1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR QUARTER ENDED MARCH 31, 2001
Commission File Number: 1-9383
WESTAMERICA BANCORPORATION
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 94-2156203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA 94901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (415) 257-8000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the registrant classes of
common stock, as of the latest practicable date:
TITLE OF CLASS SHARES OUTSTANDING AS OF MAY 1, 2001
---------------- ------------------------------------
Common Stock, 35,622,079
No Par Value
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WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
At March 31, At December 31,
2001 2000 2000
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 188,704 $ 206,226 $ 286,482
Money market assets 250 250 250
Investment securities available for sale 890,042 976,020 921,275
Investment securities held to maturity, with market values of:
$231,646 at March 31, 2001
$234,735 at March 31, 2000
$231,906 at December 31, 2000 225,057 237,156 228,035
Loans, gross, net of allowance for loan losses of:
$52,644 at March 31, 2001
$51,990 at March 31, 2000
$52,279 at December 31, 2000 2,403,794 2,259,276 2,429,880
Other real estate owned 1,866 2,908 2,065
Premises and equipment, net 42,567 43,320 42,182
Interest receivable and other assets 125,326 103,999 121,212
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 3,877,606 $ 3,829,155 $ 4,031,381
===========================================================================================================================
LIABILITIES
Deposits:
Noninterest bearing $ 954,593 $ 932,675 $ 1,014,230
Interest bearing:
Transaction 519,957 510,557 526,178
Savings 821,285 844,498 816,635
Time 900,642 831,282 879,701
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 3,196,477 3,119,012 3,236,744
Short-term borrowed funds 275,471 352,447 386,942
Liability for interest, taxes and
other expenses 46,919 26,702 38,912
Notes payable 27,821 38,036 31,036
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Total liabilities 3,546,688 3,536,197 3,693,634
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SHAREHOLDERS' EQUITY
Authorized - 150,000 shares of common stock
Issued and outstanding:
35,689 at March 31, 2001
36,412 at March 31, 2000
36,251 at December 31, 2000 213,358 183,039 206,952
Accumulated other comprehensive income:
Unrealized gain (loss) on securities available for sale 12,940 (6,585) 7,169
Retained earnings 104,620 116,504 123,626
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Total shareholders' equity 330,918 292,958 337,747
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Total liabilities and shareholders' equity $ 3,877,606 $ 3,829,155 $ 4,031,381
===========================================================================================================================
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WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
- ----------------------------------------------------------------------------------------
(Unaudited)
Three months ended
March 31,
2001 2000
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INTEREST INCOME
Loans $ 50,906 $ 47,227
Money market assets and funds sold 3 4
Investment securities available for sale
Taxable 10,236 11,649
Tax-exempt 2,760 2,852
Investment securities held to maturity
Taxable 1,259 1,245
Tax-exempt 1,973 2,069
- ----------------------------------------------------------------------------------------
Total interest income 67,137 65,046
INTEREST EXPENSE
Transaction deposits 892 916
Savings deposits 4,462 4,503
Time deposits 12,112 10,450
Funds purchased 3,513 4,509
Debt financing and notes payable 518 692
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Total interest expense 21,497 21,070
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NET INTEREST INCOME 45,640 43,976
Provision for loan losses 900 945
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 44,740 43,031
NONINTEREST INCOME
Service charges on deposit accounts 5,560 5,221
Merchant credit card 946 939
Financial services commissions 243 413
Mortgage banking 230 210
Trust fees 292 162
Other 3,015 3,010
- ----------------------------------------------------------------------------------------
Total noninterest income 10,286 9,955
NONINTEREST EXPENSE
Salaries and related benefits 13,321 12,337
Occupancy 2,916 3,059
Equipment 1,590 1,621
Data processing 1,521 1,542
Professional fees 453 360
Other real estate owned 43 29
Other 5,732 5,474
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Total noninterest expense 25,576 24,422
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INCOME BEFORE INCOME TAXES 29,450 28,564
Provision for income taxes 9,026 9,338
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NET INCOME $ 20,424 $ 19,226
========================================================================================
Comprehensive income:
Unrealized gain (loss) on securities
available for sale, net 5,771 (2,064)
COMPREHENSIVE INCOME $ 26,195 $ 17,162
========================================================================================
Average shares outstanding 36,000 36,625
Diluted average shares outstanding 36,605 37,058
PER SHARE DATA
Basic earnings $ 0.57 $ 0.52
Diluted earnings 0.56 0.52
Dividends paid 0.19 0.18
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WESTAMERICA BANCORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
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(Unaudited)
For the three months
ended March 31,
2001 2000
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OPERATING ACTIVITIES
Net income $ 20,424 $ 19,226
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,051 1,918
Loan loss provision 900 945
Amortization of deferred net loan fees 55 138
Decrease in interest income receivable 3,034 61
Increase in other assets (7,246) (3,532)
Increase in income taxes payable 9,094 9,338
(Decrease) increase in interest expense payable (659) 170
Decrease in other liabilities (2,025) (4,791)
Write down/(gain on sales) of equipment 17 21
Originations of loans for resale (880) (1,021)
Proceeds from sale of loans originated for resale 547 1,021
Net loss on sale of loans originated for resale 12 --
Net gain on sale of property acquired
in satisfaction of debt (59) (135)
Write down on property acquired in satisfaction of debt 47 2
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Net cash provided by operating activities 25,312 23,361
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INVESTING ACTIVITIES
Net repayments of loans 25,387 8,627
Purchases of investment securities available for sale (33,566) (22,626)
Purchases of investment securities held to maturity (98) (1,751)
Purchases of property, plant and equipment (1,601) (563)
Proceeds from maturity of securities available for sale 74,540 24,962
Proceeds from maturity of securities held to maturity 3,077 1,749
Proceeds from sale of securities available for sale 217 419
Proceeds from sale of property and equipment -- 20
Proceeds from property acquired in satisfaction
of debt 287 780
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Net cash provided by investing activities 68,243 11,617
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FINANCING ACTIVITIES
Net (decrease) increase in deposits (40,267) 53,668
Net decrease in short-term borrowings (111,471) (109,898)
Repayments of notes payable (3,215) (3,464)
Exercise of stock options/issuance of shares 8,562 355
Retirement of stock (38,051) (18,538)
Dividends paid (6,891) (6,613)
- -------------------------------------------------------------------------------------------
Net cash used in financing activities (191,333) (84,490)
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Net decrease in cash and cash equivalents (97,778) (49,512)
Cash and cash equivalents at beginning of period 286,482 255,738
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 188,704 $ 206,226
===========================================================================================
Supplemental disclosure of non-cash activities:
Loans transferred to other real estate owned $ 77 $ 286
Depreciation of fixed assets charged against reserves -- --
Supplemental disclosure of cash flow activity:
Unrealized gain (loss) on securities available for sale $ 57,771 ($ 2,064)
Interest paid for the period 22,062 20,900
Tax benefit from stock option exercises 3,356 --
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to historical information, this discussion includes certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company's actual results may differ
materially from those included in the forward-looking statements. The
forward-looking statements involve risks and uncertainties which include, but
are not limited to, changes in general economic conditions; competitive
conditions in the geographic and business areas in which the Company conducts
its operations; regulatory or tax changes that affect the cost of or demand for
the Company's products; the resolution of legal proceedings and related matters.
