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