Westamerica Bancorporation(WABC) - 2021 Q1 - Quarterly Report

Forward Looking Statements - This report contains forward-looking statements regarding projections of revenues, expenses, credit quality, and other financial items. These statements are based on management's current knowledge and are subject to various factors beyond the company's control, including economic conditions, interest rate changes, regulatory environments, and the impacts of the COVID-19 pandemic[10][11] PART I - FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for Westamerica Bancorporation as of March 31, 2021. It includes the Consolidated Balance Sheets, Statements of Income, Statements of Comprehensive Income (Loss), Statements of Changes in Shareholders' Equity, and Statements of Cash Flows, along with the accompanying notes Consolidated Balance Sheet Highlights (Unaudited) | Account | At March 31, 2021 (In thousands) | At December 31, 2020 (In thousands) | | :--- | :--- | :--- | | Total Assets | $6,912,481 | $6,747,931 | | Debt securities available for sale | $3,990,570 | $4,063,185 | | Loans, net | $1,270,273 | $1,232,389 | | Total Liabilities | $6,100,349 | $5,903,122 | | Total deposits | $5,923,833 | $5,687,979 | | Total Shareholders' Equity | $812,132 | $844,809 | Consolidated Income Statement Highlights (Unaudited) | Account | Three Months Ended March 31, 2021 (In thousands) | Three Months Ended March 31, 2020 (In thousands) | | :--- | :--- | :--- | | Net Interest and Fee Income | $41,841 | $39,549 | | Provision for Credit Losses | $0 | $4,300 | | Total Noninterest Income | $10,189 | $11,648 | | Total Noninterest Expense | $24,906 | $24,664 | | Net Income | $20,147 | $16,962 | | Diluted Earnings Per Share | $0.75 | $0.63 | Consolidated Cash Flow Highlights (Unaudited) | Activity | Three Months Ended March 31, 2021 (In thousands) | Three Months Ended March 31, 2020 (In thousands) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $32,272 | $54,451 | | Net Cash Used in Investing Activities | ($9,296) | ($113,700) | | Net Cash Provided by (Used in) Financing Activities | $222,206 | ($9,544) | | Net Change In Cash and Due from Banks | $245,182 | ($68,793) | Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations of the accounting policies and methodologies used in preparing the financial statements. Key areas covered include the basis of presentation, policies for investment securities and loans, the calculation of the allowance for credit losses under CECL, fair value measurements, commitments and contingencies, and earnings per share calculations - The financial statements are prepared in accordance with U.S. GAAP for interim information. The company adopted ASU 2016-13 (CECL) on January 1, 2020, which requires estimating expected credit losses over the life of financial instruments[26][49] - The allowance for credit losses is determined for pools of loans with similar risk characteristics based on historical loss rates, adjusted for current conditions and a forecast horizon of up to two years. Collateral-dependent loans are evaluated individually[42][43] - Under the CARES Act, the company has made loan modifications for customers impacted by COVID-19, which are not classified as Troubled Debt Restructurings (TDRs). As of March 31, 2021, these modifications included $2.3 million for a commercial real estate loan and $1.8 million in consumer loans[38][70] Investment Securities Breakdown (March 31, 2021) | Security Type | Amortized Cost (In thousands) | Fair Value (In thousands) | | :--- | :--- | :--- | | Available for Sale | | | | Agency residential MBS | $558,366 | $577,490 | | Corporate securities | $2,076,354 | $2,149,366 | | Collateralized loan obligations | $1,156,067 | $1,157,452 | | Total Available for Sale | $3,892,750 | $3,990,570 | | Held to Maturity | | | | Total Held to Maturity | $469,268 | $480,558 | | Total Debt Securities | $4,362,018 | $4,471,128 | Loan Portfolio Breakdown | Loan Category | At March 31, 2021 (In thousands) | At December 31, 2020 (In thousands) | | :--- | :--- | :--- | | Commercial (including PPP) | $448,642 | $394,806 | | Commercial Real Estate | $548,802 | $564,300 | | Consumer Installment & Other | $274,645 | $273,537 | | Total Loans | $1,293,756 | $1,256,243 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management provides an analysis of the company's financial condition and results of operations for the first quarter of 2021. The discussion covers net income drivers, net interest income and margin, credit quality, noninterest income and expenses, and the management of the investment and loan portfolios. It also details the company's approach to liquidity, capital resources, and market risk Financial Summary (Q1 2021 vs. Q1 2020) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net Income | $20.1 million | $17.0 million | | Diluted EPS | $0.75 | $0.63 | | Return On Assets | 1.23% | 1.21% | | Return On Common Equity | 11.11% | 9.67% | | Net Interest Margin (FTE) | 2.74% | 3.10% | | Efficiency Ratio | 47.2% | 47.3% | - Net income for Q1 2021 was $20.1 million, an increase from $17.0 million in Q1 2020. The increase was primarily driven by higher net interest income and the absence of a provision for credit losses, which was $4.3 million in the prior-year quarter due to the onset of the COVID-19 pandemic[123][129] - The Bank originated $91 million in Paycheck Protection Program (PPP) loans during Q1 2021. These loans are 100% guaranteed by the SBA and are not expected to have credit losses[124][64] Net Interest and Loan Fee Income (FTE) Net interest income on a fully taxable equivalent (FTE) basis was $42.6 million for Q1 2021, up from $40.5 million in Q1 2020, driven by higher average balances of investments and PPP loans. The net interest margin (FTE) decreased to 2.74% from 3.10% year-over-year, primarily due to lower yields on interest-earning assets. Funding costs remained stable at 0.03% Net Interest Income and Margin (FTE) | Metric | Q1 2021 | Q1 2020 | Q4 2020 | | :--- | :--- | :--- | :--- | | Net Interest Income (FTE) | $42,583 thousand | $40,547 thousand | $43,292 thousand | | Net Interest Margin (FTE) | 2.74% | 3.10% | 2.81% | | Yield on Earning Assets (FTE) | 2.77% | 3.13% | 2.84% | | Rate on Interest-Bearing Liabilities | 0.06% | 0.07% | 0.06% | - The increase in net interest income compared to Q1 2020 was primarily due to a $5.5 million positive impact from higher asset volumes, partially offset by a $3.4 million negative impact from lower yields[147] Provision for Credit Losses The company recorded no provision for credit losses in the first quarter of 2021. This compares to a $4.3 million provision in the first quarter of 2020, which was taken in response to the anticipated economic impact of the COVID-19 pandemic. The zero provision in Q1 2021 reflects management's assessment of the current credit quality and the adequacy of the existing allowance - No provision for credit losses was recorded in Q1 2021, compared to a $4.3 million provision in Q1 2020[151] Noninterest Income and Expense Noninterest income decreased by $1.5 million to $10.2 million in Q1 2021 compared to Q1 2020, mainly due to lower service charges on deposit accounts. Noninterest expense remained relatively flat, increasing slightly by $242 thousand to $24.9 million, driven by higher professional fees and FDIC assessments, offset by lower salary costs Noninterest Income Components (in thousands) | Category | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Service charges on deposit accounts | $3,304 | $4,248 | | Merchant processing services | $2,560 | $2,358 | | Debit card fees | $1,601 | $1,468 | | Total Noninterest Income | $10,189 | $11,648 | Noninterest Expense Components (in thousands) | Category | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Salaries and related benefits | $12,665 | $13,018 | | Occupancy and equipment | $4,880 | $4,932 | | Professional fees | $942 | $389 | | Total Noninterest Expense | $24,906 | $24,664 | Loan Portfolio and Credit Risk The loan portfolio's credit quality is considered reasonably stable. Total nonperforming assets decreased to $4.1 million at March 31, 2021, from $4.8 million at year-end 2020. The allowance for credit losses on loans stood at $23.5 million, which management deems adequate. Net charge-offs were low at 0.12% of average loans for the quarter Nonperforming Assets (in