Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 2005
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's classes
of common stock, as of the latest practicable date:
Title of Class Shares outstanding as of August 2, 2005
Common Stock, 32,465,538
No Par Value
Page 2
TABLE OF CONTENTS
Page
----
Forward Looking Statements 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements 3
Notes to Unaudited Condensed Consolidated Financial Statements 7
Financial Summary 9
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 24
Item 4 - Controls and Procedures 24
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 25
Item 2 - Unregistered Sales of Equity Securities and Use of proceeds 25
Item 3 - Defaults upon Senior Securities 25
Item 4 - Submission of Matters to a Vote of Security Holders 25
Item 5 - Other Information 26
Item 6 - Exhibits 26
Exhibit 11 - Computation of Earnings Per Share 28
Exhibit 31.1 - Certification of Chief Executive Officer pursuant to
Securities Exchange Act Rule 13a-14(a)/15d-14(a) 29
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to
Securities Exchange Act Rule 13a-14(a)/15d-14(a) 30
Exhibit 32.1 - Certification Required by 18 U.S.C. Section 1350 31
Exhibit 32.2 - Certification Required by 18 U.S.C. Section 1350 32
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 slowdown in the national and
California economies; (2) economic uncertainty created by terrorist threats
and 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 and investments; (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, 2004, for further discussion of factors which could
affect the Company's business and cause actual results to differ materially
from those expressed in any forward-looking statement made in this report. The
Company undertakes no obligation to update any forward-looking statements in
this report.
Page 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)
At June 30, At
--------------------------December 31,
2005 2004 2004
---------------------------------------
Assets:
Cash and cash equivalents $194,749 $185,522 $126,153
Money market assets 540 534 534
Investment securities available for sale 691,609 1,024,798 931,710
Investment securities held to maturity,
with market values of:
$1,358,083 at June 30, 2005 1,349,555
$949,257 at June 30, 2004 960,522
$1,265,986 at December 31, 2004 1,260,832
Loans, gross 2,687,566 2,319,255 2,300,230
Allowance for loan losses (59,862) (53,949) (54,152)
---------------------------------------
Loans, net of allowance for loan losses 2,627,704 2,265,306 2,246,078
Other real estate owned 40 0 0
Premises and equipment, net 34,864 35,343 35,223
Identifiable intangibles 28,297 3,166 2,894
Goodwill 124,122 18,996 18,996
Interest receivable and other assets 139,613 117,624 114,848
---------------------------------------
Total Assets $5,191,093 $4,611,811 $4,737,268
=======================================
Liabilities:
Deposits:
Noninterest bearing $1,377,680 $1,272,278 $1,273,825
Interest bearing:
Transaction 614,246 569,575 591,593
Savings 1,114,631 1,072,701 1,091,981
Time 726,283 590,875 626,220
---------------------------------------
Total deposits 3,832,840 3,505,429 3,583,619
Short-term borrowed funds 828,280 712,553 735,423
Debt financing and notes payable 40,354 21,429 21,429
Liability for interest, taxes and
other expenses 50,002 42,605 38,188
---------------------------------------
Total Liabilities 4,751,476 4,282,016 4,378,659
---------------------------------------
Shareholders' Equity:
Authorized - 150,000 shares of common stock
Issued and outstanding:
32,593 at June 30, 2005 316,680
31,784 at June 30, 2004 221,896
31,640 at December 31, 2004 227,829
Deferred compensation 2,423 2,146 2,146
Accumulated other comprehensive income:
Unrealized gain (loss) on securities
available for sale, net 8,185 (1,416) 9,638
Retained earnings 112,329 107,169 118,996
---------------------------------------
Total Shareholders' Equity 439,617 329,795 358,609
---------------------------------------
Total Liabilities and
Shareholders' Equity $5,191,093 $4,611,811 $4,737,268
=======================================
See accompanying notes to unaudited condensed consolidated financial statements.
Page 4
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
(unaudited)
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2005 2004 2005 2004
----------------------------------------------------
Interest Income:
Loans $39,941 $33,403 $74,874 $67,425
Money market assets and funds sold 1 0 1 1
Investment securities available for sale
Taxable 4,760 8,035 10,878 19,410
Tax-exempt 3,313 3,644 6,665 7,518
Investment securities held to maturity
Taxable 7,264 3,833 14,553 4,600
Tax-exempt 6,177 4,356 11,788 8,728
----------------------------------------------------
Total interest income 61,456 53,271 118,759 107,682
----------------------------------------------------
Interest Expense:
Transaction deposits 340 124 602 236
Savings deposits 970 992 1,834 2,102
Time deposits 4,144 1,878 7,375 3,808
Short-term borrowed funds 4,655 1,285 8,224 2,416
Federal Home Loan Bank advance 0 2 0 897
Notes payable 637 316 1,067 652
----------------------------------------------------
Total interest expense 10,746 4,597 19,102 10,111
----------------------------------------------------
Net Interest Income 50,710 48,674 99,657 97,571
----------------------------------------------------
Provision for loan losses 300 750 600 1,500
----------------------------------------------------
Net Interest Income After
Provision For Loan Losses 50,410 47,924 99,057 96,071
----------------------------------------------------
Noninterest Income:
Service charges on deposit accounts 7,542 7,360 14,469 14,228
Merchant credit card 2,417 909 3,715 1,735
Debit card 811 638 1,509 1,187
Financial services commissions 339 360 619 547
Trust fees 309 258 583 508
Mortgage banking 67 131 167 263
Securities gains (losses) 0 395 (4,903) 2,183
Loss on extinguishment of debt 0 (390) 0 (2,204)
Other 3,994 2,000 6,515 4,079
----------------------------------------------------
Total Noninterest Income 15,479 11,661 22,674 22,526
----------------------------------------------------
Noninterest Expense:
Salaries and related benefits 13,624 13,332 26,784 26,858
Occupancy 3,230 2,944 6,181 5,892
Data processing 1,539 1,521 3,087 3,038
Equipment 1,313 1,273 2,544 2,435
Amortization of intangibles 1,092 136 1,497 272
Courier service 964 888 1,890 1,772
Professional fees 604 511 1,324 921
Other 4,391 4,385 8,591 8,794
----------------------------------------------------
Total Noninterest Expense 26,757 24,990 51,898 49,982
----------------------------------------------------
Income Before Income Taxes 39,132 34,595 69,833 68,615
----------------------------------------------------
Provision for income taxes 11,218 9,951 19,185 19,657
----------------------------------------------------
Net Income $27,914 $24,644 $50,648 $48,958
====================================================
Comprehensive Income:
Change in unrealized gain on
securities available for sale, net 4,674 (22,629) (1,453) (14,607)
----------------------------------------------------
Comprehensive Income $32,588 $2,015 $49,195 $34,351
====================================================
Average Shares Outstanding 32,759 31,760 32,393 31,906
Diluted Average Shares Outstanding 33,364 32,343 33,024 32,502
Per Share Data:
Basic Earnings $0.85 $0.78 $1.56 $1.53
Diluted Earnings 0.84 0.76 1.53 1.51
Dividends Paid 0.30 0.28 0.60 0.54
See accompanying notes to unaudited condensed consolidated financial statements.
Page 5
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(unaudited)
Accumulated
Compre-
Common Deferred hensive Retained
Shares Stock Compensation Income Earnings Total
------------------------------------------------------------------------------
Balance, December 31, 2003 32,287 $218,461 $1,824 $13,191 $106,895 $340,371
Net income for the period 48,958 48,958
Stock issued for stock options 214 6,166 6,166
Stock option tax benefits 1,826 1,826
Restricted stock activity 16 467 322 789
Purchase and retirement of stock (733) (5,024) (31,399) (36,423)
Dividends (17,285) (17,285)
Unrealized gain on securities
available for sale, net (14,607) (14,607)
------------------------------------------------------------------------------
Balance, June 30, 2004 31,784 $221,896 $2,146 ($1,416) $107,169 $329,795
==============================================================================
Balance, December 31, 2004 31,640 $227,829 $2,146 $9,638 $118,996 $358,609
Net income for the period 50,648 50,648
Stock issued and stock options assumed for
acquisition of Redwood Empire Bancorp 1,639 89,538 89,538
Stock issued for stock options 156 4,700 4,700
Stock option tax benefits 1,293 1,293
Restricted stock activity 21 797 277 1,074
Purchase and retirement of stock (863) (7,477) (38,022) (45,499)
Dividends (19,293) (19,293)
Unrealized loss on securities
available for sale, net (1,453) (1,453)
------------------------------------------------------------------------------
Balance, June 30, 2005 32,593 $316,680 $2,423 $8,185 $112,329 $439,617
==============================================================================
Page 6
See accompanying notes to unaudited condensed consolidated financial statements.
