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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)                  

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2026

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

 

 

Commission file number: 001-09383

WESTAMERICA BANCORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

California 94-2156203

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

1108 FIFTH AVENUE, SAN RAFAEL, California 94901

(Address of Principal Executive Offices) (Zip Code)

 

Registrant's Telephone Number, Including Area Code (707) 863-6000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

WABC

The Nasdaq Stock Market, LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☑                                             No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes ☑                                             No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer ☐

Non-accelerated filer ☐  

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes                                              No ☑

 

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:

 

Title of Class Shares outstanding as of April 30, 2026

Common Stock, 

No Par Value

23,487,955

 



 

 

 

  

 

TABLE OF CONTENTS

 

 

Page

Forward Looking Statements

3

PART I - FINANCIAL INFORMATION

 

Item 1

Financial Statements

4
 

Notes to Unaudited Consolidated Financial Statements

9

Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3

Quantitative and Qualitative Disclosures about Market Risk

51

Item 4

Controls and Procedures

51

PART II - OTHER INFORMATION

 

Item 1

Legal Proceedings

51

Item 1A

Risk Factors

52

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 3

Defaults upon Senior Securities

52

Item 4

Mine Safety Disclosures

52

Item 5

Other Information

52

Item 6

Exhibits

53

Signatures

54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-2-

 

  

 

FORWARD-LOOKING STATEMENTS

 

This report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, future credit quality and performance, the appropriateness of the allowance for credit losses, loan growth or reduction, mitigation of risk in the Company’s loan and debt securities portfolios, income or loss, earnings or loss per share, the payment or nonpayment of dividends, stock repurchases, capital structure and other financial items; (ii) statements of plans, objectives and expectations of the Company or its management or board of directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes", "anticipates", "expects", “estimates”, "intends", "targeted", "projected", “forecast”, "continue", "remain", "will", "should", "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

 

These forward-looking statements are based on the current knowledge and belief of the management (“Management”) of Westamerica Bancorporation (the “Company”) and include information concerning the Company’s possible or assumed future financial condition and results of operations. A number of factors, some of which are beyond the Company’s ability to predict or control, could cause future results to differ materially from those contemplated.

 

These factors include but are not limited to (1) the length and severity of any difficulties in the global, national and California economies and the effects of government efforts to address those difficulties; (2) liquidity levels in capital markets; (3) fluctuations in asset prices including, but not limited to stocks, bonds, real estate, and commodities; (4) the effect of acquisitions and integration of acquired businesses; (5) economic uncertainty created by riots, terrorist threats and attacks on the United States, the actions taken in response, and the uncertain effect of these events on the local, regional and national economies; (6) changes in the interest rate environment and monetary policy; (7) changes in the regulatory environment; (8) competitive pressure in the banking industry; (9) operational risks including a failure or breach in data processing or security systems or those of third party vendors and other service providers, including as a result of cyber attacks or fraud; (10) volatility of interest rate sensitive loans, deposits and investments, particularly the impact of rising interest rates on the Company’s securities portfolio; (11) asset/liability management risks; (12) liquidity risks including the impact of adverse developments in the banking industry; (13) the effect of climate change, natural disasters, including earthquakes, hurricanes, fire, flood, drought, and other disasters, on the uninsured value of the Company’s assets and of loan collateral, the financial condition of debtors and issuers of investment securities, the economic conditions affecting the Company’s market place, and commodities and asset values; (14) changes in the securities markets; (15) tariffs and international trade tensions; (16) inflation, (17) the effects of the on-going war in the Middle East; and (18) the outcome of contingencies, such as legal proceedings. However, the reader should not consider the above-mentioned factors to be a complete set of all potential risks or uncertainties.

 

Forward-looking statements speak only as of the date they are made. The Company undertakes no obligation to update any forward-looking statements in this report to reflect circumstances or events that occur after the date forward looking statements are made, except as may be required by law. The reader is directed to Part II – Item 1A “Risk Factors” of this report and other risk factors discussed elsewhere in the Company's annual report on Form 10-K for the year ended December 31, 2025, for further discussion of factors which could affect the Company's business and cause actual results to differ materially from those expressed in any forward-looking statement made in this report.