The reader is directed to Westamerica Bancorporation's annual report on Form
10-K for the year ended December 31, 2000, particularly the section entitled
"Cautionary Statement," for the purpose of the Safe Harbor provisions of the
Private Securities Litigation Reform Act of 1995 for a discussion of factors
which could affect the Company's business and cause actual results to differ
materially from those expressed in any forward-looking statement made in this
report. For further information on the subject, please refer to the
"Forward-Looking Statement Disclosure" section of this report.
Westamerica Bancorporation (the "Company"), parent company of Westamerica Bank,
Community Banker Services Corporation, Westamerica Commercial Credit, Inc. and
Money Outlet Inc. reported first quarter 2001 net income of $20.4 million or
$.56 diluted earnings per share. These results compare to net income of $19.2
million or $.52 diluted earnings per share and $20.7 million or $.56 diluted
earnings per share, respectively, for the first and fourth quarters of 2000.
Following is a summary of the components of net income for the periods
indicated:
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For the three months ended
March 31, December 31,
- ------------------------------------------------------------------------------------------------
(In millions) 2001 2000 2000
- ------------------------------------------------------------------------------------------------
Net interest income* $ 49.2 $ 47.4 $ 50.8
Provision for loan losses (0.9) (0.9) (0.9)
Noninterest income 10.3 10.0 9.9
Noninterest expense (25.6) (24.4) (25.5)
Provision for income taxes* (12.6) (12.7) (13.6)
- ------------------------------------------------------------------------------------------------
Net income $ 20.4 $ 19.2 $ 20.7
================================================================================================
Average total assets $ 3,872.6 $ 3,822.6 $ 3,933.8
Net income (annualized) as
a percentage of average
total assets 2.14% 2.02% 2.10%
================================================================================================
* Fully taxable equivalent basis (FTE)
During the first three months of 2001, the Company's net income was $20.4
million, $1.2 million higher than in the same period of 2000. Improvements in
noninterest income, better net interest margin and a lower loan loss provision
from continued improvements in credit
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quality were partially offset by higher noninterest expense, mainly resulting
from higher salary and benefit costs and higher amortization of intangibles over
the previous year's quarter. The efficiency ratio was 43.0 percent in the first
quarter of 2001 compared to 42.6 percent in the first quarter of 2000. The tax
charge for the two quarters remained mainly unchanged. Comparing the first
quarter of 2001 to the prior quarter, net income decreased $300 thousand. This
reduction was mainly due to lower earning-asset average balances and lower
yields on the loan portfolio. This was partially offset by higher noninterest
income, compared to the previous quarter. Noninterest expense remained
essentially unchanged between the two quarters.
NET INTEREST INCOME
Following is a summary of the components of net interest income for the periods
indicated:
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For the three months ended
March 31, December 31,
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(In millions) 2001 2000 2000
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Interest income $ 67.1 $ 65.1 $ 69.7
Interest expense (21.5) (21.1) (22.5)
FTE adjustment 3.7 3.4 3.6
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Net interest income (FTE) $ 49.3 $ 47.4 $ 50.8
=====================================================================================
Average earning assets $ 3,572.8 $ 3,524.3 $ 3,605.9
Net interest margin (FTE) 5.56% 5.39% 5.65%
=====================================================================================
The Company's primary source of revenue is net interest income, or the
difference between interest income on earning assets and interest expense on
interest-bearing liabilities. Net interest income (FTE) during the first quarter
of 2001 increased $1.9 million from the same period in 2000 to $49.3 million.
Comparing the first quarter of 2001 with the previous quarter, net interest
income (FTE) decreased $1.5 million.
INTEREST INCOME
During the first quarter of 2001 interest income (FTE) increased $2.2 million
from the same period in 2000. Higher earning-asset yields and average balances
were the primary reasons for the change. Loan yields increased 13 basis points
from the prior year, primarily due to increase in commercial, real estate and
dealer loans. In addition, investment securities yields also rose 13 basis
points from 2000. Adding to the favorable impact of higher yields, average
earning-asset balances increased $48.4 million from the first quarter of 2000,
as loans increased $159.3 million. This increase was partially offset by a
reduction in the investment portfolio of $110.8 million. Commercial and
residential real estate and dealer loans increased while commercial and other
loan categories decreased. All investment categories decreased although the
yield on the total investment portfolio increased as outlined above.
