Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31,June 30, 2003
Commission File Number: 001-9383
WESTAMERICA BANCORPORATION
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 94-2156203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1108 Fifth Avenue, San Rafael, California 94901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (707) 863-8000863-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ x ] No [ ]
Indicate the number of shares outstanding of each of the registrant classes
of common stock, as of the latest practicable date:
Title of Class Shares outstanding as of MayAugust 8, 2003
Common Stock, 33,030,94532,705,360
No Par Value
Page 2
TABLE OF CONTENTS
Page
---------
Forward Looking Statements 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements 3
Financial Summary 7
Notes to Unaudited Condensed Consolidated Financial Statements 87
Financial Summary 9
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 910
Item 3 - Quantitative and Qualitative Disclosure about Market Risk 2425
Item 4 - Controls and Procedures 2425
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 2526
Item 2 - Not applicable 2526
Item 3 - Not applicable 2526
Item 4 - Submission of Matters to a Vote of Security Holders 2526
Item 5 - Not applicable 2526
Item 6 - Exhibits and Reports on Form 8-K 25
Exhibit 3 (ii) By-laws, as amended (composite copy) 2926
(a) - Exhibits
Exhibit 11 - Computation of Earnings Per Share 4630
Exhibit 99.131.1 - Certification of Chief Executive Officer pursuant to 31
Securities Exchange Act Rule 13a-(14)(a)
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to 32
Securities Exchange Act Rule 13a-(14)(a)
Exhibit 32.1 - Certification Required by 18 U.S.C. Section 1350 4733
Exhibit 99.232.2 - Certification Required by 18 U.S.C. Section 1350 4834
(b) - Reports on Form 8-K 28
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements about Westamerica
Bancorporation for which it claims the protection of the safe harbor provisions
contained in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on Management's current knowledge and
belief and include information concerning the Company's possible or assumed
future financial condition and results of operations. A number of factors, some
of which are beyond the Company's ability to predict or control, could cause
future results to differ materially from those contemplated. These factors
include but are not limited to (1) continued weakness in the national and
California economies; (2) increased economic uncertainty created by concerns
regarding terrorist attacks and geopolitical risks; (3) the prospect of
additional terrorist attacks in the United States and the uncertain effect of
these events on the national and regional economies; (4) changes in the interest
rate environment; (5) changes in the regulatory environment; (6) significantly
increasing competitive pressure in the banking industry; (7) operational risks
including data processing system failures or fraud; (8) the effect of
acquisitions and integration of acquired businesses; (9) volatility of rate
sensitive assets and liabilities; (10) asset/liability management risks and
liquidity risks; and (11) changes in the securities markets.
The reader is directed to the Company's annual reportAnnual Report on Form 10-K for the year
ended December 31, 2002, for further discussion of factors which could affect
the Company's business and cause actual results to differ materially from those
expressed in any forward-looking statement made in this report. The Company
undertakes no obligation to update any forward-looking statements in this
report.
Page 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
At
At March 31,June 30, December 31,
--------------------------------------------
2003 2002 2002
-------------------------------------------------------------------------
Assets:
Cash and cash equivalents $186,281 $173,029$201,560 $183,589 $222,577
Money market assets 633 534633 633
Investment securities available for sale 1,048,386 975,2561,251,341 986,392 947,848
Investment securities held to maturity,
with market values of:
$531,580$599,484 at March 31,June 30, 2003 520,896
$218,202588,231
$287,841 at March 31,June 30, 2002 213,343279,640
$450,771 at December 31, 2002 438,985
Loans, gross 2,456,161 2,461,6962,406,889 2,507,968 2,494,638
Allowance for loan losses (54,154) (52,147)(54,159) (54,324) (54,227)
--------------------------------------------------------------------------
Loans, net of allowance for loan losses 2,402,007 2,409,5492,352,730 2,453,644 2,440,411
Other real estate owned 88 834 381
Premises and equipment, net 36,543 38,89336,408 39,078 37,396
Interest receivable and other assets 191,621 150,856 136,636
-----------------------------------133,789 129,526 137,017
---------------------------------------
Total Assets $4,386,455 $3,962,294$4,564,692 $4,072,502 $4,224,867
==========================================================================
Liabilities:
Deposits:
NoninterestNon-interest bearing $1,129,455 $1,033,063$1,194,847 $1,081,967 $1,146,828
Interest bearing:
Transaction 553,105 540,131554,568 528,226 559,875
Savings 980,291 924,731962,967 979,289 952,319
Time 667,237 753,199741,249 725,958 635,043
---------------------------------------------------------------------------
Total deposits 3,330,088 3,251,1243,453,631 3,315,440 3,294,065
Short-term borrowed funds 416,219 185,326393,287 228,635 349,736
Federal Home Loan Bank advance 170,000 115,000140,000 170,000
Notes Payable 21,393 24,607 24,607
Liability for interest, taxes and
other expenses 111,809 78,600169,070 43,447 44,960
---------------------------------------------------------------------------
Total Liabilities 4,049,509 3,654,6574,207,381 3,752,129 3,883,368
------------------------------------=======================================
Shareholders' Equity:
Authorized - 150,000 shares of common stock
Issued and outstanding:
32,90732,937 at March 31,June 30, 2003 215,291
33,831219,060
33,753 at March 31,June 30, 2002 211,608226,551
33,411 at December 31, 2002 217,198
Accumulated other comprehensive income:
Unrealized gain on securities
available for sale, 20,710 8,062net of tax 26,001 14,184 19,152
Retained earnings 100,945 87,967112,250 79,638 105,149
---------------------------------------------------------------------------
Total Shareholders' Equity 336,946 307,637357,311 320,373 341,499
---------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $4,386,455 $3,962,294$4,564,692 $4,072,502 $4,224,867
===========================================================================
See accompanying notes to consolidated financial statements.
Page 4
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
Three months ended March 31,Six months ended
June 30, June 30,
2003 2002 -------------------------2003 2002
----------------------------------------------------
Interest Income:
Loans $40,413 $43,966$39,419 $43,912 $79,832 $87,878
Money market assets and funds sold 3 02 4 5 4
Investment securities available for sale
7,704 8,292Taxable 8,254 8,350 15,957 16,632
Tax-exempt 3,770 3,8523,854 3,693 7,625 7,555
Investment securities held to maturity
Taxable 2,513 9701,673 1,073 4,185 2,042
Tax-exempt 2,722 1,858
-------------------------3,397 2,055 6,119 3,913
----------------------------------------------------
Total interest income 57,125 58,938
-------------------------56,599 59,087 113,723 118,024
----------------------------------------------------
Interest Expense:
Transaction deposits 242 407211 413 453 820
Savings deposits 1,708 2,7421,562 2,817 3,271 5,559
Time deposits 2,957 4,9922,697 4,415 5,654 9,407
Short-term borrowed funds 851 1,026962 895 1,812 1,921
Federal Home Loan Bank advance 1,575 7931,592 1,247 3,167 2,039
Debt financing and notes payable 404 461
-------------------------385 442 789 903
----------------------------------------------------
Total interest expense 7,737 10,421
-------------------------7,409 10,229 15,146 20,649
----------------------------------------------------
Net Interest Income 49,388 48,517
-------------------------49,190 48,858 98,577 97,375
----------------------------------------------------
Provision for loan losses 900 900 -------------------------1,800 1,800
----------------------------------------------------
Net Interest Income After
Provision For Loan Losses 48,488 47,617
-------------------------48,290 47,958 96,777 95,575
----------------------------------------------------
Noninterest Income:
Service charges on deposit accounts 6,425 6,0026,648 5,967 13,073 11,969
Merchant credit card 862 905900 963 1,762 1,868
Mortgage banking 301 217 527 404
Trust fees 277 243 516 554
Financial services commissions 207 339
Mortgage banking 226 187
Trust fees 238 311210 425 418 764
Securities gains (Impairment) 277 (4,260) 293 (4,278)
Other 2,417 2,255
-------------------------2,423 2,329 4,822 4,602
----------------------------------------------------
Total Noninterest Income 10,375 9,999
-------------------------11,036 5,884 21,411 15,883
----------------------------------------------------
Noninterest Expense:
Salaries and related benefits 13,698 13,86313,598 14,281 27,297 28,143
Occupancy 2,995 2,931
Equipment 1,374 1,4343,044 2,898 6,039 5,829
Data processing 1,559 1,499
Contract courier 929 8891,518 1,516 3,077 3,015
Equipment 1,381 1,425 2,755 2,859
Professional fees 413 371457 443 870 815
Other real estate owned 1 49
Other 4,566 4,657
-------------------------5,478 5,346 10,973 10,941
----------------------------------------------------
Total Noninterest Expense 25,535 25,693
-------------------------25,476 25,909 51,011 51,602
----------------------------------------------------
Income Before Income Taxes 33,328 31,92333,850 27,933 67,177 59,856
----------------------------------------------------
Provision for income taxes 10,316 10,264
-------------------------10,179 8,586 20,494 18,850
----------------------------------------------------
Net Income $23,012 $21,659
=========================$23,671 $19,347 $46,683 $41,006
====================================================
Comprehensive Income:
Change in unrealized gain (loss) on
securities available for sale, net 1,558 (3,838)
-------------------------5,591 6,122 6,849 2,284
----------------------------------------------------
Comprehensive Income $24,570 $17,821
=========================$29,262 $25,469 $53,532 $43,290
===================================================
Average Shares Outstanding 33,110 34,07133,000 33,565 33,054 33,817
Diluted Average Shares Outstanding 33,565 34,63433,492 34,180 33,528 34,406
Per Share Data:
Basic Earnings $0.70 $0.64$0.72 $0.58 $1.41 $1.21
Diluted Earnings 0.69 0.630.71 0.57 1.39 1.19
Dividends Paid 0.24 0.22 0.48 0.44
See accompanying notes to consolidated financial statements.
Page 5
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
Accumulated
Other
Compre-
Common hensive Retained
Stock Income Earnings Total
--------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $209,074 $11,900 $93,385 $314,359
Net income for the period 21,659 21,65941,006 41,006
Stock issued in connection with
purchase of Kerman State Bank 14,620 14,620
Stock issued, including
stock option tax benefits 5,965 5,9659,737 9,737
Purchase and retirement of stock (3,431) (19,539) (22,970)(6,880) (39,832) (46,712)
Dividends (7,538) (7,538)(14,921) (14,921)
Unrealized lossgain on securities available
for sale, net (3,838) (3,838)
----------------------------------------------2,284 2,284
----------------------------------------------------
Balance, March 31,June 30, 2002 $211,608 $8,062 $87,967 $307,637
==============================================$226,551 $14,184 $79,638 $320,373
====================================================
Balance, December 31, 2002 $217,198 $19,152 $105,149 $341,499
Net income for the period 23,012 23,012$46,683 46,683
Stock issued, including
stock option tax benefits 1,731 1,7316,296 6,296
Purchase and retirement of stock (3,638) (19,260) (22,898)(4,434) (23,695) (28,129)
Dividends (7,956) (7,956)(15,887) (15,887)
Unrealized gain on securities available
for sale, net 1,558 1,558
----------------------------------------------6,849 6,849
----------------------------------------------------
Balance, March 31,June 30, 2003 $215,291 $20,710 $100,945 $336,946
==============================================$219,060 $26,001 $112,250 $357,311
====================================================
See accompanying notes to consolidated financial statements.