 

-3-

 
 

 

PART I - FINANCIAL INFORMATION

Item 1 Financial Statements

 

WESTAMERICA BANCORPORATION

 

CONSOLIDATED BALANCE SHEETS

 

(unaudited)

 
                 
   

At March 31,

   

At December 31,

 
   

2026

   

2025

 
   

(In thousands)

 

Assets:

               

Cash and due from banks

  $ 397,284     $ 567,801  

Debt securities available for sale

    3,596,855       3,468,734  

Debt securities held to maturity, net of allowance for credit losses of $1 at March 31, 2026 and December 31, 2025 (Fair value of $784,304 at March 31, 2026 and $812,580 at December 31, 2025)

    799,558       819,574  

Loans

    696,204       726,482  

Allowance for credit losses on loans

    (11,151 )     (11,573 )

Loans, net of allowance for credit losses on loans

    685,053       714,909  

Premises and equipment, net

    25,968       25,722  

Goodwill

    121,673       121,673  

Other assets

    238,059       241,767  

Total Assets

  $ 5,864,450     $ 5,960,180  
                 

Liabilities:

               

Noninterest-bearing deposits

  $ 2,135,925     $ 2,252,490  

Interest-bearing deposits

    2,647,827       2,587,529  

Total deposits

    4,783,752       4,840,019  

Securities sold under repurchase agreements

    144,456       137,298  

Other liabilities

    53,552       49,354  

Total Liabilities

    4,981,760       5,026,671  
                 

Contingencies (Note 10)

               
                 

Shareholders' Equity:

               
Common stock and additional paid-in-capital                

Common stock (no par value), authorized: 150,000 shares issued and outstanding: 23,631 at March 31, 2026 and 24,623 at December 31, 2025

    422,313       439,980  

Deferred compensation

    35       35  

Accumulated other comprehensive loss

    (107,267 )     (91,139 )

Retained earnings

    567,609       584,633  

Total Shareholders' Equity

    882,690       933,509  

Total Liabilities and Shareholders' Equity

  $ 5,864,450     $ 5,960,180  

 

See accompanying notes to unaudited consolidated financial statements.

 

-4-

 

 

WESTAMERICA BANCORPORATION

 

CONSOLIDATED STATEMENTS OF INCOME

 

(unaudited)

 
   

For the

 
   

Three Months Ended

 
   

March 31,

 
   

2026

   

2025

 
   

(In thousands,

 
   

except per share data)

 

Interest and Fee Income:

               

Loans

  $ 9,879     $ 10,669  

Equity securities

    446       422  

Debt securities available for sale

    32,695       33,203  

Debt securities held to maturity

    8,494       8,494  

Interest-bearing cash

    4,256       6,703  

Total Interest and Fee Income

    55,770       59,491  

Interest Expense:

               

Deposits

    3,089       3,229  

Securities sold under repurchase agreements

    206       167  

Total Interest Expense

    3,295       3,396  

Net Interest and Fee Income

    52,475       56,095  

Reversal of Provision for Credit Losses

    (300 )     (550 )

Net Interest and Fee Income After Reversal of Provision for Credit Losses

    52,775       56,645  

Noninterest Income:

               

Service charges on deposit accounts

    3,332       3,381  

Merchant processing services

    2,739       2,733  

Debit card fees

    1,324       1,581  

Trust fees

    927       899  

ATM processing fees

    450       463  

Other service fees

    408       429  

Bank owned life insurance gains

    -       102  

Other noninterest income

    427       733  

Total Noninterest Income

    9,607       10,321  

Noninterest Expense:

               

Salaries and related benefits

    12,325       12,126  

Occupancy and equipment

    5,427       5,038  

Outsourced data processing services

    2,788       2,697  

Limited partnership operating losses

    1,110       915  

Courier service

    734       688  

Professional fees

    462       395  

Other noninterest expense

    3,065       3,268  

Total Noninterest Expense

    25,911       25,127  

Income Before Income Taxes

    36,471       41,839  

Provision for income taxes

    9,116       10,802  

Net Income

  $ 27,355     $ 31,037  
                 

Average Common Shares Outstanding

    24,306       26,642  

Average Diluted Common Shares Outstanding

    24,306       26,642  

Per Common Share Data:

               

Basic earnings

  $ 1.13     $ 1.16  

Diluted earnings

    1.13       1.16  

Dividends paid

    0.46       0.44  

 

See accompanying notes to unaudited consolidated financial statements.

 

-5-

 

 

WESTAMERICA BANCORPORATION

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

(unaudited)

 
                 
   

For the Three Months Ended

 
   

March 31,

 
   

2026

   

2025

 
   

(In thousands)

 

Net income

  $ 27,355     $ 31,037  

Other comprehensive income (loss):

               

Changes in net unrealized losses on debt securities available for sale

    (22,897 )     44,489  

Deferred tax benefit (expense)

    6,769       (13,153 )

Changes in net unrealized losses on debt securities available for sale, net of tax

    (16,128 )     31,336  

Total comprehensive income

  $ 11,227     $ 62,373  

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-6-

 
 

 

WESTAMERICA BANCORPORATION

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

 

(unaudited)

 
                                                 
           

Common

           

Accumulated

                 
   

Common

   

Stock and

           

Other

                 
   

Shares

   

Additional

   

Deferred

   

Comprehensive

   

Retained

         
   

Outstanding

   

Paid-in Capital

   

Compensation

   

(Loss) Income

   

Earnings

   

