Westamerica Bancorporation 10-Q for FY2021 Q1
Westamerica Bancorporation (WABC)
About this 10-Q
Westamerica Bancorporation filed this 10-Q on May 5, 2021, covering the quarter ended March 31, 2021 (FY2021 Q1).
Headline figures
Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net income
- $20.15M
- up 18.8% from net income of $16.96M a year earlier
- Diluted EPS
- $0.75
- up 19.0% from $0.63 a year earlier
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
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| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________.
Commission file number:
WESTAMERICA BANCORPORATION
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| | Accelerated filer ☐ | Non-accelerated filer ☐ | |
| Smaller reporting company | Emerging growth company | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:
| Title of Class | Shares outstanding as of April 29, 2020 |
| Common Stock, No Par Value |
TABLE OF CONTENTS
| Page |
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| Forward Looking Statements |
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| PART I - FINANCIAL INFORMATION |
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| Item 1 |
Financial Statements |
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| Notes to Unaudited Consolidated Financial Statements |
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| Item 2 |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3 |
Quantitative and Qualitative Disclosures about Market Risk |
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| Item 4 |
Controls and Procedures |
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| PART II - OTHER INFORMATION |
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| Item 1 |
Legal Proceedings |
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| Item 1A |
Risk Factors |
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| Item 2 |
Unregistered Sales of Equity Securities and Use of Proceeds |
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| Item 3 |
Defaults upon Senior Securities |
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| Item 4 |
Mine Safety Disclosures |
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| Item 5 |
Other Information |
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| Item 6 |
Exhibits |
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| Signatures |
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This report on Form 10-Q contains forward-looking statements about Westamerica Bancorporation (the “Company”) for which it claims the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, future credit quality and performance, the appropriateness of the allowance for credit losses, loan growth or reduction, mitigation of risk in the Company’s loan and investment securities portfolios, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of the Company or its management or board of directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes", "anticipates", "expects", “estimates”, "intends", "targeted", "projected", “forecast”, "continue", "remain", "will", "should", "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
These forward-looking statements are based on Management’s current knowledge and belief and include information concerning the Company’s possible or assumed future financial condition and results of operations. A number of factors, some of which are beyond the Company’s ability to predict or control, could cause future results to differ materially from those contemplated. These factors include but are not limited to (1) the length and severity of any difficulties in the global, national and California economies and the effects of government efforts to address those difficulties; (2) liquidity levels in capital markets; (3) fluctuations in asset prices including, but not limited to stocks, bonds, real estate, and commodities; (4) the effect of acquisitions and integration of acquired businesses; (5) economic uncertainty created by riots, terrorist threats and attacks on the United States, the actions taken in response, and the uncertain effect of these events on the local, regional and national economies; (6) changes in the interest rate environment; (7) changes in the regulatory environment; (8) competitive pressure in the banking industry; (9) operational risks including a failure or breach in data processing or security systems or those of third party vendors and other service providers, including as a result of cyber attacks or fraud; (10) volatility of interest rate sensitive loans, deposits and investments; (11) asset/liability management risks and liquidity risks; (12) the effect of natural disasters, including earthquakes, hurricanes, fire, flood, drought, and other disasters, on the uninsured value of the Company’s assets and of loan collateral, the financial condition of debtors and issuers of investment securities, the economic conditions affecting the Company’s market place, and commodities and asset values; (13) changes in the securities markets; (14) the duration and severity of the COVID-19 pandemic and governmental responses to the pandemic; and (15) the outcome of contingencies, such as legal proceedings. However, the reader should not consider the above-mentioned factors to be a complete set of all potential risks or uncertainties.
Forward-looking statements speak only as of the date they are made. The Company undertakes no obligation to update any forward-looking statements in this report to reflect circumstances or events that occur after the date forward looking statements are made, except as may be required by law. The reader is directed to the Company's annual report on Form 10-K for the year ended December 31, 2020 and Part II – Item 1A of this report, for further discussion of factors which could affect the Company's business and cause actual results to differ materially from those expressed in any forward-looking statement made in this report.
PART I - FINANCIAL INFORMATION
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WESTAMERICA BANCORPORATION | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (Unaudited) | ||||||||
| At March 31, | At December 31, | |||||||
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| Assets: | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Debt securities available for sale | ||||||||
| Debt securities held to maturity, net of allowance for credit losses of $ at March 31, 2021 and $9 at December 31, 2020 (Fair value of $ at March 31, 2021 and $ at December 31, 2020) | ||||||||
| Loans | ||||||||
| Allowance for credit losses on loans | ( | ) | ( | ) | ||||
| Loans, net of allowance for credit losses on loans | ||||||||
| Premises and equipment, net | ||||||||
| Identifiable intangibles, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities: | ||||||||
| Noninterest-bearing deposits | $ | $ | ||||||
| Interest-bearing deposits | ||||||||
| Total deposits | ||||||||
| Short-term borrowed funds | ||||||||
| Other borrowed funds | ||||||||
| Other liabilities | ||||||||
| Total Liabilities | ||||||||
| Contingencies (Note 10) | ||||||||
| Shareholders' Equity: | ||||||||
| Common stock ( par value), authorized - shares Issued and outstanding: at March 31, 2021 and at December 31, 2020 | ||||||||
| Deferred compensation | ||||||||
| Accumulated other comprehensive income | ||||||||
| Retained earnings | ||||||||
| Total Shareholders' Equity | ||||||||
| Total Liabilities and Shareholders' Equity | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
| WESTAMERICA BANCORPORATION |
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| CONSOLIDATED STATEMENTS OF INCOME |
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| (unaudited) |
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| For the |
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| Three Months Ended |
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| March 31, |
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| 2021 |
2020 |
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| (In thousands, |
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| except per share data) |
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| Interest and Fee Income: |
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| Loans |
$ | $ | ||||||
| Equity securities |
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| Debt securities available for sale |
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| Debt securities held to maturity |
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| Interest-bearing cash |
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| Total Interest and Fee Income |
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| Interest Expense: |
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| Deposits |
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| Short-term borrowed funds |
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| Total Interest Expense |
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| Net Interest and Fee Income |
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| Provision for Credit Losses |
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| Net Interest and Fee Income After Provision For Credit Losses |
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| Noninterest Income: |
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| Service charges on deposit accounts |
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| Merchant processing services |
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| Debit card fees |
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| Trust fees |
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| ATM processing fees |
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| Other service fees |
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| Financial services commissions |
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| Other noninterest income |
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| Total Noninterest Income |
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| Noninterest Expense: |
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| Salaries and related benefits |
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| Occupancy and equipment |
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| Outsourced data processing services |
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| Professional fees |
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| Courier service |
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| Amortization of identifiable intangibles |
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| Other noninterest expense |
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| Total Noninterest Expense |
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| Income Before Income Taxes |
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| Provision for income taxes |
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| Net Income |
$ | $ | ||||||
| Average Common Shares Outstanding |
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| Average Diluted Common Shares Outstanding |
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| Per Common Share Data: |
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| Basic earnings |
$ | $ | ||||||
| Diluted earnings |
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| Dividends paid |
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See accompanying notes to unaudited consolidated financial statements.
| WESTAMERICA BANCORPORATION |
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| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
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| (unaudited) |
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| For the Three Months Ended |
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| March 31, |
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| 2021 |
2020 |
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| (In thousands) |
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| Net income |
$ | $ | ||||||
| Other comprehensive loss: |
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| Changes in net unrealized gains on debt securities available for sale |
( |
) | ( |
) | ||||
| Deferred tax benefit |
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| Changes in net unrealized gains on debt securities available for sale, net of tax |
( |
) | ( |
) | ||||
| Total comprehensive loss |
$ | ( |
) | $ | ( |
) | ||
See accompanying notes to unaudited consolidated financial statements.
| WESTAMERICA BANCORPORATION | ||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY | ||||||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Common | Other | |||||||||||||||||||||||
| Shares | Common | Deferred | Comprehensive | Retained | ||||||||||||||||||||
| Outstanding | Stock | Compensation | Income (Loss) | Earnings | Total | |||||||||||||||||||
| (In thousands except per share data) | ||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Adoption of ASU 2016-13 | ||||||||||||||||||||||||
| Adjusted Balance, January 1, 2020 | ||||||||||||||||||||||||
| Net income for the period | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||
| Restricted stock activity | ||||||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||||||
| Stock awarded to employees | - | |||||||||||||||||||||||
| Retirement of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Dividends ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Net income for the period | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||
| Restricted stock activity | ||||||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||||||
| Stock awarded to employees | - | |||||||||||||||||||||||
| Retirement of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Dividends ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
| WESTAMERICA BANCORPORATION |
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| CONSOLIDATED STATEMENTS OF CASH FLOWS |
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| (unaudited) |
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| For the Three Months |
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| Ended March 31, |
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| 2021 |
2020 |
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| (In thousands) |
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| Operating Activities: |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
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| Depreciation and amortization/accretion |
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| Credit loss provision |
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| Net amortization of deferred net loan fees |
( |
) | ( |
) | ||||
| Decrease (increase) in interest income receivable |
( |
) | ||||||
| Increase in income taxes payable |
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| (Increase) decrease in deferred tax asset |
( |
) | ||||||
| Increase in other assets |
( |
) | ( |
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| Stock option compensation expense |
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| Increase in interest expense payable |
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| Increase in other liabilities |
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| Net Cash Provided by Operating Activities |
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| Investing Activities: |
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| Net (disbursements) repayments of loans |
( |
) | ||||||
| Purchases of debt securities available for sale |
( |
) | ( |
) | ||||
| Proceeds from sale/maturity/calls of debt securities available for sale |
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| Proceeds from maturity/calls of debt securities held to maturity |
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| Purchases of premises and equipment |
( |
) | ( |
) | ||||
| Net Cash Used in Investing Activities |
( |
) | ( |
) | ||||
| Financing Activities: |
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| Net change in deposits |
( |
) | ||||||
| Net change in borrowings |
( |
) | ||||||
| Exercise of stock options |
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| Retirement of common stock |
( |
) | ( |
) | ||||
| Common stock dividends paid |
( |
) | ( |
) | ||||
| Net Cash Provided by (Used in) Financing Activities |
( |
) | ||||||
| Net Change In Cash and Due from Banks |
( |
) | ||||||
| Cash and Due from Banks at Beginning of Period |
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| Cash and Due from Banks at End of Period |
$ | $ | ||||||
| Supplemental Cash Flow Disclosures: |
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| Supplemental disclosure of noncash activities: |
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| Right-of-use assets acquired in exchange for operating lease liabilities |
$ | $ | ||||||
| Securities purchases pending settlement |
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| Supplemental disclosure of cash flow activities: |
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| Cash paid for amounts included in operating lease liabilities |
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| Interest paid for the period |
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See accompanying notes to unaudited consolidated financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission and follow general practices within the banking industry. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and which, in the opinion of Management, are necessary for a fair presentation of the results for the interim periods presented. The interim results for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as well as other information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
Note 2: Accounting Policies
The most significant accounting policies followed by the Company are presented in Note 1 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, it is reasonably possible conditions could change materially affecting results of operations and financial conditions. Certain risks, uncertainties and other factors, including those discussed in Note 20 “Impact of COVID-19” to the consolidated financial statements and “Risk Factors” in Part I – Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 may cause actual future results to differ materially from the results discussed in this report on Form 10-Q.
Application of these principles requires the Company to make certain estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain accounting policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants a writedown or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available.
Debt Securities. Debt securities consist of U.S. Treasury, government sponsored entities, states, counties, municipalities, corporations, agency and non-agency mortgage-backed securities, collateralized loan obligations and commercial paper. Securities transactions are recorded on a trade date basis. The Company classifies its debt securities in one of three categories: trading, available for sale or held to maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Trading securities are recorded at fair value with unrealized gains and losses included in net income. Held to maturity debt securities are those securities which the Company has the ability and intent to hold until maturity. Held to maturity debt securities are recorded at cost, adjusted for the amortization of premiums or accretion of discounts. Securities not included in trading or held to maturity are classified as available for sale debt securities. Available for sale debt securities are recorded at fair value. Unrealized gains and losses, net of the related tax effect, on available for sale debt securities are included in accumulated other comprehensive income. Accrued interest is recorded within other assets and reversed against interest income if it is not received.
The Company utilizes third-party sources to value its investment securities; securities individually valued using quoted prices in active markets are classified as Level 1 assets in the fair value hierarchy, and securities valued using quoted prices in active markets for similar securities (commonly referred to as “matrix” pricing) are classified as Level 2 assets in the fair value hierarchy. The Company validates the reliability of third-party provided values by comparing individual security pricing for securities between more than one third-party source. When third-party information is not available, valuation adjustments are estimated in good faith by Management and classified as Level 3 in the fair value hierarchy.
The Company follows the guidance issued by the Board of Governors of the Federal Reserve System, “Investing in Securities without Reliance on Nationally Recognized Statistical Rating Agencies” (SR 12-15) and other regulatory guidance when performing investment security pre-purchase analysis or evaluating investment securities for credit loss. Credit ratings issued by recognized rating agencies are considered in the Company’s analysis only as a guide to the historical default rate associated with similarly-rated bonds.
To the extent that debt securities in the held-to-maturity portfolio share common risk characteristics, estimated expected credit losses are calculated in a manner like that used for loans held for investment. That is, for pools of such securities with common risk characteristics, the historical lifetime probability of default and severity of loss in the event of default is derived or obtained from external sources and adjusted for the expected effects of reasonable and supportable forecasts over the expected lives of the securities on those historical credit losses. Expected credit loss on each security in the held-to-maturity portfolio that do not share common risk characteristics with any of the pools of debt securities is individually evaluated and a reserve for credit losses is established at the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the recorded amortized cost basis of the security. For certain classes of debt securities, the bank considers the history of credit losses, current conditions and reasonable and supportable forecasts, which may indicate that the expectation that nonpayment of the amortized cost basis is or continues to be zero. Therefore, for those securities, the bank does not record expected credit losses.
Available for sale debt securities in unrealized loss positions are evaluated for credit related loss at least quarterly. For available for sale debt securities, a decline in fair value due to credit loss results in recording an allowance for credit losses to the extent the fair value is less than the amortized cost basis. Declines in fair value that have not been recorded through an allowance for credit losses, such as declines due to changes in market interest rates, are recorded through other comprehensive income, net of applicable taxes. Although these evaluations involve significant judgment, an unrealized loss in the fair value of a debt security is generally considered to not be related to credit when the fair value of the security is below the carrying value primarily due to changes in risk-free interest rates, there has not been significant deterioration in the financial condition of the issuer, and the Company does not intend to sell nor does it believe it will be required to sell the security before the recovery of its cost basis.
If the Company intends to sell a debt security or more likely than not will be required to sell the security before recovery of its amortized cost basis, the debt security is written down to its fair value and the write down is charged against the allowance for credit losses with any incremental loss reported in earnings.
Purchase premiums are amortized to the earliest call date and purchase discounts are amortized to maturity as an adjustment to yield using the effective interest method. Unamortized premiums, unaccreted discounts, and early payment premiums are recognized as a component of gain or loss on sale upon disposition of the related security. Interest and dividend income are recognized when earned. Realized gains and losses from the sale of available for sale debt securities are included in earnings using the specific identification method.
Nonmarketable Equity Securities. Nonmarketable equity securities include securities that are not publicly traded, such as Visa Class B common stock, and securities acquired to meet regulatory requirements, such as Federal Reserve Bank stock, which are restricted. These restricted securities are accounted for under the cost method and are included in other assets. The Company reviews those assets accounted for under the cost method at least quarterly. The Company’s review typically includes an analysis of the facts and circumstances of each investment, the expectations for the investment’s cash flows and capital needs, the viability of its business model and any exit strategy. When the review indicates that impairment exists the asset value is reduced to fair value. The Company recognizes the estimated loss in noninterest income.