Page 6
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the threesix months
ended March 31,June 30,
2003 2002
-------------------------------------------------
Operating Activities:
Net income $23,012 $21,659$46,683 $41,006
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of fixed assets 1,079 1,1382,139 2,264
Amortization of intangibles and other assets 549 4181,014 869
Loan loss provision 900 9001,800 1,800
Amortization of deferred net loan (cost)/fees 295 250117 396
Decrease (increase) in interest income receivable 173 (83)
Increase362 (1,956)
Decrease (increase) in other assets (81) (34,196)57,823 (2,484)
Increase (decrease) in income taxes payable 11,164 10,465
Decrease2,978 (1,484)
(Decrease) in interest expense payable (234) (168)(382) (132)
(Decrease) increase in other liabilities (202) 33,338
Writedowns(53,321) 3,060
(Gain) loss on sales of investment securities (293) 18
Writedown of equipment 0 68102 268
Originations of loans for resale (1,737) (3,720)(5,257) (7,028)
Proceeds from sale of loans originated for resale 2,180 4,4465,007 7,567
Net (loss) gain on sale of other real estate owned (49) 32
-----------------------property acquired
in satisfaction of debt (9) (107)
Writedown on property acquired in satisfaction of debt 0 34
Impairment of investment securities 0 4,260
--------------------------
Net Cash Provided by Operating Activities 37,049 34,547
-----------------------58,763 48,351
--------------------------
Investing Activities:
Net cash obtained in mergers and acquisitions 0 5,368
Net repayments of loans 36,767 20,57184,213 33,674
Purchases of investment securities available for sale (292,827) (552,980)(499,669) (777,488)
Purchases of investment securities held to maturity (118,047) (4,965)(243,158) (68,696)
Purchases of property, plant and equipment (723) (640)(1,750) (1,069)
Proceeds from maturity of securities available for sale 131,869 513,876257,382 741,284
Proceeds from maturity of securities held to maturity 36,136 6,02393,912 14,849
Proceeds from sale of securities available for sale 63,091 96269,305 982
Proceeds from sale of property and equipment 498 364
Proceeds from saleproperty acquired in satisfaction of other real estate owneddebt 293 32
-----------------------391
--------------------------
Net Cash Used in(Used In) Investing Activities (142,943) (16,757)
-----------------------(238,974) (50,341)
--------------------------
Financing Activities:
Net increase (decrease) in deposits 36,023 16,489159,565 (2,762)
Net increase (decrease) in short-term borrowings 66,483 (86,585)43,551 (33,001)
Net increase in FHLBFederal Home Loan Bank advances 0 75,000100,000
Repayments of notes payable (3,214) (3,214)
Exercise of stock options/issuance of shares 1,160 4,8753,308 7,007
Repurchases/retirement of stock (22,898) (22,970)(28,129) (46,712)
Dividends paid (7,956) (7,538)
-----------------------(15,887) (14,921)
--------------------------
Net Cash Provided by (Used in)By Financing Activities 69,598 (23,943)
-----------------------159,194 6,397
--------------------------
Net Decrease(Decrease) Increase In Cash and Cash Equivalents (36,296) (6,153)
-----------------------(21,017) 4,407
--------------------------
Cash and Cash Equivalents at Beginning of Period 222,577 179,182
-------------------------------------------------
Cash and Cash Equivalents at End of Period $186,281 $173,029
=======================$201,560 $183,589
==========================
Page 7
For the six months
ended June 30,
2003 2002
--------------------------
Supplemental Disclosure of Noncash Activities:
Loans transferred to other real estate owned $0repossessed collateral $1,800 $375
Unrealized gain on securities available for sale $6,849 $2,284
Supplemental Disclosure of Cash Flow Activity:
Unrealized gain (loss) on securities available for sale, net $1,558 ($3,838)
Interest paid for the period 7,503 10,25214,764 20,564
Income tax payments for the period 18,461 18,991
Income tax benefit from stock option exercises 554 1,0851,887 1,938
The acquisition of Kerman State Bank
involved the following:
Common Stock issued 0 14,620
Liabilities assumed 0 85,085
Fair value of assets acquired, other than cash
and cash equivalents 0 (90,170)
Core deposit intangible 0 (2,500)
Goodwill 0 (1,667)
Net cash and cash equivalents received 0 5,368
See accompanying notes to consolidated financial statements.
Page 78
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. The results of operations reflect interim
adjustments, all of which are of a normal recurring nature and which, in the
opinion of Management, are necessary for a fair presentation of the results for
the interim periodsperiod presented. The interim results for the threesix months ended March 31,June
30, 2003 and 2002 are not necessarily indicative of the results expected for the
full year. These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and accompanying
notes as well as other information included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2002.
Note 2: Critical Accounting Policies.Policies
Certain accounting policies underlying the preparation of these financial
statements require Management to make estimates and judgments. These estimates
and judgments may affect reported amounts of assets and liabilities, revenues
and expenses, and disclosures of contingent assets and liabilities. The most
significant of these involve the Allowance for Loan Losses, which is discussed
in Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Note 3: Goodwill and Other Intangible Assets
The Company has recorded goodwill and core deposit intangibles associated with
purchase business combinations and, effective January 1, 2002, accounts for them
in accordance with Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets. Accordingly, goodwill is no longer being amortized,
but is periodically evaluated for impairment. The Company determined
thatDuring 2003, no impairment existed as of
March 31, 2003.goodwill has been recorded. Core deposit intangibles are amortized to
their estimated residual values over their expected useful lives; such lives and
residual values are also periodically reassessed to determine if any
amortization period adjustments are indicated. The Company determined that no
such adjustments were required as of March 31,June 30, 2003.
The following table summarizes the Company's goodwill and core deposit
intangible assets, which are included with interest receivable and other assets
in the Consolidated Balance Sheets, as of January 1, 2003 and March 31,June 30, 2003
(dollars in thousands).
At At
January 1 March 31,June 30
(Dollar in Thousands) 2003 Additions Reductions 2003
-----------------------------------------------------------------------------------------------
Goodwill $22,968 $0 $0 $22,968
Accumulated Amortization ($3,972) $0 $0 ($3,972)
-----------------------------------------------------------------------------------------------
Net $18,996 $0 $0 $18,996
===============================================================================================
Core Deposit Intangibles $7,783 $0 $0 $7,783
Accumulated Amortization ($3,603) $0 $249$414 ($3,852)
----------------------------------------------4,017)
-------------------------------------------------
Net $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,$414 $3,766
=================================================
At June 30, 2003, the estimated aggregate amortization of intangibles, in
thousand of dollars, for the remainder of 2003 and annually through 2008 is
$329, $543, $469, $427, $427 and $427, respectively. The weighted average
amortization period for core deposit intangibles is 8.5 years.
Page 89
Note 4: Stock Options
In accordance with SFASAs permitted by Statement of Financial Accounting Standards ("SFAS") No.
123 "Accounting for Stock-Based Compensation", the Company accounts for
its stock option plans using the intrinsic value method. Accordingly,
compensation expense is recorded on the grant date only if the current
price of the underlying stock exceeds the exercise price of the option.
Had compensation cost been determined based on the fair value method
established by SFAS 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
For the threeThree months ended March 31,
-----------------------Six months ended
June 30, June 30,
----------------------------------------------------
2003 2002 -----------------------2003 2002
----------------------------------------------------
(In thousands, except per share data)
Compensation cost based on fair
value method, net of tax effect $589 $900 $1,178 $1,800
Net income:
As reported $23,012 $21,659$23,671 $19,347 $46,683 $41,006
Pro forma $22,423 $20,759$23,082 $18,447 $45,505 $39,206
Basic earnings per share:
As reported $0.70 $0.64$0.72 $0.58 $1.41 $1.21
Pro forma 0.68 0.610.70 0.55 1.38 1.16
Diluted earnings per share:
As reported $0.69 $0.63$0.71 $0.57 $1.39 $1.19
Pro forma 0.67 0.600.69 0.54 1.36 1.14
Page 910
WESTAMERICA BANCORPORATION
Financial Summary
(In(dollars in thousands, except per share data)amounts)
Three months ended ----------------------------------
March 31, December 31,
----------------------Six months ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
--------------------------------------------------------------------------------------
Net Interest Income $49,388 $48,517 $50,518(FTE) $54,324 $53,096 $108,386 $105,808
Provision for Loan Lossesloan losses (900) (900) (900)(1,800) (1,800)
Noninterest Income 10,375 9,999 10,214income:
Noninterest Expense (25,535) (25,693) (25,756)income before securities 10,759 10,144 21,118 20,161
gains (impairment)
Securities gains (impairment) 277 (4,260) 293 (4,278)
----------------------------------------------------
Total noninterest income 11,036 5,884 21,411 15,883
Noninterest expense (25,476) (25,909) (51,011) (51,602)
Provision for income taxes (10,316) (10,264) (10,820)
----------------------------------(FTE) (15,313) (12,824) (30,303) (27,283)
----------------------------------------------------
Net Income $23,012 $21,659 $23,256
==================================income $23,671 $19,347 $46,683 $41,006
====================================================
Average shares outstanding 33,000 33,565 33,054 33,817
Diluted average shares outstanding 33,492 34,180 33,528 34,406
Shares Outstanding 33,110 34,071 33,495outstanding at period end 32,937 33,753 32,937 33,753
As Reported:
Basic earnings per share $0.72 $0.58 $1.41 $1.21
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%earnings per share 0.71 0.57 1.39 1.19
Return on assets 2.21% 1.97% 2.21% 2.11%
Return on equity 29.27% 26.67% 29.44% 27.94%
Net interest margin 5.43% 5.82% 5.51% 5.84%
Net loan losses to average loans 0.15% 0.13% 0.16% 0.13%
Efficiency ratio 39.0% 43.9% 39.3% 42.4%
Average Balances:
Total Assets $4,201,864 $3,911,060 $4,128,465assets $4,304,387 $3,933,274 $4,253,125 $3,922,167
Earning Assets 3,906,020 3,631,344 3,831,759assets 4,007,049 3,659,033 3,956,535 3,645,189
Total Loans 2,424,017 2,470,989 2,451,940loans 2,375,491 2,448,546 2,399,754 2,459,768
Total Deposits 3,306,929 3,206,717 3,319,086deposits 3,370,433 3,226,951 3,338,681 3,216,834
Shareholders' Equity 315,132 301,014 315,632
Financial Ratios for the Period:
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%equity 324,350 290,960 319,741 295,987
Balances at Period End:
Total Assets $4,386,455 $3,962,294 $4,224,867assets $4,564,692 $4,072,502
Earning Assets 3,972,065 3,598,902 3,828,080assets 4,247,094 3,774,633
Total Loans 2,456,161 2,461,696 2,494,638loans 2,406,889 2,507,968
Total Deposits 3,330,088 3,251,124 3,294,065deposits 3,453,631 3,315,440
Shareholders' Equity 336,946 307,637 341,499equity 357,311 320,373
Financial Ratios at Period End:
Allowance for Loan Lossesloan losses to Loans 2.20% 2.12%loans 2.25% 2.17%
Book Valuevalue per share $10.85 $9.49
Equity to assets 7.83% 7.87%
Total capital to risk assets 11.32% 10.65%
Dividends Paid 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%$0.24 $0.22 $0.48 $0.44
Dividend Payout Ratio 34% 39% 34% 37%
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 the
other information included elsewhere herein.