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
For the six months
ended June 30,
2005 2004
--------------------------
Operating Activities:
Net income $50,648 $48,958
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of fixed assets 2,067 1,917
Amortization of intangibles and other assets 2,414 1,148
Loan loss provision 600 1,500
Amortization of deferred net loan fees 23 21
(Increase) decrease in interest income receivable (617) 2,401
Increase in other assets (5,967) (4,391)
Increase in income taxes payable 512 694
Increase (decrease) in interest expense payable 1,251 (462)
(Decrease) increase in other liabilities (5,659) 3,115
Loss (gain) on sales of investment securities 4,903 (2,183)
Loss on extinguishment of debt 0 2,204
Writedown of equipment 6 9
Gain on sale of real estate (1,331) 0
Gain on sales of other assets (800) 0
Originations of loans for resale (425) (3,562)
Proceeds from sale of loans originated for resale 426 3,534
Net gain on sale of other real estate owned
in satisfaction of debt 0 (231)
--------------------------
Net Cash Provided by Operating Activities 48,051 54,672
--------------------------
Investing Activities:
Net cash used in mergers and acquisitions (35,210) 0
Net repayments of loans 52,145 2,618
Purchases of investment securities available for sale 0 (76,027)
Purchases of investment securities held to maturity (147,085) (494,486)
Net (purchases)sales of FRB/FHLB stock (2,943) 6,331
Purchases of property, plant and equipment (793) (1,521)
Proceeds from maturity of securities available for sale 67,386 243,046
Proceeds from maturity of securities held to maturity 67,990 56,558
Proceeds from sale of securities available for sale 196,109 199,185
Proceeds from sale of property and equipment 0 0
Proceeds from sale of real estate 1,752 0
Proceeds from sale of other real estate owned 0 321
--------------------------
Net Cash Provided (Used) by Investing Activities 199,351 (63,975)
--------------------------
Financing Activities:
Net (decrease) increase in deposits (120,760) 41,438
Net increase in short-term borrowings 5,459 121,906
Repayments to the Federal Home Loan Bank 0 (107,204)
Repayments of notes payable (3,264) (3,214)
Exercise of stock options 4,551 5,979
Repurchases/retirement of stock (45,499) (36,423)
Dividends paid (19,293) (17,285)
--------------------------
Net Cash (Used) Provided in Financing Activities (178,806) 5,197
--------------------------
Net Increase (Decrease) In Cash and Cash Equivalents 68,596 (4,106)
--------------------------
Cash and Cash Equivalents at Beginning of Period 126,153 189,628
--------------------------
Cash and Cash Equivalents at End of Period $194,749 $185,522
==========================
Supplemental Disclosure of Noncash Activities:
Loans transferred to other real estate owned $40 $0
Supplemental Disclosure of Cash Flow Activity:
Unrealized loss on securities available for sale, net ($1,453) ($14,607)
Interest paid for the period 20,962 9,649
Income tax payments for the period 18,788 18,850
Income tax benefit from stock option exercises 1,293 1,826
The acquisition of Redwood Empire Bancorp involved
the following:
Cash issued 57,128 --
Common stock issued 89,538 --
Liabilities assumed 504,901 --
Fair value of assets acquired, other than cash and cash equivalents (495,596) --
Core deposit intangible (16,600) --
Customer based intangible - merchant draft processing (10,300) --
Goodwill (107,153) --
Net cash and cash equivalent received 21,919 --
See accompanying notes to unaudited condensed consolidated financial statements.
Page 7
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. The results of operations reflect interim
adjustments, all of which are of a normal recurring nature and which, in the
opinion of Management, are necessary for a fair presentation of the results for
the interim periods presented. The interim results for the six months ended June
30, 2005 and 2004 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, 2004.
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, 2004.
Note 3: Goodwill and Other Intangible Assets
The Company has recorded goodwill and other identifiable intangibles associated
with purchase business combinations. Goodwill is not amortized, but is
periodically evaluated for impairment. The Company did not recognize impairment
during the six months ended June 30, 2005. Identifiable 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. During the second quarter of
2005, no such adjustments were recorded.
In connection with the acquisition of Redwood Empire Bancorp ("REBC") in the
first quarter of 2005, the Company recorded goodwill and identifiable
intangibles of $109 million and $27 million, respectively, in accordance with
the purchase method of accounting. The following table summarizes the Company's
goodwill and identifiable intangible assets, as of January 1 and June 30 for
2005 and 2004 (dollars in thousands). In the second quarter of 2005 goodwill
relating to the REBC acquisition was reduced by $3,381, of which $2,027
represents the premium received on the required divestiture of a former REBC
branch office in Lake County. The balance of the adjustment related to stock
options issued in connection with the acquisition.
At At
January 1, June 30,
2005 Additions Reductions 2005
----------------------------------------------------
Goodwill $22,968 $108,507 ($3,381) $128,094
Accumulated Amortization (3,972) 0 0 (3,972)
----------------------------------------------------
Net $18,996 $108,507 ($3,381) $124,122
====================================================
Core Deposit Intangibles $7,783 $16,600 $0 $24,383
Accumulated Amortization (4,889) 0 (880) (5,769)
Merchant Draft Processing Intangible 0 10,300 0 10,300
Accumulated Amortization 0 0 (617) (617)
----------------------------------------------------
Net $2,894 $26,900 ($1,497) $28,297
====================================================
At At
January 1, June 30,
2004 Additions Reductions 2004
----------------------------------------------------
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 (4,345) 0 (272) (4,617)
----------------------------------------------------
Net $3,438 $0 ($272) $3,166
====================================================
At June 30, 2005, the estimated aggregate amortization of core deposit
intangibles, in thousands of dollars, for the remainder of 2005 and annually
through 2010 is $1,199, $2,279, $2,153, $2,021, $1,859, and $1,638,
respectively. The weighted average amortization period for core deposit
intangibles is 13.06 years.
At June 30, 2005, the estimated aggregate amortization of merchant draft
processing intangible, in thousands of dollars, for the remainder of 2005 and
annually through 2010 is $924, $1,808, $1,500, $1,200, $962, and $774,
respectively. The amortization period for merchant draft processing intangibles
is 12.67 years.
Page 8
Note 4: Stock Options
As permitted by 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:
For the three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2005 2004 2005 2004
----------------------------------------------------
(In thousands, except per share data)
Compensation cost based on fair
value method, net of tax effect $487 $526 $974 $1,052
Net income:
As reported $27,914 $24,644 $50,648 $48,958
Pro forma $27,427 $24,118 $49,674 $47,906
Basic earnings per share:
As reported $0.85 $0.78 $1.56 $1.53
Pro forma 0.84 0.76 1.53 1.50
Diluted earnings per share:
As reported $0.84 $0.76 $1.53 $1.51
Pro forma 0.82 0.75 1.50 1.47
SFAS 123 was revised in December, 2004 to require that, effective for periods
beginning after June 15, 2005, the Company begin using the fair market value
method for valuing and accounting for stock options. On April 14, 2005 the
Securities and Exchange Commission announced the adoption of a new rule that
amends the compliance dates and allows companies to implement Statement No. 123R
at the beginning of their next fiscal year. The Company expects to apply the
new requirements in 2006 on a modified retrospective basis, in which prior
period financial statements will be adjusted to give effect to the
fair-value-based method consistent with the above pro-forma amounts. Management
expects that the effect of implementation will be to increase annual
compensation expense in 2005 by approximately $3.4 million and decrease annual
net income by approximately $2.0 million.
Note 5: Post Retirement Benefits
The Company uses an actuarial-based accrual method of accounting for
post-retirement benefits. The Company offers a continuation of group insurance
coverage to employees electing early retirement until age 65. The Company pays a
portion of these early retirees' insurance premium which are determined at their
date of retirement. In 2004, the Company started to reimburse 50 percent of
Medicare Part B premiums for all retirees and spouses over 65.
In accordance with SFAS No.132 "Employers' Disclosures about Pensions and Other
Post-Retirement Benefits", the Company provides the following interim disclosure
related to its post-retirement benefit plan.
The following table sets forth the net periodic post retirement benefit costs
for the six months ended June 30.