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Comparing the first quarter of 2001 with the fourth quarter of 2000, interest
income (FTE) decreased $2.6 million. This was as a result of a reduction of 12
basis points in the yield on earning assets. The volume of average earning
assets also went down $33.1 million as a result of a decrease in the investment
portfolio, partially offset by an increase in the loan portfolio.
INTEREST EXPENSE
For the first quarter of 2001, interest expense was $0.4 million higher than in
the first quarter of 2000. This was mainly due to an increase of 13 basis points
in the interest bearing liabilities rate, although total interest bearing
liabilities volume decreased by $27 million compared to the first quarter of
2000. Low cost deposits, however, showed an increase of $43.1 million, mostly in
noninterest bearing demand deposits.
Interest expense decreased $1.0 million from the fourth quarter of 2000 as shown
above. This was the result of a reduction of 7 basis points in the total
interest bearing liabilities rate. The average volume of interest bearing
liabilities also declined by $20 million from the fourth quarter of 2000.
NET INTEREST MARGIN (FTE)
The following summarizes the components of the Company's net interest margin for
the periods indicated:
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For the three months ended
March 31, December 31,
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2001 2000 2000
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Yield on earning assets 8.00% 7.79% 8.13%
Rate paid on interest-bearing
liabilities 3.41% 3.28% 3.48%
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Net interest spread 4.59% 4.51% 4.65%
Impact of all other net
noninterest bearing funds 0.97% 0.88% 1.00%
- -------------------------------------------------------------------------------
Net interest margin 5.56% 5.39% 5.65%
===============================================================================
During the first quarter of 2001, the Company's net interest margin was 17 basis
points higher than in the first quarter of 2000. This was a result of an
increase of 21 basis points in the earning asset yield, while the interest
bearing liabilities rate went up by only 13 basis points. Total earning asset
volume also increased by $48.4 million due to an increase in the loan portfolio.
Total investments decreased as discussed in detail above. There was also an
increase of $44 million in noninterest bearing demand deposits which reduced the
cost of funds in the first quarter of 2001 when compared to the first quarter of
2000.
The net interest margin declined 9 basis points from the fourth quarter of 2000.
This was primarily as a result of a reduction of 13 basis points in the earning
assets yield. The interest bearing liabilities rate declined by 7 basis points.
The cost of funds was also impacted due to a reduction in noninterest bearing
demand deposits of $36 million between
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the two quarters. In addition the buy back of company stock in the first quarter
of 2001 was significantly higher than in the previous quarter impacting the
availability of free funds and thereby increasing the cost of funds.
SUMMARY OF AVERAGE BALANCES, YIELDS/RATES AND INTEREST DIFFERENTIAL
The following tables present, for the periods indicated, information regarding
the 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 thereon exempt from
federal income taxation at the current statutory tax rate.
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Distribution of assets, liabilities and shareholders' equity
- ---------------------------------------------------------------------------------------------
For the three months ended
March 31, 2001
- ---------------------------------------------------------------------------------------------
Interest Rates
Average income/ earned/
(dollars in thousands) balance expense paid
- ---------------------------------------------------------------------------------------------
Assets
Money market assets and funds sold $ 553 $ 3 2.17%
Trading account securities
Investment securities
Available for sale
Taxable 672,376 10,236 6.09
Tax-exempt 215,504 3,753 6.99
Held to maturity
Taxable 76,586 1,259 6.58
Tax-exempt 149,988 3,399 9.08
Loans:
Commercial 1,547,435 33,453 8.65
Real estate construction 63,356 1,752 11.09
Real estate residential 355,835 6,307 7.11
Consumer 491,128 10,593 8.65
---------- ----------
Earning assets 3,572,761 70,755 8.00
Other assets 299,823
----------
Total assets $3,872,584
==========
Liabilities and shareholders' equity
Deposits
Noninterest bearing demand $ 960,184 $ -- --%
Savings and interest-bearing
transaction 1,325,526 5,354 1.62
Time less than $100,000 398,172 5,143 5.17
Time $100,000 or more 491,532 6,969 5.69
---------- ----------
Total interest-bearing deposits 2,215,230 17,466 3.16
Funds purchased 308,294 3,513 4.57
Debt financing and notes payable 28,893 518 7.19
---------- ----------
Total interest-bearing liabilities 2,552,417 21,497 3.41
Other liabilities 39,878
Shareholders' equity 320,105
----------
Total liabilities and shareholders' equity $3,872,584
==========
Net interest spread (1) 4.59%
Net interest income and interest margin (2) $ 49,258 5.56%
========== =====
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on interest-bearing
liabilities.
(2) Net interest margin is computed by dividing net interest income by total
average earning assets.
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Distribution of assets, liabilities and shareholders' equity
- ----------------------------------------------------------------------------------------------
For the three months ended
March 31, 2000
- ----------------------------------------------------------------------------------------------
Interest Rates
Average income/ earned/
(dollars in thousands) balance expense paid
- ----------------------------------------------------------------------------------------------
Assets
Money market assets and funds sold $ 466 $ 4 3.45 %
Trading account securities
Investment securities
Available for sale
Taxable 767,670 11,649 6.10
Tax-exempt 220,651 4,192 7.64
Held to maturity
Taxable 81,845 1,245 6.12
Tax-exempt 155,260 3,035 7.86
Loans:
Commercial 1,483,244 32,043 8.69
Real estate construction 46,779 1,321 11.36
Real estate residential 335,441 5,779 6.93
Consumer 432,993 9,166 8.51
---------- ------
Earning assets 3,524,349 68,434 7.79
Other assets 298,242
----------
Total assets $3,822,591
==========
Liabilities and shareholders' equity
Deposits
Noninterest bearing demand $ 916,153 $ -- --%
Savings and interest-bearing
transaction 1,326,499 5,419 1.64
Time less than $100,000 392,218 4,610 4.73
Time $100,000 or more 451,539 5,840 5.20
---------- -------
Total interest-bearing deposits 2,170,256 15,869 2.94
Funds purchased 369,959 4,509 4.90
Debt financing and notes payable 39,174 692 7.11
---------- -------
Total interest-bearing liabilities 2,579,389 21,070 3.28
Other liabilities 31,689
Shareholders' equity 295,360
----------
Total liabilities and shareholders' equity $3,822,591
==========
Net interest spread(1) 4.51%
Net interest income and interest margin(2) $ 47,364 5.39%
========== ====
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on interest-bearing
liabilities.