Page 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS11
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Westamerica Bancorporation and subsidiaries (the "Company") reported firstsecond
quarter 2003 net income of $23.0$23.7 million or $.69 diluted earnings per share.
These results compare to net income of $21.7 million or $.63 diluted earnings per share and $23.3of $0.71.
These results compare with second quarter 2002 net income of $19.3 million or
$.68$0.57 per share. The 2002 period included expenses in connection with the Kerman
State Bank ("KSB") acquisition of $240 thousand after-tax and a $2.5 million
after-tax securities impairment charge.
On a year-to-date basis, the Company reported net income for the six months
ended June 30, 2003 of $46.7 million or diluted earnings per share respectively,of $1.39,
compared with $41.0 million or $1.19 per share for the first and fourth quarterssame period 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 ----------------------------------
March 31, December 31,
----------------------Six months ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
--------------------------------------------------------------------------------------
Net interest income (FTE) $54,062 $52,712 $54,985$54,324 $53,096 $108,386 $105,808
Provision for loan losses (900) (900) (900)(1,800) (1,800)
Noninterest income:
Noninterest income 10,375 9,999 10,214before securities 10,759 10,144 21,118 20,161
gains (impairment)
Securities gains (impairment) 277 (4,260) 293 (4,278)
----------------------------------------------------
Total noninterest income 11,036 5,884 21,411 15,883
Noninterest expense (25,535) (25,693) (25,756)(25,476) (25,909) (51,011) (51,602)
Provision for income taxes (FTE) (14,990) (14,459) (15,287)
----------------------------------(15,313) (12,824) (30,303) (27,283)
----------------------------------------------------
Net income $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%$23,671 $19,347 $46,683 $41,006
====================================================
Net income for the firstsecond quarter of 2003 was $1.4$4.3 million (6%) overor 22.3% more than
the same quarter of 2002. The increase was2002 primarily fromdue to higher noninterest income (up $5.2
million or 87.6%) and improved net interest income (FTE)
up $1.4. The increase in
noninterest income was attributable to a securities impairment charge in 2002
and increased fee income. Improved net interest income (FTE) (up $1.2 million or
3%2.3%), the net result of lower rates paid on interest-bearing
liabilities and growth of was largely due to higher average earning assets (up $275$348.0 million),
partially reducedoffset by a 39 basis point ("bp") decline in the effectnet margin.
Noninterest expense in 2003 declined $433 thousand or 1.7% mostly
because of declining yields on those assets. Noninterest income
grew $376lower personnel costs. The 2002 compensation expense included
$400 thousand (4%) and noninterest expense declined $158 thousand (1%).
The provision for income taxes increased $531 thousand (4%), commensurate withrelating the increase in pre-tax income.KSB acquisition.
Comparing the first threesix months of 2003 to the prior quarter,year, net income decreased $244 thousand (1%rose $5.7
million (13.8%). Similar to the quarter-to-quarter comparison, the increase was
primarily attributable to higher noninterest income (up $5.5 million or 34.8%)
resulting from a declinesecurities impairment charge in 2002, increased fee income and
improved net interest income (down $923 thousand(FTE) (up $2.6 million or 2%2.4%). The decline was mainly caused by lower yields
on earning assets and the effect of fewer accrual days, partially mitigated by
the effect of lower rates paid on interest-bearing liabilities. The decreaseincrease in
net interest income was partly offsetmostly caused by growth in noninterest incomehigher earning assets (up $161$311.3
million or 8.5%), partially reduced by a 33 bp net interest margin reduction.
The $591 thousand or 2%) and decreases1.1% decrease in noninterest expense (down $221 thousand or 1%).
The FTE provision for income taxes was down $297 thousand (2%).mainly due to
lower personnel costs.
Net Interest Income
Following is a summary of the components of net interest income for the periods
indicated (dollars in thousands):
Three months ended ----------------------------------
March 31, December 31,
----------------------Six months ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
--------------------------------------------------------------------------------------
Interest and fee income $57,125 $58,938 $59,052$56,599 $59,087 $113,724 $118,024
Interest expense (7,737) (10,421) (8,534)(7,409) (10,229) (15,146) (20,649)
FTE adjustment 4,674 4,195 4,467
----------------------------------5,134 4,238 9,808 8,433
----------------------------------------------------
Net interest income (FTE) $54,062 $52,712 $54,985
==================================$54,324 $53,096 $108,386 $105,808
====================================================
Average earning assets $3,906,020 $3,631,344 $3,831,759$4,007,049 $3,659,033 $3,956,535 $3,645,189
Net interest margin (FTE) 5.58% 5.86% 5.71%5.43% 5.82% 5.51% 5.84%
Page 12
The Company's primary source of revenue is net interest income, or the
difference between interest income earned on loans and investmentsearning assets and interest
expense paid on interest-bearing deposits and borrowings.liabilities. Net interest income (FTE)
during the firstsecond quarter of 2003 increased $1.4$1.2 million (3%(2.3%) from the
same period in 2002 to $54.1$54.3 million. The increase was mainly
attributable to a $348.0 million mainly due
to growth ofincrease in average earning assets, (up $275 million). Lower cost of
funds (down 51 bp) also contributed to improving net interest income,
although not sufficient to offsetthe
volume component, partly reduced by the effect of the lower yieldsmargin
earned on earningthose assets, (down 64 bp).
Comparing the first quarter of 2003 with the previous quarter, net interest
income (FTE) declined $923 thousand (2%), primarily due to a lower interest
margin (down 13 bp) and the effect of fewer accrual days, slightly offset by
an increase in income related to higher average earning assets (up $74 million).rate component. The declinedecrease in the net
interest margin resulted fromwas the net effect of a 2277 bp decreasedrop in the
earning asset yield,
which was partially improvedoffset by a 1438 bp dropdecline in the cost of funds.
Page 11Comparing the first six months of 2003 with the prior year, net interest
income (FTE) increased $2.6 million or 2.4%. The increase was caused by
the higher earning assets (up $311.3 million), partially offset by the
effect of declining yields on earning assets. The margin reduction was
the result of a 70 bp decrease in the asset yield combined with a 37 bp
decline in the cost of funds.
Interest and Fee Income
Interest and& fee income (FTE) for the firstsecond quarter of 2003 decreased
$1.3$1.6 million (2%(2.5%) from the same period in 2002. The decline was causedthe
net effect of higher average earning assets in 2003, more than offset by
lower yields earned on averagethose assets. Average earning assets partiallygrew $348.0
million (9.5%). The earning asset growth was led by expansion in the
investment portfolio of $421.5 million as follows: mortgage backed
securities and collateralized mortgage obligations (up $307.2 million),
US Agency obligations (up $211.5 million) and municipal securities (up
$119.2 million). Offsetting the increase were declines in U.S. Treasury
securities (down $116.6 million) and other securities (down $99.8
million). A portion of the growth in the investment portfolio was
offset by the positive effect of
growth of such assets.a $73.1 million reduction in loans including commercial real
estate loans (down $62.6 million), commercial loans (down $22.6
million), construction loans (down $17.3 million) and direct consumer
loans (down $14.2 million). The notable exceptions were increases in
indirect consumer loans (up $28.0 million) and residential real estate
loans (up $14.8 million).
The average yield on the Company's earning assets decreased for the
quarter from 7.02%6.94% in the
first quarter of 2002 to 6.38%6.17% in the 2003 period (down 6477 bp). This decreasedownward
trend in yields was reflective of general interest rate markets during much of
2002 and into 2003. All categories of2003, as evident in residential real estate loans declined, most notably including commercial
loans (28(120 bp
decline in yield), residentialindirect consumer loans (117 bp decline) and
commercial loans (31 bp decline). The average interest rate on
commercial real estate loans (110declined by 30 bp; however, the effective
yield on those loans rose by 5 bp decrease)
and indirect consumer loans (down 112 bp). The netdue to higher prepayment fees. As a
result, was that the yield on the loan portfolio declined 44 bp to 6.97%.yield decreased 54 bp. The investment
portfolio yield decreased 76declined 83 bp, to 5.42%, caused bythe net result of declines in U.S.
Treasury securities (down 136188 bp), U.S. Agency obligations (down 127 bp),
and mortgage backed securities and
collateralized mortgage obligations (down 139143 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)(down 139 bp) and municipal securities (down 30 bp),
partially offset by a 155 bp increase in other securities, which was
caused by an FTE adjustment to other securities.
Comparing the first half of 2003 to 2002, interest and fee income (FTE)
decreased by $2.9 million (2.3%). The decline was due to the combined
effect of a higher volume of earning assets and the impact of lower
yields. The positive volume component was caused by a $311.3 million
(8.5%) increase in average earning assets, including mortgage backed
securities and collateralized mortgage obligations (up $231 million) and$269.3 million or
338.9%), U.S. Agency obligations (up $213.2 million or 97.3%), municipal
securities (up $72 million)$95.5 million or 21.4%), and indirect consumer loans (up
$40.3 million or 10.6%). Partially reducingOffsetting the increasegrowth were decreasesdeclines in U.S.
Treasury securities (down $128 million)$122.2 million or 91.0%),
and other securities
(down $69 million).
Average total loans decreased $47$84.2 million as reduced loan demand was reflective
of generally weak economic conditions. Commercialor 27.5%), commercial real estate loans declined
$39(down $50.7
million or 5.2%), commercial loans (down $20.7 million or 3.5%),
construction loans were down $21(down $19.1 million or 29.4%) and commercialdirect consumer
loans declined $19 million.
Comparing the first quarter of 2003 with the previous quarter, interest and fee
income (FTE) fell $1.7(down $14.4 million (3%or 34.6%).
The decrease largely resulted from
declining yields on average earning assets and the effect of fewer accrual days,
partially offset by growth in the investment portfolio.Page 13
The average yield on earning assets for the first threesix months of 2003 was
6.38%6.28% compared with 6.60%to 6.98% in 2002. All earning asset yields fell except
for an 88 bp increase in other securities due to the fourth quarter of 2002. Loanabove-mentioned FTE
adjustment to other securities. The yield on residential real estate
loans was down 116 bp, indirect consumer loan yields also declined 17 bp:115
bp and the yield on commercial loans was down 13 bp, residentialdecreased 29 bp. The yield on
commercial real estate loans fell
29increased by 3 bp, commercial real estatethe net result of higher
prepayment fees, partially offset by a 24 bp decrease in the average
interest rate on those loans. As a result, the composite loan yieldsyield
declined 10 bp, and indirect consumer
loans were down 2863 bp. The investment portfolio yield also decreased 80 bp, affected
primarily by 21 bp; thelower yields on U.S. Treasury securities yield declined 123 bp, U.S. Agency obligations fell 26 bp, mortgage
backed securities and collateralized mortgage obligations were lowered by 17 bp,
and municipal securities decreased 13 bp.