Loans. Loans are stated at the principal amount outstanding, net of unearned discount and unamortized deferred fees and costs. Interest is accrued daily on the outstanding principal balances and included in other assets. Loans which are more than 90 days delinquent with respect to interest or principal, unless they are well secured and in the process of collection, and other loans on which full recovery of principal or interest is in doubt, are placed on nonaccrual status. Interest previously accrued on loans placed on nonaccrual status is charged against interest income. In addition, some loans secured by real estate and commercial loans to borrowers experiencing financial difficulties are placed on nonaccrual status even though the borrowers continue to repay the loans as scheduled. When the ability to fully collect nonaccrual loan principal is in doubt, payments received are applied against the principal balance of the loans on a cost-recovery method until such time as full collection of the remaining recorded balance is expected. Any additional interest payments received after that time are recorded as interest income on a cash basis. Nonaccrual loans are reinstated to accrual status when none of the loan’s principal and interest is past due and improvements in credit quality eliminate doubt as to the full collectability of both principal and interest, or the loan otherwise becomes well secured and in the process of collection. Certain consumer loans or auto receivables are charged off against the allowance for credit losses when they become 120 days past due.
A troubled debt restructuring (“TDR”) occurs when the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower it would not otherwise consider. The Company follows its general nonaccrual policy for TDRs. Performing TDRs are reinstated to accrual status when improvements in credit quality eliminate the doubt as to full collectability of both principal and interest. Under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), banks may elect to deem that loan modifications do not result in TDRs if they are (1) related to the novel coronavirus disease; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) December 31, 2020. The Consolidated Appropriations Act, 2021, extended the period during which banks may elect to deem that qualified loan modifications do not result in TDR classification through January 1, 2022.
Allowance for Credit Losses. The Company extends loans to commercial and consumer customers primarily in Northern and Central California. These lending activities expose the Company to the risk borrowers will default, causing loss. The Company’s lending activities are exposed to various qualitative risks. All loan segments are exposed to risks inherent in the economy and market conditions. Significant risk characteristics related to the commercial loan segment include the borrowers’ business performance and financial condition, and the value of collateral for secured loans. Significant risk characteristics related to the commercial real estate segment include the borrowers’ business performance and the value of properties collateralizing the loans. Significant risk characteristics related to the construction loan segment include the borrowers’ performance in successfully developing the real estate into the intended purpose and the value of the property collateralizing the loans. Significant risk characteristics related to the residential real estate segment include the borrowers’ financial wherewithal to service the mortgages and the value of the property collateralizing the loans. Significant risk characteristics related to the consumer loan segment include the financial condition of the borrowers and the value of collateral securing the loans.
The preparation of these financial statements requires Management to estimate the amount of expected losses over the expected contractual life of our existing loan portfolio and establish an allowance for credit losses. Loan agreements generally include a maturity date, and the Company considers the contractual life of a loan agreement to extend from the date of origination to the contractual maturity date. In estimating credit losses, Management must exercise significant judgment in evaluating information deemed relevant. The amount of ultimate losses on the loan portfolio can vary from the estimated amounts. Management follows a systematic methodology to estimate loss potential in an effort to reduce the differences between estimated and actual losses.
The allowance for credit losses is established through provisions for credit losses charged to income. Losses on loans are charged to the allowance for credit losses when all or a portion of the recorded amount of a loan is deemed to be uncollectible. Recoveries of loans previously charged off are credited to the allowance when realized. The Company’s allowance for credit losses is maintained at a level considered adequate to provide for expected losses based on historical loss rates adjusted for current and expected conditions over a forecast period. These include conditions unique to individual borrowers, as well as overall credit loss experience, the amount of past due, nonperforming and classified loans, recommendations of regulatory authorities, prevailing economic conditions, or credit protection agreements and other factors.
Loans that share common risk characteristics are segregated into pools based on common characteristics, which is primarily determined by loan, borrower, or collateral type. Historical loss rates are determined for each pool. For consumer installment loans, primarily secured by automobiles, historical loss rates are determined using a vintage methodology, which tracks losses based on period of origination. For commercial, construction, and commercial real estate, historical loss rates are determined using an open pool methodology where losses are tracked over time for all loans included in the pool at the historical measurement date. Historical loss rates are adjusted for factors that are not reflected in the historical loss rates that are attributable to national or local economic or industry trends which have occurred but have not yet been recognized in past loan charge-off history, estimated losses based on management’s reasonable and supportable expectation of economic trends over a forecast horizon of up to two years, and other factors that impact credit loss expectations that are not reflected in the historical loss rates. Other factors include, but are not limited to, the effectiveness of the Company’s loan review system, adequacy of lending Management and staff, loan policies and procedures, problem loan trends, and concentrations of credit. At the end of the two-year forecast period loss rates revert immediately to the historical loss rates. The results of this analysis are applied to the amortized cost of the loans included within each pool.
Loans that do not share risk characteristics with other loans in the pools are evaluated individually. A loan is considered ‘collateral-dependent’ when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. A credit loss reserve for collateral-dependent loans is established at the difference between the amortized cost basis in the loan and the fair value of the underlying collateral adjusted for costs to sell. For other individually evaluated loans that are not collateral dependent, a credit loss reserve is established at the difference between the amortized cost basis in the loan and the present value of expected future cash flows discounted at the loan’s effective interest rate. The impact of an expected TDR modification is included in the allowance for credit losses when management determines a TDR modification is likely.
Accrued interest is recorded in other assets and is excluded from the estimation of expected credit loss. Accrued interest is reversed through interest income when amounts are determined to be uncollectible, which generally occurs when the underlying receivable is placed on nonaccrual status or charged off.
Liability for Off-Balance Sheet Credit Exposures. Off-balance sheet credit exposures relate to letters of credit and unfunded loan commitments for commercial, construction and consumer loans. The Company maintains a separate allowance for credit losses from off-balance-sheet credit exposures, which is included within other liabilities on the consolidated statements of financial condition. Increases or reductions to the Company’s allowance for credit losses from off-balance sheet credit exposures are recorded in other expenses. Management estimates the amount of expected losses by estimating expected usage exposures that are not unconditionally cancellable by the Company and applying the loss factors used in the allowance for credit loss methodology to estimate the liability for credit losses related to unfunded commitments. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.
Recently Adopted Accounting Standards
In the three months ended March 31, 2021, the Company adopted the following new accounting guidance:
FASB ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, was issued December 2019. The ASU is intended to simplify various aspects related to accounting for income taxes, eliminates certain exceptions to the general principles in ASC Topic 740 related to intra-period tax allocation, simplifies when companies recognize deferred taxes in an interim period, and clarifies certain aspects of the current guidance to promote consistent application. This guidance effective for public entities for fiscal years beginning after December 15, 2020, and for interim period within those fiscal years, with early adoption permitted. The Company adopted the ASU provisions on January 1, 2021 and the adoption of the ASU provisions did not have a significant impact on the Company’s consolidated financial statements.
Recently Issued Accounting Standards
FASB ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, was issued March 2020. The ASU provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company does not expect any material impact on its consolidated financial statements since the Company has an insignificant number of financial instruments applicable to this ASU.
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Note 3: Investment Securities
Effective January 1, 2020, the Company adopted FASB ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Upon adoption of the ASU the Company recorded allowance for credit losses for debt securities held to maturity of $
An analysis of the amortized cost and fair value by major categories of debt securities available for sale, which are carried at fair value with net unrealized gains (losses) reported on an after-tax basis as a component of cumulative other comprehensive income, and debt securities held to maturity, which are carried at amortized cost, before allowance for credit losses of $9 thousand, follows:
| At March 31, 2021 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| (In thousands) | ||||||||||||||||
| Debt securities available for sale | ||||||||||||||||
| Agency residential mortgage-backed securities ("MBS") | $ | $ | $ | $ | ||||||||||||
| Securities of U.S. Government entities | ( | ) | ||||||||||||||
| Obligations of states and political subdivisions | ( | ) | ||||||||||||||
| Corporate securities | ( | ) | ||||||||||||||
| Collateralized loan obligations | ( | ) | ||||||||||||||
| Total debt securities available for sale | ( | ) | ||||||||||||||
| Debt securities held to maturity | ||||||||||||||||
| Agency residential MBS | ( | ) | ||||||||||||||
| Non-agency residential MBS | ( | ) | ||||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| Total debt securities held to maturity | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| At December 31, 2020 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| (In thousands) | ||||||||||||||||
| Debt securities available for sale | ||||||||||||||||
| Agency residential MBS | $ | $ | $ | ( | ) | $ | ||||||||||
| Securities of U.S. Government entities | ||||||||||||||||
| Obligations of states and political subdivisions | ( | ) | ||||||||||||||
| Corporate securities | ( | ) | ||||||||||||||
| Commercial paper | ||||||||||||||||
| Collateralized loan obligations | ( | ) | ||||||||||||||
| Total debt securities available for sale | ( | ) | ||||||||||||||
| Debt securities held to maturity | ||||||||||||||||
| Agency residential MBS | ( | ) | ||||||||||||||
| Non-agency residential MBS | ||||||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| Total debt securities held to maturity | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
The amortized cost and fair value of debt securities by contractual maturity are shown in the following tables at the dates indicated:
| At March 31, 2021 | ||||||||||||||||
| Debt Securities Available | Debt Securities Held | |||||||||||||||
| for Sale | to Maturity | |||||||||||||||
| Amortized | Fair | Amortized | Fair | |||||||||||||
| Cost | Value | Cost | Value | |||||||||||||
| (In thousands) | ||||||||||||||||
| Maturity in years: | ||||||||||||||||
| 1 year or less | $ | $ | $ | $ | ||||||||||||
| Over 1 to 5 years | ||||||||||||||||
| Over 5 to 10 years | ||||||||||||||||
| Over 10 years | ||||||||||||||||
| Subtotal | ||||||||||||||||
| MBS | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| At December 31, 2020 | ||||||||||||||||
| Debt Securities Available | Debt Securities Held | |||||||||||||||
| for Sale | to Maturity | |||||||||||||||
| Amortized | Fair | Amortized | Fair | |||||||||||||
| Cost | Value | Cost | Value | |||||||||||||
| (In thousands) | ||||||||||||||||
| Maturity in years: | ||||||||||||||||
| 1 year or less | $ | $ | $ | $ | ||||||||||||
| Over 1 to 5 years | ||||||||||||||||
| Over 5 to 10 years | ||||||||||||||||
| Over 10 years | ||||||||||||||||
| Subtotal | ||||||||||||||||
| MBS | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Expected maturities of mortgage-related securities can differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. In addition, such factors as prepayments and interest rates may affect the yield on the carrying value of mortgage-related securities. At March 31, 2021 and December 31, 2020, the Company had
An analysis of the gross unrealized losses of the debt securities available for sale portfolio follows:
| Debt Securities Available for Sale | ||||||||||||||||||||||||||||||||||||
| At March 31, 2021 | ||||||||||||||||||||||||||||||||||||
| No. of | Less than 12 months | No. of | 12 months or longer | No. of | Total | |||||||||||||||||||||||||||||||
| Investment | Unrealized | Investment | Unrealized | Investment | Unrealized | |||||||||||||||||||||||||||||||
| Positions | Fair Value | Losses | Positions | Fair Value | Losses | Positions | Fair Value | Losses | ||||||||||||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||||||||||||||
| Agency residential MBS | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Securities of U.S. | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Obligations of states | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Corporate securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Collateralized loan | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||
An analysis of gross unrecognized losses of the debt securities held to maturity portfolio follows:
| Debt Securities Held to Maturity | ||||||||||||||||||||||||||||||||||||
| At March 31, 2021 | ||||||||||||||||||||||||||||||||||||
| No. of | Less than 12 months | No. of | 12 months or longer | No. of | Total | |||||||||||||||||||||||||||||||
| Investment | Unrecognized | Investment | Unrecognized | Investment | Unrecognized | |||||||||||||||||||||||||||||||
| Positions | Fair Value | Losses | Positions | Fair Value | Losses | Positions | Fair Value | Losses | ||||||||||||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||||||||||||||
| Agency residential MBS | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||
| Non-agency residential | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||
Based upon the most recent evaluation, the unrealized losses on the Company’s debt securities available for sale were most likely caused by market conditions for these types of investments, particularly changes in risk-free interest rates and/or market bid-ask spreads. The Company does not intend to sell any debt securities available for sale and has concluded that it is more likely than not that it will not be required to sell the debt securities prior to recovery of the amortized cost basis. Therefore, the Company does consider these debt securities to have credit related loss as of March 31, 2021.
The fair values of debt securities available for sale could decline in the future if the general economy deteriorates, inflation increases, credit ratings decline, the issuer’s financial condition deteriorates, or the liquidity for debt securities declines. As a result, significant credit loss on debt securities available for sale may occur in the future.
As of March 31, 2021 and December 31, 2020, the Company had debt securities pledged to secure public deposits and short-term borrowed funds of $
An analysis of the gross unrealized losses of the debt securities available for sale portfolio follows:
| Debt Securities Available for Sale | ||||||||||||||||||||||||||||||||||||
| At December 31, 2020 | ||||||||||||||||||||||||||||||||||||
| No. of | Less than 12 months | No. of | 12 months or longer | No. of | Total | |||||||||||||||||||||||||||||||
| Investment | Unrealized | Investment | Unrealized | Investment | Unrealized | |||||||||||||||||||||||||||||||
| Positions | Fair Value | Losses | Positions | Fair Value | Losses | Positions | Fair Value | Losses | ||||||||||||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||||||||||||||
| Agency residential MBS | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | ||||||||||||||||||||||||||
| Securities of U.S. | ||||||||||||||||||||||||||||||||||||
| Obligations of states | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Corporate securities | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Collateralized loan | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||
An analysis of gross unrecognized losses of the debt securities held to maturity portfolio follows:
| Debt Securities Held to Maturity | ||||||||||||||||||||||||||||||||||||
| At December 31, 2020 | ||||||||||||||||||||||||||||||||||||
| No. of | Less than 12 months | No. of | 12 months or longer | No. of | Total | |||||||||||||||||||||||||||||||
| Investment | Unrecognized | Investment | Unrecognized | Investment | Unrecognized | |||||||||||||||||||||||||||||||
| Positions | Fair Value | Losses | Positions | Fair Value | Losses | Positions | Fair Value | Losses | ||||||||||||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||||||||||||||
| Agency residential MBS | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||
The Company evaluates debt securities on a quarterly basis including changes in security ratings issued by rating agencies, changes in the financial condition of the issuer, and, for mortgage-backed and asset-backed securities, collateral levels, delinquency and loss information with respect to the underlying collateral, changes in the levels of subordination for the Company’s particular position within the repayment structure and remaining credit enhancement as compared to expected credit losses of the security. Substantially all of these securities continue to be investment grade rated by a major rating agency. One corporate bond with an amortized cost of $
The following table presents the activity in the allowance for credit losses for debt securities held to maturity:
| For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| Allowance for credit losses: | ||||||||
| Balance, end of prior period | $ | $ | ||||||
| Impact of adopting ASU 2016-13 | ||||||||
| Beginning balance | ||||||||
| Provision | ||||||||
| Chargeoffs | ||||||||
| Recoveries | ||||||||
| Total ending balance | $ | $ | ||||||
Agency mortgage-backed securities were assigned no credit loss allowance due to the perceived backing of government sponsored entities. Municipal securities were evaluated for risk of default based on credit rating and remaining term to maturity using Moody’s risk of default factors; Moody’s loss upon default factors were applied to the assumed defaulted principal amounts to estimate the amount for credit loss allowance.
