Note 4 - Loans, Allowance for Loan Losses and Other Real Estate Owned

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note

4:

Loans, Allowance for Loan Losses and Other Real Estate Owned

A summary of the major categories of loans outstanding is shown in the following table at the dates indicated.

	At June 30,		At December 31,
	2018		2017
	(In thousands)
Commercial	$	288,499	$	335,996
Commercial Real Estate		552,294		568,584
Construction		3,254		5,649
Residential Real Estate		54,030		65,183
Consumer Installment & Other		302,115		312,570
Total	$	1,200,192	$	1,287,982

Total loans outstanding reported above include loans purchased from the FDIC of

$70,835

  thousand and

$83,478

thousand at

June 30, 2018

and

December 31, 2017,

respectively. Loans purchased from the FDIC were separately reported in prior periods and have been reclassified into their respective categories in the current presentation.

Changes in the accretable yield for purchased loans were as follows:

	For the			For the
	Six Months Ended			Year Ended
	June 30, 2018			December 31, 2017
Accretable yield:	(In thousands)
Balance at the beginning of the period	$	738		$	1,237
Reclassification from nonaccretable difference		696			1,852
Accretion		(1,114	)		(2,351	)
Balance at the end of the period	$	320		$	738
Accretion	$	(1,114	)	$	(2,351	)
Change in FDIC indemnification		2			192
(Increase) in interest income	$	(1,112	)	$	(2,159	)

The following summarizes activity in the allowance for loan losses:

	Allowance for Loan Losses
	For the Three Months Ended June 30, 2018
											Consumer
				Commercial					Residential		Installment
	Commercial			Real Estate			Construction		Real Estate		and Other			Unallocated			Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	8,517		$	3,824		$	175	$	908	$	5,739		$	3,918		$	23,081
(Reversal) provision		(662	)		(35	)		35		156		665			(159	)		-
Chargeoffs		-			-			-		-		(805	)		-			(805	)
Recoveries		420			-			-		-		344			-			764
Total allowance for loan losses	$	8,275		$	3,789		$	210	$	1,064	$	5,943		$	3,759		$	23,040

	Allowance for Loan Losses
	For the Six Months Ended June 30, 2018
												Consumer
				Commercial						Residential		Installment
	Commercial			Real Estate			Construction			Real Estate		and Other			Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	7,746		$	3,849		$	335		$	995	$	6,418		$	3,666	$	23,009
(Reversal) provision		(679	)		(60	)		(125	)		69		702			93		-
Chargeoffs		(41	)		-			-			-		(2,170	)		-		(2,211	)
Recoveries		1,249			-			-			-		993			-		2,242
Total allowance for loan losses	$	8,275		$	3,789		$	210		$	1,064	$	5,943		$	3,759	$	23,040

	Allowance for Loan Losses
	For the Three Months Ended June 30, 2017
													Consumer
				Commercial						Residential			Installment
	Commercial			Real Estate			Construction			Real Estate			and Other			Unallocated			Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	8,593		$	3,522		$	112		$	1,214		$	6,984		$	4,494		$	24,919
(Reversal) provision		(38	)		(55	)		(1,851	)		(109	)		736			(583	)		(1,900	)
Chargeoffs		(726	)		-			-			-			(1,158	)		-			(1,884	)
Recoveries		338			78			1,899			-			653			-			2,968
Total allowance for loan losses	$	8,167		$	3,545		$	160		$	1,105		$	7,215		$	3,911		$	24,103

	Allowance for Loan Losses
	For the Six Months Ended June 30, 2017
												Consumer
				Commercial					Residential			Installment
	Commercial			Real Estate		Construction			Real Estate			and Other			Unallocated			Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	8,327		$	3,330	$	152		$	1,330		$	7,980		$	4,835		$	25,954
Provision (reversal)		171			127		(1,891	)		(225	)		842			(924	)		(1,900	)
Chargeoffs		(829	)		-		-			-			(2,897	)		-			(3,726	)
Recoveries		498			88		1,899			-			1,290			-			3,775
Total allowance for loan losses	$	8,167		$	3,545	$	160		$	1,105		$	7,215		$	3,911		$	24,103

The allowance for loan losses and recorded investment in loans evaluated for impairment were as follows:

	Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
	At June 30, 2018
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Unallocated		Total
	(In thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	4,720	$	168	$	-	$	-	$	-	$	-	$	4,888
Collectively evaluated for impairment		3,555		3,621		210		1,064		5,943		3,759		18,152
Purchased loans with evidence of credit deterioration		-		-		-		-		-		-		-
Total	$	8,275	$	3,789	$	210	$	1,064	$	5,943	$	3,759	$	23,040
Carrying value of loans:
Individually evaluated for impairment	$	10,328	$	10,338	$	-	$	204	$	-	$	-	$	20,870
Collectively evaluated for impairment		278,137		541,729		3,254		53,826		301,962		-		1,178,908
Purchased loans with evidence of credit deterioration		34		227		-		-		153		-		414
Total	$	288,499	$	552,294	$	3,254	$	54,030	$	302,115	$	-	$	1,200,192

	Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
	At December 31, 2017
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Unallocated		Total
	(In thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	4,814	$	171	$	-	$	-	$	-	$	-	$	4,985
Collectively evaluated for impairment		2,932		3,678		335		995		6,418		3,666		18,024
Purchased loans with evidence of credit deterioration		-		-		-		-		-		-		-
Total	$	7,746	$	3,849	$	335	$	995	$	6,418	$	3,666	$	23,009
Carrying value of loans:
Individually evaluated for impairment	$	10,675	$	14,234	$	-	$	208	$	-	$	-	$	25,117
Collectively evaluated for impairment		325,291		553,769		5,649		64,975		312,406		-		1,262,090
Purchased loans with evidence of credit deterioration		30		581		-		-		164		-		775
Total	$	335,996	$	568,584	$	5,649	$	65,183	$	312,570	$	-	$	1,287,982

The Company’s customers are small businesses, professionals and consumers. Given the scale of these borrowers, corporate credit rating agencies do

not

evaluate the borrowers’ financial condition. The Company’s subsidiary, Westamerica Bank (the “Bank”) maintains a Loan Review Department which reports directly to Audit Committee of the Board of Directors. The Loan Review Department performs independent evaluations of loans and validates management assigned credit risk grades on evaluated loans using grading standards employed by bank regulatory agencies. Loans judged to carry lower-risk attributes are assigned a “pass” grade, with a minimal likelihood of loss. Loans judged to carry higher-risk attributes are referred to as “classified loans,” and are further disaggregated, with increasing expectations for loss recognition, as “substandard,” “doubtful,” and “loss.” Loan Review Department evaluations occur every calendar quarter. If the Bank becomes aware of deterioration in a borrower’s performance or financial condition between Loan Review Department examinations, assigned risk grades are re-evaluated promptly. Credit risk grades assigned by management and validated by the Loan Review Department are subject to review by the Bank’s regulatory authorities during regulatory examinations.

The following summarizes the loan credit risk profile by internally assigned grade:

	Loan Credit Risk Profile by Internally Assigned Grade
	At June 30, 2018
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total
	(In thousands)
Grade:
Pass	$	276,492	$	536,256	$	3,254	$	52,960	$	300,173	$	1,169,135
Substandard		12,007		16,038		-		1,070		1,645		30,760
Doubtful		-		-		-		-		105		105
Loss		-		-		-		-		192		192
Total	$	288,499	$	552,294	$	3,254	$	54,030	$	302,115	$	1,200,192

Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification on

$6,473

thousand residential real estate and consumer loans.

	Loan Credit Risk Profile by Internally Assigned Grade
	At December 31, 2017
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total
	(In thousands)
Grade:
Pass	$	324,185	$	548,853	$	5,649	$	62,253	$	310,429	$	1,251,369
Substandard		11,811		19,731		-		2,930		1,370		35,842
Doubtful		-		-		-		-		1		1
Loss		-		-		-		-		770		770
Total	$	335,996	$	568,584	$	5,649	$	65,183	$	312,570	$	1,287,982

Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification on

$7,766

thousand residential real estate and consumer loans.

The following tables summarize loans by delinquency and nonaccrual status:

	Summary of Loans by Delinquency and Nonaccrual Status
	At June 30, 2018
	Current and Accruing		30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Past Due 90 Days or More and Accruing		Nonaccrual		Total Loans
	(In thousands)
Commercial	$	287,123	$	899	$	253	$	-	$	224	$	288,499
Commercial real estate		543,502		3,320		803		-		4,669		552,294
Construction		3,254		-		-		-		-		3,254
Residential real estate		53,099		-		931		-		-		54,030
Consumer installment and other		298,436		2,779		707		193		-		302,115
Total	$	1,185,414	$	6,998	$	2,694	$	193	$	4,893	$	1,200,192

	Summary of Loans by Delinquency and Nonaccrual Status
	At December 31, 2017
	Current and Accruing		30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Past Due 90 Days or More and Accruing		Nonaccrual		Total Loans
	(In thousands)
Commercial	$	334,908	$	627	$	164	$	-	$	297	$	335,996
Commercial real estate		561,883		1,143		125		-		5,433		568,584
Construction		5,649		-		-		-		-		5,649
Residential real estate		65,183		-		-		-		-		65,183
Consumer installment and other		307,445		3,321		1,077		531		196		312,570
Total	$	1,275,068	$	5,091	$	1,366	$	531	$	5,926	$	1,287,982

There were

no

commitments to lend additional funds to borrowers whose loans were on nonaccrual status at

June 30, 2018

and

December 31, 2017.

