UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR QUARTER ENDED SEPTEMBER 30, 2001For Quarter Ended March 31, 2002
Commission File Number: 1-9383
WESTAMERICA BANCORPORATION
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 94-2156203
(state(State or other jurisdiction of)of (I.R.S. Employer
incorporation or organization) Identification No.)
1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIAFifth Avenue, San Rafael, California 94901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (707) 863-8000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NOYes [ 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 OCTOBER 31, 2001
- -------------- -----------------------------------------
Common Stock, 34,577,052Title of Class Shares outstanding as of April 25, 2002
Common Stock, 33,483,652
No Par Value
TABLE OF CONTENTS
Page
Forward Looking Statements 3
PART I - FINANCIAL INFORMATION 4
Item 1 - Financial Statements 4
Financial Summary 8
Item 2 - Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
PART II - OTHER INFORMATION 31
Item 1 - Legal Proceedings 31
Item 2 - Changes in Securities 31
Item 3 - Defaults upon Senior Securities 31
Item 4 - Submission of Matters to a Vote of Security Holders 31
Item 5 - Other Information 31
Item 6 - Exhibits and Reports on Form 8-K 31
Exhibit 11 - Computation of Earnings Per Share 32
Page
Forward Looking Statements 1
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements 2
Financial Summary 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 27
Item 4 - Submission of Matters to a Vote of Security Holders 27
Item 6 - Exhibits and Reports on Form 8-K 27
Exhibit 11 - Computation of Earnings Per Share 28
FORWARD-LOOKING STATEMENTS
In addition to historical information, thisThis report on Form 10Q for10-Q contains forward-looking statements about
Westamerica Bancorporation ("for which it claims the Company") includes certain forward-looking statements
withinprotection of the meaning ofsafe harbor
provisions contained in the Private Securities Litigation Reform Act of 1995.
SuchThese forward-looking statements involve risksare based on Management's current knowledge and
uncertaintiesbelief and include information concerning the Company's possible or assumed
future financial condition and results of operations. A number of factors, some
of which are beyond the Company's ability to predict or control, could cause
future results to differ materially from those contemplated. These factors
include but are not limited to (1) a continued slowdown in the national and
California economies; (2) increased economic uncertainty created by the recent
terrorist attacks on the United States and the actions taken in response; (3)
the prospect of additional terrorist attacks in the United States and the
uncertain effect of these events on the national and regional economies; (4)
changes in general economic conditions; competitive
conditionsthe interest rate environment; (5) changes in the geographicregulatory
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 business areasintegration of acquired businesses;
(9) volatility of rate sensitive deposits; (10) asset/liability matching risks
and liquidity risks; and (11) changes in which the Company conducts
operations; regulatory or tax changes that affect the cost of or demand for the
Company's products and services; and the resolution of legal proceedings and
related matters.
Where any such forward-looking statement includes a statement of the assumptions
or bases underlying such forward-looking statement, the Company cautions that,
while it believes such assumptions or bases to be reasonable and makes them in
good faith, assumed facts or bases almost always vary from actual results, and
the differences between assumed facts or bases and actual results can be
material, depending on the circumstances. Where, in any forward-looking
statement, the Company, expresses an expectation or belief as to future results,
such expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result, or be achieved or accomplished.securities markets.
The reader is directed to the Company's annual report on Form 10-K for the year
ended December 31, 2000,2001, 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.
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
At September 30,March 31, December 31,
2002 2001 2000 2000
----------- ----------- ------------2001
------------------------------------
ASSETS:Assets:
Cash and cash equivalents $ 195,575 $ 232,876 $ 286,482$173,029 $188,704 $179,182
Money market assets 534 250 250 250534
Investment securities available for sale 908,337 939,672 921,275975,256 890,042 948,970
Investment securities held to maturity,
with market values of:
$220,982$218,202 at September 30,March 31, 2002 213,343
$231,646 at March 31, 2001 213,215
$231,138 at September 30, 2000 231,330
$231,906225,057
$214,866 at December 31, 2000 228,0352001 209,169
Loans, gross 2,480,695 2,464,658 2,482,1592,461,696 2,456,438 2,484,457
Allowance for loan losses (52,461) (52,182) (52,279)
----------- ----------- -----------(52,147) (52,644) (52,086)
---------- ---------- ----------
Loans, net of allowance for loan losses 2,428,234 2,412,476 2,429,8802,409,549 2,403,794 2,432,371
Other real estate owned 547 2,017 2,065834 1,866 523
Premises and equipment, net 41,832 42,416 42,18238,893 42,567 39,821
Interest receivable and other assets 122,358 119,494 121,212
----------- ----------- -----------
TOTAL ASSETS $ 3,910,348 $ 3,980,531 $ 4,031,381
=========== =========== ===========
LIABILITIES:150,856 125,326 117,397
---------- ---------- ----------
Total Assets $3,962,294 $3,877,606 $3,927,967
========== ========== ==========
Liabilities:
Deposits:
Noninterest bearing $ 1,014,589 $ 974,548 $ 1,014,230$1,033,063 $954,593 $1,048,458
Interest bearing:
Transaction 511,252 524,550 526,178540,131 519,957 519,324
Savings 873,423 885,973 816,635924,731 821,285 863,523
Time 858,652 867,845 879,701
----------- ----------- -----------753,199 900,642 803,330
---------- ---------- ----------
Total deposits 3,257,916 3,252,916 3,236,7443,251,124 3,196,477 3,234,635
Short-term borrowed funds 256,032 334,812 386,942185,326 275,471 271,911
Federal Home Loan Bank advance 115,000 0 40,000
Notes Payable 24,607 27,821 27,821
Liability for interest, taxes and
other expenses 45,438 30,463 38,912
Notes payable 27,821 31,036 31,03678,600 46,919 39,241
----------- ----------- -----------
TOTAL LIABILITIES 3,587,207 3,649,227 3,693,634---------- ----------
Total Liabilities 3,654,657 3,546,688 3,613,608
=========== =========== ===========
SHAREHOLDERS' EQUITY:========== ==========
Shareholders' Equity:
Authorized - 150,000 shares of common stock
Issued and outstanding:
34,71433,831 at September 30,March 31, 2002 211,608
35,689 at March 31, 2001 211,748
36,653 at September 30, 2000 206,912
36,251213,358
34,220 at December 31, 2000 206,9522001 209,074
Accumulated other comprehensive income:
Unrealized (loss) gain on securities
available for sale 16,537 (1,546) 7,1698,062 12,940 11,900
Retained earnings 94,856 125,938 123,626
----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY 323,141 331,304 337,747
=========== =========== ===========
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 3,910,348 $ 3,980,531 $ 4,031,381
=========== =========== ===========87,967 104,620 93,385
---------- ---------- ----------
Total Shareholders' Equity 307,637 330,918 314,359
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $3,962,294 $3,877,606 $3,927,967
========== ========== ==========
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
Three months ended
Nine months ended
September 30, September 30,March 31,
2002 2001
2000 2001 2000
-------- -------- -------- -----------------------------
INTEREST INCOME:Interest Income:
Loans $ 48,098 $ 51,217 $148,344 $147,045$43,966 $50,906
Money market assets and funds sold 18 9 24 140 3
Investment securities available for sale
Taxable 8,968 11,098 28,271 34,6658,292 10,025
Tax-exempt 3,515 2,900 9,681 8,0673,852 2,971
Investment securities held to maturity
Taxable 1,104 1,277 3,565 3,800970 1,240
Tax-exempt 1,951 2,053 5,891 6,200
-------- -------- -------- --------
TOTAL INTEREST INCOME 63,654 68,554 195,776 199,791
-------- -------- -------- --------
INTEREST EXPENSE:1,858 1,992
------- -------
Total interest income 58,938 67,137
------- -------
Interest Expense:
Transaction deposits 639 1,102 2,255 3,061407 892
Savings deposits 4,476 4,848 13,222 13,7412,742 4,462
Time deposits 8,448 11,838 31,139 33,1244,992 12,112
Short-term borrowed funds 1,803 4,548 7,726 14,2021,026 3,513
Federal Home Loan Bank advance 793 0
Debt financing and notes payable 499 582 1,516 1,953
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 15,865 22,918 55,858 66,081
-------- -------- -------- --------
NET INTEREST INCOME 47,789 45,636 139,918 133,710
-------- -------- -------- --------
PROVISION FOR LOAN LOSSES461 518
------- -------
Total interest expense 10,421 21,497
------- -------
Net Interest Income 48,517 45,640
------- -------
Provision for loan losses 900 905 2,700 2,775
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 46,889 44,731 137,218 130,935
-------- -------- -------- --------
NONINTEREST INCOME:900
------- -------
Net Interest Income After
Provision For Loan Losses 47,617 44,740
------- -------
Noninterest Income:
Service charges on deposit accounts 5,806 5,271 17,274 15,8356,002 5,560
Merchant credit card 1,047 1,049 3,032 3,005905 946
Financial services commissions 375 388 994 1,276339 243
Mortgage banking 260 198 722 620187 221
Trust fees 221 179 752 520311 292
Other 2,881 3,672 9,095 9,924
-------- -------- -------- --------
TOTAL NONINTEREST INCOME 10,590 10,757 31,869 31,180
-------- -------- -------- --------
NONINTEREST EXPENSE:2,255 3,024
------- -------
Total Noninterest Income 9,999 10,286
------- -------
Noninterest Expense:
Salaries and related benefits 13,471 12,942 40,040 38,14413,863 13,321
Occupancy 3,073 2,856 8,900 8,7892,931 2,916
Equipment 1,513 1,739 4,587 4,8991,434 1,590
Data processing 1,502 1,503 4,577 4,5511,499 1,521
Professional fees 370 522 1,221 1,319371 453
Other real estate owned 18 316 159 42149 43
Other 5,816 5,719 17,482 16,564
-------- -------- -------- --------
TOTAL NONINTEREST EXPENSE 25,763 25,597 76,966 74,687
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 31,716 29,891 92,121 87,428
