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

6 Months Ended

Jun. 30, 2019

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

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

At December 31, 2018, the Company had $5,713 thousand in loans secured by residential real estate which are indemnified from loss by the FDIC up to 80% of principal; the indemnification expired February 6, 2019.

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

	At June 30,		At December 31,
	2019		2018
	(In thousands)
Commercial	$	243,577	$	275,080
Commercial Real Estate		577,665		580,480
Construction		5,482		3,982
Residential Real Estate		37,813		44,866
Consumer Installment & Other		297,175		302,794
Total	$	1,161,712	$	1,207,202

Total loans outstanding at December 31, 2018, reported above, include loans purchased from the FDIC of $58,247 thousand.

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

	For the			For the
	Six Months Ended			Year Ended
	June 30, 2019			December 31, 2018
Accretable yield:	(In thousands)
Balance at the beginning of the period	$	182		$	738
Reclassification from nonaccretable difference		1,103			1,119
Accretion		(257	)		(1,675	)
Balance at the end of the period	$	1,028		$	182

Accretion	$	(257	)	$	(1,675	)
Change in FDIC indemnification		-			2
(Increase) in interest income	$	(257	)	$	(1,673	)

The following summarizes activity in the allowance for loan losses:

	Allowance for Loan Losses
	For the Three Months Ended June 30, 2019
											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	$	6,506		$	3,927	$	853	$	261		$	5,481		$	3,449	$	20,477
(Reversal) provision		(1,346	)		116		264		(23	)		386			603		-
Chargeoffs		(48	)		-		-		-			(925	)		-		(973	)
Recoveries		123			14		-		-			476			-		613
Total allowance for loan losses	$	5,235		$	4,057	$	1,117	$	238		$	5,418		$	4,052	$	20,117

	Allowance for Loan Losses
	For the Six Months Ended June 30, 2019
												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	$	6,311		$	3,884	$	1,465		$	869		$	5,645		$	3,177	$	21,351
(Reversal) provision		(1,221	)		147		(348	)		(631	)		1,178			875		-
Chargeoffs		(71	)		-		-			-			(2,293	)		-		(2,364	)
Recoveries		216			26		-			-			888			-		1,130
Total allowance for loan losses	$	5,235		$	4,057	$	1,117		$	238		$	5,418		$	4,052	$	20,117

	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

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, 2019
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Unallocated		Total
	(In thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	2,587	$	-	$	-	$	-	$	-	$	-	$	2,587
Collectively evaluated for impairment		2,648		4,057		1,117		238		5,418		4,052		17,530
Total	$	5,235	$	4,057	$	1,117	$	238	$	5,418	$	4,052	$	20,117
Carrying value of loans:
Individually evaluated for impairment	$	9,368	$	6,531	$	-	$	195	$	77	$	-	$	16,171
Collectively evaluated for impairment		234,209		571,134		5,482		37,618		297,098		-		1,145,541
Total	$	243,577	$	577,665	$	5,482	$	37,813	$	297,175	$	-	$	1,161,712

	Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
	At December 31, 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	$	2,752	$	-	$	-	$	-	$	-	$	-	$	2,752
Collectively evaluated for impairment		3,559		3,884		1,465		869		5,645		3,177		18,599
Total	$	6,311	$	3,884	$	1,465	$	869	$	5,645	$	3,177	$	21,351
Carrying value of loans:
Individually evaluated for impairment	$	9,944	$	8,438	$	-	$	717	$	143	$	-	$	19,242
Collectively evaluated for impairment		265,136		572,042		3,982		44,149		302,651		-		1,187,960
Total	$	275,080	$	580,480	$	3,982	$	44,866	$	302,794	$	-	$	1,207,202

The Company’s customers are small businesses, professionals and consumers. Given the scale of these borrowers, corporate credit rating agencies do not evaluate the borrowers’ financial condition. The Company’s subsidiary, Westamerica Bank (the “Bank”) maintains a Loan Review Department which reports directly to the Audit Committee of the Board of Directors. The Loan Review Department performs independent evaluations of loans and validates management assigned credit risk grades on evaluated loans using grading standards employed by bank regulatory agencies. Loans judged to carry lower-risk attributes are assigned a “pass” grade, with a minimal likelihood of loss. Loans judged to carry higher-risk attributes are referred to as “classified loans,” and are further disaggregated, with increasing expectations for loss recognition, as “substandard,” “doubtful,” and “loss.” Loan Review Department performs continuous evaluations throughout the year. If the Bank becomes aware of deterioration in a borrower’s performance or financial condition between Loan Review Department examinations, assigned risk grades are re-evaluated promptly. Credit risk grades assigned by management and validated by the Loan Review Department are subject to review by the Bank’s regulatory authorities during regulatory examinations.