thousands) | Category | At Mar 31, 2021 | At Dec 31, 2020 | | :--- | :--- | :--- | | Total nonaccrual loans | $3,971 | $4,329 | | Accruing loans 90+ days past due | $132 | $450 | | Total nonperforming loans | $4,103 | $4,779 | | Other real estate owned | $0 | $0 | | Total nonperforming assets | $4,103 | $4,779 | Allowance for Credit Losses on Loans (in thousands) | Metric | Q1 2021 | | :--- | :--- | | Beginning Balance | $23,854 | | Provision for credit losses | $0 | | Net chargeoffs | ($371) | | Ending Balance | $23,483 | Liquidity and Capital Resources The company maintains a strong liquidity position, primarily funded by a stable base of customer deposits, which accounted for 97% of funding for average total assets. Capital levels remain well above regulatory requirements, with a Common Equity Tier 1 Capital ratio of 16.26% at March 31, 2021. The company paid dividends of $0.41 per share and repurchased 4 thousand shares during the quarter - The company's funding is primarily sourced from customer deposits, which along with shareholders' equity, provided 97% of funding for average total assets in Q1 2021[208] - The company paid common dividends of $11 million ($0.41 per share) and repurchased common stock valued at $232 thousand in Q1 2021[216] Regulatory Capital Ratios (Company) | Ratio | At Mar 31, 2021 | Required for Adequacy | | :--- | :--- | :--- | | Common Equity Tier I Capital | 16.26% | 7.00% | | Tier I Capital | 16.26% | 8.50% | | Total Capital | 16.88% | 10.50% | | Leverage Ratio | 9.48% | 4.00% | Quantitative and Qualitative Disclosures about Market Risk The company's most significant market risks are credit risk and interest rate risk. The company does not engage in trading activities or use derivative instruments to manage these risks. The company's asset and liability position was slightly "asset sensitive" at March 31, 2021, meaning net interest income would be expected to increase in a rising rate environment - The company's primary market risks are identified as credit risk and interest rate risk. The company does not use derivative instruments[223][224] - At March 31, 2021, the company was slightly "asset sensitive." A static simulation estimated that an immediate +1.00% parallel shift in interest rates would increase first-year net interest income by 13.0%[201][202] Controls and Procedures The company's principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as of March 31, 2021. No material changes to internal control over financial reporting were identified during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures are effective to ensure material information is recorded and reported in a timely manner[226] PART II - OTHER INFORMATION Legal Proceedings The company is subject to various legal cases in the ordinary course of business but does not expect them to have a material adverse effect on its financial position or results of operations - The company is not a party to any material pending legal proceedings outside of the ordinary course of business[227] Risk Factors There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - Risk factors have not materially changed since the filing of the 2020 Form 10-K[228] Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2021, the company repurchased 4,000 shares of its common stock at an average price of $61.09 per share. The repurchases were made under a program authorized by the Board of Directors on July 23, 2020 Issuer Purchases of Equity Securities (Q1 2021) | Period | Total Shares Purchased | Average Price Paid per Share | Maximum Shares Remaining for Purchase | | :--- | :--- | :--- | :--- | | Jan 2021 | 0 | $- | 1,624 thousand | | Feb 2021 | 0 | $- | 1,624 thousand | | Mar 2021 | 4 thousand | $61.09 | 1,620 thousand | | Total | 4 thousand | $61.09 | 1,620 thousand | Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and the Inline XBRL documents (Exhibits 101 and 104) - Key exhibits filed include certifications by the CEO and CFO pursuant to the Securities Exchange Act and Sarbanes-Oxley Act, as well as XBRL data files[236] Signatures - The report was signed on May 5, 2021, by Jesse Leavitt, Senior Vice President and Chief Financial Officer[238]