Westamerica Bancorporation(WABC)2024-02-29 00:16Financial Performance - Net income for 2023 was $161.8 million, with diluted earnings per share (EPS) of $6.06, compared to $122.0 million and $4.54 EPS in 2022, and $86.5 million and $3.22 EPS in 2021[140] - Interest and loan fee income increased to $284.0 million in 2023, up from $221.8 million in 2022 and $173.4 million in 2021[135] - Net interest margin (FTE) improved to 4.37% in 2023, compared to 3.17% in 2022 and 2.62% in 2021[135] - Total assets decreased to $6.36 billion in 2023 from $6.95 billion in 2022 and $7.46 billion in 2021[135] - Loans declined to $866.6 million in 2023, down from $958.5 million in 2022 and $1.07 billion in 2021[135] - Deposits decreased to $5.47 billion in 2023, compared to $6.23 billion in 2022 and $6.41 billion in 2021[135] - Return on assets (ROA) increased to 2.35% in 2023, up from 1.65% in 2022 and 1.23% in 2021[135] - Return on common equity (ROE) rose to 18.08% in 2023, compared to 15.21% in 2022 and 11.52% in 2021[135] - Efficiency ratio improved to 31.7% in 2023, down from 37.2% in 2022 and 45.0% in 2021[135] - Net income for 2023 increased by $39.7 million compared to 2022, reaching $161.8 million[147] - Net interest and loan fee income (FTE) increased by $59.9 million in 2023 compared to 2022, driven by higher yield on interest-earning assets and higher average balances of investment debt securities[147][151] - The net interest margin (FTE) improved to 4.37% in 2023, up from 3.17% in 2022 and 2.62% in 2021[151][152] - The yield on earning assets (FTE) increased to 4.43% in 2023, compared to 3.20% in 2022 and 2.65% in 2021[152][155] - The company recorded a $1.2 million reversal of provision for credit losses in 2023, reflecting a $2.2 million recovery on a previously charged-off loan[147] - Noninterest expense in 2023 increased by $3.9 million compared to 2022, primarily due to higher salaries and benefits, occupancy and equipment expenses, and FDIC insurance assessments[147] - The effective tax rate (FTE) was 27.5% in 2023, slightly higher than 27.2% in 2022[147] - Average balances of investment debt securities increased by $31 million in 2023 compared to 2022, contributing to higher net interest income[151] - The company's funding costs were 0.06% in 2023, up from 0.03% in 2022 and 2021[153] - Noninterest-bearing deposits represented 47% of average deposits in both 2023 and 2022, while higher-cost time deposits accounted for 2% in both periods[153] - Total interest-earning assets for 2022 increased to $6,992,696 thousand with a yield of 3.20%, compared to $6,632,632 thousand and a yield of 2.65% in 2021[159][162] - Net interest margin for 2022 improved to 3.17%, up from 2.62% in 2021[159][162] - Total loans for 2022 decreased to $997,964 thousand with a yield of 5.02%, compared to $1,195,135 thousand and a yield of 4.85% in 2021[159][162] - Total interest-bearing deposits for 2022 increased to $3,397,276 thousand with a rate of 0.05%, compared to $3,203,604 thousand and a rate of 0.06% in 2021[159][162] - Total assets for 2022 grew to $7,413,008 thousand, up from $7,039,284 thousand in 2021[159][162] - Shareholders' equity for 2022 increased to $802,489 thousand, compared to $750,669 thousand in 2021[159][162] - The company's investment securities for 2022 totaled $5,303,646 thousand with a yield of 3.13%, up from $4,580,468 thousand and a yield of 2.55% in 2021[159][162] - Noninterest-bearing demand deposits for 2022 increased to $3,018,350 thousand, compared to $2,897,244 thousand in 2021[159][162] - Net interest income for Q1 2023 was $69.153 million, increasing to $71.715 million in Q3 2023 before slightly decreasing to $69.373 million in Q4 2023[432] - Noninterest income showed a steady increase from $10.549 million in Q1 2023 to $11.281 million in Q3 2023, then slightly decreased to $10.992 million in Q4 2023[432] - Net income for Q1 2023 was $40.451 million, peaking at $41.601 million in Q3 2023, and then dropping to $39.468 million in Q4 2023[432] - Basic earnings per common share increased from $1.51 in Q1 2023 to $1.56 in Q3 2023, then decreased to $1.48 in Q4 2023[432] - Dividends paid per common share remained stable at $0.42 in Q1 and Q2 2023, then increased to $0.44 in Q3 and Q4 2023[432] - Interest and loan fee income for Q1 2023 was $69.624 million, peaking at $72.848 million in Q3 2023, and then slightly decreasing to $71.052 million in Q4 2023[432] - Noninterest expense decreased from $26.210 million in Q1 2023 to $25.517 million in Q4 2023[432] - Income before taxes for Q1 2023 was $55.042 million, peaking at $56.946 million in Q3 2023, and then decreasing to $54.848 million in Q4 2023[432] - Price range of common stock in Q1 2023 was $44.04 - $58.34, with a low of $36.85 in Q2 2023 and a high of $57.21 in Q4 2023[432] - Net income for Q1 2022 was $22.616 million, increasing steadily to $39.344 million by Q4 2022[432] Regulatory Compliance and Capital Requirements - The company is subject to the Bank Holding Company Act of 1956 and is regulated by the Federal