Average earning assets increased $74 million (2%), including higher US Agency
obligations (up $66 million or 19%)(down 162 bp),
mortgage backed securities and collateralized mortgage obligations (up $64 million or 27%)(down
141 bp), U.S. Agency obligations (down 133 bp) and municipal securities
(up $30 million or 6%), partially reduced by decreases in US Treasury
securities (down $33 million or 70%), other securities (down $24 million or 9%),
and commercial real estate loans (down $23 million or 2%)30 bp).
Interest Expense
Interest expense decreased $3$2.8 million (26%(27.6%) in the first three monthssecond quarter of 2003
compared withto the same period in 2002.year-ago period. The decrease was due toresulted from a drop in
the average rate paid on interest-bearing liabilities from 1.60% in 2002
to 1.05% in 2003. The average rate on bankers money fund dropped 88 bp,
rates on CDs over $100 thousand declined an average of 113 bp, rates on
retail CDs declined 78 bp, and rates on money market savings accounts
were lowered 62 bp.
The effect of a $255.7 million (10.0%) increase in average interest-bearing
liabilities in the second quarter caused an increase in volume-related expense
and partially mitigatedoffset the above-mentioned rate-related decline in
interest expense. Short-term borrowings rose by growth$155.6 million and
Federal Home Loan Bank ("FHLB") advances also increased by $38.2
million. Interest bearing deposits rose by $65.1 million, the net result
of those liabilities.
Theincreases in money market savings (up $99.6 million), CDs over $100
thousand (up $28.1 million) money market checking (up $27.5 million) and
regular savings (up $24.3 million), partially reduced by decreases in
preferred money market savings (down $79.1 million) and retail CDs (down
$24.6 million).
During the first half of 2003, interest expense decreased $5.5 million
(26.7%) from 2002, again due to a lower average rate paid on
interest-bearing liabilities decreased from 1.65%(1.09% in the first quarterhalf of 2003 compared
with 1.62% in 2002). All deposit categories declined including money
market savings (from 1.45% in the first six months of 2002 to 1.14%0.85% in
2003. Rates paid on most liabilities
moved with general market conditions: the average rate on short-term borrowings
dropped 66 bp and rates on deposits declined as well, including those onsame period of 2003), CDs over $100 thousand which declined 80 bp; on(from 2.48% to 1.52%)
and retail CDs which dropped by 84 bp;
andwith maturities varying from 1 month to over 3 years
(from 2.64% to 1.84%). Interest rates on high-yield money market accounts, which were lowered an average of 39 bp.short-term borrowings declined
from 1.61% to 1.00%.
Interest-bearing liabilities grew $170$212.6 million or 7% over8.3% for the same period of
2002:six
months ended June 30, 2003 and caused a volume-related increase in
interest expense, which partially offset the rate-related decline in
interest expense. Increases in money market savings (up $105.0 million),
short-term funds increased a net $93 million or 36%,borrowings (up $124.3 million) and Federal Home Loan Bank
borrowings were up $84 million or 97%, and money market accounts grew
$84 million or 7%. These increasesadvances (up $61.0 million) were partially reducedoffset by declines in
public CDs ($79 million or 37%)preferred money market (down $66.7 million) 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, 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 fourth quarter of 2002. Most significant declines were observed
in CDs: Public CDs fell 51 bp, CDs over $100 thousand
declined 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 grew
$46 million or 52%. This was partially reduced by declines in money market
accounts (down $18 million or 1%) and retail CDs (down $9 million or 3%)$29.6 million).
In all periods, the Company has continuously attempted to continue to reduce high-rate time
deposits while increasing the balances of more profitable, lower-cost
transaction accounts in order to minimize the costeffect of funds.adverse cyclical trends.
Net Interest Margin (FTE)
The following summarizes the components of the Company's net interest
margin for the periods indicated:
Three months ended ----------------------------------
March 31, December 31,
----------------------Six months ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
--------------------------------------------------------------------------------------
Yield on earning assets 6.38% 7.02% 6.60%6.17% 6.94% 6.28% 6.98%
Rate paid on interest-bearing
liabilities 1.14% 1.65% 1.28%
----------------------------------1.05% 1.60% 1.09% 1.62%
----------------------------------------------------
Net interest spread 5.24% 5.37% 5.32%5.12% 5.34% 5.19% 5.36%
Impact of all other net
noninterest bearing funds 0.34% 0.49% 0.39%
----------------------------------0.31% 0.48% 0.32% 0.48%
----------------------------------------------------
Net interest margin 5.58% 5.86% 5.71%
==================================5.43% 5.82% 5.51% 5.84%
====================================================
During the firstsecond quarter of 2003, net interest margin fell 2839 bp compared to
the same period in 2002. Yields on earnings assets declined faster than rates
paid on interest-bearing liabilities, resulting in a 1322 bp decline in
net interest spread. The unfavorable impact of lower rates earned on
loans and the investment portfolio, triggered by market trends, was
partially mitigated by decreases in rates paid on deposits and
short-term funds. The decline in the net interest spread was further
widened by the lower value of noninterest bearing funding sources. While
the average balance of these sources increased $104$41 million (10%)or 6%, their
value decreased 1517 bp because of the lower market rates of interest at
which they could be invested.
TheSimilarly, on a year-to-date basis, the net interest margin decreased 1333 bp when
compared withto the fourth quarter
ofsame period in 2002. Earning asset yields decreased 2270 bp and
the cost of interest-bearing liabilities fell by 1453 bp, resulting in an 8a
17 bp decline in the interest spread. Noninterest bearing funding
sources decreased $17increased $64 million (1%)or 9% and because of lower market rates of
interest their margin contribution decreased by 516 bp, with their value
decreasing to 32 bp.
Page 1314
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 amountamounts of interest income from average
earning assets and the resulting yields, and the amount of interest
expense paid on interest-bearing liabilities. Average loan balances
include nonperforming loans. Interest income includes proceeds from
loans on nonaccrual status only to the extent cash payments have been
received and applied as interest income. Yields on securities and
certain loans have been adjusted upward to reflect the effect of income
which is exempt from federal income taxation at the current statutory tax rate
(dollars in thousands).
For the three months ended
March 31,June 30, 2003
-------------------------------------------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
-------------------------------------------------------------------------
Assets:
Money market assets and funds sold $788 $3 1.54%$633 $2 1.26%
Investment securities:
Available for sale
Taxable 683,506 7,704 4.51%778,908 8,254 4.24%
Tax-exempt 303,011 5,807 7.67%306,094 5,839 7.63%
Held to maturity
Taxable 267,852 2,513 3.75%252,332 1,673 2.65%
Tax-exempt 226,846 4,068293,591 5,300 7.22%
Loans:
Commercial
Taxable 367,588 5,366 5.86%
Tax-exempt 203,231 3,635 7.17%
Loans:
Commercial:
Taxable 368,782 5,245 5.77%
Tax-exempt 202,591 3,803 7.61%
Commercial real estate 946,276 18,737 8.03%915,817 18,419 8.07%
Real estate construction 49,756 886 7.22%42,243 791 7.51%
Real estate residential 330,044 4,570 5.54%338,462 4,458 5.27%
Consumer 526,568 8,463 6.52%
-----------------------508,150 7,996 6.31%
--------------------------
Total loans 2,424,017 41,704 6.97%
-----------------------2,375,491 40,665 6.86%
--------------------------
Total earning assets 3,906,020 61,799 6.38%4,007,049 61,733 6.17%
Other assets 295,844
------------297,338
-------------
Total assets $4,201,864
============$4,304,387
=============
Liabilities and shareholders' equity
Deposits:
Noninterest bearing demand $1,117,566$1,130,608 $-- --
Savings and interest-bearing
transaction 1,522,540 1,950 0.52%1,537,163 1,773 0.46%
Time less than $100,000 318,043 1,526 1.95%311,932 1,343 1.73%
Time $100,000 or more 348,780 1,431 1.66%
-----------------------390,730 1,354 1.38%
--------------------------
Total interest-bearing deposits 2,189,363 4,907 0.91%2,239,825 4,470 0.80%
Short-term borrowed funds 348,479 851 0.98%382,677 962 1.00%
Federal Home Loan Bank advancesadvance 170,000 1,5751,592 3.72%
Debt financing and notes payable 22,430 404 7.18%
-----------------------21,393 385 7.16%
--------------------------
Total interest-bearing liabilities 2,730,272 7,737 1.14%2,813,895 7,409 1.05%
Other liabilities 38,89435,534
Shareholders' equity 315,132
-----------324,350
-------------
Total liabilities and shareholders' equity $4,201,864
===========$4,304,387
=============
Net interest spread (1) 5.24%5.12%
Net interest income and interest margin (2) $54,062 5.58%
=====================$54,324 5.43%
==========================
(1) Net interest spread represents the average yield earned on earning assets minus the
average rate paid on interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference between
interest income and expense, (annualized), divided by the average balance of earning
assets.
Page 14
For the three months ended
March 31, 2002
----------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
----------------------------------
Assets:
Money market assets and funds sold $819 $0 0.00%
Investment securities:
Available for sale
Taxable 642,206 8,292 5.16%
Tax-exempt 308,585 5,834 7.56%
Held to maturity
Taxable 67,659 970 5.73%
Tax-exempt 141,086 2,816 7.98%
Loans:
Commercial:
Taxable 397,012 6,026 6.16%
Tax-exempt 193,197 3,695 7.76%
Commercial real estate 985,025 19,570 8.06%
Real estate construction 70,724 1,301 7.46%
Real estate residential 335,933 5,573 6.64%
Consumer 489,098 9,056 7.51%
------------------------
Total loans 2,470,989 45,221 7.41%
------------------------
Total earning assets 3,631,344 63,133 7.02%
Other assets 279,716
-----------
Total assets $3,911,060
===========
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,013,418 $-- --
Savings and interest-bearing
transaction 1,414,010 3,149 0.90%
Time less than $100,000 350,383 2,394 2.77%
Time $100,000 or more 428,906 2,598 2.46%
------------------------
Total interest-bearing deposits 2,193,299 8,141 1.51%
Short-term borrowed funds 255,552 1,026 1.64%
Federal Home Loan Bank advances 86,183 793 3.72%
Debt financing and notes payable 25,679 461 7.18%
------------------------
Total interest-bearing liabilities 2,560,713 10,421 1.65%
Other liabilities 35,915
Shareholders' equity 301,014
-----------
Total liabilities and shareholders' equity $3,911,060
===========
Net interest spread (1) 5.37%
Net interest income and interest margin (2) $52,712 5.86%
=====================
(1) Net interest spread represents the average yield earned on earning assets minus the
average rate paid on interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference between
interest income and expense (annualized), divided by the average balance of earning assets.