Total

 
   

(In thousands except per share data)

 
                                                 

Balance, December 31, 2024

    26,708     $ 476,471     $ 35     $ (168,104 )   $ 581,555     $ 889,957  

Net income for the period

                                    31,037       31,037  

Other comprehensive income

                            31,336               31,336  

Restricted stock activity

    12       623                               623  

Stock based compensation

    -       300                               300  

Stock awarded to employees

    1       41                               41  

Excise tax on net common stock repurchases

            (179 )                             (179 )

Retirement of common stock

    (361 )     (6,447 )                     (11,778 )     (18,225 )

Dividends ($0.44 per share)

                                    (11,752 )     (11,752 )

Balance, March 31, 2025

    26,360     $ 470,809     $ 35     $ (136,768 )   $ 589,062     $ 923,138  
                                                 

Balance, December 31, 2025

    24,623     $ 439,980     $ 35     $ (91,139 )   $ 584,633     $ 933,509  

Net income for the period

                                    27,355       27,355  

Other comprehensive loss

                            (16,128 )             (16,128 )

Restricted stock activity

    9       476                               476  

Stock based compensation

    -       225                               225  

Stock awarded to employees

    -       33                               33  

Excise tax on net common stock repurchases

            (508 )                             (508 )

Retirement of common stock

    (1,001 )     (17,893 )                     (33,110 )     (51,003 )

Dividends ($0.46 per share)

                                    (11,269 )     (11,269 )

Balance, March 31, 2026

    23,631     $ 422,313     $ 35     $ (107,267 )   $ 567,609     $ 882,690  

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

-7-

 

 

WESTAMERICA BANCORPORATION

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited)

 
   

For the Three Months

 
   

Ended March 31,

 
   

2026

   

2025

 
   

(In thousands)

 

Operating Activities:

               

Net income

  $ 27,355     $ 31,037  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization/accretion

    929       2,009  

Reversal of provision for credit losses

    (300 )     (550 )

Net amortization of deferred net loan cost 

    67       83  

Stock option compensation expense

    225       300  

Bank owned life insurance gains

    -       (102 )

Income taxes payable (receivable)

    6,123       5,538  

Net changes in:

               

Interest income receivable

    381       2,483  

Equity securities held for trading

    247       -  

Net deferred tax asset

    4,171       5,263  

Other assets

    (1,496 )     827  

Interest expense payable

    130       155  

Other liabilities

    1,907       (4,649 )

Net Cash Provided by Operating Activities

    39,739       42,394  
                 

Investing Activities:

               

Net repayments of loans

    30,089       48,871  

Proceeds from bank owned life insurance policies

    -       506  

Purchases of debt securities available for sale

    (333,409 )     (38,994 )

Proceeds from maturity/calls of debt securities available for sale

    183,592       241,235  

Proceeds from maturity/calls of debt securities held to maturity

    21,868       6,864  

Purchases of premises and equipment

    (1,015 )     (199 )

Net Cash (Used in) Provided by Investing Activities

    (98,875 )     258,283  
                 

Financing Activities:

               

Net change in deposits

    (56,267 )     (137,755 )

Net change in short-term borrowings

    7,158       (7,103 )

Retirement of common stock

    (51,003 )     (18,225 )

Common stock dividends paid

    (11,269 )     (11,752 )

Net Cash Used in Financing Activities

    (111,381 )     (174,835 )

Net Change In Cash and Due from Banks

    (170,517 )     125,842  

Cash and Due from Banks at Beginning of Period

    567,801       601,494  

Cash and Due from Banks at End of Period

  $ 397,284     $ 727,336  
                 
Supplemental Cash Flow Disclosures:                

Supplemental disclosure of noncash activities:

               

Right-of-use assets acquired in exchange for operating lease liabilities

  $ 335     $ 3,494  
Securities purchases pending settlement     2,217       -  

Supplemental disclosure of cash flow activities:

               
Cash paid for amounts included in operating lease liabilities     1,675       1,636  
Interest paid for the period     3,165       3,241  

 

See accompanying notes to unaudited consolidated financial statements.

 

-8-

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 1: Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission and follow general practices within the banking industry. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and which, in the opinion of Management, are necessary for a fair presentation of the results for the interim periods presented. The interim results for the three months ended March 31, 2026 are not necessarily indicative of the results expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as well as other information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.

 

 

Note 2: Accounting Policies         

 

The most significant accounting policies followed by the Company are presented in Note 1 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, it is reasonably possible conditions could change materially affecting results of operations and financial conditions. Certain risks, uncertainties and other factors, including those discussed in “Risk Factors” in Part I – Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 may cause actual future results to differ materially from the results discussed in this report on Form 10-Q.