-------- -------- -------- --------5,546 5,732
------- -------
Total Noninterest Expense 25,693 25,576
------- -------
Income Before Income Taxes 31,923 29,450
Provision for income taxes 10,391 9,746 29,613 28,390
-------- -------- -------- --------
NET INCOME $ 21,325 $ 20,145 $ 62,508 $ 59,038
======== ======== ======== ========
COMPREHENSIVE INCOME:10,264 9,026
------- -------
Net Income $21,659 $20,424
======= =======
Comprehensive Income:
Change in unrealized gain on
securities available for sale, net 6,278 5,450 9,368 2,975
-------- -------- -------- --------
COMPREHENSIVE INCOME $ 27,603 $ 25,595 $ 71,876 $ 62,013
======== ======== ======== ========
AVERAGE SHARES OUTSTANDING 35,002 36,365 35,475 36,404
DILUTED AVERAGE SHARES OUTSTANDING 35,524 36,906 36,025 36,893
PER SHARE DATA:(3,838) 5,771
------- -------
Comprehensive Income $17,821 $26,195
======= =======
Average Shares Outstanding 34,071 36,000
Diluted Average Shares Outstanding 34,634 36,605
Per Share Data:
Basic Earnings $ 0.61 $ 0.55 $ 1.76 $ 1.62$0.64 $0.57
Diluted Earnings 0.60 0.55 1.74 1.600.63 0.56
Dividends Paid 0.210.22 0.19 0.61 0.55
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
Accumulated
Compre-
Common hensive Retained
Stock Income Earnings Total
----- ------ -------- ----------------------------------------------------
BALANCE, DECEMBER 31, 1999 $186,435 $(4,521) $118,678 $300,592
Net income for the period 59,038 59,038
Stock issued 28,003 28,003
Purchase and retirement of stock (7,526) (31,740) (39,266)
Dividends (20,038) (20,038)
Unrealized gain on securities available
for sale, net 2,975 2,975
-------- ------- ------- --------
BALANCE, SEPTEMBER 30, 2000 $206,912 $(1,546) $125,938 $331,304
======== ======= ======== ========
BALANCE, DECEMBERBalance, December 31, 2000 $206,952 $7,169 $123,626 $337,747
Net income for the period 62,508 62,50820,424 20,424
Stock issued, 17,563 17,563including
stock option tax benefits 12,143 12,143
Purchase and retirement of stock (12,767) (69,493) (82,260)(5,737) (32,539) (38,276)
Dividends (21,785) (21,785)(6,891) (6,891)
Unrealized gain on securities available
for sale, net 9,368 9,368
--------5,771 5,771
--------- ------- --------- ---------
Balance, March 31, 2001 $213,358 $12,940 $104,620 $330,918
========= ======= ========= =========
Balance, December 31, 2001 $209,074 $11,900 $93,385 $314,359
Net income for the period 21,659 21,659
Stock issued, including
stock option tax benefits 5,965 5,965
Purchase and retirement of stock (3,431) (19,539) (22,970)
Dividends (7,538) (7,538)
Unrealized loss on securities available
for sale, net (3,838) (3,838)
--------- ------- --------
BALANCE, SEPTEMBER 30, 2001 $211,748 $16,537 $94,856 $323,141
========--------- ---------
Balance, March 31, 2002 $211,608 $8,062 $87,967 $307,637
========= ======= ======== ================= =========
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the ninethree months
ended September 30,March 31,
2002 2001
2000
--------- ---------------------------------
OPERATING ACTIVITIES:Operating Activities:
Net income $ 62,508 $ 59,038$21,659 $20,424
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of fixed assets 3,686 3,6691,138 1,197
Amortization of intangibles and other assets 2,584 2,204418 854
Loan loss provision 2,700 2,775900 900
Amortization of deferred net loan fees 796 381
Decrease (increase)250 55
(Increase) decrease in interest income receivable 4,446 (2,758)
(Increase)(83) 3,034
Increase in other assets (8,927) (2,159)(34,196) (7,246)
Increase in income taxes payable 3,836 3,193
(Decrease)/increase10,465 9,094
Decrease in interest expense payable (4,372) 753(168) (659)
Increase (decrease) in other liabilities 5,738 1,75733,338 (2,025)
Write-downs of equipment 238 3568 17
Originations of loans for resale (4,418) (1,931)(3,720) (880)
Proceeds from sale of loans originated for resale 4,417 1,6964,446 547
Net loss on sale of loans originated for resale 10 18-- 12
Net gain (loss) on sale of property acquired in satisfaction of debt (155) (671)de 32 (59)
Write-down on property acquired in satisfaction of debt 78 442-- 47
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 73,165 68,442Net Cash Provided by Operating Activities 34,547 25,312
--------- ---------
INVESTING ACTIVITIES:Investing Activities:
Net cash obtained in acquisitions 0 3,034
Net disbursementsrepayments of loans (2,152) (78,745)20,571 25,387
Purchases of investment securities available for sale (208,411) (48,711)(552,980) (33,566)
Purchases of investment securities held to maturity (3,780) (3,078)(4,965) (98)
Purchases of property, plant and equipment (3,576) (1,638)(640) (1,601)
Proceeds from maturity of securities available for sale 236,864 110,254513,876 74,540
Proceeds from maturity of securities held to maturity 18,600 8,9046,023 3,077
Proceeds from sale of securities available for sale 651 1,172962 217
Proceeds from sale of property and equipment 0 20364 --
Proceeds from property acquired in satisfaction of debt 1,898 3,38232 287
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 40,094 (5,406)Net Cash (Used In) Provided By Investing Activities (16,757) 68,243
--------- ---------
FINANCING ACTIVITIES:Financing Activities:
Net increase (decrease) in deposits 21,170 107,32016,489 (40,267)
Net decrease in short-term borrowings (130,910) (127,933)(11,585) (111,471)
Repayments of notes payable (3,214) (3,215) (10,464)
Exercise of stock options/issuance of shares 12,834 4,4834,875 8,787
Repurchases/retirement of stock (82,260) (39,267)(22,970) (38,276)
Dividends paid (21,785) (20,037)(7,538) (6,891)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (204,166) (85,898)Net Cash Used In Financing Activities (23,943) (191,333)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (90,907) (22,862)Net Decrease In Cash and Cash Equivalents (6,153) (97,778)
--------- ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIODCash and Cash Equivalents at Beginning of Period 179,182 286,482 255,738
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 195,575 $ 232,876Cash and Cash Equivalents at End of Period $173,029 $188,704
========= =========
=========
For the nine months
ended September 30,
2001 2000
---- ----
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:Supplemental Disclosure of Noncash Activities:
Loans transferred to other real estate owned $303 $1,750
Fixed asset charge-offs and depreciation expense
applied against reserves 186$375 $77
Supplemental Disclosure of Cash and cash equivalents received in connection
with acquisition of First Counties Bank:
Common stock issued 19,723
Liabilities assumed 82,356
Fair value of assets acquired, other than cash
and cash equivalents (86,671)
Goodwill (9,577)
Core deposit intangible (2,797)
-------
Net cash and cash equivalents received $3,034
-------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITY:Flow Activity:
Unrealized (loss) gain on securities available for sale, net ($3,838) $5,771
Interest paid for the period 52,145 64,92010,252 22,062
Income tax payments for the period 27,181 25,938-- --
Income tax benefit from stock option exercises 1,085 3,356
WESTAMERICA BANCORPORATION
FINANCIAL SUMMARY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)Financial Summary
(dollars in thousands, except per share amounts)
Three months ended
Nine months ended
September 30, September 30,
------------------------------ ------------------------------March 31,
2002 2001
2000 2001 2000
---------- ---------- ---------- --------------------------------------
Net Interest Income $47,789 $45,636 $139,918 $133,710$48,517 $45,640
Provision for Loan Losses (900) (905) (2,700) (2,775)(900)
Noninterest Income 10,590 10,757 31,869 31,1809,999 10,286
Noninterest Expense (25,763) (25,597) (76,966) (74,687)(25,693) (25,576)
Provision for income taxes (10,391) (9,746) (29,613) (28,390)
---------- ---------- ---------- ----------(10,264) (9,026)
------- -------
Net Income $21,325 $20,145 $62,508 $59,038
========== ========== ========== ==========$21,659 $20,424
======= =======
Average Shares Outstanding 35,002 36,365 35,475 36,40434,071 36,000
Diluted Average Shares Outstanding 35,524 36,906 36,025 36,89334,634 36,605
Shares Outstanding at Period End 34,714 36,65333,831 35,689
Basic Earnings Per Share $0.61 $0.55 $1.76 $1.62$0.64 $0.57
Diluted Earnings Per Share 0.60 0.55 1.74 1.600.63 0.56
Average Balances:
Total Assets $3,849,715 $3,913,365 $3,848,996 $3,858,687$3,911,060 $3,872,584
Earning Assets 3,566,979 3,586,728 3,560,543 3,545,4253,631,344 3,572,761
Total Loans 2,467,547 2,406,282 2,460,526 2,341,1662,470,989 2,457,755
Total Deposits 3,247,687 3,195,505 3,203,475 3,122,9923,206,717 3,175,414
Shareholders' Equity 307,889 316,913 313,072 303,453301,014 320,105
Financial Ratios for the Period:
Return On Assets 2.20% 2.05% 2.17% 2.04%2.25% 2.14%
Return On Equity 27.48% 25.29% 26.69% 25.99%29.18% 25.88%
Net Interest Margin 5.78% 5.50% 5.68% 5.46%5.86% 5.56%
Net Loan Losses to Average Loans 0.15% 0.31% 0.14% 0.18%0.09%
Efficiency Ratio 41.3% 42.7% 42.0% 42.6%41.0% 43.0%
Balances at Period End:
Total Assets $3,910,348 $3,980,531$3,962,294 $3,877,606
Earning Assets 3,550,036 3,583,7283,599,216 3,519,402
Total Loans 2,480,695 2,464,6582,461,696 2,456,438
Total Deposits 3,257,916 3,252,9163,251,124 3,196,477
Shareholders' Equity 323,141 331,304307,637 330,918
Financial Ratios at Period End:
Allowance for Loan Losses to Loans 2.11% 2.12% 2.14%
Book Value Per Share $9.31 $9.04$9.09 $9.27
Equity to Assets 8.26% 8.32%7.76% 8.53%
Total Capital to Risk Assets 10.93% 11.76%10.67% 11.39%
Dividends Paid Per Share $0.21$0.22 $0.19 $0.61 $0.55
Dividend Payout Ratio 35% 35% 35% 34%
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Westamerica Bancorporation and its subsidiaries Westamerica Bank, Community
Banker Services Corporation, Westamerica Commercial Credit Inc., and Money
Outlet Inc. (the Company)"Company") reported thirdfirst
quarter 20012002 net income of $21.3$21.7 million or $.60$.63 diluted earnings per share.
These results compare to net income of $20.1$20.4 million or $.55$.56 diluted earnings
per share for the third quarter of
2000. On a year-to-date basis, net income was $62.5and $21.8 million representing $1.74or $.62 diluted earnings per share, compared to $59.0 million or $1.60 sharerespectively,
for the same periodfirst and fourth quarters of 2000.2001.