Reserve Board, which requires maintaining certain levels of capital[28][29] - The company is prohibited from declaring or paying cash dividends that would impose undue pressure on the capital of subsidiary banks[31] - The company's regulatory capital ratios exceeded applicable regulatory minimum capital requirements as of December 31, 2023[43] - The company may elect to use the community bank leverage ratio framework in the future, which requires maintaining a leverage ratio of greater than 9%[44] - The FDIC increased initial base deposit insurance assessment rates by 2 basis points, effective from the first quarterly assessment period of 2023, aiming to restore the DIF reserve ratio to at least 1.35% by September 30, 2028[57] - The Dodd-Frank Act raised the minimum DIF reserve ratio from 1.15% to 1.35%, requiring banks with $10 billion or more in assets to contribute to this increase[55] - The FDIC's Restoration Plan, amended in June 2022, aims to monitor deposit balance trends, potential losses, and other factors affecting the reserve ratio, with semiannual updates and potential adjustments to assessment rates[58] - The Economic Growth, Regulatory Relief, and Consumer Protection Act exempts banks with less than $10 billion in total consolidated assets and less than 5% trading assets/liabilities from the Volcker Rule[63] - The Anti-Money Laundering Act of 2020 (AMLA) introduced a risk-based approach to anti-money laundering compliance, expanded enforcement authority, and established whistleblower incentives and protections[64] - The Company's ability to pay dividends is restricted by federal and California state laws, including FDICIA prohibitions on dividends if the institution would become undercapitalized post-distribution[51][52] - The federal banking agencies require banks to maintain adequate valuation allowances for potential credit losses, with the Company's internal staff continuously reviewing loan quality and reporting to the Board of Directors[49] - The FDIC may terminate deposit insurance if an institution engages in unsafe or unsound practices, violates laws, or is in an unsafe condition, with authority to conduct examinations and enforce actions[59] - The Bank is subject to fair lending requirements and Community Reinvestment Act (CRA) obligations, with proposed rules to modernize CRA regulations released for public comment in May 2022[60] - The Bank Secrecy Act, as amended by the USA PATRIOT Act, mandates financial institutions to report suspicious transactions, verify customer identification, and maintain anti-money laundering programs[62] Risk Management and Credit Exposure - The company may incur losses if required to sell securities in its held-to-maturity portfolio to meet liquidity needs, potentially impairing its financial condition[73] - The market value of government and other debt securities has declined significantly due to interest rate increases, resulting in unrealized losses in the held-to-maturity portfolio[73] - Approximately 59% of the company's loan portfolio is collateralized by real estate, with 25% of loans concentrated in California's Central Valley as of December 31, 2023[81] - The company faces risks from potential declines in California real estate values, which could adversely impact loan collateral and borrower repayment capacity[81] - The company's operations are concentrated in California, making it vulnerable to regional economic conditions, natural disasters, and sector-specific risks such as agriculture and construction[81][82] - The company's financial performance is highly dependent on economic growth, labor markets, and capital market conditions in California and the U.S.[84] - The company may experience increased FDIC deposit insurance premiums and regulatory scrutiny due to industry-wide concerns about liquidity and deposit outflows[76] - The company's ability to pay dividends is limited by regulatory capital levels, earnings prospects, and restrictions on subsidiary dividends[86][88] - The company's financial condition could be adversely affected by changes in federal or state laws, regulations, or fiscal policies, including potential increases in taxes or credit losses[92] - The company faces risks from inflation, Federal Reserve monetary policy, and climate changes, which could impact liquidity and deposit outflows[290] - The company's debt securities are classified into trading, available for sale, or held to maturity categories, with valuation based on fair value and third-party sources[295][296] - Nonmarketable equity securities include Visa Class B common stock and Federal Reserve Bank stock, accounted for under the cost method and reviewed quarterly for impairment[303] - Loans are stated at principal amount outstanding, with interest accrued daily and included in other assets. Loans over 90 days delinquent are placed on nonaccrual status[304] - The company extends loans primarily in Northern and Central California, exposing it to risks such as borrower default and economic conditions[305] - Management estimates