The following table summarizes the amortized cost of debt securities held to maturity at March 31, 2021, aggregated by credit rating:
| Credit Risk Profile by Credit Rating | ||||||||||||||||
| At March 31, 2021 | ||||||||||||||||
| AAA/AA/A | BBB | BB/B/NR | Total | |||||||||||||
| (In thousands) | ||||||||||||||||
| Agency residential MBS | $ | $ | $ | $ | ||||||||||||
| Non-agency residential MBS | ||||||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
There were
The following table provides information about the amount of interest income earned on investment securities which is fully taxable and which is exempt from federal income tax:
| For the Three Months | ||||||||
| Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| Taxable | $ | $ | ||||||
| Tax-exempt from regular federal income tax | ||||||||
| Total interest income from investment securities | $ | $ | ||||||
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Note 4: Loans, Allowance for Credit Losses and Other Real Estate Owned
A summary of the major categories of loans outstanding is shown in the following tables at the dates indicated.
| At March 31, | At December 31, | |||||||
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| Commercial: | ||||||||
| Paycheck Protection Program ("PPP") loans | $ | $ | ||||||
| Other | ||||||||
| Total Commercial | ||||||||
| Commercial Real Estate | ||||||||
| Construction | ||||||||
| Residential Real Estate | ||||||||
| Consumer Installment & Other | ||||||||
| Total | $ | $ | ||||||
The following summarizes activity in the allowance for credit losses:
| Allowance for Credit Losses | ||||||||||||||||||||||||
| For the Three Months Ended March 31, 2021 | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Commercial | Residential | Installment | ||||||||||||||||||||||
| Commercial | Real Estate | Construction | Real Estate | and Other | Total | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Provision (reversal) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Chargeoffs | ( | ) | ( | ) | ||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Total allowance for credit losses | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The growth in commercial loan balances was due to originations of Paycheck Protection Program (“PPP”) loans which are 100% guaranteed by the Small Business Administration (“SBA”). PPP loan proceeds used for eligible payroll and certain other operating costs are to be forgiven with repayment of loan principal and accrued interest made by the SBA. Management does not expect credit losses on PPP loans.
| Allowance for Credit Losses | ||||||||||||||||||||||||||||
| For the Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||
| Commercial | Residential | Installment | ||||||||||||||||||||||||||
| Commercial | Real Estate | Construction | Real Estate | and Other | Unallocated | Total | ||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||||||
| Balance at beginning of period, prior to adoption of ASU 2016-13 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Impact of adopting ASU 2016-13 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Adjusted beginning balance | ||||||||||||||||||||||||||||
| Provision (reversal) | ( | ) | ||||||||||||||||||||||||||
| Chargeoffs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||
| Total allowance for credit losses | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
The significant increase in the first quarter 2020 in the allowance for credit losses for consumer installment and other loans was due to expected credit losses associated with forecasted unemployment.
The Company’s customers are small businesses, professionals and consumers. Given the scale of these borrowers, corporate credit rating agencies do not evaluate the borrowers’ financial condition. The Company’s subsidiary, Westamerica Bank (the “Bank”) maintains a Loan Review Department which reports directly to the Audit Committee of the Board of Directors. The Loan Review Department performs independent evaluations of loans and validates management assigned credit risk grades on evaluated loans using grading standards employed by bank regulatory agencies. Loans judged to carry lower-risk attributes are assigned a “pass” grade, with a minimal likelihood of loss. Loans judged to carry higher-risk attributes are referred to as “classified loans,” and are further disaggregated, with increasing expectations for loss recognition, as “substandard,” “doubtful,” and “loss.” Loan Review Department performs continuous evaluations throughout the year. If the Bank becomes aware of deterioration in a borrower’s performance or financial condition between Loan Review Department examinations, assigned risk grades are re-evaluated promptly. Credit risk grades assigned by management and validated by the Loan Review Department are subject to review by the Bank’s regulatory authorities during regulatory examinations.
The following summarizes the credit risk profile by internally assigned grade:
| Credit Risk Profile by Internally Assigned Grade | ||||||||||||||||||||||||
| At March 31, 2021 | ||||||||||||||||||||||||
| Commercial | Commercial Real Estate | Construction | Residential Real Estate | Consumer Installment and Other | Total | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Grade: | ||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Substandard | ||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Credit Risk Profile by Internally Assigned Grade | ||||||||||||||||||||||||
| At December 31, 2020 | ||||||||||||||||||||||||
| Commercial | Commercial Real Estate | Construction | Residential Real Estate | Consumer Installment and Other | Total | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Grade: | ||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Substandard | ||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The following tables summarize loans by delinquency and nonaccrual status:
| Summary of Loans by Delinquency and Nonaccrual Status | ||||||||||||||||||||||||
| At March 31, 2021 | ||||||||||||||||||||||||
| Current and Accruing | 30-59 Days Past Due and Accruing | 60-89 Days Past Due and Accruing | Past Due 90 Days or More and Accruing | Nonaccrual | Total Loans | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||
| Consumer installment and other | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Summary of Loans by Delinquency and Nonaccrual Status | ||||||||||||||||||||||||
| At December 31, 2020 | ||||||||||||||||||||||||
| Current and Accruing | 30-59 Days Past Due and Accruing | 60-89 Days Past Due and Accruing | Past Due 90 Days or More and Accruing | Nonaccrual | Total Loans | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||||||
| Consumer installment and other | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
There was
The following tables provide information on troubled debt restructurings (TDRs):
| Troubled Debt Restructurings | ||||||||||||||||
| At March 31, 2021 | ||||||||||||||||
| Period-End | ||||||||||||||||
| Individual | ||||||||||||||||
| Number of | Pre-Modification | Period-End | Credit Loss | |||||||||||||
| Contracts | Carrying Value | Carrying Value | Allowance | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Commercial real estate | $ | $ | $ | |||||||||||||
| Residential real estate | ||||||||||||||||
| Total | $ | $ | $ | |||||||||||||
| Troubled Debt Restructurings | ||||||||||||||||
| At December 31, 2020 | ||||||||||||||||
| Period-End | ||||||||||||||||
| Individual | ||||||||||||||||
| Number of | Pre-Modification | Period-End | Credit Loss | |||||||||||||
| Contracts | Carrying Value | Carrying Value | Allowance | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Commercial real estate | $ | $ | $ | |||||||||||||
| Residential real estate | ||||||||||||||||
| Total | $ | $ | $ | |||||||||||||
During the three months ended March 31, 2021, the Company did modify any loans that were considered troubled debt restructurings for accounting purposes. Section 4013 of the CARES Act allowed certain loan modifications for borrowers impacted by the COVID-19 pandemic to be excluded from TDR accounting. During the three months ended March 31, 2021, the Company modified loans under Section 4013 of the CARES Act, granting 90 day deferrals of principal and interest payments. As of March 31, 2021,loans deferred under the CARES Act that are not considered TDRs included
TDRs of $
TDRs of $
Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
| At March 31, 2021 | ||||||||||||||||||||||||||||||||||||
| Revolving | ||||||||||||||||||||||||||||||||||||
| Loans | ||||||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Year | Total | Amortized | ||||||||||||||||||||||||||||||||||
| Prior | 2017 | 2018 | 2019 | 2020 | 2021 | Term Loans | Cost Basis | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||
| Commercial loans by grade | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| At March 31, 2021 | ||||||||||||||||||||||||||||||||||||
| Revolving | ||||||||||||||||||||||||||||||||||||
| Loans | ||||||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Year | Total | Amortized | ||||||||||||||||||||||||||||||||||
| Prior | 2017 | 2018 | 2019 | 2020 | 2021 | Term Loans | Cost Basis | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||
| Commercial real estate loans by grade | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| At March 31, 2021 | ||||||||||||||||||||||||||||||||||||
| Revolving | ||||||||||||||||||||||||||||||||||||
| Loans | ||||||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Year | Total | Amortized | ||||||||||||||||||||||||||||||||||
| Prior | 2017 | 2018 | 2019 | 2020 | 2021 | Term Loans | Cost Basis | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||
| Construction loans by grade | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| At March 31, 2021 | ||||||||||||||||||||||||||||||||||||
| Revolving | ||||||||||||||||||||||||||||||||||||
| Loans | ||||||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Year | Total | Amortized | ||||||||||||||||||||||||||||||||||
| Prior | 2017 | 2018 | 2019 | 2020 | 2021 | Term Loans | Cost Basis | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||
| Residential Real Estate loans by grade | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Loss | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
The Company considers the delinquency and nonaccrual status of the consumer loan portfolio and its impact on the allowance for credit losses. The following table presents the amortized cost in consumer installment and other loans based on delinquency and nonaccrual status:
| At March 31, 2021 | ||||||||||||||||||||||||||||||||||||
| Revolving | ||||||||||||||||||||||||||||||||||||
| Loans | ||||||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Year | Total | Amortized | ||||||||||||||||||||||||||||||||||
| Prior | 2017 | 2018 | 2019 | 2020 | 2021 | Term Loans | Cost Basis | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||
| Consumer installment and other loans by delinquency and nonaccrual status | ||||||||||||||||||||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| 30-59 days past due | ||||||||||||||||||||||||||||||||||||
| 60-89 days past due | ||||||||||||||||||||||||||||||||||||
| Past due 90 days or more | ||||||||||||||||||||||||||||||||||||
| Nonaccrual | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
There were
The Company held
Note 5: Concentration of Credit Risk
Under the California Financial Code, credit extended to any one person owing to a commercial bank at any one time shall not exceed the following limitations: (a) unsecured loans shall not exceed
Note 6: Other Assets and Other Liabilities
Other assets consisted of the following:
| At March 31, | At December 31, | |||||||
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| Cost method equity investments: | ||||||||
| Federal Reserve Bank stock (1) | $ | $ | ||||||
| Other investments | ||||||||
| Total cost method equity investments | ||||||||
| Life insurance cash surrender value | ||||||||
| Right-of-use asset | ||||||||
| Limited partnership investments | ||||||||
| Interest receivable | ||||||||
| Prepaid assets | ||||||||
| Other assets | ||||||||
| Total other assets | $ | $ | ||||||
| (1) | A bank applying for membership in the Federal Reserve System is required to subscribe to stock in the Federal Reserve Bank (FRB) in its district in a sum equal to six percent of the bank’s paid-up capital stock and surplus. One-half of the amount of the bank's subscription shall be paid to the FRB and the remaining half will be subject to call when deemed necessary by the Board of Governors of the Federal Reserve System. |
The Company owns
The Company invests in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for low-income housing tax credits. At March 31, 2021, this investment totaled $
The amounts recognized in net income for these investments include:
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| Investment loss included in pre-tax income | $ | $ | ||||||
| Tax credits recognized in provision for income taxes | ||||||||
Other liabilities consisted of the following:
| At March 31, | At December 31, | |||||||
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| Net deferred tax liability | $ | $ | ||||||
| Operating lease liability | ||||||||
| Securities purchases pending settlement | ||||||||
| Other liabilities | ||||||||
| Total other liabilities | $ | $ | ||||||
The net deferred tax liability at March 31, 2021 of $
The Company has entered into leases for most branch locations and certain other offices that were classified as operating leases primarily with original terms of years. Certain lease arrangements contain extension options, which can be exercised at the Company’s option, for one or more additional year terms. Unexercised extension options are not considered reasonably certain of exercise and have not been included in the lease term used to determine the lease liability or right-of-use asset. The Company did not have any finance leases as of March 31, 2021.
As of March 31, 2021, the Company recorded a lease liability of $
Total lease costs were $
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The following table summarizes the remaining lease payments of operating lease liabilities:
| Minimum | ||||
| At March 31, | ||||
| 2021 | ||||
| (In thousands) | ||||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total minimum lease payments | ||||
| Less: discount | ( | ) | ||
| Present value of lease liability | $ | |||
Note 7: Goodwill and Identifiable Intangible Assets
The Company has recorded goodwill and other identifiable intangibles associated with purchase business combinations. Goodwill is not amortized, but is evaluated for impairment at least annually. The Company did recognize impairment during the three months ended March 31, 2021 and year ended December 31, 2020. Identifiable intangibles are amortized to their estimated residual values over their expected useful lives. Such lives and residual values are also periodically reassessed to determine if any amortization period adjustments are indicated. During the three months ended March 31, 2021 and year ended December 31, 2020 such adjustments were recorded.
The carrying values of goodwill were:
| At March 31, 2021 | At December 31, 2020 | |||||||
| (In thousands) | ||||||||
| Goodwill | $ | $ | ||||||
The gross carrying amount of identifiable intangible assets and accumulated amortization was:
| At March 31, 2021 | At December 31, 2020 | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Carrying | Accumulated | Carrying | Accumulated | |||||||||||||
| Amount | Amortization | Amount | Amortization | |||||||||||||
| (In thousands) | ||||||||||||||||
| Core deposit intangibles | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
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As of March 31, 2021, the current period and estimated future amortization expense for identifiable intangible assets, to be fully amortized in 2025, was:
| Total | ||||
| Core | ||||
| Deposit | ||||
| Intangibles | ||||
| (In thousands) | ||||
| For the three months ended March 31, 2021 (actual) | $ | |||
| Estimate for the remainder of 2021 | ||||
| Estimate for year ending December 31, 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
Note 8: Deposits and Borrowed Funds
The following table provides additional detail regarding deposits.
| Deposits | ||||||||
| At March 31, | At December 31, | |||||||
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| Noninterest-bearing | $ | $ | ||||||
| Interest-bearing: | ||||||||
| Transaction | ||||||||
| Savings | ||||||||
| Time deposits less than $100 thousand | ||||||||
| Time deposits $100 thousand through $250 thousand | ||||||||
| Time deposits more than $250 thousand | ||||||||
| Total deposits | $ | $ | ||||||
Demand deposit overdrafts of $
The following table provides additional detail regarding short-term borrowed funds.
| Repurchase Agreements (Sweep) | ||||||||
| Remaining Contractual Maturity of the Agreements | ||||||||
| Overnight and Continuous | ||||||||
| At March 31, | At December 31, | |||||||
| 2021 | 2020 | |||||||
| Repurchase agreements: | (In thousands) | |||||||
| Collateral securing borrowings: | ||||||||
| Agency residential MBS | $ | $ | ||||||
| Corporate securities | ||||||||
| Total collateral carrying value | $ | $ | ||||||
| Total short-term borrowed funds | $ | $ | ||||||
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Note 9: Fair Value Measurements
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Debt securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as other real estate owned, loans individually evaluated for credit loss, certain loans held for investment, debt securities held to maturity, and other assets. These nonrecurring fair value adjustments typically involve the lower-of-cost or fair-value accounting of individual assets.
In accordance with the Fair Value Measurement and Disclosure topic of the FASB Accounting Standards Codification, the Company bases its fair values on the price that would be received to sell an asset or paid to transfer a liability in the principal market or most advantageous market for an asset or liability in an orderly transaction between market participants on the measurement date under current market conditions. A fair value measurement reflects all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset, and the risk of nonperformance.
The Company groups its assets and liabilities measured at fair value into a three-level hierarchy, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. When the valuation assumptions used to measure the fair value of the asset or liability are categorized within different levels of the fair value hierarchy, the asset or liability is categorized in its entirety within the lowest level of the hierarchy. These levels are:
Level 1 – Valuation is based upon quoted prices for identical instruments traded in active exchange markets, such as the New York Stock Exchange. Level 1 includes U.S. Treasury and equity securities, which are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 2 includes mutual funds, federal agency securities, mortgage-backed securities, corporate securities, commercial paper, collateralized loan obligations, municipal bonds and securities of U.S government entities.
Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
The Company relies on independent vendor pricing services to measure fair value for equity securities, debt securities available for sale and debt securities held to maturity. The Company employs three pricing services. To validate the pricing of these vendors, the Company compares vendors’ pricing for each of the securities for consistency; significant pricing differences, if any, are evaluated using all available independent quotes with the quote most closely reflecting the market generally used as the fair value estimate. In addition, the Company evaluates debt securities for credit loss on a quarterly basis. As with any valuation technique used to estimate fair value, changes in underlying assumptions used could significantly affect the results of current and future values. Accordingly, these fair value estimates may not be realized in an actual sale of the securities.
The Company regularly reviews the valuation techniques and assumptions used by its vendors and determines which valuation techniques are utilized based on observable market inputs for the type of securities being measured. The Company uses the information to determine the placement in the fair value hierarchy as level 1, 2 or 3.
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Assets Recorded at Fair Value on a Recurring Basis
The tables below present assets measured at fair value on a recurring basis on the dates indicated.
| At March 31, 2021 | ||||||||||||||||
| Fair Value | Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||
| (In thousands) | ||||||||||||||||
| Debt securities available for sale | ||||||||||||||||
| Agency residential mortgage-backed securities (MBS) | $ | $ | $ | $ | ||||||||||||
| Securities of U.S. Government entities | ||||||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| Corporate securities | ||||||||||||||||
| Collateralized loan obligations | ||||||||||||||||
| Total debt securities available for sale | $ | $ | $ | $ | ||||||||||||
| (1) | There were no transfers in to or out of level 3 during the three months ended March 31, 2021. |
| At December 31, 2020 | ||||||||||||||||
| Fair Value | Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||
| (In thousands) | ||||||||||||||||
| Debt securities available for sale | ||||||||||||||||
| Agency residential MBS | $ | $ | $ | $ | ||||||||||||
| Securities of U.S. Government entities | ||||||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| Corporate securities | ||||||||||||||||
| Commercial paper | ||||||||||||||||
| Collateralized loan obligations | ||||||||||||||||
| Total debt securities available for sale | $ | $ | $ | $ | ||||||||||||
| (1) | There were no transfers in to or out of level 3 during the year ended December 31, 2020. |
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Assets Recorded at Fair Value on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or fair value accounting of individual assets. For assets measured at fair value on a nonrecurring basis that were recorded in the balance sheet at March 31, 2021 and December 31, 2020, the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets at period end.
| For the Three | ||||||||||||||||||||
| Months Ended | ||||||||||||||||||||
| At March 31, 2021 | March 31, 2021 | |||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | Total Losses | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Loans: | ||||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial real estate | ||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||
| Total assets measured at fair value on a nonrecurring basis | $ | $ | $ | $ | $ | |||||||||||||||
| For the | ||||||||||||||||||||
| Year Ended | ||||||||||||||||||||
| At December 31, 2020 | December 31, 2020 | |||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | Total Losses | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Loans: | ||||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial real estate | ||||||||||||||||||||
| Residential real estate | ||||||||||||||||||||
| Total assets measured at fair value on a nonrecurring basis | $ | $ | $ | $ | $ | |||||||||||||||
Level 3 – Valuation is based upon present value of expected future cash flows, independent market prices, estimated liquidation values of loan collateral or appraised value of the collateral as determined by third-party independent appraisers, less
Disclosures about Fair Value of Financial Instruments
The tables below are a summary of fair value estimates for financial instruments and the level of the fair value hierarchy within which the fair value measurements are categorized, excluding financial instruments recorded at fair value on a recurring basis. The values assigned do not necessarily represent amounts which ultimately may be realized for assets or paid to settle liabilities. In addition, these values do not give effect to adjustments to fair value which may occur when financial instruments are sold or settled in larger quantities. The carrying amounts in the following tables are recorded in the balance sheet under the indicated captions.
The Company has not included assets and liabilities that are not financial instruments, such as goodwill, long-term relationships with deposit, merchant processing and trust customers, other purchased intangibles, premises and equipment, deferred taxes and other assets and liabilities. The total estimated fair values do not represent, and should not be construed to represent, the underlying value of the Company.
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| At March 31, 2021 | ||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||||
| Financial Assets: | (In thousands) | |||||||||||||||||||
| Cash and due from banks | $ | $ | $ | $ | $ | |||||||||||||||
| Debt securities held to maturity | ||||||||||||||||||||
| Loans | ||||||||||||||||||||
| Financial Liabilities: | ||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Short-term borrowed funds | ||||||||||||||||||||
| Other borrowed funds | ||||||||||||||||||||
| At December 31, 2020 | ||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||||
| Financial Assets: | (In thousands) | |||||||||||||||||||
| Cash and due from banks | $ | $ | $ | $ | $ | |||||||||||||||
| Debt securities held to maturity | ||||||||||||||||||||
| Loans | ||||||||||||||||||||
| Financial Liabilities: | ||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Short-term borrowed funds | ||||||||||||||||||||
The majority of the Company’s standby letters of credit and other commitments to extend credit carry current market interest rates if converted to loans. No premium or discount was ascribed to these commitments because virtually all funding would be at current market rates.
Note 10: Commitments and Contingent Liabilities
Loan commitments are agreements to lend to a customer provided there is no violation of any condition established in the agreement. Certain agreements provide the Company the right to cancel or reduce its obligations to lend to customers. The portions that are not cancellable unconditionally by the Company aggregated $
The Company determined that it will be obligated to provide refunds of revenue recognized in years prior to 2018 to some customers. The Company initially estimated the probable amount of these obligations to be $
Due to the nature of its business, the Company is subject to various threatened or filed legal cases. Based on the advice of legal counsel, the Company does not expect such cases will have a material, adverse effect on its financial position or results of operations. Legal liabilities are accrued when obligations become probable and the amount can be reasonably estimated.
Note 11: Earnings Per Common Share
The table below shows earnings per common share and diluted earnings per common share. Basic earnings per common share are computed by dividing net income by the average number of common shares outstanding during the period. Diluted earnings per common share are computed by dividing net income by the average number of common shares outstanding during the period plus the impact of common stock equivalents.
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| (In thousands, except per share data) | ||||||||
| Net income (numerator) | $ | $ | ||||||
| Basic earnings per common share | ||||||||
| Weighted average number of common shares outstanding - basic (denominator) | ||||||||
| Basic earnings per common share | $ | $ | ||||||
| Diluted earnings per common share | ||||||||
| Weighted average number of common shares outstanding - basic | ||||||||
| Add common stock equivalents for options | ||||||||
| Weighted average number of common shares outstanding - diluted (denominator) | ||||||||
| Diluted earnings per common share | $ | $ | ||||||
For the three months ended March 31, 2021 and 2020, options to purchase
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
WESTAMERICA BANCORPORATION
FINANCIAL SUMMARY
| For the Three Months Ended |
||||||||||||
| March 31, |
December 31, |
|||||||||||
| 2021 |
2020 |
2020 |
||||||||||
| (In thousands, except per share data) |
||||||||||||
| Net Interest and Fee Income (FTE)(1) |
$ | 42,583 | $ | 40,547 | $ | 43,292 | ||||||
| Provision for Credit Losses |
- | 4,300 | - | |||||||||
| Noninterest Income |
10,189 | 11,648 | 13,959 | |||||||||
| Noninterest Expense |
24,906 | 24,664 | 24,545 | |||||||||
| Income Before Income Taxes (FTE)(1) |
27,866 | 23,231 | 32,706 | |||||||||
| Provision for Income Taxes (FTE)(1) |
7,719 | 6,269 | 8,868 | |||||||||
| Net Income |
$ | 20,147 | $ | 16,962 | $ | 23,838 | ||||||
| Average Common Shares Outstanding |
26,821 | 27,068 | 26,838 | |||||||||
| Average Diluted Common Shares Outstanding |
26,842 | 27,139 | 26,849 | |||||||||
| Common Shares Outstanding at Period End |
26,864 | 26,932 | 26,807 | |||||||||
| Per Common Share: |
||||||||||||
| Basic Earnings |
$ | 0.75 | $ | 0.63 | $ | 0.89 | ||||||
| Diluted Earnings |
0.75 | 0.63 | 0.89 | |||||||||
| Book Value Per Common Share |
30.23 | 26.20 | 31.51 | |||||||||
| Financial Ratios: |
||||||||||||
| Return On Assets |
1.23 | % | 1.21 | % | 1.44 | % | ||||||
| Return On Common Equity |
11.11 | % | 9.67 | % | 13.16 | % | ||||||
| Net Interest Margin (FTE)(1) |
2.74 | % | 3.10 | % | 2.81 | % | ||||||
| Net Loan Chargeoffs to Average Loans |
0.12 | % | 0.36 | % | 0.09 | % | ||||||
| Efficiency Ratio(2) |
47.2 | % | 47.3 | % | 42.9 | % | ||||||
| Average Balances: |
||||||||||||
| Assets |
$ | 6,650,164 | $ | 5,655,460 | $ | 6,562,753 | ||||||
| Loans |
1,251,540 | 1,123,934 | 1,286,480 | |||||||||
| Investments |
4,440,621 | 3,845,885 | 4,430,592 | |||||||||
| Deposits |
5,748,070 | 4,828,988 | 5,655,768 | |||||||||
| Shareholders' Equity |
735,496 | 705,330 | 720,473 | |||||||||
| Period End Balances: |
||||||||||||
| Assets |
$ | 6,912,481 | $ | 5,628,126 | $ | 6,747,931 | ||||||
| Loans |
1,293,756 | 1,121,243 | 1,256,243 | |||||||||
| Investments |
4,459,838 | 3,892,526 | 4,578,783 | |||||||||
| Deposits |
5,923,833 | 4,799,426 | 5,687,979 | |||||||||
| Shareholders' Equity |
812,132 | 705,546 | 844,809 | |||||||||
| Capital Ratios at Period End: |
||||||||||||
| Total Risk Based Capital |
16.88 | % | 15.81 | % | 16.68 | % | ||||||
| Tangible Equity to Tangible Assets |
10.15 | % | 10.58 | % | 10.90 | % | ||||||
| Dividends Paid Per Common Share |
$ | 0.41 | $ | 0.41 | $ | 0.41 | ||||||
| Common Dividend Payout Ratio |
55 | % | 66 | % | 46 | % | ||||||
The above financial summary has been derived from the Company's unaudited consolidated financial statements. This information should be read in conjunction with those statements, notes and the other information included elsewhere herein. Percentages under the heading "Financial Ratios" are annualized with the exception of the efficiency ratio.
| (1) |
Yields on securities and certain loans have been adjusted upward to an FTE basis in order to reflect the effect of income which is exempt from federal income taxation at the current statutory tax rate. |
| (2) |
The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income on an FTE basis and noninterest income). |
Financial Overview
Westamerica Bancorporation and subsidiaries’ (collectively, the “Company”) reported net income of $20.1 million or $0.75 diluted earnings per common share (“EPS”), including “make-whole” interest income on corporate bonds redeemed prior to maturity of $700 thousand. First quarter 2021 results compare with net income of $17.0 million or $0.63 EPS for the first quarter 2020 and $23.8 million or $0.89 EPS for the fourth quarter 2020.
The Company’s primary and wholly-owned subsidiary bank, Westamerica Bank (the “Bank”), continued to support the Bank’s customers during the pandemic. The Bank originated $91 million in loans under the second round of the Paycheck Protection Program (“PPP”) during the first quarter 2021. PPP loans meaningfully increased interest-earning assets and related interest and fee income. The Bank continues to work with loan customers requesting deferral of loan payments due to economic weakness caused by the pandemic. At March 31, 2021, loans granted deferrals under the CARES Act included consumer loans totaling $1.8 million and one hospitality industry commercial real estate loan with a balance of $2.3 million. The results for the first quarter 2020 include a provision for credit losses of $4.3 million, which reduced EPS $0.11, representing Management’s estimate of additional reserves needed over the remaining life of its loans due to increased credit-risk from deteriorating economic conditions caused by the COVID-19 pandemic. Results for the fourth quarter 2020 include a $3.5 million gain on sale of a closed branch building, “make-whole” interest income of $1.9 million on corporate bonds redeemed before maturity, and a customary adjustment to the tax provision for filed 2019 tax returns, which increased EPS $0.15.
In response to the pandemic, the Federal Reserve has engaged significant levels of monetary policy to provide liquidity and credit facilities to the financial markets. On March 15, 2020, the Federal Open Market Committee (“FOMC”) reduced the target range for the federal funds rate to 0 to 0.25 percent; relatedly, the FOMC reduced the interest rate paid on deposit balances to 0.10 percent effective March 16, 2020. The Bank maintains deposit balances at the Federal Reserve Bank; the amount that earns interest is identified in the Company’s financial statements as “interest-bearing cash”.
The Company presents its net interest margin and net interest income on a fully taxable equivalent (“FTE”) basis using the current statutory federal tax rate. Management believes the FTE basis is valuable to the reader because the Company’s loan and investment securities portfolios contain a relatively large portion of municipal loans and securities that are federally tax exempt. The Company’s tax exempt loans and securities composition may not be similar to that of other banks, therefore in order to reflect the impact of the federally tax exempt loans and securities on the net interest margin and net interest income for comparability with other banks, the Company presents its net interest margin and net interest income on an FTE basis.
The Company’s significant accounting policies (see Note 1, “Summary of Significant Accounting Policies,” to Financial Statements in the Company’s 2020 Form 10-K and Note 2 “Summary of Significant Accounting Policies” in this Form 10-Q) are fundamental to understanding the Company’s results of operations and financial condition. Certain risks, uncertainties and other factors, including those discussed in Note 20 “Impact of COVID-19” to the consolidated financial statements included in, and “Risk Factors” in Part I – Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 may cause actual future results to differ materially from the results discussed in this report on Form 10-Q.
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Net Income
Following is a summary of the components of net income for the periods indicated:
| For the Three Months Ended |
||||||||||||
| March 31, |
December 31, |
|||||||||||
| 2021 |
2020 |
2020 |
||||||||||
| (In thousands, except per share data) |
||||||||||||
| Net interest and loan fee income (FTE) |
$ | 42,583 | $ | 40,547 | $ | 43,292 | ||||||
| Provision for credit losses |
- | 4,300 | - | |||||||||
| Noninterest income |
10,189 | 11,648 | 13,959 | |||||||||
| Noninterest expense |
24,906 | 24,664 | 24,545 | |||||||||
| Income before taxes (FTE) |
27,866 | 23,231 | 32,706 | |||||||||
| Income tax provision (FTE) |
7,719 | 6,269 | 8,868 | |||||||||
| Net income |
$ | 20,147 | $ | 16,962 | $ | 23,838 | ||||||
| Average diluted common shares |
26,842 | 27,139 | 26,849 | |||||||||
| Diluted earnings per common share |
$ | 0.75 | $ | 0.63 | $ | 0.89 | ||||||
| Average total assets |
$ | 6,650,164 | $ | 5,655,460 | $ | 6,562,753 | ||||||
| Net income to average total assets (annualized) |
1.23 | % | 1.21 | % | 1.44 | % | ||||||
| Net income to average common shareholders' equity (annualized) |
11.11 | % | 9.67 | % | 13.16 | % | ||||||
Net income for the first quarter 2021 increased $3.2 million compared with the first quarter 2020. Net interest and loan fee income (FTE) increased $2.0 million in the first quarter 2021 compared with the first quarter 2020 mainly due to higher average balances of investments and PPP loans, partially offset by lower yield on interest-earning assets and loan payoffs and paydowns. Additionally, first quarter 2021 results include “make-whole” interest income on corporate bonds redeemed prior to maturity of $700 thousand. The first quarter 2021 provision for credit losses was zero, reflecting Management's evaluation of credit risk over the remaining life of loans and bonds. Results for the first quarter 2020, include a provision of credit losses of $4.3 million, which reduced EPS $0.11, representing Management estimate of additional reserves needed over the remaining life of its loans due to credit-risk from economic weakness caused by the COVID-19 pandemic. First quarter 2021 noninterest income decreased $1.5 million compared with first quarter 2020 due to lower fees on overdrawn accounts and analyzed accounts and because first quarter 2020 included $603 thousand in excess of amounts charged-off in prior periods on a purchased loan. First quarter 2021 noninterest expense increased $242 thousand due to higher professional fees and FDIC assessments. First quarter 2020 FDIC assessments were reduced by a $246 thousand FDIC assessment credit. The increases were partially offset by lower salaries due to attrition. The tax rate (FTE) was 27.7% for the first quarter 2021 and 27.0% for the first quarter 2020.