 

Management continues to evaluate the impacts of inflation, the Federal Reserve’s monetary policy, the impacts of tariffs, international trade tensions, climate changes and the war in the Middle East on the Company’s business. The banking industry could experience significant volatility as it did with several regional bank failures in 2023. Industrywide concerns could develop related to liquidity, deposit outflows and unrealized losses on debt securities. These recent events and concerns could adversely affect the Company’s ability to effectively fund its operations. 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. 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. Furthermore, the effects could have a material impact on the Company’s results of operations and heighten many of the risk factors discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

 

Application of accounting principles requires the Company to make certain estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain accounting policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants a writedown or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. Fair value is generally determined based on an exit price at which an asset or liability could be exchanged in a current transaction, other than in a forced or liquidation sale. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available. Certain amounts in previous periods have been reclassified to conform to current presentation.

 

Debt Securities. Debt securities consist of securities of government sponsored entities, states, counties, municipalities, corporations, agency mortgage-backed securities and collateralized loan obligations. Securities transactions are recorded on a trade date basis. The Company classifies its debt securities in one of three categories: trading, available for sale or held to maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Trading securities are recorded at fair value with unrealized gains and losses included in net income. Held to maturity debt securities are those securities which the Company has the ability and intent to hold until maturity. Held to maturity debt securities are recorded at cost, adjusted for the amortization of premiums or accretion of discounts. Securities not included in trading or held to maturity are classified as available for sale debt securities. Available for sale debt securities are recorded at fair value. Unrealized gains and losses, net of the related tax effect, on available for sale debt securities are included in accumulated other comprehensive income. Accrued interest is recorded within other assets and reversed against interest income if it is not received.

 

-9-

 

The Company utilizes third-party sources to value its investment securities; securities individually valued using quoted prices in active markets are classified as Level 1 assets in the fair value hierarchy, and securities valued using quoted prices in active markets for similar securities (commonly referred to as “matrix” pricing) are classified as Level 2 assets in the fair value hierarchy. The Company validates the reliability of third-party provided values by comparing individual security pricing for securities between more than one third-party source. When third-party information is not available, valuation adjustments are estimated in good faith by Management and classified as Level 3 in the fair value hierarchy.

 

The Company follows the 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 when performing investment security pre-purchase analysis or evaluating investment securities for credit loss. Credit ratings issued by recognized rating agencies are considered in the Company’s analysis only as a guide to the historical default rate associated with similarly-rated bonds.

 

To the extent that debt securities in the held-to-maturity portfolio share common risk characteristics, estimated expected credit losses are calculated in a manner like that used for loans held for investment. That is, for pools of such securities with common risk characteristics, the historical lifetime probability of default and severity of loss in the event of default is derived or obtained from external sources and adjusted for the expected effects of reasonable and supportable forecasts over the expected lives of the securities on those historical credit losses. Expected credit loss on each security in the held-to-maturity portfolio that does not share common risk characteristics with any of the pools of debt securities is individually evaluated and a reserve for credit losses is established based on the Company’s consideration of the history of credit losses, current conditions and reasonable and supportable forecasts, which may indicate that the expectation that nonpayment of the amortized cost basis is or continues to be zero. Therefore, for those securities, the Company does not record expected credit losses.

 

Available for sale debt securities in unrealized loss positions are evaluated for credit related loss at least quarterly. For available for sale debt securities, a decline in fair value due to credit loss results in recording an allowance for credit losses to the extent the fair value is less than the amortized cost basis. Declines in fair value that have not been recorded through an allowance for credit losses, such as declines due to changes in market interest rates, are recorded through other comprehensive income, net of applicable taxes. Although these evaluations involve significant judgment, an unrealized loss in the fair value of a debt security is generally considered to not be related to credit when the fair value of the security is below the carrying value primarily due to changes in risk-free interest rates, there has not been significant deterioration in the financial condition of the issuer, and the Company does not intend to sell nor does it believe it will be required to sell the security before the recovery of its cost basis.

 

If the Company intends to sell a debt security or more likely than not will be required to sell the security before recovery of its amortized cost basis, the debt security is written down to its fair value and the write down is charged against the allowance for credit losses with any incremental loss reported in earnings.

 

Purchase premiums are amortized to the earliest call date and purchase discounts are amortized to maturity as an adjustment to yield using the effective interest method. Unamortized premiums, unaccreted discounts, and early payment premiums are recognized as a component of gain or loss on sale upon disposition of the related security. Interest and dividend income are recognized when earned. Realized gains and losses from the sale of available for sale debt securities are included in earnings using the specific identification method.