(2) Net interest margin is computed by dividing net interest income by total
average earning assets.
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Distribution of assets, liabilities and shareholders' equity:
- --------------------------------------------------------------------------------------------------
For the three months ended
December 31, 2000
- --------------------------------------------------------------------------------------------------
Interest Rates
Average income/ earned/
(Dollars in thousands) balance expense paid
- --------------------------------------------------------------------------------------------------
Assets
Money market assets and funds sold $ 435 $ 4 3.68%
Investment securities:
Available for sale
Taxable 714,058 10,916 6.11
Tax-exempt 208,666 4,091 7.84
Held to maturity
Taxable 77,581 1,309 6.75
Tax-exempt 152,390 2,996 7.87
Loans:
Commercial 1,539,028 34,720 9.02
Real estate construction 59,649 1,824 12.23
Real estate residential 353,718 6,341 7.17
Consumer 500,366 11,145 8.91
- ---------------------------------------------------------------------------------
Earning assets 3,605,891 73,346 8.13
Other assets 327,894
- -----------------------------------------------------------------
Total assets $3,933,785
=================================================================
Liabilities and shareholders' equity
Deposits:
Noninterest bearing demand $ 996,064 $ -- --%
Savings and interest-bearing
transaction 1,380,577 6,025 1.75
Time less than $100,000 400,352 5,336 5.33
Time $100,000 or more 485,678 7,150 5.89
- --------------------------------------------------------------------------------
Total interest-bearing deposits 2,266,607 18,511 3.27
Funds purchased 275,209 3,466 5.04
Debt financing and notes payable 31,036 556 7.17
- --------------------------------------------------------------------------------
Total interest-bearing liabilities 2,572,852 22,533 3.48
Other liabilities 37,182
Shareholders' equity 327,687
- -----------------------------------------------------------------
Total liabilities and
shareholders' equity $3,933,785
=================================================================
Net interest spread(1) 4.65%
Net interest income and interest margin(2) $50,813 5.65%
================================================================================================
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on interest-bearing
liabilities.
(2) Net interest margin is computed by calculating the difference between
the weighted average yields on earning assets less the interest expense
(annualized) divided by the average balance of earning assets.
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Rate and volume variances.
The following table sets forth a summary of the changes in interest
income and interest expense from changes in average assets 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.
- -----------------------------------------------------------------------------------------------
Three months ended
March 31, 2001
compared with three months
ended March 31, 2000
- -----------------------------------------------------------------------------------------------
Volume Rate Total
- -----------------------------------------------------------------------------------------------
Increase (decrease) in interest and fee income:
MMkt. assets and funds sold $ 3 $ (4) $ (1)
Trading account securities (4) 4 0
Investment securities:(1)
Available for sale
Taxable (1,450) 37 (1,413)
Tax-exempt (96) (343) (439)
Held to maturity
Taxable (82) 96 14
Tax-exempt (104) 468 364
Loans:
Commercial(1) 1,357 53 1,410
Real estate construction 461 (30) 431
Real estate residential 342 186 528
Consumer 1,219 208 1,427
- -----------------------------------------------------------------------------------------------
Total loans(1) 3,379 417 3,796
- -----------------------------------------------------------------------------------------------
Total increase in interest
and fee income(1) 1,646 675 2,321
- -----------------------------------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing 171 (236) (65)
Time less than $ 100,000 76 457 533
Time $ 100,000 or more 531 598 1,129
- -----------------------------------------------------------------------------------------------
Total interest-bearing 778 819 1,597
Funds purchased (713) (283) (996)
Notes and mortgages payable (184) 10 (174)
- -----------------------------------------------------------------------------------------------
Total (decrease) increase in
interest expense (119) 546 427
- -----------------------------------------------------------------------------------------------
Increase in
net interest income(1) $ 1,765 $ 129 $ 1,894
===============================================================================================
(1) Amounts calculated on a fully taxable equivalent basis using the current
statutory federal tax rate.
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Rate and volume variances.
- --------------------------------------------------------------------------------------------------------------------
Three months ended
March 31, 2001
compared with three months
ended December 31, 2000
- --------------------------------------------------------------------------------------------------------------------
Volume Rate Total
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in interest and fee income:
MMkt. assets and funds sold $3 ($4) ($1)
Trading account securities (3) $3 0
Investment securities (1)
Available for sale
Taxable (635) (45) (680)
Tax-exempt 128 (466) (338)
Held to maturity
Taxable (17) (33) (50)
Tax-exempt (47) 450 403
Loans:
Commercial (1) 173 (1,440) (1,267)
Real estate construction 107 (179) (72)
Real estate residential 30 (64) (34)
Consumer (194) (358) (552)
- --------------------------------------------------------------------------------------------------------------------
Total loans (1) 116 (2,041) (1,925)
- --------------------------------------------------------------------------------------------------------------------
Total decrease in interest
and fee income (1) (455) (2,136) (2,592)
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (262) (409) (671)
Time less than $ 100,000 (27) (166) (193)
Time $ 100,000 or more 87 (268) (181)
- --------------------------------------------------------------------------------------------------------------------
Total interest-bearing (202) (843) (1,045)
Funds purchased 397 (350) 47
Notes and mortgages payable (38) 0 (38)
- --------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in
interest expense 157 (1,193) (1,036)
- --------------------------------------------------------------------------------------------------------------------
Decrease in
net interest income (1) ($612) ($943) ($1,556)
====================================================================================================================
(1) Amounts calculated on a fully taxable equivalent basis using the current
statutory federal tax rate.