Page 15
For the three months ended
December 31,June 30, 2002
-------------------------------------------------------------------------
Interest Rates
Average income/ earned/Income/ Earned/
Balance expense paid
----------------------------------Expense Paid
---------------------------------------
Assets:
Money market assets and funds sold $775 $2 1.02%$1,037 $4 1.54%
Investment securities:
Available for sale
Taxable 654,786 7,617 4.65%667,372 8,350 5.00%
Tax-exempt 301,223 5,750 7.64%306,419 5,610 7.32%
Held to maturity
Taxable 231,267 2,529 4.37%77,340 1,073 5.55%
Tax-exempt 191,768 3,549 7.40%158,319 3,121 7.89%
Loans:
Commercial:Commercial
Taxable 382,572 5,806 6.02%395,215 6,043 6.13%
Tax-exempt 198,598 3,768 7.53%198,205 3,746 7.63%
Commercial real estate 969,351 19,870 8.13%978,395 19,936 8.02%
Real estate construction 42,356 772 7.23%59,573 1,105 7.31%
Real estate residential 332,787 4,848 5.83%323,563 5,235 6.47%
Consumer 526,276 9,008 6.79%
-----------------------493,595 9,102 7.40%
--------------------------
Total loans 2,451,940 44,072 7.14%
-----------------------2,448,546 45,167 7.40%
--------------------------
Total earning assets 3,831,759 63,519 6.60%3,659,033 63,325 6.94%
Other assets 296,706
-----------274,241
-------------
Total assets $4,128,465
===========$3,933,274
=============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,134,279$1,052,252 $-- --
Savings and interest-bearing
transaction 1,537,961 2,406 0.62%1,468,404 3,230 0.88%
Time less than $100,000 326,294 1,779 2.16%369,762 1,817 2.31%
Time $100,000 or more 320,552 1,580 1.96%
-----------------------336,534 2,598 2.79%
--------------------------
Total interest-bearing deposits 2,184,807 5,765 1.05%2,174,700 7,645 1.41%
Short-term borrowed funds 263,061 717 1.07%227,098 895 1.57%
Federal Home Loan Bank advances 170,000 1,610advance 131,770 1,247 3.72%
Debt financing and notes payable 24,607 442 7.18%
--------------------------------------------------------------
Total interest-bearing liabilities 2,642,475 8,534 1.28%2,558,175 10,229 1.60%
Other liabilities 36,07931,887
Shareholders' equity 315,632
-----------290,960
-------------
Total liabilities and shareholders' equity $4,128,465
===========$3,933,274
=============
Net interest spread (1) 5.32%5.34%
Net interest income and interest margin (2) $54,985 5.71%
=====================
(1)$53,096 5.82%
==========================
Page 16
For the six months ended
June 30, 2003
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------
Assets:
Money market assets and funds sold $633 $5 1.58%
Investment securities:
Available for sale
Taxable 731,165 15,957 4.36%
Tax-exempt 304,501 11,545 7.58%
Held to maturity
Taxable 260,263 4,185 3.22%
Tax-exempt 260,219 9,469 7.28%
Loans:
Commercial
Taxable 368,184 10,588 5.80%
Tax-exempt 202,912 7,405 7.36%
Commercial real estate 931,046 37,156 8.05%
Real estate construction 45,999 1,677 7.35%
Real estate residential 334,253 9,028 5.40%
Consumer 517,360 16,517 6.44%
--------------------------
Total loans 2,399,754 82,371 6.78%
--------------------------
Total earning assets 3,956,535 123,532 6.28%
Other assets 296,590
-------------
Total assets $4,253,125
=============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,124,087 $-- --
Savings and interest-bearing
transaction 1,529,851 3,724 0.49%
Time less than $100,000 314,988 2,869 1.84%
Time $100,000 or more 369,755 2,785 1.52%
--------------------------
Total interest-bearing deposits 2,214,594 9,378 0.85%
Short-term borrowed funds 365,578 1,812 1.00%
Federal Home Loan Bank advance 170,000 3,167 3.76%
Debt financing and notes payable 21,911 789 7.26%
--------------------------
Total interest-bearing liabilities 2,772,083 15,146 1.09%
Other liabilities 37,214
Shareholders' equity 319,741
-------------
Total liabilities and shareholders' equity $4,253,125
=============
Net interest spread represents the average yield earned on earning assets minus the
average rate paid on interest-bearing liabilities.
(2)(1) 5.19%
Net interest margin is computed by calculating the difference between interest income and expense (annualized), divided by the average balance of earning
assets.interest margin (2) $108,386 5.51%
==========================
Page 1617
For the six months ended
June 30, 2002
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------
Assets:
Money market assets and funds sold $785 $4 1.02%
Investment securities:
Available for sale
Taxable 650,568 16,632 5.11%
Tax-exempt 311,864 11,440 7.34%
Held to maturity
Taxable 72,528 2,042 5.63%
Tax-exempt 149,676 5,925 7.92%
Loans:
Commercial
Taxable 396,114 12,069 6.14%
Tax-exempt 195,701 7,466 7.69%
Commercial real estate 981,710 39,506 8.02%
Real estate construction 65,148 2,407 7.24%
Real estate residential 329,748 10,808 6.56%
Consumer 491,347 18,158 7.45%
--------------------------
Total loans 2,459,768 90,414 7.41%
--------------------------
Total earning assets 3,645,189 126,457 6.98%
Other assets 276,978
-------------
Total assets $3,922,167
=============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,032,835 $-- --
Savings and interest-bearing
transaction 1,441,206 6,379 0.89%
Time less than $100,000 343,459 4,501 2.64%
Time $100,000 or more 399,334 4,906 2.48%
--------------------------
Total interest-bearing deposits 2,183,999 15,786 1.46%
Short-term borrowed funds 241,325 1,921 1.61%
Federal Home Loan Bank advance 108,977 2,039 3.72%
Debt financing and notes payable 25,143 903 7.18%
--------------------------
Total interest-bearing liabilities 2,559,444 20,649 1.62%
Other liabilities 33,901
Shareholders' equity 295,987
-------------
Total liabilities and shareholders' equity $3,922,167
=============
Net interest spread (1) 5.36%
Net interest income and interest margin (2) $105,808 5.84%
==========================
Page 18
Summary of Changes in Interest Income and Expense due to
Changes in Average Asset & Liability Balances and Yields Earned & Rates Paid
The following tables set forth a summary of the changes in interest income and
interest expense due tofrom changes in average asset and liability balances (volume)
and changes in average interest rates for the periods indicated. Changes
not solely attributable to volume or rates have been allocated in
proportion to the respective volume and rate components (dollars in
thousands).
Three months ended March 31,June 30, 2003
compared with three months
ended March 31,June 30, 2002
---------------------------------------------------------------------------
Volume Rate Total
---------------------------------------------------------------------------
Interest and fee income:
Money market assets and funds sold $0 $3 $3($1) ($1) ($2)
Investment securities:
Available for sale
Taxable 330 (918) (588)1,284 (1,380) (96)
Tax-exempt 153 (180) (27)($6) 235 229
Held to maturity
Taxable 1,988 (445) 1,543$1,398 (798) 600
Tax-exempt 1,503 (251) 1,252$2,462 (283) 2,179
Loans:
Commercial:Commercial
Taxable (414) (367) (781)($411) (266) (677)
Tax-exempt 176 (68) 108$93 (204) (111)
Commercial real estate (767) (66) (833)($1,261) (256) (1,517)
Real estate construction (375) (40) (415)(324) 10 (314)
Real estate residential (96) (907) (1,003)231 (1,008) (778)
Consumer 660 (1,253) (593)
------------------------------------262 (1,368) (1,105)
---------------------------------------
Total loans (816) (2,701) (3,517)
------------------------------------(1,410) (3,092) (4,502)
---------------------------------------
Total earning assets 3,158 (4,492) (1,334)
------------------------------------3,727 (5,319) (1,592)
---------------------------------------
Interest expense:
Deposits:
Savings and interest-bearing
transaction 226 (1,425) (1,199)145 (1,602) (1,457)
Time less than $100,000 (205) (663) (868)(263) (211) (474)
Time $100,000 or more (428) (739) (1,167)
------------------------------------364 (1,608) (1,244)
---------------------------------------
Total interest-bearing deposits (407) (2,827) (3,234)
------------------------------------246 (3,421) (3,175)
---------------------------------------
Short-term borrowed funds 297 (472) (175)468 (401) 67
Federal Home Loan Bank advances 777 5 782advance 361 (16) 345
Debt financing and notes payable (58) 1 (57) ------------------------------------0 (57)
---------------------------------------
Total interest-bearing liabilities 609 (3,293) (2,684)
------------------------------------1,018 (3,838) (2,820)
---------------------------------------
Increase (Decrease) in Net Interest Income $2,549$2,709 ($1,199) $1,350
====================================1,481) $1,228
=======================================
Page 1719
ThreeSix months ended March 31,June 30, 2003
compared with threesix months
ended December 31,June 30, 2002
---------------------------------------------------------------------------
Volume Rate Total
---------------------------------------------------------------------------
Interest and fee income:
Money market assets and funds sold $0 $1(1) 2 $1
Investment securities:
Available for sale
Taxable 243 (156) 871,922 (2,597) (675)
Tax-exempt 24 33 57(274) 379 105
Held to maturity
Taxable 353 (369) (16)3,341 (1,198) 2,143
Tax-exempt 695 (176) 5194,057 (513) 3,544
Loans:
Commercial:Commercial
Taxable (324) (237) (561)(824) (657) (1,481)
Tax-exempt (7) 42 35270 (331) (61)
Commercial real estate (889) (244) (1,133)(2,024) (326) (2,350)
Real estate construction 115 (1) 114(699) (31) (730)
Real estate residential (104) (174) (278)144 (1,924) (1,780)
Consumer (186) (359) (545)
------------------------------------925 (2,566) (1,641)
---------------------------------------
Total loans (1,395) (973) (2,368)
------------------------------------(2,208) (5,835) (8,043)
---------------------------------------
Total earning assets (80) (1,640) (1,720)
------------------------------------6,837 (9,762) (2,925)
---------------------------------------
Interest expense:
Deposits:
Savings and interest-bearing
transaction (68) (388) (456)371 (3,026) (2,656)
Time less than $100,000 (79) (174) (253)(349) (1,283) (1,632)
Time $100,000 or more 96 (245) (149)
------------------------------------(341) (1,780) (2,121)
---------------------------------------
Total interest-bearing deposits (51) (807) (858)
------------------------------------(319) (6,089) (6,409)
---------------------------------------
Short-term borrowed funds 196 (62) 134774 (883) (108)
Federal Home Loan Bank advances (35) 0 (35)advance 1,137 (9) 1,128
Debt financing and notes payable (39) 1 (38)
------------------------------------(116) 2 (114)
---------------------------------------
Total interest-bearing liabilities 71 (868) (797)
------------------------------------
Decrease1,476 (6,979) (5,503)
---------------------------------------
Increase in Net Interest Income $5,361 ($151) ($772) ($923)
====================================2,783) $2,578
=======================================
Page 1820
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 firstsecond quarter of 2003 unchangedand 2002. Additionally, $2.1
million of reserves were acquired from Kerman State Bank in the second
quarter of 2002. For the first six months of 2002 and the
fourth quarters of 2002.2003, $1.8 million
was provided in each period. For further information regarding net
credit losses and the allowance for loan losses, see the "Classified
Loans and OREO"Loans" section of this report.