For the six months ended
June 30,
--------------------------
2005 2004
--------------------------
(In thousands)
Service cost $139 $95
Interest cost 105 98
Amortization of unrecognized
transition obligation 31 31
--------------------------
Net periodic cost $275 $224
==========================
The Company does not contribute to any post-retirement benefit plans.
Page 9
WESTAMERICA BANCORPORATION
Financial Summary
(In thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2005 2004 2005 2004
----------------------------------------------------
Net Interest Income (FTE)** $57,023 $54,271 $112,043 $108,877
Provision for Loan Losses (300) (750) (600) (1,500)
Noninterest Income:
Securities gains (losses) 0 395 (4,903) 2,183
Loss on extinguishment of debt 0 (390) 0 (2,204)
Deposit service charges and other 15,479 11,656 27,577 22,547
Total noninterest income 15,479 11,661 22,674 22,526
Noninterest Expense (26,757) (24,990) (51,898) (49,982)
Provision for income taxes (FTE)** (17,531) (15,548) (31,571) (30,963)
----------------------------------------------------
Net Income $27,914 $24,644 $50,648 $48,958
====================================================
Average Shares Outstanding 32,759 31,760 32,393 31,906
Diluted Average Shares Outstanding 33,364 32,343 33,024 32,502
Shares Outstanding at Period End 32,593 31,784 32,593 31,784
As Reported:
Basic Earnings Per Share $0.85 $0.78 $1.56 $1.53
Diluted Earnings Per Share $0.84 $0.76 $1.53 $1.51
Return On Assets 2.17% 2.21% 2.04% 2.20%
Return On Equity 25.99% 31.11% 25.39% 30.82%
Net Interest Margin (FTE)** 4.84% 5.21% 4.87% 5.24%
Net Loan (Recoveries) Losses to Average Loans 0.04% 0.11% 0.01% 0.13%
Efficiency Ratio* 36.9% 37.9% 38.5% 38.0%
Average Balances:
Total Assets $5,170,029 $4,482,261 $5,017,331 $4,466,967
Earning Assets 4,719,635 4,177,358 4,619,282 4,167,210
Total Gross Loans 2,670,663 2,268,989 2,522,686 2,275,444
Total Deposits 3,906,875 3,489,250 3,811,714 3,463,399
Shareholders' Equity 430,796 318,560 402,212 319,475
Balances at Period End:
Total Assets $5,191,093 $4,611,811
Earning Assets 4,743,636 4,311,562
Total Gross Loans 2,687,566 2,319,255
Total Deposits 3,832,840 3,505,429
Shareholders' Equity 439,617 329,795
Financial Ratios at Period End:
Allowance for Loan Losses to Loans 2.23% 2.33%
Book Value Per Share $13.49 $10.38
Equity to Assets 8.47% 7.15%
Total Capital to Risk Adjusted Assets 10.37% 11.78%
Dividends Paid Per Share $0.30 $0.28 $0.60 $0.54
Dividend Payout Ratio 36% 37% 39% 36%
The above financial summary has been derived from the Company's unaudited
consolidated financial statements. This information should be read in
conjunction with those 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).
**Fully taxable equivalent
Page 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Westamerica Bancorporation and subsidiaries (the "Company") reported second
quarter 2005 net income of $27.9 million or $.84 diluted earnings per share.
These results compare to net income of $24.6 million or $0.76 per share for
the same period of 2004.
On a year-to-date basis, the Company reported net income for the six months
ended June 30, 2005 of $50.6 million or diluted earnings per share of $1.53,
compared with $49.0 million or $1.51 per share for the same period of 2004.
The second quarter of 2005 represents the first full quarter of operations
following the March 1, 2005 acquisition of Redwood Empire Bancorp ("REBC").
The acquisition contributed to higher noninterest income including $1.5
million in revenue from the acquired REBC's merchant card processing unit. The
second quarter of 2005 noninterest income also included a $1.3 million gain on
sale of real estate.
During the second quarter of 2005, the Company sold a branch in Lake County
with approximately $34 million in deposits, as required by the Federal Reserve
in connection with its approval of the REBC acquisition. A premium of $2.0
million on the sale of the branch was recorded as a reduction of goodwill
associated with the purchase of REBC.
Following is a summary of the components of net income for the periods
indicated (dollars in thousands):
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2005 2004 2005 2004
----------------------------------------------------
Net interest income (FTE) $57,023 $54,271 $112,043 $108,877
Provision for loan losses (300) (750) (600) (1,500)
Noninterest income 15,479 11,661 22,674 22,526
Noninterest expense (26,757) (24,990) (51,898) (49,982)
Provision for income taxes (FTE) (17,531) (15,548) (31,571) (30,963)
----------------------------------------------------
Net income $27,914 $24,644 $50,648 $48,958
====================================================
Average diluted shares 33,364 32,343 33,024 32,502
Diluted earnings per share $0.84 $0.76 $1.53 $1.51
Average total assets 5,170,029 4,482,261 5,017,331 4,466,967
Net income (annualized) to average total assets 2.17% 2.21% 2.04% 2.20%
Net income for the second quarter of 2005 was $3.3 million or 13.3% more than
the same quarter of 2004, primarily attributable to growth in net interest
income (FTE) and higher noninterest income, partially offset by increases in
noninterest expense and higher income taxes. The increase in net interest
income (FTE) (up $2.8 million or 5.1%) was the net result of growth of
average interest-earning assets largely due to the REBC acquisition and higher
yields on those assets, partially reduced by higher funding costs and lower
loan fee income. The loan loss provision decreased $450 thousand or 60.0% from
a year ago, reflecting Management's assessment of credit risk for the loan
portfolio. Noninterest income increased $3.8 million or 32.7% mainly due to
$1.5 million in income from the REBC's merchant credit card unit, a $1.3
million gain on sale of real estate and growth in deposit fee income.
Noninterest expense increased $1.8 million or 7.1% largely due to an increase
in amortization of intangibles related to the REBC acquisition. The provision
for income taxes (FTE) increased $2.0 million or 12.8% primarily due to higher
profitability.
Comparing the first six months of 2005 to the prior year, net income increased
$1.7 million or 3.5%, mostly due to higher net interest income (FTE) and lower
loan loss provision, partly offset by losses on sales of securities, increases
in noninterest expense and an increased tax provision. The higher net interest
income (FTE) was mainly caused by growth of average interest-earning assets
from the REBC acquisition, partially offset by lower yields, the effect of one
less accrual day and higher funding costs. The loan loss provision decreased
$900 thousand or 60.0% to reflect Management's view on credit risk.
Noninterest expense rose $1.9 million or 3.8% mainly due to an increase in
amortization of intangibles. The income tax provision (FTE) increased $608
thousand or 2.0% primarily due to higher profitability.
Page 11
Net Interest Income
Following is a summary of the components of net interest income for the periods
indicated (dollars in thousands):
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2005 2004 2005 2004
----------------------------------------------------
Interest and fee income $61,456 $53,271 $118,759 $107,682
Interest expense (10,746) (4,597) (19,102) (10,111)
FTE adjustment 6,313 5,597 12,386 11,306
----------------------------------------------------
Net interest income (FTE) $57,023 $54,271 $112,043 $108,877
====================================================
Average earning assets $4,719,635 $4,177,358 $4,619,282 $4,167,210
Net interest margin (FTE) 4.84% 5.21% 4.87% 5.24%
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) increased during the second quarter of 2005 by
$2.8 million or 5.1% from the same period in 2004 to $57.0 million, mainly due
to growth of average earning assets (up $542 million), primarily due to the
REBC acquisition, and higher yields on those assets (up 12 basis points "bp"),
partially offset by higher rates paid on interest-bearing liabilities (up 66
bp), a higher volume of those liabilities (up $436 million), also primarily
due to the REBC acquisition, and lower loans fees (down $259 thousand).
Comparing the first six months of 2005 with the same period of 2004, net
interest income (FTE) increased $3.2 million or 2.9%, primarily due to higher
average earning assets including the acquisition (up $452 million), partially
offset by lower yields on those assets (down 2 bp), the $363 thousand effect
of one less accrual day, higher rates paid on interest-bearing liabilities (up
49 bp) and a higher volume of those liabilities (up $344 million).
Interest and Fee Income
Interest and fee income (FTE) for the second quarter of 2005, including
revenue from the earning assets acquired from REBC, rose $8.9 million or 15.1%
from the same period in 2004. The increase was caused by higher average
earning assets (up $542 million), mostly due to the REBC acquisition, and
higher yields on average earning assets (up 12 bp), partially offset by lower
loan fees (down $259 thousand).