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PROVISION FOR LOAN LOSSES
The level of the provision for loan losses during each of the periods presented
reflects the Company's continued efforts to reduce credit costs by enforcing
underwriting and administration procedures and aggressively pursuing collection
efforts with troubled debtors. The Company provided $900 thousand for loan
losses in the first quarter of 2001, unchanged from the previous quarter and $45
thousand lower than the same period of 2000. For further information regarding
net credit losses and the reserve for loan losses, see the "Asset Quality"
section of this report.
NONINTEREST INCOME
The following table summarizes the components of noninterest income for the
periods indicated.
- -------------------------------------------------------------------------------------------------------------------
For the three months ended
March 31, December 31,
------------------------------ ------------
(In millions) 2001 2000 2000
- -------------------------------------------------------------------------------------------------------------------
Service charges on deposit
accounts $5.56 $5.22 $5.23
Merchant credit card 0.95 0.94 1.00
Financial services
commissions 0.24 0.41 0.36
Debit card fees 0.31 0.21 0.34
Mortgage banking income 0.23 0.21 0.19
Trust fees 0.29 0.16 0.33
Other noninterest income 2.71 2.81 2.50
- -------------------------------------------------------------------------------------------------------------------
Total $10.29 $9.96 $9.95
===================================================================================================================
Noninterest income increased $330 thousand in the first quarter of 2001 compared
to the first quarter of 2000. Higher deposit account service charges and trust
fees were the main contributing factors, offset by lower financial services
fees. The increase in deposit service charges specifically related to customer
demand deposit activities and overdraft and returned items due to insufficient
funds. Those categories benefited from revised service charge calculation
methodologies introduced in late 1999. Debit card income increased 45% from the
March 2000 quarter end. The product's usage by customers increased in volume in
2000. The increase in trust fees was as a result of the emphasis put on services
for high net worth clients and an increase in the number of experienced
personnel servicing the customers. The amount of financial services commissions
was lower in the first quarter of 2001 compared to 2000 due to lower sales
volume of mutual fund and other related products.
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15
Comparing the first quarter of 2001 with the last quarter of 2000 the increase
in noninterest income was primarily due to service charges on deposit accounts
and other income. Service charges increased due to higher activity. Financial
services income declined due to reasons as outlined above.
NONINTEREST EXPENSE
The following table summarizes the components of noninterest expense for the
periods indicated.
- -----------------------------------------------------------------------------------------------------------
For the three months ended
March 31, December 31,
---------------------------- ------------
(In millions) 2001 2000 2000
- -----------------------------------------------------------------------------------------------------------
Salaries and incentives $10.19 $9.57 $10.39
Other personnel 3.13 2.77 2.74
Occupancy 2.92 3.06 2.66
Equipment 1.59 1.62 1.63
Data processing services 1.52 1.54 1.47
Courier service 0.93 0.83 0.91
Postage 0.50 0.55 0.49
Merchant credit card 0.36 0.41 0.37
Stationery and supplies 0.36 0.40 0.45
Professional fees 0.45 0.36 0.54
Advertising/public relations 0.36 0.29 0.36
Operational losses 0.16 0.29 0.27
Loan expense 0.23 0.26 0.23
Other real estate owned 0.04 0.03 0.05
Other noninterest expense 2.84 2.44 2.95
- -----------------------------------------------------------------------------------------------------------
Total $25.58 $24.42 $25.51
===========================================================================================================
Average full time equivalent staff 1,083 1,076 1,082
noninterest expense to revenues
("efficiency ratio")(FTE) 42.95% 42.61% 41.98%
===========================================================================================================
Noninterest expense of $25.58 million in the first quarter of 2001 was $1.16
million higher than the same quarter in 2000. The efficiency ratio for the first
quarter 2001 was higher as reflected above. Increased expenses are: $980
thousand higher employee related expenses, a result of an increase in personnel,
increases in incentive compensation program expense and benefits, and lower
deferrals in connection with costs incurred originating new loans; $100 thousand
higher courier service due to increased costs, gas surcharges, and timing of
payments; $90 thousand higher professional fees related mostly to legal issues
and to accounting and consulting fees; $70 thousand higher public relations
expense, related mainly to shareholder report costs and $400 thousand other
noninterest expense that include higher costs for amortization of intangibles
due to the First Counties Bank merger, customer checks, employee recruiting,
staff relations, and in-house meetings.
Partially offsetting these increases, the first quarter of 2001 includes the
following expenses which were lower by amounts outlined below: $140 thousand
occupancy costs; $130 thousand operational losses; $50 thousand postage expense;
$50 thousand merchant credit card expense; $40 thousand stationery and supplies;
$30 thousand equipment expense; $30 thousand loan expense and $20 thousand in
data processing.
14
16
Comparing the first three months of 2001 with the fourth quarter of 2000,
noninterest expense increased $70 thousand. The largest increase is $190
thousand in employee related expenses. While full-time equivalent staff for this
period declined, resulting in a decrease in salary expense, overall employee
related expense increased due to the reduction of salaries and benefits deferred
in connection with loan originations. Other contributors to the increase for
this period include $260 thousand in occupancy expense, $50 thousand in data
processing costs due to an annual inflation adjustment paid to a service
provider, $20 thousand in courier service and $10 thousand in postage for the
additional expense of year-end mailings.
