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Note 3 - Loans and Allowance for Credit Losses

12 Months Ended

Dec. 31, 2021

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

Note 3: Loans and Allowance for Credit Losses

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

	At December 31,
	2021		2020
	(In thousands)
Commercial:
Paycheck Protection Program ("PPP") loans	$	45,888	$	186,945
Other		187,202		207,861
Total Commercial		233,090		394,806
Commercial Real Estate		535,261		564,300
Construction		48		129
Residential Real Estate		18,133		23,471
Consumer Installment & Other		281,594		273,537
Total	$	1,068,126	$	1,256,243

PPP loans are guaranteed by the Small Business Administration (“SBA”). PPP loan proceeds used for eligible payroll and certain other operating costs are eligible for forgiveness, with repayment of loan principal and accrued interest made by the SBA. Management does not expect credit losses on PPP loans. Therefore, there is no allowance for such loans. The following summarizes activity in the allowance for credit losses. The allowance for loan losses is shown under legacy GAAP for 2019.

	Allowance for Credit Losses
	For the Year Ended December 31, 2021
												Consumer
				Commercial					Residential			Installment
	Commercial			Real Estate		Construction			Real Estate			and Other			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	9,205		$	5,660	$	6		$	47		$	8,936		$	23,854
(Reversal) provision		(2,411	)		126		(4	)		(2	)		2,293			2
Chargeoffs		(56	)		-		-			-			(3,192	)		(3,248	)
Recoveries		228			743		-			-			1,935			2,906
Total allowance for credit losses	$	6,966		$	6,529	$	2		$	45		$	9,972		$	23,514

	Allowance for Credit Losses
	For the Year Ended December 31, 2020
												Consumer
				Commercial					Residential			Installment
	Commercial			Real Estate		Construction			Real Estate			and Other			Unallocated			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period, prior to adoption of ASU 2016-13	$	4,959		$	4,064	$	109		$	206		$	6,445		$	3,701		$	19,484
Impact of adopting ASU 2016-13		3,385			618		(31	)		(132	)		1,878			(3,701	)		2,017
Adjusted beginning balance		8,344			4,682		78			74			8,323			-			21,501
Provision (reversal)		746			929		(72	)		(27	)		2,731			-			4,307
Chargeoffs		(236	)		-		-			-			(3,963	)		-			(4,199	)
Recoveries		351			49		-			-			1,845			-			2,245
Total allowance for credit losses	$	9,205		$	5,660	$	6		$	47		$	8,936		$	-		$	23,854

	Allowance for Loan Losses
	For the Twelve Months Ended December 31, 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		(2,023	)		(16	)		(1,356	)		(663	)		3,534			524		-
Chargeoffs		(97	)		-			-			-			(4,473	)		-		(4,570	)
Recoveries		768			196			-			-			1,739			-		2,703
Total allowance for loan losses	$	4,959		$	4,064		$	109		$	206		$	6,445		$	3,701	$	19,484

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.” The 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 December 31, 2021
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total
	(In thousands)
Grade:
Pass	$	232,710	$	521,300	$	48	$	16,874	$	278,922	$	1,049,854
Substandard		380		13,961		-		1,259		1,207		16,807
Doubtful		-		-		-		-		931		931
Loss		-		-		-		-		534		534
Total	$	233,090	$	535,261	$	48	$	18,133	$	281,594	$	1,068,126

	Credit Risk Profile by Internally Assigned Grade
	At December 31, 2020
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total
	(In thousands)
Grade:
Pass	$	386,144	$	545,398	$	129	$	22,105	$	270,925	$	1,224,701
Substandard		8,662		18,902		-		1,366		1,498		30,428
Doubtful		-		-		-		-		543		543
Loss		-		-		-		-		571		571
Total	$	394,806	$	564,300	$	129	$	23,471	$	273,537	$	1,256,243

The following tables summarize loans by delinquency and nonaccrual status:

	Summary of Loans by Delinquency and Nonaccrual Status
	At December 31, 2021
	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	$	232,444	$	383	$	263	$	-	$	-	$	233,090
Commercial real estate		534,748		223		-		-		290		535,261
Construction		48		-		-		-		-		48
Residential real estate		17,855		141		-		-		137		18,133
Consumer installment and other		276,793		3,184		1,013		339		265		281,594
Total	$	1,061,888	$	3,931	$	1,276	$	339	$	692	$	1,068,126

	Summary of Loans by Delinquency and Nonaccrual Status
	At December 31, 2020
	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	$	394,004	$	713	$	6	$	-	$	83	$	394,806
Commercial real estate		560,580		-		-		-		3,720		564,300
Construction		129		-		-		-		-		129
Residential real estate		22,269		770		271		-		161		23,471
Consumer installment and other		270,240		2,010		472		450		365		273,537
Total	$	1,247,222	$	3,493	$	749	$	450	$	4,329	$	1,256,243

There was no allowance for credit losses allocated to loans on nonaccrual status as of December 31, 2021 and December 31, 2020. There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at December 31, 2021 and December 31, 2020.