The average earning asset increase of $542 million for the second quarter of
2005 compared to the same period in 2004 was substantially attributable to a
$402 million increase in the loan portfolio. Growth in commercial real estate
loans (up $178 million), residential real estate loans (up $135 million),
commercial loans (up $58 million) and construction loans (up $43 million) were
partially offset by a $20 million decline in indirect consumer loans.
Average total investments grew $141 million for the second quarter of 2005
compared with the same period in 2004 primarily due to increases in municipal
securities (up $168 million) and mortgage backed securities and collateralized
mortgage obligations (up $129 million), reduced by declines in U.S. government
sponsored entity obligations (down $127 million) and preferred stock &
corporate securities (down $29 million).
The average yield on the Company's earning assets, excluding loan fee income,
increased from 5.59% in the second quarter of 2004 to 5.71% in the same period
in 2005 (up 12 bp). The composite yield on loans, excluding loan fees, rose 11
bp to 6.14%. Increases in commercial loans (up 87 bp) and personal credit
lines (up 137 bp) were partially offset by declines in yields on commercial
real estate loans (down 31 bp) and indirect consumer loans (down 50 bp).
The investment portfolio yield increased 11 bp to 5.16%, mainly caused by
increases in the yield on preferred stock & corporate securities (up 85 bp)
and mortgage backed securities and collateralized mortgage obligations (up 15
bp), partially offset by a 39 bp decline in municipal securities.
Comparing the first two quarters of 2005 with the corresponding period a year
ago, interest and fee income (FTE) was up $3.2 million or 2.9%. The increase
largely resulted from a higher volume of earning assets, partially offset by
lower yields on those assets and the effect of one less accrual day.
Average earning assets increased $452 million or 10.8% for the first half of
2005 compared with the same period of 2004, due to loan growth from the REBC
acquisition and an increase in investments. The loan portfolio grew $247
million, the net result of increases in commercial real estate loans (up $91
million), residential real estate loans (up $105 million), commercial loans
(up $38 million), construction loans (up $25 million), and a $17 million
decline in indirect consumer loans. Investments rose $205 million due to
growth in municipal securities (up 140 million) and mortgage backed securities
and collateralized mortgage obligations (up $161 million), partially offset by
decreases in preferred stock & corporate securities (down $40 million) and
U.S. government sponsored entity obligations (down $57 million).
The average yield on earning assets excluding loan fees for the first half of
2005 was 5.66% compared with 5.68% in the corresponding period of 2004. The
investment portfolio yield fell by 6 bp. The decrease resulted mostly from
lower yields on municipal securities (down 40 bp) and U.S. government
sponsored entity obligations (down 9 bp), net of increases in mortgage backed
securities and collateralized mortgage obligations (up 20 bp) and preferred
stock & corporate securities (up 23 bp).
Page 12
The loan portfolio yield excluding loan fees for the first half of 2005
compared with the same period of 2004 was higher by 2 bp, due to increases in
commercial loans (up 67 bp) and personal credit lines (up 121 bp), partially
offset by lower yields on indirect consumer loans (down 59 bp) and commercial
real estate loans (down 21 bp).
Interest Expense
Interest expense in the second quarter of 2005, including expense of
liabilities acquired from REBC acquisition, increased $6.1 million or 133.8%
compared with the same period in 2004. The increase was attributable to higher
rates paid on the interest-bearing liabilities and growth in those
liabilities.
The average rate paid on interest-bearing liabilities increased from 0.64% in
the second quarter of 2004 to 1.30% in the same quarter of 2005. Rates paid on
most liabilities moved with general market conditions. The average rate on
federal funds purchased rose 195 bp. The average long term debt rate increased
41 bp due to assumption of $23 million of REBC's subordinated debentures.
Rates on deposits increased as well, including those on CDs over $100
thousand, which rose 125 bp; and on retail CDs, which went up by 60 bp. An 8
bp decline in money market saving accounts partially offset the increase.
Interest-bearing liabilities grew $436 million or 15.2% for the second quarter
of 2005 over the same period of 2004. Federal funds purchases increased $261
million. Long-term debt increased $18.9 million, the net result of assumption
of REBC's debt and an annual principal repayment. Most categories of deposits
grew including CDs over $100 thousand (up $108 million), retail CDs (up $34
million) and money market savings (up $55 million). These increases were
partially reduced by a $130 million decline in other short-term borrowings.
Comparing the first half of 2005 to the corresponding period of 2004, interest
expense rose $9.0 million or 88.9%, due to higher rates paid on
interest-bearing liabilities and growth of such liabilities.
Rates paid on liabilities averaged 1.19% during the first six months of 2005
compared to 0.70% in the first six months of 2004. Rates on most
interest-bearing liabilities moved up with the general trend in the market.
Federal funds purchased rose 173 bp. Rates on most deposits were also higher:
CDs over $100 thousand which rose 108 bp, retail CDs which increased by 52 bp,
and regular savings which increased by 8 bp. A 14 bp decline in the average
rate on money market savings accounts partially offset the increase.
Interest-bearing liabilities grew $344.0 million or 12.0% over the first half
of 2004. Federal funds purchased rose $207 million and long-term debt
increased $12 million. CDs over $100 thousand, retail CDs and money market
savings increased $87 million, $11 million and $57 million, respectively.
These increases were partially offset by a $56 million decrease in other
short-term borrowings and a $48 million decline in average FHLB advances due
to prepayments.
In all periods, the Company has attempted to continue increasing the balances
of more profitable, lower-cost transaction accounts in order to minimize the
cost of funds.
Net Interest Margin (FTE)
The following summarizes the components of the Company's net interest margin
for the periods indicated:
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2005 2004 2005 2004
----------------------------------------------------
Yield on earning assets 5.75% 5.65% 5.70% 5.73%
Rate paid on interest-bearing
liabilities 1.30% 0.64% 1.19% 0.70%
----------------------------------------------------
Net interest spread 4.45% 5.01% 4.51% 5.03%
Impact of all other net
noninterest bearing funds 0.39% 0.20% 0.36% 0.21%
----------------------------------------------------
Net interest margin 4.84% 5.21% 4.87% 5.24%
====================================================
During the second quarter of 2005, the net interest margin declined 37 bp
compared to the same period in 2004. Rates paid on interest-bearing
liabilities climbed faster than yields on earning assets, resulting in a 56 bp
decline in net interest spread. The decline in the net interest spread was
partially mitigated by the higher value of noninterest bearing funding
sources. While the average balance of these sources increased $12 million or
1.4%, their value increased 19 bp because of the higher market rates of
interest at which they could be invested.
The net interest margin in the first half of 2005 declined by 37 bp when
compared with the same period of 2004. Earning asset yields declined 3 bp and
the cost of interest-bearing liabilities rose by 49 bp, resulting in a 52 bp
decrease in the interest spread. Noninterest bearing funding sources increased
$30 million or 3.5%, their margin contribution increased by 15 bp.
Page 13
Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present, for the periods indicated, information regarding
the Company's consolidated average assets, liabilities and shareholders'
equity, the amount of interest income from average earning assets and the
resulting yields, and the amount of interest expense paid on interest-bearing
liabilities. Average loan balances include nonperforming loans. Interest
income includes proceeds from loans on nonaccrual status only to the extent
cash payments have been received and applied as interest income.
Yields on securities and certain loans have been adjusted upward to reflect
the effect of income which is exempt from federal income taxation at the
current statutory tax rate (dollars in thousands).
For the three months ended
June 30, 2005
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------
Assets:
Money market assets and funds sold $664 $1 0.60%
Investment securities:
Available for sale
Taxable 444,661 4,760 4.28%
Tax-exempt 266,299 4,873 7.32%
Held to maturity
Taxable 731,214 7,264 3.97%
Tax-exempt 606,134 9,523 6.28%
Loans:
Commercial:
Taxable 394,956 6,921 7.03%
Tax-exempt 249,472 4,132 6.64%
Commercial real estate 956,931 16,905 7.09%
Real estate construction 80,254 1,446 7.23%
Real estate residential 496,133 5,589 4.51%
Consumer 492,917 6,355 5.17%
--------------------------
Total loans 2,670,663 41,348 6.21%
--------------------------
Total earning assets 4,719,635 67,769 5.75%
Other assets 450,394
-------------
Total assets $5,170,029
=============
Liabilities and shareholders' equity
Deposits:
Noninterest bearing demand $1,387,984 $-- --
Savings and interest-bearing
transaction 1,763,669 1,310 0.30%
Time less than $100,000 307,118 1,542 2.01%
Time $100,000 or more 448,104 2,602 2.33%
--------------------------
Total interest-bearing deposits 2,518,891 5,454 0.87%
Short-term borrowed funds 745,499 4,655 2.47%
Federal Home Loan Bank advances 0 0 0.00%
Debt financing and notes payable 40,377 637 6.31%
--------------------------
Total interest-bearing liabilities 3,304,767 10,746 1.30%
Other liabilities 46,482
Shareholders' equity 430,796
-------------
Total liabilities and shareholders' equity $5,170,029
=============
Net interest spread (1) 4.45%
Net interest income and interest margin (2) $57,023 4.84%
==========================
(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.