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

	Credit Risk Profile by Internally Assigned Grade
	At June 30, 2019
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total
	(In thousands)
Grade:
Pass	$	234,053	$	566,359	$	5,482	$	36,076	$	295,177	$	1,137,147
Substandard		9,524		11,306		-		1,737		1,551		24,118
Doubtful		-		-		-		-		271		271
Loss		-		-		-		-		176		176
Total	$	243,577	$	577,665	$	5,482	$	37,813	$	297,175	$	1,161,712

	Credit Risk Profile by Internally Assigned Grade
	At December 31, 2018
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total
	(In thousands)
Grade:
Pass	$	264,634	$	567,578	$	3,982	$	43,112	$	300,553	$	1,179,859
Substandard		10,446		12,902		-		1,754		1,556		26,658
Doubtful		-		-		-		-		135		135
Loss		-		-		-		-		550		550
Total	$	275,080	$	580,480	$	3,982	$	44,866	$	302,794	$	1,207,202

Credit risk profile reflects internally assigned grades of purchased covered loans without regard to FDIC indemnification on $5,713 thousand in loans secured by residential real estate at December 31, 2018. The indemnification expired February 6, 2019.

The following tables summarize loans by delinquency and nonaccrual status:

	Summary of Loans by Delinquency and Nonaccrual Status
	At June 30, 2019
	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	$	243,187	$	290	$	-	$	-	$	100	$	243,577
Commercial real estate		570,463		3,472		60		-		3,670		577,665
Construction		5,482		-		-		-		-		5,482
Residential real estate		37,533		280		-		-		-		37,813
Consumer installment and other		293,684		2,404		761		249		77		297,175
Total	$	1,150,349	$	6,446	$	821	$	249	$	3,847	$	1,161,712

	Summary of Loans by Delinquency and Nonaccrual Status
	At December 31, 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	$	274,045	$	781	$	254	$	-	$	-	$	275,080
Commercial real estate		574,853		617		785		-		4,225		580,480
Construction		3,982		-		-		-		-		3,982
Residential real estate		43,372		789		189		-		516		44,866
Consumer installment and other		297,601		3,408		1,107		551		127		302,794
Total	$	1,193,853	$	5,595	$	2,335	$	551	$	4,868	$	1,207,202

There wereno commitments to lend additional funds to borrowers whose loans were on nonaccrual status at June 30, 2019 and December 31, 2018.

The following summarizes impaired loans:

	Impaired Loans
	At June 30, 2019						At December 31, 2018
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
	(In thousands)
With no related allowance recorded:
Commercial	$	755	$	755	$	-	$	755	$	759	$	-
Commercial real estate		6,531		7,978		-		8,438		10,373		-
Residential real estate		195		225		-		717		747		-
Consumer installment and other		77		112		-		270		377		-
Total with no related allowance recorded		7,558		9,070		-		10,180		12,256		-

With an allowance recorded:
Commercial		8,613		8,613		2,587		9,189		9,189		2,752
Commercial real estate		-		-		-		-		-		-
Total with an allowance recorded		8,613		8,613		2,587		9,189		9,189		2,752
Total	$	16,171	$	17,683	$	2,587	$	19,369	$	21,445	$	2,752

Impaired loans include troubled debt restructured loans. Impaired loans at June 30, 2019, included $7,434 thousand of restructured loans, $3,670 thousand of which were on nonaccrual status. Impaired loans at December 31, 2018, included $8,579 thousand of restructured loans, $4,225 thousand of which were on nonaccrual status.

	Impaired Loans
	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2019				2018				2019				2018
	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	$	9,662	$	165	$	10,689	$	145	$	9,755	$	332	$	10,793	$	320
Commercial real estate		6,539		126		11,837		211	$	6,716		273		12,796		426
Residential real estate		196		3		205		4	$	197		6		206		8
Consumer installment and other		77		-		254		3	$	105		-		305		6
Total	$	16,474	$	294	$	22,985	$	363	$	16,773	$	611	$	24,100	$	760

The following tables provide information on troubled debt restructurings:

	Troubled Debt Restructurings
	At June 30, 2019
							Period-End
							Individual
	Number of		Pre-Modification		Period-End		Impairment
	Contracts		Carrying Value		Carrying Value		Allowance
	($ in thousands)
Commercial		4	$	2,274	$	708	$	19
Commercial real estate		6		8,367		6,531		-
Residential real estate		1		241		195		-
Total		11	$	10,882	$	7,434	$	19

	Troubled Debt Restructurings
	At December 31, 2018
							Period-End
							Individual
	Number of		Pre-Modification		Period-End		Impairment
	Contracts		Carrying Value		Carrying Value		Allowance
	($ in thousands)
Commercial		4	$	2,274	$	811	$	19
Commercial real estate		8		9,237		7,568		-
Residential real estate		1		241		200		-
Total		13	$	11,752	$	8,579	$	19

During the three and six months ended June 30, 2019 and June 30, 2018, the Company did not modify any loans that were considered troubled debt restructurings, and had no troubled debt restructured loans that 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, 2019 and December 31, 2018.

There wereno loans held for sale at June 30, 2019 and December 31, 2018.

At June 30, 2019 and December 31, 2018, the Company held total other real estate owned (OREO) of $43 thousand net of reserve of $-0- thousand and $350 thousand net of reserve of $-0- thousand, respectively, of which $-0- was foreclosed residential real estate properties or covered OREO at both dates. The amount of consumer mortgage loans outstanding secured by residential real estate properties for which formal foreclosure proceedings were in process was $114 thousand at June 30, 2019 and $516 thousand at December 31, 2018.