Comparing the first quarter 2021 with the fourth quarter 2020 net income decreased $3.7 million. Net interest and loan fee (FTE) income decreased $709 thousand due to lower average balances of PPP loans and lower yield on interest-earning assets. Results for the first quarter include “make-whole” interest income on corporate bonds redeemed prior to maturity of $700 thousand compared with $1.9 million for the fourth quarter. The provision for credit losses remained zero in the first quarter 2021 and the fourth quarter 2020, reflecting Management's evaluation of credit risk over the remaining life of loans and bonds. In the first quarter 2021 noninterest income decreased $3.8 million primarily because fourth quarter 2020 results include a $3.5 million gain on sale of a closed branch building. In the first quarter 2021 noninterest expense increased $361 thousand compared with the fourth quarter 2020 due to higher payroll taxes, employee benefits, and professional fees. The tax rate (FTE) was 27.7% for the first quarter 2021 and 27.1% for the fourth quarter 2020.
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Net Interest and Loan Fee Income (FTE)
Following is a summary of the components of net interest and loan fee income (FTE) for the periods indicated:
| For the Three Months Ended |
||||||||||||
| March 31, |
December 31, |
|||||||||||
| 2021 |
2020 |
2020 |
||||||||||
| (In thousands) |
||||||||||||
| Interest and loan fee income |
$ | 42,316 | $ | 39,991 | $ | 42,961 | ||||||
| Interest expense |
475 | 442 | 481 | |||||||||
| FTE adjustment |
742 | 998 | 812 | |||||||||
| Net interest and loan fee income (FTE) |
$ | 42,583 | $ | 40,547 | $ | 43,292 | ||||||
| Average earning assets |
$ | 6,244,622 | $ | 5,242,142 | $ | 6,156,749 | ||||||
| Net interest margin (FTE) (annualized) |
2.74 | % | 3.10 | % | 2.81 | % | ||||||
Net interest and loan fee income (FTE) increased $2.0 million in the first quarter 2021 compared with the first quarter 2020 mainly due to higher average balances of investments (up $595 million) and PPP loans (up $189 million), partially offset by lower yield on interest-earning assets (down 0.36%) and loan payoffs and paydowns. First quarter 2021 results include “make-whole” interest income on corporate bonds redeemed prior to maturity of $700 thousand.
Net interest and loan fee (FTE) income decreased $709 thousand due to lower average balances of PPP loans (down $39 million), lower yield on interest-earning assets (down 0.07%) and loan payoffs and paydowns. Results for the first quarter include “make-whole” interest income on corporate bonds redeemed prior to maturity of $700 thousand compared with $1.9 million for the fourth quarter.
The annualized net interest margin (FTE) was 2.74% in the first quarter 2021, 3.10% in the first quarter 2020 and 2.81% in the fourth quarter 2020.
The Company’s funding costs were 0.03% in the first quarter 2021 and the first and fourth quarters of 2020. Average balances of checking and saving deposits accounted for 97.3% of average total deposits in the first quarter 2021, 96.5% in the first quarter 2020 and 97.2% in the fourth quarter 2020.
Net Interest Margin (FTE)
The following summarizes the components of the Company's net interest margin (FTE) for the periods indicated (percentages are annualized.)
| For the Three Months Ended |
||||||||||||
| March 31, |
December 31, |
|||||||||||
| 2021 |
2020 |
2020 |
||||||||||
| Yield on earning assets (FTE) |
2.77 | % | 3.13 | % | 2.84 | % | ||||||
| Rate paid on interest-bearing liabilities |
0.06 | % | 0.07 | % | 0.06 | % | ||||||
| Net interest spread (FTE) |
2.71 | % | 3.06 | % | 2.78 | % | ||||||
| Impact of noninterest-bearing funds |
0.03 | % | 0.04 | % | 0.03 | % | ||||||
| Net interest margin (FTE) |
2.74 | % | 3.10 | % | 2.81 | % | ||||||
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Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present information regarding the consolidated average assets, liabilities and shareholders’ equity, the amounts of interest income earned from average interest earning assets and the resulting yields, and the amounts of interest expense incurred on average interest-bearing liabilities and the resulting rates. Average loan balances include nonperforming loans. Interest income includes reversal of previously accrued interest on loans placed on non-accrual status during the period and proceeds from loans on nonaccrual status only to the extent cash payments have been received and applied as interest income and accretion of purchased loan discounts. Yields, rates and interest margins are annualized.
Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin
| For the Three Months Ended March 31, 2021 |
||||||||||||
| Interest |
||||||||||||
| Average |
Income/ |
Yields/ |
||||||||||
| Balance |
Expense |
Rates |
||||||||||
| ($ in thousands) |
||||||||||||
| Assets |
||||||||||||
| Investment securities: |
||||||||||||
| Taxable |
$ | 4,079,472 | $ | 25,198 | 2.47 | % | ||||||
| Tax-exempt (1) |
361,149 | 3,038 | 3.36 | % | ||||||||
| Total investments (1) |
4,440,621 | 28,236 | 2.54 | % | ||||||||
| Loans: |
||||||||||||
| Taxable |
||||||||||||
| Paycheck Protection Program ("PPP") loans |
188,971 | 1,853 | 3.98 | % | ||||||||
| Other taxable |
1,011,975 | 12,339 | 4.95 | % | ||||||||
| Total taxable |
1,200,946 | 14,192 | 4.79 | % | ||||||||
| Tax-exempt (1) |
50,594 | 492 | 3.94 | % | ||||||||
| Total loans (1) |
1,251,540 | 14,684 | 4.76 | % | ||||||||
| Total interest-bearing cash |
552,461 | 138 | 0.10 | % | ||||||||
| Total Interest-earning assets (1) |
6,244,622 | 43,058 | 2.77 | % | ||||||||
| Other assets |
405,542 | |||||||||||
| Total assets |
$ | 6,650,164 | ||||||||||
| Liabilities and shareholders' equity |
||||||||||||
| Noninterest-bearing demand |
$ | 2,713,632 | $ | - | - | % | ||||||
| Savings and interest-bearing transaction |
2,877,575 | 339 | 0.05 | % | ||||||||
| Time less than $100,000 |
85,622 | 42 | 0.20 | % | ||||||||
| Time $100,000 or more |
71,241 | 78 | 0.44 | % | ||||||||
| Total interest-bearing deposits |
3,034,438 | 459 | 0.06 | % | ||||||||
| Short-term borrowed funds |
95,575 | 16 | 0.07 | % | ||||||||
| Other borrowed funds |
214 | - | 0.35 | % | ||||||||
| Total interest-bearing liabilities |
3,130,227 | 475 | 0.06 | % | ||||||||
| Other liabilities |
70,809 | |||||||||||
| Shareholders' equity |
735,496 | |||||||||||
| Total liabilities and shareholders' equity |
$ | 6,650,164 | ||||||||||
| Net interest spread (1) (2) |
2.71 | % | ||||||||||
| Net interest and fee income and interest margin (1) (3) |
$ | 42,583 | 2.74 | % | ||||||||
| (1) |
Amounts calculated on an FTE basis using the current statutory federal tax rate. |
| (2) |
Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities. |
| (3) |
Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits. |
Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin
| For the Three Months Ended March 31, 2020 |
||||||||||||
| Interest |
||||||||||||
| Average |
Income/ |
Yields/ |
||||||||||
| Balance |
Expense |
Rates |
||||||||||
| ($ in thousands) |
||||||||||||
| Assets |
||||||||||||
| Investment securities: |
||||||||||||
| Taxable |
$ | 3,329,935 | $ | 21,964 | 2.64 | % | ||||||
| Tax-exempt (1) |
515,950 | 4,259 | 3.30 | % | ||||||||
| Total investments (1) |
3,845,885 | 26,223 | 2.73 | % | ||||||||
| Loans: |
||||||||||||
| Taxable |
1,077,370 | 13,431 | 5.01 | % | ||||||||
| Tax-exempt (1) |
46,564 | 479 | 4.14 | % | ||||||||
| Total loans (1) |
1,123,934 | 13,910 | 4.98 | % | ||||||||
| Total interest-bearing cash |
272,323 | 856 | 1.24 | % | ||||||||
| Total Interest-earning assets (1) |
5,242,142 | 40,989 | 3.13 | % | ||||||||
| Other assets |
413,318 | |||||||||||
| Total assets |
$ | 5,655,460 | ||||||||||
| Liabilities and shareholders' equity |
||||||||||||
| Noninterest-bearing demand |
$ | 2,222,737 | $ | - | - | % | ||||||
| Savings and interest-bearing transaction |
2,438,082 | 301 | 0.05 | % | ||||||||
| Time less than $100,000 |
94,320 | 54 | 0.23 | % | ||||||||
| Time $100,000 or more |
73,849 | 79 | 0.43 | % | ||||||||
| Total interest-bearing deposits |
2,606,251 | 434 | 0.07 | % | ||||||||
| Short-term borrowed funds |
42,330 | 8 | 0.07 | % | ||||||||
| Total interest-bearing liabilities |
2,648,581 | 442 | 0.07 | % | ||||||||
| Other liabilities |
78,812 | |||||||||||
| Shareholders' equity |
705,330 | |||||||||||
| Total liabilities and shareholders' equity |
$ | 5,655,460 | ||||||||||
| Net interest spread (1) (2) |
3.06 | % | ||||||||||
| Net interest and fee income and interest margin (1) (3) |
$ | 40,547 | 3.10 | % | ||||||||
| (1) |
Amounts calculated on an FTE basis using the current statutory federal tax rate. |
| (2) |
Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities. |
| (3) |
Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits. |
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Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin
| For the Three Months Ended December 31, 2020 |
||||||||||||
| Interest |
||||||||||||
| Average |
Income/ |
Yields/ |
||||||||||
| Balance |
Expense |
Rates |
||||||||||
| ($ in thousands) |
||||||||||||
| Assets |
||||||||||||
| Investment securities: |
||||||||||||
| Taxable |
$ | 4,034,072 | $ | 25,200 | 2.50 | % | ||||||
| Tax-exempt (1) |
396,520 | 3,358 | 3.39 | % | ||||||||
| Total investments (1) |
4,430,592 | 28,558 | 2.58 | % | ||||||||
| Loans: |
||||||||||||
| Taxable |
||||||||||||
| PPP loans |
227,828 | 2,342 | 4.08 | % | ||||||||
| Other taxable |
1,008,393 | 12,267 | 4.84 | % | ||||||||
| Total taxable |
1,236,221 | 14,609 | 4.70 | % | ||||||||
| Tax-exempt (1) |
50,259 | 494 | 3.91 | % | ||||||||
| Total loans (1) |
1,286,480 | 15,103 | 4.67 | % | ||||||||
| Total interest-bearing cash |
439,677 | 112 | 0.10 | % | ||||||||
| Total Interest-earning assets (1) |
6,156,749 | 43,773 | 2.84 | % | ||||||||
| Other assets |
406,004 | |||||||||||
| Total assets |
$ | 6,562,753 | ||||||||||
| Liabilities and shareholders' equity |
||||||||||||
| Noninterest-bearing demand |
$ | 2,736,348 | $ | - | - | % | ||||||
| Savings and interest-bearing transaction |
2,759,607 | 336 | 0.05 | % | ||||||||
| Time less than $100,000 |
88,507 | 45 | 0.20 | % | ||||||||
| Time $100,000 or more |
71,306 | 81 | 0.45 | % | ||||||||
| Total interest-bearing deposits |
2,919,420 | 462 | 0.06 | % | ||||||||
| Short-term borrowed funds |
114,820 | 19 | 0.07 | % | ||||||||
| Total interest-bearing liabilities |
3,034,240 | 481 | 0.06 | % | ||||||||
| Other liabilities |
71,692 | |||||||||||
| Shareholders' equity |
720,473 | |||||||||||
| Total liabilities and shareholders' equity |
$ | 6,562,753 | ||||||||||
| Net interest spread (1) (2) |
2.78 | % | ||||||||||
| Net interest and fee income and interest margin (1) (3) |
$ | 43,292 | 2.81 | % | ||||||||
| (1) |
Amounts calculated on an FTE basis using the current statutory federal tax rate. |
| (2) |
Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities. |
| (3) |
Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits. |
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Summary of Changes in Interest Income and Expense due to Changes in Average Asset & Liability Balances and Yields Earned & Rates Paid
The following tables set forth a summary of the changes in interest income and interest expense due to changes in average assets and liability balances (volume) and changes in average interest yields/rates for the periods indicated. Changes not solely attributable to volume or yields/rates have been allocated in proportion to the respective volume and yield/rate components.