Following is a summary of the components of net income for the periods indicated
(dollars in thousands):
ThreeFor the three months ended
Nine months ended
September 30, September 30,
--------------------------------- ---------------------------------March 31, December 31,
2002 2001 2000 2001
2000
----------- ----------- ----------- ------------------------------------------------
Net interest income (FTE) $ 51,778 $ 49,184 $ 151,306 $ 144,119$52,712 $49,259 $52,381
Provision for loan losses (900) (905) (2,700) (2,775)(900) (900)
Noninterest income 10,590 10,757 31,869 31,1809,999 10,286 10,785
Noninterest expense (25,763) (25,597) (76,966) (74,687)(25,693) (25,576) (25,685)
Provision for income taxes (FTE) (14,380) (13,294) (41,001) (38,799)
----------- ----------- ----------- -----------(14,459) (12,645) (14,810)
-------- -------- --------
Net income $ 21,325 $ 20,145 $ 62,508 $ 59,038
=========== =========== =========== ===========$21,659 $20,424 $21,771
======== ======== ========
Average total assets $ 3,849,715 $ 3,913,365 $ 3,848,996 $ 3,858,687$3,911,060 $3,872,584 $3,884,291
Net income (annualized) to average total assets 2.20% 2.05% 2.17% 2.04%2.25% 2.14% 2.22%
Net income for the thirdfirst quarter of 20012002 was $1.2 million (6%) over the same
quarter of 2000.2001. The primary reason for the increase was higherprimarily from net interest income (FTE)
(up $2.6$3.5 million or 5%7%), the net result of a 2830 basis point (bp) improvement
in the net margin, partially offset byand to a lowerlesser extent, growth of average earning asset
base (down $20assets
(up $59 million). Noninterest income decreased $167$287 thousand (2%(3%), partially
offsetting the net interest improvement. The resulting net revenue improvement was
slightly reduced by an increase in noninterest expenses, which were $166$117
thousand above the year-ago quarter. The provision for income taxes (FTE)
increased $1.1$1.8 million (8%(14%)., in-line with the increase in pretax income.
Comparing the first ninethree months of 20012002 to the prior year,quarter, net income
(FTE)
increased $3.5 million (6%decreased $112 thousand (0.5%). Improved net interest income accounted for most of
the change, increasing $7.2 million (5%(up $331
thousand or 0.6%). The increase was dueattributable to both a higher margin (up 22 bps)7 bp)
and, to a lesser extent, higher average earning assets (up $15$27 million).
Noninterest income added $689 thousand to the revenueThis increase which was partially offset by higherlower noninterest expenses (up $2.3 million)income (down $786
thousand). Noninterest expense remained essentially unchanged between the
two quarters. The FTE provision for income taxes forwas down $351 thousand
from the 2001 period was up $2.2 million (6%),
commensurate with the increase in pretax income.
NET INTEREST INCOMEfourth quarter of 2001.
Net Interest Income
Following is a summary of the components of net interest income for the periods
indicated (dollars in thousands):
ThreeFor the three months ended
Nine months ended
September 30, September 30,
--------------------------------- ---------------------------------March 31 December 31,
2002 2001 2000 2001
2000
----------- ----------- ----------- ------------------------------------------------
Interest and fee income $ 63,654 $ 68,554 $ 195,776 $ 199,791$58,938 $67,137 $61,280
Interest expense (15,865) (22,918) (55,858) (66,081)(10,421) (21,497) (13,029)
FTE adjustment 3,989 3,548 11,388 10,409
----------- ----------- ----------- -----------4,195 3,619 4,130
-------- -------- --------
Net interest income (FTE) $ 51,778 $ 49,184 $ 151,306 $ 144,119
=========== =========== =========== ===========$52,712 $49,259 $52,381
======== ======== ========
Average earning assets $ 3,566,979 $ 3,586,728 $ 3,560,543 $ 3,545,425$3,631,344 $3,572,761 $3,604,579
Net interest margin (FTE) 5.78% 5.50% 5.68% 5.46%5.86% 5.56% 5.79%
The Company's primary source of revenue is net interest income, or the
difference between interest income earned on earning assetsloans and investments and
interest expense paid on interest-bearing liabilities.deposits and borrowings. Net
interest income (FTE) during the thirdfirst quarter of 20012002 increased $2.6$3.5
million (5%(7%) from the same period in 20002001 to $51.8$52.7 million. Approximately
12%one-half of the increase was due to the change in the level
and mixgrowth of average earning assets
(the volume component)(up $59 million), with the remainder due to a higher margin earned on those assets (the rate component).interest margin. The
increase in the net interest margin was the net effect of a 4998 bp drop in
the asset yield, which was more than offset by a 78128 bp drop in the cost of
funds.
Comparing the first nine monthsquarter of 20012002 with the previous year,quarter, net interest
income (FTE) increased $7.2 million (5%$331 thousand (0.6%), with 55% of the increase attributable
to more volume and 45%primarily due to a 22 bp increasehigher
interest margin, partially offset by increases in the margin.average balances of funds
purchased and Federal Home Loan Bank advances. The margin expansion was the
result of a 20 bp decrease (16 bp) in asset yields, which was more than offset by a
3827 bp lower cost of funds.
INTEREST AND FEE INCOMEInterest and Fee Income
Interest & fee income (FTE) for the thirdfirst quarter of 20012002 decreased $4.5$7.6
million (6%(11%) from the same period in 2000.2001. The decrease was caused by
lower yields, partially offset by the combinedpositive effect of lowergrowth of
average earning assets in the 2001 period and lower yields earned on those
assets. Average earning assets declined $20 million, despite expansion in
commercial real estate loans (up $68 million or 8%), construction loans (up $17
million or 32%), and indirect consumer loans (up $15 million or 4%). Much of
this growth was offset by reductions in the commercial and direct consumer loan
portfolios, which decreased by $27 million (4%) and $14 million (21%),
respectively. All other categories of loans increased by $2 million.
A net reduction of the investment portfolio provided a further source of funds,
specifically in the categories of asset-backed securities (down $65 million or
20%), US Treasury securities (down $15 million or 8%), and US Agency obligations
(down $32 million or 16%).
The average yield on the Company's earning assets decreased from 8.03%8.00% in 2000the
first quarter of 2001 to 7.54%7.02% in 2001the 2002 period (down 4998 bp). This downward direction ofdecrease
in yields was reflective of general interest markets during much of 2001 during which time the Federal
Funds rate declined from 6.40% to 3.07% and
the 3-month Treasury rate from 5.94%
to 2.69%.into 2002. This was particularly evident in variable-rate categories of loans
such as commercial (170(261 bp decline in yield), construction (332(392 bp decline) and
personal lines of credit (268(392 bp decline). OtherExcept for direct consumer loans
(up 11 bp), other categories of loans with longer maturities and/or fixed rates
of interest also declined, but by a relatively lesser degree. These include
commercial real estate loans (42 bp decrease), residential real estate loans
(39(45 bp decrease) and indirect consumer loans (down 752 bp). The net result was
that the yield on the loan portfolio declined 71114 bp to 7.94%7.38%.
The investment portfolio yield decreased 952 bp to 6.65%6.18%, which was mostly caused
by declines in participation certificates (down 132 bp), other securities (down
135 bp) and U.S. Agency (down 56 bp).
Average earning assets grew $59 million, despite reductions in residential real
estate loans (down $20 million or 6%), direct consumer loans (down $19 million
or 30%), and personal credit lines (down $6 million or 8%). Much of this
contraction was replaced with growth in the commercial real estate and indirect
consumer loan portfolios, which increased by $25 million (3%) and $23 million
(6%), respectively. All other categories of loans increased by $10 million.
Additionally, the investment portfolio increased: municipal securities (up $51
million or 13%), US Agency obligations (up $12 million or 7%), and other
securities (up $35 million or 13%). Partially offsetting this growth were
declines in US Treasury securities (down $45 million or 24%) and
participation certificates (down $8 million or 11%).
Comparing the first nine monthsquarter of 20012002 to 2000,the previous quarter, interest & fee
income (FTE) decreased by $3.0fell $2.3 million (1%(4%). UnlikeLike the thirdfirst quarter comparison, the
change
was the net effect ofdecrease resulted from declining yields, partially offset by a higher volume
of the investment portfolio.
The average yield on earning assets for the first three months of 2002 was
7.02% compared to 7.22% in the fourth quarter of 2001. Loan yields, especially
those more than offsetsensitive to market rates, declined 16 bp: the yield on commercial
loans was down 47 bp, construction yields declined 66 bp, personal lines of
credit fell 58bp and indirect consumer loans were down 20 bp.
The investment portfolio yield decreased 24 bp: the U.S. Treasury securities
yield declined 29 bp, other securities declined 68 bp, and participation
certificates were were lower by the
impact of lower yields.
11 bp. Partially offsetting this decline
was an increase in municipal securities (up 7 bp).
The positive volume component of the change was caused by a $15$27 million (1%(0.7%)
increase in average earning assets, including higher commercial real estate
loansUS Agency obligations (up
$82$13 million or 9%7%), indirect consumer loans and other securities (up $38$31 million or 12%11%), construction loans (up $20partially
offset by a decrease in US Treasury securities (down $9 million or 42%), and residential real estate loans
(up $15 million or 4%6%).
Total loansinvestments increased by $119$37 million (5%(3%). The
investment portfolio was reduced by $104 million (9%) to fundA reduction in the loan
portfolio of $10 million (0.4%) offset the investment expansion.
The average yield on earning assets for the first nine months of 2001 was 7.77%
compared to 7.94% in 2000. Loan yields, especially those more sensitive to
market rates, declined: the yield on commercial loans was down 87 bps,
construction yields declined 227 bps, and personal lines of credit were down 138
bps. Offsetting these were lesser declines in more stable, fixed-rate loan
yields, so that the total loan yield declined only 32 bps. The investment
portfolio yield decreased 2 bps; the above-mentioned volume decline was
generally made up of lower-yielding asset-backed securities.
INTEREST EXPENSEInterest Expense
Interest expense decreased $7.1$11 million (31%(52%) in the third quarterfirst three months of 20012002
compared to the year-ago period. The decrease was the combined effect of a lower
balancemore
favorable mix of interest-bearing liabilities and a drop in the average rate
paid. Average interest-bearing liabilities decreased $109 million (4%), almost
entirely in the categories of short-term borrowed fundsMore expensive time deposits (down $108 million or
32%) and consumer savings$110 million) were replaced with less
expensive transaction accounts (down $38 million or 8%)(up $88 million). A portion of this
decline was replaced by growth in interest-bearing transaction accountsshort-term funds
(down $53 million) were refinanced with Federal Home Loan Bank borrowing
(up $43
million or 7%).$86 million), with an average maturity of three years.
The average rate paid on interest-bearing liabilities decreased from 3.50%3.41% in
the thirdfirst quarter of 20002001 to 2.53%1.65% in 2001.2002. Rates paid on those liabilities that
move with general market conditions declined accordingly: the average rate on
Fed Funds Purchased dropped 302 bps391 bp and the rate paid on repurchase agreements declined
248 bps.338 bp. Rates on deposits were managed downdeclined as well, including those
on CDs over $100
thousand, which declined 191 bps,323 bp, and on high-yield Money Market accounts,
which were lowered an average of 142 bps.
Through September 30,283 bp.
Comparing the first quarter of 2002 to the previous quarter, interest expense
decreased $10.2$2.6 million (16%(20%) in 20012002 from 2000,2001, again due to both a lower average balancemore favorable
mix of interest-bearing liabilities and lower rates paid.
