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 the Quarterly PeriodQuarter Ended September 30, 2002March 31, 2003
Commission File Number: 1-9383001-9383
WESTAMERICA BANCORPORATION
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 94-2156203
(state(State or other jurisdiction of)of (I.R.S. Employer
incorporation or organization) Identification No.)
1108 Fifth Avenue, San Rafael, California 94901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (707) 863-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate 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 issuer'sregistrant classes
of common stock, as of the latest practicable date:
Title of Class Shares outstanding as of November 6, 2002May 8, 2003
Common Stock, 33,520,63033,030,945
No Par Value
Page 12
TABLE OF CONTENTS
Page
Forward Looking Statements 2
PART I - FINANCIAL INFORMATION
3
Item 1 - Financial Statements 3
Financial Summary 8
Computation of Certain Performance Measures 9
As Reported and Adjusted for Unusual Items7
Notes to Unaudited Condensed Consolidated Financial Statements 108
Item 2 - Management's Discussion and Analysis of Financial Condition
12
and Results of Operations 9
Item 3 - Quantitative and Qualitative Disclosure about Market Risk 2924
Item 4 - Controls and Procedures 3124
PART II - OTHER INFORMATION
32
Item 1 - Legal Proceedings 3225
Item 2 - Changes in Securities 32Not applicable 25
Item 3 - Defaults upon Senior Securities 32Not applicable 25
Item 4 - Submission of Matters to a Vote of Security Holders 3225
Item 5 - Other Information 32Not applicable 25
Item 6 - Exhibits and Reports on Form 8-K 3225
Exhibit 3 (ii) By-laws, as amended (composite copy) 29
Exhibit 11 - Computation of Earnings Per Share 3646
Exhibit 99.1 - Certification Required by 18 U.S.C. Section 1350 3747
Exhibit 99.2 - Certification Required by 18 U.S.C. Section 1350 3848
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements about Westamerica
Bancorporation for which it claims the protection of the safe harbor provisions
contained in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on Management's current knowledge and
belief and include information concerning the Company's possible or assumed
future financial condition and results of operations. A number of factors, some
of which are beyond the Company's ability to predict or control, could cause
future results to differ materially from those contemplated. These factors
include but are not limited to (1) a continued slowdownweakness in the national and
California economies and the possibility of declining real estate valuations;economies; (2) increased economic uncertainty created by the recentconcerns
regarding terrorist attacks on
the United States and the actions taken in response;geopolitical risks; (3) the prospect of
additional terrorist attacks in the United States and the uncertain effect
of these events on the national and regional economies; (4) changes in the
interest rate environment; (5) changes in the regulatory environment;
(6) significantly increasing competitive pressure in the banking
industry; (7) operational risks including data processing system
failures or fraud; (8) the effect of acquisitions and integration of
acquired businesses; (9) volatility of rate sensitive deposits;assets and liabilities;
(10) asset/liability matchingmanagement risks and liquidity risks; and (11) changes
in the securities markets.
The reader is directed to the Company's annual report on Form 10-K for the year
ended December 31, 2001,2002, for further discussion of factors which could affect
the Company's business and cause actual results to differ materially from those
expressed in any forward-looking statement made in this report. The Company
undertakes no obligation to update any forward-looking statements in this
report.
Page 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements3
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
At
At September 30,March 31, December 31,
------------------
2003 2002 2001 2001
---------------------------------------2002
----------------------------------
Assets:
Cash and cash equivalents $175,666 $195,575 $179,182$186,281 $173,029 $222,577
Money market assets 633 250 534 633
Investment securities available for sale 1,003,201 908,337 948,9701,048,386 975,256 947,848
Investment securities held to maturity,
with market values of:
$414,978$531,580 at September 30,March 31, 2003 520,896
$218,202 at March 31, 2002 399,735
$220,982 at September 30, 2001 213,215
$214,866213,343
$450,771 at December 31, 2001 209,1692002 438,985
Loans, gross 2,508,272 2,480,695 2,484,4572,456,161 2,461,696 2,494,638
Allowance for loan losses (54,447) (52,461) (52,086)
---------------------------------------(54,154) (52,147) (54,227)
-----------------------------------
Loans, net of allowance for loan losses 2,453,825 2,428,234 2,432,3712,402,007 2,409,549 2,440,411
Other real estate owned 470 547 52388 834 381
Premises and equipment, net 38,054 41,832 39,82136,543 38,893 37,396
Interest receivable and other assets 137,980 122,358 117,397
---------------------------------------191,621 150,856 136,636
-----------------------------------
Total Assets $4,209,564 $3,910,348 $3,927,967
=======================================$4,386,455 $3,962,294 $4,224,867
===================================
Liabilities:
Deposits:
Non-interestNoninterest bearing $1,105,313 $1,014,589 $1,048,458$1,129,455 $1,033,063 $1,146,828
Interest bearing:
Transaction 521,417 511,252 519,324553,105 540,131 559,875
Savings 1,008,847 873,423 863,523980,291 924,731 952,319
Time 650,325 858,652 803,330
---------------------------------------667,237 753,199 635,043
------------------------------------
Total deposits 3,285,902 3,257,916 3,234,6353,330,088 3,251,124 3,294,065
Short-term borrowed funds 335,989 256,032 271,911416,219 185,326 349,736
Federal Home Loan Bank advance 170,000 0 40,000115,000 170,000
Notes Payable 21,393 24,607 45,438 27,82124,607
Liability for interest, taxes and
other expenses 57,626 27,821 39,241
---------------------------------------111,809 78,600 44,960
------------------------------------
Total Liabilities 3,874,124 3,587,207 3,613,608
=======================================4,049,509 3,654,657 3,883,368
------------------------------------
Shareholders' Equity:
Authorized - 150,000 shares of common stock
Issued and outstanding:
33,60132,907 at September 30,March 31, 2003 215,291
33,831 at March 31, 2002 222,493
34,714 at September 30, 2001 211,748
34,220211,608
33,411 at December 31, 2001 209,0742002 217,198
Accumulated other comprehensive income:
Unrealized gain on securities
available for sale 19,797 16,537 11,90020,710 8,062 19,152
Retained earnings 93,150 94,856 93,385
---------------------------------------100,945 87,967 105,149
------------------------------------
Total Shareholders' Equity 335,440 323,141 314,359
=======================================336,946 307,637 341,499
------------------------------------
Total Liabilities and
Shareholders' Equity $4,209,564 $3,910,348 $3,927,967
=======================================
$4,386,455 $3,962,294 $4,224,867
====================================
See accompanying notes to consolidated financial statements.
Page 34
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
Three months ended
Nine months ended
September 30, September 30,March 31,
2003 2002
2001 2002 2001
-----------------------------------------------------------------------------
Interest Income:
Loans $44,145 $48,098 $132,023 $148,344$40,413 $43,966
Money market assets and funds sold 6 18 10 243 0
Investment securities available for sale Taxable 8,191 8,968 24,844 28,2717,704 8,292
Tax-exempt 3,653 3,515 11,187 9,6813,770 3,852
Investment securities held to maturity
Taxable 2,238 1,104 4,282 3,5652,513 970
Tax-exempt 2,323 1,951 6,235 5,891
----------------------------------------------------2,722 1,858
-------------------------
Total interest income 60,556 63,654 178,581 195,776
----------------------------------------------------57,125 58,938
-------------------------
Interest Expense:
Transaction deposits 395 639 1,215 2,255242 407
Savings deposits 2,761 4,476 8,320 13,2221,708 2,742
Time deposits 3,937 8,448 13,345 31,1392,957 4,992
Short-term borrowed funds 887 1,803 2,808 7,726851 1,026
Federal Home Loan Bank advance 1,576 0 3,6151,575 793
Debt financing and notes payable 443 499 1,345 1,516
----------------------------------------------------404 461
-------------------------
Total interest expense 9,999 15,865 30,648 55,858
----------------------------------------------------7,737 10,421
-------------------------
Net Interest Income 50,557 47,789 147,933 139,918
----------------------------------------------------49,388 48,517
-------------------------
Provision for loan losses 900 900
2,700 2,700
-----------------------------------------------------------------------------
Net Interest Income After
Provision For Loan Losses 49,657 46,889 145,233 137,218
----------------------------------------------------48,488 47,617
-------------------------
Noninterest Income:
Service charges on deposit accounts 6,294 5,806 18,262 17,2746,425 6,002
Merchant credit card 971 1,047 2,839 3,032862 905
Financial services commissions 284 375 1,048 994207 339
Mortgage banking 303 260 707 722226 187
Trust fees 220 221 774 752
Impairment of investment securities 0 0 (4,260) 0238 311
Other 2,383 2,881 6,968 9,095
----------------------------------------------------2,417 2,255
-------------------------
Total Noninterest Income 10,455 10,590 26,338 31,869
----------------------------------------------------10,375 9,999
-------------------------
Noninterest Expense:
Salaries and related benefits 13,844 13,471 41,987 40,04013,698 13,863
Occupancy 3,074 3,073 8,903 8,9002,995 2,931
Equipment 1,479 1,513 4,339 4,5871,374 1,434
Data processing 1,529 1,502 4,543 4,5771,559 1,499
Contract courier 929 889
Professional fees 501 370 1,316 1,221413 371
Other real estate owned 2 18 52 1591 49
Other 5,535 5,816 16,427 17,482
----------------------------------------------------4,566 4,657
-------------------------
Total Noninterest Expense 25,964 25,763 77,567 76,966
----------------------------------------------------25,535 25,693
-------------------------
Income Before Income Taxes 34,148 31,716 94,004 92,121
----------------------------------------------------33,328 31,923
Provision for income taxes 11,271 10,391 30,121 29,613
----------------------------------------------------10,316 10,264
-------------------------
Net Income $22,877 $21,325 $63,883 $62,508
====================================================$23,012 $21,659
=========================
Comprehensive Income:
Change in unrealized gain (loss) on
securities available for sale, net 5,614 6,278 7,897 9,368
----------------------------------------------------1,558 (3,838)
-------------------------
Comprehensive Income $28,491 $27,603 $71,780 $71,876
====================================================$24,570 $17,821
=========================
Average Shares Outstanding 33,621 35,002 33,751 35,47533,110 34,071
Diluted Average Shares Outstanding 34,118 35,524 34,309 36,02533,565 34,634
Per Share Data:
Basic Earnings $0.68 $0.61 $1.89 $1.76$0.70 $0.64
Diluted Earnings 0.67 0.60 1.86 1.740.69 0.63
Dividends Paid 0.24 0.22 0.21 0.66 0.61
See accompanying notes to consolidated financial statements.
Page 45
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
Accumulated
Compre-
Common hensive Retained
Stock Income Earnings Total
--------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $206,952 $7,169 $123,626 $337,747
Net income for the period 62,508 62,508
Stock issued, including
stock option tax benefits 17,563 17,563
Purchase and retirement of stock (12,767) (69,493) (82,260)
Dividends (21,785) (21,785)
Unrealized gain on securities available
for sale, net 9,368 9,368
----------------------------------------------------
Balance, September 30, 2001 $211,748 $16,537 $94,856 $323,141
====================================================
Balance, December 31, 2001 $209,074 $11,900 $93,385 $314,359
Net income for the period $63,883 63,883
Stock issued in connection with
purchase of Kerman State Bank 14,620 14,62021,659 21,659
Stock issued, including
stock option tax benefits 10,761 10,7615,965 5,965
Purchase and retirement of stock (11,962) (41,935) (53,897)(3,431) (19,539) (22,970)
Dividends (22,183) (22,183)(7,538) (7,538)
Unrealized loss on securities available
for sale, net (3,838) (3,838)
----------------------------------------------
Balance, March 31, 2002 $211,608 $8,062 $87,967 $307,637
==============================================
Balance, December 31, 2002 $217,198 $19,152 $105,149 $341,499
Net income for the period 23,012 23,012
Stock issued, including
stock option tax benefits 1,731 1,731
Purchase and retirement of stock (3,638) (19,260) (22,898)
Dividends (7,956) (7,956)
Unrealized gain on securities available
for sale, net 7,897 7,897
----------------------------------------------------1,558 1,558
----------------------------------------------
Balance, September 30, 2002 $222,493 $19,797 $93,150 $335,440
====================================================
March 31, 2003 $215,291 $20,710 $100,945 $336,946
==============================================
See accompanying notes to consolidated financial statements.
Page 56
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
NineFor the three months
ended September 30,March 31,
2003 2002
2001
-------------------------------------------------
Operating Activities:
Net income $63,883 $62,508$23,012 $21,659
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of fixed assets 3,396 3,6861,079 1,138
Amortization of intangibles 1,429 2,584and other assets 549 418
Loan loss provision 2,700 2,700900 900
Amortization of deferred net loan (cost)/fees 375 796295 250
Decrease (increase) in interest income receivable 445 4,446
(Increase)173 (83)
Increase in other assets (12,169) (8,927)
(Decrease) increase(81) (34,196)
Increase in income taxes payable (1,863) 3,836
(Decrease)11,164 10,465
Decrease in interest expense payable (1,376) (4,372)
Increase(234) (168)
(Decrease) increase in other liabilities 12,108 5,738
Writedown(202) 33,338
Writedowns of equipment 470 2380 68
Originations of loans for resale (9,494) (4,418)(1,737) (3,720)
Proceeds from sale of loans originated for resale 9,982 4,4172,180 4,446
Net (gain) loss on sale of loans originated for resale (99) 10
Net(loss) gain on sale of property acquired
in satisfaction of debt (108) (155)
Writedown on property acquired in satisfaction of debt 37 78
Impairment of investment securities 4,260 0
--------------------------other real estate owned (49) 32
-----------------------
Net Cash Provided by Operating Activities 73,976 73,165
--------------------------37,049 34,547
-----------------------
Investing Activities:
Net cash obtained in mergers and acquisitions 5,368 0
Net originations (repayments)repayments of loans 32,692 (2,152)36,767 20,571
Purchases of investment securities available for sale (1,555,621) (208,411)(292,827) (552,980)
Purchases of investment securities held to maturity (204,805) (3,780)(118,047) (4,965)
Purchases of property, plant and equipment (1,562) (3,576)(723) (640)
Proceeds from maturity of securities available for sale 1,512,295 236,864131,869 513,876
Proceeds from maturity of securities held to maturity 30,864 18,60036,136 6,023
Proceeds from sale of securities available for sale 1,000 65163,091 962
Proceeds from sale of property and equipment 548 0498 364
Proceeds from property acquired in satisfactionsale of debt 391 1,898
--------------------------other real estate owned 293 32
-----------------------
Net Cash (Used In) Provided ByUsed in Investing Activities (178,830) 40,094
--------------------------(142,943) (16,757)
-----------------------
Financing Activities:
Net (decrease) increase in deposits (32,300) 21,17036,023 16,489
Net increase (decrease) in short-term borrowings 74,353 (130,910)66,483 (86,585)
Net increase in FHLB advances 130,000 0 75,000
Repayments of notes payable (3,214) (3,215)(3,214)
Exercise of stock options/issuance of shares 8,579 12,8341,160 4,875
Repurchases/retirement of stock (53,897) (82,260)(22,898) (22,970)
Dividends paid (22,183) (21,785)
--------------------------(7,956) (7,538)
-----------------------
Net Cash Provided Byby (Used In)in) Financing Activities 101,338 (204,166)
--------------------------69,598 (23,943)
-----------------------
Net (Decrease)Decrease In Cash and Cash Equivalents (3,516) (90,907)
--------------------------(36,296) (6,153)
-----------------------
Cash and Cash Equivalents at Beginning of Period 222,577 179,182
286,482
-------------------------------------------------
Cash and Cash Equivalents at End of Period $175,666 $195,575
==========================
Page 6$186,281 $173,029
=======================
Supplemental Disclosure of Noncash Activities:
Loans transferred to other real estate owned $0 $375 $303
Unrealized gain on securities available for sale 7,897 9,368
Supplemental Disclosure of Cash Flow Activity:
Unrealized gain (loss) on securities available for sale, net $1,558 ($3,838)
Interest paid for the period 29,319 52,145
Income tax payments for the period 30,638 27,1817,503 10,252
Income tax benefit from stock option exercises 2,182 4,729
The acquisition of Kerman State Bank
involved the following:
Common Stock issued 14,620 --
Liabilities assumed 85,085 --
Fair value of assets acquired, other than cash
and cash equivalents (90,170) --
Core deposit intangible (2,500)
Goodwill (1,667) --
Net cash and cash equivalents received 5,368 --
554 1,085
See accompanying notes to consolidated financial statements.