Page 14
For the three months ended
June 30, 2004
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------
Assets:
Money market assets and funds sold $915 $0 0.00%
Investment securities:
Available for sale
Taxable 796,597 8,035 4.03%
Tax-exempt 295,698 5,435 7.35%
Held to maturity
Taxable 404,542 3,833 3.79%
Tax-exempt 410,617 6,794 6.62%
Loans:
Commercial:
Taxable 352,119 4,778 5.46%
Tax-exempt 234,780 3,958 6.78%
Commercial real estate 779,408 14,709 7.59%
Real estate construction 36,789 601 6.57%
Real estate residential 361,069 3,996 4.43%
Consumer 504,824 6,729 5.36%
--------------------------
Total loans 2,268,989 34,771 6.16%
--------------------------
Total earning assets 4,177,358 58,868 5.65%
Other assets 304,903
-------------
Total assets $4,482,261
=============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,256,128 $-- --
Savings and interest-bearing
transaction 1,619,797 1,116 0.28%
Time less than $100,000 273,552 956 1.41%
Time $100,000 or more 339,773 922 1.08%
--------------------------
Total interest-bearing deposits 2,233,122 2,994 0.54%
Short-term borrowed funds 614,065 1,285 0.83%
Federal Home Loan Bank advances 0 2 N/A
Debt financing and notes payable 21,428 316 5.90%
--------------------------
Total interest-bearing liabilities 2,868,615 4,597 0.64%
Other liabilities 38,958
Shareholders' equity 318,560
-------------
Total liabilities and shareholders' equity $4,482,261
=============
Net interest spread (1) 5.01%
Net interest income and interest margin (2) $54,271 5.21%
==========================
(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.
Page 15
For the six months ended
June 30, 2005
---------------------------------------
Interest Rates
Average income/ earned/
Balance expense paid
---------------------------------------
Assets:
Money market assets and funds sold $686 $1 0.29%
Investment securities:
Available for sale
Taxable 514,031 10,878 4.23%
Tax-exempt 268,344 9,822 7.32%
Held to maturity
Taxable 735,800 14,553 3.96%
Tax-exempt 577,735 18,207 6.30%
Loans:
Commercial:
Taxable 372,063 12,622 6.84%
Tax-exempt 248,513 8,232 6.68%
Commercial real estate 883,369 31,659 7.23%
Real estate construction 62,995 2,256 7.22%
Real estate residential 458,928 10,195 4.44%
Consumer 496,818 12,720 5.16%
--------------------------
Total loans 2,522,686 77,684 6.20%
--------------------------
Total earning assets 4,619,282 131,145 5.70%
Other assets 398,049
-------------
Total assets $5,017,331
=============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,351,234 $-- --
Savings and interest-bearing
transaction 1,744,122 2,436 0.28%
Time less than $100,000 289,290 2,780 1.94%
Time $100,000 or more 427,068 4,595 2.17%
--------------------------
Total interest-bearing deposits 2,460,480 9,811 0.80%
Short-term borrowed funds 724,483 8,224 2.26%
Federal Home Loan Bank advances 0 0 0.00%
Debt financing and notes payable 33,629 1,067 6.35%
--------------------------
Total interest-bearing liabilities 3,218,592 19,102 1.19%
Other liabilities 45,293
Shareholders' equity 402,212
-------------
Total liabilities and shareholders' equity $5,017,331
=============
Net interest spread (1) 4.51%
Net interest income and interest margin (2) $112,043 4.87%
==========================
(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.
Page 16
For the six months ended
June 30, 2004
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
Assets: ---------------------------------------
Money market assets and funds sold $792 $1 0.25%
Investment securities:
Available for sale
Taxable 922,406 19,410 4.21%
Tax-exempt 302,290 11,215 7.42%
Held to maturity
Taxable 257,345 4,600 3.57%
Tax-exempt 408,933 13,603 6.65%
Loans:
Commercial
Taxable 348,940 9,603 5.53%
Tax-exempt 233,181 7,927 6.84%
Commercial real estate 792,414 29,565 7.50%
Real estate construction 37,778 1,286 6.85%
Real estate residential 353,975 7,976 4.51%
Consumer 509,156 13,802 5.45%
--------------------------
Total loans 2,275,444 70,159 6.20%
--------------------------
Total earning assets 4,167,210 118,988 5.73%
Other assets 299,757
-------------
Total assets $4,466,967
=============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,232,714 $-- --
Savings and interest-bearing
transaction 1,612,498 2,338 0.29%
Time less than $100,000 278,099 1,959 1.42%
Time $100,000 or more 340,088 1,849 1.09%
--------------------------
Total interest-bearing deposits 2,230,685 6,146 0.55%
Short-term borrowed funds 573,612 2,416 0.84%
Federal Home Loan Bank advance 48,306 898 3.67%
Debt financing and notes payable 21,983 651 5.93%
--------------------------
Total interest-bearing liabilities 2,874,586 10,111 0.70%
Other liabilities 40,192
Shareholders' equity 319,475
-------------
Total liabilities and shareholders' equity $4,466,967
=============
Net interest spread (1) 5.03%
Net interest income and interest margin (2) $108,877 5.24%
==========================
(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.
Page 17
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 June 30, 2005
compared with three months
ended June 30, 2004
---------------------------------------
Volume Rate Total
---------------------------------------
Interest and fee income:
Money market assets and funds sold $0 $1 $1
Investment securities:
Available for sale
Taxable (3,723) 448 (3,275)
Tax-exempt (538) (24) (562)
Held to maturity
Taxable 3,247 184 3,431
Tax-exempt 3,085 (356) 2,729
Loans:
Commercial:
Taxable 635 1,508 2,143
Tax-exempt 253 (79) 174
Commercial real estate 3,216 (1,020) 2,196
Real estate construction 779 66 845
Real estate residential 1,520 73 1,593
Consumer (149) (225) (374)
---------------------------------------
Total loans 6,254 323 6,577
---------------------------------------
Total earning assets 8,325 576 8,901
---------------------------------------
Interest expense:
Deposits:
Savings and interest-bearing
transaction 105 89 194
Time less than $100,000 129 457 586
Time $100,000 or more 368 1,312 1,680
---------------------------------------
Total interest-bearing deposits 602 1,858 2,460
---------------------------------------
Short-term borrowed funds 329 3,041 3,370
Federal Home Loan Bank advances 0 (2) (2)
Debt financing and notes payable 298 23 321
---------------------------------------
Total interest-bearing liabilities 1,229 4,920 6,149
---------------------------------------
Increase (decrease) in Net Interest Income $7,096 ($4,344) $2,752
=======================================
Page 18
Six months ended June 30, 2005
compared with six months
ended June 30, 2004
---------------------------------------
Volume Rate Total
---------------------------------------
Interest and fee income:
Money market assets and funds sold $0 $0 $0
Investment securities:
Available for sale
Taxable (8,695) 163 ($8,532)
Tax-exempt (1,250) (143) ($1,393)
Held to maturity
Taxable 9,397 556 $9,953
Tax-exempt 5,333 (729) $4,604
Loans:
Commercial:
Taxable 612 2,407 $3,019
Tax-exempt 483 (178) $305
Commercial real estate 3,187 (1,093) $2,094
Real estate construction 896 74 $970
Real estate residential 2,329 (110) $2,219
Consumer (387) (695) ($1,082)
---------------------------------------
Total loans 7,120 405 7,525
---------------------------------------
Total earning assets 11,905 252 12,157
---------------------------------------
Interest expense:
Deposits:
Savings and interest-bearing
transaction 177 (79) $98
Time less than $100,000 68 753 $821
Time $100,000 or more 552 2,194 $2,746
---------------------------------------
Total interest-bearing deposits 797 2,868 3,665
---------------------------------------
Short-term borrowed funds 749 5,059 $5,808
Federal Home Loan Bank advances 0 (898) ($898)
Debt financing and notes payable 364 52 $416
---------------------------------------
Total interest-bearing liabilities 1,910 7,081 8,991
---------------------------------------
Increase (decrease) in Net Interest Income $9,995 ($6,829) $3,166
=======================================
Page 19
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 manage credit costs by
enforcing underwriting and administration procedures and aggressively pursuing
collection efforts with troubled debtors. The Company provided $300 thousand
for loan losses in the second quarter of 2005, compared with $750 thousand in
the second quarter of 2004. For the first six months of 2005 and 2004,
$600 thousand and $1.5 million were provided in each respective period.