Interest-bearing liabilities declined $66
million (3%), led by lower purchased funds (down $97 million or 27%) and
partially offset by higher CDs over $100 thousand (up $30 million or 12%).
Interest-bearing transaction accounts increased $57 million (10%).
Rates paid averaged 2.96%1.65% during the first ninethree months of 20012002 compared to
3.41%2.05% in the year-ago period.fourth quarter of 2001. The most significant decline was on
short-term funds, which decreased from 5.15%2.23% to 3.84%1.62%. Rates on all deposit
categories decreased as well, with the average rate paid on all interest-bearing
deposits dropping from 3.05%1.95% to 2.80%1.51%.
Interest-bearing liabilities grew $38 million (1.5%) over the fourth quarter of
2001: increases in short-term funds (up $19 million or 8%) and Federal Home Loan
Bank borrowing (up $62 million or 253%) were partially offset by a $45 million
(5%) decline in time deposits.
In all periods, the Company has attempted continuouslyto continue to reduce high-rate time
deposits while increasing the balances of more profitable, lower-cost
transaction accounts minimizingin order to minimize the effect of adverse cyclical
quarterly trends.
NET INTEREST MARGINNet Interest Margin (FTE)
The following summarizes the components of the Company's net interest margin for
for the periods indicated:
ThreeFor the three months ended
Nine months ended
September 30, September 30,
------------------ ------------------March 31, December 31,
2002 2001 2000 2001
2000
---- ---- ---- -------------------------------------
Yield on earning assets 7.54% 8.03% 7.77% 7.94%7.02% 8.00% 7.22%
Rate paid on interest-bearing
liabilities 2.53% 3.50% 2.96%1.65% 3.41% ---- ---- ---- ----2.05%
----- ----- -----
Net interest spread 5.01% 4.53% 4.81% 4.53%5.37% 4.59% 5.17%
Impact of all other net
non-interestnoninterest bearing funds 0.77%0.49% 0.97% 0.87% 0.93%
---- ---- ---- ----0.62%
----- ----- -----
Net interest margin 5.78% 5.50% 5.68% 5.46%
==== ==== ==== ====5.86% 5.56% 5.79%
===== ===== =====
During the thirdfirst quarter of 2001,2002, the Company's rapid reaction to declining
market rates resulted in a substantial increase in the net interest margin.
The margin of 28decreased 30 basis points compared to the thirdfirst quarter of 2000.2001.
The unfavorable impact of lower rates earned on loans and the investment
portfolio, triggered by market trends, was more than offset by managed decreases
in rates paid on deposits and short-term funds. The result was a 48-bp73 bp increase
in the net interest spread. Partially offsetting the increase in spread was
the lower value of noninterest bearing funding sources. While the average
balance of these sources increased $45$30 million (5%(2%), their value decreased
2048 bp because of the lower market rates of interest at which they could be
invested.
On a year-to-date basis, theThe net interest margin increased 227 bp when compared to the same period in 2000.fourth quarter of
2001. Earning asset yields decreased 17 bps,20 bp, while the cost of interest-bearing
liabilities was managed down, partially through a
substantial reduction in higher-priced purchased funds.down. The interest spread increased 28 bps20 bp as a result.
Noninterest bearing funding sources increased $57decreased $11 million (4%(0.7%), but and because of
lower market rates of interest their value decreased by 6 bps.
SUMMARY OF AVERAGE BALANCES, YIELDS/RATES AND INTEREST DIFFERENTIAL13 bp.
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 amountsamount 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 non-performingnonperforming loans. Interest income includes
proceeds from loans on non-accrual 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 on
them which is exempt from federal income taxation at the current statutory
tax rate (dollars in thousands).
For the three months ended
September 30, 2001
------------------------------------------March 31, 2002
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------- ---------- -----------------------------------------
Assets:
Money market assets and funds sold $ 2,759 $ 18 2.59%$819 $0 0.00%
Investment securities:
Available for sale
Taxable 597,555 9,171 6.09%642,469 8,292 5.23%
Tax-exempt 281,854 5,338 7.58%308,603 5,835 7.56%
Held to maturity
Taxable 73,915 901 4.84%67,431 970 5.83%
Tax-exempt 143,349 2,878 8.03%141,033 2,816 7.99%
Loans:
Commercial:
Taxable 401,421 8,032 7.94%397,012 6,026 6.16%
Tax-exempt 188,353 3,705 7.80%193,197 3,695 7.76%
Commercial real estate 978,748 20,064 8.12%985,025 19,570 8.06%
Real estate construction 68,954 1,575 9.06%70,724 1,302 7.47%
Real estate residential 351,639 6,009 6.84%335,933 5,573 6.64%
Consumer 478,432 9,952 8.25%489,098 9,054 7.51%
---------- -----------------
Total loans 2,467,547 49,337 7.94%2,470,989 45,220 7.42%
---------- -----------------
Total earning assets 3,566,979 67,643 7.54%3,631,344 63,133 7.02%
Other assets 282,736279,716
----------
Total assets $3,849,715$3,911,060
==========
Liabilities and shareholders' equity
Deposits:
Noninterest bearing demand $1,013,148 $ --$1,013,418 $-- --
Savings and interest-bearing
transaction 1,378,731 5,115 1.47%1,414,010 3,149 0.90%
Time less than $100,000 386,732 3,954 4.06%350,383 2,395 2.77%
Time $100,000 or more 469,076 4,494 3.80%428,906 2,597 2.46%
---------- -----------------
Total interest-bearing deposits 2,234,539 13,563 2.41%2,193,299 8,141 1.51%
Short-term borrowed funds 228,594 1,803 3.12%255,552 1,026 1.63%
Federal Home Loan Bank advances 86,183 793 3.68%
Debt financing and notes payable 27,821 499 7.17%25,678 461 7.28%
---------- ------------------
Total interest-bearing liabilities 2,490,954 15,865 2.53%2,560,712 10,421 1.65%
Other liabilities 37,72435,916
Shareholders' equity 307,889301,014
----------
Total liabilities and shareholders' equity $3,849,715$3,911,060
==========
Net interest spread (1) 5.01%5.37%
Net interest income and interest margin (2) $ 51,778 5.78%
========== ====$52,712 5.86%
======= =====
For the three months ended
September 30, 2000
-------------------------------------------March 31, 2001
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------- ---------- -----------------------------------------
Assets:
Money market assets and funds sold $ 803 $ 9 4.46%$553 $3 2.17%
Investment securities:
Available for sale
Taxable 723,950 11,098 6.10%657,753 10,025 6.18%
Tax-exempt 223,571 4,317230,126 4,420 7.68%
Held to maturity
Taxable 78,897 1,276 6.43%76,586 1,240 6.57%
Tax-exempt 153,225 3,053 7.93%149,988 2,962 7.90%
Loans:
Commercial:
Taxable 445,988 11,390 10.16%396,657 9,793 10.01%
Tax-exempt 180,640 3,469 7.64%190,485 3,656 7.78%
Commercial real estate 910,771 18,970 8.26%960,294 20,004 8.42%
Real estate construction 52,107 1,606 12.19%63,356 1,753 11.10%
Real estate residential 343,648 6,222 7.24%355,835 6,307 7.11%
Consumer 473,128 10,692 8.99%491,128 10,593 8.65%
---------- -----------------
Total loans 2,406,282 52,349 8.65%2,457,755 52,106 8.55%
---------- -----------------
Total earning assets 3,586,728 72,102 8.03%3,572,761 70,756 8.02%
Other assets 378,688299,823
----------
Total assets $3,913,365$3,872,584
==========
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $ 964,928 $ --960,184 $-- --
Savings and interest-bearing
transaction 1,371,649 5,950 1.73%1,325,526 5,354 1.62%
Time less than $100,000 390,339 5,094 5.19%398,172 5,143 5.17%
Time $100,000 or more 468,588 6,744 5.73%491,532 6,969 5.69%
---------- -----------------
Total interest-bearing deposits 2,230,576 17,788 3.17%2,215,230 17,466 3.16%
Short-term borrowed funds 336,524 4,548 5.38%308,294 3,513 4.57%
Federal Home Loan Bank advances 0 0 0
Debt financing and notes payable 32,391 582 7.15%28,893 518 7.19%
---------- -----------------
Total interest-bearing liabilities 2,599,491 22,918 3.50%2,552,417 21,497 3.41%
Other liabilities 32,03339,878
Shareholders' equity 316,913320,105
----------
Total liabilities and shareholders' equity $3,913,365$3,872,584
==========
Net interest spread (1) 4.54%4.60%
Net interest income and interest margin (2) $ 49,184 5.50%
==========$49,259 5.56%
======= =====
For the ninethree months ended
September 30,December 31, 2001
------------------------------------------
Interest Rates
Average income/ earned/
Balance expense paid
---------- ---------- ------------------------------------------
Assets:
Money market assets and funds sold $ 1,229 $ 23 2.50%$474 $1 0.84%
Investment securities:
Available for sale
Taxable 619,704 28,843 6.22%608,707 8,528 5.56%
Tax-exempt 256,904 14,597 7.58%302,678 5,767 7.62%
Held to maturity
Taxable 75,419 2,988 5.30%71,041 1,007 5.62%
Tax-exempt 146,761 8,700 7.90%140,795 2,772 7.88%
Loans:
Commercial:
Taxable 400,796 26,733 8.92%392,827 6,766 6.83%
Tax-exempt 190,078 11,083 7.80%188,997 3,702 7.77%
Commercial real estate 968,897 60,171 8.29%981,917 19,764 7.98%
Real estate construction 67,702 4,979 9.68%72,536 1,464 8.01%
Real estate residential 353,253 18,487 7.00%357,373 6,011 6.73%
Consumer 479,800 30,560 8.52%487,235 9,628 7.84%
---------- -----------------
Total loans 2,460,526 152,013 8.24%2,480,885 47,335 7.57%
---------- -----------------
Total earning assets 3,560,543 207,164 7.77%3,604,580 65,410 7.22%
Other assets 288,453279,711
----------
Total assets $3,848,996$3,884,291
==========
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $ 980,974 $ --$1,025,804 $-- --
Savings and interest-bearing
transaction 1,344,565 15,477 1.54%1,410,218 4,419 1.24%
Time less than $100,000 392,812 13,712 4.67%371,515 3,187 3.40%
Time $100,000 or more 485,124 17,427 4.80%452,445 3,367 2.95%
---------- -----------------
Total interest-bearing deposits 2,222,501 46,616 2.80%2,234,178 10,973 1.95%
Short-term borrowed funds 266,928 7,726 3.84%236,678 1,334 2.24%
Federal Home Loan Bank advances 24,435 223 3.62%
Debt financing and notes payable 28,178 1,516 7.17%27,821 499 7.12%
---------- -----------------
Total interest-bearing liabilities 2,517,607 55,858 2.96%2,523,112 13,029 2.05%
Other liabilities 37,34333,622
Shareholders' equity 313,072301,753
----------
Total liabilities and shareholders' equity $3,848,996$3,884,291
==========
Net interest spread (1) 4.81%5.17%
Net interest income and interest margin (2) $ 151,306 5.68%
========== ====
For the nine months ended
September 30, 2000
-------------------------------------------
Interest Rates
Average income/ earned/
Balance expense paid
---------- ---------- ----
Assets:
Money market assets and funds sold $ 561 $ 15 3.57%
Investment securities:
Available for sale
Taxable 746,888 34,665 6.20%
Tax-exempt 221,818 12,212 7.34%
Held to maturity
Taxable 80,337 3,800 6.32%
Tax-exempt 154,654 9,181 7.92%
Loans:
Commercial:
Taxable 440,726 33,161 10.05%
Tax-exempt 170,916 9,952 7.78%
Commercial real estate 886,992 55,406 8.33%
Real estate construction 47,530 4,307 11.95%
Real estate residential 337,029 17,750 7.02%
Consumer 457,974 29,751 8.68%
---------- ----------
Total loans 2,341,167 150,327 8.56%
---------- ----------
Total earning assets 3,545,425 210,200 7.94%
Other assets 313,262
----------
Total assets $3,858,687
==========
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $ 939,535 $ -- --
Savings and interest-bearing
transaction 1,340,126 16,803 1.67%
Time less than $100,000 388,550 14,423 4.96%
Time $100,000 or more 454,782 18,700 5.49%
---------- ----------
Total interest-bearing deposits 2,183,458 49,926 3.05%
Short-term borrowed funds 364,073 14,202 5.15%
Debt financing and notes payable 36,533 1,953 7.13%
---------- ----------
Total interest-bearing liabilities 2,584,064 66,081 3.41%
Other liabilities 31,635
Shareholders' equity 303,453
----------
Total liabilities and shareholders' equity $3,858,687
==========
Net interest spread (1) 4.53%
Net interest income and interest margin (2) $ 144,119 5.46%
==========$52,381 5.79%
======= =====
(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.