Noninterest Income
The following table summarizes the components of noninterest income for
the periods indicated (dollars in thousands).
Three months ended -----------------------------------
March 31, December 31,
-----------------------Six months ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
---------------------------------------------------------------------------------------
Service charges on deposit accounts 6,425 $6,002 $6,184$6,648 $5,967 $13,073 $11,969
Merchant credit card fees 862 905 891900 963 1,762 1,868
ATM fees and interchange 560 517 576601 617 1,161 1,134
Debit card fees 494 406 542
Check up-charges 244 124 203
Trust563 461 1,057 867
Other service fees 238 311 246380 357 749 710
Mortgage banking income 226 187 278301 217 527 404
Trust fees 277 243 516 554
Financial services commissions 207 339 267
Official check sales income 133 157 154
Gains on sale of foreclosed property 2 0 0210 425 418 764
Other noninterest income 984 1,051 873
-----------------------------------879 894 1,855 1,891
Total $10,375 $9,999 $10,214
===================================noninterest income before ----------------------------------------------------
securities gains (impairment) 10,759 10,144 21,118 20,161
----------------------------------------------------
Securities gains (impairment) 277 (4,260) 293 (4,278)
----------------------------------------------------
Total noninterest income $11,036 $5,884 $21,411 $15,883
====================================================
Noninterest income for the firstsecond quarter of 2003 rose by $376was $11.0 million, up
$5.2 million or 87.6%, primarily due to a $4.3 million securities
impairment charge in 2002, $277 thousand (4%)
fromin securities gains in 2003 and
increased fee income in 2003. Excluding the same period in 2002. Serviceimpairment charge, the
largest factor contributing to higher income was service charges on
deposit accounts increased
$423deposits (up $681 thousand) mainly resulting from a new debit card
overdraft program introduced in January of 2003. The second largest
factor was a $102 thousand (7%) mostlyincrease in debit card fees. Partially
offsetting the increase was a $215 thousand decline in financial
services commissions which was caused by lower sales of fixed annuities,
mutual funds and life insurance.
Noninterest income for the first half of 2003 was $21.4 million, up $5.5
million or 34.8% from 2002, again mainly due to increasesthe 2002 securities
impairment charge and growth in DDA activityfee income. Similar to the
quarter-to-quarter comparison, the primary contributing factor was
service charges and
overdraft charges. Repricingon deposits (up $1.1 million) due to repricing of retail
checking services became effective May
of 2002 and a new debit card overdraft programprogram. The secondary
factor was introduceda $190 thousand growth in January of
2003. Increases in ATM fees and debit card fees also contributeddue to increased
usage. Mortgage banking income rose $123 thousand primarily due to
higher noninterest income.
Offsettingnet gains on the increases were declinessales of mortgage loans ($167 million in the
first half of 2003 compared with $53 million in the same period in
2002). A $346 thousand decline in financial services commissions
(down $132 thousand or 39%) due to
lower sales of most products,fixed annuities, mutual funds and trust
fees (down $73life insurance and a
$106 thousand or 24%) because the first quarter of 2002 benefited
from additional court fees.
Comparing the first quarter of 2003 to the previous quarter, noninterestdecline in merchant credit card income increased $161 thousand (2%). The largest positive contributor
was service charges on deposit accounts, which increased $241 thousand (4%).
Overdraft charges rose primarily due to repricing andhigher
interchange expense partially offset the new debt card
overdraft program discussed above. Savings service charge income rose largely
due to annual IRA fees collected in the first quarter of 2003. Other
noninterest income in the first quarter of 2003 benefited from a $118 gain
on the sale of a former branch building.
Declinesincrease in noninterest income in the first quarter compared to the previous
quarter are as follows: account analysis deficit fees mainly due to a
decreased level of services; financial services commissions primarily
because of an $86 thousand decrease in fixed annuities sales; partially
offset by a $39 thousand increase in variable annuities sales, and mortgage
banking income largely because the previous quarter benefited from increased
loan activity.income.
Page 1921
Noninterest Expense
The following table summarizes the components of noninterest expense for
the periods indicated (dollars in thousands).
Three months ended -----------------------------------
March 31, December 31,
-----------------------Six months ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
---------------------------------------------------------------------------------------
Salaries and incentives $10,526 $10,922 $10,682
Employeerelated benefits 3,186 2,941 2,691$13,598 $14,281 $27,296 $28,143
Occupancy 2,995 2,931 3,0683,044 2,898 6,039 5,829
Equipment 1,374 1,434 1,5341,381 1,425 2,755 2,859
Data processing services 1,559 1,499 1,5351,518 1,516 3,077 3,015
Courier service 929 889 929926 916 1,855 1,805
Telephone 425 409 442423 421 848 830
Postage 420 405 402401 397 821 802
Professional fees 413 371 454457 443 870 815
Merchant credit card 342 340 352316 347 658 687
Stationery and supplies 318 345 382308 373 626 718
Advertising/public relations 311 290 532 579
Employee recruiting 68 71 110 181
Loan expense 276 333 323
Deposit expense 246 138 246
Correspondent service charges 243 193 185
Advertising/public relations 220 289 290380 360 656 693
Operational losses 173 231 284
Employee recruiting 42 110 63
Foreclosed property228 191 401 422
Repossessed collateral expense 1 49 911 2 50
Amortization of deposit intangibles 249165 201 301
Amortization of goodwill 0 0 0414 402
Other noninterest expense 1,598 1,663 1,502
-----------------------------------1,951 1,778 4,051 3,772
----------------------------------------------------
Total $25,535 $25,693 $25,756
===================================$25,476 $25,909 $51,011 $51,602
====================================================
Average full time equivalent staff 1,047 1,081 1,0621,033 1,078 1,040 1,079
Noninterest expense to revenues (FTE) 39.63% 40.97% 39.50%38.98% 43.93% 39.30% 42.40%
Noninterest expense decreased $158 thousand or 1% infor the firstsecond quarter of 2003 comparedwas $25.5 million,
$433 thousand lower than in 2002. The largest decline was in salaries
and related benefits, which were down $683 thousand (4.8%), primarily
due to a $569 thousand decrease in salaries as a result of a decline in
the number of full time equivalent ("FTE") employees. Also, the prior
year period included $366 thousand severance pay relating to the same periodKSB
acquisition. Offsetting the decline was a $146 thousand increase in
occupancy expense, the net result of higher utilities, partially offset
by lower costs for building maintenance and lower sublease income.
Noninterest expense was $51.0 million for the first half of 2003, which was $591
thousand or 1.1% less than 2002. The largest decrease was salaries and incentives, which were down $396related
benefits (down $847 thousand (4%or 3.0%). Most as a result of the decline is
attributabledeclines in
salaries (down $581 thousand) due to a $403fewer number of FTE employees.
Additionally, the 2002 period included the above-mentioned severance
costs. Equipment expense fell by $104 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(3.6%) from 2002
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 $245 thousand
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%)depreciation. An increase in deposit expense and an increase in occupancy
expense largely due to higher 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 declined $221 thousand or 1%. Salaries and incentives
dropped by $156 thousand (1%) primarily due to a $125 thousand decline in
regular salary resulting from reduced FTE employees and a $86 thousand
decrease in incentive compensation programs. Equipment expense fell $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 $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 year included $89 thousand OREO
writedown compared with none in 2003. Occupancy expense dropped primarily
due to a $102 thousand seasonal decrease in utilities, partially offset by
increases in building maintenance and real estate taxes. Advertising and
public relations fell largely due to decreases in business development.
Stationary and supplies declined due to decreases in stationary purchases
and printing expense. Amortization of deposit intangibles fell due to the
expiration of the deposit intangible in connection with a 1996 acquisition.
The following expenses increased in comparison of the first quarter to the
fourth quarter: employee benefits
(up $495 thousand or 18%) largely due to
a seasonal increase in payroll taxes (up $293$219 thousand) and increases in
401K employer match, group insurance,, resulting from higher costs for workers
compensation, insurance and supplemental
employee retirement; correspondent service charges largely due to increases
in charges fromretirement plans, partially reduced the
Company's two main correspondent banks; and other
noninterest expense mainly due to a $129 thousand increase in staff relations
resulting from the annual employee recognition awards; and a seasonal increase
in director fees.
Page 20decrease.
Provision for Income Tax
During the firstsecond quarter of 2003, the Company recorded income tax
expense
(FTE)provision of $15.0$10.2 million, $531 thousand (4%$1.6 million (18.6%) higher than the firstsecond
quarter of 2002; on a year-to-date basis, income tax provision was $20.5
million for 2003 compared to $18.9 million for 2002. The current quarter
provision represents an effective tax rate of 31.0%,30.1 percent, compared to
32.2% and 31.8%30.7 percent for the second quarter of 2002; for the first and fourth quarterssix months of
2003, the effective tax rate was 30.5 percent, compared to 31.5 percent
recorded in 2002. The change in the provision for income taxes for all periods
presented is primarily attributable to the respective levelslevel of earnings
and the incidence of allowable deductions, particularly higher revenues
recognized from tax-exempt loans and state and municipal securities which increased $639 thousand in the first quarter
of 2003 over the same period last year and $249 thousand over the fourth
quarter of 2002.tax credits generated
from low-income housing investments.
Page 22
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 the loan portfolio. Creditearning
assets into less risky investments. Loan reviews are performed using
grading standards and criteria similar to those employed by bank
regulatory agencies. AllLoans receiving lesser grades fall under the
"classified" category, which includes all nonperforming and potential
problem loans, fall under the "classified loans" category and receive an elevated level of attention to ensure
collection. Repossessed collateral is recorded at the lower of cost or
market.
The following is a summary of classified loans and other real estate owned
(OREO)repossessed collateral on the
dates indicated (dollars in thousands):
At
At March 31,June 30, December 31,
--------------------------------------------------
2003 2002 2002
--------------------------------------------------------------------------
Classified loans $32,505 $26,687$27,324 $30,029 $34,001
Other real estate owned 88 834Repossessed collateral 1,888 473 381
-----------------------------------
Total $32,593 $27,521---------------------------------------
Classified loans and repossessed collateral $29,212 $30,502 $34,382
==========================================================================
Allowance for loan losses /
classified loans 167% 195%198% 181% 159%
Classified loans at March 31,June 30, 2003, increased $5.8decreased $2.7 million (22%(9.0%) from
a year
ago, primarilyJune 30, 2002, reflecting the effectiveness of the Company's high
underwriting standards and active workout policies. Repossessed
collateral increased $1.4 million (299.2%) from June 30, 2002, due to
classifiedsix new foreclosures on loans with collateral recorded at $1.8 million,
partially offset by sales and writedowns of properties acquired though the June, 2002 Kerman
State Bank ("KSB"in
satisfaction of debt. The $6.7 million (19.6%) acquisition and new downgrades, partially reduced by
upgrades, 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, 2002, mainlywas due to payoffs, upgrades, chargeoffs
and chargeoffs,transfers to repossessed collateral, partly offset by new
downgrades. Other real estate owned
declined $293 thousand (77%The $1.5 million (395.5%) increase in repossessed collateral
from December 31, largely2002, was primarily due to a sale of a
foreclosed propertysix new foreclosures valued
at $261$1.8 million, partially offset by sales of three foreclosed
properties recorded at $293 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 reachingthey reach 90 days or more delinquent, unless the
loan is well secured and in the process of collection. Interest
previously accrued on loans placed on nonaccrual status is charged
against interest income. In addition, loans secured by real estate with
temporarily impaired values and commercial loans to borrowers
experiencing financial difficulties are placed on nonaccrual status even
though the borrowers continue to repay the loans as scheduled. Such
loans are classified as "performing nonaccrual" and are included in
total nonperforming assets.loans. When the ability to fully collect nonaccrual
loan principal is in doubt, cash payments received are applied against
the principal balance of the loan until such time as full collection of
the remaining recorded balance is expected. Any subsequent interest
received is recorded as interest income on a cash basis.