Page 7
WESTAMERICA BANCORPORATION
Financial Summary
(dollars in thousands, except per share amounts)
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------
2002 2001 2002 2001
----------------------------------------------------
Net Interest Income (FTE) $54,914 $51,778 $160,723 $151,306
Provision for loan losses (900) (900) (2,700) (2,700)
Noninterest income:
Noninterest income excluding impairment 10,455 10,590 30,598 31,869
Impairment of investment securities 0 0 (4,260) 0
----------------------------------------------------
Total noninterest income 10,455 10,590 26,338 31,869
Noninterest expense (25,964) (25,763) (77,567) (76,966)
Provision for income taxes (FTE) (15,628) (14,380) (42,911) (41,001)
----------------------------------------------------
Net income $22,877 $21,325 $63,883 $62,508
====================================================
Average shares outstanding 33,621 35,002 33,751 35,475
Diluted average shares outstanding 34,118 35,524 34,309 36,025
Shares outstanding at period end 33,601 34,714 33,601 34,714
Basic earnings per share $0.68 $0.61 $1.89 $1.76
Diluted earnings per share 0.67 0.60 1.86 1.74
Financial Ratios for the Period:
Return on assets 2.20% 2.20% 2.14% 2.17%
Return on equity 29.59% 27.48% 28.51% 26.69%
Net interest margin 5.71% 5.78% 5.79% 5.68%
Net loan losses to average loans 0.12% 0.15% 0.13% 0.14%
Efficiency ratio 39.7% 41.3% 41.5% 42.0%
Average Balances:
Total assets $4,117,310 $3,849,715 $3,987,215 $3,848,996
Earning assets 3,828,919 3,566,979 3,706,432 3,560,543
Total loans 2,492,030 2,467,547 2,470,522 2,460,526
Total deposits 3,333,300 3,247,687 3,255,656 3,203,475
Shareholders' equity 306,685 307,889 299,553 313,072
Balances at Period End:
Total assets $4,209,564 $3,910,348
Earning assets 3,857,393 3,550,036
Total loans 2,508,272 2,480,695
Total deposits 3,285,902 3,257,916
Shareholders' equity 335,440 323,141
Financial Ratios at Period End:
Allowance for loan losses to loans 2.17% 2.11%
Book value per share $9.98 $9.31
Equity to assets 7.97% 8.26%
Total capital to risk assets 10.80% 10.93%
Dividends Paid Per Share $0.22 $0.21 $0.66 $0.61
Dividend Payout Ratio 33% 35% 35% 35%
Page 8
WESTAMERICA BANCORPORATION
Computation of Certain Performance Measures
As Reported and Adjusted for Unusual Items
Three months Nine months
ended September 30, ended September 30,
(In thousands) 2002 2001 2002 2001
----------------------------------------------------
Financial Ratios for the Period:
Net income $22,877 $21,325 $63,883 $62,508
Return on assets 2.20% 2.20% 2.14% 2.17%
Return on equity 29.59% 27.48% 28.51% 26.69%
Net interest margin 5.71% 5.78% 5.79% 5.68%
Net loan losses to average loans 0.12% 0.15% 0.13% 0.14%
Efficiency ratio 39.7% 41.3% 41.5% 42.0%
Excluding Securities Impairment & Merger Costs:
Net income $22,877 $21,325 $66,582 $62,508
Return on assets 2.20% 2.20% 2.23% 2.17%
Return on equity 29.59% 27.48% 29.72% 26.69%
Net interest margin 5.71% 5.78% 5.79% 5.68%
Net loan losses to average loans 0.12% 0.15% 0.13% 0.14%
Efficiency ratio 39.7% 41.3% 40.3% 42.0%
Page 97
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,Management, are necessary for a fair
presentation of the results for the interim periods presented. The interim
results for the three and nine months ended September 30,March 31, 2003 and 2002 and 2001 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, 2001.2002.
Note 2: Critical Accounting Policies.
Certain accounting policies underlying the preparation of these financial
statements require managementManagement 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 Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Note 3: Acquisition
The acquisition of Kerman State Bank ("KSB"), a three-branch depository
institution headquartered in Fresno County, California, was completed on
June 21, 2002. At the time of the acquisition, KSB had total assets of $95
million and total deposits of $84 million. Pursuant to the terms of the
merger agreement, 0.2487 shares of Westamerica common stock were issued for
each outstanding share of KSB, for a total of 355 thousand shares issued.
Based on the Company's closing stock price of $41.18 on June 21, the
acquisition was valued at approximately $14.6 million. The Company recorded
goodwill and a core deposit intangible of $1.7 million and $2.5 million,
respectively, in accordance with the purchase method of accounting.
Acquisition expenses consisting primarily of employee severance costs
charged to expenses were $400 thousand.
Note 4: Goodwill and Other Intangible Assets
The Company has recorded goodwill and core deposit intangibles acquired in prior years'associated with
purchase business combinations and, effective January 1, 2002, accounts for
them in accordance with Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets. Accordingly, goodwill is no longer being
amortized, but is periodically evaluated for impairment. The Company determined
that no impairment existed as of September 30, 2002.March 31, 2003. Core deposit intangibles are
amortized to their estimated residual values over their expected useful lives;
such lives and residual values are also periodically reassessed to determine if
any amortization period adjustments are indicated. The Company determined that
no such adjustments were required as of September 30, 2002.
Page 10
The following table summarizes the Company's goodwill and core deposit
intangible assets as of January 1, 2002 and September 30, 2002March 31, 2003.
The following table summarizes the Company's goodwill and core deposit
intangible assets, which are included with interest receivable and other
assets in the Consolidated Balance Sheets, as of January 1, 2003 and
March 31, 2003 (dollars in thousands).
At At
January 1, September 30,
2002March 31,
2003 Additions Reductions 2002
-------------------------------------------------2003
----------------------------------------------
Goodwill $20,301 $1,667$22,968 $0 $21,968$0 $22,968
Accumulated Amortization (3,972) 0 0 (3,972)
-------------------------------------------------($3,972) $0 $0 ($3,972)
----------------------------------------------
Net $16,329 $1,667$18,996 $0 $17,996
=================================================$0 $18,996
==============================================
Core Deposit Intangibles $5,283 $2,500$7,783 $0 $0 $7,783
Accumulated Amortization (2,599) 0 703 (3,302)
-------------------------------------------------($3,603) $0 $249 ($3,852)
----------------------------------------------
Net $2,684 $2,500 $703 $4,481
=================================================
The KSB acquisition in the second quarter of 2002 resulted in the addition
of $1.7 million of goodwill and $2.5 million of core deposit intangibles.
At September 30, 2002,$4,180 $0 $249 $3,931
==============================================
At March 31, 2003, the estimated aggregate amortization of core deposit
intangibles, in thousands of dollars, for the remainder of 2003 and annually
through 2008 is $494, $543, $469, $427, $427, and $427, respectively. The
weighted average amortization period for core deposit intangibles is 8.5 years.
Page 8
Note 4: Stock Options
In accordance with 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
March 31,
-----------------------
2003 2002
-----------------------
(In thousands, except per share data)
Compensation cost based on fair
value method, net of tax $589 $900
Net income:
As reported $23,012 $21,659
Pro forma $22,423 $20,759
Basic earnings per share:
As reported $0.70 $0.64
Pro forma 0.68 0.61
Diluted earnings per share:
As reported $0.69 $0.63
Pro forma 0.67 0.60
Page 9
WESTAMERICA BANCORPORATION
Financial Summary
(In thousands, except per share data)
Three months ended
----------------------------------
March 31, December 31,
----------------------
2003 2002 2002
----------------------------------
Net Interest Income $49,388 $48,517 $50,518
Provision for Loan Losses (900) (900) (900)
Noninterest Income 10,375 9,999 10,214
Noninterest Expense (25,535) (25,693) (25,756)
Provision for income taxes (10,316) (10,264) (10,820)
----------------------------------
Net Income $23,012 $21,659 $23,256
==================================
Average Shares Outstanding 33,110 34,071 33,495
Diluted Average Shares Outstanding 33,565 34,634 33,978
Shares Outstanding at Period End 32,907 33,831 33,411
Basic Earnings Per Share $0.70 $0.64 $0.69
Diluted Earnings Per Share 0.69 0.63 0.68
Dividends Paid Per Share $0.24 $0.22 $0.24
Dividend Payout Ratio 35% 35% 35%
Average Balances:
Total Assets $4,201,864 $3,911,060 $4,128,465
Earning Assets 3,906,020 3,631,344 3,831,759
Total Loans 2,424,017 2,470,989 2,451,940
Total Deposits 3,306,929 3,206,717 3,319,086
Shareholders' Equity 315,132 301,014 315,632
Financial Ratios for the remainder of 2002Period:
Return On Assets 2.22% 2.25% 2.23%
Return On Equity 29.61% 29.18% 29.23%
Net Interest Margin 5.58% 5.86% 5.71%
Net Loan Losses to Average Loans 0.16% 0.14% 0.18%
Efficiency Ratio 39.6% 41.0% 39.5%
Balances at Period End:
Total Assets $4,386,455 $3,962,294 $4,224,867
Earning Assets 3,972,065 3,598,902 3,828,080
Total Loans 2,456,161 2,461,696 2,494,638
Total Deposits 3,330,088 3,251,124 3,294,065
Shareholders' Equity 336,946 307,637 341,499
Financial Ratios at Period End:
Allowance for Loan Losses to Loans 2.20% 2.12% 2.17%
Book Value Per Share $10.24 $9.09 $10.22
Equity to Assets 7.68% 7.76% 8.08%
Total Capital to Risk Assets 10.71% 10.67% 10.97%
The above financial summary has been derived from the Company's consolidated financial
statements. This information should be read in conjunction with the consolidated financial
statements, notes and annually through 2007 is $301, $743, $543, $469, $427, and $427,
respectively. The weighted average amortization period for core
deposit intangibles is 8.8 years.the other information included elsewhere herein.
Page 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Westamerica Bancorporation and subsidiaries (the "Company") reported thirdfirst
quarter 20022003 net income of $22.9$23.0 million or $0.67$.69 diluted earnings per share.
These results compare to net income of $21.7 million or $.63 diluted earnings
per share reflecting a full quarter of results after the second quarter merger with
Kerman State Bank ("KSB"). These results compare with net income of $21.3and $23.3 million or $0.60$.68 diluted earnings per share, respectively,
for the third quarter of 2001.
On a year-to-date basis, the Company reported net income for the nine months
ended September 30, 2002 of $63.9 million or $1.86 diluted earnings per share,
compared with $62.5 million or $1.74 per share for the same period of 2001.
The year-to-date results in 2002 included after-tax expenses in connection
with the KSB acquisition ($230 thousand)first and after-tax securities impairment
charge ($2.5 million) incurred in the second quarterfourth quarters of 2002.
Following is a summary of the components of fully taxable equivalent ("FTE") net income for the periods
indicated (dollars in thousands):
Three months ended
Nine months ended
September 30, September 30,
--------------------------------------------------------------------------------------
March 31, December 31,
----------------------
2003 2002 2001 2002
2001
--------------------------------------------------------------------------------------
Net interest income (FTE) $54,914 $51,778 $160,723 $151,306$54,062 $52,712 $54,985
Provision for loan losses (900) (900) (2,700) (2,700)
Noninterest income:(900)
Noninterest income excluding impairment 10,455 10,590 30,598 31,869
Impairment of investment securities 0 0 (4,260) 0
----------------------------------------------------
Total noninterest income 10,455 10,590 26,338 31,86910,375 9,999 10,214
Noninterest expense (25,964) (25,763) (77,567) (76,966)(25,535) (25,693) (25,756)
Provision for income taxes (FTE) (15,628) (14,380) (42,911) (41,001)
----------------------------------------------------(14,990) (14,459) (15,287)
----------------------------------
Net income $22,877 $21,325 $63,883 $62,508
====================================================$23,012 $21,659 $23,256
==================================
Average total assets $4,201,864 $3,911,060 $4,128,465
Net income (annualized) to average total asset 2.22% 2.25% 2.23%
Net income for the thirdfirst quarter of 20022003 was $1.6$1.4 million (7.3%(6%) more thanover the same
quarter of 20012002. The increase was primarily as a result of higherfrom net interest income (FTE)
(up $3.1up $1.4 million or 6.1%3%). The improvement resulted from volume, the net result of lower rates paid on interest-bearing
liabilities and growth of average earning assets (up $261.9$275 million), partially
reduced by the effect of declining yields on those assets. The growth of net interestNoninterest income
exceeded a
decline ingrew $376 thousand (4%) and noninterest income and an increase in noninterest expense.expense declined $158 thousand (1%).
The provision for income taxes (FTE) increased $1.2 million (8.7%$531 thousand (4%) primarily due
to higher pretax earnings., commensurate with
the increase in pre-tax income.
Comparing the first ninethree months of 20022003 to the prior year,quarter, net income
rose
$1.4 million (2.2%decreased $244 thousand (1%). The increase primarily attributable to a decline in net interest
income (up $9.4 million(down $923 thousand or 6.2%2%). The decline was greater thanmainly caused by lower yields
on earning assets and the decline (down $5.5 million or 17.4%) in noninterest
income.effect of fewer accrual days, partially mitigated by
the effect of lower rates paid on interest-bearing liabilities. The increasedecrease in
net interest income was due to both a higher margin
(up 12 basis points ("bp")) and higher average earning assets (up $145.9
million). The declinepartly offset by growth in noninterest income resulted from the pretax
securities impairment charge of $4.3 million incurred in the second quarter.
The net revenue improvement was partially reduced by a $600(up $161
thousand (0.8%or 2%) increaseand decreases in noninterest expense which included the pretax KSB acquisition
costs of $400(down $221 thousand incurred in the second quarter of 2002.or 1%).
The FTE provision for income taxes (FTE) increased $1.9 million (4.7%was down $297 thousand (2%).
Page 12
Net Interest Income
Following is a summary of the components of net interest income for the periods
indicated (dollars in thousands):
Three months ended
Nine months ended
September 30, September 30,
--------------------------------------------------------------------------------------
March 31, December 31,
----------------------
2003 2002 2001 2002
2001
--------------------------------------------------------------------------------------
Interest and fee income $60,556 $63,654 $178,581 $195,776$57,125 $58,938 $59,052
Interest expense (9,999) (15,865) (30,648) (55,858)(7,737) (10,421) (8,534)
FTE adjustment 4,357 3,989 12,790 11,388
----------------------------------------------------4,674 4,195 4,467
----------------------------------
Net interest income (FTE) $54,914 $51,778 $160,723 $151,306
====================================================$54,062 $52,712 $54,985
==================================
Average earning assets $3,828,919 $3,566,979 $3,706,432 $3,560,543$3,906,020 $3,631,344 $3,831,759
Net interest margin (FTE) 5.58% 5.86% 5.71% 5.78% 5.79% 5.68%
The Company's primary source of revenue is net interest income, or the
difference between interest income earned on earning assetsloans and investments and
interest expense paid on interest-bearing liabilities.deposits and borrowings. Net
interest income (FTE) during the thirdfirst quarter of 20022003 increased $3.1$1.4
million (6.1%(3%) from the same period in 20012002 to $54.9 million. The increase was the net result$54.1 million mainly due
to growth of a $261.9 million increase in average earning assets (the volume component)(up $275 million). Lower cost of
funds (down 51 bp) also contributed to improving net interest income,
although not sufficient to offset the effect of lower yields on earning
assets (down 64 bp).
Comparing the first quarter of 2003 with the previous quarter, net interest
income (FTE) declined $923 thousand (2%), partially reduced byprimarily due to a lower interest
margin earned on those(down 13 bp) and the effect of fewer accrual days, slightly offset by
an increase in income related to higher average earning assets (the rate component)(up $74 million).
The decreasedecline in the net interest margin wasresulted from a 22 bp decrease in the
net effect of an 80 bp drop in theearning asset yield, which was reducedpartially improved by a 7314 bp drop in the
cost of funds.
Comparing the first nine months of 2002 with the previous year, net interest
income (FTE) increased $9.4 million (6.2%), with approximately 85% of the
increase attributable to volume growth and the remaining to anPage 11 bp increase
in the net interest margin. The margin expansion was the result of a decrease
of 88 bp in asset yields combined with a 99 bp decline in the cost of funds.
Interest and Fee Income
Interest &and fee income (FTE) for the thirdfirst quarter of 20022003 decreased $2.7$1.3
million (4.0%(2%) from the same period in 2001.2002. The decreasedecline was the net effect
of highercaused by lower
yields on average earning assets inpartially offset by the 2002 period and lower yields earned on
thosepositive effect of
growth of such assets. Average earning assets grew $261.9 million (7.3%) A substantial
portion of the growth was led by expansion in investments as follows: U.S.