SUMMARY OF CHANGES IN INTEREST INCOME AND EXPENSE DUE TO
CHANGES IN AVERAGE ASSET
Summary of Changes in Interest Income and Expense due to
Changes in Average Asset & LIABILITY BALANCES AND YIELDS EARNEDLiability Balances and Yields Earned & RATES PAIDRates Paid
The following tables set forth a summary of the changes in interest income and
interest expense fromdue to changes in average asset and liability balances (volume)
and changes in average interest rates for the periods indicated. Changes not
solely attributable to volume or rates have been allocated in proportion to
the respective volume and rate components (dollars in thousands).
Three months ended September 30, 2001March 31, 2002
compared with three months
ended September 30, 2000
-----------------------------------------March 31, 2001
Volume Rate Total
---------------------------------
Interest and fee income:
Money market assets and funds sold $3 ($6) ($3)
Investment securities:
Available for sale
Taxable (228) (1,505) (1,733)
Tax-exempt 1,484 (69) 1,415
Held to maturity
Taxable (141) (129) (270)
Tax-exempt (178) 32 (146)
Loans:
Commercial:
Taxable 9 (3,776) (3,767)
Tax-exempt 52 (13) 39
Commercial real estate 546 (980) (434)
Real estate construction 238 (689) (451)
Real estate residential (347) (387) (734)
Consumer (122) (1,416) (1,538)
------- ------- -------
Total loans 376 (7,261) (6,885)
------- ------- -------
Total earning assets 1,315 (8,937) (7,622)
------- ------- -------
Interest expense:
Deposits:
Savings and interest-bearing
transaction 491 (2,696) (2,205)
Time less than $100,000 (535) (2,213) (2,748)
Time $100,000 or more (682) (3,690) (4,372)
------- ------- -------
Total interest-bearing deposits (726) (8,599) (9,325)
------- ------- -------
Short-term borrowed funds (537) (1,949) (2,486)
Federal Home Loan Bank advances 792 1 793
Debt financing and notes payable (58) 1 (57)
------- -------- --------
Total interest-bearing liabilities (529) (10,546) (11,075)
------- -------- --------
Increase in Net Interest Income $1,844 $1,609 $3,453
======= ======== ========
Three months ended March 31, 2002
compared with three months
ended December 31, 2001
Volume Rate Total
-----------------------------------
Interest and fee income:
Money market assets and funds sold $ 11 $ (2) $ 9($1) $0 ($1)
Investment securities:
Available for sale
Taxable (1,935) 8 (1,927)283 (519) (236)
Tax-exempt 1,103 (82) 1,021111 (43) 68
Held to maturity
Taxable (77) (298) (375)(41) 4 (37)
Tax-exempt (199) 24 (175)5 39 44
Loans:
Commercial:
Taxable (1,060) (2,298) (3,358)(63) (677) (740)
Tax-exempt 150 86 2368 (15) (7)
Commercial real estate 1,382 (288) 1,09474 (268) (194)
Real estate construction (127) 96 (31)(34) (128) (162)
Real estate residential 144 (357) (213)(362) (76) (438)
Consumer (162) (578) (740)17 (591) (574)
------- ------- -------
Total loans 327 (3,339) (3,012)(360) (1,755) (2,115)
------- ------- -------
Total earning assets (769) (3,690) (4,459)(3) (2,274) (2,277)
------- ------- -------
Interest expense:
Deposits:
Savings and interest-bearing
transaction 269 (1,104) (835)(1) (1,269) (1,270)
Time less than $100,000 (90) (1,050) (1,140)(153) (639) (792)
Time $100,000 or more 7 (2,257) (2,250)(167) (603) (770)
------- ------- -------
Total interest-bearing deposits 186 (4,411) (4,225)(321) (2,511) (2,832)
------- ------- -------
Short-term borrowed funds (1,192) (1,553) (2,745)80 (388) (308)
Federal Home Loan Bank advances 586 (16) 570
Debt financing and notes payable (82) (1) (83)(38) 0 (38)
------- ------- -------
Total interest-bearing liabilities (1,088) (5,965) (7,053)307 (2,915) (2,608)
------- ------- -------
Increase (Decrease) in Net Interest Income $ 319 $ 2,275 $ 2,594($310) $641 $331
======= ======= =======
Nine months ended September 30, 2001
compared with nine months
ended September 30, 2000
--------------------------------------------
Volume Rate Total
-------- -------- --------
Interest and fee income:
Money market assets and funds sold $ 11 $ (3) $ 8
Investment securities:
Available for sale
Taxable (5,879) 57 (5,822)
Tax-exempt 1,883 503 2,385
Held to maturity
Taxable (240) (572) (812)
Tax-exempt (469) (12) (481)
Loans:
Commercial:
Taxable (3,172) (3,256) (6,428)
Tax-exempt 1,113 18 1,131
Commercial real estate 5,235 (470) 4,765
Real estate construction 1,577 (905) 672
Real estate residential 810 (73) 737
Consumer 1,259 (450) 809
-------- -------- --------
Total loans 6,822 (5,136) 1,686
-------- -------- --------
Total earning assets 2,128 (5,164) (3,036)
-------- -------- --------
Interest expense:
Deposits:
Savings and interest-bearing
transaction 664 (1,990) (1,326)
Time less than $100,000 112 (823) (711)
Time $100,000 or more 1,133 (2,406) (1,273)
-------- -------- --------
Total interest-bearing deposits 1,909 (5,219) (3,310)
-------- -------- --------
Short-term borrowed funds (3,285) (3,191) (6,476)
Debt financing and notes payable (449) 12 (437)
-------- -------- --------
Total interest-bearing liabilities (1,825) (8,398) (10,223)
-------- -------- --------
Increase (Decrease) in Net Interest Income $ 3,953 $ 3,234 $ 7,187
======== ======== ========
PROVISION FOR LOAN LOSSESProvision for Loan Losses
The level of the provision for loan losses during each of the periods presented
reflects the Company's continued efforts to controlreduce 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 thirdfirst quarter of 2001 and $905 thousand in the 2000 period. For2002, unchanged from the first nine monthsand the fourth
quarters of 2001, $2.7 million was provided, representing a $75
thousand decrease from 2000.2001.
For further information regarding net credit losses and the reserveallowance for loan
losses, see the "Asset Quality""Classified Assets" section of this report.
NONINTEREST INCOMENoninterest Income
The following table summarizes the components of noninterest income for the
periods indicated (dollars in thousands).:
Three months ended
Nine months ended
September 30, September 30,
----------------------- -----------------------March 31, December 31,
2002 2001 2000 2001
2000
------- ------- ------- -----------------------------------------
Service charges on deposit accounts $ 5,806 $ 5,271 $17,273 $15,834$6,002 $5,560 $5,841
Merchant credit card fees 1,048 1,049 3,032 3,005905 946 961
ATM fees and interchange 642 579 1,700 1,611517 493 582
Financial services commissions 375 388 994 1,276339 243 381
Debit card fees 388 267 1,076 829406 312 440
Mortgage banking income 260187 221 198 723 620
Official check sales income 260 365 902 1,068157 350 200
Trust fees 221 179 752 520311 292 215
Gains on sale of foreclosed property 0 59 1 339 155 672
Other noninterest income 1,589 2,122 5,262 5,745
------- -------1,175 1,810 1,966
------ ------- -------
Total $10,590 $10,757 $31,869 $31,180
======= =======$9,999 $10,286 $10,785
====== ======= =======
Noninterest income for the thirdfirst quarter of 20012002 decreased $167$287 thousand (2%(3%)
from the same period in 2000. The largest single category of change was that of
service2001. Service charges on deposit accounts, specifically
in the area of deficit fees charged on analyzed accounts, which increased $569$442
thousand (39%(8%). Deficit fees are service charges collected from business
customers that typically pay for such services with compensating balances.
In the current period of low interest rates, the earnings value of the balances
has decreased resulting in more customers being required to pay for services
with explicit fees. Other
categoriesOffsetting the increase in deficit fees were declines in DDA
activity (down $284 thousand or 17%) as well as overdraft and returned item
charges (down $116 thousand or 5%).
Increases in ATM fees and debit card fees also contributed to noninterest
income. ATM fees increased $24 thousand (5%) due to increased Bank customer
use of deposit account fees decreased slightly.
The second largest component of the change was the increased usage of card-based
products. Theother banks' machines and non-Bank customers accessing their accounts
through Westamerica Bank began issuing check (or debit) cards in 2000 and customer
acceptance and use has been steadily increasing.ATM's. In the current quarter, fees earned from check
card use totaled $388$406 thousand, up $121$94 thousand (45%(30%) over a year ago.
Fees derived fromThe amount of financial services commissions was $96 thousand (40%) higher in
the Bank's systemfirst quarter of ATM machines increased $63
thousand (11%),2002 compared to 2001 primarily due to Bank customers' usehigher sales volume
of foreign machines (up $40fixed annuities. Official check sales income declined $193 thousand or 13%(55%)
and non-Bank customers accessing their accounts through Westamerica Bank
ATM's (up $23 thousand or 8%).