The following summarizes impaired loans:

	Impaired Loans
	At June 30,						At December 31,
	2018						2017
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
	(In thousands)
With no related allowance recorded:
Commercial	$	1,065	$	1,107	$	-	$	1,212	$	1,271	$	-
Commercial real estate		9,359		11,067		-		13,169		14,985		-
Residential real estate		204		234		-		208		239		-
Consumer installment and other		153		260		-		360		466		-
Total with no related allowance recorded		10,781		12,668		-		14,949		16,961		-
With an allowance recorded:
Commercial		9,496		9,496		4,720		9,764		9,764		4,814
Commercial real estate		1,765		1,767		168		1,790		1,792		171
Total with an allowance recorded		11,261		11,263		4,888		11,554		11,556		4,985
Total	$	22,042	$	23,931	$	4,888	$	26,503	$	28,517	$	4,985

Impaired loans include troubled debt restructured loans. Impaired loans at

June 30, 2018,

included

$9,089

thousand of restructured loans,

$4,134

thousand of which were on nonaccrual status. Impaired loans at

December 31, 2017,

included

$12,081

thousand of restructured loans,

$4,285

thousand of which were on nonaccrual status.

	Impaired Loans
	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2018				2017				2018				2017
	Average		Recognized		Average		Recognized		Average		Recognized		Average		Recognized
	Recorded		Interest		Recorded		Interest		Recorded		Interest		Recorded		Interest
	Investment		Income		Investment		Income		Investment		Income		Investment		Income
	(In thousands)
Commercial	$	10,689	$	145	$	11,194	$	118	$	10,793	$	320	$	11,243	$	236
Commercial real estate		11,837		211		15,297		224		12,796		426		14,898		461
Residential real estate		205		4		368		5		206		8		558		9
Consumer installment and other		254		3		514		7		305		6		529		14
Total	$	22,985	$	363	$	27,373	$	354	$	24,100	$	760	$	27,228	$	720

The following tables provide information on troubled debt restructurings:

	Troubled Debt Restructurings
	At June 30, 2018
							Period-End
							Individual
	Number of		Pre-Modification		Period-End		Impairment
	Contracts		Carrying Value		Carrying Value		Allowance
	($ in thousands)
Commercial		6	$	2,377	$	978	$	36
Commercial real estate		8		9,237		7,907		-
Residential real estate		1		241		204		-
Total		15	$	11,855	$	9,089	$	36

	Troubled Debt Restructurings
	At December 31, 2017
							Period-End
							Individual
	Number of		Pre-Modification		Period-End		Impairment
	Contracts		Carrying Value		Carrying Value		Allowance
	($ in thousands)
Commercial		7	$	2,393	$	1,085	$	43
Commercial real estate		10		11,528		10,788		-
Residential real estate		1		241		208		-
Total		18	$	14,162	$	12,081	$	43

During the

three

and

six

months ended

June 30, 2018,

the Company did

not

modify any loans that were considered troubled debt restructurings. During the

three

and

six

months ended

June 30, 2017,

the Company modified

one

loan with a carrying value of

$407

thousand and

three

loans with an aggregate carrying value of

$680

thousand, respectively, that were considered troubled debt restructurings. The concessions granted in the

first

six

months of

2017

consisted of modifications of payment terms to extend the maturity date to allow for deferred principal repayment and under-market terms. There were

no

chargeoffs related to troubled debt restructurings made during the

three

and

six

months ended

June 30, 2018

and

2017.

During the

three

and

six

months ended

June 30, 2018

and

2017,

no

troubled debt restructured loans defaulted within

12

months of the modification date. A troubled debt restructuring is considered to be in default when payments are

ninety

days or more past due.

There were

no

loans restricted due to collateral requirements at

June 30, 2018

and

December 31, 2017.

There were

no

loans held for sale at

June 30, 2018

and

December 31, 2017.

At

June 30, 2018

and

December 31, 2017,

the Company held total other real estate owned (OREO) of

$939

thousand net of reserve of

$1,264

thousand and

$1,426

thousand net of reserve of

$1,905

thousand, respectively, of which $

-

0

-

 was foreclosed residential real estate properties or covered OREO at both dates, respectively. At

June 30, 2018

and

December 31, 2017

there were

no

consumer mortgage loans outstanding secured by residential real estate properties for which formal foreclosure proceedings were in process.