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What changed in WESTAMERICA BANCORPORATION's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of WESTAMERICA BANCORPORATION's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+220 added−203 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in WESTAMERICA BANCORPORATION's 2023 10-K

220 paragraphs added · 203 removed · 157 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThe County and Sonoma acquired assets and assumed liabilities were measured at estimated fair values, as required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations. At December 31, 2022, the Company had consolidated assets of approximately $7.0 billion, deposits of approximately $6.2 billion and shareholders’ equity of approximately $602 million.
Biggest changeIn 2009 and 2010, the Bank acquired the banking operations of two failed banks, the former County Bank and Sonoma Valley Bank, from the Federal Deposit Insurance Corporation (“FDIC”). The acquired assets and assumed liabilities from the FDIC were measured at estimated fair values, as required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations.
The Company operated as a multi-bank holding company until mid-1983, at which time the then six subsidiary banks were merged into a single bank named Westamerica Bank and the name of the holding company was changed to Westamerica Bancorporation. - 2 - The Company acquired five banks within its immediate market area during the early to mid 1990’s.
The Company operated as a multi-bank holding company until mid-1983, at which time the then six subsidiary banks were merged into a single bank named Westamerica Bank and the name of the holding company was changed to Westamerica Bancorporation. The Company acquired five banks within its immediate market area during the early to mid 1990’s.
The Bank is a California-chartered commercial bank whose deposit are insurance by the Federal Deposit Insurance Corporation (the “FDIC”) up to applicable limits. The principal communities served are located in Northern and Central California, from Mendocino, Lake and Nevada Counties in the north to Kern County in the south.
The Bank is a California-chartered commercial bank whose deposit are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to applicable limits. The principal communities served are located in Northern and Central California, from Mendocino, Lake and Nevada Counties in the north to Kern County in the south.
For instance, under the Relief Act and related rule making: ● banks that have less than $10 billion in total consolidated assets and total trading assets and trading liabilities of less than five percent of total consolidated assets are exempt from Section 619 of the Dodd-Frank Act, known as the “Volcker Rule”, which prohibits “proprietary trading” and the ownership or sponsorship of private equity or hedge funds that are referred to as “covered funds”; and ● a new “community bank leverage ratio” was adopted, which is applicable to certain banks and bank holding companies with total assets of less than $10 billion (as described above under “Capital Requirements”).
For instance, under the Relief Act and related rule making: • banks that have less than $10 billion in total consolidated assets and total trading assets and trading liabilities of less than five percent of total consolidated assets are exempt from Section 619 of the Dodd-Frank Act, known as the “Volcker Rule”, which prohibits “proprietary trading” and the ownership or sponsorship of private equity or hedge funds that are referred to as “covered funds”; and • a new “community bank leverage ratio” was adopted, which is applicable to certain banks and bank holding companies with total assets of less than $10 billion (as described above under “Capital Standards”).
On July 2, 2013, the Federal Reserve Board approved a final rule that implements changes to the regulatory capital framework for all banking organizations over a transitional period 2015 through 2018. As of December 31, 2022, the Company’s and the Bank’s respective regulatory capital ratios exceeded applicable regulatory minimum capital requirements.
On July 2, 2013, the Federal Reserve Board approved a final rule that implements changes to the regulatory capital framework for all banking organizations over a transitional period 2015 through 2018. As of December 31, 2023, the Company’s and the Bank’s respective regulatory capital ratios exceeded applicable regulatory minimum capital requirements.
While the Company’s assets were less than $10 billion as of December 31, 2022, interchange fees charged by larger institutions may dictate the level of fees smaller institutions will be able to charge to remain competitive.
While the Company’s assets were less than $10 billion as of December 31, 2023, interchange fees charged by larger institutions may dictate the level of fees smaller institutions will be able to charge to remain competitive.
Such documents as well as the Company’s director, officer and employee Code of Conduct and Ethics are also available free of charge from the Company by request to: Westamerica Bancorporation Corporate Secretary A-2M Post Office Box 1200 Suisun City, California 94585-1200 Human Capital Resources The Company and its subsidiaries employed 594 full-time equivalent staff or 664 employees as of December 31, 2022.
Such documents as well as the Company’s director, officer and employee Code of Conduct and Ethics are also available free of charge from the Company by request to: Westamerica Bancorporation Corporate Secretary A-2M Post Office Box 1200 Suisun City, California 94585-1200 Human Capital Resources The Company and its subsidiaries employed 641 full-time equivalent staff or 669 employees as of December 31, 2023.
Premiums for Deposit Insurance and FDIC Regulation Substantially all of the deposits of the Bank are insured up to applicable limits by the DIF of the FDIC and are subject to deposit insurance assessments to maintain the DIF.
Premiums for Deposit Insurance and FDIC Regulation Substantially all of the deposits of the Bank are insured up to applicable limits by the FDIC’s Deposit Insurance Fund (“DIF”) and are subject to deposit insurance assessments to maintain the DIF.
The Company assesses and is careful to address potential health, safety, and environmental risks. The Company cares for the environment and works to mitigate pollution and the potential risks related to climate change by implementing practices such as recycling and reusing materials, and controlling energy usage.
The Company cares for the environment and works to mitigate pollution and the potential risks related to climate change by implementing practices such as recycling and reusing materials, and controlling energy usage.
The Company was incorporated under the laws of the State of California in 1972 as “Independent Bankshares Corporation” pursuant to a plan of reorganization among three previously unaffiliated Northern California banks.
In addition, the Bank owns 100% of the capital stock of Community Banker Services Corporation (“CBSC”), a company engaged in providing the Company and its subsidiaries with data processing services and other support functions. -2- The Company was incorporated under the laws of the State of California in 1972 as “Independent Bankshares Corporation” pursuant to a plan of reorganization among three previously unaffiliated Northern California banks.
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The Company’s strategic focus is on the banking needs of small businesses. In addition, the Bank owns 100% of the capital stock of Community Banker Services Corporation (“CBSC”), a company engaged in providing the Company and its subsidiaries with data processing services and other support functions.
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The Company’s strategic focus is on the banking needs of small businesses.
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On February 6, 2009, Westamerica Bank acquired the banking operations of County Bank (“County”) from the Federal Deposit Insurance Corporation (“FDIC”). On August 20, 2010, Westamerica Bank acquired assets and assumed liabilities of the former Sonoma Valley Bank (“Sonoma”) from the FDIC.
Added
At December 31, 2023, the Company had consolidated assets of approximately $6.4 billion, deposits of approximately $5.5 billion and shareholders’ equity of approximately $773 million. The Company assesses and is careful to address potential health, safety, and environmental risks.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe Company is also subject to risks relating to new or heightened climate change-related regulations or legislation, which could impact its customers. - 14 - The risks associated with climate change and the transition to renewable energy and a net zero emissions economy continue to evolve rapidly, and climate change-related risks may change or increase over time.
Biggest changeThe risks associated with climate change and the transition to renewable energy and a net zero emissions economy continue to evolve rapidly, and climate change-related risks may change or increase over time. The effects of pandemics and their impact are highly unpredictable and could be significant, and could harm the Company ’ s business, financial condition, and operating results.
If we are unable to attract or retain appropriately qualified personnel, we may not be successful in originating loans and servicing our customers, which could have a materially adverse effect on our business, financial condition and results of operations. The Company competes with many banks and other traditional, non-traditional, brick and mortar and online financial service providers .
If we are unable to attract or retain appropriately qualified personnel, we may not be successful in originating loans and servicing our customers, which could have a materially adverse effect on our business, financial condition and results of operations. -15- The Company competes with many banks and other traditional, non-traditional, brick and mortar and online financial service providers .
Environmental reviews of real property before initiating foreclosure actions may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our business, financial condition and results of operations. - 15 -
Environmental reviews of real property before initiating foreclosure actions may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our business, financial condition and results of operations.
The Company can provide no assurance that conditions in any sector or geographic market of the California economy will not deteriorate in the future and that such deterioration will not adversely affect the Company. The markets in which the Company operates are subject to the risk of earthquakes, fires, storms and other natural disasters.
The Company can provide no assurance that conditions in any sector or geographic market of the California economy will not deteriorate in the future and that such deterioration will not adversely affect the Company. -11- The markets in which the Company operates are subject to the risk of earthquakes, fires, storms and other natural disasters.
In the past, the Company’s business has been materially affected by these regulations. - 12 - Laws, regulations or policies, including accounting standards and interpretations currently affecting the Company and the Company’s subsidiaries, may change at any time. Regulatory authorities may also change their interpretation of these statutes and regulations.
In the past, the Company’s business has been materially affected by these regulations. Laws, regulations or policies, including accounting standards and interpretations currently affecting the Company and the Company’s subsidiaries, may change at any time. Regulatory authorities may also change their interpretation of these statutes and regulations.
Borrowers with real estate loan collateral located in flood zones must carry flood insurance under the loans’ terms. The Company has $21 million in loans to agricultural borrowers; Management continuously monitors these customers’ access to adequate water sources as well as their ability to sustain low crop yields without encountering financial hardship.
Borrowers with real estate loan collateral located in flood zones must carry flood insurance under the loans’ terms. The Company has $18 million in loans to agricultural borrowers; Management continuously monitors these customers’ access to adequate water sources as well as their ability to sustain low crop yields without encountering financial hardship.
The extent to which the Company’s business will continue to be affected will depend on a variety of factors, many of which are outside of the Company’s control, including the persistence of the pandemic, the actions of governmental authorities, changes in customer preferences, impacts on economic activity, and the possibility of recession or continued financial market instability.
The extent to which the Company’s business will be affected will depend on a variety of factors, many of which are outside of the Company’s control, including the persistence of the pandemic, the actions of governmental authorities, changes in customer preferences, impacts on economic activity, and the possibility of recession or financial market instability.
For additional information, please see the discussion under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in this Report, which is incorporated by reference in this paragraph. The Company ’ s information systems may experience an interruption or breach in security.
For additional information, please see the discussion under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in this Report, which is incorporated by reference in this paragraph. The Company ’ s information systems or those of its vendors may experience an interruption or breach in security.
The Company’s ability to pay dividends is limited by banking and corporate laws, and depends, among other things, on the Company’s regulatory capital levels and earnings prospectus, as well as the Bank’s ability to pay cash dividends to the Company.
The Company’s ability to pay dividends is limited by banking and corporate laws, and depends, among other things, on the Company’s regulatory capital levels and earnings prospects, as well as the Bank’s ability to pay cash dividends to the Company.
Communication and information systems failures can result from a variety of risks including, but not limited to, events that are wholly or partially out of the Company’s control, such as telecommunication line integrity, weather, terrorist acts, natural disasters, accidental disasters, unauthorized breaches of security systems, energy delivery systems, cyber attacks, and other events.
Communication and information systems failures can result from a variety of risks including, but not limited to, events that are wholly or partially out of the Company’s control, such as telecommunication line integrity, weather, terrorist acts, natural disasters, accidental disasters, unauthorized breaches of security systems, energy delivery systems, cybersecurity incidents, and other events.
The Articles of Incorporation of the Company authorize the issuance of 150 million shares of common stock (and two additional classes of 1 million shares each, denominated “Class B Common Stock” and “Preferred Stock”, respectively) of which approximately 26.9 million shares of common stock were outstanding at December 31, 2022.
The Articles of Incorporation of the Company authorize the issuance of 150 million shares of common stock (and two additional classes of 1 million shares each, denominated “Class B Common Stock” and “Preferred Stock”, respectively) of which approximately 26.7 million shares of common stock were outstanding at December 31, 2023.
Substantially all of the Company’s business is located in California. A portion of the loan portfolio of the Company is dependent on real estate. At December 31, 2022, real estate served as the principal source of collateral with respect to approximately 54% of the Company’s loan portfolio.
Substantially all of the Company’s business is located in California. A portion of the loan portfolio of the Company is dependent on real estate. At December 31, 2023, real estate served as the principal source of collateral with respect to approximately 59% of the Company’s loan portfolio.
There can be no assurance that the declines in market value will not result in other than temporary impairments of these assets, which would lead to loss recognition that could have a material adverse effect on the Company’s net income and capital levels. The weakness of other financial institutions could adversely affect the Company.
There can be no assurance that the declines in market value will not result in other than temporary impairments of these assets, which would lead to loss recognition that could have a material adverse effect on the Company’s net income and capital levels.
Any failure or circumvention of the Company’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company’s business, results of operations and financial condition. Operational Risks Climate change and the transition to renewable energy and a net zero emissions economy pose operational, commercial and regulatory risks.
Any failure or circumvention of the Company’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company’s business, results of operations and financial condition. [The remainder of this page intentionally left blank] -14- Operational Risks Climate change and the transition to renewable energy and a net zero emissions economy pose operational, commercial and regulatory risks.
The discussion in this Report under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset, Liability and Market Risk Management” and “- Liquidity and Funding” and “Item 7A Quantitative and Qualitative Disclosures About Market Risk” is incorporated by reference in this paragraph. Changes in capital market conditions could reduce asset valuations.