Additionally, $5.2 million of allowance was acquired from REBC in the first
quarter of 2005. The provision reflects management's assessment of credit risk
in the loan portfolio for each of the periods presented. For further
information regarding net credit losses and the allowance for loan
losses, see the "Classified Loans" section of this report.
Noninterest Income
The following table summarizes the components of noninterest income for the
periods indicated (dollars in thousands).
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2005 2004 2005 2004
----------------------------------------------------
Service charges on deposit accounts $7,542 $7,360 $14,469 $14,228
Merchant credit card fees 2,417 909 3,715 1,735
ATM fees and interchange 709 643 1,333 1,226
Debit card fees 811 638 1,509 1,187
Other service fees 429 463 834 856
Financial services commissions 339 360 619 547
Trust fees 309 258 583 508
Official check sales income 267 137 492 264
Mortgage banking income 67 131 167 263
Gains on sale of foreclosed property 0 8 0 231
Securities gains (losses) 0 395 (4,903) 2,183
Loss on extinguishment of debt 0 (390) 0 (2,204)
Gain on sale of real estate 1,331 0 1,331 0
Other noninterest income 1,258 749 2,525 1,502
----------------------------------------------------
Total $15,479 $11,661 $22,674 $22,526
====================================================
Noninterest income for the second quarter of 2005 increased by $3.8 million or
32.7% from the same period in 2004. The increase was primarily due to a $1.5
million increase in merchant credit card fees due to the acquisition of REBC's
merchant card processing unit and a $1.3 million gain on sale of real estate.
Service charges on deposits increased $182 thousand mainly due to a $391
thousand increase in overdraft fees as a result of repricing in February
of 2005 and the increased customer base due to the acquisition, partially
offset by a $258 thousand decrease in account analysis deficit fees. Debit
card fees increased $173 thousand or 27.1% due to increased usage and the
higher customer base. Official check sales income increased $130 thousand or
94.9% due to the higher earnings credit rate received on outstanding items.
The second quarter of 2004 included a $395 thousand gain on sale of securities
and a $390 thousand loss on the extinguishment of $20 million of FHLB
advances. Other noninterest income increased $509 thousand or 68.0% mostly due
to a $399 thousand gain on sales of other assets.
In the first half of 2005, noninterest income increased $148 thousand or 0.7%
compared with the same period of the previous year. Service charges on
deposits increased $241 thousand or 1.7% mainly due to a $959 thousand
increase in overdraft fees as a result of repricing in February of 2005,
partially offset by a $701 thousand decrease in account analysis deficit
fees. Merchant credit card fees increased $2.0 million or 114.1% attributable
to the acquisition of REBC's merchant card processing unit. ATM fees and
interchange income rose by $107 thousand or 8.7% due to repricing in February
of 2005 and increased usage. A $322 thousand or 27.1% increase in debit card
fee income was primarily due to increased usage. Official check sales income
increased $228 thousand or 86.4% due to the higher earnings credit
rate. The prior year benefited from $231 thousand in gains on foreclosed
property. The 2005 period included $4.9 million in losses on sales of
securities recorded in connection with management of the Company's interest
risk position reflecting the REBC acquisition. The first half of 2004
benefited from $2.2 million in gains on sales of securities which offset the
$2.2 million in losses on extinguishment of debt which was incurred as a
result of prepayment of $105 million in FHLB advances. The first half of 2005
included a $1.3 million gain on sale of real estate. Other noninterest income
increased $1.0 million or 68.1% primarily due to a $800 gain on sale of other
assets and higher letter-of-credit fee income.
Page 20
Noninterest Expense
The following table summarizes the components of noninterest expense for the
periods indicated (dollars in thousands).
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2005 2004 2005 2004
----------------------------------------------------
Salaries and related benefits $13,624 $13,332 $26,784 $26,858
Occupancy 3,230 2,944 6,181 5,892
Data processing services 1,539 1,521 3,087 3,038
Equipment 1,313 1,273 2,544 2,435
Courier service 964 888 1,890 1,772
Telephone 553 535 1,081 1,107
Professional fees 604 511 1,324 921
Postage 376 364 797 758
Stationery and supplies 304 309 652 597
Loan expense 232 295 436 550
Advertising/public relations 275 290 481 505
Merchant credit card 263 268 520 541
Correspondent Service Charges 264 239 514 478
Operational losses 200 238 390 481
Amortization of deposit intangibles 1,092 136 1,497 272
Other noninterest expense 1,924 1,847 3,720 3,777
----------------------------------------------------
Total $26,757 $24,990 $51,898 $49,982
====================================================
Average full time equivalent staff 974 995 969 998
Noninterest expense to revenues (FTE) 36.91% 37.90% 38.52% 38.04%
Noninterest expense increased $1.8 million or 7.1% in the second quarter of
2005 compared to the same period in 2004. Salaries and related benefits
increased $292 thousand or 2.2%, primarily the net result of a $300 thousand
increase in salary and wages, a $184 thousand decrease in incentives and
bonuses, and increases in group insurance and retirement plan expenses. The
increase in regular salaries was attributable to payment to non-continuing
REBC employees and annual merit increases to continuing staff, partially
offset by the effect of a smaller workforce. Occupancy expense was higher by
$286 thousand or 9.7% primarily due to a $134 thousand increase in rental of
bank premises, net of income from subleased spaces. The increase in rent was
the net result of a $232 thousand in additional rent payments for the
REBC offices and annual increases for other locations, partially offset by
savings from branch consolidation and relocations. A $956 thousand increase in
amortization of identifiable intangibles was attributable to the acquisition.
In the first six months of 2005, noninterest expense rose $1.9 million or 3.8%
compared with the corresponding period of 2004. Occupancy expense increased
$289 thousand or 4.9% due to moving expenses, higher rent, net of sublease
income, increases in depreciation, real estate taxes and miscellaneous
occupancy expenses. Equipment expense increased $109 thousand or 4.5%
mainly due to higher depreciation. Courier service expense rose by $118
thousand 6.7%. Professional fees increased $403 thousand or 43.8% due to a
$343 thousand increase in audit and accounting costs primarily due to
additional charges from the Company's independent auditor in connection with
new audit requirements promulgated by the Public Company Accounting
Oversight Board and increased legal fees for the acquisition. A $1.2 million
increase in amortization of identifiable intangibles was attributable to the
REBC acquisition. These increases were reduced by a $114 thousand or 20.7%
decline in loan expense due to lower activity.
Provision for Income Tax
During the second quarter of 2005, the Company recorded income tax expense
(FTE) of $17.5 million, $2.0 million or 12.8% higher than the second quarter
of 2004. The current quarter provision represents an effective tax rate of
38.6%, compared to 38.7% for the second quarter of 2004. On a year-to-date
basis, the income tax provision (FTE) was $31.6 million for 2005
compared with $31.0 million for 2004. The effective tax rate of 38.4% for the
first half of 2005 is lower than the 38.7% for the same period of 2004. The
lower tax rates in 2005 are due to benefits realized from additional
investments in low income housing projects and other tax-favored assets.
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. Other
real estate owned is recorded at the lower of cost or market.
Page 21
The following is a summary of classified loans and other real estate owned on
the dates indicated (dollars in thousands):
At June 30, At
--------------------------December 31,
2005 2004 2004
---------------------------------------
Classified loans $37,615 $21,495 $19,225
Other real estate owned 40 0 0
---------------------------------------
Classified loans and other real estate owned $37,655 $21,495 $19,225
=======================================
Allowance for loan losses /
classified loans 159% 251% 282%
Classified loans at June 30, 2005, increased $16.1 million or 75.0% from a
year ago, primarily due to the classified loans totaling $16.1 million
acquired from REBC. A $18.4 million or 95.7% increase in classified loans from
December 31, 2004 was also largely due to the classified loans acquired from
REBC and other normal activity. One property was added to other real estate
owned in the second quarter of 2005.