Agency obligations (up $142.3 million), participation certificates (up $115.9
million), municipal securities (up $41.4 million) and other securities (up
$19.8 million). Although commercial loan demand remained weak (the $21.0
million growth was attributable to the KSB acquisition), indirect consumer
loans were up $51.5 million. The growth was reduced by declines in U.S.
Treasury securities (down $81.0 million), construction (down $19.8 million),
residential real estate (down $16.6 million) and direct consumer (down $17.2
million) loans.
The average yield on the Company's earning assets decreased forfrom 7.02% in the
first quarter from 7.53%of 2002 to 6.38% in 2001 to 6.74% in 2002the 2003 period (down 7964 bp). This downward trenddecrease
in yields was reflective of general interest rate markets during much of 20012002 and
into 2002, as is particularly evident in variable-rate2003. All categories of loans such asdeclined, most notably including commercial
(131loans (28 bp decline in yield), construction (176 bp decline) and
personal lines of credit (194 bp decline). Fixed-rate loan yields are less
sensitive to market rate fluctuations; for example, commercial real estate
(down 17 bp), residential real estate (down 74 bp)loans (110 bp decrease)
and indirect consumer loans (down 95112 bp) loans. As a. The net result was that the yield on
the loan portfolio declined 44 bp to 6.97%.
The investment portfolio yield decreased 74 bp. Yields on
investment76 bp to 5.42%, caused by declines in
U.S. Treasury securities decreased by 82 bp, as maturing securities were replaced
at current, lower market rates. Participation certificates,(down 136 bp), U.S. Agency obligations (down 127 bp),
and mortgage backed securities and collateralized mortgage obligations (down
139 bp). Partially offsetting these decreases, the yield on other securities
increased 13 bp.
Average earning asset expansion of $275 million was substantially attributable
to an increase in the investment portfolio: U.S. Agency obligations (up $215
million), mortgage backed securities and collateralized mortgage obligations
(up $231 million) and municipal securities (up $72 million). Partially reducing
the increase were decreases in U.S. Treasury securities (down $128 million),
and other securities yields(down $69 million).
Average total loans decreased $47 million as reduced loan demand was reflective
of generally weak economic conditions. Commercial real estate loans declined
134 bp, 129 bp$39 million, construction loans were down $21 million, and 121 bp,
respectively.commercial loans
declined $19 million.
Comparing the first nine monthsquarter of 2002 to 2001,2003 with the previous quarter, interest &and fee
income (FTE) decreased by $15.8fell $1.7 million (7.6%(3%). Consistent with the third quarter
comparison, the decline was due to the combined effect of a higher volume ofThe decrease largely resulted from
declining yields on average earning assets and the impacteffect of lower yields. The positive volume component
offewer accrual days,
partially offset by growth in the change was caused by an $145.9 million (4.1%) increase in average
Page 13
earning assets, including higher U.S. agency obligations (up $77.7 million),
participation certificates ($43.6 million), municipal securities (up $46.1
million), other securities (up $28.0 million), indirect consumer loans (up
$39.3 million) and commercial real estate loans (up $13.7 million). Declining
were U.S. Treasury securities (down $59.5 million), residential real estate
loans (down $20.6 million), direct consumer loans (down $22.1 million) and
construction loans (down 7.9 million).investment portfolio.
The average yield on earning assets for the first three quartersmonths of 20022003 was 6.89%6.38%
compared with 7.77%6.60% in 2001.the fourth quarter of 2002. Loan yields especially those more
sensitive to market rates, declined:declined 17 bp:
the yield on commercial loans was down 19313 bp, constructionresidential real estate loans fell
29 bp, commercial real estate loan yields declined 25010 bp, and personal lines of creditindirect consumer
loans were down 286 bp. Much smaller declines occurred in fixed-rate loan yields, so
that the total loan yield declined 9028 bp.
The investment portfolio yield also decreased, 88by 21 bp; the U.S. Treasury
securities yield declined 123 bp, affected primarilyU.S. Agency obligations fell 26 bp, mortgage
backed securities and collateralized mortgage obligations were lowered by lower yields on participation
certificates17 bp,
and municipal securities decreased 13 bp.
Average earning assets increased $74 million (2%), including higher US Agency
obligations (up $66 million or 19%), mortgage backed securities and
collateralized mortgage obligations (up $64 million or 27%), and municipal
securities (up $30 million or 6%), partially reduced by decreases in US Treasury
securities (down 166 bp)$33 million or 70%), other securities (down 139 bp)$24 million or 9%),
and U.S. agencycommercial real estate loans (down 95 bp)$23 million or 2%).
Interest Expense
Interest expense fell $5.9decreased $3 million (37.0%(26%) in the third quarterfirst three months of 2002003
compared with the year-ago period.same period in 2002. The decrease primarily resulted fromwas due to a drop in the
average rate paid on interest-bearing liabilities, partially mitigated by growth
of those liabilities.
The average rate paid on interest-bearing liabilities decreased from 2.53%1.65% in
the thirdfirst quarter of 20012002 to 1.48%1.14% in 2002.2003. Rates paid on thosemost liabilities
that
movemoved with general market conditions declined accordingly:conditions: the average rate on Fed Fundsshort-term borrowings
dropped 18066 bp and rates on deposits declined as well, including those on CDs
over $100 thousand, which declined 176 bp,80 bp; on retail CDs, which dropped by 84 bp;
and those on preferredhigh-yield money market accounts, which were lowered an average of 18639 bp.
AverageInterest-bearing liabilities grew $170 million or 7% over the same period of
2002: short-term funds increased a net $93 million or 36%, Federal Home Loan
Bank borrowings were up $84 million or 97%, and money market accounts grew
$84 million or 7%. These increases were partially reduced by declines in
public CDs ($79 million or 37%) and retail CDs (down $33 million or 11%).
Comparing the first quarter of 2003 to the previous quarter, interest expense
fell $797 thousand (9%) in 2003 from 2002, again due to lower rates paid on
Page 12
interest-bearing liabilities, increased $182.1 million (7.3%)partially offset by growth of such liabilities.
Rates paid averaged 1.14% during the first three months of 2003 compared to
1.28% in the thirdfourth quarter resultingof 2002. Most significant declines were observed
in a $790CDs: Public CDs fell 51 bp, CDs over $100 thousand increase in volume-related
interest expense. Higherdeclined 22 bp and retail
CDs dropped by 27 bp. Rates on all other deposit categories decreased as well,
with the average rate paid on all interest-bearing deposits dropping from 1.05%
to 0.91%. Short-term funds also fell by 9 bp while long-term debt yields
remained the same.
Interest-bearing liabilities grew $88 million or 3% over the fourth quarter
of 2002: short-term funds increased $85 million or 33% and public CDs and long-term notes payable declined $176.0grew
$46 million and $3.2 million, respectively. Much of this declineor 52%. This was replaced at
lower interest ratespartially reduced by declines in money market
accounts (up $136.4 million), savings
accounts (up $34.9 million)(down $18 million or 1%) and Federal Home Loan Bank ("FHLB") loans (up
$166.5 million).
During the first nine months of 2002, interest expense decreased $25.2 million
(45.1%) in 2002 from 2001, again due to a lower average rate paid on
interest-bearing liabilities (1.57% in the first nine months of 2002 compared
with 2.96% in the year-ago period). All deposit categories declined including
preferred money market (from 3.71% in the first three quarters of 2001 to
1.50% in the same period of 2002) and CDs (from 4.74% to 2.47%). Interest
rates on short-term borrowings also declined from 3.84% to 1.53%.
Interest-bearing liabilities grew $79.7 million (3.2%) for the nine months
ended September 30, 2002. However, a change in the mix of liabilities from
higher-rate to lower-rate components resulted in reduction of volume-related
interest expense by $549 thousand. Declines inretail CDs (down $156.1 million),
short-term borrowings (down $22.0 million) and long-term notes payable (down
$3.2 million) were less than growth in money market accounts (up $104.7
million), savings accounts (up $28.3 million) and FHLB loans (up $128.2
million)$9 million or 3%).
In all reported periods, the Company has attempted to continue to reduce high-rate time
deposits while increasing the balances of more profitable, lower-cost
transaction accounts in order to reduceminimize the effectcost of adverse cyclical trends.
Page 14funds.
Net Interest Margin (FTE)
The following summarizes the components of the Company's net interest margin for
the periods indicated:
Three months ended
Nine months ended
September 30, September 30,
--------------------------------------------------------------------------------------
March 31, December 31,
----------------------
2003 2002 2001 2002
2001
--------------------------------------------------------------------------------------
Yield on earning assets 6.74% 7.53% 6.89% 7.77%6.38% 7.02% 6.60%
Rate paid on interest-bearing
liabilities 1.48% 2.53% 1.57% 2.96%
----------------------------------------------------1.14% 1.65% 1.28%
----------------------------------
Net interest spread 5.26% 5.00%5.24% 5.37% 5.32% 4.81%
Impact of all other net
noninterest bearing funds 0.45% 0.78% 0.47% 0.87%
----------------------------------------------------0.34% 0.49% 0.39%
----------------------------------
Net interest margin 5.58% 5.86% 5.71%
5.78% 5.79% 5.68%
======================================================================================
TheDuring the first quarter of 2003, net interest margin fell 7 basis points during the third quarter of 200228 bp compared to
the third quarter of 2001.same period in 2002. Yields on earnings assets declined faster than rates
paid on interest-bearing liabilities, resulting in a 13 bp decline in net
interest spread. The unfavorable impact of lower rates earned on loans and the
investment portfolio, triggered by market trends, was less thanpartially mitigated by
decreases in rates paid on deposits and short-term funds. The result
was a 25 bp increasedecline in the
net interest spread. Partially offsetting the
increase in spread was further widened by the lower value of noninterest
bearing funding sources. While the average balance of these sources increased
$85.5$104 million during the
third quarter of 2002,(10%), their value decreased 3215 bp because of the lower market
rates of interest rates at which they could be invested.
On a year-to-date basis, theThe net interest margin increased 11decreased 13 bp when compared with the same period in 2001. The effectfourth quarter
of lower2002. Earning asset yields on earning assets was
exceeded bydecreased 22 bp and the declining cost of interest-bearing
liabilities fell by 14 bp, resulting in a
51an 8 bp improvementdecline in the interest spread.
Noninterest bearing funding sources increased $58.5decreased $17 million (1%) and because of
lower market rates of interest their valuemargin contribution decreased 40by 5 bp.
Page 1513
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 thereonwhich is exempt
from federal income taxation at the current statutory tax rate (dollars in
thousands).
ThreeFor the three months ended
September 30, 2002
---------------------------------------March 31, 2003
----------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
-------------------------------------------------------------------------
Assets:
Money market assets and funds sold $1,716 $6 1.39%$788 $3 1.54%
Investment securities:
Available for sale
Taxable 680,305 8,191 4.78%683,506 7,704 4.51%
Tax-exempt 303,685 5,544 7.30%303,011 5,807 7.67%
Held to maturity
Taxable 174,272 2,238 5.09%267,852 2,513 3.75%
Tax-exempt 176,911 3,522 7.96%226,846 4,068 7.17%
Loans:
CommercialCommercial:
Taxable 413,196 6,454 6.20%368,782 5,245 5.77%
Tax-exempt 197,600 3,724 7.48%202,591 3,803 7.61%
Commercial real estate 984,278 19,984 8.06%946,276 18,737 8.03%
Real estate construction 49,176 927 7.48%49,756 886 7.22%
Real estate residential 335,007 5,107 6.10%330,044 4,570 5.54%
Consumer 512,773 9,216 7.13%
--------------------------526,568 8,463 6.52%
-----------------------
Total loans 2,492,030 45,412 7.24%
--------------------------2,424,017 41,704 6.97%
-----------------------
Total earning assets 3,828,919 64,913 6.74%3,906,020 61,799 6.38%
Other assets 288,391
-------------295,844
------------
Total assets $4,117,310
=============$4,201,864
============
Liabilities and shareholders' equity
Deposits:
Noninterest bearing demand $1,103,431$1,117,566 $-- --
Savings and interest-bearing
transaction 1,550,070 3,157 0.81%1,522,540 1,950 0.52%
Time less than $100,000 337,193 2,009 2.36%318,043 1,526 1.95%
Time $100,000 or more 342,606 1,928 2.23%
--------------------------348,780 1,431 1.66%
-----------------------
Total interest-bearing deposits 2,229,869 7,094 1.26%2,189,363 4,907 0.91%
Short-term borrowed funds 252,045 887 1.40%348,479 851 0.98%
Federal Home Loan Bank advance 166,505 1,576 3.70%advances 170,000 1,575 3.72%
Debt financing and notes payable 24,607 44222,430 404 7.18%
-------------------------------------------------
Total interest-bearing liabilities 2,673,026 9,999 1.48%2,730,272 7,737 1.14%
Other liabilities 34,16738,894
Shareholders' equity 306,686
-------------315,132
-----------
Total liabilities and shareholders' equity $4,117,310
=============$4,201,864
===========
Net interest spread (1) 5.26%5.24%
Net interest income and interest margin (2) $54,914 5.71%
==========================$54,062 5.58%
=====================
(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 1614
ThreeFor the three months ended
September 30, 2001
---------------------------------------March 31, 2002
----------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
-------------------------------------------------------------------------
Assets:
Money market assets and funds sold $2,759 $18 2.59%$819 $0 0.00%
Investment securities:
Available for sale
Taxable 597,555 9,171 6.09%642,206 8,292 5.16%
Tax-exempt 281,854 5,338 7.58%308,585 5,834 7.56%
Held to maturity
Taxable 73,915 901 4.84%67,659 970 5.73%
Tax-exempt 143,349 2,878 8.03%141,086 2,816 7.98%
Loans:
CommercialCommercial:
Taxable 401,421 8,032 7.94%397,012 6,026 6.16%
Tax-exempt 188,353 3,705 7.80%193,197 3,695 7.76%
Commercial real estate 978,748 20,064 8.12%985,025 19,570 8.06%
Real estate construction 68,954 1,575 9.06%70,724 1,301 7.46%
Real estate residential 351,639 6,009 6.84%335,933 5,573 6.64%
Consumer 478,432 9,952 8.25%
--------------------------489,098 9,056 7.51%
------------------------
Total loans 2,467,547 49,337 7.94%
--------------------------2,470,989 45,221 7.41%
------------------------
Total earning assets 3,566,979 67,643 7.53%3,631,344 63,133 7.02%
Other assets 282,736
-------------279,716
-----------
Total assets $3,849,715
=============$3,911,060
===========
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,013,148$1,013,418 $-- --
Savings and interest-bearing
transaction 1,378,731 5,115 1.47%1,414,010 3,149 0.90%
Time less than $100,000 386,732 3,954 4.06%350,383 2,394 2.77%
Time $100,000 or more 469,076 4,494 3.80%
--------------------------428,906 2,598 2.46%
------------------------
Total interest-bearing deposits 2,234,539 13,563 2.41%2,193,299 8,141 1.51%
Short-term borrowed funds 228,594 1,803 3.12%255,552 1,026 1.64%
Federal Home Loan Bank advance 0 0 0.00%advances 86,183 793 3.72%
Debt financing and notes payable 27,821 499 7.17%
--------------------------25,679 461 7.18%
------------------------
Total interest-bearing liabilities 2,490,954 15,865 2.53%2,560,713 10,421 1.65%
Other liabilities 37,72435,915
Shareholders' equity 307,889
-------------301,014
-----------
Total liabilities and shareholders' equity $3,849,715
=============$3,911,060
===========
Net interest spread (1) 5.00%5.37%
Net interest income and interest margin (2) $51,778 5.78%
==========================$52,712 5.86%
=====================
(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 1715
NineFor the three months ended
September 30,December 31, 2002
-------------------------------------------------------------------------
Interest Rates
Average Income/ Earned/income/ earned/
Balance Expense Paid
---------------------------------------expense paid
----------------------------------
Assets:
Money market assets and funds sold $1,265 $10 1.06%$775 $2 1.02%
Investment securities:
Available for sale
Taxable 660,480 24,813 5.02%654,786 7,617 4.65%
Tax-exempt 309,138 16,994 7.33%301,223 5,750 7.64%
Held to maturity
Taxable 106,272 4,282 5.39%231,267 2,529 4.37%
Tax-exempt 158,754 9,446 7.93%191,768 3,549 7.40%
Loans:
CommercialCommercial:
Taxable 401,807 18,522 6.16%382,572 5,806 6.02%
Tax-exempt 196,334 11,190 7.60%198,598 3,768 7.53%
Commercial real estate 978,749 59,490969,351 19,870 8.13%
Real estate construction 49,176 3,333 9.06%42,356 772 7.23%
Real estate residential 335,007 15,915 6.33%332,787 4,848 5.83%
Consumer 512,773 27,376 7.14%
--------------------------526,276 9,008 6.79%
-----------------------
Total loans 2,473,846 135,826 7.34%
--------------------------2,451,940 44,072 7.14%
-----------------------
Total earning assets 3,709,755 191,371 6.89%3,831,759 63,519 6.60%
Other assets 277,460
-------------296,706
-----------
Total assets $3,987,215
=============$4,128,465
===========
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,056,367$1,134,279 $-- --
Savings and interest-bearing
transaction 1,477,495 9,535 0.86%1,537,961 2,406 0.62%
Time less than $100,000 341,370 6,511 2.55%326,294 1,779 2.16%
Time $100,000 or more 380,424 6,834 2.40%
--------------------------320,552 1,580 1.96%
-----------------------
Total interest-bearing deposits 2,199,289 22,880 1.39%2,184,807 5,765 1.05%
Short-term borrowed funds 244,898 2,808 1.51%263,061 717 1.07%
Federal Home Loan Bank advance 128,153 3,615advances 170,000 1,610 3.72%
Debt financing and notes payable 24,964 1,34524,607 442 7.18%
-------------------------------------------------
Total interest-bearing liabilities 2,597,304 30,648 1.57%2,642,475 8,534 1.28%
Other liabilities 33,99036,079
Shareholders' equity 299,554
-------------315,632
-----------
Total liabilities and shareholders' equity $3,987,215
=============$4,128,465
===========
Net interest spread (1) 5.32%
Net interest income and interest margin (2) $160,723 5.79%
==========================$54,985 5.71%
=====================
(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 18
Nine months ended
September 30, 2001
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------
Assets:
Money market assets and funds sold $1,229 $23 2.50%
Investment securities:
Available for sale
Taxable 619,704 28,843 6.22%
Tax-exempt 256,904 14,597 7.58%
Held to maturity
Taxable 75,419 2,988 5.30%
Tax-exempt 146,761 8,700 7.90%
Loans:
Commercial
Taxable 400,796 26,733 8.92%
Tax-exempt 190,078 11,083 7.80%
Commercial real estate 968,897 60,171 8.29%
Real estate construction 67,702 4,979 9.68%
Real estate residential 353,253 18,487 7.00%
Consumer 479,800 30,560 8.52%
--------------------------
Total loans 2,460,526 152,013 8.24%
--------------------------
Total earning assets 3,560,543 207,164 7.77%
Other assets 288,453
-------------
Total assets $3,848,996
=============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $980,974 $-- --
Savings and interest-bearing
transaction 1,344,565 15,477 1.54%
Time less than $100,000 392,812 13,712 4.67%
Time $100,000 or more 485,124 17,427 4.80%
--------------------------
Total interest-bearing deposits 2,222,501 46,616 2.80%
Short-term borrowed funds 266,928 7,726 3.84%
Federal Home Loan Bank advance 0 0 0.00%
Debt financing and notes payable 28,178 1,516 7.17%
--------------------------
Total interest-bearing liabilities 2,517,607 55,858 2.96%
Other liabilities 37,343
Shareholders' equity 313,072
-------------
Total liabilities and shareholders' equity $3,848,996
=============
Net interest spread (1) 4.81%
Net interest income and interest margin (2) $151,306 5.68%
==========================
(1) Net interest spread represents the average yield earned on earning assets minus the
average rate paid on interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference between
interest income and expense, divided by the average balance of earning assets.