The discussion in this Report under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset, Liability and Market Risk Management” and “- Liquidity and Funding” and “Item 7A, Quantitative and Qualitative Disclosures About Market Risk” is incorporated by reference in this paragraph.
The Company is subject to environmental liability risk associated with lending activities A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties.
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties.
Pursuant to its stock option plans, at December 31, 2022, the Company had outstanding options for 854 thousand shares of common stock, of which 508 thousand were currently exercisable. As of December 31, 2022, 856 thousand shares of Company common stock remained available for grants under the Company’s equity incentive plans.
Pursuant to its stock option plans, at December 31, 2023, the Company had outstanding options for 973 thousand shares of common stock, of which 614 thousand were currently exercisable. As of December 31, 2023, 705 thousand shares of Company common stock remained available for grants under the Company’s equity incentive plans.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. The Company routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, and other institutional clients. Many of these transactions expose the Company to credit risk in the event of default of the Company’s counterparty or client.
The Company routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, and other institutional clients. Many of these transactions expose the Company to credit risk in the event of default of the Company’s counterparty or client.
Approximately 22% of the Company’s loans were to borrowers in the California “Central Valley” as of December 31, 2022.
Approximately 25% of the Company’s loans were to borrowers in the California “Central Valley” as of December 31, 2023.
Although the Company has historically paid cash dividends on the Company’s common stock, the Company is not required to do so and the Company’s Board of Directors could reduce or eliminate the Company’s common stock dividend in the future. The Company could repurchase shares of its common stock at price levels considered excessive.
Although the Company has historically paid cash dividends on the Company’s common stock, the Company is not required to do so and the Company’s Board of Directors could reduce or eliminate the Company’s common stock dividend in the future.
The cost of employee compensation is a significant portion of operating expenses and can materially impact results of operations or profitability, especially during periods of wage inflation. The unanticipated loss of the services of key personnel could have an adverse effect on the business.
The cost of employee compensation is a significant portion of operating expenses and can materially impact results of operations or profitability, especially during periods of wage inflation. The unanticipated loss of the services of key personnel could have an adverse effect on the business. The Company is subject to environmental liability risk associated with lending activities.
A major earthquake, flood, prolonged drought, fire or other natural disaster in California or other regions of the United States could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows. - 11 - Adverse changes in general business or economic conditions, including inflation, could have a material adverse effect on the Company ’ s financial condition and results of operations.
A major earthquake, flood, prolonged drought, fire or other natural disaster in California or other regions of the United States could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.
The Company cannot control or prevent changes in the level of interest rates which fluctuate in response to general economic conditions, the policies of various governmental and regulatory agencies, in particular, the FRB’s FOMC, and pricing practices of the Company’s competitors.
The Company cannot control or prevent changes in the level of interest rates which fluctuate in response to general economic conditions, the policies of various governmental and regulatory agencies, in particular, the Federal Open Market Committee of the Federal Reserve Board (the” FOMC”), and pricing practices of the Company’s competitors.
The occurrence of any such failures, interruptions or security breaches could damage the Company’s reputation, result in a loss of customer business, subject the Company to additional regulatory scrutiny, or expose the Company to litigation and possible financial liability, any of which could have a material adverse effect on the Company’s financial condition and results of operations. - 13 - The Company ’ s controls and procedures may fail or be circumvented .
The occurrence of any such failures, interruptions or security breaches could result in the loss or theft of customer or employee data, damage the Company’s reputation, impair or disrupt the Company’s business operations, result in a loss of customer business, subject the Company to additional regulatory scrutiny, or expose the Company to litigation and possible financial liability, any of which could have a material adverse effect on the Company’s financial condition and results of operations.
In addition, if any of the Company’s subsidiaries were to liquidate, that subsidiary’s creditors will be entitled to receive distributions from the assets of that subsidiary to satisfy their claims against it before the Company, as a holder of an equity interest in the subsidiary, will be entitled to receive any of the assets of the subsidiary.
In addition, if any of the Company’s subsidiaries were to liquidate, that subsidiary’s creditors will be entitled to receive distributions from the assets of that subsidiary to satisfy their claims against it before the Company, as a holder of an equity interest in the subsidiary, will be entitled to receive any of the assets of the subsidiary. -12- The Company ’ s payment of dividends on common stock could be eliminated or reduced.
The behavior of depositors in regard to the level of FDIC insurance could cause the Bank’s existing customers to reduce the amount of deposits held at the Bank, and could cause new customers to open deposit accounts at the Bank. The level and composition of the Bank's deposit portfolio directly impacts the Bank's funding cost and net interest margin.
The behavior of depositors in regard to the level of FDIC insurance could cause the Bank’s existing customers to reduce the amount of deposits held at the Bank, and could cause new customers to open deposit accounts at the Bank.
The Company’s business, operations and financial performance have been, and may continue to be, affected by the macroeconomic impacts resulting from COVID-19, and the Company’s financial results in future periods may differ significantly from the Company’s historical results.
The Company’s business, operations and financial performance may be affected by the macroeconomic impacts resulting from pandemics, and the Company’s financial results in future periods could differ significantly from the Company’s historical results.
There is no precise method of predicting loans losses and determining the adequacy of the reserve requires the Company’s management to make a number of estimates and judgments.
For example, the Company maintains a reserve for potential loan defaults and non-performance. There is no precise method of predicting loans losses and determining the adequacy of the reserve requires the Company’s management to make a number of estimates and judgments.
This Report is qualified in its entirety by these risk factors. - 9 - If any of the following risks actually occur, the Company’s financial condition and results of operations could be materially and adversely affected.
Additional risks and uncertainties that Management is not aware of or focused on or that Management currently deems immaterial may also impair the Company’s business operations. This Report is qualified in its entirety by these risk factors. -9- If any of the following risks actually occur, the Company’s financial condition and results of operations could be materially and adversely affected.
Changing preferences could also have an adverse impact on the operations or financial condition of its customers, which could result in reduced revenues from those customers.
Changing preferences could also have an adverse impact on the operations or financial condition of its customers, which could result in reduced revenues from those customers. The Company is also subject to risks relating to new or heightened climate change-related regulations or legislation, which could impact its customers.
Systems, Accounting and Internal Control Risks The accuracy of the Company ’ s judgments and estimates about financial and accounting matters will impact operating results and financial condition. The Company makes certain estimates and judgments in preparing its financial statements. For example, the Company maintains a reserve for potential loan defaults and non-performance.
The level and composition of the Bank's deposit portfolio directly impacts the Bank's funding cost and net interest margin. -13- Systems, Accounting and Internal Control Risks The accuracy of the Company ’ s judgments and estimates about financial and accounting matters will impact operating results and financial condition. The Company makes certain estimates and judgments in preparing its financial statements.
The Company repurchases and retires its common stock in accordance with Board of Directors-approved share repurchase programs. At December 31, 2022, 1.75 million shares remained available to repurchase under such plans. The Company has been active in repurchasing and retiring shares of its common stock when alternative uses of excess capital, such as acquisitions, have been limited.
The Company has been active in repurchasing and retiring shares of its common stock when alternative uses of excess capital, such as acquisitions, have been limited.
Sales of substantial amounts of Company common stock in the public market could adversely affect the market price of its common stock. - 10 - The Company ’ s payment of dividends on common stock could be eliminated or reduced.
Sales of substantial amounts of Company common stock in the public market could adversely affect the market price of its common stock. The Company could repurchase shares of its common stock at price levels considered excessive. The Company may repurchase and retire its common stock in accordance with Board of Directors-approved share repurchase programs from time to time.
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Additional risks and uncertainties that Management is not aware of or focused on or that Management currently deems immaterial may also impair the Company’s business operations.
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The Company could realize losses if it were required to sell securities in its held-to-maturity securities portfolio to meet liquidity needs. As a result of increases in interest rates over the last year, the market value of previously issued government and other debt securities has declined significantly, resulting in unrealized losses in the held-to-maturity portion of the Company’s securities portfolios.
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The continuing effects of the COVID-19 pandemic and its impact are highly unpredictable and could be significant, and could harm the Company ’ s business, financial condition, and operating results.
Added
While the Company does not currently expect or intend to sell these securities, if the Company were required to sell such securities to meet liquidity needs, it may incur losses, which could impair the Company’s capital financial condition and results of operations.
Added
Further, while the Company has taken actions to maximize its funding sources, there is no guarantee that such funding sources will be available or sufficient in the event of sudden liquidity needs. Changes in capital market conditions could reduce asset valuations.
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Negative developments affecting the banking industry, such as bank failures, may have a material adverse effect on the Company. The banking industry could experience significant volatility with multiple bank failures during 2023. Industrywide concerns could develop related to liquidity, deposit outflows and unrealized losses on investment debt securities.
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While the Company cannot predict with certainty whether or how these developments may affect the banking industry, the Company faces the risks of increased FDIC deposit insurance premium expenses; increased regulation or supervisory scrutiny; and decreased confidence in banks among depositors and investors, any of which could, adversely affect the trading price of the Company’s common stock, its ability to manage its liquidity or its ability to effectively fund its operations.
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Any one or a combination of such risk factors, or other factors, could materially adversely affect the Company's business, financial condition, results of operations and prospects. -10- The weakness of other financial institutions could adversely affect the Company. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships.
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Adverse changes in general business or economic conditions, including inflation, could have a material adverse effect on the Company ’ s financial condition and results of operations.
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For example, during the second quarter 2023, the Company was notified that there may have been a compromise of a specific set of files processed by a third party vendor that could have affected a limited number of customers.
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This incident did not occur on a Company system and the Company does not use the software that may have been compromised. The Company has implemented data security safeguards with its third party vendors designed to quickly identify and contain improper access to sensitive information. The Company notified the affected customers as required by law.
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As of December 31, 2023, to the Company’s knowledge, there is no indication that any information has been subject to misuse as a result of the incident. The Company ’ s controls and procedures may fail or be circumvented .

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES Branch Offices and Facilities The Bank is engaged in the banking business through 77 branch offices in 21 counties in Northern and Central California. The Bank believes all of its offices are constructed and equipped to meet prescribed security requirements.
Biggest changeITEM 2. PROPERTIES Branch Offices and Facilities The Bank is engaged in the banking business through 77 branch offices in 20 counties in Northern and Central California. The Bank believes all of its offices are constructed and equipped to meet prescribed security requirements.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeNo shares were repurchased during the period from October 1, 2022 through December 31, 2022. The current repurchase program was approved by the Board of Directors on July 28, 2022 authorizing the purchase of up to 1,750 thousand shares of the Company’s common stock from time to time prior to September 1, 2023.
Biggest changeThe repurchase plan approved July 28, 2022 expired September 1, 2023. There is no replacement plan in place currently. No shares were repurchased during the period from October 1, 2023 through December 31, 2023.
See Item 1, “Business - Supervision and Regulation.” The notes to the consolidated financial statements included in this Report contain additional information regarding the Company’s capital levels, capital structure, regulations affecting subsidiary bank dividends paid to the Company, the Company’s earnings, financial condition and cash flows, and cash dividends declared and paid on common stock.
See Item 1, “Business - Supervision and Regulation.” -17- The notes to the consolidated financial statements included in this Report contain additional information regarding the Company’s capital levels, capital structure, regulations affecting subsidiary bank dividends paid to the Company, the Company’s earnings, financial condition and cash flows, and cash dividends declared and paid on common stock.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s common stock is traded on the NASDAQ Stock Market (“NASDAQ”) under the symbol “WABC”. As of January 31, 2023, there were approximately 4,800 shareholders of record of the Company’s common stock.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s common stock is traded on the NASDAQ Stock Market (“NASDAQ”) under the symbol “WABC”. As of January 31, 2024, there were approximately 4,700 shareholders of record of the Company’s common stock.
Stock performance The following chart compares the cumulative return on the Company’s stock during the ten years ended December 31, 2022 with the cumulative return on the S&P 500 composite stock index and NASDAQ’S Bank Index.
Stock performance The following chart compares the cumulative return on the Company’s stock during the ten years ended December 31, 2023 with the cumulative return on the S&P 500 composite stock index and NASDAQ’S Bank Index. The comparison assumes $100 invested in each on December 31, 2013 and reinvestment of all dividends.
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The comparison assumes $100 invested in each on December 31, 2012 and reinvestment of all dividends. - 16 - December 31, 2012 2013 2014 2015 2016 2017 Westamerica Bancorporation (WABC) $ 100.00 $ 136.76 $ 122.46 $ 120.76 $ 167.59 $ 163.13 S&P 500 (SPX) 100.00 132.31 150.27 152.29 170.46 207.60 NASDAQ Bank Index (CBNK) 100.00 141.82 148.71 161.71 222.84 234.72 December 31, 2018 2019 2020 2021 2022 Westamerica Bancorporation (WABC) $ 156.62 $ 195.64 $ 164.17 $ 176.33 $ 185.41 S&P 500 (SPX) 198.40 260.65 308.81 397.30 325.17 NASDAQ Bank Index (CBNK) 196.44 243.39 225.65 322.32 269.64 The following chart compares the cumulative return on the Company’s stock during the five years ended December 31, 2022 with the cumulative return on the S&P 500 composite stock index and NASDAQ’S Bank Index.