 

Loans. Loans are stated at the principal amount outstanding, net of unearned discount and unamortized deferred fees and costs. Interest is accrued daily on the outstanding principal balances and included in other assets. Loans which are more than 90 days delinquent with respect to interest or principal, unless they are well secured and in the process of collection, and other loans on which full recovery of principal or interest is in doubt, are placed on nonaccrual status. Interest previously accrued on loans placed on nonaccrual status is charged against interest income. In addition, some loans secured by real estate and commercial loans to borrowers experiencing financial difficulties are placed on nonaccrual status even though the borrowers continue to repay the loans as scheduled. When the ability to fully collect nonaccrual loan principal is in doubt, payments received are applied against the principal balance of the loans on a cost-recovery method until such time as full collection of the remaining recorded balance is expected. Any additional interest payments received after that time are recorded as interest income on a cash basis. Nonaccrual loans are reinstated to accrual status when none of the loan’s principal and interest is past due and improvements in credit quality eliminate doubt as to the full collectability of both principal and interest, or the loan otherwise becomes well secured and in the process of collection. Certain consumer loans or auto receivables are charged off against the allowance for credit losses when they become 120 days past due.

 

-10-

 

Allowance for Credit Losses. The Company extends loans to commercial and consumer customers primarily in Northern and Central California. These lending activities expose the Company to the risk borrowers will default, causing loan losses. 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. Significant risk characteristics related to the commercial real estate segment include the borrowers’ business performance and the value of properties collateralizing the loans. Significant risk characteristics related to the construction loan segment include the borrowers’ performance in successfully developing the real estate into the intended purpose and the value of the property collateralizing the loans. Significant risk characteristics related to the residential real estate segment include the borrowers’ financial wherewithal to service the mortgages and the value of the property collateralizing the loans. Significant risk characteristics related to the consumer loan segment include the financial condition of the borrowers and the value of collateral securing the loans.

 

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. Loan agreements generally include a maturity date, and the Company considers the contractual life of a loan agreement to extend from the date of origination to the contractual maturity date. In estimating credit losses, Management must exercise significant judgment in evaluating information deemed relevant. The amount of ultimate losses on the loan portfolio can vary from the estimated amounts. Management follows a systematic methodology to estimate loss potential in an effort to reduce the differences between estimated and actual losses.

 

The allowance for credit losses is established through provisions for credit losses charged to income. Losses on loans are charged to the allowance for credit losses when all or a portion of the recorded amount of a loan is deemed to be uncollectible. Recoveries of loans previously charged off are credited to the allowance when realized. The Company’s allowance for credit losses 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. These include conditions unique to individual borrowers, as well as overall credit loss experience, the amount of past due, nonperforming and classified loans, recommendations of regulatory authorities, prevailing economic conditions, or credit protection agreements and other factors.

 

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. For consumer installment loans, primarily secured by automobiles, historical loss rates are determined using a vintage methodology, which tracks losses based on period of origination. For commercial, construction, and commercial real estate, historical loss rates are determined using an open pool methodology where losses are tracked over time for all loans included in the pool at the historical measurement date. Historical loss rates are adjusted for factors that are not reflected in the historical loss rates that are attributable to national or local economic or industry trends which have occurred but have not yet been recognized in past loan charge-off history, estimated losses based on management’s reasonable and supportable expectation of economic trends over a forecast horizon of up to two years, and other factors that impact credit loss expectations that are not reflected in the historical loss rates. Other factors include, but are not limited to, the effectiveness of the Company’s loan review system, adequacy of lending Management and staff, loan policies and procedures, problem loan trends, and concentrations of credit. At the end of the two-year forecast period loss rates revert immediately to the historical loss 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. 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. A credit loss reserve for collateral-dependent loans is established at the difference between the amortized cost basis in the loan and the fair value of the underlying collateral adjusted for costs to sell. For other individually evaluated loans that are not collateral dependent, a credit loss reserve is established at the difference between the amortized cost basis in the loan and the present value of expected future cash flows discounted at the loan’s effective interest rate. 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 excluded from the estimation of expected credit loss. 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.

 

-11-

 

Equity Securities. Equity securities consist of marketable equity securities, mutual funds and nonmarketable equity securities. Dividends are recognized in interest income. Unrealized and realized gains and losses are included in noninterest income. Marketable equity securities and mutual funds are recorded at fair value. Certain equity securities are held for trading.

 

Nonmarketable equity securities include securities that are not publicly traded, such as Visa Class B-1 common stock, and securities acquired to meet regulatory requirements, such as Federal Reserve Bank stock, which are restricted. These restricted securities are accounted for under the cost method. The Company reviews those assets accounted for under the cost method at least quarterly. The Company’s review typically includes an analysis of the facts and circumstances of each investment, the expectations for the investment’s cash flows and capital needs, the viability of its business model and any exit strategy. When the review indicates that impairment exists the asset value is reduced to fair value. The Company recognizes the estimated loss in noninterest income.