Page 1916
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 attributabledue 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 September 30, 2002March 31, 2003
compared with three months
ended September 30, 2001
---------------------------------------March 31, 2002
------------------------------------
Volume Rate Total
---------------------------------------------------------------------------
Interest and fee income:
Money market assets and funds sold ($5) ($7) ($12)$0 $3 $3
Investment securities:
Available for sale
Taxable 1,163 (2,143) (980)330 (918) (588)
Tax-exempt $406 (200) 206153 (180) (27)
Held to maturity
Taxable $1,286 51 1,3371,988 (445) 1,543
Tax-exempt $669 (25) 6441,503 (251) 1,252
Loans:
CommercialCommercial:
Taxable $230 (1,808) (1,578)(414) (367) (781)
Tax-exempt $178 (159) 19176 (68) 108
Commercial real estate $113 (193) (80)(767) (66) (833)
Real estate construction (403) (245) (648)(375) (40) (415)
Real estate residential (275) (627) (902)(96) (907) (1,003)
Consumer 681 (1,417) (736)
---------------------------------------660 (1,253) (593)
------------------------------------
Total loans 524 (4,449) (3,925)
---------------------------------------(816) (2,701) (3,517)
------------------------------------
Total earning assets 4,043 (6,773) (2,730)
---------------------------------------3,158 (4,492) (1,334)
------------------------------------
Interest expense:
Deposits:
Savings and interest-bearing
transaction 574 (2,532) (1,958)226 (1,425) (1,199)
Time less than $100,000 (457) (1,488) (1,945)(205) (663) (868)
Time $100,000 or more (1,014) (1,552) (2,566)
---------------------------------------(428) (739) (1,167)
------------------------------------
Total interest-bearing deposits (897) (5,572) (6,469)
---------------------------------------(407) (2,827) (3,234)
------------------------------------
Short-term borrowed funds 169 (1,085) (916)297 (472) (175)
Federal Home Loan Bank advance 1,576 0 1,576advances 777 5 782
Debt financing and notes payable (58) 1 (57)
---------------------------------------------------------------------------
Total interest-bearing liabilities 790 (6,656) (5,866)
---------------------------------------609 (3,293) (2,684)
------------------------------------
Increase (Decrease) in Net Interest Income $3,253$2,549 ($117) $3,136
=======================================1,199) $1,350
====================================
Page 2017
NineThree months ended September 30, 2002March 31, 2003
compared with ninethree months
ended September 30, 2001
---------------------------------------December 31, 2002
------------------------------------
Volume Rate Total
---------------------------------------------------------------------------
Interest and fee income:
Money market assets and funds sold 1 (14) ($13)$0 $1 $1
Investment securities:
Available for sale
Taxable 1,805 (5,835) (4,030)243 (156) 87
Tax-exempt 2,882 (485) 2,39724 33 57
Held to maturity
Taxable 1,242 52 1,294353 (369) (16)
Tax-exempt 713 33 746695 (176) 519
Loans:
CommercialCommercial:
Taxable 67 (8,278) (8,211)(324) (237) (561)
Tax-exempt 359 (252) 107(7) 42 35
Commercial real estate 608 (1,289) (681)(889) (244) (1,133)
Real estate construction (1,279) (367) (1,646)115 (1) 114
Real estate residential (923) (1,649) (2,572)(104) (174) (278)
Consumer 1,999 (5,183) (3,184)
---------------------------------------(186) (359) (545)
------------------------------------
Total loans 831 (17,018) (16,187)
---------------------------------------(1,395) (973) (2,368)
------------------------------------
Total earning assets 7,474 (23,267) (15,793)
---------------------------------------(80) (1,640) (1,720)
------------------------------------
Interest expense:
Deposits:
Savings and interest-bearing
transaction 1,407 (7,349) (5,942)(68) (388) (456)
Time less than $100,000 (1,613) (5,588) (7,201)(79) (174) (253)
Time $100,000 or more (3,194) (7,399) (10,593)
---------------------------------------96 (245) (149)
------------------------------------
Total interest-bearing deposits (3,400) (20,336) (23,736)
---------------------------------------(51) (807) (858)
------------------------------------
Short-term borrowed funds (591) (4,327) (4,918)196 (62) 134
Federal Home Loan Bank advance 3,615advances (35) 0 3,615(35)
Debt financing and notes payable (173) 2 (171)
---------------------------------------(39) 1 (38)
------------------------------------
Total interest-bearing liabilities (549) (24,661) (25,210)
---------------------------------------
Increase71 (868) (797)
------------------------------------
Decrease in Net Interest Income $8,023 $1,394 $9,417
=======================================($151) ($772) ($923)
====================================
Page 2118
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 third quartersfirst quarter of 2002 and 2001. For2003, unchanged from the first nine
months of 2001 and 2002, $2.7 million was provided in each period.
Additionally, $2.1 million of reserves were acquired in connection with the
KSB acquisition in the second quarterfourth quarters of 2002.
For further information regarding net credit losses and the reserveallowance for loan
losses, see the "Classified Loans"Loans and OREO" section of this report.
Noninterest Income
The following table summarizes the components of noninterest income for the
periods indicated (dollars in thousands).
Three months ended
Nine months ended
September 30, September 30,
---------------------------------------------------------------------------------------
March 31, December 31,
-----------------------
2003 2002 2001 2002
2001
---------------------------------------------------------------------------------------
Noninterest income excluding impairment
Service charges on deposit accounts 6,294 $5,806 $18,262 $17,2746,425 $6,002 $6,184
Merchant credit card 971 1,047 2,839 3,032fees 862 905 891
ATM fees and interchange 686 642 1,820 1,700560 517 576
Debit card fees 470 388 1,337 1,076
Other service494 406 542
Check up-charges 244 124 203
Trust fees 387 403 1,097 1,210238 311 246
Mortgage banking income 303 260 707 722226 187 278
Financial services commissions 284 375 1,048 994
Trust fees 220 221 774 752207 339 267
Official check sales income 133 157 154
Gains on sale of foreclosed property 1 1 108 1552 0 0
Other noninterest income 839 1,447 2,606 4,954
----------------------------------------------------984 1,051 873
-----------------------------------
Total noninterest income excluding
impairment of investment securities 10,455 10,590 30,598 31,869
----------------------------------------------------
Impairment of investment securities 0 0 (4,260) 0
----------------------------------------------------
Total noninterest income $10,455 $10,590 $26,338 $31,869
====================================================$10,375 $9,999 $10,214
===================================
Noninterest income for the thirdfirst quarter of 2002 was $10.5 million, down $1352003 rose by $376 thousand or 1.3%(4%)
from the same period in 2001.2002. Service charges on deposit accounts increased
$423 thousand (7%) mostly due to increases in DDA activity charges and
overdraft charges. Repricing of retail checking services became effective May
of 2002 and a new debit card overdraft program was introduced in January of
2003. Increases in ATM fees and debit card fees also contributed to higher
noninterest income.
Offsetting the increases were declines in financial services commissions
(down $132 thousand or 39%) due to lower sales of most products, and trust
fees (down $73 thousand or 24%) because the first quarter of 2002 benefited
from additional court fees.
Comparing the first quarter of 2003 to the previous quarter, noninterest
income increased $161 thousand (2%). The largest single differencepositive contributor
was that of service charges on deposit accounts, specifically in the area of
deficit fees charges on analyzed accounts, which increased $367$241 thousand (18.1%(4%).
Deficit fees are serviceOverdraft charges collected from business customers
that typically pay for such services with compensating balances. In the
current period of low interest rates, the earnings value of these balances has
decreased resulting in more customers being required to pay for services with
explicit fees. Additionally, checking activity income also increased ($136
thousand or 9.6%)rose primarily due to repricing of checking account fees.
The second largest component ofand the changenew debt card
overdraft program discussed above. Savings service charge income rose largely
due to annual IRA fees collected in the thirdfirst quarter period wasof 2003. Other
noninterest income in the increased usagefirst quarter of card-based products. Since2003 benefited from a $118 gain
on the Bank began issuing check (or
debit) cardssale of a former branch building.
Declines in 2000,noninterest income in the number of cards in circulation and use have been
steadily increasing. Infirst quarter compared to the currentprevious
quarter are as follows: account analysis deficit fees earned from check card use
totaled $470 thousand. Fees derived from the Bank's system of ATM machines
increased due to increased Bank customer use of other banks' machines and
non-Bank customers accessing their accounts through Westamerica Bank ATMs.
Mortgage Banking income rose over a year ago largely attributable to higher
gains on loan sales.
Decreases in three other categories reduced the effect of these increases.
Financial services commissions declined due to lower sales of annuities and
mutual funds. Merchant credit card income fell mostlymainly due to a
lower average
discount ratedecreased level of 2.14% compared with 2.17%services; financial services commissions primarily
because of an $86 thousand decrease in fixed annuities sales; partially
offset by a year ago. Other service fees
declined. Other noninterest$39 thousand increase in variable annuities sales, and mortgage
banking income fell $608 thousand (42.0%) primarily due to
lower gains on sales of assets and lower proceeds received on charged-off
loans.
Page 22
Noninterest income forlargely because the first nine months of 2002 was $5.5 million (17.4%)
lower than a year ago. The decline was primarily attributable to a $4.3
million charge from impairment of investment securities. Year-to-date 2001previous quarter benefited from additional $1.9 million of gains on sale of assets, $118
thousand interest on a tax refund and $255 thousand excess proceeds received
on charged-off loans, causing the 2002 other noninterest income to be lower.
Merchant Credit card income fell $193 thousand (6.4%) primarily due to lower
sales and a lower average discount rate of 2.16% compared with 2.19% over a
year ago. Other service fees declined $113 thousand (9.3%) due to
decreases in wire transfer fee income, automobileincreased
loan reconveyance fees and
foreign currency commissions.
The largest positive contributor to the increase in non-interest income was
service charges on deposits (up $989 thousand or 5.7%). Deficit fees were up
$1.4 million (24.5%) for the same reason mentioned above, reduced by lower
fees received on overdrafts and returned items (down $334 thousand or 4.9%).
Debit card and ATM fees rose $261 thousand (24.3%) and $120 thousand (7.1%)
due to higher usage. Financial services commissions were up primarily due to
higher sales of fixed annuities and life insurance.activity.
Page 19
Noninterest Expense
The following table summarizes the components of noninterest expense for the
periods indicated (dollars in thousands).
Three months ended
Nine months ended
September 30, September 30,
---------------------------------------------------------------------------------------
March 31, December 31,
-----------------------
2003 2002 2001 2002
2001
---------------------------------------------------------------------------------------
Salaries and incentives $11,033 $10,656 $33,263 $31,372$10,526 $10,922 $10,682
Employee benefits 2,811 2,814 8,724 8,6683,186 2,941 2,691
Occupancy 3,074 3,073 8,903 8,9002,995 2,931 3,068
Equipment 1,479 1,513 4,339 4,5871,374 1,434 1,534
Data processing services 1,529 1,502 4,543 4,5771,559 1,499 1,535
Courier service 909 923 2,714 2,752929 889 929
Telephone 425 409 442
Postage 420 405 402
Professional fees 501 370 1,316 1,221
Telephone 428 480 1,257 1,474
Postage 397 415 1,199 1,318413 371 454
Merchant credit card 373 399 1,059 1,123342 340 352
Stationery and supplies 350 355 1,069 1,098318 345 382
Loan expense 276 333 323
Deposit expense 246 138 246
Correspondent service charges 243 193 185
Advertising/public relations 321 319 900 1,031
Loan expense 307 296 1,004 823220 289 290
Operational losses 210 278 632 689
Correspondent service charges 197 196 571 599
In-house meetings and travel 156 234 540 555
Deposit173 231 284
Employee recruiting 42 110 63
Foreclosed property expense 136 126 434 429
Other real estate owned 2 18 52 1591 49 91
Amortization of deposit intangibles 249 201 301 367 702 1,103
Amortization of goodwill 0 297 0 8790
Other noninterest expense 1,450 1,132 4,346 3,609
----------------------------------------------------1,598 1,663 1,502
-----------------------------------
Total $25,964 $25,763 $77,567 $76,966
====================================================$25,535 $25,693 $25,756
===================================
Average full time equivalent staff 1,067 1,074 1,075 1,0821,047 1,081 1,062
Noninterest expense to revenues (FTE) 39.7% 41.3% 41.5% 42.0%39.63% 40.97% 39.50%
Noninterest expense fordecreased $158 thousand or 1% in the thirdfirst quarter was $26.0 million, $201 thousand
(0.8%) up fromof 2003
compared to the comparablesame period of 2001.in 2002. The largest increasedecrease was salaries and
incentives, which were up $377down $396 thousand (3.5%(4%). Professional
feesMost of the decline is
attributable to a $403 thousand drop in incentive compensation expense.
Other major decreases were advertising/public relations mainly due to
declines in marketing research and business development expenses;
employee recruiting; equipment expense primarily due to lower depreciation;
operational losses largely because the prior year period included an accounting
loss; and loan expense primarily attributable to declines in
repossession-related expenses, loan automation and credit reports.