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December 31, 2013 2014 2015 2016 2017 2018 Westamerica Bancorporation (WABC) $ 100.00 $ 89.54 $ 88.30 $ 122.54 $ 119.28 $ 114.52 S&P 500 (SPX) 100.00 113.57 115.09 128.83 156.90 149.95 NASDAQ Bank Index (CBNK) 100.00 104.86 114.02 157.13 165.51 138.51 December 31, 2019 2020 2021 2022 2023 Westamerica Bancorporation (WABC) $ 143.05 $ 120.04 $ 128.93 $ 135.57 $ 134.51 S&P 500 (SPX) 197.00 233.39 300.27 245.75 310.24 NASDAQ Bank Index (CBNK) 172.04 159.11 227.27 190.13 183.55 [The remainder of this page intentionally left blank] -18- The following chart compares the cumulative return on the Company’s stock during the five years ended December 31, 2023 with the cumulative return on the S&P 500 composite stock index and NASDAQ’S Bank Index.
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The comparison assumes $100 invested in each on December 31, 2017 and reinvestment of all dividends. [The remainder of this page intentionally left blank] - 17 - December 31, 2017 2018 2019 2020 2021 2022 Westamerica Bancorporation (WABC) $ 100.00 $ 96.01 $ 119.93 $ 100.63 $ 108.09 $ 113.65 S&P 500 (SPX) 100.00 95.57 125.56 148.75 191.38 156.63 NASDAQ Bank Index (CBNK) 100.00 83.69 103.95 96.14 137.32 114.88 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 December 31, 2022 (in thousands, except per share data). 2022 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 exercise price) October 1 through October 31 - $ - - 1,750 November 1 through November 30 - - - 1,750 December 1 through December 31 - - - 1,750 Total - $ - - 1,750 The Company repurchases shares of its common stock in the open market 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 stock option plans, and other ongoing requirements.
Added
The comparison assumes $100 invested in each on December 31, 2018 and reinvestment of all dividends.
Added
December 31, 2018 2019 2020 2021 2022 2023 Westamerica Bancorporation (WABC) $ 100.00 $ 124.91 $ 104.82 $ 112.58 $ 118.38 $ 117.45 S&P 500 (SPX) 100.00 131.38 155.65 200.25 163.89 206.90 NASDAQ Bank Index (CBNK) 100.00 124.21 114.87 164.08 137.27 132.52 ISSUER PURCHASES OF EQUITY SECURITIES The Company repurchases shares of its common stock in the open market 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 stock option plans, and other ongoing requirements.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

109 edited+46 added−40 removed77 unchanged
Biggest changeDebt Securities Held to Maturity Maturity Distribution At December 31, 2022 Within one year After one but within five years After five but within ten years After ten years Mortgage- backed Total ($ in thousands) Obligations of states and political subdivisions $ 12,676 $ 74,465 $ 2,067 $ - $ - $ 89,208 Interest rate 3.84 % 3.49 % 4.00 % - % - % 3.54 % Corporate securities - 87,188 634,666 - - 721,854 Interest rate - % 4.08 % 4.36 % - % - % 4.33 % Subtotal 12,676 161,653 636,733 - - 811,062 Interest rate 3.84 % 3.81 % 4.36 % - % - % 4.24 % MBS - - - - 104,852 104,852 Interest rate - % - % - % - % 2.09 % 2.09 % Total $ 12,676 $ 161,653 $ 636,733 $ - $ 104,852 $ 915,914 Interest rate 3.84 % 3.81 % 4.36 % - % 2.09 % 3.99 % The Company had corporate securities as shown below at the dates indicated: Corporate securities At December 31, 2022 At December 31, 2021 Amortized Fair Amortized Fair Cost Value Cost Value (In thousands) Debt securities available for sale $ 2,406,566 $ 2,099,955 $ 2,692,792 $ 2,746,735 Debt securities held to maturity 721,854 687,406 - - Total corporate securities $ 3,128,420 $ 2,787,361 $ 2,692,792 $ 2,746,735 The following table summarizes total corporate securities by credit rating: At December 31, 2022 At December 31, 2021 Fair value As a percent of total corporate securities Fair value As a percent of total corporate securities ($ in thousands) AAA $ 20,667 1 % $ 21,400 1 % AA+ 19,840 1 % 20,479 1 % AA 19,234 1 % 19,781 1 % AA- 110,552 4 % 105,373 4 % A+ 255,381 9 % 128,325 5 % A 503,437 18 % 539,062 19 % A- 695,865 25 % 628,089 23 % BBB+ 821,102 29 % 797,860 29 % BBB 304,957 11 % 474,648 17 % BBB- 36,326 1 % 11,718 - % Total corporate securities $ 2,787,361 100 % $ 2,746,735 100 % [The remainder of this page intentionally left blank] - 32 - The following table summarizes total corporate securities by the industry sector in which the issuing companies operate: At December 31, 2022 At December 31, 2021 Fair value As a percent of total corporate securities Fair value As a percent of total corporate securities ($ in thousands) Financial $ 1,539,361 55 % $ 1,421,317 52 % Utilities 285,016 10 % 208,522 7 % Industrial 237,554 9 % 217,065 8 % Consumer, Non-cyclical 173,736 6 % 271,069 10 % Communications 162,270 6 % 161,537 6 % Consumer, Cyclical 103,666 4 % 125,686 4 % Technology 101,255 4 % 127,853 5 % Basic Materials 98,072 3 % 114,964 4 % Energy 86,431 3 % 98,722 4 % Total corporate securities $ 2,787,361 100 % $ 2,746,735 100 % The following table summarizes total corporate securities by the location of the issuers’ headquarters; all the bonds are denominated in United States dollars: At December 31, 2022 Fair value As a percent of total corporate securities ($ in thousands) United States of America $ 1,997,328 72 % Canada 192,475 7 % United Kingdom 171,819 6 % Japan 161,804 6 % France 87,781 3 % Switzerland 86,396 3 % Netherlands 33,216 1 % Australia 23,870 1 % Belgium 20,243 1 % Germany 12,429 - % Total corporate securities $ 2,787,361 100 % The following table summarizes the above corporate securities with issuer’s headquarters located outside of the United States of America by the industry sector in which the issuing companies operate; all the bonds are denominated in United States dollars: At December 31, 2022 Fair value As a percent of total foreign corporate securities ($ in thousands) Financial $ 680,956 86 % Consumer, Non-cyclical 32,684 4 % Energy 30,600 4 % Basic Materials 23,870 3 % Consumer, Cyclical 12,429 2 % Utilities 9,494 1 % Total foreign corporate securities $ 790,033 100 % - 33 - The Company’s $1.6 billion (fair value) in collateralized loan obligations at December 31, 2022, consist of investments in 169 issues that are within the senior tranches of their respective fund securitization structures.
Biggest changeDebt Securities Held to Maturity Maturity Distribution At December 31, 2023 Within one year After one but within five years After five but within ten years After ten years Mortgage- backed Total ($ in thousands) Obligations of states and political subdivisions $ 15,117 $ 55,359 $ 706 $ - $ - $ 71,182 Interest rate 3.57 % 3.51 % 4.08 % - % - % 3.54 % Corporate securities - 257,488 471,162 - - 728,650 Interest rate - % 4.17 % 4.32 % - % - % 4.29 % Subtotal 15,117 312,847 471,868 - - 799,832 Interest rate 3.57 % 4.05 % 4.32 % - % - % 4.22 % MBS - - - - 78,565 78,565 Interest rate - % - % - % - % 2.25 % 2.25 % Total $ 15,117 $ 312,847 $ 471,868 $ - $ 78,565 $ 878,397 Interest rate 3.57 % 4.05 % 4.32 % - % 2.25 % 4.04 % The Company had corporate securities as shown below at the dates indicated: Corporate securities At December 31, 2023 At December 31, 2022 Amortized Fair Amortized Fair Cost Value Cost Value (In thousands) Debt securities available for sale $ 2,129,103 $ 1,909,548 $ 2,406,566 $ 2,099,955 Debt securities held to maturity 728,650 705,356 721,854 687,406 Total corporate securities $ 2,857,753 $ 2,614,904 $ 3,128,420 $ 2,787,361 The following table summarizes total corporate securities by credit rating: At December 31, 2023 At December 31, 2022 Fair value As a percent of total corporate securities Fair value As a percent of total corporate securities ($ in thousands) AAA $ - - % $ 20,667 1 % AA+ - - % 19,840 1 % AA - - % 19,234 1 % AA- 73,016 3 % 110,552 4 % A+ 250,322 9 % 255,381 9 % A 380,257 14 % 503,437 18 % A- 825,882 32 % 695,865 25 % BBB+ 723,767 28 % 821,102 29 % BBB 361,660 14 % 304,957 11 % BBB- - - % 36,326 1 % Total corporate securities $ 2,614,904 100 % $ 2,787,361 100 % [The remainder of this page intentionally left blank] -33- The following table summarizes total corporate securities by the industry sector in which the issuing companies operate: At December 31, 2023 At December 31, 2022 Fair value As a percent of total corporate securities Fair value As a percent of total corporate securities ($ in thousands) Financial $ 1,516,147 58 % $ 1,539,361 55 % Utilities 274,929 10 % 285,016 10 % Industrial 215,428 8 % 237,554 9 % Consumer, Non-cyclical 170,423 7 % 173,736 6 % Communications 158,495 6 % 162,270 6 % Basic Materials 100,693 4 % 98,072 3 % Energy 69,331 3 % 86,431 3 % Technology 63,185 2 % 101,255 4 % Consumer, Cyclical 46,273 2 % 103,666 4 % Total corporate securities $ 2,614,904 100 % $ 2,787,361 100 % The following table summarizes total corporate securities by the location of the issuers’ headquarters; all the bonds are denominated in United States dollars: At December 31, 2023 At December 31, 2022 Fair value As a percent of total corporate securities Fair value As a percent of total corporate securities ($ in thousands) United States of America $ 1,811,463 69 % $ 1,997,328 72 % Canada 195,979 7 % 192,475 7 % Japan 164,948 6 % 161,804 6 % United Kingdom 162,794 6 % 171,819 6 % Switzerland 93,898 4 % 86,396 3 % France 91,726 4 % 87,781 3 % Netherlands 35,381 1 % 33,216 1 % Australia 24,800 1 % 23,870 1 % Belgium 20,894 1 % 20,243 1 % Germany 13,021 1 % 12,429 - % Total corporate securities $ 2,614,904 100 % $ 2,787,361 100 % The following table summarizes the above corporate securities with issuer’s headquarters located outside of the United States of America by the industry sector in which the issuing companies operate; all the bonds are denominated in United States dollars: At December 31, 2023 At December 31, 2022 Fair value As a percent of total foreign corporate securities Fair value As a percent of total foreign corporate securities ($ in thousands) Financial $ 702,892 87 % $ 680,956 86 % Energy 31,970 4 % 30,600 4 % Basic materials 24,800 3 % 23,870 3 % Consumer, Non-cyclical 20,895 3 % 32,684 4 % Consumer, Cyclical 13,021 2 % 12,429 2 % Utilities 9,863 1 % 9,494 1 % Total foreign corporate securities $ 803,441 100 % $ 790,033 100 % -34- The Company’s $1.5 billion (fair value) in collateralized loan obligations at December 31, 2023, consist of investments in 142 issues that are within the senior tranches of their respective fund securitization structures.
(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.
(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.
(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.
(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 extent of the impact on the Company’s results of operations, cash flow liquidity, and financial performance, as well as the Company’s ability to execute near- and long-term business strategies and initiatives, will depend on numerous evolving factors and future developments, which are highly uncertain and cannot be reasonably predicted.
The extent of the impact on the Company’s results of operations, cash flow liquidity, and financial performance, as well as the Company’s ability to execute near- and long-term business strategies and initiatives, will depend on numerous evolving factors and future developments, which are uncertain and cannot be reasonably predicted.
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.
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, any deposit growth may be used to fund loans or purchase investment securities.
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.
Loans that share common risk characteristics are segregated into pools based on common characteristics, which are 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.
The Company has other earning assets with variable yields such as commercial loans and lines of credit, consumer lines of credit and adjustable rate residential real estate loans, which are included in “other taxable loans” in the following “Summary of Average Balances, Yields/Rates and Interest Differential.” - 23 - 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.
The Company has other earning assets with variable yields such as commercial loans and lines of credit, consumer lines of credit and adjustable rate residential real estate loans, which are included in “other taxable loans” in the following “Summary of Average Balances, Yields/Rates and Interest Differential.” -24- 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.
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.
The results of this analysis are applied to the amortized cost of the loans included within each pool. -40- Loans that do not share risk characteristics with other loans in the pools are evaluated individually.