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 become 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 loans and OREO on the dates
indicated (dollars in thousands):
At June 30, At
--------------------------December 31,
2005 2004 2004
---------------------------------------
Performing nonaccrual loans $6,072 $2,233 $4,071
Nonperforming, nonaccrual loans 1,560 4,695 2,970
---------------------------------------
Total nonaccrual loans 7,632 6,928 7,041
Loans 90 days past due and
still accruing 84 202 10
---------------------------------------
Total nonperforming loans 7,716 7,130 7,051
Other real estate owned 40 0 0
---------------------------------------
Total $7,756 $7,130 $7,051
=======================================
Allowance for loan losses /
nonperforming loans 776% 757% 768%
Performing nonaccrual loans at June 30, 2005 increased $3.8 million or 171.9%
and $2.0 million or 49.2% from a year ago and December 31, 2004, respectively,
as a result of the $4.0 million performing nonaccrual loans acquired from REBC
and new loans being placed on nonaccrual, less charge-offs, loans being
returned to accrual status and loans being placed on nonperforming nonaccrual.
Nonperforming nonaccrual loans at June 30, 2005 decreased $3.1 million or
66.8% and $1.4 million or 47.5% from the previous year and December 31, 2004,
respectively. The decrease was due to the net result of loans being returned
to accrual status or being charged off or paid off, and others being added to
nonperforming nonaccrual.
Changes in other real estate owned are discussed above under "Classified
Assets".
The Company had no restructured loans as of June 30, 2005, June 30, 2004 and
December 31, 2004.
The amount of gross interest income that would have been recorded for
nonaccrual loans for the three and six month periods ended June 30, 2005, if
all such loans had performed in accordance with their original terms, was $150
thousand and $274 thousand, respectively, compared to $111 thousand and $231
thousand, respectively, for the second quarter and the first half of 2004.
The amount of interest income that was recognized on nonaccrual loans from all
cash payments, including those related to interest owed from prior years, made
during the three and six months ended June 30, 2005, totaled $120 thousand and
$285 thousand, respectively, compared to $102 thousand and $167 thousand,
respectively, for the comparable periods in 2004. These cash payments
represent annualized yields of 6.02% and 7.88%, respectively, for the second
quarter and the first six months of 2005 compared to 5.98% and 4.78%,
respectively, for the second quarter and the first half of 2004.
Page 22
Total cash payments received during the second quarter of 2005 which were
applied against the book balance of nonaccrual loans outstanding at June 30,
2005, totaled approximately $77 thousand. Cash payments received totaled $228
thousand for the six months ended June 30, 2005.
Management believes the overall credit quality of the loan portfolio continues
to be strong; however, nonperforming assets could fluctuate from period to
period. The performance of any individual loan can be affected by external
factors such as the interest rate environment, economic conditions or factors
particular to the borrower. No assurance can be given 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 loan loss experience, the amount of past due, nonperforming
loans and classified loans, recommendations of regulatory authorities,
prevailing economic conditions and other factors. 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 loan loss experience, in which criticized
and classified loan balances identified through an internal loan review
process are analyzed using a linear regression model to determine standard
loss rates. 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 loss rates 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 commercial office vacancy rates, mortgage
loan foreclosure trends, agriculture commodity prices, and levels of
government funding. The remainder of the reserve is considered to be
unallocated and is established at a level considered necessary based on
relevant economic conditions and available data, including unemployment
statistics, unidentified economic and business conditions; the quality of
lending management and staff; credit quality trends; concentrations of credit;
and changing underwriting standards due to external competitive factors.
Management considers the $59.9 million allowance for loan losses, which is
equivalent to 2.23% of total loans at June 30, 2005, to be adequate as a
reserve against losses as of June 30, 2005.
The following table summarizes the loan loss provision, net credit losses and
allowance for loan losses for the periods indicated (dollars in thousands):
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2005 2004 2005 2004
----------------------------------------------------
Balance, beginning of period $59,859 $53,835 $54,152 $53,910
Loan loss provision 300 750 600 1,500
Allowance acquired through merger 0 0 5,213 0
Loans charged off (754) (1,324) (1,353) (2,882)
Recoveries of previously
charged off loans 457 688 1,250 1,421
----------------------------------------------------
Net credit losses (297) (636) (103) (1,461)
----------------------------------------------------
Balance, end of period $59,862 $53,949 $59,862 $53,949
====================================================
Allowance for loan losses /
loans outstanding 2.23% 2.33%
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 securities, deposit products, and
other funding sources to achieve company objectives.
The primary analytical tool used by the Company to quantify interest rate risk
is a simulation model to project changes in net interest income ("NII") that
result from forecast changes in interest rates. This analysis calculated the
difference between a NII forecast over a 12-month period using a stable
interest rate scenario and a NII forecast using a rising or falling interest
rate scenario with the Federal Funds rate serving as a "primary indicator."
Based on economic conditions, interest rate levels, anticipated monetary
policy and Management's judgment, at June 30, 2005, simulations were conducted
with the Federal Funds rate rising by 200 basis points or declining by 100
basis points over the 12-month forecast interval triggering a response in the
other 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. A variety of factors affect the timing and magnitude of interest
rate changes such as general economic conditions, fiscal policy, monetary
policy, political developments, terrorism, and a variety of other factors.
Given current conditions, the Company is anticipating rising rates, although
the timing and extent of increasing rates remains uncertain. The Company
generally maintains an interest rate risk position near neutral, such that
changing interest rates will not cause significant changes in net interest
income.
Page 23
Management reviewed its interest rate risk position late in the first quarter
of 2005, taking into account the acquisition of Redwood Empire Bancorp. In
Management's judgment, the Company's interest rate risk exposure would be
reduced through the sale of investment securities available for sale, with the
proceeds from sale applied to reduce short-term borrowed funds. During the
first quarter 2005, the Company sold $170.0 million of investment securities
available for sale with a duration of 3.2 years and book yield of 3.29% at a
realized loss of $4.9 million.
The following table summarizes the simulated change in NII (FTE), based on the
12-month period ending June 30, 2006 incorporating the acquisition of Redwood
Empire Bancorp and the sale of investment securities described above:
Simulated Changes to Net Interest Income
Estimated Increase
(Decrease) in NII
--------------------------
Twelve months ended June 30, 2006 Estimated
Changes in Interest Rates (Basis Points) NII Amount Amount Percent
--------------------------------------- ---------------------------------------
(Dollars in millions)
+200 $224.5 -$4.3 -1.9%
--- 228.8 --- ---
-100 229.5 0.7 0.3%
During the first quarter 2004, the Company sold $144.8 million of
available-for-sale securities to reduce the average duration of the securities
portfolios in a rising rate environment. The Company realized securities gains
of $1.8 million from these sales. Also, during the first quarter of 2004, the
Company retired $85 million in FHLB advances with a weighted average interest
rate of 3.63% in an effort to reduce its aggregate cost of funds. The majority
of the retired FHLB advances had scheduled maturity dates prior to January 15,
2005, while others had scheduled maturity dates ranging from May to August
2005. Losses totaling $1.8 million were incurred during the first quarter of
2004 to retire the FHLB advances prior to their scheduled maturity dates.
Liquidity
The Company's principal source of asset liquidity is investment securities
available for sale and principal payments from consumer loans. At June 30,
2005, investment securities available for sale totaled $692 million,
representing a decrease of $240 million from December 31, 2004. The decrease
is primarily attributable to the sale of $170 million of investment securities
available for sale, as described above and principal payments. Additionally,
during the six months ended June 30, 2005, principal payments from maturities,
call, and paydowns from all investment securities totaled approximately $135
million. At June 30, 2005, indirect auto loans totaled $405.7 million, which
were experiencing stable monthly principal payments of approximately $20
million. In addition, at June 30, 2005, the Company had customary lines for
overnight borrowings from other financial institutions in excess of $700
million and a $35 million line of credit, under which $12.2 million was
outstanding. Additionally, as a member of the Federal Reserve System, the
Company has access to borrowing from the Federal Reserve. The Company's
short-term debt rating from Fitch Ratings is F1. Management expects the
Company can access short-term debt financing if desired. The Company's
long-term debt rating from Fitch Ratings is A with a stable outlook.
Management is confident the Company could access additional long-term debt
financing if desired.
The Company generates significant liquidity from its operating activities. The
Company's profitability during the first six months of 2005 and 2004
contributed to substantial operating cash flows of $48.1 million and $54.7
million, respectively. In 2005, operating activities and retained earnings
from prior years provided cash for $19.3 million in shareholder dividends,
$3.3 million for repayment of long term debt and $45.5 million utilized to
repurchase common stock. In 2004, operating activities provided a substantial
portion of cash for $36.4 million of Company stock repurchases, $17.3 million
in shareholder dividends and $3.2 million for repayment of long term debt.
