senior Vice President
and Controller
(Chief Accounting Officer)
Pages 30-46 See Exhibit 3 (ii)
Pages 47-101 See Exhibit 4
Page 102
Exhibit 11
WESTAMERICA BANCORPORATION
Computation of Earnings Per Share on Common and
Common Equivalent Shares and on Common Shares
Assuming Full Dilution
For the For the
three months nine months
ended September 30, ended September 30,
(In thousands, except per share data) 2003 2002 2003 2002
---------------------------------------------
Weighted average number of common
shares outstanding - basic 32,770 33,621 32,959 33,751
Add exercise of options reduced by the
number of shares that could have been
purchased with the proceeds of such
exercise 503 497 483 558
---------------------------------------------
Weighted average number of common
shares outstanding - diluted 33,273 34,118 33,442 34,309
=============================================
Net income $24,073 $22,877 $70,755 $63,883
Basic earnings per share $0.73 $0.68 $2.15 $1.89
Diluted earnings per share $0.72 $0.67 $2.12 $1.86
Page 103
Exhibit 31.1
CERTIFICATION UNDER
SECTION 302 OF
THE SARBANES OXLEY ACT OF 2002
I, David L. Payne, Chief Executive Officer of the registrant, certify that:
1. I have reviewed this quarterly report for the period ended
September 30, 2003 on Form 10-Q of Westamerica Bancorporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
/s/ David L. Payne
November 13, 2003 --------------------
David L. Payne
Chairman, President and Chief
Executive Officer
Page 104
Exhibit 31.2
CERTIFICATION UNDER
SECTION 302 OF
THE SARBANES OXLEY ACT OF 2002
I, Jennifer J. Finger, Chief Financial Officer of the registrant, certify that:
1. I have reviewed this quarterly report for the period ended
September 30, 2003 on Form 10-Q of Westamerica Bancorporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
November 13, 2003 /s/ Jennifer J. Finger
------------------------
Jennifer J. Finger
Senior Vice President and
Chief Financial Officer
Page 105
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Westamerica Bancorporation
(the "Company") on Form 10-Q for the period ending September 30, 2003 as
filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, David L. Payne, Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirement of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations
of the Company.
/s/ David L. Payne
- --------------------
David L. Payne
Chairman, President and Chief Executive Officer
November 13, 2003
Page 106
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Westamerica Bancorporation
(the "Company") on Form 10-Q for the period ending September 30, 2003 as
filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Jennifer J. Finger, Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirement of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations
of the Company.
/s/ Jennifer J. Finger
- -----------------------
Jennifer J. Finger
Senior Vice President and Chief Financial Officer
November 13, 2003