Largely offsetting these decreases, employee benefits expense rose $131$245 thousand
(35.4%or 8% due to increases in payroll taxes, insurance, workers compensation, 401K
employer match and supplementary employee retirement. Other major increases were
a $108 thousand (78%) increase in deposit expense and an increase in occupancy
expense largely due to acquisition-related legal
fees. Otherhigher utility costs. Data processing service expense
also rose because of a contractual increase. Correspondent service charges
were higher due to increases in charges from the Company's two main
correspondent banks.
Comparing the first three months of 2003 with the fourth quarter of 2002,
noninterest expense increased $318declined $221 thousand (28.1%or 1%. Salaries and incentives
dropped by $156 thousand (1%) primarily due to an increasea $125 thousand decline in
ATM/Debit card related fees, amortization of low-income
housing investmentsregular salary resulting from reduced FTE employees and employee recruiting.
Page 23
In-house meeting and travela $86 thousand
decrease in incentive compensation programs. Equipment expense droppedfell $160
thousand or 10% mainly due to decreases in incidental equipment expense,
software maintenance, equipment maintenance and depreciation. Operational
losses fell $111 thousand or 39% mostly because of a sales contest
award trip$71 thousand drop in
sundry losses and a decline in unauthorized use of check cards. Foreclosed
property expense fell due to a decline of OREO from $381 thousand to
$88 thousand. Additionally, the prior period; operational losses decreasedyear included $89 thousand OREO
writedown compared with none in 2003. Occupancy expense dropped primarily
due to lower
sundry losses net of recoveries;a $102 thousand seasonal decrease in utilities, partially offset by
increases in building maintenance and telephone expense decreased, through
continuing efficiency from telephone switching equipment installedreal estate taxes. Advertising and
public relations fell largely due to decreases in late
2000. The amortizationbusiness development.
Stationary and supplies declined due to decreases in stationary purchases
and printing expense. Amortization of deposit intangibles declinedfell due to the
expiration of the purchase premium incurreddeposit intangible in connection with prior acquisitions,
partially offset bya 1996 acquisition.
The following expenses increased in comparison of the KSB-related amortization. Amortization of goodwill was
eliminated in 2002 because of implementation of FASB No. 141 and 142. Goodwill
is no longer amortized but is instead periodically evaluated for impairment.
Onfirst quarter to the
fourth quarter: employee benefits (up $495 thousand or 18%) largely due to
a year-to-date basis, noninterest expense was $601 thousand (0.8%) more
than in the comparable period in 2001. Major increases were salaries and
incentives, loan expense, professional fees and employee benefits. A $1.9
million (6.0%)seasonal increase in salariespayroll taxes (up $293 thousand) and incentives was attributable to the
$366 thousandincreases in
severance pay due to the KSB acquisition, an $802 thousand
increase in incentive401K employer match, group insurance, workers compensation expenses and $951 thousand relating to
annual salary increases. A $181 thousand (22.0%) increase in loan expense was
mostlysupplemental
employee retirement; correspondent service charges largely due to increases
in collateral repossession expensescharges from the Company's two main correspondent banks; and appraisal
fees. Professional fees rose primarily due to acquisition-related expenses.
Employee benefits rose $56 thousand (0.7%), the net result of increases in the
group health insurance premiums (up $150 thousand) and a provision for
profit-sharing, reduced by a $128 thousand decline in workers compensation
costs. Increases in other
noninterest expense includedmainly due to a $100 thousand
provision for unusual losses, a $141$129 thousand increase in staff relations
resulting from the annual employee recognition awards; and a $125 thousandseasonal increase
in amortization of low-income housing investments, $149
thousand in production of ATM/VISA cards.
Offsetting the increase were the following items: equipment costs declined
$248 thousand (5.4%) due to lower depreciation costs; telephone expense
declined $217 thousand (14.7%) owing to higher efficiency through new
switching equipment; postage decreased $119 thousand (9.0%), as the 2001
period included some extraordinary costs. Amortization of deposit based
intangibles decreased $401 thousand (36.4%). There was no amortization of
goodwill in the nine months of 2002 while $879 thousand was amortized in the
respective period in 2001.director fees.
Page 20
Provision for Income Tax
During the thirdfirst quarter of 2002,2003, the Company recorded income tax expense
(FTE) of $11.3$15.0 million, $880$531 thousand (8.5%(4%) higher than the thirdfirst quarter
of 2001; on
a year-to-date basis, income tax expense was $30.1 million for 2002 compared
to $29.6 million for 2001.2002. The current quarter provision represents an effective tax rate of
33.0 percent,31.0%, compared to 32.8 percent for the third
quarter of 2002;32.2% and 31.8% for the first nine monthsand fourth quarters of 2002,2002.
The change in the effective tax rate was
32.0 percent, compared to 32.1 percent recorded in 2001. The provision for income taxes for all periods presented is primarily attributable to the
respective levellevels of earnings and the incidence of allowable deductions in
particular higher revenues recognized from tax-exempt loans and state
and municipal securities. In addition, year-to-date tax expense of 2002 reflected
$1.8 million tax benefits from the securities, impairment writedownwhich increased $639 thousand in the second quarter.
Page 24first quarter
of 2003 over the same period last year and $249 thousand over the fourth
quarter of 2002.
Classified Loans and OREO
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 into less risky
investments. Loanthe loan portfolio. Credit
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 allAll nonperforming and potential problem
loans fall under the "classified loans" category and receive an elevated level
of attention to ensure collection.
"Other real estate owned" assets are recorded at the lower of
cost or market.
The following is a summary of classified loans and OREOother real estate owned
(OREO) on the dates indicated (dollars in thousands):
At
At September 30,March 31, December 31,
--------------------------------------------------
2003 2002 2001 2001
---------------------------------------2002
-----------------------------------
Classified loans $33,743 $30,171 $22,285$32,505 $26,687 $34,001
Other Real Estate Owned 470 547 523
---------------------------------------
Classified loans and OREO $34,213 $30,718 $22,808
=======================================real estate owned 88 834 381
-----------------------------------
Total $32,593 $27,521 $34,382
===================================
Allowance for loan losses /
classified loans 161% 174% 234%167% 195% 159%
Classified loans at September 30, 2002,March 31, 2003, increased $3.6$5.8 million (11.8%(22%) from September 30, 2001 largelya year
ago, primarily due to $6.4 million in classified loans acquired throughthough the KSB acquisition and new downgrades, reduced by payoffs and
upgrades. Other real estate owned decreased $77 thousand (14.1%June, 2002 Kerman
State Bank ("KSB") from
September 30, 2001, due to sales and writedowns of properties acquired in
satisfaction of debt, partially offset by new foreclosures on loans with real
estate collateral. Similar to the quarter-to-quarter comparison, the $11.5
million (51.4%) increase in classified loans from December 31, 2001, was due
to $6.4 million in classified loans acquired through the KSB acquisition and new downgrades, partially reduced by
payoffs. The $53 thousand (10.1%)
reduction in otherupgrades, payoffs and chargeoffs. Other real estate owned decreased $746
thousand (89%) from March 31, 2002, primarily due to sales of four properties
with a total carrying value of $702 thousand. There was a $1.5 million decrease
(4%) in classified loans from December 31, 2001, was2002 mainly due to salespayoffs, upgrades
and writedowns of properties, partiallychargeoffs, partly offset by the additionnew downgrades. Other real estate owned
declined $293 thousand (77%) from December 31 largely due to a sale of a
foreclosed properties.
Page 25property valued at $261 thousand.
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 reachreaching 90 days or more delinquent, unless the loan is well secured and
in the process of collection. Interest previously accrued on loans placed on
nonaccrual status is charged against interest income. In addition, loans secured
by real estate with temporarily impaired values and commercial loans to
borrowers experiencing financial difficulties are placed on nonaccrual status
even though the borrowers continue to repay the loans as scheduled. Such loans
are classified as "performing nonaccrual" and are included in total
nonperforming loans.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.
Page 21
The following is a summary of nonperforming loans and other real estate ownedOREO on the dates
indicated (dollars in thousands):
At
At September 30,March 31, December 31,
------------------------------------------------
2003 2002 2001 2001
---------------------------------------2002
-----------------------------------
Performing nonaccrual loans $3,845 $1,350 $3,055$2,471 $3,195 $3,464
Nonperforming, nonaccrual loans 5,827 7,156 5,058
---------------------------------------6,402 4,395 5,717
-----------------------------------
Total nonaccrual loans 9,672 8,506 8,1138,873 7,590 9,181
Loans 90 days past due and
still accruing 257 409 550
---------------------------------------320 252 738
-----------------------------------
Total nonperforming loans 9,929 8,915 8,6639,193 7,842 9,919
Other real estate owned 470 547 523
---------------------------------------88 834 381
-----------------------------------
Total nonperforming loans and OREO $10,399 $9,462 $9,186
=======================================$9,281 $8,676 $10,300
===================================
Allowance for loan losses /
nonperforming loans 548% 588% 601%589% 665% 547%
Performing nonaccrual loans at September 30, 2002 rose $2.5 million (184.8%March 31, 2003 decreased $724 thousand (23%)
and $993 thousand (29%) from the same period ina year ago and from year-end, 2002, respectively.
The change resulted from charge-offs, loans being returned to accrual status
and loans being placed on nonperforming nonaccrual, offset by new loans placed
on nonaccrual.
Nonperforming nonaccrual loans at March 31, 2003 increased $2 million (46%)
and $685 thousand (12%) from the previous year and $790 thousand (25.9%) from
December 31, 2001.2002,
respectively. The increase from both periods was due to the net result of $2.0
million of KSB loans and new downgrades and other loans being removed fromadded
to nonaccrual, partially offset by others being returned to full-accrual
status or being charged off or paid off.
Nonperforming nonaccrual loans at September 30, 2002 decreased $1.3 million
(18.6%) from the same period a year ago but increased $769 thousand (15.2%)
from year-end, 2001. The changeChanges in both periods was the net result of the
addition of $933 thousand of KSB nonaccruing loans and other loans being
placed in nonperforming nonaccrual status and other loans being removed
from nonaccrual status or being paid off.
Other real estate owned at September 30, 2002 was $77 thousand (14.1%) lower
than the previous year and $53 thousand (10.1%) from December 31, 2001, the
net result of property sales and principal reductions and the addition of new
foreclosed property.
The Company had no restructured loans as of September 30, 2002, 2001 and
December 31, 2001.are discussed above.
The amount of gross interest income that would have been recorded for
nonaccrual loans for the three and nine month periodsmonths ended September 30,
2002,March 31, 2003, if all such
loans had performedbeen current in accordance with their original terms, was
$183$163 thousand, compared to $133 thousand and $445 thousand, respectively, compared with $152 thousand
and $518$184 thousand, respectively,
for the third quarterfirst and the first nine
monthsfourth quarters of 2001.2002.
The amount of interest income that was recognized on nonaccrual loans from
all cash payments, including those related to interest owed from prior years,
made during the three and nine months ended September 30, 2002,March 31, 2003, totaled $50
Page 26$71 thousand,
compared to $170 thousand and $376 thousand, respectively, compared to $347 thousand and $917$113 thousand, respectively, for the respective periods in 2001.first
and fourth quarters of 2002. These cash payments represent annualized
yields of 2.15 percent3.28% for first three months of 2003 compared to 9.39% and 6.28 percent,4.66%,
respectively, for the third quarterfirst and the first nine monthsfourth quarter of 2002 compared
to 19.35 percent and 16.07 percent, respectively, for the third quarter and
the first three quarters of 2001.2002.
Total cash payments received, during the third quarter of 2002including those recorded in prior years,
which were applied against the book balance of nonaccrual loans outstanding
at September
30, 2002,March 31, 2003, totaled approximately $85 thousand. Cash payments received totaled
$211$184 thousand, compared with
$64 thousand and $70 thousand for the nine months ended September 30, 2002.first and the fourth quarters of
2002, respectively.
Management believes the overall credit quality of the loan portfolio continues
to be strong; however, the total nonperforming assets could fluctuate from period to
period. The performance of any individual loan can be impacted by external
factors including but not limited tosuch as the interest rate environment,
local, regional and national economic conditions or factors
particular to the borrower. Based on information available to management at the date of this
report, the Company expects the current level of nonperforming assets should
remain approximately constant; however, the CompanyNo assurance can give no assurancebe 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 estimated to
be adequate to provide for losses that can be estimated based upon specific
and general conditions. These include credit loss experience, the amount of
past due, nonperforming and classified loans, recommendations of regulatory
authorities, prevailing economic conditions and other factors. The allowance
is allocated to segments of the loan portfolio based in part on quantitative
analyses of historical credit loss experience, in which criticized and
classified loan balances are analyzed using a linear regression model to
determine standard allocation percentages. The results of this analysis are
applied to current criticized and classified loan balances to allocate the
allowance to the respective segments of the loan portfolio. In addition,
loans with similar characteristics not usually criticized using regulatory
guidelines due to their small balances and numerous accounts, are analyzed
based on the historical rate of net losses and delinquency trends, grouped
Page 22
by the number of days the payments on these loans are delinquent. A portion
of the allowance is also allocated to specific impaired loans. As of the date
of this report, Management considers the $54.4$54.2 million allowance for loan
losses, which constituted 2.17 percent2.20% of total loans at September 30, 2002,March 31, 2003, to be
adequate as a reservean allowance against inherent losses. However, while the Company's
policy is to charge off in the current period those loans on which the
loss is considered probable, the risk exists of future losses which cannot
be precisely quantified or attributed to particular loans or classes of loans.
Management continues to evaluate the loan portfolio and assess current
economic conditions that will dictate future required allowance levels.
Page 27
The following table summarizes the loan loss provision, net credit losses and
allowance for loan losses for the periods indicated (dollars in thousands):
Three months ended
Nine months ended
September 30, September 30,
---------------------------------------------------------------------------------------
March 31, December 31,
-----------------------
2003 2002 2001 2002
2001
---------------------------------------------------------------------------------------
Balance, beginning of period $54,324 $52,468 $52,086 $52,279$54,227 $52,085 $54,447
Loan loss provision 900 900 2,700 2,700900
Loans charged off (1,634) (1,611) (4,632) (5,501)(2,028) (1,644) (1,593)
Recoveries of previously
charged off loans 857 704 2,243 2,983
----------------------------------------------------1,055 806 473
-----------------------------------
Net credit losses (777) (907) (2,389) (2,518)
----------------------------------------------------
Acquired from Kerman State Bank 0 0 2,050 0(973) (838) (1,120)
-----------------------------------
Balance, end of period $54,447 $52,461 $54,447 $52,461
====================================================$54,154 $52,147 $54,227
===================================
Allowance for loan losses /
loans outstanding 2.20% 2.12% 2.17% 2.11%
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.
Quarterly, the Company 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 1.30 million and 2.15 million shares during the
first nine months of 2002 and 2001, respectively.
The Company's primary capital resource is shareholders' equity, which was
$335.4 million at September 30, 2002. This amount represents an increase of
$21.1 million (6.7 percent) from December 31, 2001, is primarily reflective of
the effect of the generation of comprehensive income ($71.8 million), and
proceeds from the issuance of stock ($25.4 million including $14.6 million
stock issued in connection with the KSB acquisition), partially offset by
common stock repurchases ($53.9 million) and dividends ($22.2 million). The
net effect of slight net growth in equity capital and assets acquired from
KSB, the Company's ratio of equity to total assets declined to 7.97 percent at
September 30, 2002, from 8.26 percent a year ago. The equity to assets ratio
was 8.00 percent on December 31, 2001.
The following summarizes the ratios of capital to risk-adjusted assets for the
periods indicated:
At Well-
At September 30, December 31, Minimum Capitalized
-------------------- Regulatory Regulatory
2002 2001 2001 Requirement Requirement
-----------------------------------------------------------
Tier I Capital 9.47% 9.59% 9.29% 4.00% 6.00%
Total Capital 10.73% 10.93% 10.63% 8.00% 10.00%
Leverage ratio 7.12% 7.46% 7.30% 4.00% 5.00%
The risk-based capital ratio decreased at September 30, 2002, compared to the
prior year due to combination of asset growth from the KSB acquisition, an
increase in intangible assets and a decrease in the total level of tangible
(excluding goodwill and purchase premiums) shareholders' equity as a result of
the Company's common stock repurchases and dividends paid to shareholders,
partially offset by increased net income. The risk-based capital ratio
increased at September 30, 2002 from December 31, 2001 primarily due to an
increase in tangible shareholders equity from stock issued for the KSB
acquisition, partially offset by the Company's common stock repurchases,
dividends paid and asset growth from the KSB acquisition.
Page 28
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Asset and Liability Management
The fundamental objective of the Company's management of assets and liabilities
is to maximize economic value while maintaining adequate liquidity and a
conservative level of interest rate risk.