 

Liability for Off-Balance Sheet Credit Exposures. Off-balance sheet credit exposures relate to letters of credit and unfunded loan commitments for commercial, construction and consumer loans. The Company maintains a separate allowance for credit losses from off-balance sheet credit exposures, which is included within other liabilities on the consolidated statements of financial condition. Increases or reductions to the Company’s allowance for credit losses from off-balance sheet credit exposures are recorded in other expenses. Management estimates the amount of expected losses by estimating expected usage exposures that are not unconditionally cancellable by the Company and applying the loss factors used in the allowance for credit loss methodology to estimate the liability for credit losses related to unfunded commitments. No credit loss estimate is reported for off-balance sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.

 

Operating Segments. While the chief decision maker monitors the revenue streams of the various products and services, operations are managed, and financial performance is evaluated on a Company-wide basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

 

Recently Issued Accounting Standards

 

FASB ASU 2024-03, Income Statement - Reporting Comprehensive Income Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, was issued November 4, 2024. The amendments are intended to improve income statement expense disclosure requirement, primarily through enhanced disclosures about certain costs and expenses included in income statement expense captions. The amendments are effective for annual reporting periods beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of the amendments on our financial statement disclosures upon adoption.

 

FASB ASU 2025-08, Financial Instruments Credit Losses (Topic 326): Purchased Loans, was issued November 12, 2025. The ASU clarifies the application of the current expected credit loss model (“CECL”) to purchased loans, including purchased credit-deteriorated loans, and enhances related disclosure requirements. The amendments are to be applied prospectively and will be effective for annual reporting periods beginning after December 15, 2026 and interim periods within. Early adoption is permitted. The Company is currently evaluating the impact of the amendments on the Company’s consolidated financial statements upon adoption.

 

 

Note 3: Debt Securities Available for Sale and Held to Maturity

 

The Company uses its debt securities portfolio to manage interest rate risk, provide liquidity (including the ability to meet regulatory requirements), generate interest and dividend income, and as collateral for public deposits and wholesale funding sources. The Company’s debt securities portfolio includes debt securities classified as held to maturity and available for sale. While the Company intends to hold its debt securities to maturity, it may sell debt securities available for sale in response to structural changes in the balance sheet and related interest rate risk and to meet liquidity requirements, among other factors.

 

Debt securities available for sale are carried at fair value with net unrealized gains (losses) reported on an after-tax basis as a component of accumulated other comprehensive income. Debt securities held to maturity are carried at amortized cost. The following tables provide an analysis of the amortized cost and fair value by major categories of debt securities available for sale and debt securities held to maturity before allowance for credit losses of $1 thousand at March 31, 2026 and December 31, 2025. In accordance with GAAP, unrealized gains and losses on held to maturity securities have not been recognized in the Company’s financial statements.

 

-12-

 

   

At March 31, 2026

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 
   

(In thousands)

 

Debt securities available for sale:

                               

Agency residential mortgage-backed securities ("MBS")

  $ 187,993     $ 3     $ (10,688 )   $ 177,308  

Agency commercial MBS

    955,794       884       (10,564 )     946,114  

Securities of U.S. Government sponsored entities

    307,683       26       (9,207 )     298,502  

Obligations of states and political subdivisions

    46,118       6       (702 )     45,422  

Corporate securities

    1,957,629       9       (122,116 )     1,835,522  

Collateralized loan obligations

    293,927       351       (291 )     293,987  

Total debt securities available for sale

    3,749,144       1,279       (153,568 )     3,596,855  

Debt securities held to maturity:

                               

Agency residential MBS

    41,271       23       (2,311 )     38,983  

Obligations of states and political subdivisions

    26,120       10       (16 )     26,114  

Corporate securities

    732,168       700       (13,661 )     719,207  

Total debt securities held to maturity

    799,559       733       (15,988 )     784,304  

Total

  $ 4,548,703     $ 2,012     $ (169,556 )   $ 4,381,159  

 

   

At December 31, 2025

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 
   

(In thousands)

 

Debt securities available for sale:

                               

Agency residential MBS

  $ 194,394     $ 8     $ (10,056 )   $ 184,346  

Agency commercial MBS

    709,371       1,600       (3,411 )     707,560  

Securities of U.S. Government sponsored entities

    309,079       72       (6,739 )     302,412  

Obligations of states and political subdivisions

    46,264       1       (543 )     45,722  

Corporate securities

    1,913,553       -       (109,473 )     1,804,080  

Collateralized loan obligations

    425,465       400       (1,251 )     424,614  

Total debt securities available for sale

    3,598,126       2,081       (131,473 )     3,468,734  

Debt securities held to maturity:

                               

Agency residential MBS

    43,734       26       (2,231 )     41,529  

Obligations of states and political subdivisions

    33,597       10       (36 )     33,571  

Corporate securities

    742,244       3,245       (8,009 )     737,480  

Total debt securities held to maturity

    819,575       3,281       (10,276 )     812,580  

Total

  $ 4,417,701     $ 5,362     $ (141,749 )   $ 4,281,314  

 

