Midday Update: Is Westamerica’s War of Words Against Activists Worthwhile?

Battered by a community group over its reinvestment record and executive pay levels, Westamerica Bancorp. responded to the charges in a way few banking companies have before: It fought back.

It was a decision the San Rafael, Calif., company may regret.

The Greenlining Institute, an umbrella group in San Francisco representing dozens of ethnic, minority, and religious organizations, is protesting Westamerica’s latest acquisition application and accusing the company of overpaying its chairman, president, and chief executive officer, David L. Payne, and underinvesting in Marin County.

Though most banking companies strike deals with activist groups, the $4 billion-asset Westamerica called its lawyer.

“The bank is not a charity, a foundation, or any other type of nonprofit organization,” Jonathan D. Joseph of the San Francisco law firm Pillsbury Winthrop told Greenlining in a letter. “There is no legal or ethical link between executive compensation paid and community reinvestment activities.”

Mr. Joseph was just getting warmed up.

Greenlining’s “concocted statistics and fabricated claims” are “inaccurate, derogatory, misleading and unfounded,” he wrote in the March 11 letter to Robert Gnaizda, the group’s general counsel. Mr. Joseph also accused Greenlining of trying to “incite the public and mislead federal regulators.”

Then the six-page letter turned the tables on Greenlining. “Westamerica Bank demands that you promptly publish a retraction and correction and apologize to the community,” wrote Mr. Joseph, who refused to be interviewed for this story.

Westamerica officials also would not comment, but the “apology” the company got could hardly be what it expected.

“Greenlining stands by its original contentions that Westamerica overpays its CEO David Payne and does too little for the poor,” Greenlining said in a press statement, titled “Public ‘Apology’ to Westamerica Bank’s Customers, Community, and Shareholders.” The group also chastised Westamerica for threatening a “possible libel suit in an apparent effort to chill Greenlining’s First Amendment right.”

In fact, on March 29 Greenlining had one of its lawyers fire off a menacing letter to Mr. Joseph. “If Westamerica harbors any intent to initiate legal action, Greenlining will pursue all available legal remedies against Mr. Payne and Westamerica,” wrote Theodore T. Ting, a lawyer with Crosby, Heafey, Roach & May.

Taking the matter one step further, Greenlining and a dozen of the groups it represents complained about Westamerica’s tactics in a letter on Monday to Federal Reserve Board Chairman Alan Greenspan and Federal Reserve Bank of San Francisco President Robert Parry.

Accusing the banking company of trying to intimidate Greenlining, and claiming the cost of defending a libel suit would bankrupt most nonprofits, the letter outlines steps the Fed could take to “protect the integrity of its protest process.”

Greenlining, and in particular Mr. Gnaizda, is tenacious. One of the most effective community groups in the country, it has secured big investment commitments from the largest West Coast banking companies and gained regular access to key Washington policymakers, like Mr. Greenspan.

Like most groups, Greenlining takes advantage of the opportunity presented when a bank files a merger application with the Fed. As regulators evaluate merger deals, critics get a chance to weigh in on a bank’s Community Reinvestment Act record. Banks need clean CRA records to expand by acquisition. Westamerica, which operates in Northern and Central California, received a “satisfactory” CRA rating in an April 2000 exam.

In late February, Westamerica announced a deal to buy the $106 million-asset Kerman State Bank in California. About a week later the leaders of 19 of Greenlining’s member groups protested in a press release and a letter to Mr. Parry and the San Francisco Fed’s community affairs officer, Joy Hoffman. A formal protest will be filed once Westamerica’s merger application is complete, Mr. Gnaizda said in an interview.

“The largest bank in Marin [Westamerica] virtually ignores the poor — CEO is paid 260 times total charitable giving,” Greenlining told the San Francisco Fed. The group said the company paid Mr. Payne $6.9 million in 2000, not counting $19 million of unexercised stock options.

What’s more, Greenlining claimed Westamerica has the worst CRA record and the lowest investment in minority, low-income communities in Marin County. In 2000 the company made $20,000 grants under CRA, or “less than 1% of Payne’s salary,” Greenlining told the San Francisco Fed.

The four-page letter goes on to question whether Westamerica has any strategy for serving poor people or small businesses run by minorities. It also attacks the company’s mortgage lending record, the lack of diversity among its officers and directors, and the mission of its check-cashing business.

Greenlining staged a protest early last month at a Westamerica branch in Fresno and another one on Monday at two branches in Marin. The group asked Kerman State officials to consider selling the bank to Washington Mutual Inc. or Wells Fargo & Co. — two companies that have struck reinvestment deals with Greenlining.

However, meeting Greenlining’s CRA demands would be no small feat for Westamerica. Marin County is among the country’s wealthiest, and Mr. Joseph said the San Francisco Fed even noted in Westamerica’s last CRA exam that “prohibitive housing costs often limited the bank’s ability to extend housing-related loans to low- and moderate-income individuals.”

As for Mr. Payne’s pay, Mr. Joseph put the CEO’s 2000 cash compensation at $940,000 — an amount he called “appropriate and consistent with compensation paid to CEOs of similar banking organizations.”

Greenlining and Mr. Joseph differ on Mr. Payne’s pay because of the way they calculate the value of his stock options. According to Westamerica’s 2002 proxy, Mr. Payne’s bonus has increased by $50,000 in each of the last three years, to $450,000 in 2001. His salary rose 17.6% in 2001, to $320,000, but his “other” compensation fell 67% to $86,800. Mr. Payne’s salary, bonus, and other compensation totaled $1.03 million last year, down 10% from 2000.

In an interview, Mr. Gnaizda said he does not think Greenlining can block Westamerica’s acquisition of Kerman State, but he said it will continue to push the company to improve its community reinvestment efforts.