Business Context and Reporting Period
Westamerica Bancorporation (Nasdaq: WABC) is a California bank holding company serving individuals and businesses, with a strategic focus on small businesses in Northern and Central California. This Form 10-K covers the fiscal year ended December 31, 2022; it is an annual report, not a standalone fourth-quarter filing. Unless stated otherwise, dollar amounts below are in U.S. dollars.
At year-end, the Company had approximately $6.95 billion in assets, $6.23 billion in deposits and $602.1 million in shareholders’ equity. It operated 77 branches in 21 California counties.
Financial Performance and Position
| Metric | 2022 | 2021 |
|---|---|---|
| Interest and loan fee income | $221.8 million | $173.4 million |
| Net interest and loan fee income | $219.8 million | $171.5 million |
| Net interest margin, FTE | 3.17% | 2.62% |
| Noninterest income | $45.1 million | $43.3 million |
| Noninterest expense | $99.4 million | $97.8 million |
| Net income | $122.0 million | $86.5 million |
| Diluted earnings per share | $4.54 | $3.22 |
| Return on average assets / common equity | 1.65% / 15.21% | 1.23% / 11.52% |
| Efficiency ratio | 37.2% | 45.0% |
Net interest income on a fully taxable equivalent (FTE) basis was $221.8 million; combined with noninterest income, FTE total revenue was approximately $266.9 million. The Company recorded no provision for credit losses in 2022. Net loan losses were $3.2 million, and the year-end loan-loss allowance was $20.3 million, or 2.12% of loans.
Net cash provided by operating activities was $113.7 million. Investing activities used $631.3 million and financing activities used $320.3 million; cash and due from banks declined $837.8 million to $294.2 million. Total investment securities were $5.25 billion. Total loans fell to $958.5 million from $1.07 billion; deposits declined to $6.23 billion from $6.41 billion. Short-term borrowings were $57.8 million, consisting of repurchase agreements; the Company reported no outstanding amounts on its bank or Federal Reserve borrowing lines at year-end.
The Bank’s regulatory capital ratios were 12.37% Common Equity Tier 1, 12.37% Tier 1, 12.93% total capital and 8.26% leverage. These exceeded applicable well-capitalized thresholds. The Company reported no parent-company debt.
Material Changes Versus the Prior Comparable Period
- Net income rose $35.5 million, or about 41%, and diluted EPS increased from $3.22 to $4.54. FTE net interest income grew $47.6 million, principally from higher investment balances and yields as market rates rose; lower average loan balances partly offset the increase.
- Loan balances decreased $109.6 million and deposits decreased $188.7 million year over year. Investment securities increased approximately $302 million.
- Higher market interest rates drove large securities valuation losses: available-for-sale securities had $365.2 million of gross unrealized losses at year-end, and accumulated other comprehensive loss reached $256.1 million, versus $49.7 million of accumulated other comprehensive income a year earlier. Shareholders’ equity fell to $602.1 million from $827.1 million, despite higher retained earnings.
- Net loan losses increased to $3.2 million from $0.3 million, largely reflecting consumer installment and automobile lending. Nonperforming assets remained low at $0.8 million, down from $1.0 million.
- Noninterest expense rose $1.6 million, including a $3.1 million increase in estimated losses on low-income-housing limited partnership investments; lower salaries and professional fees partly offset this.
Outlook, Management Commentary, Risks and Unusual Items
The filing provides no formal earnings, revenue or loan-growth guidance. Management said it expects to continue quarterly dividends, subject to Board discretion and ongoing review of capital, earnings and asset quality. The Company described its balance sheet as asset-sensitive at year-end; its models estimated first-year net interest income would increase 2.7% under a 100-basis-point rate increase in the dynamic simulation, but results depend on assumptions and could differ materially.
Management cited inflation, Federal Reserve tightening, economic uncertainty, the COVID-19 pandemic, the war in Ukraine and climate-related risks as evolving factors whose effects are difficult to predict. Key financial risks include interest-rate and securities valuation changes, deposit competition and outflows, credit deterioration, California and real-estate concentration, natural disasters, cybersecurity and regulatory changes. Estimated uninsured deposits were $2.9 billion, approximately 47% of year-end deposits. About 54% of loans had real estate as their principal collateral source, and about 22% were to borrowers in California’s Central Valley.
Notable items included a $1.2 million payments-network reconciling payment and a $930,000 life-insurance gain in 2022; management said together these added approximately $0.07 per diluted share. 2021 included $2.8 million of make-whole interest income on early-redeemed corporate bonds. The 2022 securities valuation losses were attributed primarily to rising market interest rates; management said it did not intend, and was not more likely than not required, to sell available-for-sale securities before recovery of amortized cost. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor found controls effective. The Company reported no material pending legal proceeding.
Important Facts for Investors to Verify
- Whether 2022’s higher net interest margin persists as deposit pricing responds to rate increases and deposits shift or leave; review subsequent-period deposit balances and funding costs.
- The amount and duration of securities valuation losses, including the effects of further rate changes, liquidity needs and any securities sales; distinguish accumulated other comprehensive losses from regulatory capital treatment.
- Credit trends and allowance adequacy, particularly consumer/auto charge-offs, commercial real estate exposure and California market conditions.
- Liquidity relative to uninsured deposits, pledged securities, borrowing capacity and any change in customer deposit behavior.
- The sustainability of earnings after the identified one-time income items and higher limited-partnership losses, and the capacity to maintain dividends and capital levels.