The primary analytical tool used by the Company to gauge interest rate risk
is a simulation model to project changes in net interest income ("NII")
that result from forecast changes in interest rates. The analysis calculates the
difference between a NII forecast over a 12-monthtwelve-month period using a flat
interest rate scenario, and a NII forecast using a rising or falling rate
scenario where the Fed Funds rate is made to rise evenly by 200 basis points or fall evenly by 100 basis
points over the 12-monthtwelve-month forecast interval triggering a response in the
other forecasted rates. Company policy requires that such simulated changes
in NII should be within certain specified ranges or steps must be taken to
reduce interest rate risk. The results of the model indicate that the mix of
interest rate sensitive assets and liabilities at September
30, 2002March 31, 2003 would not
result in a fluctuation of NII that would exceed the parameters established
by Company policy.
At September 30, 2002 and 2001, the Company had no derivative financial
instruments outstanding. As the Company believes that the derivative financial
instrument disclosures contained within the notes to the financial statements
of its 2001 Form 10-K substantially conform with accounting policy
requirements, no further interim disclosure has been provided. At September
30, 2002, there were no substantial changes in the information on market risk
that was disclosed in the Company's Form 10-K for the year ended December 31,
2001.
Liquidity
The Company generates significantCompany's principal source of asset liquidity from its operating activities. The
Company's profitability during the first nine months of 2002 and 2001
generated substantial cash flows, which are included in the totals provided
from operations of $74.8 million and $73.2 million, respectively.
Additional cash flows are provided by or used in investing activities. During
the first nine months of 2002 the Company had net cash outflows in its
investing activities. Purchases net of sales and maturities ofis marketable investment
securities of $216.3 million were reduced by net repayments of loans of $32.7
million and $5.4 million cash obtained in the KSB acquisition, resulting in
net cash used of $178.8 million.available for sale. At September 30, 2002,March 31, 2003, investment securities
available for sale totaled $1,003.2$1,048 million, representing an increase of
$54.2$100 million from December 31, 2001.
The Company realized net cash inflows from its investing activities during the
first nine months of 2001. Sales & maturities of investment securities net of
purchases were $43.9 million during the nine months of 2001, which was reduced
by net disbursements of loans of $2.2 million, resulting in net cash provided
from investing activities of $40.1 million.
Additional cash flows may be provided by financing activities, primarily the
acceptance of deposits and borrowings from banks. During the first three
quarters of 2002 financing activities provided $100.5 million cash. This
amount includes cash outflows related to a $32.3 million decrease in deposits,
the Company's stock repurchase programs and dividends paid to shareholders of
$53.9 million and $22.2 million, respectively, reduced by $74.4 million
proceeds from short-term borrowings and $130.0 million from FHLB advances.
Page 292002. In addition, At September 30, 2002,March 31, 2003, the
Company had customary lines for overnight borrowings from other financial
institutions totaling $660 million and a $20 million line of credit under
which $9.6$8.2 million was outstanding. Additionally, as a member of the Federal
Reserve System, the Company has access to borrowing from the Federal Reserve.
The Company may also borrow from the FHLB which it collateralizes with its
residential real estate loans.loans and securities. At September 30, 2002,March 31, 2003, the Company
had excess collateral providing available borrowing capacity from the FHLB
of approximately $73$61 million.
Since January 1, 2000, the Company has reduced its long-term debt by $16.9
million, reducing its debt-to-equity ratio from 14% at January 1, 2000 to
4%6% at September 30, 2002.March 31, 2003. 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.
Unlike the same period in 2002, financing activities forThe Company generates significant liquidity from its operating activities. The
Company's profitability during the first ninethree months of 2001 required cash. The effect2003 and 2002
generated substantial cash flows of the Company's stock repurchase
programs and dividends paid to shareholders were $82.3$37 million and $21.8$35 million, respectively.
These operating cash flows were more than sufficient to pay shareholder
dividends, repay long term debt obligations, and retire common stock
collectively totaling $33 million and $29 million, respectively, in the
first three months of 2003 and 2002.
Page 23
The Company had net cash outflows added to a $130.9in its investing activities during both
three-month periods ended March 31. In 2003, purchases net of sales and
maturities of investment securities were $180 million, reductionwhich was in short-term borrowed funds, partiallypart
offset by net repayments of loans of $37 million. The investment securities
portfolio increase was generally financed by a $21.2$36 million increase in
deposits and $12.8$66 million proceedsnew short-term borrowings. During the first three
months of 2002, purchases net of sales and maturities of investment
securities were $37 million, which was partially reduced by net repayments
of loans of $21 million. The investment securities portfolio increase was
generally financed by deposit growth.
The Company anticipates increasing its cash level from stock issuance are
includedoperations through
2003 through increased profitability. For the same period, it is anticipated
that deposit balances will increase. Deposit growth may be invested in the net cashloans
or investment securities based on economic conditions, interest rate levels,
and a variety of other conditions. Deposit growth may also be used in financing activities of $204.2 million.to reduce
short-term borrowings.
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 senior debt. Substantially all of the Parent Company's
revenues are obtained from service fees and dividends received from
the Bank. Payment of such dividends to the Parent Company by the Bank
is limited under regulations for Federal Reserve member banks.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 with the
intention of lessening the dilutive impact of issuing new shares to meet stock
performance, option plans, and other ongoing requirements. In addition, other
programs have been implemented to optimize the Company's use of equity capital
and enhance shareholder value. Pursuant to these programs, the Company
repurchased 568 thousand shares in the first quarter of 2003, 558 thousand
shares in the first quarter of 2002, and 248 in the fourth quarter of 2002.
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 $337 million at March 31, 2003.
This amount, which is reflective of the effect of common stock repurchases
and dividends paid to shareholders partially offset by the generation of
earnings and proceeds from the issuance of stock, represents an increase
of $29 million (10%) from a year ago, and a decrease of $5 million (1%)
from December 31, 2002. Despite an increase in shareholders' equity, the
Company's ratio of equity to total assets fell to 7.68% at March 31, 2003,
from 7.76% a year ago due to asset growth. The equity to assets ratio
was 8.08% on December 31, 2002.
The following summarizes the ratios of capital to risk-adjusted assets for
the periods indicated:
At March 31, At Minimum
----------------------December 31 Regulatory
2003 2002 2002 Requirement
-----------------------------------------------
Tier I Capital 9.45% 9.33% 9.71% 4.00%
Total Capital 10.71% 10.67% 10.97% 8.00%
Leverage ratio 7.00% 7.18% 7.27% 4.00%
The risk-based capital ratios improved at March 31, 2003, compared with the
prior year primarily due to an increase in the total level of tangible
(excluding goodwill and purchase premiums) shareholders' equity as a result
of increased retained earnings and unrealized gains on AFS securities,
partially diluted with an increase in risk-weighted assets, especially
investments. The leverage ratio fell because of asset growth including
the KSB acquisition.
Comparing to the 2002 year-end, the capital ratios declined, the net
result of increases in retained earnings and unrealized gains on AFS
securities, the effect of common stock repurchases and asset growth.
The leverage ratio fell due to anticipated asset growth.
Capital ratios are reviewed by Management on a regular basis to ensure that
capital exceeds the prescribed regulatory minimums and is adequate to meet the
Page 3024
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 principal financial officer have
evaluated the effectiveness of the Company's "disclosure controls and
procedures," as such term is defined in Rule 13a-14(c) of the Securities
Exchange Act of 1934, as amended, within 90 days of the filing date of this
Quarterly Report on Form 10-Q. Based upon their evaluation, the principal
executive officer and principal financial officer concluded that the Company's
disclosure controls and procedures are effective. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls, since the date the controls were evaluated.
Page 3125
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 and Use of Proceeds
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 3 (ii) By-laws, as amended (composite copy)
Exhibit 11: Computation of Earnings Per Share on Common
and Common Equivalent Shares and on Common
Shares Assuming Full Dilution
Exhibit 99.1: Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
Exhibit 99.2: Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K
None
Page 3226
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: November 8, 2002May 12, 2003
/s/ DENNISDennis R. HANSEN
--------------------Hansen
----------------------------------------
Dennis R. Hansen
Senior Vice President
and Controller
Chief Accounting Officer
Page 3327
CERTIFICATION UNDER
SECTION 302 OF
THE SARBANES OXLEY ACT OF 2002
I, David L. Payne, Chief Executive Officer of the Company, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Westamerica
Bancorporation;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the periods covered by
this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves managementManagement or other
employees who have a significant role in the registrant's internal controls;
and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ David L. Payne
- --------------------------------------------------
David L. Payne
Chairman, President and Chief Executive Officer
November 8, 2002May 12, 2003
Page 3428
CERTIFICATION UNDER
SECTION 302 OF
THE SARBANES OXLEY ACT OF 2002
I, Jennifer J. Finger, Chief Financial Officer of the Company, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Westamerica
Bancorporation;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the periods covered by
this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves managementManagement or other
employees who have a significant role in the registrant's internal controls;
and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Jennifer J. Finger
- ----------------------------------------------------
Jennifer J. Finger
Senior Vice President and Chief Financial Officer
November 8, 2002May 12, 2003
Page 29
Exhibit 3 (ii)
By-laws, as amended
COMPOSITE COPY
BYLAWS
OF
WESTAMERICA BANCORPORATION
a California corporation
Last Amendment:
February 27, 2003
Page 30
TABLE OF CONTENTS
Page (s)
--------
ARTICLE I - OFFICES 32
Section 1.01. Principal Offices 32
Section 1.02. Other Offices 32
ARTICLE I - MEETINGS OF SHAREHOLDERS 32
Section 2.01. Place of Meetings 32
Section 2.02. Annual Meeting 32
Section 2.03. Special Meeting 33
Section 2.04. Notice of Shareholders' Meetings 33
Section 2.05. Manner of Giving Notice: Affidavit of Notice 33
Section 2.06. Quorum 33
Section 2.07. Adjourned Meeting: Notice 34
Section 2.08. Voting 34
Section 2.09. Waiver of Notice or Consent by Absent Shareholders 34
Section 2.10. Shareholder Action by Written Consent Without a
Meeting 35
Section 2.11. Record Date for Shareholder Notice, Voting and
Giving Consents 35
Section 2.12. Proxies 35
Section 2.13. Inspectors of Election 36
Section 2.14. Nominations for Director 36
ARTICLE III - DIRECTORS 36
Section 3.01. Powers 36
Section 3.02. Number and Qualification of Directors 37
Section 3.03. Election and Term of Office of Directors 37
Section 3.04. Vacancies 37
Section 3.05. Place of Meetings and Meetings by Telephone 38
Section 3.06. Annual Meeting 38
Section 3.07. Other Regular Meetings 38
Section 3.08. Special Meetings 38
Section 3.09. Quorum 38
Section 3.10. Waiver of Notice 38
Section 3.11. Adjournment 38
Section 3.12. Notice of Adjournment 38
Section 3.13. Action Without Meeting 39
Section 3.14. Fees and Compensation of Directors 39
Section 3.15. Committees of Directors 39
Section 3.16. Meetings and Action of Committees 39
Page 31
ARTICLE IV - OFFICERS 40
Section 4.01. Officers 40
Section 4.02. Election of Officers 40
Section 4.03. Subordinate Officers 40
Section 4.04. Removal and Resignation of Officers 40
Section 4.05. Vacancies in Offices 40
Section 4.06. Chairman of the Board 40
Section 4.07. President 40
Section 4.08. Vice Presidents 40
Section 4.09. Secretary 40
Section 4.10. Chief Financial Officer 41
ARTICLE V - MISCELLANEOUS 41
Section 5.01. Indemnification Provisions 41
Section 5.02. Maintenance and Inspection of Share Register 42
Section 5.03. Maintenance and Inspection of Bylaws 42
Section 5.04. Maintenance and Inspection of Other Corporate
Records 42
Section 5.05. Inspection of Books and Records by Directors 43
Section 5.06. Annual Report to Shareholders 43
Section 5.07. Financial Statements 43
Section 5.08. Record Date for Purposes Other than Notice and
Voting 43
Section 5.09. Checks, Drafts 44
Section 5.10. Corporate Contracts and Instruments; How Executed 44
Section 5.11. Certificates for Shares 44
Section 5.12. Lost Certificates 44
Section 5.13. Representation of Shares of Other Corporations 44
Section 5.14. Construction and Definitions 44
ARTICLE VI - AMENDMENTS 45
Section 6.01. Amendment by Shareholders 45
Section 6.02. Amendment by Directors 45
Page 32
BYLAWS OF WESTAMERICA BANCORPORATION
ARTICLE I
OFFICES
Section 1.01. Principal Offices. The principal executive office of the
corporation shall be located at 1108 Fifth Avenue, San Rafael, California, or
such other place within or outside the State of California as shall be fixed
by the board of directors. If the principal executive office is located
outside this state, and the corporation has one or more business offices in
this state, the board of directors shall fix and designate a principal
business office in the State of California.
Section 1.02. Other Offices. The board of directors may at any time
establish branch or subordinate offices at any place or places where the
corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01. Place of Meetings. Meetings of shareholders shall be held
at any place within or outside the State of California designated by the board
of directors. In the absence of any such designation, shareholders' meetings
shall be held at the principal executive office of the corporation.
Section 2.02. Annual Meeting. The annual meeting of shareholders shall
be held each year on a date and at a time designated by the board of
directors. At each annual meeting directors shall be elected, and any other
proper business may be transacted which shall have been properly brought
before the meeting. To be properly brought before an annual meeting, business
must have been (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the board of directors, (b) otherwise
properly brought before the meeting by or at the direction of the board of
directors, or (c) otherwise properly brought before the meeting by a
shareholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the secretary of the
corporation. To be timely, a shareholder's notice must be received by the
secretary of the corporation at least 45 days before the anniversary of the
date on which the corporation first mailed its proxy materials for the prior
year's annual meeting of the shareholders; provided, however, that in the
event the date for the current year's annual meeting has changed more than 30
days from the date on which the prior year's annual meeting was held, then
notice must be received a reasonable time before the corporation mails its
proxy materials for the current year. A shareholder's notice to the secretary
of the corporation shall set forth as to each matter that the shareholder
proposes to bring before the annual meeting (a) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (b) the name and residence
address of the shareholder proposing such business, (c) the number of shares
of capital stock of the corporation that are owned by the shareholder, and (d)
any material interest of the shareholder in such business.
Notwithstanding anything in the bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 2.02.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 2.02, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
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Section 2.03. Special Meeting. A special meeting of the shareholders may
be called at any time by the board of directors, or by the chairman of the
board, or by the president, or by one or more shareholders holding shares in
the aggregate entitled to cast not less than 10% of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of
such meeting and the general nature of the business proposed to be transacted,
and shall be delivered personally or sent by registered mail or by telegraphic
or other facsimile transmission to the chairman of the board, the president,
any vice president, or the secretary of the corporation. The officer receiving
the request shall cause notice to be promptly given to the shareholders
entitled to vote, in accordance with the provisions of Sections 2.04 and 2.05
hereof, that a meeting will be held at the time requested by the person or
persons calling the meeting, not less than thirty-five (35) nor more than
sixty (60) days after the receipt of the request. If the notice is not given
within twenty (20) days after receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 2.03 shall be construed as limiting, fixing or
affecting the time when a meeting of shareholders called by action of the
board of directors may be held.
Section 2.04. Notice of Shareholders' Meetings. All notices of meetings
of shareholders shall be sent or otherwise given to shareholders entitled to
vote thereat in accordance with Section 2.05 not less than ten (10) (or if
sent by third-class mail, thirty (30) nor more than sixty (60)) days before
the date of the meeting. The notice shall specify the place, date and hour of
the meeting and (i) in the case of a special meeting, the general nature of
the business to be transacted, and no other business may be transacted, or
(ii) in the case of the annual meeting, those matters which the board of
directors, at the time of giving the notice, intends to present for action by
the shareholders. The notice of any meeting at which directors are to be
elected shall include the name of any nominee or nominees whom, at the time of
the notice, management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California, (ii)
an amendment of the articles of incorporation, pursuant to Section 902 of that
Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of
that Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of that Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to
Section 2007 of that Code, the notice shall also state the general nature of
that proposal.