The following tables provide information on impaired loans during the year ended December 31, 2019:

	Impaired Loans
	For the Year Ended
	December 31, 2019
	Average		Recognized
	Recorded		Interest
	Investment		Income
	(In thousands)
Commercial	$	8,412	$	140
Commercial real estate		7,428		139
Residential real estate		191		3
Consumer installment and other		44		1
Total	$	16,075	$	283

The following tables provide information on troubled debt restructurings (TDRs):

	Troubled Debt Restructurings
	At December 31, 2021
							Period-End
							Individual
	Number of		Pre-Modification		Period-End		Credit Loss
	Contracts		Carrying Value		Carrying Value		Allowance
	($ in thousands)
Commercial real estate		2	$	2,785	$	1,793	$	-
Residential real estate		1		241		172		-
Total		3	$	3,026	$	1,965	$	-

	Troubled Debt Restructurings
	At December 31, 2020
							Period-End
							Individual
	Number of		Pre-Modification		Period-End		Credit Loss
	Contracts		Carrying Value		Carrying Value		Allowance
	($ in thousands)
Commercial real estate		6	$	8,367	$	6,040	$	-
Residential real estate		1		241		181		-
Total		7	$	8,608	$	6,221	$	-

During the year ended December 31 2021 and December 31, 2020, the Company did not modify any loans that were considered TDRs for accounting purposes. Section 4013 of the CARES Act allowed certain loan modifications for borrowers impacted by the COVID-19 pandemic to be excluded from TDR accounting. During the year ended December 31, 2021 and December 31, 2020, the Company modified loans under Section 4013 of the CARES Act, granting 90 day deferrals of principal and interest payments. As of December 31, 2021, loans deferred under the CARES Act that are not considered TDRs consisted of consumer loans totaling $84 thousand. As of December 31, 2020, commercial real estate loans with deferred payments totaled $7.8 million, primarily for hospitality and retail properties. As of December 31, 2020, consumer and commercial loan deferrals were $2.5 million and $33 thousand, respectively. There were no chargeoffs related to TDRs made during the year ended December 31, 2021 and December 31, 2020. During the year ended December 31, 2021 and December 31, 2020, no TDR loans defaulted within 12 months of the modification date. A TDR is considered to be in default when payments are 90 days or more past due.

TDRs of $1,965 thousand included no loans on nonaccrual status at December 31, 2021. TDRs of $6,221 thousand included a loan with a balance of $3,420 thousand on nonaccrual status at December 31, 2020; no allowance for credit losses was allocated to this commercial real estate loan secured by real property.

A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following loans were considered collateral dependent at December 31, 2021: five commercial real estate loans totaling $8.4 million secured by real property, $394 thousand of indirect consumer installment loans secured by personal property, one commercial loan with a balance of $57 thousand secured by business assets, and three residential real estate loans totaling $420 thousand secured by real property. There were no other collateral dependent loans at December 31, 2021. The following loans were considered collateral dependent at December 31, 2020: five commercial real estate loans totaling $11.1 million secured by real property, $446 thousand of indirect consumer installment loans secured by personal property and two residential real estate loans totaling $346 thousand secured by real property. There were no other collateral dependent loans at December 31, 2020.

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	At December 31, 2021
															Revolving
															Loans
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2017		2018		2019		2020		2021		Term Loans		Cost Basis		Total
	(In thousands)
Commercial loans by grade
Pass	$	34,784	$	3,999	$	8,690	$	16,919	$	30,694	$	98,799	$	193,885	$	38,825	$	232,710
Substandard		32		-		-		-		-		57		89		291		380
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	34,816	$	3,999	$	8,690	$	16,919	$	30,694	$	98,856	$	193,974	$	39,116	$	233,090

	At December 31, 2021
															Revolving
															Loans
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2017		2018		2019		2020		2021		Term Loans		Cost Basis		Total
	(In thousands)
Commercial real estate loans by grade
Pass	$	116,181	$	87,921	$	78,200	$	78,647	$	83,642	$	76,709	$	521,300	$	-	$	521,300
Substandard		10,993		-		-		2,016		823		129		13,961		-		13,961
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	127,174	$	87,921	$	78,200	$	80,663	$	84,465	$	76,838	$	535,261	$	-	$	535,261

	At December 31, 2021
															Revolving
															Loans
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2017		2018		2019		2020		2021		Term Loans		Cost Basis		Total
	(In thousands)
Construction loans by grade
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	48	$	48
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	48	$	48

	At December 31, 2021
															Revolving
															Loans
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2017		2018		2019		2020		2021		Term Loans		Cost Basis		Total
	(In thousands)
Residential Real Estate loans by grade
Pass	$	16,874	$	-	$	-	$	-	$	-	$	-	$	16,874	$	-	$	16,874
Substandard		1,259		-		-		-		-		-		1,259		-		1,259
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	18,133	$	-	$	-	$	-	$	-	$	-	$	18,133	$	-	$	18,133

The Company considers the delinquency and nonaccrual status of the consumer loan portfolio and its impact on the allowance for credit losses. The following table presents the amortized cost in consumer installment and other loans based on delinquency and nonaccrual status:

	At December 31, 2021
															Revolving
															Loans
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2017		2018		2019		2020		2021		Term Loans		Cost Basis		Total
	(In thousands)
Consumer installment and other loans by delinquency and nonaccrual status
Current	$	7,884	$	10,162	$	25,932	$	37,999	$	58,178	$	113,899	$	254,054	$	22,739	$	276,793
30-59 days past due		197		139		634		504		662		1,034		3,170		14		3,184
60-89 days past due		5		20		156		150		186		408		925		88		1,013
Past due 90 days or more		1		17		81		62		109		40		310		29		339
Nonaccrual		-		-		-		-		-		-		-		265		265
Total	$	8,087	$	10,338	$	26,803	$	38,715	$	59,135	$	115,381	$	258,459	$	23,135	$	281,594

There were no loans held for sale at December 31, 2021, and December 31, 2020.

The Company held no other real estate owned (OREO) at December 31, 2021 and December 31, 2020. The amount of consumer mortgage loans outstanding secured by residential real estate properties for which formal foreclosure proceedings were in process was $247 thousand at December 31, 2021 and $346 thousand at December 31, 2020.