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-13-

 

 

The amortized cost and fair value of debt securities by contractual maturity are shown in the following tables at the dates indicated:

 

   

At March 31, 2026

 
   

Debt Securities Available

   

Debt Securities Held

 
   

for Sale

   

to Maturity

 
   

Amortized

   

Fair

   

Amortized

   

Fair

 
   

Cost

   

Value

   

Cost

   

Value

 
   

(In thousands)

 

Maturity in years:

                               

1 year or less

  $ 204,192     $ 203,356     $ 60,501     $ 60,400  

Over 1 to 5 years

    1,435,262       1,360,107       412,457       410,862  

Over 5 to 10 years

    671,976       615,983       285,330       274,059  

Subtotal

    2,311,430       2,179,446       758,288       745,321  

Collateralized loan obligations

    293,927       293,987       -       -  

Agency residential MBS

    187,993       177,308       41,271       38,983  

Agency commercial MBS

    955,794       946,114       -       -  

Total

  $ 3,749,144     $ 3,596,855     $ 799,559     $ 784,304  

 

   

At December 31, 2025

 
   

Debt Securities Available

   

Debt Securities Held

 
   

for Sale

   

to Maturity

 
   

Amortized

   

Fair

   

Amortized

   

Fair

 
   

Cost

   

Value

   

Cost

   

Value

 
   

(In thousands)

 

Maturity in years:

                               

1 year or less

  $ 199,254     $ 198,573     $ 33,326     $ 33,302  

Over 1 to 5 years

    1,231,338       1,182,101       425,387       428,326  

Over 5 to 10 years

    838,304       771,540       317,128       309,423  

Subtotal

    2,268,896       2,152,214       775,841       771,051  

Collateralized loan obligations

    425,465       424,614       -       -  

Agency residential MBS

    194,394       184,346       43,734       41,529  

Agency commercial MBS

    709,371       707,560       -       -  

Total

  $ 3,598,126     $ 3,468,734     $ 819,575     $ 812,580  

 

Expected amortizing principal payments of collateralized loan obligations can differ from actual cash flows because the securities can be called and paid-off. Expected maturities of mortgage-related securities can differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. In addition, such factors as prepayments and interest rates may affect the yield on the carrying value of mortgage-related securities.

 

An analysis of the gross unrealized losses of the debt securities available for sale portfolio follows:

 

   

Debt Securities Available for Sale

 
   

At March 31, 2026

 
   

No. of

   

Less than 12 months

   

No. of

   

12 months or longer

   

No. of

   

Total

 
   

Investment

           

Unrealized

   

Investment

           

Unrealized

   

Investment

           

Unrealized

 
   

Positions

   

Fair Value

   

Losses

   

Positions

   

Fair Value

   

Losses

   

Positions

   

Fair Value

   

Losses

 
   

($ in thousands)

 

Agency residential MBS

    4     $ 13,297     $ (204 )     104     $ 163,509     $ (10,484 )     108     $ 176,806     $ (10,688 )

Agency commercial MBS

    99       809,211       (10,564 )     -       -       -       99       809,211       (10,564 )

Securities of U.S.
Government sponsored
entities

    1       5,351       (30 )     18       282,938       (9,177 )     19       288,289       (9,207 )
Obligations of states
and political
subdivisions
    2       4,201       (23 )     28       36,135       (679 )     30       40,336       (702 )

Corporate securities

    12       78,980       (777 )     124       1,746,543       (121,339 )     136       1,825,523       (122,116 )

Collateralized loan
obligations

    2       22,924       (76 )     2       10,740       (215 )     4       33,664       (291 )

Total

    120     $ 933,964     $ (11,674 )     276     $ 2,239,865     $ (141,894 )     396     $ 3,173,829     $ (153,568 )

 

-14-

 

An analysis of gross unrecognized losses of the debt securities held to maturity portfolio follows:

 

   

Debt Securities Held to Maturity

 
   

At March 31, 2026

 
   

No. of

   

Less than 12 months

   

No. of

   

12 months or longer

   

No. of

   

Total

 
   

Investment

           

Unrecognized

   

Investment

           

Unrecognized

   

Investment

           

Unrecognized

 
   

Positions

   

Fair Value

   

Losses

   

Positions

   

Fair Value

   

Losses

   

Positions

   

Fair Value

   

Losses

 
   

($ in thousands)

 

Agency residential MBS

    -     $ -     $ -       54     $ 38,020     $ (2,311 )     54     $ 38,020     $ (2,311 )
Obligations of states
and political
subdivisions
    1       624       (1 )     10       9,344       (15 )     11       9,968       (16 )

Corporate securities

    24       226,589       (916 )     23       355,425       (12,745 )     47       582,014       (13,661 )

Total

    25     $ 227,213     $ (917 )     87     $ 402,789     $ (15,071 )     112     $ 630,002     $ (15,988 )