Section 2.05. Manner of Giving Notice: Affidavit of Notice. Notice of
any meeting of shareholders shall be given to shareholders entitled to vote
thereat either personally or by first-class mail or, in the event this
corporation has outstanding shares held of record by 500 or more persons
(determined as provided in Section 605 of the California Corporations Code) on
the record date for the shareholders meeting, by third-class mail, or other
means of written communication, addressed to the shareholder at the address of
such shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or telegraphic or
other written communication to the corporation's principal executive office,
or if published at least once in a newspaper of general circulation in the
county where that office is located. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the
shareholder at that address, all future notices or reports shall be deemed to
have been duly given without further mailing if these shall be available to
the shareholder on written demand of the shareholder at the principal
executive office of the corporation for a period of one year from the date of
the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting may be executed by the secretary, assistant secretary,
or any transfer agent of the corporation giving the notice, and shall be filed
and maintained in the minute book of the corporation.
Section 2.06. Quorum. The presence in person or by proxy of the holders
of one-third (1/3) of the shares entitled to vote at any meeting of the
shareholders shall constitute a quorum for the transaction of business. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
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withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the
shares required to constitute a quorum.
Section 2.07. Adjourned Meeting: Notice. Any shareholders' meeting,
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of the majority of the shares represented at that
meeting, either in person or by proxy, but in the absence of a quorum, no
other business may be transacted at that meeting, except as provided in
Section 2.06 hereof.
When any meeting of shareholders, either annual or special, is adjourned
to another time or place, notice need not be given of the adjourned meeting if
the time and place are announced at a meeting at which the adjournment is
taken, unless a new record date for the adjourned meeting is fixed, or unless
the adjournment is for more than forty-five (45) days from the date set for
the original meeting, in which case the board of directors shall set a new
record date. Notice of any such adjourned meeting shall be given to each
shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Sections 2.04 and 2.05. At any adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting.
Section 2.08. Voting. The shareholders entitled to vote at any meeting
of shareholders shall be determined in accordance with the provisions of
Section 2.11 hereof, subject to the provisions of Sections 702 to 704,
inclusive, of the Corporations Code of California (relating to voting shares
held by a fiduciary, in the name of a corporation, or a joint ownership). The
shareholders' vote may be by voice vote or by ballot; provided, however, that
any election for directors must be by ballot if demanded by any shareholder
before the voting has begun. On any matter other than elections of directors,
any shareholder may vote part of the shares in favor of the proposal and
refrain from voting the remaining shares or vote them against the proposal,
but, if the shareholder fails to specify the number of shares which the
shareholder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares that the
shareholder is entitled to vote. The affirmative vote of a majority of the
shares represented and voting at a duly held meeting at which a quorum is
present (which shares voting affirmatively also constitute a majority of the
required quorum) shall be the act of the shareholders, unless the vote of a
greater number or voting by classes is required by California General
Corporation Law or the articles.
At a shareholders' meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate
a number of votes greater than the number of votes which such shareholder
normally is entitled to cast) unless the candidates' names have been placed in
nomination prior to commencement of the voting and a shareholder has given
notice prior to commencement of the voting of the shareholder's intention to
cumulate votes. If any shareholder has given such a notice, then every
shareholder entitled to vote may cumulate votes for candidates in nomination
and give one candidate a number of votes equal to the number of directors to
be elected multiplied by the number of votes to which that shareholder's
shares are normally entitled, or distribute the shareholder's votes on the
same principle among any or all of the candidates, as the shareholder thinks
fit. The candidates receiving the highest number of votes, up to the number of
directors to be elected, shall be elected.
Section 2.09. Waiver of Notice or Consent by Absent Shareholders. The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, who was not present in person or by proxy, signs a written
waiver of notice or a consent to a holding of the meeting, or an approval of
the minutes. The waiver of notice, consent or approval need not specify either
the business to be transacted or the purpose of any annual or special meeting
of shareholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of Section
2.04 hereof, the waiver of notice, consent or approval shall state the general
nature of the proposal. All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by law
to be included in the notice of the meeting but not so included if that
objection is expressly made at the meeting.
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Section 2.10. Shareholder Action by Written Consent Without a Meeting.
Any action which may be taken at any annual or special meeting of shareholders
may be taken without a meeting and without prior notice, if a consent in
writing setting forth the action so taken, is signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take that action at a meeting at which all shares
entitled to vote on that action were present and voted. In the case-of
election of directors, such a consent shall be effective only if signed by the
holders of all outstanding shares entitled to vote for the election of
directors; provided, however, that a director may be elected at any-time to
fill a vacancy on the board of directors that has not been filled by the
directors, by the written consent of the holders of a majority of the
outstanding shares entitled to vote for the election of directors. All such
consents shall be filed with the secretary of the corporation and shall be
maintained in the corporate records. Any shareholder giving a written consent,
or the shareholder's proxy holders, or a transferee of the shares or a
personal representative of the shareholder or their respective proxy holders,
may revoke the consent by a writing received by the secretary of the
corporation before written consents of the number of shares required to
authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting.
This notice shall be given in the manner specified in Section 2.05 hereof. In
the case of approval of (i) contracts or transactions in which a director has
a direct or indirect financial interest, pursuant to Section 310 of the
Corporations Code of California, (ii) indemnification of agents of the
corporation, pursuant to Section 317 of that Code, (iii) a reorganization of
the corporation, pursuant to Section 1201 of that Code, and (iv) a
distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, pursuant to Section 2007 of that Code, the
notice shall be given at least ten (10) days before the consummation of any
action authorized by that approval.
Section 2.11. Record Date for Shareholder Notice, Voting and Giving
Consents. For purposes of determining the shareholders entitled to notice of
any meeting or to vote or entitled to give consent to corporate action without
a meeting, the board of directors may fix, in advance, a record date, which
shall not be more than sixty (60) days nor less than ten (10) days before the
date of any such meeting nor more than sixty (60) days before any such action
without a meeting, and in this event only shareholders at the close of
business on the record date are entitled to notice and to vote or to give
consents, as the case may be, notwithstanding any transfer of any shares on
the books of the corporation after the record date, except as otherwise
provided in the California General Corporation Law.
If the board of directors does not so fix a record date:
(a) The record date for determining the shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business
on the business day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first
written consent is given, or (ii) when prior action of the board has been
taken, shall be at the close of business on the day on which the board adopts
the resolution relating to that action, or the sixtieth (60th) day before the
date of such other action, whichever is later.
Section 2.12. Proxies. Every person entitled to vote for directors or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by
a writing delivered to the corporation stating that the proxy is revoked, or
by a subsequent proxy executed by, or as to any meeting by attendance at such
meeting and voting in person by, the person executing the proxy; or (ii)
written notice of the death or incapacity of the maker of that proxy is
received by the corporation before the vote pursuant to that proxy is counted;
provided, however, that no proxy shall be valid after the expiration of eleven
(11) months from the date of the proxy, unless otherwise provided in the
proxy. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Sections 705(e) and 705(f)
of the Corporations Code of California.
Page 36
Section 2.13. Inspectors of Election. Before any meeting of
shareholders, the board of directors may appoint any persons other than
nominees for office to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the chairman of
the meeting may, and on the request of any shareholder or a shareholder's
proxy shall, appoint inspectors of election at the meeting. The number of
inspectors shall be either one (1) or three (3). If inspectors are appointed
at a meeting on the request of one or more shareholders or proxies, the
holders of a majority of shares or their proxies present at the meeting shall
determine whether one (1) or three (3) inspectors are to be appointed. If any
person appointed as inspector fails to appear or fails or refuses to act, the
chairman of the meeting may, and upon the request of any shareholder or a
shareholder's proxy shall, appoint a person to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or vote
with fairness to all shareholders.
Section 2.14. Nominations for Director. Nominations for election to the
board of directors may be made by the board of directors or by any shareholder
of any outstanding class of capital stock of the corporation entitled to vote
for the election of directors. Nominations, other than those made by or on
behalf of the board of directors of the corporation, shall be made in writing
and shall be received by the secretary of the corporation at least 45 days
before the anniversary of the date on which the corporation first mailed its
proxy materials for the prior year's annual meeting of shareholders; provided,
however, that in the event the date for the current year's annual meeting has
changed more than 30 days from the date on which the prior year's annual
meeting was held, then notice must be received a reasonable time before the
corporation mails its proxy materials for the current year. Any such written
nomination shall contain the following information to the extent known to the
nominating shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of capital stock of the corporation that the shareholder expects will
be voted for each proposed nominee; (d) the name and residence address of the
notifying shareholder; and (e) the number of shares of capital stock of the
corporation owned by the notifying shareholder. Nominations not made in
accordance herewith may be disregarded by the chairman of the applicable
meeting of shareholders called for the election of directors in his sole
discretion, and upon his instructions, the inspectors of election may
disregard all votes cast for each such nominee.
ARTICLE III
DIRECTORS
Section 3.01. Powers. Subject to the provisions of the California
General Corporation Law and any limitations in the articles of incorporation
and these bylaws relating to action required to be approved by the
shareholders or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the board of directors.
Without prejudice to these general powers, and subject to the same
limitations, the directors shall have the power to:
(a) Select and remove all officers, agents, and employees of the
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corporation; prescribe any powers and duties for them that are consistent with
law, with the articles of incorporation, and with these bylaws; fix their
compensation; and require from them security for faithful service.
(b) Change the principal executive office or the principal business
office in the State of California from one location to another; cause the
corporation to be qualified to do business in any other state, territory,
dependency, or country and conduct business within or without the State of
California; and designate any place within or without the State of California
for the holding of any shareholders' meeting, or meetings, including annual
meetings.
(c) Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates.
(d) Authorize the issuance of shares of stock of the corporation on any
lawful terms, in consideration of money paid, labor done, services actually
rendered, debts or securities cancelled, or tangible or intangible property
actually received.
(e) Borrow money and incur indebtedness on behalf of the corporation,
and cause to be executed and delivered for the corporation's purposes, in the
corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecation, and other evidences of debt and securities.
Section 3.02. Number and Qualification of Directors. The number of
directors of the corporation shall be not less than eight (8) nor more than
fifteen (15). The exact number of directors shall be ten (10) until changed,
within the limits specified above, with the approval of the board of directors
or the shareholders. The indefinite number of directors may be changed, or a
definite number fixed without provision for an indefinite number, by a duly
adopted amendment to the articles of incorporation or by an amendment to this
bylaw duly adopted by the vote or written consent of holders of a majority of
the outstanding shares entitled to vote; provided, however, that an amendment
reducing the fixed number or the minimum number of directors to a number less
than five (5) cannot be adopted if the votes cast against its adoption at a
meeting of the shareholders, or the shares not consenting in the case of
action by written consent, are equal to more than 16-2/3% of the outstanding
shares entitled to vote. No amendment may change the stated maximum number of
authorized directors to a number greater than two times the stated minimum
number of directors minus one.
Section 3.03. Election and Term of Office of Directors. Directors shall
be elected at each annual meeting of the shareholders to hold office until the
next annual meeting. Each director, including a director elected to fill a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified. No person shall be
eligible for election to the board of directors unless nominated in the manner
described by Section 2.14 of these bylaws.
Section 3.04. Vacancies. Vacancies in the board of directors may be
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director, except that a vacancy created by the removal of
a director by the vote or written consent of the shareholders or by court
order may be filled only by the vote of a majority of the shares entitled to
vote represented at a duly held meeting at which a quorum is present, or by
the written consent of holders of a majority of the outstanding shares
entitled to vote. Each director so elected shall hold office until the next
annual meeting of the shareholders and until a successor has been elected and
qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist in the event of the death, resignation, or removal of any director, or
if the board of directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or
convicted of a felony, or if the authorized number of directors is increased,
or if the shareholders fail, at any meeting of shareholders at which any
director or directors are elected, to elect the number of directors to be
voted for at that meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election by
written consent other than to fill a vacancy created by removal shall require
the consent of a majority of the outstanding shares entitled to vote.
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary, or the board of
directors, unless the notice specifies a later time for that resignation to
become effective. If the resignation of a director is effective at a future
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time, the board of directors may elect a successor to take office when the
resignation becomes effective.
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
Section 3.05. Place of Meetings and Meetings by Telephone. Regular
meetings of the board of directors may be held at any place within or outside
the State of California that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board shall be held at any place within or outside the
State of California that has been designated in the notice of the meeting or,
if not stated in the notice or there is no notice, at the principal executive
office of the corporation. Any meeting, regular or special, may be held by
conference telephone or similar communication equipment, so long as all
directors participating in the meeting can hear one another, and all such
directors shall be deemed to be present in person at the meeting.
Section 3.06. Annual Meeting. Immediately following each annual meeting
of shareholders, the board of directors shall hold a regular meeting for the
purpose of organization, any desired election of officers, and the transaction
of other business. Notice of this meeting shall not be required.
Section 3.07. Other Regular Meetings. Other regular meetings of the
board of directors shall be held without call at such time as shall from time
to time be fixed by the board of directors. Such regular meetings may be held
without notice.
Section 3.08. Special Meetings. Special meetings of the board of
directors for any purpose or purposes may be called at any time by the
chairman of the board or the president or any vice president or the secretary
or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. In case the notice
is mailed, it shall be deposited in the United States mail at least four (4)
days before the time of the holding of the meeting. In case the notice is
delivered personally, or by telephone or telegram, it shall be delivered
personally or by telephone or to the telegraph company at least forty-eight
(48) hours before the time of the holding of the meeting. Any oral notice
given personally or by telephone may be communicated either to the director or
to a person at the office of the director who the person giving the notice has
reason to believe will promptly communicate it to the director. The notice
need not specify the purpose of the meeting nor the place if the meeting is to
be held at the principal executive office of the corporation.
Section 3.09. Quorum. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn
as provided in Section 3.11. Every act or decision done or made by a majority
of the directors present at a meeting duly held at which a quorum is present
shall be regarded as the act of the board of directors, subject to the
provisions of Section 310 of the Corporations Code of California (as to
approval of contracts or transactions in which a director has a direct or
indirect material financial interest), Section 311 of that Code (as to
appointment of committees), and Section 317(e) of that Code (as to
indemnification of directors). A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
required quorum for that meeting.
Section 3.10. Waiver of Notice. The transactions of any meeting of the
board of directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding
the meeting or an approval of the minutes. The waiver of notice or consent
need not specify the purpose of the meeting. All such waivers, consents, and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Notice of a meeting shall also be deemed given to any
director who attends the meeting without protesting, before or at its
commencement, the lack of notice to that director.
Section 3.11. Adjournment. A majority of the directors present, whether
or not constituting a quorum, may adjourn any meeting to another time and
place.
Section 3.12. Notice of Adjournment. Notice of the time and place of
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holding an adjourned meeting need not be given, unless the meeting is
adjourned for more than twenty-four (24) hours, in which case notice of the
time and place shall be given before the time of the adjourned meeting, in the
manner specified in Section 3.08, to the directors who were not present at the
time of the adjournment.
Section 3.13. Action Without Meeting. Any action required or permitted
to be taken by the board of directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same force and
effect as a unanimous vote of the board of directors. Such written consent or
consents shall be filed with the minutes of the proceedings of the board.
Section 3.14. Fees and Compensation of Directors. Directors and members
of committees may receive such compensation, if any, for their services, and
such reimbursement of expenses, as may be fixed or determined by resolution of
the board of directors. This Section 3.14 shall not be construed to preclude
any director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
Section 3.15. Committees of Directors. The board of directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the pleasure of the board. The board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. The appointment of members or
alternate members of a committee requires the vote of a majority of the
authorized number of directors. Any committee, to the extent provided in the
resolution of the board, shall have all the authority of the board, except
with respect to:
(a) The approval of any action which, under the General Corporation Law
of California, also requires shareholders' approval or approval of the
outstanding shares;
(b) The filling of vacancies on the board of directors or in any
committee;
(c) The fixing of compensation of the directors for serving on the board
or on any committee;
(d) The amendment or repeal of bylaws or the adoption of new bylaws;
(e) The amendment or repeal of any resolution of the board of directors
which by its express terms is not so amendable or repealable;
(f) A distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the board
of directors; or
(g) The appointment of any other committees of the board of directors or
the members of these committees.
Section 3.16. Meetings and Action of Committees. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Sections 3.05 (place of meetings), 3.07 (regular meetings), 3.08
(special meetings and notice), 3.09 (quorum), 3.10 (waiver of notice), 3.11
(adjournment), 3.12 (notice of adjournment), and 3.13 (action without meeting)
of these bylaws, with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of
directors and its members, except that the time of regular meetings of
committees may be determined either by resolution of the board of directors or
by resolution of the committee; special meetings of committees may also be
called by resolution of the board of directors; and notice of special meetings
of committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may
adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
Page 40
ARTICLE IV
OFFICERS
Section 4.01. Officers. The officers of the corporation shall be a
chairman of the board, a president, a secretary, and a chief financial
officer. The corporation may also have, at the discretion of the board of
directors, one or more vice presidents, one or more assistant secretaries, one
or more treasurers or assistant treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 4.03. Any number of
offices may be held by the same person.