(2) The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income on an FTE basis and noninterest income). - 19 - The following discussion addresses information pertaining to the financial condition and results of operations of Westamerica Bancorporation and subsidiaries (the “Company”) that may not be otherwise apparent from a review of the consolidated financial statements and related footnotes.
(2) The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income on an FTE basis and noninterest income). -20- The following discussion addresses information pertaining to the financial condition and results of operations of Westamerica Bancorporation and subsidiaries (the “Company”) that may not be otherwise apparent from a review of the consolidated financial statements and related footnotes.
The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits. [The remainder of this page intentionally left blank] - 26 - 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.
The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits. [The remainder of this page intentionally left blank] -27- 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.
The stability of the Bank’s funding from customer deposits is in part reliant on the confidence clients have in the Bank. The Bank places a very high priority in maintaining this confidence through conservative credit and capital management practices and by maintaining an appropriate level of liquidity.
The Bank’s funding from customer deposits is in part reliant on the confidence clients have in the Bank. The Bank places a very high priority in maintaining this confidence through conservative credit risk and capital management practices and by maintaining an appropriate level of liquidity.
Management manages the investment securities portfolio in response to anticipated changes in interest rates, and changes in deposit and loan volumes. The carrying value of the Company’s investment securities portfolio was $5.2 billion at December 31, 2022 and $4.9 billion at December 31, 2021.
Management manages the investment securities portfolio in response to anticipated changes in interest rates, and changes in deposit and loan volumes. The carrying value of the Company’s investment securities portfolio was $4.9 billion at December 31, 2023 and $5.2 billion at December 31, 2022.
The Bank achieves this objective through the selection of asset and liability maturity mixes that it believes best meet its needs. The Bank'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.
The Bank achieves this objective through the selection of asset and liability maturity mixes that it believes best meet its needs. The Bank's liquidity position is enhanced by its ability to raise additional funds as needed by borrowing from correspondent banks or in the wholesale markets, or by selling debt securities available for sale.
The following table lists debt securities in the Company’s portfolio by type as of the indicated dates. Debt securities held to maturity are listed at amortized cost before related reserve for expected credit losses of $1 thousand at December 31, 2022 and $7 thousand at December 31, 2021. Debt securities available for sale are listed at fair value.
The following table lists debt securities in the Company’s portfolio by type as of the dates indicated. Debt securities held to maturity are listed at amortized cost before related reserve for expected credit losses of $1 thousand at December 31, 2023 and December 31, 2022. Debt securities available for sale are listed at fair value.
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 “asset sensitive” at December 31, 2022, based on the interest rate assumptions applied to the simulation model.
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 generally “asset sensitive” at December 31, 2023, based on the interest rate assumptions applied to the simulation model.
It should be read in conjunction with those statements and notes found on pages 51 through 90, as well as with the other information presented throughout this Report. Critical Accounting Policies The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the banking industry.
It should be read in conjunction with those statements and notes found on pages 52 through 89, as well as with the other information presented throughout this Report. Critical Accounting Policies The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the banking industry.
During 2020 and the first six months of 2021, the Bank processed customer PPP loan applications as established by the Coronavirus Aid, Relief, and Economic Security Act (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.
During 2020 and the first six months of 2021, the Bank processed customer Payment Protection Program (“PPP”) loan applications as established by the Coronavirus Aid, Relief, and Economic Security Act (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.
ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following financial information for the five years ended December 31, 2022 has been derived from the Company’s audited consolidated financial statements. This information should be read in conjunction with those statements, notes and other information included elsewhere herein.
ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following financial information for the three years ended December 31, 2023 has been derived from the Company’s audited consolidated financial statements. This information should be read in conjunction with those statements, notes and other information included elsewhere herein.
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 December 31, 2022, substantially all of the Company’s investment securities were investment grade as rated by one or more major rating agencies.
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 December 31, 2023, substantially all of the Company’s investment securities were investment grade as rated by one or more major rating agency.
The revenue bonds were payable from 11 revenue sources at December 31, 2022 and 14 revenue sources at December 31, 2021. The revenue sources that represent 5% or more individually of the total revenue bonds are summarized in the following tables.
The revenue bonds were payable from 11 revenue sources at December 31, 2023 and December 31, 2022. The revenue sources that represent 5% or more individually of the total revenue bonds are summarized in the following tables.
At December 31, 2022 At December 31, 2021 Carrying Value As a percent of total investment securities Carrying Value As a percent of total investment securities ($ in thousands) Securities of U.S.
At December 31, 2023 At December 31, 2022 Carrying Value As a percent of total investment securities Carrying Value As a percent of total investment securities ($ in thousands) Securities of U.S.
There were no loans with a remaining maturity of over fifteen years as of December 31, 2022.
There were no loans with a remaining maturity of over fifteen years as of December 31, 2023.
Yields on state and political subdivision securities have been calculated on a fully taxable equivalent basis using the current federal statutory rate. Mortgage-backed securities are shown separately because they are typically paid in monthly installments over a number of years.
Yields on state and political subdivision securities have been calculated on a fully taxable equivalent basis using the current federal statutory rate. Collateralized loan obligations and mortgage-backed securities are shown separately because they are typically paid in quarterly and monthly installments, respectively, over a number of years.
Agency mortgage-backed securities were assigned no credit loss allowance due to the perceived backing of government sponsored entities. Corporate securities held to maturity were individually evaluated for expected credit loss by evaluating the issuer’s financial condition, profitability, cash flows, and credit ratings. At December 31, 2022, no credit loss allowance was assigned to corporate securities held to maturity.
Agency mortgage-backed securities were assigned no credit loss allowance due to the perceived backing of government sponsored entities. Corporate securities held to maturity were individually evaluated for expected credit loss by evaluating the issuer’s financial condition, profitability, cash flows, and credit ratings.
The Company's ratio of equity to total assets was 8.7% at December 31, 2022 and 11.1% at December 31, 2021. 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's ratio of equity to total assets was 12.14% at December 31, 2023 and 8.7% at December 31, 2022. 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.
For the Years Ended December 31, 2022 2021 2020 Yield on earning assets (FTE) 3.20 % 2.65 % 2.94 % Rate paid on interest-bearing liabilities 0.05 % 0.06 % 0.06 % Net interest spread (FTE) 3.15 % 2.59 % 2.88 % Benefit of noninterest-bearing demand deposits 0.02 % 0.03 % 0.03 % Net interest margin (FTE) 3.17 % 2.62 % 2.91 % The increase in the Company’s yield on earning assets has been generated primarily by collateralized loan obligations (CLOs), held in debt securities available for sale portfolio, and interest-bearing cash.
For the Years Ended December 31, 2023 2022 2021 Yield on earning assets (FTE) 4.43 % 3.20 % 2.65 % Rate paid on interest-bearing liabilities 0.12 % 0.05 % 0.06 % Net interest spread (FTE) 4.31 % 3.15 % 2.59 % Benefit of noninterest-bearing demand deposits 0.06 % 0.02 % 0.03 % Net interest margin (FTE) 4.37 % 3.17 % 2.62 % The increase in the Company’s yield on earning assets has been generated primarily by collateralized loan obligations (CLOs), held in debt securities available for sale portfolio, and interest-bearing cash.
Debt Securities Available for Sale Maturity Distribution At December 31, 2022 Within one year After one but within five years After five but within ten years After ten years Mortgage- backed Total ($ in thousands) Securities of U.S.
Debt Securities Available for Sale Maturity Distribution At December 31, 2023 Within one year After one but within five years After five but within ten years CLO and Mortgage- backed Total ($ in thousands) Securities of U.S.
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.
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.
Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin For the Year Ended December 31, 2022 Interest Average Income/ Yields/ Balance Expense Rates ($ in thousands) Assets Investment securities: Taxable $ 5,093,921 $ 158,465 3.11 % Tax-exempt (1) 209,725 7,390 3.52 % Total investments (1) 5,303,646 165,855 3.13 % Loans: Taxable: PPP loans 17,604 2,435 13.83 % Other 933,912 45,839 4.91 % Total taxable 951,516 48,274 5.07 % Tax-exempt (1) 46,448 1,781 3.83 % Total loans (1) 997,964 50,055 5.02 % Total interest-bearing cash 691,086 7,790 1.13 % Total Interest-earning assets (1) 6,992,696 223,700 3.20 % Other assets 420,312 Total assets $ 7,413,008 Liabilities and shareholders' equity Noninterest-bearing demand $ 3,018,350 $ - - % Savings and interest-bearing transaction 3,257,858 1,510 0.05 % Time less than $100,000 77,007 180 0.23 % Time $100,000 or more 62,411 156 0.25 % Total interest-bearing deposits 3,397,276 1,846 0.05 % Securities sold under agreements to repurchase 109,282 79 0.07 % Federal funds purchased 1 - 4.68 % Total interest-bearing liabilities 3,506,559 1,925 0.05 % Other liabilities 85,610 Shareholders' equity 802,489 Total liabilities and shareholders' equity $ 7,413,008 Net interest spread (1) (2) 3.15 % Net interest and fee income and interest margin (1) (3) $ 221,775 3.17 % (1) Amounts calculated on an FTE basis using the current statutory federal tax rate.
The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits. -25- Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin For the Year Ended December 31, 2022 Interest Average Income/ Yields/ Balance Expense Rates ($ in thousands) Assets Investment securities: Taxable $ 5,093,921 $ 158,465 3.11 % Tax-exempt (1) 209,725 7,390 3.52 % Total investments (1) 5,303,646 165,855 3.13 % Loans: Taxable 951,516 48,274 5.07 % Tax-exempt (1) 46,448 1,781 3.83 % Total loans (1) 997,964 50,055 5.02 % Total interest-bearing cash 691,086 7,790 1.13 % Total Interest-earning assets (1) 6,992,696 223,700 3.20 % Other assets 420,312 Total assets $ 7,413,008 Liabilities and shareholders' equity Noninterest-bearing demand $ 3,018,350 $ - - % Savings and interest-bearing transaction 3,257,858 1,510 0.05 % Time less than $100,000 77,007 180 0.23 % Time $100,000 or more 62,411 156 0.25 % Total interest-bearing deposits 3,397,276 1,846 0.05 % Short-term borrowed funds 109,283 79 0.07 % Total interest-bearing liabilities 3,506,559 1,925 0.05 % Other liabilities 85,610 Shareholders' equity 802,489 Total liabilities and shareholders' equity $ 7,413,008 Net interest spread (1) (2) 3.15 % Net interest and fee income and interest margin (1) (3) $ 221,775 3.17 % (1) Amounts calculated on an FTE basis using the current statutory federal tax rate.
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 $45 million in the year ended December 31, 2022 and $44 million in the year ended December 31, 2021 and retire common stock in the amounts of $218 thousand and $232 thousand, respectively.
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 $46 million in the year ended December 31, 2023 and $45 million in the year ended December 31, 2022 and retire common stock in the amounts of $14 million and $218 thousand, respectively.
Allowance for credit losses related to debt securities held to maturity was $1 thousand credit loss related to municipal securities at December 31, 2022 and $7 thousand at December 31, 2021, reflecting the expected credit losses on debt securities held to maturity.
Allowance for credit losses related to debt securities held to maturity was $1 thousand related to municipal securities at December 31, 2023 and December 31, 2022, reflecting the expected credit losses on debt securities held to maturity.
For Common Equity Tier I Capital, Tier 1 Capital and Total Capital, the minimum percentage required for regulatory capital adequacy purposes include a 2.5% “capital conservation buffer.” To Be Well-capitalized Required for Under Prompt At December 31, 2022 Capital Adequacy Corrective Action Company Bank Purposes Regulations (Bank) Common Equity Tier I Capital 15.22 % 12.37 % 7.00 % 6.50 % Tier I Capital 15.22 % 12.37 % 8.50 % 8.00 % Total Capital 15.64 % 12.93 % 10.50 % 10.00 % Leverage Ratio 10.18 % 8.26 % 4.00 % 5.00 % To Be Well-capitalized Required for Under Prompt At December 31, 2021 Capital Adequacy Corrective Action Company Bank Purposes Regulations (Bank) Common Equity Tier I Capital 14.93 % 12.48 % 7.00 % 6.50 % Tier I Capital 14.93 % 12.48 % 8.50 % 8.00 % Total Capital 15.47 % 13.17 % 10.50 % 10.00 % Leverage Ratio 9.06 % 7.55 % 4.00 % 5.00 % 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.
For Common Equity Tier I Capital, Tier 1 Capital and Total Capital, the minimum percentage required for regulatory capital adequacy purposes include a 2.5% “capital conservation buffer.” To Be Well-capitalized Required for Under Prompt At December 31, 2023 Capital Adequacy Corrective Action Company Bank Purposes Regulations (Bank) Common Equity Tier I Capital 18.76 % 14.46 % 7.00 % 6.50 % Tier I Capital 18.76 % 14.46 % 8.50 % 8.00 % Total Capital 19.15 % 14.98 % 10.50 % 10.00 % Leverage Ratio 12.86 % 9.88 % 4.00 % 5.00 % To Be Well-capitalized Required for Under Prompt At December 31, 2022 Capital Adequacy Corrective Action Company Bank Purposes Regulations (Bank) Common Equity Tier I Capital 15.22 % 12.37 % 7.00 % 6.50 % Tier I Capital 15.22 % 12.37 % 8.50 % 8.00 % Total Capital 15.64 % 12.93 % 10.50 % 10.00 % Leverage Ratio 10.18 % 8.26 % 4.00 % 5.00 % 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.