Summary of Changes in Interest Income and Expense
| For the Three Months Ended March 31, 2021 |
||||||||||||
| Compared with |
||||||||||||
| For the Three Months Ended March 31, 2020 |
||||||||||||
| Volume |
Yield/Rate |
Total |
||||||||||
| (In thousands) |
||||||||||||
| Increase (decrease) in interest and loan fee income: |
||||||||||||
| Investment securities: |
||||||||||||
| Taxable |
$ | 4,944 | $ | (1,710 | ) | $ | 3,234 | |||||
| Tax-exempt (1) |
(1,278 | ) | 57 | (1,221 | ) | |||||||
| Total investments (1) |
3,666 | (1,653 | ) | 2,013 | ||||||||
| Loans: |
||||||||||||
| Taxable: |
||||||||||||
| PPP loans |
1,853 | - | 1,853 | |||||||||
| Other |
(899 | ) | (193 | ) | (1,092 | ) | ||||||
| Total taxable |
954 | (193 | ) | 761 | ||||||||
| Tax-exempt (1) |
39 | (26 | ) | 13 | ||||||||
| Total loans (1) |
993 | (219 | ) | 774 | ||||||||
| Total interest-bearing cash |
868 | (1,586 | ) | (718 | ) | |||||||
| Total increase (decrease) in interest and loan fee income (1) |
5,527 | (3,458 | ) | 2,069 | ||||||||
| Increase (decrease) in interest expense: |
||||||||||||
| Deposits: |
||||||||||||
| Savings and interest-bearing transaction |
52 | (14 | ) | 38 | ||||||||
| Time less than $100,000 |
(5 | ) | (7 | ) | (12 | ) | ||||||
| Time $100,000 or more |
(3 | ) | 2 | (1 | ) | |||||||
| Total interest-bearing deposits |
44 | (19 | ) | 25 | ||||||||
| Short-term borrowed funds |
10 | (2 | ) | 8 | ||||||||
| Other borrowed funds |
- | - | - | |||||||||
| Total increase (decrease) in interest expense |
54 | (21 | ) | 33 | ||||||||
| Increase (decrease) in net interest and loan fee income (1) |
$ | 5,473 | $ | (3,437 | ) | $ | 2,036 | |||||
| (1) |
Amounts calculated on an FTE basis using the current statutory federal tax rate. |
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Summary of Changes in Interest Income and Expense
| For the Three Months Ended March 31, 2021 |
||||||||||||
| Compared with |
||||||||||||
| For the Three Months Ended December 31, 2020 |
||||||||||||
| Volume |
Yield/Rate |
Total |
||||||||||
| (In thousands) |
||||||||||||
| Increase (decrease) in interest and loan fee income: |
||||||||||||
| Investment securities: |
||||||||||||
| Taxable |
$ | 284 | $ | (286 | ) | $ | (2 | ) | ||||
| Tax-exempt (1) |
(300 | ) | (20 | ) | (320 | ) | ||||||
| Total investments (1) |
(16 | ) | (306 | ) | (322 | ) | ||||||
| Loans: |
||||||||||||
| Taxable: |
||||||||||||
| PPP loans |
(418 | ) | (71 | ) | (489 | ) | ||||||
| Other |
10 | 62 | 72 | |||||||||
| Total taxable |
(408 | ) | (9 | ) | (417 | ) | ||||||
| Tax-exempt (1) |
(1 | ) | (1 | ) | (2 | ) | ||||||
| Total loans (1) |
(409 | ) | (10 | ) | (419 | ) | ||||||
| Total interest-bearing cash |
27 | (1 | ) | 26 | ||||||||
| Total decrease in interest and loan fee income (1) |
(398 | ) | (317 | ) | (715 | ) | ||||||
| Increase (decrease) in interest expense: |
||||||||||||
| Deposits: |
||||||||||||
| Savings and interest-bearing transaction |
9 | (6 | ) | 3 | ||||||||
| Time less than $100,000 |
(3 | ) | - | (3 | ) | |||||||
| Time $100,000 or more |
- | (3 | ) | (3 | ) | |||||||
| Total interest-bearing deposits |
6 | (9 | ) | (3 | ) | |||||||
| Short-term borrowed funds |
(3 | ) | - | (3 | ) | |||||||
| Other borrowed funds |
- | - | - | |||||||||
| Total increase (decrease) in interest expense |
3 | (9 | ) | (6 | ) | |||||||
| Decrease in net interest and loan fee income (1) |
$ | (401 | ) | $ | (308 | ) | $ | (709 | ) | |||
| (1) |
Amounts calculated on an FTE basis using the current statutory federal tax rate. |
Provision for Credit Losses
The Company manages credit costs by consistently enforcing conservative underwriting and administration procedures and aggressively pursuing collection efforts with debtors experiencing financial difficulties. The provision for credit losses reflects Management's assessment of credit risk in the loan portfolio and debt securities held to maturity during each of the periods presented.
The Company provided no provision for credit losses in the first quarter 2021 based on Management’s evaluation of credit quality and the adequacy of the allowance for credit losses. The Company recorded a provision of credit losses of $4.3 million in the first quarter 2020, which represented Management’s estimate of additional reserves needed over the remaining life of its loans due to credit-risk from weakened economic conditions caused by the COVID-19 pandemic. For further information regarding credit risk, net credit losses and the allowance for credit losses, see the “Loan Portfolio Credit Risk” and “Allowance for Credit Losses” sections of this Report.
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Noninterest Income
The following table summarizes the components of noninterest income for the periods indicated.
| For the Three Months Ended |
||||||||||||
| March 31, |
December 31, |
|||||||||||
| 2021 |
2020 |
2020 |
||||||||||
| (In thousands) |
||||||||||||
| Service charges on deposit accounts |
$ | 3,304 | $ | 4,248 | $ | 3,452 | ||||||
| Merchant processing services |
2,560 | 2,358 | 2,713 | |||||||||
| Debit card fees |
1,601 | 1,468 | 1,643 | |||||||||
| Trust fees |
801 | 777 | 765 | |||||||||
| ATM processing fees |
601 | 579 | 570 | |||||||||
| Other service fees |
469 | 506 | 457 | |||||||||
| Financial services commissions |
70 | 125 | 66 | |||||||||
| Gains on sales of real property |
- | - | 3,536 | |||||||||
| Other noninterest income |
783 | 1,587 | 757 | |||||||||
| Total |
$ | 10,189 | $ | 11,648 | $ | 13,959 | ||||||
First quarter 2021 noninterest income decreased $1.5 million compared with first quarter 2020 due to lower service charges on deposit accounts and because other noninterest income in the first quarter 2020 included $603 thousand in excess of amounts charged-off in prior periods on a purchased loan. Service charges on deposit accounts decreased $944 thousand due to declines in fees on overdrawn accounts and analyzed accounts. The decreases were partially offset by fees generated from increased transactions of merchant processing services and debit card.
First quarter 2021 noninterest income decreased $3.8 million compared with fourth quarter 2020 due to lower service charges on deposit accounts and because fourth quarter 2020 results included a $3.5 million gain on sale of a closed branch building.
Noninterest Expense
The following table summarizes the components of noninterest expense for the periods indicated.
| For the Three Months Ended |
||||||||||||
| March 31, |
December 31, |
|||||||||||
| 2021 |
2020 |
2020 |
||||||||||
| (In thousands) |
||||||||||||
| Salaries and related benefits |
$ | 12,665 | $ | 13,018 | $ | 12,291 | ||||||
| Occupancy and equipment |
4,880 | 4,932 | 4,900 | |||||||||
| Outsourced data processing services |
2,390 | 2,405 | 2,359 | |||||||||
| Professional fees |
942 | 389 | 722 | |||||||||
| Courier service |
504 | 491 | 502 | |||||||||
| Amortization of identifiable intangibles |
69 | 73 | 69 | |||||||||
| Other noninterest expense |
3,456 | 3,356 | 3,702 | |||||||||
| Total |
$ | 24,906 | $ | 24,664 | $ | 24,545 | ||||||
First quarter 2021 noninterest expense increased $242 thousand compared with first quarter 2020 due to higher professional fees and FDIC assessments. First quarter 2020 FDIC assessments were reduced by a $246 thousand FDIC assessment credit. The increases were partially offset by lower salaries due to attrition.
In the first quarter 2021 noninterest expense increased $361 thousand compared with the fourth quarter 2020 due to higher payroll taxes, employee benefits, and professional fees.
Provision for Income Tax
The Company’s income tax provision (FTE) was $7.7 million for the first quarter 2021 compared with $6.3 million for the first quarter 2020 and $8.9 million for the fourth quarter 2020, representing effective tax rates (FTE) of 27.7%, 27.0% and 27.1%, respectively.
Investment Securities Portfolio
The Company maintains an investment securities portfolio consisting of securities issued by agency and non-agency mortgage backed securities, state and political subdivisions, corporations, collateralized loan obligations, and other securities.
Management managed the investment securities portfolio in response to changes in deposit and loan volumes. The carrying value of the Company’s investment securities portfolio was $4.5 billion at March 31, 2021 and $4.6 billion at December 31, 2020. The following table indicates the carrying values of investment securities in the Company’s portfolio by type as of the indicated dates. The Company adopted ASU 2016-13 effective January 1, 2020. Debt securities held to maturity of $469,268 thousand at December 31, 2021 and $515,598 thousand at December 31, 2020, are amortized cost before related reserve for expected credit losses of $9 thousand.
| At March 31, 2021 |
At December 31, 2020 |
|||||||||||||||
| Carrying Value |
As a percent of total investment securities |
Carrying Value |
As a percent of total investment securities |
|||||||||||||
| ($ in thousands) |
||||||||||||||||
| Agency residential mortgage-backed securities |
$ | 789,953 | 18 | % | $ | 893,284 | 20 | % | ||||||||
| Obligations of states and political subdivisions |
361,656 | 8 | % | 384,932 | 8 | % | ||||||||||
| Corporate securities |
2,149,366 | 48 | % | 2,117,978 | 46 | % | ||||||||||
| Commercial paper |
- | - | % | 24,990 | 1 | % | ||||||||||
| Collateralized loan obligations |
1,157,452 | 26 | % | 1,156,101 | 25 | % | ||||||||||
| Other |
1,411 | - | % | 1,498 | - | % | ||||||||||
| Total |
$ | 4,459,838 | 100 | % | $ | 4,578,783 | 100 | % | ||||||||
| Debt securities available for sale |
$ | 3,990,570 | $ | 4,063,185 | ||||||||||||
| Debt securities held to maturity |
469,268 | 515,598 | ||||||||||||||
| Total |
$ | 4,459,838 | $ | 4,578,783 | ||||||||||||
Management continually evaluates the Company’s investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability, liquidity, and the level of interest rate risk to which the Company is exposed. These evaluations may cause Management to change the level of funds the Company deploys into investment securities and change the composition of the Company’s investment securities portfolio.
At March 31, 2021, substantially all of the Company’s investment securities continue to be investment grade rated by one or more major rating agencies. In addition to monitoring credit rating agency evaluations, Management performs its own evaluations regarding the credit worthiness of the issuer or the securitized assets underlying asset-backed securities. The Company’s procedures for evaluating investments in securities are in accordance with guidance issued by the Board of Governors of the Federal Reserve System, “Investing in Securities without Reliance on Nationally Recognized Statistical Rating Agencies” (SR 12-15) and other regulatory guidance. There have been no significant differences in the Company’s internal analyses compared with the ratings assigned by the third party credit rating agencies.
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The following table summarizes total corporate securities by credit rating:
| At March 31, 2021 |
At December 31, 2020 |
|||||||||||||||
| Market value |
As a percent of total corporate securities |
Market value |
As a percent of total corporate securities |
|||||||||||||
| ($ in thousands) |
||||||||||||||||
| AAA |
$ | 21,772 | 1 | % | $ | 21,905 | 1 | % | ||||||||
| AA+ |
20,893 | 1 | % | 20,979 | 1 | % | ||||||||||
| AA |
20,150 | 1 | % | 41,232 | 2 | % | ||||||||||
| AA- |
77,527 | 3 | % | 46,969 | 2 | % | ||||||||||
| A+ |
152,735 | 7 | % | 153,917 | 7 | % | ||||||||||
| A |
466,316 | 22 | % | 374,155 | 18 | % | ||||||||||
| A- |
338,379 | 16 | % | 385,642 | 18 | % | ||||||||||
| BBB+ |
474,978 | 22 | % | 489,677 | 23 | % | ||||||||||
| BBB |
481,913 | 22 | % | 486,108 | 23 | % | ||||||||||
| BBB- |
79,722 | 4 | % | 82,431 | 4 | % | ||||||||||
| Investment grade |
2,134,385 | 99 | % | 2,103,015 | 99 | % | ||||||||||
| Below investment grade |
14,981 | 1 | % | 14,963 | 1 | % | ||||||||||
| Total Corporate securities |
$ | 2,149,366 | 100 | % | $ | 2,117,978 | 100 | % | ||||||||
The Company’s $14.98 million below investment grade corporate bond rated BB- at March 31, 2021 and $14.96 million corporate bond rated BB- at December 31, 2020, represents a bond of one pharmaceutical company which develops, manufactures and markets generic and branded human pharmaceuticals, as well as active pharmaceutical ingredients, to customers worldwide. The bond matures in July 2021.
The following table summarizes total corporate securities by the industry sector in which the issuing companies operate:
| At March 31, 2021 |
At December 31, 2020 |
|||||||||||||||
| Market value |
As a percent of total corporate securities |
Market value |
As a percent of total corporate securities |
|||||||||||||
| ($ in thousands) |
||||||||||||||||
| Financial |
$ | 1,026,283 | 48 | % | $ | 938,222 | 44 | % | ||||||||
| Consumer, Non-cyclical |
181,918 | 8 | % | 184,069 | 9 | % | ||||||||||
| Utilities |
173,378 | 8 | % | 185,486 | 9 | % | ||||||||||
| Communications |
167,294 | 8 | % | 173,483 | 8 | % | ||||||||||
| Industrial |
165,268 | 8 | % | 188,803 | 9 | % | ||||||||||
| Technology |
128,407 | 6 | % | 130,725 | 6 | % | ||||||||||
| Basic Materials |
116,312 | 5 | % | 120,811 | 6 | % | ||||||||||
| Energy |
99,098 | 5 | % | 103,049 | 5 | % | ||||||||||
| Consumer, Cyclical |
91,408 | 4 | % | 93,330 | 4 | % | ||||||||||
| Total Corporate securities |
$ | 2,149,366 | 100 | % | $ | 2,117,978 | 100 | % | ||||||||
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The following table summarizes total consumer, cyclical by sub-sector:
| At March 31, 2021 |
||||
| Market value |
||||
| ($ in thousands) |
||||
| Hotels |
$ | - | ||
| Restaurants |
20,975 | |||
| Department Stores |
- | |||
| Casinos |
- | |||
| Airlines |
- | |||
| Other |
70,433 | |||
| Total Consumer, Cyclical |
$ | 91,408 | ||
The Company’s $21.0 million in corporate bonds to issuers operating in the consumer cyclical – restaurant subsector represent bonds of one company which retails, roasts and provides its own brand of specialty coffee and other complementary products through retail locations worldwide and sells coffee through several distribution channels. The bonds mature in 2023. At March 31, 2021, the bonds were rated BBB and priced with an unrealized gain of $1.0 million.
| At March 31, 2021 |
||||||||
| Amortized |
Fair |
|||||||
| Cost |
Value |
|||||||
| (In thousands) |
||||||||
| Energy |
$ | 95,579 | $ | 99,098 | ||||
| Industrial |
158,979 | 165,268 | ||||||
| Total |
$ | 254,558 | $ | 264,366 | ||||
The $99.1 million (fair value) in corporate bonds in the energy sector are issued by four issuers at March 31, 2021. The $165.3 million (fair value) in corporate bonds in the industrial sector are issued by nine issuers at March 31, 2021.
The Company’s $1.2 billion (fair value) in collateralized loan obligations at March 31, 2021, include investments in 133 issues that are within the senior tranches of their respective fund securitization structures. All of the Company’s collateralized loan obligation investments are rated AAA or AA at March 31, 2021.
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The following tables summarize the total general obligation and revenue bonds issued by states and political subdivisions held in the Company’s investment securities portfolios as of the dates indicated, identifying the state in which the issuing government municipality or agency operates.