Decreases in three other categories offset these increases. Gains onmainly because declining earnings credit rates depressed sales of
foreclosed property were $339 thousand in the third quarter of 2000, compared to
a nominal amount in the current quarter. The year-ago gain was from the sale of
a single long-held commercial development. Income from the sale of official
checks decreased $105 thousand (29%); the revenues are based on the interest
value of the outstanding checks from the time that they are sold until they are
presented for payment, so that the current lower-rate interest rate environment
has resulted in lower revenue. The "other" category decreased $533 thousand
(25%), as the year-ago quarter included a $250 thousand gain realized on the
repurchase of long-term debt and gains on the sale of other assets.income despite
sales volume growth.
Comparing the first nine monthsquarter of 20012002 to the same period in 2000,previous quarter, noninterest income
increased $689decreased $786 thousand (2%(7%). As with the quarter-to-quarter comparison,
theThe largest component of this changepositive contributor was service
charges on deposit accounts, which increased $1.4 million (9%$161 thousand (3%). Again,As discussed
above, the primary reason for the increase is the current low interest rate
environment: lower earnings credits are given on compensating balances so that
customers are assessed explicithard-dollar fees for services. Also included in this
category are overdraft and returned item charges, which increased $166declined $111
thousand (3%(5%), as service charge routines installed in late 1999 had not yet
taken full effect until the 2001 period. Further, service charges on savings
accounts improved $149 thousand (38%) due to the assessment of annual charges on
IRA/KEOGH accounts imposed for the first time in the first quarter of 2001.
Debit card fees were up $247 thousand (30%), as usage continues to increase.
Trust fees increased $232.
The other positive factor was a $96 thousand (45%) increase in Trust fees with
$52 thousand court fees received and intensified marketing resultingmarketing. The above increases
were not sufficient to offset decreases in more trust assets under management, which increasedother categories.
Merchant credit card fees fell $56 thousand (6%) primarily due to $339 million at September
30, 2001 from $316 millionseasonally
high sales in 2000.
Decreasing from the year-ago nine month period were financialfourth quarter. ATM fees and debit card fees fell $65
thousand (11%) and $34 thousand (8%), respectively, mainly due to seasonally
high transaction volume in the fourth quarter.
Financial services commissions which were down $282declined $42 thousand (22%(11%) primarily because
of loweran $80 thousand decrease in fixed annuities sales, of
mutual fund andpartially offset by a
$26 thousand increase in variable annuity products, which in turn was the result of
staffing shortages early in 2001 and lower volumes of investment in equity
markets. Gains on sales of foreclosed property dropped $518 thousand (77%), as
2000 included the sale of one large property.annuities sales.
Official check sales income was down
$166also fell $43 thousand (16%(21%) due to lower earnings on outstanding checks. And the "other"
category decreased $483earning
credit rates. Other noninterest income fell $791 thousand (8%(40%), as the year-ago periodprevious
quarter included $331 thousand excess proceeds received on a $250
thousand gain realized on the repurchase of long-term debt and gains on the sale
of other assets.
NONINTEREST EXPENSEcharged-off loan.
Noninterest Expense
The following table summarizes the components of noninterest expense for the
periods indicated (dollars in thousands).
Three months ended
Nine months ended
September 30, September 30,
------------------------ ------------------------March 31, December 31,
2002 2001 2000 2001
2000
------- ------- ------- ----------------------------------------
Salaries and incentives $10,656 $10,236 $31,372 $29,913$10,948 $10,220 $10,568
Employee benefits 2,814 2,707 8,668 8,2322,941 3,130 2,305
Occupancy 3,073 2,856 8,900 8,7892,931 2,916 3,043
Equipment 1,513 1,737 4,587 4,8971,434 1,590 1,583
Data processing services 1,502 1,504 4,577 4,5521,499 1,521 1,456
Courier service 923889 927 898
2,752 2,588
Telephone 480 561 1,474 1,658409 494 444
Postage 415 501 1,318 1,528405 502 393
Professional fees 370 521 1,222 1,319371 453 403
Merchant credit card 399 412 1,123 1,196340 361 342
Stationery and supplies 355 432 1,098 1,158345 362 381
Advertising/public relations 319 347 1,031 932289 359 374
Employee recruiting 69 26 396 166110 100 94
Loan expense 296 264 823 806333 226 284
Operational losses 278 139 689 639231 163 296
Deposit expense 126 24 429 21138 159 181
Foreclosed property expense 18 316 159 42049 43 7
Amortization of deposit intangibles 367 313 1,108 821201 365 261
Amortization of goodwill 0 288 297 268 879 713
Other noninterest expense 1,493 1,535 4,361 4,339
-------1,830 1,397 2,075
------- ------- -------
Total $25,763 $25,597 $76,966 $74,687
=======$25,693 $25,576 $25,685
======= ======= =======
Average full time equivalent staff 1,074 1,078 1,082 1,0771,081 1,083 1,083
Noninterest expense to revenues (FTE) 41.3% 42.7% 42.0% 42.6%40.97% 42.95% 40.66%
Noninterest expense increased $166$117 thousand (1%(0.4%) in the thirdfirst quarter of 20012002
compared to the same period in 2000.2001. The largest category of increase was
salaries and incentives, which were up $420$728 thousand (4%(7%). A major portion
of the increase is attributable to the acquisition of First Counties Bank (FCB)a $694 thousand increase in August of 2000;incentive
compensation expense.
Other major increases are found in addition, approximately $400loan expense (up $107 thousand isor 47%),
operational losses (up $68 thousand or 42%) and other noninterest expense
(up $434 thousand or 31%). Loan expense went up primarily due to salary
increases granteda $26
thousand increase in early 2001 to existing employees. Annualized salaries
(excluding incentives) per full time equivalent employee grew from $34,800the cost of obtaining credit reports and a $35 thousand
increase in 2000 to $35,400 in 2001, for an average 1.7% increase.
Occupancy costs increased $217 thousand (8%) overcollateral repossession expense. Operational losses rose largely
because the thirdfirst quarter of 2000,
largely because2001 benefited from $40 thousand of higher utilities costs (up $81recoveries.
Other noninterest expense rose mainly due to a $69 thousand or 17%(46%); scheduled
rent increase
in sales contest expense, a $100 thousand provision for unusual losses and
a $143 thousand (126%) increase in staff relations expense.
Largely offsetting these increases, added $50employee benefits expense declined $189
thousand (3%(6%); primarily due to a $288 thousand decrease in payroll taxes and
the two new offices addeda $43 thousand decline in connection with the August, 2000 acquisition of FCB caused occupancy expense to
rise.workers compensation costs.
Other categories of year-to-year increasedecline were operational losses (up $139a $156 thousand or 100%(10%) duedecrease in equipment
primarily to fewer loss recoveries (which act to reduce
operational loss expense) in 2001; deposit expense increased $102 thousand over
2000, primarily because of additional costs totaling $109 thousand paid on
behalf of business clients; and the amortization of deposit intangibles (up $54
thousand or 17%) and amortization of goodwill (up $29 thousand or 11%). Both
increases resulted from the Company's acquisition of FCB in the third quarter of
2000. The transaction gave rise to a deposit-based intangible asset of $2.8
million that is
being amortized over a ten-year period, and goodwill of $9.8 million, that is
being currently amortized over 25 years.
Partially offsetting these increases, foreclosed property expense declined $298
thousand (94%) to a more-normal level after recording a large write-down in the
2000 period; equipment expense decreased $224 thousand (13%) due to lower depreciation costs;costs including the effect from sale of
branches in the fourth quarter of 2001 and an $85 thousand (17%) decline in
telephone expense. In addition, postage expense decreased $97 thousand (19%)
due to special mailings in 2001, professional fees were down $151$82 thousand
(29%(18%) primarily because 20002001 included legal fees in connection with loan
collection efforts, and advertising/public relations fell $70 thousand (19%)
primarily due to a decrease in promotional advertising. Last, the FCB acquisition; postage
expense decreased $86amortization
of deposit intangibles declined $164 thousand (17%(44%), as the 2000 period included several
special mailings; and telephone expense dropped $81 thousand (15%) primarily due to the
installationexpiration of new telephone switching equipmentthe purchase premium incurred in late 2000.
Onconnection with a year-to-date basis, noninterest expense increased $2.3 million (3%). The
major categories of increase are the same as discussed above: salaries &
incentives, deposit expense1993
acquisition and amortization of intangibles.goodwill fell because of implementation of
FASB No.141 and 142. Goodwill will no longer be amortized but be periodically
evaluated for impairment.
Comparing the first three months of 2002 with the fourth quarter of 2001,
noninterest expense stayed essentially flat. Salaries &and incentives increased $1.5 million (5%rose
$380 thousand (4%) primarily because ofdue to salary increases tofor existing employees
which became effective duringand higher expenses recorded in connection with incentive and bonus programs.
Benefits rose $636 thousand (28%) primarily due to an increase in the accrual
for restricted performance shares, $109 thousand higher tax payments in the
first partquarter and a $43 thousand increase in group insurance.
Other expenses which increased are a $43 thousand (3%) increase in data
processing and a $49 thousand (17%) increase in loan expense. Foreclosed
property expense rose $42 thousand (600%) primarily due to a $32 thousand
writedown.
Offsetting these increases were declines in occupancy (down $112 thousand or 4%)
largely due to $165 thousand lower utility expense, equipment (down $149
thousand or 9%) mainly due to a $66 thousand lower depreciation expense and $67
thousand equipment writeoff of 2001. Deposit
expense increased $408certain assets in the fourth quarter.
Advertising/public relations fell $85 thousand as(23%) primarily due to a result of expenses paid on behalf of
business customers.$51
thousand drop in promotional advertising and a $20 thousand decrease in public
relations. Operational losses declined $65 thousand (22%) mainly due to a $71
thousand decrease in sundry losses. Amortization of deposit intangibles and
goodwill increased
$287 (35%)fell $62 thousand and $166$297 thousand (23%), respectively, as a result offor the FCB acquisition. Another major category of increase was employment recruitment
expenses, up $230same reason with the
year-to-year comparison. Other noninterest declined $243 thousand (139%) due to a one-time, three-month effort to
locate and hire staffprimarily
because the fourth quarter included $550 thousand provision for certain positions within the Company.
Partially offsetting these increases duringunusual losses.
Provision for Income Tax
During the first nine months of the year,
foreclosed property expense declined $261 thousand (62%) due to unusually high
write-downs in 2000; postage decreased $210 thousand (14%), as the 2000 period
included some extraordinary costs; and telephone dropped $184 thousand (11%) as
a result of the installation of cost-saving switching hardware and software, and
equipment expense decreased $310 thousand (6%) due to lower depreciation costs.
PROVISION FOR INCOME TAX
During the third quarter of 2001,2002, the Company recorded income tax expense of
$10.4$10.2 million, $645 thousand (7%$1.2 million (14%) higher than the thirdfirst quarter of 2000; on a
year-to-date basis, income tax expense was $29.6 million for 2001 compared to
$28.4 million for 2000 (up 4%).2001.