Page 21
The following is a summary of nonperforming loans and OREOrepossessed
collateral on the dates indicated (dollars in thousands):
At
At March 31,June 30, December 31,
------------------------------------------------
2003 2002 2002
--------------------------------------------------------------------------
Performing nonaccrual loans $2,471 $3,195$1,353 $3,279 $3,464
Nonperforming, nonaccrual loans 6,402 4,3955,484 6,980 5,717
--------------------------------------------------------------------------
Total nonaccrual loans 8,873 7,5906,837 10,259 9,181
Loans 90 days past due and
still accruing 320 252386 189 738
--------------------------------------------------------------------------
Total nonperforming loans 9,193 7,8427,223 10,448 9,919
Other real estate owned 88 834Repossessed collateral 1,888 473 381
--------------------------------------------------------------------------
Total $9,281 $8,676nonperforming loans and
repossessed collateral $9,111 $10,921 $10,300
==========================================================================
Allowance for loan losses /
nonperforming loans 589% 665%750% 520% 547%
Page 23
Performing nonaccrual loans at March 31,June 30, 2003 decreased $724 thousand (23%)
and $993 thousand (29%fell $1.9 million (58.7%)
from athe same period in the previous year ago and $2.1 million (60.9%) from
year-end, 2002, respectively.December 31, 2002. The change resulteddecrease from charge-offs,both periods was due to payoffs,
chargeoffs, loans being returned to accrual status and loans being
placed on nonperforming nonaccrual, offset by new loans placed on
performing nonaccrual.
Nonperforming nonaccrual loans at March 31,June 30, 2003 increased $2decreased $1.5 million
(46%)
and $685 thousand (12%(21.4%) from the previoussame period a year ago and December 31, 2002,
respectively.$233 thousand (4.1%) from
year-end, 2002. The increase was due to the net result ofdecreases resulted from loans being added
to nonaccrual, partially offset by others being returned to
full-accrual status, transfers to repossessed collateral or being
charged off or paid off.off, partially offset by loans being added to
nonperforming nonaccrual.
Changes in other real estate ownedrepossessed collateral are discussed above.
The amount of gross interest income that would have been recorded for
nonaccrual loans for the three monthsand six month periods ended March 31,June 30,
2003, if all such loans had been currentperformed in accordance with their original
terms, was $163$142 thousand and $305 thousand, respectively, compared to
$133$107 thousand and $184$240 thousand, respectively, for the second quarter
and the first and fourth quartershalf of 2002.
The amount of interest income that was recognized on nonaccrual loans
from all cash payments, including those related to interest owed from
prior years, made during the three and six months ended March 31,June 30, 2003,
totaled $71$146 thousand and $217 thousand, respectively, compared to $170$156
thousand and $113$326 thousand, respectively, for the first
and fourth quarters ofcomparable periods in
2002. These cash payments represent annualized yields of 3.28%7.35% and
5.22%, respectively, for the second quarter and the first threesix months of
2003 compared to 9.39%8.40% and 4.66%8.89%, respectively, for the firstsecond quarter
and the fourth quarterfirst half of 2002.
Total cash payments received including those recorded in prior years,during the second quarter of 2003 which
were applied against the book balance of nonaccrual loans outstanding at
March 31,June 30, 2003, totaled approximately $184 thousand, compared with
$64 thousand and $70$74 thousand. Cash payments
received totaled $259 thousand for the first and the fourth quarters of
2002, respectively.
Management believes thesix months ended June 30, 2003.
The overall credit quality of the loan portfolio continues to be strong;
however, total nonperforming assets could fluctuate from period to
period. The performance of any individual loan can be impacted by
external factors such as the interest rate environment economic conditions or factors
particular to the borrower. NoThe Company expects to maintain the level of
nonperforming assets; however, the Company can give no assurance can be given that
additional increases in nonaccrual loans will not occur in the future.
Allowance for Loan Losses
The Company's allowance for loan losses is maintained at a level
estimated to
beconsidered adequate to provide for losses that can be estimated based
upon specific and general conditions. These include conditions unique to
individual borrowers, as well as overall credit loss experience, the
amount of past due, nonperforming and classified loans, recommendations
of regulatory authorities, prevailing economic conditions and other
factors.
ThePage 24
A portion of the allowance is specifically allocated to segments of the loan portfolioimpaired and
other identified loans whose full collectibility is uncertain. Such
allocations are determined by Management based on loan-by-loan analyses.
A second allocation is based in part on quantitative analyses of
historical credit loss experience, in which criticized and classified
loan balances are analyzed using a linear regression model to determine
standard allocation percentages. The results of this analysis are
applied to current criticized and classified loan balances to allocate
the allowancereserve 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 portionLast, allocations are made to
general loan categories based on relevant economic conditions and
available data, including unemployment statistics, commercial office
vacancy rates, mortgage loan foreclosure trends, agriculture commodity
prices, and levels of the allowance is also allocated to specific impaired loans. As of the date
of this report,government funding.
Management considers the $54.2 million allowance for loan losses, which
constituted 2.20%2.25% of total loans at March 31,June 30, 2003, to be adequate as an allowancea
reserve against inherent losses. However, while the Company's policy is
to charge off in the current period those loans on which the loss is
considered probable, the risk exists of future losses which cannot be
precisely quantified or attributed to particular loans or classes of
loans. Management continues to evaluate the loan portfolio and assess
current economic conditions that will dictate future required allowance
levels.
The following table summarizes the loan loss provision, net credit losses and
allowance for loan losses for the periods indicated (dollars in thousands):
Three months ended -----------------------------------
March 31, December 31,
-----------------------Six months ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
---------------------------------------------------------------------------------------
Balance, beginning of period $54,154 $52,147 $54,227 $52,085 $54,447$52,086
Loan loss provision 900 900 9001,800 1,800
Loans charged off (2,028) (1,644) (1,593)(1,841) (1,353) (3,869) (2,997)
Recoveries of previously
charged off loans 1,055 806 473
-----------------------------------946 580 2,001 1,386
----------------------------------------------------
Net credit losses (973) (838) (1,120)
-----------------------------------(895) (773) (1,868) (1,611)
----------------------------------------------------
Acquired from Kerman State Bank 0 2,050 0 2,050
Balance, end of period $54,154 $52,147 $54,227
===================================$54,159 $54,324 $54,159 $54,325
====================================================
Allowance for loan losses /
loans outstanding 2.20% 2.12%2.25% 2.17%
Asset and Liability Management
The fundamental objective of the Company's management of assets and
liabilities is to maximize economic value while maintaining adequate
liquidity and a conservative level of interest rate risk. The Company
actively solicits loans and transaction deposit accounts. Asset and
liability management techniques include adjusting the duration,
liquidity, volume, rates and yields, and other attributes of its
investment portfolio, time deposits, and other funding sources to
achieve Company objectives.
The primary analytical tool used by the Company to gauge interest rate
risk is a simulation model to project changes in net interest income
("NII") that result from forecast changes in interest rates. The
analysis calculates the difference between a NII forecast over a
twelve-month12-month period using a flat interest rate scenario, and a NII forecast
using a rising or falling rate scenario where the Fed Funds rate is made to rise
or fall evenly by 100 basis
pointsbp and 200 bp, and a falling rate scenario of 50 bp over
the twelve-month12-month forecast interval triggering a response in the other
forecasted rates. Company policy requires that such simulated changes in
NII should be within certain specified ranges or steps must be taken to
reduce interest rate risk. The results of the model indicate that the
mix of interest rate sensitive assets and liabilities at March 31,June 30, 2003
would not result in a fluctuation of NII that would exceed the
parameters established by Company policy.
Liquidity
The Company's principal source of asset liquidity is marketable
investment securities available for sale. At March 31,June 30, 2003, investment
securities available for sale totaled $1,048 million,$1.25 billion, representing an
increase of $100$264.9 million from December 31,June 30, 2002. In addition, At March 31,at June 30,
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 $8.2 million$500 thousand was outstanding.outstanding at June 30, 2003.
Additionally, as a member of the Federal Reserve System, the Company
has accessthe ability to borrowingborrow from the Federal Reserve. The Company may
also borrow from the FHLB which it collateralizes with its residential
real estate loans and securities. At March 31,June 30, 2003, the Company had
excess collateral providing available borrowing capacity from the FHLB
of approximately $61$65 million.
Page 25
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 6% at March 31,June 30, 2003. The Company's long-term debt rating from
Fitch Ratings iswas raised from A- to A, with a stable outlook.outlook, in June
2003. Management is confident the Company could access additional
long-term debt financing if desired.
TheIn addition, the Company generates significant liquidity from its operating
activities. The Company's profitability during the first threesix months of
2003 and 2002 generated substantial cash flows, which are included in
the totals provided from operations of $37$59.1 million and $35$48.3 million,
respectively. These operatingAdditional cash flows were more than sufficient to pay shareholder
dividends, repay long term debt obligations,may be provided by financing
activities, primarily the acceptance of deposits and retire common stock
collectively totaling $33 million and $29 million, respectively, inborrowings from
banks.
During the first threesix months of 2003 financing activities provided $159.2
million in cash. This amount includes cash outflows related to the
Company's stock repurchase programs and 2002.
Page 23dividends paid to shareholders
of $28.1 million and $15.9 million, respectively, more than offset by
$159.6 million proceeds from an increase in deposits and $43.6 million
proceeds from short-term borrowings.
During the first six months of 2002 financing activities provided $6.4
million in cash. This amount includes cash outflows related to the
Company's stock repurchase programs and dividends paid to shareholders
of $46.7 million and $14.9 million, respectively, more than offset by
$67.0 million net proceeds from FHLB advances and short-term borrowings.
The Company had net cash outflows in its investing activities during
both three-monthsix month periods ended March 31.June 30. In 2003, purchases net of sales
and maturities of investment securities were $180$322.5 million, which was
in part offset by net repayments of loans of $37$84.1 million. The
investment securities portfolio increase was generally financed by a
$36$159.6 million increase in deposits, and $66a $43.6 million newincrease in
short-term borrowings.
During the first threesix months of 2002 purchasesthe Company had net cash outflows in
its investing activities. Purchases net of sales and maturities of
investment securities were $37$89.1 million which wasand were partially reducedoffset by
net repayments of loans of $21$33.7 million and $5.4 million cash obtained
in the KSB acquisition, resulting in net cash used of $50.3 million. The
investment securities portfolio increase was generallyprimarily financed by deposit growth.