In the first six months of 2005, the Company's primary investment was the REBC
acquisition. The Company paid cash of $35 million and issued 1.6 million
shares of its common stock to REBC shareholders in exchange for $435 million
loans, $47 million investment securities, $370 million deposits, a merchant
card processing business, and other assets and liabilities. The Company
expects the earnings stream generated from the acquired business relative to
the consideration paid to be accretive to its diluted earnings per share. In
the first six months of 2005, the Company also sold approximately $196 million
in securities available for sale to manage its interest rate risk position in
light of the REBC acquisition. The Company also divested approximately $34
million in deposits in a branch sale required by regulators in approving the
REBC acquisition. In 2004, the Company's deposits and short-term borrowing
increased $163 million, which was used to prepay $107 million FHLB advances
and increase investment securities $72 million.
The Company anticipates maintaining its cash levels in 2005 mainly through
increased profitability and retained earnings. It is anticipated that loan
demand will increase moderately during the remainder of 2005, although such
demand will be dictated by economic conditions. The growth of deposit balances
is expected to exceed the anticipated growth in loan demand through the end of
2005. Depending on economic conditions, interest rate levels, and a variety of
other conditions, excess deposit growth may be used to purchase investment
securities or to reduce short-term borrowings. However, due to concerns
regarding uncertainty in the general economic environment, possible terrorist
attacks and the war in Iraq, loan demand and levels of customer deposits are
not certain. Shareholder dividends and share repurchases are expected to
continue in 2005.
Page 24
Westamerica Bancorporation ("the Parent Company") is separate and apart from
Westamerica Bank ("the Bank") and must provide for its own liquidity. In
addition to its operating expenses, the Parent Company is responsible for the
payment of dividends to its shareholders, and interest and principal on
outstanding debt. Substantially all of the Parent Company's revenues
are obtained from subsidiary service fees and dividends. Payment of such
dividends to the Parent Company by the Bank is limited under regulations for
Federal Reserve member banks and California law. The amount that can be paid
in any calendar year, without prior approval from federal and state regulatory
agencies, cannot exceed the net profits (as defined) for that year plus the
net profits of the preceding two calendar years less dividends paid. The
Company believes that such restrictions will not have an impact on the Parent
Company's ability to meet its ongoing cash obligations.
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 pursuant
to stock repurchase plans approved by the Board with the intention of
lessening the dilutive impact of issuing new shares under stock option
plans, returning excess capital to shareholders, and other ongoing
requirements. These programs have been implemented to optimize the Company's
use of equity capital and enhance shareholder value. Pursuant to these
programs, the Company collectively repurchased 863 thousand shares and 733
thousand shares in the first half of 2005 and 2004, respectively.
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 $439.6 million at June 31, 2005.
This amount, which is reflective of the effect of proceeds of $89.5 million
from the issuance of stock in connection of the REBC acquisition and
the generation of earnings, offset by common stock repurchases and dividends
paid to shareholders, represents an increase of $109.8 million or 33.3% from a
year ago, and an increase of $81.0 million or 22.6% from December 31, 2004.
Due to an increase in shareholders' equity, the Company's ratio of equity to
total assets rose to 8.47% at June 30, 2005, from 7.15% a year ago and 7.57%
on December 31, 2004.
The following summarizes the ratios of capital to risk-adjusted assets for the
periods indicated:
At June 30, At Minimum
--------------------------December 31, Regulatory
2005 2004 2004 Requirement
----------------------------------------------------
Tier I Capital 9.04% 10.37% 11.09% 4.00%
Total Capital 10.37% 11.78% 12.46% 8.00%
Leverage ratio 5.96% 6.89% 7.06% 4.00%
The risk-based capital ratios declined at June 30, 2005, compared with June 30
and December 31 of 2004, due to the REBC acquisition. The Company anticipated
its capital requirements following the REBC acquisition. The increase in
capital ratios from June 30, 2004 to December 31, 2004 reflects the Company's
capital management in preparation for the REBC acquisition. Equity issued in
the acquisition of $89.5 million was more than offset by the intangible
assets that were recorded, thereby decreasing Tier I and Total Capital from
December 31, 2004 to June 30, 2005. In addition, risk-weighted assets
increased, resulting in lower capital ratios.
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 anticipated future needs. All ratios as shown in the table above are
in excess of the regulatory definition of "well capitalized".
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 the person performing the
functions of the Company's principal financial officer have evaluated the
effectiveness of the Company's "disclosure controls and procedures," as such
term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934,
as amended, as of June 30, 2005. Based upon their evaluation, the principal
executive officer and principal financial officer concluded that the Company's
disclosure controls and procedures are effective. The evaluation did not
identify any change in the Company's internal control over financial reporting
that occurred during the quarter ended June 30, 2005 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
Page 25
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. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None
(b) None
(c) Issuer Purchases of Equity Securities
The table below sets forth the information with respect to purchases made by
or on behalf of Westamerica Bancorporation or any "affiliated purchaser" (as
defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of
common stock during the quarter ended June 30, 2005 (in thousands, except
per share data).
(c) (d)
Total Maximum
Number Number
of Shares of Shares
(b) Purchased that May
(a) Average as Part of Yet Be
Total Price Publicly Purchased
Number of Paid Announced Under the
Shares per Plans Plans or
Period Purchased Share or Programs* Programs
----------------------------------------------------------------
April 1
through
April 30 195 $49.75 195 1,188
May 1
through
May 31 158 52.71 158 1,030
----------------------------------------------------------------
June 1
through
June 30 137 52.03 137 893
----------------------------------------------------------------
Total 490 $51.34 490 893
================================================================
* Includes 10, 10 and 3 shares purchased in April, May and June,
respectively, by the Company in private transactions with the independent
administrator of the Company's Tax Deferred Savings/Retirement Plan (ESOP). The
Company includes the shares purchased in such transactions within the total
number of shares authorized for purchase pursuant to the currently existing
publicly announced program.
The Company repurchases shares of its common stock in the open market to
optimize the Company's use of equity capital and enhance shareholder value and
with the intention of lessening the dilutive impact of issuing new shares to
meet stock performance, option plans, and other ongoing requirements.
Shares were repurchased during the second quarter of 2005 pursuant to a program
approved by the Board of Directors on August 27, 2004 authorizing the purchase
of up to 2,000,000 shares of the Company's common stock from time to time
prior to September 1, 2005. The 2004 approved amount included 645,429 remaining
shares available to be repurchased under the 2003 plan.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Proxies for the Annual Meeting of shareholders held on April 28,
2005, were solicited pursuant Regulation 14A of the Securities
Exchange Act of 1934. The Report of Inspector of election
indicates that 27,136,885 shares of the Common Stock of the
Company, out of 31,515,786 shares outstanding on February 28,
2005 the record date, were present, in person or by proxy, at the
meeting. There were no "broker non-votes" because the election
because the election of directors is considered "routine" under
applicable exchange rules and therefore, on this matter,
brokers were able to vote shares for which no direction was
provided by the beneficial owner. The following matter was
submitted to a vote of the shareholders:
Page 26
1. - Election of directors:
For Withheld
----- --------
Etta Allen 26,299,315 837,569
Louis E. Bartolini 26,295,829 841,056
E.J. Bowler 26,453,581 683,303
Arthur C. Latno, Jr. 25,816,007 1,320,878
Patrick D. Lynch 25,771,913 1,364,971
Catherine C. MacMillan 26,317,245 819,640
Ronald A. Nelson 26,462,075 674,810
Carl R. Otto 26,316,139 820,746
David L. Payne 26,428,061 708,824
Edward B. Sylvester 26,409,303 727,582
Shareholders were to cast their vote for or to withhold their vote.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11: Computation of Earnings Per Share on Common
and Common Equivalent Shares and on Common
Shares Assuming Full Dilution
Exhibit 31.1: Certification of Chief Executive
Officer pursuant to Securities
Exchange Act Rule 13a-14(a)/15d-14(a)
Exhibit 31.2: Certification of Chief Financial
Officer pursuant to Securities
Exchange Act Rule 13a-14(a)/15d-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
Page 27
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)
August 9, 2005 /s/ DENNIS R. HANSEN
- -------------- --------------------
Date Dennis R. Hansen
Senior Vice President
and Controller
(Chief Accounting Officer)