The current quarter provision represents an effective tax rate of 32.832.2 percent,
compared to 32.630.6 percent and 32.9 percent for the third
quarterfirst and fourth quarters
of 2000; for the first nine months of 2001, the effective tax rate was
32.1 percent, compared to 32.5 percent recorded in 2000.2001.
The provision for income taxes for all periods is primarily attributable to the
respective levels of earnings and revenuesdeductions from tax-exempt loans and state
and municipal securities, which increased $1.1 million$681 thousand in the thirdfirst quarter
of 2002 over the same period last year and $3.0 million for$91 thousand over the nine-month period. In addition, the
first nine monthsfourth quarter
of 2001 reflected an adjustment to low-income housing tax
credits that the Company earned in the prior year. The effect of the adjustment
was to lower the 2001 year-to-date tax provision by $443 thousand.
ASSET QUALITY2001.
Classified Assets
The Company closely monitors the markets in which it conducts its lending
operations and continues its strategy to control exposure to loans with high
credit risk and increase diversification of earning assets into less risky
investments. Asset reviews are performed using grading standards and criteria
similar to those employed by bank regulatory agencies. Assets receiving lesser
grades fall under the "classified assets" category, which includes all
non-performingnonperforming assets and potential problem loans, and receive an elevated level
of attention to ensure collection.
The following is a summary of classified assets on the dates indicated
(dollars in thousands):
At
September 30, At ------------------------March 31, December 31,
2002 2001 2000 2000
------- ------- ------------2001
-----------------------------------
Classified loans $30,171 $37,297 $31,634$26,687 $33,365 $22,284
Other classified assets 547 2,017 2,065834 1,866 523
------- ------- -------
Total classified assets $30,718 $39,314 $33,699$27,521 $35,231 $22,807
======= ======= =======
Allowance for loan losses /
classified loans 174% 140% 165%195% 158% 234%
Classified loans at September 30, 2001,March 31, 2002, decreased $7.1$6.7 million (19%(20%) from September 30, 2000,a year
ago, primarily reflecting the upgradingeffectiveness of one largethe Company's high underwriting
standards and several
smaller classified commercial and commercial real estate loans.active workout policies. Other classified assets decreased $1.5$1.0
million (73%(55%) from September 30, 2000,March 31, 2001, due to sales and write-downs of foreclosed
properties, partially offset by new foreclosures on loans with real estate
collateral. The overall low level ofThere was a $4.4 million increase (20%) in classified loans in
relationfrom
December 31, 2001 mainly due to the allowance for loan losses reflects the Company's strict credit
standards, even in a weakening economy.
NONPERFORMING ASSETSnew downgrades, partially offset by payoffs.
Nonperforming Assets
Nonperforming assets include nonaccrual loans, loans 90 days past due as to
principal or interest and still accruing, and other real estate owned. Loans
are placed on nonaccrual status when reaching 90 days or more delinquent,
unless the loan is well secured and in the process of collection. Interest
previously accrued on loans placed on nonaccrual status is charged against
interest income. In addition, loans secured by real estate with temporarily
impaired values and commercial loans to borrowers experiencing financial
difficulties are placed on nonaccrual status even though the borrowers
continue to repay the loans as scheduled. Such loans are classified as
"performing nonaccrual" and are included in total non-performingnonperforming assets.
When the ability to fully collect non-accrualnonaccrual loan principal is in doubt,
cash payments received are applied against the principal balance of the
loan until such time as full collection of the remaining recorded balance
is expected. Any subsequent interest received is recorded as interest income
on a cash basis.
The following is a summary of nonperforming assets on the dates indicated
(dollars in thousands):
At
September 30, At ------------------------March 31, December 31,
2002 2001 2000 2000
------- ------- ------------2001
------------------------------------
Performing nonaccrual loans $ 1,350 $ 3,653 $ 3,499$3,195 $2,861 $3,055
Nonperforming, nonaccrual loans 7,156 5,193 4,525
------- ------- -------4,395 4,204 5,058
------ ------ ------
Total nonaccrual loans 8,506 8,846 8,0247,590 7,065 8,113
Loans 90 days past due and
still accruing 252 409 529 650
------- ------- -------550
------ ------ ------
Total nonperforming loans 8,915 9,375 8,6747,842 7,474 8,663
Other real estate owned 547 2,017 2,065834 1,866 523
------- ------- -------
Total nonperforming assets $ 9,462 $11,392 $10,739$8,676 $9,340 $9,186
======= ======= =======
Allowance for loan losses /
nonperforming loans 588% 557% 603%665% 704% 601%
Performing nonaccrual loans at September 30, 2001 decreased $2.3 million (63%March 31, 2002 increased $334 thousand (12%) and
$140 thousand (5%) from a year ago and were essentially unchanged from year-end, 2000.2001, respectively. The
year-to-year decreasechange resulted primarily from new loans placed on nonaccrual, offset by charge-offs,
payoffs and payoffs.loans being returned to accrual status.
Nonperforming nonaccrual loans at September 30, 2001March 31, 2002 increased $2.0 million
(38%$191 thousand (5%)
from the previous year, and $2.6 million (58%) from December 31, 2000. Much
of the increase from both prior dates involves one large commercial real estate
credit that was placed on nonperforming nonaccrual status due to the borrowers'
delay in obtaining refinancing with another financial institution. The remainder
of the increases in both periods is the net result of loans being added to non-accrual,nonaccrual,
partially offset by others being returned to full-accrual status or being
paid off. The $663 thousand (13%) decrease from December 31, 2001 was primarily
due to the foreclosure on one loan and subsequent transfer to other real estate
owned.
Other real estate owned at September 30, 2001March 31, 2002 was $1.5$1.0 million (73%(55%) lower
than both the previous year, and December 31, 2000. Much of the reduction was due toprimarily resulting from the sale of three large
properties with a total carrying value of $1.2 million. Other
sales were partially offset byComparing to the
2001 year-end, a $311 thousand increase in other real estate owned is
primarily due to an addition of new foreclosed property.a property valued at $343 thousand.
The amount of gross interest income that would have been recorded for
non-accrualnonaccrual loans for the three and nine months ended September 30, 2001,March 31, 2002, if all such
loans had been current in accordance with their original terms, was
$152$133 thousand, compared to $179 thousand and $518 thousand, respectively, compared to $208 thousand and $373$157 thousand, respectively,
for the threefirst and nine months ended September 30, 2000.
fourth quarters of 2001.
The amount of interest income that was recognized on non-accrualnonaccrual loans from
all cash payments, including those related to interest owed from prior
years, made during the three and nine months ended September 30, 2001,March 31, 2002, totaled $347$110
thousand, compared to $336 thousand and $917 thousand, respectively, compared to $160 thousand and $368$45 thousand, respectively, for
the comparable periods in 2000.first and fourth quarters of 2001. These cash payments represent
annualized yields of 19.359.39 percent for first three months of 2002
compared to 18.75 percent and 16.0710.25 percent, respectively, for the
third quarterfirst and the first nine monthsfourth quarter of 2001 compared to 9.22 percent and
14.27 percent, respectively, for the three and nine months ended September 30,
2000.2001.
Total cash payments received, including those recorded in prior years, which
were applied against the book balance of nonaccrual loans outstanding at
September 30, 2001,March 31, 2002, totaled approximately $24$188 thousand.
The overall credit quality of the loan portfolio continues to be strong;
however, the total nonperforming assets could fluctuate from period to period.
The performance of any individual loan can be impacted by external factors
such as the economicinterest rate environment or factors particular to the borrower.
The Company expects to maintain the level of nonperforming assets to remain near the current level;assets; however,
the Company can give no assurance that additional increases in nonaccrual
loans will not occur in the future.
ALLOWANCE FOR LOAN LOSSESAllowance for Loan Losses
The Company's allowance for loan losses is maintained at a level
estimated to be adequate to provide for losses that can be estimated
based upon specific and general conditions. These include credit
loss experience, the amount of past due, non-performingnonperforming and classified
loans, recommendations of regulatory authorities, prevailing economic
conditions and other factors. The allowance is allocated to segments
of the loan portfolio based in part on quantitative analyses of
historical credit loss experience, in which criticized and classified
loan balances are analyzed using a linear regression model to determine
standard allocation percentages. The results of this analysis are
applied to current criticized and classified loan balances to allocate
the reserveallowance to the respective segments of the loan portfolio. In
addition, loans with similar characteristics not usually criticized
using regulatory guidelines due to their small balances and numerous
accounts, are analyzed based on the historical rate of net losses
and delinquency trends, grouped by the number of days the payments
on these loans are delinquent. A portion of the allowance is also
allocated to impaired loans. Management considers the $52.5$52.1 million
allowance for loan losses, which constituted 2.112.12 percent of total loans
at September 30, 2001,March 31, 2002, to be adequate as a reservean allowance against inherent
losses. However, while the Company's policy is to charge off in the
current period those loans on which the loss is considered probable,
the risk exists of future losses which cannot be precisely quantified
or attributed to particular loans or classes of loans. Management
continues to evaluate the loan portfolio and assess current economic
conditions that will dictate future required allowance levels.
The following table summarizes the loan loss provision, net credit losses
and allowance for loan losses for the periods indicated (dollars in thousands):
Three months ended
Nine months ended
September 30, September 30,
--------------------------- --------------------------March 31, December 31,
2002 2001 2000 2001
2000
-------- -------- -------- ------------------------------------------
Balance, beginning of period $ 52,468 $ 52,121 $ 52,279 $ 51,574$52,086 $52,279 $52,461
Loan loss provision 900 905 2,700 2,775900 900
Loans charged off (1,611) (2,751) (5,501) (6,126)(1,645) (1,607) (1,952)
Recoveries of previously
charged off loans 704 870 2,983 2,922
--------806 1,072 677
-------- -------- --------
Net credit losses (907) (1,881) (2,518) (3,204)(839) (535) (1,275)
-------- -------- -------- --------
First Counties Bank acquisition 0 1,036 0 1,036
Balance, end of period $ 52,461 $ 52,181 $ 52,461 $ 52,181
========$52,147 $52,644 $52,086
======== ======== ========
Allowance for loan losses /
loans outstanding 2.11% 2.12% 2.14% 2.10%
ASSET AND LIABILITY MANAGEMENTAsset and Liability Management
The fundamental objective of the Company's management of assets and
liabilities is to maximize economic value while maintaining adequate
liquidity and a conservative level of interest rate risk.
The primary analytical tool used by the Company to gauge interest rate risk is
a simulation model to project changes in net interest income ("NII") that
result from forecast changes in interest rates. The analysis calculates the
difference between a NII forecast over a 12-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 200100 basis points over the
12-month forecast interval triggering a response in the other forecasted rates.