Partially offsetting these unfavorable changes from the fourth quarter of 2000
are $110 thousand lower operational losses; $110 thousand fewer other expenses
that include $125 thousand lower employee recruiting expense, $102 thousand
lower in-house meetings, $50 thousand lower telephone expense, and $43 thousand
lower amortization of intangibles due to an accelerated depreciation schedule
for core deposit intangibles from the acquisition of First Counties Bank. Other
areas that were lower than the fourth quarter of 2000 include $90 thousand in
stationery and supplies; $90 thousand for professional fees and $40 thousand in
equipment expense.
PROVISION FOR INCOME TAX
During the first quarter of 2001, the Company recorded income tax expense of
$9.0 million, $300 thousand higher than the first quarter of 2000 and $1 million
lower than the $10 million recorded in the fourth quarter of 2000. The current
provision represents an effective tax rate of 30.6 percent, compared to 32.7
percent, for the first quarter and 32.5 percent for the fourth quarter of 2000.
The provision for income taxes for all periods presented is primarily
attributable to the respective level of earnings and the incidence of allowable
deductions and credits.
ASSET QUALITY
The Company closely monitors the markets in which it conducts its lending
operations and continues its strategy to control exposure to loans with high
credit risk and increase diversification of earning assets into less risky
investments. Asset reviews are performed using grading standards and criteria
similar to those employed by bank regulatory agencies. Assets receiving lesser
grades fall under the "classified assets" category, which includes all
nonperforming assets and potential problem loans, and receive an elevated level
of attention to ensure collection.
The following is a summary of classified assets on the dates indicated:
- ---------------------------------------------------------------------------------------------------
At
At March 31, December 31,
----------------------------- ------------
(In millions) 2001 2000 2000
- ---------------------------------------------------------------------------------------------------
Classified loans $31.5 $36.3 $30.1
Other classified assets 3.7 2.9 3.5
- ---------------------------------------------------------------------------------------------------
Total classified assets 35.2 $39.2 $33.6
===================================================================================================
Allowance for loan losses as a
percentage of classified loans 167% 143% 174%
15
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Total classified loans at March 31, 2001, decreased $4.0 million or 10.2 percent
to $35.2 million from March 31, 2000, continuing to reflect the Company's strict
credit standards, high underwriting procedures and active workout policies. The
decrease was principally due to reductions in classified residential real estate
loans, reclassified other real estate acquired in satisfaction of debt (OREO)
and work out and restructured loans of various categories. There was a small
increase in total classified assets from the December 2000 quarter end, due to a
minimal increase in work out loans.
NONPERFORMING ASSETS
Nonperforming assets include nonaccrual loans, loans 90 days past due as to
principal or interest and still accruing, and other real estate owned. Loans are
placed on nonaccrual status when reaching 90 days or more delinquent, unless the
loan is well secured and in the process of collection. Interest previously
accrued on loans placed on nonaccrual status is charged against interest income.
In addition, loans secured by real estate with temporarily impaired values and
commercial loans to borrowers experiencing financial difficulties are placed on
nonaccrual status even though the borrowers continue to repay the loans as
scheduled. Such loans are classified as "performing nonaccrual" and are included
in total nonperforming assets. When the ability to fully collect nonaccrual loan
principal is in doubt, cash payments received are applied against the principal
balance of the loan until such time as full collection of the remaining recorded
balance is expected. Any subsequent interest received is recorded as interest
income on a cash basis.
The following is a summary of nonperforming assets on the dates indicated:
- ---------------------------------------------------------------------------------------------
At
At March 31, December 31,
------------------------------ ------------
(In millions) 2001 2000 2000
- ---------------------------------------------------------------------------------------------
Performing nonaccrual loans $2.87 $4.29 $3.49
Nonperforming,
nonaccrual loans 4.20 3.41 4.53
- ---------------------------------------------------------------------------------------------
Total nonaccrual loans 7.07 7.70 8.02
Loans 90 days past due and
still accruing 0.41 0.37 0.65
- ---------------------------------------------------------------------------------------------
Total nonperforming loans 7.48 8.07 8.67
- ---------------------------------------------------------------------------------------------
Restructured loans -- -- --
Other real estate owned 1.87 2.91 2.07
- ---------------------------------------------------------------------------------------------
Total nonperforming assets $9.35 $10.98 $10.74
=============================================================================================
Allowance for loan losses
as a percentage of
nonperforming loans 704% 644% 603%
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Performing nonaccrual loans decreased $1.42 million to $2.87 million at March
31, 2001, from $4.29 million at March 31, 2000, and $620 thousand from $3.49
million outstanding at December 31, 2000. Nonperforming, nonaccrual loans of
$4.20 million at March 31, 2001, increased $0.79 million from March 31, 2000,
but decreased $0.33 million from December 31, 2000. The relevant decreases in
performing and nonperforming nonaccrual loans from prior periods resulted
primarily as loans on nonaccrual status were returned to accrual status on
outstandings being made current by borrowers. The reduction was significant in
commercial real estate nonaccrual loans.
The amount of gross interest income that would have been recorded for nonaccrual
loans for the three months ended March 31, 2001, if all such loans had been
current in accordance with their original terms, was $179 thousand, compared to
$229 thousand and $197 thousand, respectively, for the first and fourth quarters
of 2000. The amount of interest income that was recognized on nonaccrual loans
from all cash payments, including those related to interest owed from prior
years, made during the three months ended March 31, 2001, totaled $336 thousand,
compared to $372 thousand for the comparable period in 2000 and $462 thousand
for the fourth quarter of 2000. These cash payments represent annualized yields
of 18.75% percent for the first quarter of 2001 compared to 19.5 percent and
25.27 percent, respectively, for the first and fourth quarters of 2000. Total
cash payments received, including those recorded in prior years, which were
applied against the book balance of nonaccrual loans outstanding at March 31,
2001, totaled approximately $100 thousand.