At March 31, 2021, the Company’s investment securities portfolios included securities issued by 297 state and local government municipalities and agencies located within 40 states. The largest exposure to any one municipality or agency was $8.1 million (fair value) represented by six general obligation bonds.
| At March 31, 2021 |
||||||||
| Amortized |
Fair |
|||||||
| Cost |
Value |
|||||||
| (In thousands) |
||||||||
| Obligations of states and political subdivisions: |
||||||||
| General obligation bonds: |
||||||||
| California |
$ | 66,059 | $ | 68,275 | ||||
| Texas |
18,917 | 19,389 | ||||||
| Washington |
16,184 | 16,791 | ||||||
| Other (31 states) |
158,999 | 163,630 | ||||||
| Total general obligation bonds |
$ | 260,159 | $ | 268,085 | ||||
| Revenue bonds: |
||||||||
| California |
$ | 17,575 | $ | 17,977 | ||||
| Kentucky |
10,819 | 11,152 | ||||||
| Indiana |
9,342 | 9,498 | ||||||
| Virginia |
7,597 | 7,944 | ||||||
| Colorado |
6,301 | 6,488 | ||||||
| Washington |
6,221 | 6,318 | ||||||
| Maryland |
5,972 | 6,026 | ||||||
| Other (19 states) |
33,370 | 33,851 | ||||||
| Total revenue bonds |
97,197 | 99,254 | ||||||
| Total obligations of states and political subdivisions |
$ | 357,356 | $ | 367,339 | ||||
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At December 31, 2020, the Company’s investment securities portfolios included securities issued by 317 state and local government municipalities and agencies located within 40 states. The largest exposure to any one municipality or agency was $8.2 million (fair value) represented by six general obligation bonds.
| At December 31, 2020 |
||||||||
| Amortized |
Fair |
|||||||
| Cost |
Value |
|||||||
| (In thousands) |
||||||||
| Obligations of states and political subdivisions: |
||||||||
| General obligation bonds: |
||||||||
| California |
$ | 67,386 | $ | 70,075 | ||||
| Texas |
20,644 | 21,283 | ||||||
| New Jersey |
17,403 | 17,629 | ||||||
| Washington |
16,226 | 17,000 | ||||||
| Other (32 states) |
159,019 | 164,764 | ||||||
| Total general obligation bonds |
$ | 280,678 | $ | 290,751 | ||||
| Revenue bonds: |
||||||||
| California |
$ | 17,587 | $ | 18,054 | ||||
| Kentucky |
10,822 | 11,210 | ||||||
| Indiana |
9,350 | 9,565 | ||||||
| Virginia |
7,604 | 8,019 | ||||||
| Colorado |
6,302 | 6,519 | ||||||
| Washington |
6,225 | 6,358 | ||||||
| Maryland |
5,972 | 6,043 | ||||||
| Other (19 states) |
35,061 | 35,656 | ||||||
| Total revenue bonds |
98,923 | 101,424 | ||||||
| Total obligations of states and political subdivisions |
$ | 379,601 | $ | 392,175 | ||||
At March 31, 2021 and December 31, 2020, the revenue bonds in the Company’s investment securities portfolios were issued by state and local government municipalities and agencies to fund public services such as water utility, sewer utility, recreational and school facilities, and general public and economic improvements. The revenue bonds were payable from 19 revenue sources at March 31, 2021 and December 31, 2020. The revenue sources that represent 5% or more individually of the total revenue bonds are summarized in the following tables.
| At March 31, 2021 |
||||||||
| Amortized |
Fair |
|||||||
| Cost |
Value |
|||||||
| (In thousands) |
||||||||
| Revenue bonds by revenue source: |
||||||||
| Water |
$ | 21,058 | $ | 21,325 | ||||
| Sewer |
12,424 | 12,868 | ||||||
| Sales tax |
10,729 | 10,977 | ||||||
| Lease (renewal) |
9,206 | 9,489 | ||||||
| Lease (abatement) |
8,471 | 8,615 | ||||||
| Other (14 sources) |
35,309 | 35,980 | ||||||
| Total revenue bonds by revenue source |
$ | 97,197 | $ | 99,254 | ||||
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| At December 31, 2020 |
||||||||
| Amortized |
Fair |
|||||||
| Cost |
Value |
|||||||
| (In thousands) |
||||||||
| Revenue bonds by revenue source: |
||||||||
| Water |
$ | 22,731 | $ | 23,095 | ||||
| Sewer |
12,447 | 12,989 | ||||||
| Sales tax |
10,738 | 11,013 | ||||||
| Lease (renewal) |
9,209 | 9,545 | ||||||
| Lease (abatement) |
8,483 | 8,674 | ||||||
| Other (14 sources) |
35,315 | 36,108 | ||||||
| Total revenue bonds by revenue source |
$ | 98,923 | $ | 101,424 | ||||
See Note 3 to the unaudited consolidated financial statements for additional information related to the investment securities.
Loan Portfolio Credit Risk
The Company extends loans to commercial and consumer customers which expose the Company to the risk borrowers will default, causing loss. The Company’s lending activities are exposed to various qualitative risks. All loan segments are exposed to risks inherent in the economy and market conditions. Significant risk characteristics related to the commercial loan segment include the borrowers’ business performance and financial condition, and the value of collateral for secured loans. Significant risk characteristics related to the commercial real estate segment include the borrowers’ business performance and the value of properties collateralizing the loans. Significant risk characteristics related to the construction loan segment include the borrowers’ performance in successfully developing the real estate into the intended purpose and the value of the property collateralizing the loans. Significant risk characteristics related to the residential real estate segment include the borrowers’ financial wherewithal to service the mortgages and the value of the property collateralizing the loans. Significant risk characteristics related to the consumer loan segment include the financial condition of the borrowers and the value of collateral securing the loans.
During 2020 and the first quarter of 2021, the Bank processed customer PPP loan applications pursuant to the CARES Act. The United States Small Business Administration guarantees PPP loans; given this guarantee, the PPP loans are not considered to have default risk. The Company funded $249 million PPP loans in the second quarter 2020 and $91 million loans during the first quarter 2021 under the second round of the PPP. The outstanding balances of PPP loans, net of deferred fees and costs, were $233 million at March 31, 2021.
On April 7, 2020, the U.S. banking agencies issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised). The statement describes accounting for COVID-19-related loan modifications, including clarifying the interaction between current accounting rules and the temporary relief provided by the CARES Act. The Bank has been actively working with consumer and commercial borrowers requesting deferral of loan payments, granting deferrals of principal and interest payments for 90 days. At March 31, 2021, consumer loans granted loan deferrals totaled $1.8 million and one commercial real estate loan with deferred payments totaled $2.3 million, in the hospitality industry.
The preparation of the financial statements requires Management to estimate the amount of expected losses in the loan portfolio and establish an allowance for credit losses. The allowance for credit losses is maintained by assessing or reversing a provision for credit losses through the Company’s earnings. In estimating credit losses, Management must exercise judgment in evaluating information deemed relevant, such as financial information regarding individual borrowers, overall loss experience, the amount of past due, nonperforming and classified loans, recommendations of regulatory authorities, prevailing economic conditions and other information. The amount of ultimate losses on the loan portfolio can vary from the estimated amounts. Management follows a systematic methodology to estimate loss potential in an effort to reduce the differences between estimated and actual losses.
The Company closely monitors the markets in which it conducts its lending operations and follows a strategy to control exposure to loans with high credit risk. The Bank’s organization structure separates the functions of business development and loan underwriting; Management believes this segregation of duties avoids inherent conflicts of combining business development and loan approval functions. In measuring and managing credit risk, the Company adheres to the following practices.
| ● |
The Bank maintains a Loan Review Department which reports directly to the audit committee of the Board of Directors. The Loan Review Department performs independent evaluations of loans to challenge the credit risk grades assigned by Management using grading standards employed by bank regulatory agencies. Those loans judged to carry higher risk attributes are referred to as “classified loans.” Classified loans receive elevated Management attention to maximize collection. |
| ● |
The Bank maintains two loan administration offices whose sole responsibility is to manage and collect classified loans. |
Classified loans with higher levels of credit risk are further designated as “nonaccrual loans.” Management places classified loans on nonaccrual status when full collection of contractual interest and principal payments is in doubt. Uncollected interest previously accrued on loans placed on nonaccrual status is reversed as a charge against interest income. The Company does not accrue interest income on loans following placement on nonaccrual status. Interest payments received on nonaccrual loans are applied to reduce the carrying amount of the loan unless the carrying amount is well secured by loan collateral. “Nonperforming assets” include nonaccrual loans, loans 90 or more days past due and still accruing, and repossessed loan collateral (commonly referred to as “Other Real Estate Owned”).
| At March 31, |
At December 31, |
|||||||||||
| 2021 |
2020 |
2020 |
||||||||||
| (In thousands) |
||||||||||||
| Nonperforming nonaccrual loans |
$ | 402 | $ | 419 | $ | 526 | ||||||
| Performing nonaccrual loans |
3,569 | 3,933 | 3,803 | |||||||||
| Total nonaccrual loans |
3,971 | 4,352 | 4,329 | |||||||||
| Accruing loans 90 or more days past due |
132 | 178 | 450 | |||||||||
| Total nonperforming loans |
4,103 | 4,530 | 4,779 | |||||||||
| Other real estate owned |
- | 43 | - | |||||||||
| Total nonperforming assets |
$ | 4,103 | $ | 4,573 | $ | 4,779 | ||||||
At March 31, 2021, one loan secured by commercial real estate with a balance of $3.1 million was on nonaccrual status. The remaining seven nonaccrual loans held at March 31, 2021 had an average carrying value of $122 thousand.
Management believes the overall credit quality of the loan portfolio is reasonably stable; however, classified and nonperforming assets could fluctuate from period to period. The performance of any individual loan can be affected by external factors such as the interest rate environment, economic conditions, pandemics, and collateral values or factors particular to the borrower. No assurance can be given that additional increases in nonaccrual and delinquent loans will not occur in the future.
Allowance for Credit Losses
Effective January 1, 2020, the Company adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“CECL”). The following table summarizes allowance for credit losses at the dates indicated:
| At March 31, |
At December 31, |
|||||||||||
| 2021 |
2020 |
2020 |
||||||||||
| (In thousands) |
||||||||||||
| Allowance for Credit Losses on Loans |
$ | 23,483 | $ | 24,804 | $ | 23,854 | ||||||
| Allowance for Credit Losses on Held to Maturity Debt Securities |
9 | 16 | 9 | |||||||||
| Total Allowance for Credit Losses |
$ | 23,492 | $ | 24,820 | $ | 23,863 | ||||||
Allowance for Credit Losses on Debt Securities Held to Maturity
Management segmented debt securities held to maturity, selected methods to estimate losses for each segment, and measured a loss estimate. Agency mortgage-backed securities were assigned no credit loss allowance due to the perceived backing of government sponsored entities. Municipal securities were evaluated for risk of default based on credit rating and remaining term to maturity using Moody’s risk of default factors; Moody’s loss upon default factors were applied to the assumed defaulted principal amounts to estimate the amount for credit loss allowance. The adoption of the ASU resulted in establishment of allowance for credit losses related to debt securities held to maturity of $16 thousand. It was reduced to $9 thousand at December 31, 2020, and at March 31, 2021, the outstanding amount for credit losses on debt securities held to maturity was $9 thousand.
Allowance for Credit Losses on Loans
The Company’s allowance for credit losses on loans represents Management’s estimate of forecasted credit losses in the loan portfolio based on the current expected credit loss (CECL) model. In evaluating credit risk for loans, Management measures loss potential of the carrying value of loans. As described above, payments received on nonaccrual loans may be applied against the principal balance of the loans until such time as full collection of the remaining recorded balance is expected.
The following table summarizes the allowance for credit losses, chargeoffs and recoveries for the periods indicated:
| For the Three Months Ended |
||||||||||||
| March 31, |
December 31, |
|||||||||||
| 2021 |
2020 |
2020 |
||||||||||
| (In thousands) |
||||||||||||
| Analysis of the Allowance for Credit Losses on Loans |
||||||||||||
| Balance, end of prior period |
$ | 23,854 | $ | 19,484 | $ | 24,142 | ||||||
| Adoption of ASU 2016-13 |
- | 2,017 | - | |||||||||
| Balance, beginning of period |
23,854 | 21,501 | 24,142 | |||||||||
| Provision for credit losses |
- | 4,300 | 7 | |||||||||
| Loans charged off: |
||||||||||||
| Commercial |
- | (178 | ) | (58 | ) | |||||||
| Consumer installment and other |
(929 | ) | (1,395 | ) | (892 | ) | ||||||
| Total chargeoffs |
(929 | ) | (1,573 | ) | (950 | ) | ||||||
| Recoveries of loans previously charged off: |
||||||||||||
| Commercial |
13 | 143 | 69 | |||||||||
| Commercial real estate |
12 | 12 | 12 | |||||||||
| Consumer installment and other |
533 | 421 | 574 | |||||||||
| Total recoveries |
558 | 576 | 655 | |||||||||
| Net chargeoffs |
(371 | ) | (997 | ) | (295 | ) | ||||||
| Balance, end of period |
$ | 23,483 | $ | 24,804 | $ | 23,854 | ||||||
| Net chargeoffs as a percentage of average total loans (annualized) |
0.12 | % | 0.36 | % | 0.09 | % | ||||||
| Allowance for unfunded credit commitments |
101 | 53 | 101 | |||||||||
The Company's allowance for credit losses on loans is maintained at a level considered adequate to provide for expected losses based on historical loss rates adjusted for current and expected conditions over a forecast period. These include conditions unique to individual borrowers, as well as overall loss experience, the amount of past due, nonperforming and classified loans, recommendations of regulatory authorities, prevailing and forecasted economic conditions, or credit protection agreements and other factors. Loans that share common risk characteristics are segregated into pools based on common characteristics, which is primarily determined by loan, borrower, or collateral type. Historical loss rates are determined for each pool. Loans that do not share risk characteristics with other loans in the pools are evaluated individually. See Note 2 to the unaudited consolidated financial statements for additional information.
| Allowance for Credit Losses |
||||||||||||||||||||||||
| For the Three Months Ended March 31, 2021 |
||||||||||||||||||||||||
| Consumer |
||||||||||||||||||||||||
| Commercial |
Residential |
Installment |
||||||||||||||||||||||
| Commercial |
Real Estate |
Construction |
Real Estate |
and Other |
Total |
|||||||||||||||||||
| (In thousands) |
||||||||||||||||||||||||
| Allowance for credit losses: |
||||||||||||||||||||||||
| Balance at beginning of period |
$ | 9,205 | $ | 5,660 | $ | 6 | $ | 47 | $ | 8,936 | $ | 23,854 | ||||||||||||
| Provision (reversal) |
336 | (167 | ) | - | (4 | ) | (165 | ) | - | |||||||||||||||
| Chargeoffs |
- | - | - | - | (929 | ) | (929 | ) | ||||||||||||||||
| Recoveries |
13 | 12 | - | - | 533 | 558 | ||||||||||||||||||
| Total allowance for credit losses |
$ | 9,554 | $ | 5,505 | $ | 6 | $ | 43 | $ | 8,375 | $ | 23,483 | ||||||||||||
Management considers the $23.5 million allowance for credit losses on loans to be adequate as a reserve against current expected credit losses in the loan portfolio as of March 31, 2021.
See Note 4 to the unaudited consolidated financial statements for additional information related to the loan portfolio, loan portfolio credit risk, allowance for credit losses on loans and other real estate owned.
Asset/Liability and Market Risk Management
Asset/liability management involves the evaluation, monitoring and management of interest rate risk, market risk, liquidity and funding. The fundamental objective of the Company's management of assets and liabilities is to maximize its economic value while maintaining adequate liquidity and a conservative level of interest rate risk.
Interest Rate Risk
Interest rate risk is a significant market risk affecting the Company. Many factors affect the Company’s exposure to interest rates, such as general economic and financial conditions, customer preferences, historical pricing relationships, and re-pricing characteristics of financial instruments. Financial instruments may mature or re-price at different times. Financial instruments may re-price at the same time but by different amounts. Short-term and long-term market interest rates may change by different amounts. The timing and amount of cash flows of various financial instruments may change as interest rates change. In addition, the changing levels of interest rates may have an impact on loan demand and demand for various deposit products.
The Company’s earnings are affected not only by general economic conditions, but also by the monetary and fiscal policies of the United States government and its agencies, particularly the FOMC. The monetary policies of the FOMC can influence the overall growth of loans, investment securities, and deposits and the level of interest rates earned on loans and investment securities and paid for deposits and other borrowings. The nature and impact of future changes in monetary policies are generally not predictable.
Management attempts to manage interest rate risk while enhancing the net interest margin and net interest income. At times, depending on expected increases or decreases in market interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, Management may adjust the Company's interest rate risk position. The Company's results of operations and net portfolio values remain subject to changes in interest rates and to fluctuations in the difference between long and short-term interest rates.