It is theCompany policy of the Company to requirerequires that such simulated changes in NII changes should be always less than 10 percentwithin
certain specified ranges or steps must be taken to reduce interest-rateinterest rate risk. According to the same policy, if the simulated changes in
NII reach 7.5 percent, a closer look at the risk will be put in place to
determine what steps could be taken to control risk should it grow worse.
The results of the model indicate that the mix of interest rate sensitive
assets and liabilities at September 30, 2001March 31, 2002 would not result in a fluctuation
of NII that would exceed the parameters established by Company policy.
At September 30,March 31, 2002 and 2001, and 2000, the Company had no derivative financial
instruments outstanding. As the Company believes that the derivative
financial instrument disclosures contained within the notes to the
financial statements of its 20002001 Form 10-K substantially conform
with the accounting policy requirements,
of these rule amendments, no further interim disclosure
has been provided. The rule amendments that require expanded
disclosure of quantitative and qualitative information about market
risk were effective with the 1997 Form 10-K. At September 30, 2001,March 31, 2002,
there were no substantial changes in the information on market risk
that was disclosed in the Company's 2000 Form 10-K.
LIQUIDITY10-Ks since 1997.
Liquidity
The Company's principal source of asset liquidity is marketable
investment securities available for sale. At September 30, 2001,March 31, 2002,
investment securities available for sale totaled $908$975 million,
representing a decreasean increase of $13$26 million from December 31, 2000.2001.
In addition, the Company generates significant liquidity from its
operating activities. The Company's profitability during the first
ninethree months of 20012002 and 20002001 generated substantial cash flows
which are included in the totals provided from operations of $73$35
million and $68$25 million, respectively.
Additional cash flows may be provided by financing activities,
primarily the acceptance of deposits and borrowings from banks.
The Company also realizedhad net cash inflows fromoutflows in its investing activities during
the 20012002 period. SalesPurchases net of sales & maturities of investment
securities net of purchases
were $44$38 million during the ninefirst three months of 2001,2002,
which was partially offset by net disbursementsrepayments of loans of $2$21
million, resulting in net cash provided fromused of $17 million.
In the quarter ended March 31, 2001, investing activities provided a
major source of $40 million.
Investing activities were a slight net usecash. Less than 50% of cash in the nine month period
ended September 30, 2000. Net sales and maturitiesproceeds from maturing
investment securities provided cash of
$69 million. However, this was more than offset by net disbursements of loans of $79 million resulting inwere reinvested for a net
increase of cash provided of $5$44 million. Another primary source of cash was
$25 million from loan repayments.
Financing activities also providedused cash during both nine-monththree-month periods ended
September 30.March 31. In 2001,2002, the effect of the Company's stock repurchase
programs and dividends paid to shareholders were $82$23 million and
$22$8 million, respectively. These cash outflows, added to a $131$12 million
reduction in short-term borrowed funds, partially offset by a $21$16
million increase in deposits, are included in the net cash used in
financing activities during the first ninethree months of 20012002 of $204$24
million.
This compares to the first ninethree months of 2000,2001, when the cash used in
financing activities totaled $86$191 million. This amount includes cash
outflows related to the Company's stock repurchase programs and dividends
paid to shareholders of $39$38 million and $20$7 million, respectively, plus a
$128$111 million reduction in short-term debt partially offset byand a $107$40 million increasedecrease
in deposits.
The Company anticipates increasing its cash level from operations through 2001
due to2002
through increased profitability and retained earnings. For the same period,
it is anticipated that demand for loansdeposit balances will increase,increase. Growth in loan balances,
particularly in the commercial and real estate categories. The growth in deposit balancescategories, is expected to
follow the anticipated growth in loandeposit balances.
However, due to the aftermath of the
events of September 11, 2001, there is considerable uncertainty in the general
economic environment which may impact loan demand.
CAPITAL RESOURCESCapital Resources
The current and projected capital position of the Company and the impact
of capital plans and long-term strategies is reviewed regularly by
Management. The Company quarterly repurchases approximately 250 thousand
of its shares of Common Stock in the open market on a quarterly basis with the intention of
lessening the dilutive impact of issuing new shares to meet stock
performance, option plans, and other ongoing requirements. In addition
to these systematic repurchases, other programs have been implemented
to optimize the Company's use of equity capital and enhance shareholder
value. Pursuant to these programs, the Company repurchased an additional
1.35 million and 488308 thousand shares duringin the first nine monthsquarter of 2002, 741 thousand shares in
the first quarter of 2001, and 2000, respectively.258 thousand shares in the fourth quarter
of 2001.
The Company's capital position represents the level of capital available to
support continued operations and expansion. The Company's primary capital
resource is shareholders' equity, which was $323$308 million at September 30, 2001.March 31, 2002.
This amount, which is reflective of the effect of common stock repurchases
and dividends paid to shareholders partially offset by the generation of
earnings and proceeds from the issuance of stock, represents a decrease
of $8$23 million or 7 percent from a year ago, and a decrease of $7 million,
or 2 percent, from September 30, 2000, and a decrease of $15 million, or 4 percent,
from December 31, 2000.2001. As a consequence of the decrease in
shareholders' equity, the Company's ratio of equity to total assets decreased
slightly to 8.267.76 percent at September 30, 2001,March 31, 2002, from 8.328.53 percent a year ago. The equity
to assets ratio was 8.388.00 percent on December 31, 2000.2001.
The following summarizes the ratios of capital to risk-adjusted assets for the
periods indicated:
At September 30,Minimum
At Minimum
--------------------March 31, December 31, Regulatory
2002 2001 2000 20002001 Requirement
----- ----- ------------ --------------------------------------------------------
Tier I Capital 9.59% 10.35% 10.20%9.33% 9.97% 9.29% 4.00%
Total Capital 10.93% 11.76% 11.61%10.67% 11.39% 10.63% 8.00%
Leverage ratio 7.46% 8.04% 7.89%7.18% 7.76% 7.30% 4.00%
The risk-based capital ratios decreased at September 30, 2001,March 31, 2002, compared
to the prior year and to December 31, 2000, primarily due to the decrease in the total level
of tangible (excluding goodwill and purchase premiums) shareholders'
equity as a result of the Company's common stock repurchases and
dividends paid to shareholders, partially offset by increased net incomeincome.
Comparing to the 2001 year-end, the capital ratios improved slightly with
an increase in retained earnings, and stock option
exercises.the leverage ratio fell affected
by asset growth.
Capital ratios are reviewed by Management on a regular basis to ensure
that capital exceeds the prescribed regulatory minimums and is adequate
to meet the Company's future needs. As shown in the table above, all
ratios are in excess of the regulatory definition of "well capitalized".
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDSImpact of Recently Issued Accounting Standards
In July 2001, the FASBFinancial Accounting Standards Board ("FASB") issued
Statement No. 141, Business Combinations, and Statement No. 142, Goodwill
and Other Intangible Assets. Statement 141 requires that the purchase
method of accounting be used for all business combinations initiated
after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 alsoand specifies criteria that intangible assets
acquired in a purchase method business combination must meet to be
recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately.goodwill. Statement 142 will requirerequires
that goodwill and intangible assets with indefinite useful lives no
longer be amortized after 2001, but instead testedbe periodically evaluated
for impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangibleimpairment. Intangible assets with definite useful lives are required
to be amortized over their respective estimated useful lives to their
estimated residual values, and also reviewed for impairment in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.impairment.
The Company iswas required to adopt the provisions of Statement 141 immediately and
Statement 142 effective January 1, 2002. Furthermore,Accordingly, any goodwill and
any intangible asset determined to have an indefinite useful life that
are acquired in a purchase business combination completed after June 30, 2001 will not be amortized,
but will continue to be evaluated for impairment in accordance with
the appropriate pre-Statement 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of Statement 142.
Statement 141 will require upon adoption of Statement 142, that theThe Company evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company will bewas also required
to reassess the useful lives and residual values of all such intangible
assets acquired
in purchase business combinations, and make any necessary amortization period adjustments by
the end of the first interim period after adoption.March 31, 2002. No such adjustments were made.
In addition, to the extent an intangible asset is identified as having an
indefinite useful life, the Company will bewas required to test the intangible asset
for impairment in accordance with the provisions of Statement 142 within the first interim
period. Anyquarter of 2002. No impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.
In connection with the transitional goodwill impairment evaluation, Statement
142 will require the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this the Company must identify its reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of the
date of adoption. The Company will then have up to six months from the date of
adoption to determine the fair value of each reporting unit and compare it to
the reporting unit's carrying amount. To the extent a reporting unit's carrying
amount exceeds its fair value, an indication exists that the reporting unit's
goodwill may be impaired and the Company must perform the second step of the
transitional impairment test. In the second step, the Company must compare the
implied fair value of the reporting unit's goodwill, determined by allocating
the reporting unit's fair value to all of it assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
earnings.
And finally, any unamortized negative goodwill existing at the date Statement
142 is adopted must be written off as the cumulative effect of a change in
accounting principle.
was identified.
As of the date of adoption, the Company expects to havehad unamortized goodwill in the amount
of $16.3 million and unamortized identifiable intangible assets in the amount
of $2.7 million which will be subjectmillion. In accordance with the Statement 142 goodwill was not amortized
during the first quarter of 2002, compared to amortization expense of $288
thousand for the transition provisionsfirst quarter of Statements 1412001 and 142. Amortization expense related to goodwill was $297 thousand for the thirdfourth quarter
of 2001 and $2682001. Amortization of identifiable intangible assets was $201 thousand for
the same period in
2000. Forfirst quarter of 2002, and $365 thousand and $261 thousand for the nine months ended September 30, goodwill amortization was $879
thousand in 2001first
and $713 thousand in 2000. The Company is in the processfourth quarters of assessing the impact of the statements, including giving consideration to
current market conditions, and, as of the date of this report, does not expect
to have any transitional impairment losses to be recognized as a cumulative
effect of a change in accounting principle.2001.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
WESTAMERICA BANCORPORATION
(Registrant)
Date: November 2, 2001April 29, 2002 /s/ DENNIS R. HANSEN
----------------------------------------------------------------------
Dennis R. Hansen
Senior Vice President
and Controller
Chief Accounting Officer
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Due to the nature of the banking business, the Subsidiary
Banks are 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 Banks.
Item 2 - Changes in Securities
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 11: Computation of Earnings Per Share on Common
and Common Equivalent Shares and on Common
Shares Assuming Full Dilution
(b) Reports on Form 8-K
NoneOn March 8 2002, the Company filed a Report on Form 8-K
announcing the signing of a definitive agreement on February
25, 2002 to acquire Kerman State Bank.
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) 2002 2001
- ------------------------------------------------------------------
Weighted average number of common
shares outstanding - basic 34,071 36,000
Add exercise of options reduced by the
number of shares that could have been
purchased with the proceeds of such
exercise 563 605
- ------------------------------------------------------------------
Weighted average number of common
shares outstanding - diluted 34,634 36,605
==================================================================
Net income $21,659 $20,424
Basic earnings per share $0.64 $0.57
Diluted earnings per share $0.63 $0.56