At December 31, 2022, the Company’s investment securities portfolios included securities issued by 142 state and local government municipalities and agencies located within 32 states. The largest exposure to any one municipality or agency was $4.8 million (fair value) represented by three general obligation bonds.
At December 31, 2023, the Company’s investment securities portfolios included securities issued by 123 state and local government municipalities and agencies located within 31 states. The largest exposure to any one municipality or agency was $4.8 million (fair value) represented by two general obligation bonds.
Borrowers with real estate loan collateral located in flood zones must carry flood insurance under the loans’ terms. The Company has $21 million in loans to agricultural borrowers; Management continuously monitors these customers’ access to adequate water sources as well as their ability to sustain low crop yields without encountering financial hardship.
Borrowers with real estate loan collateral located in flood zones must carry flood insurance under the loans’ terms. At December 31, 2023, the Company had $18 million in loans to agricultural borrowers; Management continuously monitors these customers’ access to adequate water sources as well as their ability to sustain low crop yields without encountering financial hardship.
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. [The remainder of this page intentionally left blank] - 45 - 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.
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. -46- 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.
Within the dynamic composition simulation, Management makes assumptions regarding the expected change in the volume of financial instruments given the assumed change in market interest rates. Within the static 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 given the assumed change in market interest rates. Within the static simulation, cash flows are assumed redeployed into like financial instruments at prevailing rates and yields.
In recent years, the Bank's deposit base has provided the majority of the Bank'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 years ended December 31, 2022 and December 31, 2021.
In recent years, the Bank's deposit base has provided the majority of the Bank's funding requirements. This low-cost source of funds, along with shareholders' equity, provided 97% of funding for average total assets in the year ended December 31, 2023 and December 31, 2022, respectively.
The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits. - 24 - Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin For the Year Ended December 31, 2021 Interest Average Income/ Yields/ Balance Expense Rates ($ in thousands) Assets Investment securities: Taxable $ 4,267,522 $ 106,329 2.49 % Tax-exempt (1) 312,946 10,677 3.41 % Total investments (1) 4,580,468 117,006 2.55 % Loans: Taxable: PPP loans 152,149 7,639 5.02 % Other 992,454 48,376 4.87 % Total taxable 1,144,603 56,015 4.89 % Tax-exempt (1) 50,532 1,953 3.87 % Total loans (1) 1,195,135 57,968 4.85 % Total interest-bearing cash 857,029 1,132 0.13 % Total Interest-earning assets (1) 6,632,632 176,106 2.65 % Other assets 406,652 Total assets $ 7,039,284 Liabilities and shareholders' equity Noninterest-bearing demand $ 2,897,244 $ - - % Savings and interest-bearing transaction 3,050,859 1,445 0.05 % Time less than $100,000 83,580 167 0.20 % Time $100,000 or more 69,165 265 0.38 % Total interest-bearing deposits 3,203,604 1,877 0.06 % Securities sold under agreements to repurchase 114,266 78 0.07 % Federal Funds purchased 1 - 0.87 % Other borrowed funds 53 - 0.35 % Total interest-bearing liabilities 3,317,924 1,955 0.06 % Other liabilities 73,447 Shareholders' equity 750,669 Total liabilities and shareholders' equity $ 7,039,284 Net interest spread (1) (2) 2.59 % Net interest and fee income and interest margin (1) (3) $ 174,151 2.62 % (1) Amounts calculated on an FTE basis using the current statutory federal tax rate.
The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits. [The remainder of this page intentionally left blank] -26- Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin For the Year Ended December 31, 2021 Interest Average Income/ Yields/ Balance Expense Rates ($ in thousands) Assets Investment securities: Taxable $ 4,267,522 $ 106,329 2.49 % Tax-exempt (1) 312,946 10,677 3.41 % Total investments (1) 4,580,468 117,006 2.55 % Loans: Taxable 1,144,603 56,015 4.89 % Tax-exempt (1) 50,532 1,953 3.87 % Total loans (1) 1,195,135 57,968 4.85 % Total interest-bearing cash 857,029 1,132 0.13 % Total Interest-earning assets (1) 6,632,632 176,106 2.65 % Other assets 406,652 Total assets $ 7,039,284 Liabilities and shareholders' equity Noninterest-bearing demand $ 2,897,244 $ - - % Savings and interest-bearing transaction 3,050,859 1,445 0.05 % Time less than $100,000 83,580 167 0.20 % Time $100,000 or more 69,165 265 0.38 % Total interest-bearing deposits 3,203,604 1,877 0.06 % Short-term borrowed funds 114,320 78 0.07 % Total interest-bearing liabilities 3,317,924 1,955 0.06 % Other liabilities 73,447 Shareholders' equity 750,669 Total liabilities and shareholders' equity $ 7,039,284 Net interest spread (1) (2) 2.59 % Net interest and fee income and interest margin (1) (3) $ 174,151 2.62 % (1) Amounts calculated on an FTE basis using the current statutory federal tax rate.
The Company paid common dividends totaling $45 million in the year ended December 31, 2022 and $44 million in the year ended December 31, 2021, which represent dividends per common share of $1.68 and $1.65, respectively. The Company's earnings have historically exceeded dividends paid to shareholders.
The Company paid common dividends totaling $46 million in the year ended December 31, 2023 and $45 million in the year ended December 31, 2022, which represent dividends per common share of $1.72 and $1.68, respectively. The Company's earnings have historically exceeded dividends paid to shareholders.
The largest exposure to any one municipality or agency was $7.4 million (fair value) represented by five general obligation bonds.
The largest exposure to any one municipality or agency was $4.8 million (fair value) represented by three general obligation bonds.
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. [The remainder of this page intentionally left blank] - 40 - The following table summarizes the allowance for credit losses, chargeoffs and recoveries for the periods indicated.
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. The following table summarizes the allowance for credit losses, chargeoffs and recoveries for the periods indicated.
The interest-bearing cash yield changes by the amount of change in the overnight federal funds rate on the effective date declared by the FOMC. The average balance and yields of interest-bearing cash for 2022 and 2021 was $691 million yielding 1.13% and $857 million yielding 0.13%, respectively.
The interest-bearing cash yield changes by the amount of change in the overnight federal funds rate on the effective date declared by the FOMC. The average balance and yields of interest-bearing cash for 2023 and 2022 was $205 million yielding 5.21% and $691 million yielding 1.13%, respectively.
The tax rate (FTE) was 27.7% for 2021 and 27.2% for 2020. [The remainder of this page intentionally left blank] - 22 - Net Interest and Loan Fee Income (FTE) The Company's primary source of revenue is net interest income, or the difference between interest income earned on loans and investment securities and interest expense paid on interest-bearing deposits and other borrowings.
The effective tax rate (FTE) was 27.2% in 2022 compared with 27.7% in 2021. [The remainder of this page intentionally left blank] -23- Net Interest and Loan Fee Income (FTE) The Company's primary source of revenue is net interest income, or the difference between interest income earned on loans and investment securities and interest expense paid on interest-bearing deposits and other borrowings.
The Company provided no provision for credit losses in 2022 and 2021 based on Management’s estimate of reserves needed over the remaining life of its loans and investments. The Company provided a provision for credit losses of $4.3 million recorded in 2020.
The Company provided no provision for credit losses in 2022 and 2021 based on Management’s estimate of reserves needed over the remaining life of its loans and investments.
See Note 1 to the consolidated financial statements for additional information. [The remainder of this page intentionally left blank] - 41 - The following table presents the allocation of the allowance for credit losses as of December 31 for the periods indicated. The allowance for loan losses for 2018 and 2019 is shown under legacy GAAP.
See Note 1 to the consolidated financial statements for additional information. -41- The following table presents the allocation of the allowance for credit losses as of December 31 for the periods indicated. The allowance for loan losses for 2019 is shown under legacy GAAP.
The Bank maintains deposit balances at the Federal Reserve Bank; the amount that earns interest is identified as “interest-bearing cash”. - 20 - Management continues to evaluate the impacts of inflation, the Federal Reserve’s monetary policy, climate changes, the COVID-19 pandemic and the tensions in Ukraine on the Company’s business and its customers.
The Bank maintains reserve balances at the Federal Reserve Bank; the amount that earns interest is identified as “interest-bearing cash”. -21- Management continues to evaluate the impacts of inflation, the Federal Reserve’s monetary policy and climate changes on the Company’s business and its customers.
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.
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.
The Company repurchased and retired 3 thousand shares valued at $218 thousand in the year ended December 31, 2022 and 4 thousand shares valued at $232 thousand in the year ended December 31, 2021. The Company's primary capital resource is shareholders' equity, which was $602 million at December 31, 2022 compared with $827 million at December 31, 2021.
The Company repurchased and retired 274 thousand shares valued at $14 million in the year ended December 31, 2023 and 3 thousand shares valued at $218 thousand in the year ended December 31, 2022. The Company's primary capital resource is shareholders' equity, which was $773 million at December 31, 2023 compared with $602 million at December 31, 2022.
The CLOs have interest coupons that change once every three months by the amount of change in the three-month LIBOR and SOFR base rates. The average balances and yields of CLOs for 2022 and 2021 was $1,567 million yielding 3.62% and $1,177 million yielding 2.02%, respectively.
The CLOs have interest coupons that change once every three months by the amount of change in the three-month SOFR base rates. The average balances and yields of CLOs for 2023 and 2022 was $1,543 million yielding 6.99% and $1,567 million yielding 3.62%, respectively.
At December 31, 2022, Management’s most recent measurements of estimated changes in net interest income were: Dynamic Simulation (balance sheet composition changes): Assumed Change in Interest Rates Over 1 Year -1.00 % 1.00 % 2.00 % First Year Change in Net Interest Income 0.30 % 2.70 % 5.10 % Static Simulation (balance sheet composition unchanged): Assumed Immediate Change in Interest Rates -1.00 % 1.00 % 2.00 % First Year Change in Net Interest Income -7.60 % 6.70 % 12.90 % 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.
At December 31, 2023, Management’s most recent measurements of estimated changes in net interest income were: Dynamic simulation (balance sheet composition changes): Assumed change in interest rates over 1 year -2.00 % -1.00 % 0.00 % +1.00 % +2.00 % First year change in net interest income -2.20 % -0.40 % -0.80 % +1.80 % +3.20 % Static simulation (balance sheet composition unchanged): Assumed immediate change in interest rates -2.00 % -1.00 % 0.00 % +1.00 % +2.00 % First year change in net interest income -11.50 % -5.60 % 0.00 % +5.70 % +11.00 % -43- 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. - 43 - Market Risk - Equity Markets Equity price risk can affect the Company.
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.
At December 31, 2022 Amortized Fair Cost Value (In thousands) Obligations of states and political subdivisions: General obligation bonds: California $ 34,621 $ 34,252 Washington 11,445 11,332 Texas 8,561 8,405 Massachusetts 8,214 8,073 Michigan 7,126 7,017 Other (23 states) 63,818 62,679 Total general obligation bonds $ 133,785 $ 131,758 Revenue bonds: California $ 13,917 $ 13,620 Kentucky 7,605 7,556 Virginia 3,684 3,618 Colorado 3,155 3,124 Washington 2,070 2,068 Other (8 states) 9,016 9,003 Total revenue bonds $ 39,447 $ 38,989 Total obligations of states and political subdivisions $ 173,232 $ 170,747 [The remainder of this page intentionally left blank] - 34 - At December 31, 2021, the Company’s investment securities portfolios included securities issued by 197 state and local government municipalities and agencies located within 33 states.
At December 31, 2022 Amortized Fair Cost Value (In thousands) Obligations of states and political subdivisions: General obligation bonds: California $ 34,621 $ 34,252 Washington 11,445 11,332 Texas 8,561 8,405 Massachusetts 8,214 8,073 Michigan 7,126 7,017 Other (23 states) 63,818 62,679 Total general obligation bonds $ 133,785 $ 131,758 Revenue bonds: California $ 13,917 $ 13,620 Kentucky 7,605 7,556 Virginia 3,684 3,618 Colorado 3,155 3,124 Washington 2,070 2,068 Other (8 states) 9,016 9,003 Total revenue bonds $ 39,447 $ 38,989 Total obligations of states and political subdivisions $ 173,232 $ 170,747 At December 31, 2023 and December 31, 2022, 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.
Based on current capital projections, the Bank expects to maintain regulatory capital levels in excess of the minimum required to be considered well-capitalized under the prompt corrective action framework. The Company expects to continue paying quarterly dividends to shareholders.