Section 4.02. Election of Officers. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Sections 4.03 or 4.05 hereof, shall be chosen by the board of directors, and
each shall serve at the pleasure of the board, subject to the rights, if any,
of an officer under any contract of employment.
Section 4.03. Subordinate Officers. The board of directors may appoint,
and may empower the chairman of the board to appoint, such other officers as
the business of the corporation may require, each of whom shall hold office
for such period, have such authority and perform such duties as are provided
in the bylaws or as the board of directors may from time to time determine.
Section 4.04. Removal and Resignation of Officers. Subject to the
rights, if any, of an officer under any contract of employment, any officer
may be removed, either with or without cause, by the board of directors, at
any regular or special meeting of the board of directors, or, except in the
case of an officer chosen by the board of directors, by any other officer upon
whom such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation is without prejudice to
the rights, if any, of the corporation under any contract to which the officer
is a party.
Section 4.05. Vacancies in Offices. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be
filled in the manner prescribed in these bylaws for regular appointments to
that office.
Section 4.06. Chairman of the Board. The board of directors shall
appoint one of its members to be chairman of the board to serve at the
pleasure of the board. Such person shall preside at all meetings of the board.
The chairman of the board shall have the powers conferred by these bylaws and
shall also have and may exercise such further powers and duties as from time
to time may be conferred or assigned by the board of directors.
Section 4.07. President. The president of the corporation shall, in the
absence of the chairman of the board, preside at all meetings of shareholders
and at all meetings of the board of directors. The president shall exercise
and perform such duties as may be assigned to him by the board of directors or
the chairman of the board or as prescribed by the bylaws.
Section 4.08. Vice Presidents. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by the
board of directors or, if not ranked, a vice president designated by the board
of directors, shall perform all the duties of the president, and when so
acting shall have all the powers of, and be subject to all the restrictions
upon, the president. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the board of directors or the bylaws, and the president.
Section 4.09. Secretary. The secretary shall keep or cause to be kept,
at the principal executive office or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and shareholders, with the time and place
of holding, whether regular or special, and, if special, how authorized, the
notice given, the names of those present at directors' meetings or committee
meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings.
The secretary shall keep, or cause to be kept, at the principal
Page 41
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required by the bylaws or by
law to be given, and he shall keep the seal of the corporation, if one be
adopted, in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or by the bylaws.
Section 4.10. Chief Financial Officer. The chief financial officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of
the corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and shares. The
books of account shall at all reasonable times be open to inspection by any
director.
The chief financial officer shall deposit all moneys and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have other powers and perform such other duties as may
be prescribed by the board of directors or these bylaws.
ARTICLE V
MISCELLANEOUS
Section 5.01. Indemnification Provisions. Except as prohibited by law,
every director of this corporation shall be entitled as a matter of right to
be indemnified by the corporation against reasonable expense and any liability
paid or incurred by such person in connection with any threatened, pending or
completed claim, action, suit or proceeding, whether civil, criminal,
administrative, investigative or other, whether brought by or in the name of
the corporation or otherwise, in which he or she may be involved, as a party
or otherwise, by reason of such person being or having been a director,
officer, employee or agent of the corporation or by reason of the fact that
such person is or was serving at the request of the corporation as a director,
officer, employee, or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise or was a director,
officer, employee or agent of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation (such claim, action, suit or proceeding hereinafter
being referred to as an "Action"); provided, however, that no such right of
indemnification shall exist in favor of a director with respect to an Action
brought by such director against the corporation (other than a suit for
indemnification as provided below in this Section 5.01). Such indemnification
shall include the right to have expenses incurred by such person in connection
with an Action paid in advance by the corporation until the final disposition
of the Action, subject to such conditions as may be prescribed by law. As used
herein, "liability" shall include amounts of judgments, excise taxes, fines
and penalties, and amounts paid in settlement; and "expense" shall include
fees and expenses of counsel subject to the terms of the following paragraph.
If the corporation shall be obligated to pay the expenses of any Action
against a director, the corporation, if appropriate, shall be entitled to
assume the defense of such Action, with counsel approved by the director, upon
the delivery to the director of written notice of its election so to do. After
delivery of such notice, approval of such counsel by the director and the
retention of such counsel by the corporation, the corporation will not be
liable to the director under this Section 5.01 for any fees or expenses of
counsel subsequently incurred by the director with respect to the same Action,
provided that (i) the director shall have the right to employ his counsel in
any such Action at the director's expense; and (ii) the fees and expenses of
the director's counsel shall be at the expense of the corporation if (A) the
employment of counsel by the director has been previously authorized by the
corporation, (B) the director shall have reasonably concluded that there may
be a conflict of interest between the corporation and the director in the
conduct of any such defense or (C) the corporation shall not, in fact, have
employed counsel to assume the defense of such Action. Notwithstanding
anything contained herein to the contrary, the corporation shall have no
obligation under this Section 5.01 to indemnify any director for any amounts
paid in settlement of an Action unless the corporation consents to such
settlement, which consent shall not be unreasonably withheld.
Page 42
If a claim under the two preceding paragraphs is not paid in full by the
corporation within thirty (30) days after a written notice thereof has been
received by the corporation, the claimant may at any time thereafter bring
suit against the corporation to recover the unpaid amount of the claim, and if
successful in whole or in part, the claimant shall also be entitled to be paid
the expense of prosecuting such claim. It shall be a defense to any such
action that the conduct of the claimant was such that under California law the
corporation would be prohibited from indemnifying the claimant for the amount
claimed, but the burden of proving such defense shall be on the corporation.
Neither the failure of the corporation (including its board) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because the conduct of the
claimant was not such that indemnification would be prohibited by law, nor an
actual determination by the corporation (including the board of directors,
independent legal counsel or its shareholders) that the conduct of the
claimant was such that indemnification would be prohibited by law, shall be a
defense to the action or create a presumption that the conduct of the claimant
was such that indemnification would be prohibited by law.
The right of indemnification provided for herein (a) shall not be deemed
exclusive of any other rights, whether now existing or hereafter created, to
which those seeking indemnification hereunder may be entitled under any
agreement, bylaw or article provision, vote of shareholders or directors or
otherwise, (b) shall continue as to persons who have ceased to have the status
pursuant to which they were entitled or were denominated as entitled to
indemnification hereunder and shall inure to the benefit of the heirs and
legal representatives of persons entitled to indemnification hereunder, and
(c) shall be applicable to actions, suits or proceedings commenced after the
adoption hereof, whether arising from acts or omissions occurring before or
after the adoption hereof. The right of indemnification provided for herein
may not be amended, modified or repealed so as to limit in any way the
indemnification provided for herein with respect to any acts or omissions
occurring prior to the adoption of any such amendment or repeal.
The corporation has full power and authority to extend any of the
indemnification benefits provided for in this Section 5.01 to any officer or
agent of the corporation, but the corporation is under no obligation to extend
such benefits to any person who is not entitled thereto by law or pursuant to
the first paragraph of this Section 5.01.
Section 5.02. Maintenance and Inspection of Share Register. The
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed and as determined by
resolution of the board of directors, a record of its shareholders, giving the
names and addresses of all shareholders and the number and class of shares
held by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and shareholdings during usual business hours on five (5) days'
prior written demand on the corporation, and (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the shareholders' names and
addresses, who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of
demand. This list shall be made available to any such shareholder by the
transfer agent on or before the later of five (5) days after the demand is
received or the date specified in the demand as the date as of which the list
is to be compiled. The record of shareholders shall also be open to inspection
on the written demand of any shareholder or holder of a voting trust
certificate, at any time during usual business hours, for a purpose reasonably
related to the holder's interests as a shareholder or as the holder of a
voting trust certificate. Any inspection and copying under this Section 5.02
may be made in person or by an agent or attorney of the shareholder or holder
of a voting trust certificate making the demand.
Section 5.03. Maintenance and Inspection of Bylaws. The corporation
shall keep at its principal executive office, or if its principal executive
office is not in the State of California, at its principal business office in
this state, the original or a copy of the bylaws as amended to date, which
shall be open to inspection by the shareholders at all reasonable times during
office hours. If the principal executive office of the corporation is outside
the State of California and the corporation has no principal business office
in this state, the secretary shall, upon the written request of any
shareholder, furnish to that shareholder a copy of the bylaws as amended to
date.
Section 5.04. Maintenance and Inspection of Other Corporate Records. The
Page 43
accounting books and records and minutes of proceedings of the shareholders
and the board of directors and any committee or committees of the board of
directors shall be kept at such place or places designated by the board of
directors, or, in the absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form. The minutes and
accounting books and records shall be open to inspection upon the written
demand of any shareholder or holder of a voting trust certificate, at any
reasonable time during usual business hours, for a purpose reasonably related
to the holder's interests as a shareholder or as the holder of a voting trust
certificate. The inspection may be made in person or by an agent or attorney,
and shall include the right to copy and make extracts. These rights of
inspection shall extend to the records of each subsidiary corporation of the
corporation.
Section 5.05. Inspection of Books and Records by Directors. Every
director shall have the absolute right at any reasonable time to inspect all
books, records, and documents of every kind and the physical properties of the
corporation and each of its subsidiary corporations. This inspection by a
director may be made in person or by an agent or attorney and the right of
inspection includes the right to copy and make extracts of documents.
Section 5.06. Annual Report to Shareholders. The board of directors
shall cause an annual report to be sent to the shareholders not later than one
hundred twenty (120) days after the close of the fiscal year adopted by the
corporation. This report shall be sent at least fifteen (15) (or, if sent by
third-class mail, thirty-five (35)) days before the annual meeting of
shareholders to be held during the next fiscal year and in the manner
specified in Section 2.05 of these bylaws for giving notice to shareholders of
the corporation. The annual report shall contain a balance sheet as of the end
of the fiscal year and an income statement and statement of changes in
financial position for the fiscal year, accompanied by any report of
independent accountants or, if there is no such report, the certificate of an
authorized officer of the corporation that the statements were prepared
without audit from the books and records of the corporation.
Section 5.07. Financial Statements. A copy of any annual financial
statement and any income statement of the corporation for each quarterly
period of each fiscal year, and any accompanying balance sheet of the
corporation as of the end of each such period, that has been prepared by the
corporation shall be kept on file in the principal executive office of the
corporation for twelve (12) months and each such statement shall be exhibited
at all reasonable times to any shareholder demanding an examination of any
such statement or a copy shall be mailed to any such shareholder.
If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation makes a
written request to the corporation for an income statement of the corporation
for the three-month, six-month, or nine-month period of the then current
fiscal year ended more than thirty (30) days before the date of the request,
and a balance sheet of the corporation as of the end of that period, the chief
financial officer shall cause the statements referred to above to be prepared,
if not already prepared, and shall deliver personally or mail that statement
or statements to the person making the request within thirty (30) days after
the receipt of the request. If the corporation has not sent to the
shareholders its annual report for the last fiscal year, this report shall
likewise be delivered or mailed to any shareholder or shareholders within
thirty (30) days after the request.
The corporation shall also, on the written request of any shareholder,
mail to the shareholder a copy of the last annual, semi-annual, or quarterly
income statement which it has prepared, and a balance sheet as of the end of
that period.
The quarterly income statements and balance sheets referred to in this
Section 5.07 shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
Section 5.08. Record Date for Purposes Other than Notice and Voting. For
purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action
by shareholders by written consent without a meeting), the board of directors
may fix, in advance, a record date, which shall not be more than sixty (60)
days before any such action, and in that case only shareholders at the close
of business on the record date are entitled to receive the dividend,
distribution, or allotment of rights or to exercise the rights, as the case
may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date so fixed, except as otherwise provided in
the California General Corporation Law.
If the board of directors does not so fix a record date, the record date
for determining shareholders for any such purpose shall be at the close of
Page 44
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
Section 5.09. Checks, Drafts. Evidences of Indebtedness. All checks,
drafts, or other orders for payment of money, notes, or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time
to time, shall be determined by resolution of the board of directors.
Section 5.10. Corporate Contracts and Instruments; How Executed. The
board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name of and on behalf of the corporation, and
this authority may be general or confined to specific instances; and, unless
so authorized or ratified by the board of directors or within the agency power
of an officer, no officer, agent, or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
Section 5.11. Certificates for Shares. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
shareholder when any of these shares are fully paid, and the board of
directors may authorize the issuance of certificates or shares as partly paid
provided that these certificates shall state the amount of the consideration
to be paid for them and the amount paid. All certificates shall be signed in
the name of the corporation by the chairman of the board or vice chairman of
the board or the president or vice president and by the chief financial
officer or the treasurer or an assistant treasurer or the secretary or any
assistant secretary, certifying the number of shares and the class or series
of shares owned by the shareholder. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed on a
certificate shall have ceased to be that officer, transfer agent, or registrar
before that certificate is issued, it may be issued by the corporation with
the same effect as if that person were an officer, transfer agent or registrar
at the date of issue.
Section 5.12. Lost Certificates. Except as provided in this Section
5.12, no new certificates for shares shall be issued to replace an old
certificate unless the latter is surrendered to the corporation and cancelled
at the same time. The board of directors may, in case any share certificate or
certificate for any other security is lost, stolen or destroyed, authorize the
issuance of a replacement certificate on such terms and conditions as the
board may require, including provision for indemnification of the corporation
secured by a bond or other adequate security sufficient to protect the
corporation against any claim that may be made against it, including any
expense or liability, on account of the alleged loss, theft, or destruction of
the certificate or the issuance of the replacement certificate.
Section 5.13. Representation of Shares of Other Corporations. The
chairman of the board, the president, or any vice president, or any other
person authorized by resolution of the board of directors or by any of the
foregoing designated officers, is authorized to vote on behalf of the
corporation any and all shares of any other corporation or corporations,
foreign or domestic, standing in the name of the corporation. The authority
granted to these officers to vote or represent on behalf of the corporation
any and all shares held by the corporation in any other corporation or
corporations may be exercised by any of these officers in person or by any
person authorized to do so by a proxy duly executed by these officers.
Section 5.14. Construction and Definitions. Unless the context requires
otherwise, the general provisions, rules of construction and definitions in
the California General Corporation Law shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
Page 45
ARTICLE VI
AMENDMENTS
Section 6.01. Amendment by Shareholders. New bylaws may be adopted or
these bylaws may be amended or repealed by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote; provided,
however, that if the articles of incorporation of the corporation set forth
the number of authorized directors of the corporation, the authorized number
of directors may be changed only by an amendment of the articles of
incorporation.
Section 6.02. Amendment by Directors. Subject to the rights of the
shareholders as provided in Section 6.01 hereof, to adopt, amend, or repeal
bylaws, bylaws may be adopted, amended, or repealed by the board of directors;
provided, however, that the board of directors may adopt a bylaw or amendment
of a bylaw changing the authorized number of directors only for the purpose of
fixing the exact number of directors within the limits specified in the
articles of incorporation or in Section 3.02 of these bylaws.
Page 46
Exhibit 11
WESTAMERICA BANCORPORATION
Computation of Earnings Per Share on Common and
Common Equivalent Shares and on Common Shares
Assuming Full Dilution
Three months NineFor the three months
ended September 30, ended September 30,March 31,
(In thousands, except per share data) 2003 2002
2001 2002 2001
----------------------------------------------------------------------------
Weighted average number of common
shares outstanding - basic 33,621 35,002 33,751 35,47533,110 34,071
Add assumed exercise of options reduced by the
number of shares that could have been
purchased with the proceeds of such
exercise 497 522 558 550
----------------------------------------------------455 563
------------------------
Weighted average number of common
shares outstanding - diluted 34,118 35,524 34,309 36,025
====================================================33,565 34,634
========================
Net income $22,877 $21,325 $63,883 $62,508$23,012 $21,659
Basic earnings per share $0.68 $0.61 $1.89 $1.76$0.70 $0.64
Diluted earnings per share $0.67 $0.60 $1.86 $1.74$0.69 $0.63
Page 3647
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Westamerica Bancorporation (the
"Company") on Form 10-Q for the period ending September 30, 2002March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
David L. Payne, Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirement of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ David L. Payne
- --------------------------------------------------
David L. Payne
Chairman, President and Chief Executive Officer
November 8, 2002May 12, 2003
Page 3748
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Westamerica Bancorporation (the
"Company") on Form 10-Q for the period ending September 30, 2002March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Jennifer J. Finger, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirement of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Jennifer J. Finger
- ----------------------------------------------------
Jennifer J. Finger
Senior Vice President and Chief Financial Officer
November 8, 2002
Page 38May 12, 2003