The Company anticipates increasing its cash level from operations through
2003 through increased profitability. For the same period, it is anticipated
that deposit balances will increase. Deposit growth may be invested$100
million in loans
or investment securities based on economic conditions, interest rate levels,
and a variety of other conditions. Deposit growth may also be used 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 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.FHLB advances.
Capital Resources
The current and projected capital position of the Company and the impact
of Capitalcapital 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 568689 thousand
and 1.1 million shares induring the first quartersix months of 2003 558 thousand
shares in the first quarter ofand 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.respectively.
The Company's primary capital resource is shareholders' equity, which
was $337$357.3 million at March 31,June 30, 2003. This amount which is reflectiverepresents an increase
of $15.8 million (4.6%) from December 31, 2002, the effectnet result 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($6.3 million) and comprehensive income for the period
($53.5 million), partially offset by share repurchases ($28.1 million)
and dividends paid ($15.9 million). Due to the net effect 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 capital combined with earnings asset growth the Company's
ratio of equity to total assets felldeclined slightly to 7.68%7.83% at March 31,June 30,
2003, from 7.76%7.87% a year ago due to asset growth.ago. The equity to assets ratio was 8.08% onat
December 31, 2002.
The following summarizes the ratios of capital to risk-adjusted assets for the
periods indicated:
At
MarchAt June 30, December 31, At Minimum
----------------------December 31----------------------- Regulatory
2003 2002 2002 Requirement
------------------------------------------------------------------------------------------------
Tier I Capital 9.45% 9.33%10.06% 9.31% 9.71% 4.00%
Total Capital 10.71% 10.67%11.32% 10.65% 10.97% 8.00%
Leverage ratio 7.00% 7.18%7.17% 7.25% 7.27% 4.00%
The risk-based capital ratios improvedratio increased at March 31,June 30, 2003, compared withto 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,net income, partially diluted with an increase in risk-weighted assets, especially
investments. The leverage ratio fell because of asset growth includingoffset by 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 ofCompany's common
stock repurchases and asset growth.dividends paid to shareholders. The leveragerisk-based
capital ratio fellincreased at June 30, 2003 from December 31, 2002
primarily due to anticipated asset growth.
Capital ratiosthe combination of an increase in shareholders' equity
as a result of increased net income and a reduction in risk-weighted
assets.
New Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation 46, which clarifies the application of Accounting
Research Bulletin ("ARB") 51, consolidated financial statements, to
certain entities (called variable interest entities) in which equity
investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support
from other parties. The disclosure requirements of this Interpretation
are reviewed by Managementeffective for all financial statements issued after January 31,
2003. The consolidation requirements apply to all variable interest
entities created after January 31, 2003. In addition, public companies
must apply the consolidation requirements to variable interest entities
that existed prior to February 1, 2003 and remain in existence as of the
beginning of annual or interim periods beginning after June 15, 2003.
Given the nature of the Company's operations, management does not expect
this Interpretation to have a significant impact on a regular basisthe consolidated
financial statements.
Page 26
In April 2003, the FASB issued Statement NO. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities, to ensure that
capital exceeds the prescribed regulatory minimumsprovide
clarification of certain terms and investment characteristics identified
in Statement 133. Statement 149 is to be applied prospectively and is
adequate to meeteffective for contracts entered into or modified after June 30, 2003.
The Company does not expect the Page 24
Company's anticipated future needs. All ratios as shown in the table above are
in excessadoption of the regulatory definitionStatement to have a
material impact on the consolidated financial statements.
In May 2003, the FASB issued Statement No.150, Accounting for Certain Financial
Instruments with Characteristics of "well capitalized".both Liabilities and Equity. The
provisions of this Statement are effective for financial instruments
entered into or modified after May 31, 2003, and otherwise are effective
at the beginning of the first interim period beginning after June 15,
2003, except for mandatorily redeemable financial instruments of
nonpublic entities. Given the nature of the Company's liability and
equity instruments, management does not expect this Statement to have a
material impact to the consolidated financial statements upon adoption
of the Statement on July 1, 2003.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company does not currently engage in trading activities or use derivative
instruments to control interest rate risk, even though such activities may be
permitted with the approval of the Company's Board of Directors.
Interest rate risk as discussed above is the most significant market risk
affecting the Company. Other types of market risk, such as foreign currency
exchange risk, equity price risk and commodity price risk, are not significant
in the normal course of the Company's business activities.
Item 4. Controls and Procedures
The Company's principal executive officer and principal financial officer have
evaluated the effectiveness of the Company's "disclosure controls and
procedures," as such term is defined in Rule 13a-14(c) of the Securities
Exchange Act of 1934, as amended, within 90 daysas of the filing date of this
Quarterly Report on Form 10-Q.June 30, 2003. Based upon their
evaluation, the principal executive officer and principal financial officer
concluded that the Company's disclosure controls and procedures are effective.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls, since the date the
controls were evaluated.
Page 2527
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
NoneProxies for the Annual Meeting of shareholders held on April 24,
2003, were solicited pursuant Regulation 14A of the Securities
Exchange Act of 1934. The Report of Inspector of election indicates
that 27,676,414 shares of the Common Stock of the Company, out of
33,200,486 shares outstanding, were present, in person or by proxy,
at the meeting. With the exception of item No.2, below, there were no
"broker non-votes" on the following matters because they were
considered "routine" and therefore, on those matters, brokers were
able to vote shares for which no direction was provided by the
beneficial owner. The following matters were submitted to a vote of
the shareholders:
1. - Election of directors:
For Withheld
---------- --------
Etta Allen 27,009,072 667,342
Louis E. Bartolini 27,331,925 344,489
Arthur C. Latno, Jr. 26,971,735 704,679
Patrick D. Lynch 26,923,332 753,082
Catherine C. MacMillan 27,437,511 238,903
Patrick J. Mon Pere 27,413,299 263,115
Ronald A. Nelson 27,147,009 529,405
Carl R. Otto 27,446,116 230,298
David L. Payne 27,481,922 194,462
Edward B. Sylvester 27,484,562 191,852
Shareholders were to cast their vote for or to withhold their vote.
2. - Ratification of amendment of stock option plan.
A proposal to ratify the Amended and Restated Stock Option
Plan of 1995.
For : 17,417,508
Against : 9,792,204
Abstain : 437,200
Non-vote: 29,500
3. - Ratification of independent certified public accountant firm.
A proposal to ratify the selection of KPMG LLP as independent
certified public accountants for the Company for 2003.
For : 26,472,582
Against : 971,320
Abstain : 232,512
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
Page 28
Exhibit 99.1:31.1: Certification of Chief Executive
Officer pursuant to Securities
Exchange Act Rule 13a-(14)(a)
Exhibit 31.2: Certification of Chief Financial
Officer pursuant to Securities
Exchange Act Rule 13a-(14)(a)
Exhibit 32.1: Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
Exhibit 99.2:32.2: 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
NoneOn April 17, 2003, the Company filed a Report on Form 8-K
with respect to item 12, therein, reporting first quarter,
2003 financial results.
Page 2629
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: MayAugust 12, 2003
/s/ DennisDENNIS R. Hansen
----------------------------------------HANSEN
--------------------
Dennis R. Hansen
Senior Vice President
and Controller
Chief(Chief Accounting OfficerOfficer)
Page 2730
Exhibit 11
WESTAMERICA BANCORPORATION
Computation of Earnings Per Share on Common and
Common Equivalent Shares and on Common Shares
Assuming Full Dilution
For the For the
three months six months
ended June 30, ended June 30,
----------------------------------------------------
(In thousands, except per share data) 2003 2002 2003 2002
----------------------------------------------------
Weighted average number of common
shares outstanding - basic 33,000 33,565 33,054 33,817
Add exercise of options reduced by the
number of shares that could have been
purchased with the proceeds of such
exercise 492 615 474 589
----------------------------------------------------
Weighted average number of common
shares outstanding - diluted 33,492 34,180 33,528 34,406
====================================================
Net income $23,671 $19,347 $46,683 $41,006
Basic earnings per share $0.72 $0.58 $1.41 $1.21
Diluted earnings per share $0.71 $0.57 $1.39 $1.19
Page 31
Exhibit 31.1
CERTIFICATION UNDER
SECTION 302 OF
THE SARBANES OXLEY ACT OF 2002
I, David L. Payne, Chief Executive Officer of the Company,registrant, certify that:
(1)1. I have reviewed this quarterly report for the period ended June 30, 2003 on
Form 10-Q of Westamerica Bancorporation;
(2)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 periodsperiod covered by
this quarterly report;
(3)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)4. The registrant's other certifying officersofficer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-1413a-15(e) and 15d-14)15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and we have:
(a) designedDesigned such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
(b) evaluatedDesigned such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c) 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)end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officersofficer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
function)functions):
(a) allAll significant deficiencies and material weaknesses in the
design or operation of internal controlscontrol over financial reporting
which couldare reasonably likely to 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;information; and
(b) anyAny 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.control over financial reporting.
/s/ David L. Payne
- ------------------------------August 12, 2003 ----------------------
David L. Payne
Chairman, President and Chief Executive Officer
May 12, 2003
Page 2832
Exhibit 31.2
CERTIFICATION UNDER
SECTION 302 OF
THE SARBANES OXLEY ACT OF 2002
I, Jennifer J. Finger, Chief Financial Officer of the Company,registrant, certify that:
(1)1. I have reviewed this quarterly report for the period ended June 30, 2003 on
Form 10-Q of Westamerica Bancorporation;
(2)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 periodsperiod covered by
this quarterly report;
(3)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)4. The registrant's other certifying officersofficer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-1413a-15(e) and 15d-14)15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and we have:
(a) designedDesigned such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
(b) evaluatedDesigned such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c) 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)end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officersofficer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
function)functions):
(a) allAll significant deficiencies and material weaknesses in the
design or operation of internal controlscontrol over financial reporting
which couldare reasonably likely to 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;information; and
(b) anyAny 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.control over financial reporting.
August 12, 2003 /s/ Jennifer J. Finger
- ----------------------------------------------------------
Jennifer J. Finger
Senior Vice President and Chief Financial Officer
May 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
Page 39
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
For the three months
ended March 31,
(In thousands, except per share data) 2003 2002
------------------------
Weighted average number of common
shares outstanding - basic 33,110 34,071
Add exercise of options reduced by the
number of shares that could have been
purchased with the proceeds of such
exercise 455 563
------------------------
Weighted average number of common
shares outstanding - diluted 33,565 34,634
========================
Net income $23,012 $21,659
Basic earnings per share $0.70 $0.64
Diluted earnings per share $0.69 $0.63
Page 47
Exhibit 99.132.1
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 March 31,June 30, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
David L. Payne, Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirement of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ David L. Payne
- --------------------------------------------------
David L. Payne
Chairman, President and Chief Executive Officer
MayAugust 12, 2003
Page 4834
Exhibit 99.232.2
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 March 31,June 30, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Jennifer J. Finger, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirement of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Jennifer J. Finger
- -------------------------------------------------------
Jennifer J. Finger
Senior Vice President and Chief Financial Officer
MayAugust 12, 2003