Management monitors the Company’s interest rate risk using a purchased simulation model, which is periodically validated using supervisory guidance issued by the Board of Governors of the Federal Reserve System, SR 11-7 “Guidance on Model Risk Management.” Management measures its exposure to interest rate risk using both a static and dynamic composition of financial instruments. Within the static composition simulation, cash flows are assumed redeployed into like financial instruments at prevailing rates and yields, except cash flows from PPP loans are reinvested into interest-bearing cash. Within the dynamic composition simulation, Management makes assumptions regarding the expected change in the volume of financial instruments. Both simulations are used to measure expected changes in net interest income assuming various levels of change in market interest rates.
The Company’s asset and liability position was slightly “asset sensitive” at March 31, 2021, depending on the interest rate assumptions applied to each simulation model. An “asset sensitive” position results in a slightly larger change in interest income than in interest expense resulting from application of assumed interest rate changes.
At March 31, 2021, Management’s most recent measurements of estimated changes in net interest income were:
| Static Simulation (balance sheet composition unchanged): |
||||
| Assumed Immediate Parallel Shift in Interest Rates |
+1.00 | % | ||
| First Year Change in Net Interest Income |
+13.0 | % |
| Dynamic Simulation (balance sheet composition changes): |
||||
| Assumed Change in Interest Rates Over 1 Year |
+1.00 | % | ||
| First Year Change in Net Interest Income |
+6.9 | % |
Simulation estimates depend on, and will change with, the size and mix of the actual and projected composition of financial instruments at the time of each simulation.
The Company does not currently engage in trading activities or use derivative instruments to manage interest rate risk, even though such activities may be permitted with the approval of the Company's Board of Directors.
Market Risk - Equity Markets
Equity price risk can affect the Company. Preferred or common stock holdings, as permitted by banking regulations, can fluctuate in value. Changes in value of preferred or common stock holdings are recognized in the Company's income statement.
Fluctuations in the Company's common stock price can impact the Company's financial results in several ways. First, the Company has at times repurchased and retired its common stock; the market price paid to retire the Company's common stock affects the level of the Company's shareholders' equity, cash flows and shares outstanding. Second, the Company's common stock price impacts the number of dilutive equivalent shares used to compute diluted earnings per share. Third, fluctuations in the Company's common stock price can motivate holders of options to purchase Company common stock through the exercise of such options thereby increasing the number of shares outstanding and potentially adding volatility to the book tax provision. Finally, the amount of compensation expense and tax deductions associated with share based compensation fluctuates with changes in and the volatility of the Company's common stock price.
Market Risk - Other
Market values of loan collateral can directly impact the level of loan chargeoffs and the provision for credit losses. The financial condition and liquidity of debtors issuing bonds and debtors whose mortgages or other obligations are securitized can directly impact the credit quality of the Company’s investment securities portfolio requiring the Company to establish or increase reserves for credit losses. Other types of market risk, such as foreign currency exchange risk, are not significant in the normal course of the Company's business activities.
Liquidity and Funding
The objective of liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund the Company's operations and meet obligations and other commitments on a timely basis and at a reasonable cost. The Company achieves this objective through the selection of asset and liability maturity mixes that it believes best meet its needs. The Company's liquidity position is enhanced by its ability to raise additional funds as needed by selling debt securities available-for-sale or borrowing in the wholesale markets.
In recent years, the Company's deposit base has provided the majority of the Company's funding requirements. This relatively stable and low-cost source of funds, along with shareholders' equity, provided 97% of funding for average total assets in the quarter ended March 31, 2021 and in the year ended December 31, 2020. The stability of the Company’s funding from customer deposits is in part reliant on the confidence clients have in the Company. The Company places a very high priority in maintaining this confidence through conservative credit and capital management practices and by maintaining an appropriate level of liquidity.
Liquidity is further provided by assets such as balances held at the Federal Reserve Bank, investment securities, and amortizing loans. The Company's investment securities portfolio provides a substantial secondary source of liquidity. The Company held $4.5 billion in total investment securities at March 31, 2021. Under certain deposit, borrowing and other arrangements, the Company must hold and pledge investment securities as collateral. At March 31, 2021, such collateral requirements totaled approximately $845 million.
The Bank funded $249 million in PPP loans in the second quarter 2020 and $91 million in the first quarter 2021 by crediting loan proceeds to the borrower’s deposit accounts. PPP loans, net of deferred fees and costs, were $233 million at March 31, 2021. The Federal Reserve Board established the Paycheck Protection Program Liquidity Facility (“PPPLF”) to provide funding for eligible firms extending PPP loans. Under the PPPLF, the Bank must pledge PPP loans as collateral for PPPLF borrowings. Principal reductions on the pledged PPP loans must immediately result in principal reduction of the PPPLF borrowing.
Liquidity risk can result from the mismatching of asset and liability cash flows, or from disruptions in the financial markets. The Company performs liquidity stress tests on a periodic basis to evaluate the sustainability of its liquidity. Under the stress testing, the Company assumes outflows of funds increase beyond expected levels. Measurement of such heightened outflows considers the composition of the Company’s deposit base, including any concentration of deposits, non-deposit funding such as short-term borrowings, and unfunded lending commitments. The Company evaluates its stock of highly liquid assets to meet the assumed higher levels of outflows. Highly liquid assets include cash and amounts due from other banks from daily transaction settlements, reduced by branch cash needs and Federal Reserve Bank reserve requirements, and investment securities based on regulatory risk-weighting guidelines. Based on the results of the most recent liquidity stress test, Management is satisfied with the liquidity condition of the Bank and the Company. However, no assurance can be given the Bank or Company will not experience a period of reduced liquidity.
Management continually monitors the Company’s cash levels. Loan demand from credit worthy borrowers will be dictated by economic and competitive conditions. The Company aggressively solicits non-interest bearing demand deposits and money market checking deposits, which are the least sensitive to changes in interest rates. The growth of these deposit balances is subject to heightened competition, the success of the Company's sales efforts, delivery of superior customer service, PPP loan originations, new regulations and market conditions. The Company does not aggressively solicit higher-costing time deposits. Changes in interest rates, most notably rising interest rates or increased consumer spending, could impact deposit volumes. Depending on economic conditions, interest rate levels, liquidity management and a variety of other conditions, deposit growth may be used to fund loans or purchase investment securities. However, due to possible volatility in economic conditions, competition and political uncertainty, loan demand and levels of customer deposits are not certain. Shareholder dividends are expected to continue subject to the Board's discretion and continuing evaluation of capital levels, earnings, asset quality and other factors.
Westamerica Bancorporation ("Parent Company") is a separate entity apart from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Parent Company is responsible for the payment of dividends declared for its shareholders, and interest and principal on any outstanding debt. The Parent Company currently has no debt. Substantially all of the Parent Company's revenues are obtained from subsidiary dividends and service fees.
The Bank’s dividends paid to the Parent Company, proceeds from the exercise of stock options, and Parent Company cash balances provided adequate cash for the Parent Company to pay shareholder dividends of $11 million in the quarter ended March 31, 2021 and $44 million in the year ended December 31, 2020 and retire common stock in the amount of $232 thousand and $16 million, respectively. Payment of dividends to the Parent Company by the Bank is limited under California and Federal laws. The Company believes these regulatory dividend restrictions will not have an impact on the Parent Company's ability to meet its ongoing cash obligations.
Capital Resources
The Company has historically generated high levels of earnings, which provide a means of accumulating capital. The Company's net income as a percentage of average shareholders' equity (“return on equity” or “ROE”) has been 11.1% for the quarter ended March 31, 2021 and 11.3% for the year ended December 31, 2020. The Company also raises capital as employees exercise stock options. Capital raised through the exercise of stock options was $3.0 million in the quarter ended March 31, 2021 and $2.8 million in year ended December 31, 2020.
The Company paid common dividends totaling $11 million in the quarter ended March 31, 2021 and $44 million in the year ended December 31, 2020, which represent dividends per common share of $0.41 and $1.64, respectively. The Company's earnings have historically exceeded dividends paid to shareholders. The amount of earnings in excess of dividends provides the Company resources to finance growth and maintain appropriate levels of shareholders' equity. In the absence of profitable growth opportunities, the Company has at times repurchased and retired its common stock as another means to return capital to shareholders. The Company repurchased and retired 4 thousand shares valued at $232 thousand in the quarter ended March 31, 2021 and 319 thousand shares valued at $16 million in the year ended December 31, 2020.
The Company's primary capital resource is shareholders' equity, which was $812 million and March 31, 2021 compared with $845 million at December 31, 2020. The Company's ratio of equity to total assets was 11.7% at March 31, 2021 and 12.5% at December 31, 2020.
The Company performs capital stress tests on a periodic basis to evaluate the sustainability of its capital. Under the stress testing, the Company assumes various scenarios such as deteriorating economic and operating conditions, and unanticipated asset devaluations. The Company measures the impact of these scenarios on its earnings and capital. Based on the results of the most recent stress tests, Management is satisfied with the capital condition of the Bank and the Company. However, no assurance can be given the Bank or Company will not experience a period of reduced earnings or a reduction in capital from unanticipated events and circumstances.
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Capital to Risk-Adjusted Assets
The capital ratios for the Company and the Bank under current regulatory capital standards are presented in the tables below, on the dates indicated. For Common Equity Tier I Capital, Tier I Capital and Total Capital, the minimum percentage required for regulatory capital adequacy purposes include a 2.5% “capital conservation buffer.”
| To Be |
||||||||||||||||
| Required for | Well-capitalized |
|||||||||||||||
| Capital | Under Prompt |
|||||||||||||||
| At March 31, 2021 |
Adequacy |
Corrective Action |
||||||||||||||
| Company |
Bank |
Purposes |
Regulations (Bank) |
|||||||||||||
| Common Equity Tier I Capital |
16.26 | % | 12.94 | % | 7.00 | % | 6.50 | % | ||||||||
| Tier I Capital |
16.26 | % | 12.94 | % | 8.50 | % | 8.00 | % | ||||||||
| Total Capital |
16.88 | % | 13.72 | % | 10.50 | % | 10.00 | % | ||||||||
| Leverage Ratio |
9.48 | % | 7.51 | % | 4.00 | % | 5.00 | % | ||||||||
| To Be |
||||||||||||||||
| Required for | Well-capitalized |
|||||||||||||||
| Capital | Under Prompt |
|||||||||||||||
| At December 31, 2020 |
Adequacy |
Corrective Action |
||||||||||||||
| Company |
Bank |
Purposes |
Regulations (Bank) |
|||||||||||||
| Common Equity Tier I Capital |
16.04 | % | 13.00 | % | 7.00 | % | 6.50 | % | ||||||||
| Tier I Capital |
16.04 | % | 13.00 | % | 8.50 | % | 8.00 | % | ||||||||
| Total Capital |
16.68 | % | 13.80 | % | 10.50 | % | 10.00 | % | ||||||||
| Leverage Ratio |
9.40 | % | 7.58 | % | 4.00 | % | 5.00 | % | ||||||||
In June 2016, the Financial Accounting Standards Board issued an update to the accounting standards for credit losses known as the "Current Expected Credit Losses" (CECL) methodology, which replaced the existing incurred loss methodology for certain financial assets. The Company adopted the CECL methodology effective January 1, 2020, which involved an implementing accounting entry to retained earnings on a net-of-tax basis. The adoption of the CECL methodology did not have a material adverse day-one impact to capital ratios and the Company did not adopt the phase in regulatory capital relief. See Note 1 to consolidated financial statements, “Recently Adopted Accounting Standards” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, for more information on the CECL methodology.
PPP loans are zero percent risk weighted for regulatory capital purposes; average PPP loans of $189 million did not affect regulatory capital ratios. The Leverage ratio would have been approximately 0.3% higher for the Company and 0.2% higher for the Bank without PPP loans. To the extent funding of PPP loans is through excess cash balances or PPPLF borrowings, the Leverage ratio is unaffected. However, PPP loans funded by increased non-PPPLF borrowings reduces the leverage ratio.
The Company and the Bank routinely project capital levels by analyzing forecasted earnings, credit quality, shareholder dividends, asset volumes, share repurchase activity, stock option exercise proceeds, and other factors. Based on current capital projections, the Company and the Bank expect to maintain regulatory capital levels in excess of the minimum required to be considered well-capitalized under the prompt corrective action framework while continuing to pay quarterly dividends to shareholders. No assurance can be given that changes in capital management plans will not occur.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company does not currently engage in trading activities or use derivative instruments to control interest rate risk, even though such activities may be permitted with the approval of the Company’s Board of Directors.
Credit risk and interest rate risk are the most significant market risks affecting the Company, and equity price risk can also affect the Company’s financial results. These risks are described in the preceding sections regarding “Loan Portfolio Credit Risk,” and “Asset/Liability and Market Risk Management.” Other types of market risk, such as foreign currency exchange risk and commodity price risk, are not significant in the normal course of the Company’s business activities.
Item 4. Controls and Procedures
The Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of March 31, 2021.
Based upon their evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported as and when required and that such information is communicated to the Company’s management, including the principal executive officer and the principal financial officer, to allow for timely decisions regarding required disclosures. The evaluation did not identify any change in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Due to the nature of its business, the Company is subject to various threatened or filed legal cases. Neither the Company nor any of its subsidiaries is a party to any material pending legal proceeding, nor is their property the subject of any material pending legal proceeding, other than ordinary routine legal proceedings arising in the ordinary course of the Company’s business. Based on the advice of legal counsel, the Company does not expect such cases will have a material, adverse effect on its business, financial position or results of operations. Legal liabilities are accrued when obligations become probable and the amount can be reasonably estimated.
The Company’s Form 10-K as of December 31, 2020 includes detailed disclosure about the risks faced by the Company’s business; such risks have not materially changed since the Form 10-K was filed.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None
(b) None
(c) Issuer Purchases of Equity Securities
The table below sets forth the information with respect to purchases made by or on behalf of Westamerica Bancorporation or any “affiliated purchaser”, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of common stock during the quarter ended March 31, 2021.
| 2021 |
||||||||||||||||
| Period |
(a) Total Number of Shares Purchased |
(b) Average Price Paid per Share |
(c) Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
||||||||||||
| (In thousands, except price paid) |
||||||||||||||||
| January 1 through January 31 |
- | $ | - | - | 1,624 | |||||||||||
| February 1 through February 28 |
- | - | - | 1,624 | ||||||||||||
| March 1 through March 31 |
4 | 61.09 | 4 | 1,620 | ||||||||||||
| Total |
4 | $ | 61.09 | 4 | 1,620 | |||||||||||
The Company repurchases shares of its common stock in the open market on a discretionary basis from time to time to optimize the Company’s use of equity capital and enhance shareholder value and with the intention of lessening the dilutive impact of issuing new shares under equity incentive plans, and other ongoing requirements.
Shares repurchased during the period from January 1, 2021 through March 31, 2021 were pursuant to a program approved by the Board of Directors on July 23, 2020 authorizing the purchase of up to 1,750 thousand shares of the Company’s common stock from time to time prior to September 1, 2021.
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable.
None
| Exhibit No. |
Description of Exhibit |
|
| Exhibit 101.INS |
XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
| Exhibit 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
| Exhibit 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
| Exhibit 101.DEF |
Inline XBRL Taxonomy Extension Definitions Linkbase Document |
|
| Exhibit 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
| Exhibit 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
| Exhibit 104. |
The Cover page of Westamerica Bancorporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL (contained in Exhibit 101) |
[The remainder of this page intentionally left blank]
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
WESTAMERICA BANCORPORATION
(Registrant)
| /s/ Jesse Leavitt |
Jesse Leavitt
Senior Vice President and Chief Financial Officer
(Principal Financial and Chief Accounting Officer)
Date: May 5, 2021
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