Based on current capital projections, the Bank expects to maintain regulatory capital levels in excess of the minimum required to be considered well-capitalized under the prompt corrective action framework. The Company expects to continue paying quarterly dividends to shareholders. No assurance can be given that changes in capital management plans will not occur.
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.
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.
Based on the results of the most recent liquidity stress test, Management is satisfied with the liquidity condition of the Bank. However, no assurance can be given the Bank will not experience a period of reduced liquidity. Management continually monitors the Bank’s cash levels. Loan demand from credit worthy borrowers will be dictated by economic and competitive conditions.
However, no assurance can be given the Bank will not experience a period of reduced liquidity. -45- Management continually monitors the Bank’s cash levels. Loan demand from credit worthy borrowers will be dictated by economic and competitive conditions.
Government sponsored entities $ 290,853 $ - $ - Agency residential MBS 286,048 411,726 652,952 Securities of U.S.
Government sponsored entities $ 294,919 $ 290,853 $ - Agency residential MBS 239,454 286,048 411,726 Securities of U.S.
Government sponsored entities $ 290,853 6 % $ - - % Agency residential mortgage-backed securities ("MBS") 390,900 7 % 559,358 11 % Obligations of states and political subdivisions 171,212 3 % 251,933 5 % Corporate securities 2,821,809 54 % 2,746,735 56 % Collateralized loan obligations 1,572,883 30 % 1,386,355 28 % Other - - % 877 - % Total $ 5,247,657 100 % $ 4,945,258 100 % Debt securities available for sale $ 4,331,743 $ 4,638,855 Debt securities held to maturity 915,914 306,403 Total $ 5,247,657 $ 4,945,258 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.
Government sponsored entities $ 294,919 6 % $ 290,853 6 % Agency residential mortgage-backed securities ("MBS") 318,019 7 % 390,900 7 % Obligations of states and political subdivisions 142,465 3 % 171,212 3 % Corporate securities 2,638,198 54 % 2,821,809 54 % Collateralized loan obligations 1,484,597 30 % 1,572,883 30 % Total $ 4,878,198 100 % $ 5,247,657 100 % Debt securities available for sale $ 3,999,801 $ 4,331,743 Debt securities held to maturity 878,397 915,914 Total $ 4,878,198 $ 5,247,657 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.
Noninterest Expense Components of Noninterest Expense For the Years Ended December 31, 2022 2021 2020 (In thousands) Salaries and related benefits $ 46,125 $ 48,011 $ 50,749 Occupancy and equipment 19,884 19,139 19,637 Outsourced data processing services 9,684 9,601 9,426 Limited partnership operating losses 5,724 2,620 2,440 Professional fees 2,628 3,253 2,423 Courier service 2,614 2,177 2,001 Other noninterest expense 12,702 13,005 11,890 Total Noninterest Expense $ 99,361 $ 97,806 $ 98,566 Noninterest expense in 2022 increased $1.6 million compared with 2021.
Noninterest Expense Components of Noninterest Expense For the Years Ended December 31, 2023 2022 2021 (In thousands) Salaries and related benefits $ 47,871 $ 46,125 $ 48,011 Occupancy and equipment 20,520 19,884 19,139 Outsourced data processing services 9,846 9,684 9,601 Limited partnership operating losses 5,754 5,724 2,620 Professional fees 1,751 2,628 3,253 Courier service 2,652 2,614 2,177 Other noninterest expense 14,822 12,702 13,005 Total Noninterest Expense $ 103,216 $ 99,361 $ 97,806 Noninterest expense in 2023 increased $3.9 million compared with 2022.
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.
The impact of an expected modification to be made to loans to borrowers experiencing financial difficulty is included in the allowance for credit losses when management determines such modification is likely. Accrued interest is recorded in other assets and is excluded from the estimation of expected credit loss.
The following table shows the composition of the loan portfolio of the Company by type of loan and type of borrower, on the dates indicated: Loan Portfolio At December 31, 2022 2021 2020 2019 2018 (In thousands) PPP loans $ 586 $ 45,888 $ 186,945 $ - $ - Other commercial 169,031 187,202 207,861 222,085 275,080 Total commercial 169,617 233,090 394,806 222,085 275,080 Commercial real estate 491,107 535,261 564,300 578,758 580,480 Construction 3,088 48 129 1,618 3,982 Residential real estate 13,834 18,133 23,471 32,748 44,866 Consumer installment and other 280,842 281,594 273,537 291,455 302,794 Total loans $ 958,488 1,068,126 1,256,243 1,126,664 1,207,202 The following table shows the maturity distribution and interest rate sensitivity of loans at December 31, 2022.
The following table shows the composition of the loan portfolio of the Company by type of loan and type of borrower, on the dates indicated: Loan Portfolio At December 31, 2023 2022 2021 2020 2019 (In thousands) Commercial $ 136,550 $ 169,617 $ 233,090 $ 394,806 $ 222,085 Commercial real estate 487,523 491,107 535,261 564,300 578,758 Construction 5,063 3,088 48 129 1,618 Residential real estate 9,935 13,834 18,133 23,471 32,748 Consumer installment and other 227,531 280,842 281,594 273,537 291,455 Total loans $ 866,602 $ 958,488 $ 1,068,126 $ 1,256,243 $ 1,126,664 The following table shows the maturity distribution of loans at December 31, 2023.
At and For the Years Ended December 31, 2022 2021 2020 2019 2018 ($ in thousands) Analysis of the Allowance for Credit Losses Balance, end of prior period $ 23,514 $ 23,854 $ 19,484 $ 21,351 $ 23,009 Adoption of ASU 2016-13 - - 2,017 - - Balance, beginning of period 23,514 23,854 21,501 21,351 23,009 Provision for (reversal of) credit losses on loans 6 2 4,307 - - Loans charged off: Commercial (20 ) (56 ) (236 ) (97 ) (513 ) Commercial real estate - - - - (240 ) Consumer and other installment (6,205 ) (3,192 ) (3,963 ) (4,473 ) (4,124 ) Total chargeoffs (6,225 ) (3,248 ) (4,199 ) (4,570 ) (4,877 ) Recoveries of loans previously charged off: Commercial 376 228 351 768 1,447 Commercial real estate 62 743 49 196 - Consumer and other installment 2,551 1,935 1,845 1,739 1,772 Total recoveries 2,989 2,906 2,245 2,703 3,219 Net loan losses (3,236 ) (342 ) (1,954 ) (1,867 ) (1,658 ) Balance, end of period $ 20,284 $ 23,514 $ 23,854 $ 19,484 $ 21,351 Net loan losses as a percentage of average loans 0.32 % 0.03 % 0.16 % 0.16 % 0.14 % Selected financial data: Loans $ 958,488 $ 1,068,126 $ 1,256,243 $ 1,126,664 $ 1,207,202 Nonaccrual loans 146 692 4,329 4,440 4,868 Allowance for credit losses as a percentage of loans 2.12 % 2.20 % 1.90 % 1.73 % 1.77 % Nonaccrual loans as a percentage of loans 0.02 % 0.06 % 0.34 % 0.39 % 0.40 % Allowance for credit losses to nonaccrual loans 13893.15 % 3397.98 % 551.03 % 438.83 % 438.60 % The following table summarizes net (chargeoffs) recoveries and the ratio of net charge-offs (recoveries) to average loans for the periods indicated: For the Years ended December 31, 2022 2021 2020 As a percentage As a percentage As a percentage of Net chargeoffs of Net chargeoffs of Net chargeoffs Net (chargeoffs) (recoveries) Net (chargeoffs) (recoveries) Net (chargeoffs) (recoveries) Recoveries to Average loans Recoveries to Average loans Recoveries to Average loans ($ in thousands) Commercial $ 356 (0.19 )% $ 172 (0.05 )% $ 115 (0.03 )% Commercial real estate 62 (0.01 )% 743 (0.14 )% 49 (0.01 )% Construction - - % - - % - - % Residential real estate - - % - - % - - % Consumer and other installment (3,654 ) 1.29 % (1,257 ) 0.45 % (2,118 ) 0.76 % Total $ (3,236 ) 0.32 % $ (342 ) 0.03 % $ (1,954 ) 0.16 % 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.
At and For the Years Ended December 31, 2023 2022 2021 2020 2019 ($ in thousands) Analysis of the Allowance for Credit Losses Balance, end of prior period $ 20,284 $ 23,514 $ 23,854 $ 19,484 $ 21,351 Adoption of ASU 2016-13 - - - 2,017 - Balance, beginning of period 20,284 23,514 23,854 21,501 21,351 Provision for (reversal of) credit losses on loans (1,150 ) 6 2 4,307 - Loans charged off: Commercial (410 ) (20 ) (56 ) (236 ) (97 ) Commercial real estate (45 ) - - - - Consumer and other installment (7,499 ) (6,205 ) (3,192 ) (3,963 ) (4,473 ) Total chargeoffs (7,954 ) (6,225 ) (3,248 ) (4,199 ) (4,570 ) Recoveries of loans previously charged off: Commercial 2,359 376 228 351 768 Commercial real estate 71 62 743 49 196 Consumer and other installment 3,257 2,551 1,935 1,845 1,739 Total recoveries 5,687 2,989 2,906 2,245 2,703 Net loan losses (2,267 ) (3,236 ) (342 ) (1,954 ) (1,867 ) Balance, end of period $ 16,867 $ 20,284 $ 23,514 $ 23,854 $ 19,484 Net loan losses as a percentage of average loans 0.25 % 0.32 % 0.03 % 0.16 % 0.16 % Selected financial data: (at period end) Loans $ 866,602 $ 958,488 $ 1,068,126 $ 1,256,243 $ 1,126,664 Nonaccrual loans 403 146 692 4,329 4,440 Allowance for credit losses as a percentage of loans 1.95 % 2.12 % 2.20 % 1.90 % 1.73 % Nonaccrual loans as a percentage of loans 0.05 % 0.02 % 0.06 % 0.34 % 0.39 % Allowance for credit losses to nonaccrual loans 4185.36 % 13893.15 % 3397.98 % 551.03 % 438.83 % The following table summarizes net (chargeoffs) recoveries and the ratio of net charge-offs (recoveries) to average loans for the periods indicated: For the Year Ended December 31, 2023 2022 2021 As a percentage As a percentage As a percentage Average of Net chargeoffs Average of Net chargeoffs Average of Net chargeoffs Net (chargeoffs) Loan (recoveries) Net (chargeoffs) Loan (recoveries) Net (chargeoffs) Loan (recoveries) Recoveries Balances to Average loans Recoveries Balances to Average loans Recoveries Balances to Average loans ($ in thousands) Commercial $ 1,949 $ 149,137 (1.31 )% $ 356 $ 191,805 (0.19 )% $ 172 $ 349,882 (0.05 )% Commercial real estate 26 492,183 (0.01 )% 62 504,713 (0.01 )% 743 546,750 (0.14 )% Construction - 4,362 - % - 1,676 - % - 98 - % Residential real estate - 12,080 - % - 15,694 - % - 20,337 - % Consumer and other installment (4,242 ) 254,554 1.67 % (3,654 ) 284,076 1.29 % (1,257 ) 278,067 0.45 % Total $ (2,267 ) $ 912,316 0.25 % $ (3,236 ) $ 997,964 0.32 % $ (342 ) $ 1,195,135 0.03 % 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.
At December 31, 2022 2021 2020 2019 2018 Allocation of the Allowance Balance Loans as Percent of Total Loans Allocation of the Allowance Balance Loans as Percent of Total Loans Allocation of the Allowance Balance Loans as Percent of Total Loans Allocation of the Allowance Balance Loans as Percent of Total Loans Allocation of the Allowance Balance Loans as Percent of Total Loans ($ in thousands) Commercial $ 6,138 18 % $ 6,966 22 % $ 9,205 31 % $ 4,959 20 % $ 6,311 23 % Commercial real estate 5,888 51 % 6,529 50 % 5,660 45 % 4,064 51 % 3,884 48 % Construction 150 - % 2 - % 6 - % 109 - % 1,465 - % Residential real estate 32 2 % 45 2 % 47 2 % 206 3 % 869 4 % Consumer installment and other 8,076 29 % 9,972 26 % 8,936 22 % 6,445 26 % 5,645 25 % Unallocated portion - - % - - % - - % 3,701 - % 3,177 - % Total $ 20,284 100 % $ 23,514 100 % $ 23,854 100 % $ 19,484 100 % $ 21,351 100 % Allowance for Credit Losses For the Year Ended Decmber 31, 2022 Consumer Commercial Residential Installment Commercial Real Estate Construction Real Estate and Other Total (In thousands) Allowance for credit losses: Balance at beginning of period $ 6,966 $ 6,529 $ 2 $ 45 $ 9,972 $ 23,514 (Reversal) provision (1,184 ) (703 ) 148 (13 ) 1,758 6 Chargeoffs (20 ) - - - (6,205 ) (6,225 ) Recoveries 376 62 - - 2,551 2,989 Total allowance for credit losses $ 6,138 $ 5,888 $ 150 $ 32 $ 8,076 $ 20,284 Management considers the $20.3 million allowance for credit losses on loans to be adequate as a reserve against current expected credit losses in the loan portfolio as of December 31, 2022.
