Westamerica Bancorporation — Q1 2024 Form 10-Q
Business context and period. Westamerica Bancorporation is a California-based bank holding company. This unaudited filing covers the three months ended March 31, 2024; comparisons below are to Q1 2023 and, where useful, Q4 2023. Dollar amounts are in millions unless otherwise noted. Interim results are not necessarily indicative of full-year results.
Financial performance and condition
- Earnings: Net income was $36.4 million and diluted EPS was $1.37, versus $40.5 million and $1.51 in Q1 2023, and $39.5 million and $1.48 in Q4 2023. Net income fell about 10% year over year.
- Interest income and margin: GAAP net interest and fee income was $65.7 million, down from $69.2 million a year earlier. On a fully taxable-equivalent (FTE) basis, it was $66.1 million versus $69.6 million. FTE net interest margin was 4.30%, up from 4.18% year over year but down from 4.41% in Q4 2023.
- Other income and expenses: Noninterest income was $10.1 million, down from $10.5 million year over year. Noninterest expense was $26.1 million, slightly below $26.2 million. The efficiency ratio was 34.3%, compared with 32.7% in Q1 2023 and 31.6% in Q4 2023.
- Credit costs: The company recorded a $0.3 million provision for credit losses, versus a $1.6 million reversal in Q1 2023. Net loan charge-offs were $1.3 million; the reported annualized ratio was 0.61%. The allowance for loan losses was $15.9 million, or 1.88% of loans, versus $16.9 million and 1.95% at year-end.
- Loans and credit quality: Loans totaled $844.7 million, down from $866.6 million at December 31, 2023 and $938.6 million at March 31, 2023. Commercial real estate loans were $488.5 million. Nonaccrual loans increased to $1.0 million from $0.4 million at year-end; total nonperforming loans were $1.5 million. Management described overall credit quality as reasonably stable, while cautioning that problem assets may fluctuate.
- Deposits, liquidity and borrowing: Deposits were $5.35 billion, down $119.3 million from year-end. Estimated uninsured deposits were $2.49 billion. Cash and due from banks increased to $434.3 million from $190.3 million. The company had $200 million outstanding under the Bank Term Funding Program (BTFP); estimated unpledged securities eligible for Federal Reserve borrowing were $2.0 billion. The company reported $664.0 million of Federal Reserve borrowing capacity based on pledged collateral. The BTFP stopped making new loans on March 11, 2024.
- Cash flow: Operating activities provided $52.2 million, investing activities provided $130.8 million, and financing activities provided $60.9 million. Cash increased $243.9 million during the quarter. Financing cash flow included a $192.2 million net increase in borrowings, partly offset by deposit outflows and dividends.
- Capital and shareholder returns: Shareholders’ equity was $791.7 million. The company reported a 20.21% total risk-based capital ratio and a 10.56% tangible equity-to-tangible assets ratio. It paid $0.44 per share in dividends during the quarter; no shares were repurchased.
Material changes and notable items
- Year-over-year FTE net interest income declined $3.5 million. Higher yields on earning assets partly offset lower average earning-asset balances, higher deposit costs, and BTFP borrowing expense. Average earning assets fell by $546 million year over year.
- Q1 2023 included a $2.2 million recovery on a previously charged-off loan, contributing to the $1.6 million credit-provision reversal; this makes the year-over-year credit-cost comparison less favorable in Q1 2024.
- The investment securities portfolio was $4.76 billion at quarter-end. Available-for-sale securities had $280.9 million of gross unrealized losses; held-to-maturity securities had $39.3 million of unrecognized losses. Management attributed the losses principally to higher market interest rates, reported that substantially all securities were investment grade, and said it did not intend to sell the loss-position securities and did not expect to be required to sell them before recovery of amortized cost.
- Accumulated other comprehensive loss was $196.9 million at March 31, 2024, compared with $190.3 million at year-end. Q1 other comprehensive loss was $6.6 million, net of tax, primarily reflecting changes in available-for-sale securities valuations.
Outlook, risks and contingencies
- The filing provides no specific earnings or revenue guidance. Management said it expects to continue quarterly dividends, subject to Board discretion and evaluation of capital, earnings, asset quality, and other factors. It expects the Bank to maintain regulatory capital above well-capitalized thresholds based on current projections.
- Management cited competitive deposit pricing, possible deposit outflows, interest-rate and monetary-policy uncertainty, inflation, liquidity conditions, and unrealized securities losses as important uncertainties. The balance sheet was described as generally asset-sensitive; interest-rate simulations show different estimated net-interest-income outcomes depending on rate changes and assumptions, and are not forecasts.
- Other stated risks include credit deterioration and collateral values, economic and climate-related events, operational and cybersecurity risks, third-party service-provider failures, regulatory changes, and competition. Management said it was satisfied with liquidity and capital based on its latest stress tests, but gave no assurance against future reduced liquidity, earnings, or capital.
- Legal matters were described as ordinary-course proceedings; based on counsel’s advice, the company does not expect them to have a material adverse effect. The company reported no material changes to internal control over financial reporting during the quarter and concluded disclosure controls were effective.
Important facts for investors to verify
- Whether deposit outflows continue and how uninsured deposits, competitive pricing, and available borrowing capacity affect funding costs and liquidity.
- Whether the securities portfolio’s unrealized losses, particularly its corporate and financial-sector exposures, change with rates, spreads, credit quality, or liquidity—and whether any sale becomes necessary.
- Trends in nonaccrual and past-due loans, consumer charge-offs, commercial real estate performance, and the adequacy of the $15.9 million loan-loss allowance.
- Whether net interest margin and earnings stabilize as asset balances, deposit costs, and BTFP borrowing evolve; compare reported GAAP figures with FTE measures.
- How the BTFP’s closure to new loans affects funding plans, and whether capital ratios, dividends, and management’s stated outlook remain consistent in subsequent filings.