expected credit losses over the contractual life of the loan portfolio, requiring significant judgment and a systematic methodology[306] - The allowance for credit losses is maintained at a level considered adequate to cover expected losses based on historical loss rates adjusted for current conditions[307] - Loans are segregated into pools based on common risk characteristics, with historical loss rates adjusted for economic trends and other factors[308] - Collateral-dependent loans are evaluated individually, with credit loss reserves established based on the fair value of collateral[309] - Off-balance sheet credit exposures include letters of credit and unfunded loan commitments, with a separate allowance for credit losses[311] - The company had uncommitted lines of credit totaling $100 million and access to Federal Reserve borrowing up to $996.9 million at December 31, 2023[376] Employee Benefits and Compensation - Employees receive a comprehensive benefits package, including company contributions of up to 6% to qualified retirement plans[25] - The company's stock option plan had 973,000 options outstanding at December 31, 2023, with a weighted average exercise price of $59.50[382] - The company's matching contributions to the Tax Deferred Savings/Retirement Plan (ESOP) were $873 thousand in 2023, down from $921 thousand in 2022 and $972 thousand in 2021[417] - The benefit obligation at the end of 2023 was $1,276 thousand, down from $1,401 thousand in 2022 and $1,527 thousand in 2021[420] - The discount rate used to determine benefit obligations decreased from 5.01% in 2022 to 4.75% in 2023[421] Cybersecurity and Data Protection - The company experienced a potential data compromise in Q2 2023 involving a third-party vendor, affecting a limited number of customers, but no misuse of information was reported as of December 31, 2023[98] - The company maintains a robust cybersecurity program, including regular penetration tests, vulnerability scans, and employee training, with no material cybersecurity incidents reported in 2023[113][117][119] - The company's cybersecurity program is overseen by an Information Security Officer (ISO) with multiple certifications, reporting quarterly to the Board of Directors[113] Market and Competitive Environment - The company's strategic focus is on the banking needs of small businesses[16] - The company acquired five banks within its immediate market area during the early to mid-1990s and three additional banks between 2000 and 2005[19][20] - The company acquired the banking operations of two failed banks in 2009 and 2010, with assets and liabilities measured at estimated fair values[21] - The company faces intense competition in financial services, particularly in California, from both traditional and non-traditional providers, including fintech lenders[110] - The company's loan portfolio includes real estate-secured loans, with environmental liability risks from potential hazardous substances on foreclosed properties[112] Environmental and Social Responsibility - The company has $18 million in loans to agricultural borrowers, with ongoing monitoring of water access and crop yield sustainability[104] - The company's principal IT vendor aims to achieve 100% carbon neutrality for Scope 1 and 2 greenhouse gas emissions by 2025[103] Operational and Geographic Concentration - The company operates 77 branch offices across 20 counties in Northern and Central California, owning 28 locations and leasing 55 facilities[120][121] - The company's operations are concentrated in California, making it vulnerable to regional economic conditions, natural disasters, and sector-specific risks such as agriculture and construction[81][82] Shareholder Information and Dividends - The company has 26.7 million shares of common stock outstanding, with 973 thousand stock options outstanding and 705 thousand shares available for future grants under equity incentive plans[78] - The company's stock is traded on NASDAQ under the symbol "WABC," with approximately 4,700 shareholders of record as of January 31, 2024[124] - The company has paid quarterly cash dividends since 1972, with intentions to continue, subject to earnings and regulatory policies[125] - The company's ability to pay dividends is limited by regulatory capital levels, earnings prospects, and restrictions on subsidiary dividends[86][88] Financial Instruments and Valuation - Changes in net unrealized losses on debt securities available for sale resulted in a net of tax loss of $305,769 thousand in 2022, improving to a net of tax gain of $65,823 thousand in 2023[426] - Accumulated other comprehensive income (loss) improved from a balance of $(256,105) thousand in 2022 to $(190,282) thousand in 2023[426] - Commercial real estate loans measured at fair value on a nonrecurring basis decreased from $225 thousand in 2022 to $110 thousand in 2023[410] Interest Rates and Monetary Policy - The Federal Reserve maintained the target range for the federal funds rate at 5.25% to 5.50% as of January 31, 2024[141]