At December 31, 2023 2022 2021 2020 2019 Allocation of the Allowance Balance Loans as Percent of Total Loans Allocation of the Allowance Balance Loans as Percent of Total Loans Allocation of the Allowance Balance Loans as Percent of Total Loans Allocation of the Allowance Balance Loans as Percent of Total Loans Allocation of the Allowance Balance Loans as Percent of Total Loans ($ in thousands) Commercial $ 4,216 16 % $ 6,138 18 % $ 6,966 22 % $ 9,205 31 % $ 4,959 20 % Commercial real estate 5,925 56 % 5,888 51 % 6,529 50 % 5,660 45 % 4,064 51 % Construction 245 1 % 150 - % 2 - % 6 - % 109 - % Residential real estate 26 1 % 32 2 % 45 2 % 47 2 % 206 3 % Consumer installment and other 6,455 26 % 8,076 29 % 9,972 26 % 8,936 22 % 6,445 26 % Unallocated portion - - % - - % - - % - - % 3,701 - % Total $ 16,867 100 % $ 20,284 100 % $ 23,514 100 % $ 23,854 100 % $ 19,484 100 % Allowance for Credit Losses For the Year Ended December 31, 2023 Consumer Commercial Residential Installment Commercial Real Estate Construction Real Estate and Other Total (In thousands) Allowance for credit losses: Balance at beginning of period $ 6,138 $ 5,888 $ 150 $ 32 $ 8,076 $ 20,284 (Reversal) provision (3,871 ) 11 95 (6 ) 2,621 (1,150 ) Chargeoffs (410 ) (45 ) - - (7,499 ) (7,954 ) Recoveries 2,359 71 - - 3,257 5,687 Total allowance for credit losses $ 4,216 $ 5,925 $ 245 $ 26 $ 6,455 $ 16,867 Management considers the $16.9 million allowance for credit losses on loans to be adequate as a reserve against current expected credit losses in the loan portfolio as of December 31, 2023.
The Company did not take an aggressive posture relative to loan portfolio growth during the post-recession period of historically low interest rates. Management increased investment securities as loan volumes declined.
Loan volumes have declined due to payoffs and problem loan workout activities, particularly with purchased loans, and reduced volumes of loan originations. The Company did not take an aggressive posture relative to loan portfolio growth during the post-recession period of historically low interest rates. Management increased investment securities as loan volumes declined.
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. - 28 - Noninterest Income Components of Noninterest Income For the Years Ended December 31, 2022 2021 2020 (In thousands) Service charges on deposit accounts $ 14,490 $ 13,697 $ 14,149 Merchant processing services 11,623 11,998 10,208 Debit card fees 7,879 6,859 6,181 Trust fees 3,216 3,311 3,012 ATM processing fees 2,160 2,280 2,273 Other service fees 1,808 1,884 1,837 Financial services commissions 417 356 372 Life insurance gains 930 - - Gains on sales of real property - - 3,536 Securities gains - 34 71 Other noninterest income 2,598 2,926 3,998 Total Noninterest Income $ 45,121 $ 43,345 $ 45,637 Noninterest income in 2022 increased $1.8 million compared with 2021 primarily due to a $1.2 million reconciling payment from a payments network, a $930 thousand life insurance gain and higher fee income on deposit accounts.
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. [The remainder of this page intentionally left blank] -29- Noninterest Income Components of Noninterest Income For the Years Ended December 31, 2023 2022 2021 (In thousands) Service charges on deposit accounts $ 14,169 $ 14,490 $ 13,697 Merchant processing services 11,280 11,623 11,998 Debit card fees 7,185 7,879 6,859 Trust fees 3,122 3,216 3,311 ATM processing fees 2,618 2,160 2,280 Other service fees 1,765 1,808 1,884 Financial services commissions 336 417 356 Life insurance gains 279 930 - Securities (losses) gains (125 ) - 34 Other noninterest income 2,893 2,598 2,926 Total Noninterest Income $ 43,522 $ 45,121 $ 43,345 Noninterest income in 2023 decreased $1.6 million compared with 2022 primarily due to lower gains on life insurance and because debit card fees in 2022 included a $1.2 million reconciling payment from a payments network.
Government entities - 119 154 Obligations of states and political subdivisions 82,004 93,920 111,010 Corporate securities 2,099,955 2,746,735 2,117,978 Commercial paper - - 24,990 Collateralized Loan Obligations 1,572,883 1,386,355 1,156,101 Total debt securities available for sale $ 4,331,743 $ 4,638,855 $ 4,063,185 The following table sets forth the relative maturities and contractual yields of the Company’s debt securities available for sale (stated at fair value) at December 31, 2022.
Government entities - - 119 Obligations of states and political subdivisions 71,283 82,004 93,920 Corporate securities 1,909,548 2,099,955 2,746,735 Collateralized loan obligations 1,484,597 1,572,883 1,386,355 Total debt securities available for sale $ 3,999,801 $ 4,331,743 $ 4,638,855 The following table sets forth the relative maturities and contractual yields of the Company’s debt securities available for sale (stated at fair value) at December 31, 2023.
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 Company extends loans to commercial and consumer customers primarily in Northern and Central California.
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.
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.
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.
The following table summarizes the Company’s average daily amount of deposits and the rates paid for the periods indicated: Deposit Distribution and Average Rates Paid For the Years Ended December 31, 2022 2021 2020 Average Balance Percentage of Total Deposits Rate Average Balance Percentage of Total Deposits Rate Average Balance Percentage of Total Deposits Rate ($ In thousands) Noninterest-bearing demand $ 3,018,350 47.0 % - % $ 2,897,244 47.5 % - % $ 2,538,819 47.8 % - % Interest bearing: Transaction 1,289,956 20.1 % 0.03 % 1,208,269 19.8 % 0.03 % 1,008,758 19.0 % 0.03 % Savings 1,967,902 30.7 % 0.06 % 1,842,590 30.2 % 0.06 % 1,594,718 30.1 % 0.06 % Time less than $100 thousand 77,007 1.2 % 0.23 % 83,580 1.4 % 0.20 % 91,519 1.7 % 0.21 % Time $100 thousand or more 62,411 1.0 % 0.25 % 69,165 1.1 % 0.38 % 72,363 1.4 % 0.44 % Total (1) $ 6,415,626 100.0 % 0.05 % $ 6,100,848 100.0 % 0.06 % $ 5,306,177 100.0 % 0.06 % (1) The rates for total deposits were calculated using the average balances of interest-bearing deposits.
The following table summarizes the Company’s average daily amount of deposits and the rates paid for the periods indicated: Deposit Distribution and Average Rates Paid For the Years Ended December 31, 2023 2022 2021 Average Balance Percentage of Total Deposits Rate Average Balance Percentage of Total Deposits Rate Average Balance Percentage of Total Deposits Rate ($ In thousands) Noninterest-bearing demand $ 2,748,544 47.5 % - % $ 3,018,350 47.0 % - % $ 2,897,244 47.5 % - % Interest bearing: Transaction 1,156,684 20.0 % 0.04 % 1,289,956 20.1 % 0.03 % 1,208,269 19.8 % 0.03 % Savings 1,766,225 30.5 % 0.17 % 1,967,902 30.7 % 0.06 % 1,842,590 30.2 % 0.06 % Time less than $100 thousand 67,832 1.2 % 0.30 % 77,007 1.2 % 0.23 % 83,580 1.4 % 0.20 % Time $100 thousand or more 48,076 0.8 % 0.24 % 62,411 1.0 % 0.25 % 69,165 1.1 % 0.38 % Total (1) $ 5,787,361 100.0 % 0.12 % $ 6,415,626 100.0 % 0.05 % $ 6,100,848 100.0 % 0.06 % (1) The rates for total deposits were calculated using the average balances of interest-bearing deposits. -47- The Company’s strategy includes building the value of its deposit base by building balances of lower-costing deposits and avoiding reliance on higher-costing time deposits.
The following table shows the time remaining to maturity of the Company’s time deposits with a balance greater than $250,000: At December 31, 2022 (In thousands) Three months or less $ 8,989 Over three through six months 2,362 Over six through twelve months 4,962 Over twelve months 5,747 Total $ 22,060 - 47 - Short-term Borrowings The following table sets forth the short-term borrowings of the Company: Short-Term Borrowings Distribution At December 31, 2022 2021 2020 (In thousands) Securities sold under agreements to repurchase the securities $ 57,792 $ 146,246 $ 102,545 Total short-term borrowings $ 57,792 $ 146,246 $ 102,545 Further detail of federal funds purchased and other borrowed funds is as follows: For the Years Ended December 31, 2022 2021 2020 ($ in thousands) Federal funds purchased balances and rates paid on outstanding amount: Average balance for the year $ 1 $ 1 $ 1 Maximum month-end balance during the year - - - Average interest rate for the year 4.68 % 0.87 % 0.88 % Average interest rate at period end - % - % - % Securities sold under agreements to repurchase the securities balances and rates paid on outstanding amount: Average balance for the year $ 109,282 $ 114,266 $ 80,455 Maximum month-end balance during the year 257,560 146,552 110,846 Average interest rate for the year 0.07 % 0.07 % 0.07 % Average interest rate at period end 0.06 % 0.07 % 0.07 % PPPLF balances and rates paid on outstanding amount: Average balance for the year $ - $ 53 $ 174 Maximum month-end balance during the year - - - Average interest rate for the year - % 0.35 % 0.35 % Average interest rate at period end - % - % - % Financial Ratios The following table shows key financial ratios for the periods indicated: At and For the Years Ended December 31, 2022 2021 2020 Return on average total assets 1.65 % 1.23 % 1.30 % Return on average common shareholders' equity 15.21 % 11.52 % 11.30 % Average shareholders' equity as a percentage of: Average total assets 10.83 % 10.66 % 11.52 % Average total loans 80.41 % 62.81 % 57.42 % Average total deposits 12.51 % 12.30 % 13.41 % Common dividend payout ratio 37 % 51 % 55 % [The remainder of this page intentionally left blank] - 48 -
Time Deposits Maturity Distribution At December 31, 2023 (In thousands) 2024 $ 77,625 2025 10,606 2026 3,347 2027 2,526 2028 2,653 Thereafter 45 Total $ 96,802 Short-term Borrowings The following table sets forth the short-term borrowings of the Company: Short-Term Borrowings Distribution At December 31, 2023 2022 2021 (In thousands) Securities sold under agreements to repurchase the securities $ 58,162 $ 57,792 $ 146,246 Total short-term borrowings $ 58,162 $ 57,792 $ 146,246 Further detail of federal funds purchased and other borrowed funds is as follows: For the Years Ended December 31, 2023 2022 2021 ($ in thousands) Federal funds purchased balances and rates paid on outstanding amount: Average balance for the year $ - $ 1 $ 1 Maximum month-end balance during the year - - - Average interest rate for the year - % 4.68 % 0.87 % Average interest rate at period end - % - % - % Securities sold under agreements to repurchase the securities balances and rates paid on outstanding amount: Average balance for the year $ 89,298 $ 109,282 $ 114,266 Maximum month-end balance during the year 138,005 257,560 146,552 Average interest rate for the year 0.13 % 0.07 % 0.07 % Average interest rate at period end 0.31 % 0.06 % 0.07 % PPPLF balances and rates paid on outstanding amount: Average balance for the year $ - $ - $ 53 Maximum month-end balance during the year - - - Average interest rate for the year - % - % 0.35 % Average interest rate at period end - % - % - % -48- Financial Ratios The following table shows key financial ratios for the periods indicated: At and For the Years Ended December 31, 2023 2022 2021 Return on average total assets 2.35 % 1.65 % 1.23 % Return on average common shareholders' equity 18.08 % 15.21 % 11.52 % Average shareholders' equity as a percentage of: Average total assets 13.02 % 10.83 % 10.66 % Average total loans 98.06 % 80.41 % 62.81 % Average total deposits 15.46 % 12.51 % 12.30 % Common dividend payout ratio 28 % 37 % 51 % [The remainder of this page intentionally left blank] -49-
Capital raised through the exercise of stock options was $2.3 million in the year ended December 31, 2022 and $3.0 million in the year ended December 31, 2021.
The Company also raises capital as employees exercise stock options. Capital raised through the exercise of stock options was $950 thousand in the year ended December 31, 2023 and $2.3 million in the year ended December 31, 2022.
Components of Net Interest and Loan Fee Income (FTE) For the Years Ended December 31, 2022 2021 2020 ($ in thousands) Interest and loan fee income $ 221,756 $ 173,443 $ 165,856 FTE adjustment 1,944 2,663 3,650 Interest and loan fee income (FTE) 223,700 176,106 169,506 Interest expense (1,925 ) (1,955 ) (1,824 ) Net interest and loan fee income (FTE) $ 221,775 $ 174,151 $ 167,682 Net interest margin (FTE) 3.17 % 2.62 % 2.91 % Net interest and loan fee income (FTE) increased $47.6 million in 2022 compared with 2021 due to higher average balances of investment securities (up $723 million) and higher yield on interest-earning assets (up 0.55%), partially offset by lower average balances of loans (down $197 million).