The overall credit quality of the loan portfolio continues to be strong and
nonperforming loans are declining. However, the total non performing assets
could fluctuate from period to period. The performance of any individual loan
can be impacted by external factors such as the interest rate environment or
factors particular to the borrower. The Company expects to maintain the level of
nonperforming assets; however, the Company can give no assurance that additional
increases in nonaccrual loans will not occur in the future.
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses is maintained at a level estimated to be
adequate to provide for losses that can be estimated based upon specific and
general conditions. These include credit loss experience, the amount of past
due, nonperforming and classified loans, recommendations of regulatory
authorities, prevailing economic conditions and other factors. The allowance is
allocated to segments of the loan portfolio based in part on quantitative
analyses of historical credit loss experience, in which criticized and
classified loan balances are analyzed using a linear regression model to
determine standard allocation percentages. The results of this analysis are
applied to current criticized and classified loan balances to allocate the
reserve to the respective segments of the loan portfolio. In addition, loans
with similar characteristics not usually criticized using regulatory guidelines
due to their small balances and numerous accounts, are analyzed based on the
historical rate of net losses and delinquency trends, grouped by the number of
days the payments on these loans are delinquent. A portion of the allowance is
also allocated to impaired loans. Management considers the $52.6 million
allowance for loan losses, which constituted 2.15 percent of total
17
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loans at March 31, 2001, to be adequate as a reserve against inherent losses.
However, while the Company's policy is to charge off in the current period those
loans on which the loss is considered probable, the risk exists of future losses
which cannot be precisely quantified or attributed to particular loans or
classes of loans. Management continues to evaluate the loan portfolio and assess
current economic conditions that will dictate future required allowance levels.
The following table summarizes the loan loss provision, net credit losses and
allowance for loan losses for the periods indicated:
- -------------------------------------------------------------------------------------------
For the three months ended
March 31, December 31,
------------------------------ ------------
(In millions) 2001 2000 2000
- -------------------------------------------------------------------------------------------
Balance, beginning
of period $52.3 $51.6 $52.2
Loan loss provision 0.9 0.9 0.9
Loans charged off (1.6) (1.8) (1.9)
Recoveries of previously
charged-off loans 1.0 1.3 1.1
- -------------------------------------------------------------------------------------------
Net credit losses (0.6) (0.5) (0.1)
- -------------------------------------------------------------------------------------------
Balance, end of period $52.6 $52.0 $52.3
===========================================================================================
Allowance for loan losses
as a percentage
of loans outstanding 2.14% 2.25% 2.11%
===========================================================================================
ASSET AND LIABILITY MANAGEMENT
The fundamental objective of the Company's management of assets and liabilities
is to maximize net interest income while maintaining adequate liquidity and a
conservative level of interest rate risk.
The primary analytical tool used by the Company to gauge interest rate risk is a
simulation model to project changes in net interest income ("NII") that result
from forecast changes in interest rates. The analysis calculates the difference
between a NII forecast over a 12-month period using a flat interest rate
scenario, and NII forecasts using rising and falling rate scenarios, where the
Fed Funds rate is made to rise or fall evenly by 200 basis points over the
12-month forecast with other rates being adjusted accordingly. It is the policy
of the Company to require that such simulated NII changes should always be less
than 10 percent or steps must be taken to reduce interest-rate risk. According
to the same policy, if the simulated changes in NII reach 7.5 percent, a closer
look at the risk will be put in place to determine what steps could be taken to
reduce risk should it grow worse. The results of the model indicate that the mix
of interest rate sensitive assets and liabilities at March 31, 2001 would not
result in a fluctuation of NII that would exceed the parameters established by
Company policy.
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20
At March 31, 2001 and 2000, the Company had no derivative financial instruments
outstanding. As the Company believes that the derivative financial instrument
disclosures contained within the notes to the financial statements of its 2000
Form 10-K substantially conform with the accounting policy requirements of these
rule amendments, no further interim disclosure has been provided. The rule
amendments that require expanded disclosure of quantitative and qualitative
information about market risk were effective with the 1997 Form 10-K. At March
31, 2001, there were no substantial changes in the information on market risk.
LIQUIDITY
- ---------
The Company's principal source of asset liquidity is marketable investment
securities available for sale. At March 31, 2001, investment securities
available for sale totaled $890 million, representing a decrease of $86.0
million from March 31, 2000. In addition, the Company generates significant
liquidity from its operating activities. The Company's profitability during the
first three months of 2001 and 2000 generated substantial cash flows, which are
included in the total provided from operations of $25.3 million and $23.4
million, respectively.
The Company's investing activities were a major source of cash in the first
quarter of 2001. Less than 50% of proceeds from maturing investment securities
of $74 million were reinvested for a net increase of cash of $40.9 million.
Another primary source of cash was $25.4 million from loan repayments.
The company used cash flows from operating and investing activities primarily to
reduce short-term borrowings by $111.5 million, supplement a $40.3 million
decrease in deposits and repurchase the Company's stock for $38.1 million. The
$3.2 million reduction in long term debt and $6.9 million payments for dividends
were partially offset by $8.6 million from the issuance of new shares of common
stock in connection with the stock option program.
The Company anticipates increasing its cash level from operations through 2001
due to increased profitability and retained earnings. For the same period, it is
anticipated that demand for loans will continue to increase, particularly in the
commercial and real estate categories. The growth in deposit balances is
expected to follow the anticipated growth in loan balances.