Components of Net Interest and Loan Fee Income (FTE) For the Years Ended December 31, 2023 2022 2021 ($ in thousands) Interest and loan fee income $ 284,013 $ 221,756 $ 173,443 FTE adjustment 1,550 1,944 2,663 Interest and loan fee income (FTE) 285,563 223,700 176,106 Interest expense (3,890 ) (1,925 ) (1,955 ) Net interest and loan fee income (FTE) $ 281,673 $ 221,775 $ 174,151 Net interest margin (FTE) 4.37 % 3.17 % 2.62 % Net interest and loan fee income (FTE) increased $59.9 million in 2023 compared with 2022 due to higher yield on interest-earning assets (up 1.23%) and higher average balances of investment debt securities (up $31 million), partially offset by lower average balances of loans (down $86 million) and interest-bearing cash (down $486 million) and higher rate on interest-bearing liabilities (up 0.07%).
Allowance for Credit Losses The following table summarizes allowance for credit losses at the dates indicated: At December 31, 2022 2021 (In thousands) Allowance for Credit Losses on Loans $ 20,284 $ 23,514 Allowance for Credit Losses on Held to Maturity Debt Securities 1 7 Total Allowance for Credit Losses $ 20,285 $ 23,521 Allowance for unfunded credit commitments $ 201 $ 201 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.
No assurance can be given that additional increases in nonaccrual and delinquent loans will not occur in the future. -39- Allowance for Credit Losses The following table summarizes allowance for credit losses at the dates indicated: At December 31, 2023 2022 (In thousands) Allowance for credit losses on loans $ 16,867 $ 20,284 Allowance for credit losses on held to maturity debt securities 1 1 Total allowance for credit losses $ 16,868 $ 20,285 Allowance for unfunded credit commitments $ 201 $ 201 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.
In underwriting first lien mortgages, the Company evaluates each borrower’s ability to repay the loan, an independent appraisal of the value of the property, and other relevant factors.
In underwriting first lien mortgages, the Company evaluates each borrower’s ability to repay the loan, an independent appraisal of the value of the property, and other relevant factors. The Company does not offer riskier mortgage products, such as non-amortizing “interest-only” mortgages and “negative amortization” mortgages.
Significant risk characteristics related to the consumer loan segment include the financial condition of the borrowers and the value of collateral securing the loans. - 39 - The preparation of these financial statements requires Management to estimate the amount of expected losses over the expected contractual life of the Bank’s existing loan portfolio and establish an allowance for credit losses.
The preparation of the financial statements requires Management to estimate the amount of expected losses over the expected contractual life of the Bank’s existing loan portfolio and establish an allowance for credit losses.
Total time deposits were $131 million and $144 million at December 31, 2022 and December 31, 2021, respectively. The following table sets forth, by time remaining to maturity, the Company’s total domestic time deposits. The Company has no foreign time deposits.
The following table sets forth, by time remaining to maturity, the Company’s total domestic time deposits. The Company has no foreign time deposits.
WESTAMERICA BANCORPORATION FINANCIAL SUMMARY For the Years Ended December 31, 2022 2021 2020 2019 2018 (In thousands, except per share data and ratios) Interest and loan fee income $ 221,756 $ 173,443 $ 165,856 $ 158,682 $ 151,723 Interest expense 1,925 1,955 1,824 1,888 1,959 Net interest and loan fee income 219,831 171,488 164,032 156,794 149,764 Provision for credit losses - - 4,300 - - Noninterest income: Life insurance gains 930 - - 433 585 Gains on sales of property - - 3,536 - 216 Securities gains (losses) - 34 71 217 (52 ) Other noninterest income 44,191 43,311 42,030 46,758 47,400 Total noninterest income 45,121 43,345 45,637 47,408 48,149 Noninterest expense: Loss contingency - - - 553 3,500 Other noninterest expense 99,361 97,806 98,566 98,433 103,416 Total noninterest expense 99,361 97,806 98,566 98,986 106,916 Income before income taxes 165,591 117,027 106,803 105,216 90,997 Income tax provision 43,557 30,518 26,390 24,827 19,433 Net income $ 122,034 $ 86,509 $ 80,413 $ 80,389 $ 71,564 Average common shares outstanding 26,895 26,855 26,942 26,956 26,649 Average diluted common shares outstanding 26,907 26,870 26,960 27,006 26,756 Common shares outstanding at December 31, 26,913 26,866 26,807 27,062 26,730 Per common share: Basic earnings $ 4.54 $ 3.22 $ 2.98 $ 2.98 $ 2.69 Diluted earnings 4.54 3.22 2.98 2.98 2.67 Book value at December 31, 22.37 30.79 31.51 27.03 23.03 Financial ratios: Return on assets 1.65 % 1.23 % 1.30 % 1.44 % 1.27 % Return on common equity 15.21 % 11.52 % 11.30 % 11.90 % 11.35 % Net interest margin (FTE) (1) 3.17 % 2.62 % 2.91 % 3.11 % 2.98 % Net loan losses to average loans 0.32 % 0.03 % 0.16 % 0.16 % 0.14 % Efficiency ratio (2) 37.2 % 45.0 % 46.2 % 47.4 % 52.5 % Equity to assets 8.66 % 11.09 % 12.52 % 13.02 % 11.05 % Period end balances: Assets $ 6,950,317 $ 7,461,026 $ 6,747,931 $ 5,619,555 $ 5,568,526 Loans 958,488 1,068,126 1,256,243 1,126,664 1,207,202 Allowance for credit losses 20,284 23,514 23,854 19,484 21,351 Investment securities 5,247,657 4,945,258 4,578,783 3,816,918 3,641,026 Deposits 6,225,290 6,413,956 5,687,979 4,812,621 4,866,839 Identifiable intangible assets and goodwill 122,256 122,508 122,777 123,064 123,602 Short-term borrowed funds 57,792 146,246 102,545 30,928 51,247 Shareholders' equity 602,110 827,102 844,809 731,417 615,591 Capital ratios at period end: Total risk based capital 15.64 % 15.47 % 16.68 % 16.83 % 17.03 % Tangible equity to tangible assets 7.03 % 9.60 % 10.90 % 11.07 % 9.04 % Dividends paid per common share $ 1.68 $ 1.65 $ 1.64 $ 1.63 $ 1.60 Common dividend payout ratio 37 % 51 % 55 % 55 % 60 % (1) Yields on securities and certain loans have been adjusted upward to a "fully taxable equivalent" ("FTE") basis in order to reflect the effect of income which is exempt from federal income taxation at the current statutory tax rate.
WESTAMERICA BANCORPORATION FINANCIAL SUMMARY For the Years Ended December 31, 2023 2022 2021 (In thousands, except per share data and ratios) Interest and loan fee income $ 284,013 $ 221,756 $ 173,443 Interest expense 3,890 1,925 1,955 Net interest and loan fee income 280,123 219,831 171,488 Reversal of provision for credit losses (1,150 ) - - Noninterest income: Life insurance gains 279 930 - Securities (losses) gains (125 ) - 34 Other noninterest income 43,368 44,191 43,311 Total noninterest income 43,522 45,121 43,345 Noninterest expense 103,216 99,361 97,806 Income before income taxes 221,579 165,591 117,027 Income tax provision 59,811 43,557 30,518 Net income $ 161,768 $ 122,034 $ 86,509 Average common shares outstanding 26,703 26,895 26,855 Average diluted common shares outstanding 26,706 26,907 26,870 Common shares outstanding at December 31, 26,671 26,913 26,866 Per common share: Basic earnings $ 6.06 $ 4.54 $ 3.22 Diluted earnings 6.06 4.54 3.22 Book value at December 31, 28.98 22.37 30.79 Financial ratios: Return on assets 2.35 % 1.65 % 1.23 % Return on common equity 18.08 % 15.21 % 11.52 % Net interest margin (FTE) (1) 4.37 % 3.17 % 2.62 % Net loan losses to average loans 0.25 % 0.32 % 0.03 % Efficiency ratio (2) 31.7 % 37.2 % 45.0 % Equity to assets 12.14 % 8.66 % 11.09 % Period end balances: Assets $ 6,364,592 $ 6,950,317 $ 7,461,026 Loans 866,602 958,488 1,068,126 Allowance for credit losses 16,867 20,284 23,514 Investment securities 4,878,198 5,247,657 4,945,258 Deposits 5,474,267 6,225,290 6,413,956 Identifiable intangible assets and goodwill 122,020 122,256 122,508 Short-term borrowed funds 58,162 57,792 146,246 Shareholders' equity 772,894 602,110 827,102 Capital ratios at period end: Total risk based capital 19.15 % 15.64 % 15.47 % Tangible equity to tangible assets 10.43 % 7.03 % 9.60 % Dividends paid per common share $ 1.72 $ 1.68 $ 1.65 Common dividend payout ratio 28 % 37 % 51 % (1) Yields on securities and certain loans have been adjusted upward to a "fully taxable equivalent" ("FTE") basis in order to reflect the effect of income which is exempt from federal income taxation at the current statutory tax rate.
Net interest and loan fee income (FTE) increased $6.5 million in 2021 compared with 2020 due to higher average balances of investments (up $431 million), higher average balances of interest-bearing cash (up $486 million) and higher yield on PPP loans (up 0.71%), partially offset by lower yield on investments (down 0.20%), interest-earning cash (down 0.18%) and loans excluding PPP loans.
Net interest and loan fee income (FTE) increased $47.6 million in 2022 compared with 2021 due to higher average balances of investment securities (up $723 million) and higher yield on interest-earning assets (up 0.55%), partially offset by lower average balances of loans (down $197 million).
The Bank 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.
Highly liquid assets include cash and amounts due from other banks from daily transaction settlements, reduced by branch cash needs and any 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.
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.
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. -31- The following table shows the fair value carrying amount of the Company’s equity securities and debt securities available for sale as of the dates indicated: At December 31, 2023 2022 2021 (In thousands) Debt securities available for sale: Securities of U.S.
The implementing entry increased allowance for credit losses on loans by $2,017 thousand, reduced allowance for unfunded credit commitments by $2,107 thousand and increased retained earnings by $52 thousand. [The remainder of this page intentionally left blank] - 21 - Net Income Following is a summary of the components of net income for the periods indicated: For the Years Ended December 31, 2022 2021 2020 ($ in thousands, except per share data) Net interest and loan fee income $ 219,831 $ 171,488 $ 164,032 FTE adjustment 1,944 2,663 3,650 Net interest and loan fee income (FTE) 221,775 174,151 167,682 Provision for credit losses - - (4,300 ) Noninterest income 45,121 43,345 45,637 Noninterest expense (99,361 ) (97,806 ) (98,566 ) Income before income taxes (FTE) 167,535 119,690 110,453 Income taxes (FTE) (45,501 ) (33,181 ) (30,040 ) Net income $ 122,034 $ 86,509 $ 80,413 Net income per average fully-diluted common share $ 4.54 $ 3.22 $ 2.98 Net income as a percentage of average shareholders' equity 15.21 % 11.52 % 11.30 % Net income as a percentage of average total assets 1.65 % 1.23 % 1.30 % Net income for 2022 increased $35.5 million compared with 2021.
The Company adopted the ASU provisions on January 1, 2021 and the adoption of the ASU provisions did not have a significant impact on the Company’s consolidated financial statements. [The remainder of this page intentionally left blank] -22- Net Income Following is a summary of the components of net income for the periods indicated: For the Years Ended December 31, 2023 2022 2021 ($ in thousands, except per share data) Net interest and loan fee income $ 280,123 $ 219,831 $ 171,488 FTE adjustment 1,550 1,944 2,663 Net interest and loan fee income (FTE) 281,673 221,775 174,151 Reversal of provision for credit losses 1,150 - - Noninterest income 43,522 45,121 43,345 Noninterest expense (103,216 ) (99,361 ) (97,806 ) Income before income taxes (FTE) 223,129 167,535 119,690 Income taxes (FTE) (61,361 ) (45,501 ) (33,181 ) Net income $ 161,768 $ 122,034 $ 86,509 Net income per average fully-diluted common share $ 6.06 $ 4.54 $ 3.22 Net income as a percentage of average shareholders' equity 18.08 % 15.21 % 11.52 % Net income as a percentage of average total assets 2.35 % 1.65 % 1.23 % Net income for 2023 increased $39.7 million compared with 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Operational risk is the risk to current or projected financial condition and resilience arising from inadequate or failed internal processes or systems, people (including human errors or misconduct), or adverse external events, including the risk of loss resulting from breaches in data security.
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Operational risk can also include the risk of loss due to failures by third parties with which the Company does business.

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