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CAPITAL RESOURCES
The current and projected capital position of the Company and the impact of
capital plans and long-term strategies is reviewed regularly by Management. The
Company quarterly repurchases approximately 250 thousand of its shares of Common
Stock in the open market with the intention of lessening the dilutive impact of
issuing new shares to meet stock performance, option plans, and other ongoing
requirements. In addition to these systematic repurchases, other programs have
been implemented to optimize the Company's use of equity capital and enhance
shareholder value. Pursuant to these programs, the Company repurchased an
additional 742 thousand shares in the first quarter of 2001, 500 thousand in the
first quarter of 2000, and 294 thousand in the fourth quarter of 2000.
The Company's primary capital resource is shareholders' equity, which totaled
$330.9 million at March 31, 2001. This amount represents an increase of $37.9
million, or 13 percent, from March 31, 2000. This is reflective of the issuance
of stock related to the purchase of First Counties Bank in August of the year
2000 and generation and retention of earnings, partially offset by common stock
repurchases and dividends paid to shareholders.
Shareholders' equity at March 31, 2001, decreased $6.8 million, or 2 percent,
from December 31, 2000, primarily due to common stock repurchases and dividends
paid to shareholders, partially offset by generation and retention of earnings,
and stock options exercised in the first quarter of 2001.
As a consequence of these changes in shareholders' equity, as well as changes in
total assets in the first quarter of 2001, the Company's ratio of equity to
assets increased to 8.53 percent at March 31, 2001, from 7.65 percent at March
31, 2000 and 8.38 percent at December 31, 2000. The ratio of Tier 1 capital to
risk-adjusted assets was 9.97 percent at March 31, 2001, compared to 9.85
percent at March 31, 2000, and 10.20 percent at December 31, 2000. Total capital
to risk-adjusted assets was 11.39 percent at March 31, 2001, compared to 11.48
percent at March 31, 2000, and 11.61 percent at December 31, 2000.
The following summarizes the ratios of capital to risk-adjusted assets for the
periods indicated:
- ------------------------------------------------------------------------------------------
At Minimum
At March 31, December 31, Regulatory
----------------------------- ------------ Capital
2001 2000 2000 Requirements
- ------------------------------------------------------------------------------------------
Tier I Capital 9.97% 9.85% 10.20% 4.00%
Total Capital 11.39% 11.48% 11.61% 8.00%
Leverage ratio 7.70% 7.58% 7.89% 4.00%
The risk-based capital ratios increased at March 31, 2001, compared to March 31,
2000, primarily due to the increase in the total level of shareholders' equity
due to the Company's issuance of stock related to the acquisition of First
Counties Bank, and increased net income, partially offset by repurchases and
dividends paid to shareholders. From December 31, 2000, the Tier 1 capital ratio
decreased, due to common stock repurchases and dividends paid to shareholders,
partially offset by increased earnings, and stock options exercised.
20
22
The decrease in the Total Capital ratio from December 31, 2000 to March 31, 2001
includes a reduction in the allowable portion of a subordinated capital note
issued by Westamerica Bank, which is discounted for regulatory capital purposes
as it approaches maturity. Capital ratios are reviewed by Management on a
regular basis to ensure that capital exceeds the prescribed regulatory minimums
and is adequate to meet the Company's future needs. As shown in the table above,
all ratios are in excess of the regulatory definition of "well capitalized".
FORWARD-LOOKING STATEMENT DISCLOSURE
Readers are cautioned that forward-looking statements contained in this report
should be read in conjunction with the Company's disclosures under the heading
"Cautionary Statement for the Purposes of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995."
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995." The Company is including the
following cautionary statement to take advantage of the "Safe Harbor" provisions
of the Private Securities Litigation Reform Act of 1995 for any forward-looking
statement made by, or on behalf of, the Company. The factors identified in this
cautionary statement are important factors (but not necessarily all important
factors) that could cause actual results to differ materially from those
expressed in any forward-looking statement made by, or on behalf of, the
Company.
Where any such forward-looking statement includes a statement of the assumptions
of bases underlying such forward-looking statement, the Company cautions that,
while it believes such assumptions or bases to be reasonable and makes them in
good faith, assumed facts or bases almost always vary from actual results, and
the differences between assumed facts or bases and actual results can be
material, depending on the circumstances. Where, in any forward-looking
statement, the Company, expresses an expectation or belief as to future results,
such expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result, or be achieved or accomplished.
21
23
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WESTAMERICA BANCORPORATION
(Registrant)
Date: May 15, 2001 /s/ DENNIS R. HANSEN
-----------------------------
Dennis R. Hansen
Senior Vice President
and Controller
Chief Accounting Officer
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Due to the nature of the banking business, the
Subsidiary Bank is at times party to various legal
actions; all such actions are of a routine nature
and arise in the normal course of business of the
Subsidiary Bank.
Item 2 - Changes in Securities
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits
(a) Exhibit 11:
Computation of Earnings Per Share on Common
and Common Equivalent Shares and on Common
Shares Assuming Full Dilution
23
25
Exhibit 11
WESTAMERICA BANCORPORATION
COMPUTATION OF EARNINGS PER SHARE ON COMMON AND
COMMON EQUIVALENT SHARES AND ON COMMON SHARES
ASSUMING FULL DILUTION
- ------------------------------------------------------------------------------------------------
For the three months
ended March 31,
(In thousands, except per share data) 2001 2000
- ------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding - basic 36,000 36,625
Add exercise of options reduced by the number of
shares that could have been purchased with the
proceeds of such exercise 605 433
- ------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding - diluted 36,605 37,058
================================================================================================
Net income $20,424 $19,226
Basic earnings per share $0.57 $0.52
Diluted earnings per share $0.56 $0.52
24