 

Based upon the Company’s March 31, 2026 evaluation of debt securities available for sale and held to maturity, the unrealized losses on debt securities were caused by market conditions for these types of securities. Market interest rates are currently higher than the book yield of the securities, generally resulting in lower fair value compared with amortized cost. Evaluation of debt securities available for sale and held to maturity did not indicate lower fair values were caused by credit related indicators of the issuer. The Company continually monitors interest rate changes, risk premium spread changes, credit rating changes for issuers of bonds owned, collateralized loan obligations’ collateral levels, and corporate bond issuers’ common stock price changes. All collateralized loan obligations, obligations of states and political subdivisions, and corporate securities were investment grade rated at March 31, 2026.

 

The Company does not intend to sell any debt securities available for sale with a material unrealized loss and has concluded that it is more likely than not that it will not be required to sell the debt securities prior to recovery of the amortized cost basis.

 

The Company evaluates held to maturity corporate debt securities individually, monitoring each issuer’s financial condition, profitability, cash flows and credit rating agency conclusions. The Company has evaluated each issuer’s historical financial performance and ability to service debt payments, including throughout and following past recessions. The Company has an expectation that nonpayment of the amortized cost basis continues to be zero.

 

The fair values of debt securities could decline in the future if market interest rates rise, the general economy deteriorates, inflation increases, credit ratings decline, the issuers’ financial condition deteriorates, or the liquidity for debt securities declines. As a result, significant credit losses on debt securities may occur in the future.

 

As of March 31, 2026 and December 31, 2025, the Company’s debt securities pledged had a carrying value of $1,969,333 thousand and $1,952,111 thousand, respectively, primarily to secure public deposits, Federal Reserve Bank borrowings and securities sold under repurchase agreements.

 

An analysis of the gross unrealized losses of the debt securities available for sale portfolio follows:

 

   

Debt Securities Available for Sale

 
   

At December 31, 2025

 
   

No. of

   

Less than 12 months

   

No. of

   

12 months or longer

   

No. of

   

Total

 
   

Investment

           

Unrealized

   

Investment

           

Unrealized

   

Investment

           

Unrealized

 
   

Positions

   

Fair Value

   

Losses

   

Positions

   

Fair Value

   

Losses

   

Positions

   

Fair Value

   

Losses

 
   

($ in thousands)

 

Agency residential MBS

    2     $ 10,541     $ (147 )     107     $ 173,186     $ (9,909 )     109     $ 183,727     $ (10,056 )

Agency commercial MBS

    56       438,102       (3,411 )     -       -       -       56       438,102       (3,411 )

Securities of U.S.
Government sponsored
entities

    -       -       -       19       284,747       (6,739 )     19       284,747       (6,739 )
Obligations of states
and political
subdivisions
    2       3,382       (1 )     28       37,520       (542 )     30       40,902       (543 )

Corporate securities

    -       -       -       129       1,804,080       (109,473 )     129       1,804,080       (109,473 )

Collateralized loan
obligations

    2       22,924       (77 )     5       49,693       (1,174 )     7       72,617       (1,251 )

Total

    62     $ 474,949     $ (3,636 )     288     $ 2,349,226     $ (127,837 )     350     $ 2,824,175     $ (131,473 )

 

-15-

 

An analysis of gross unrecognized losses of the debt securities held to maturity portfolio follows:

 

   

Debt Securities Held to Maturity

 
   

At December 31, 2025

 
   

No. of

   

Less than 12 months

   

No. of

   

12 months or longer

   

No. of

   

Total

 
   

Investment

           

Unrecognized

   

Investment

           

Unrecognized

   

Investment

           

Unrecognized

 
   

Positions

   

Fair Value

   

Losses

   

Positions

   

Fair Value

   

Losses

   

Positions

   

Fair Value

   

Losses

 
   

($ in thousands)

 

Agency residential MBS

    -     $ -     $ -       59     $ 40,523     $ (2,231 )     59     $ 40,523     $ (2,231 )

Obligations of states
and political
subdivisions

    -       -       -       17       16,087       (36 )     17       16,087       (36 )

Corporate securities

    -       -       -       23       359,421       (8,009 )     23       359,421       (8,009 )

Total

    -     $ -     $ -       99     $ 416,031     $ (10,276 )     99     $ 416,031     $ (10,276 )

 

The Company evaluates debt securities on a quarterly basis including changes in security ratings issued by rating agencies, changes in the financial condition of the issuer, collateral levels and, for mortgage-backed and asset-backed securities, delinquency and loss information with respect to the underlying collateral, changes in the levels of subordination for the Company’s particular position within the repayment structure and remaining credit enhancement as compared to expected credit losses of the security. In addition to monitoring credit rating agency evaluations, Management performs its own evaluations regarding the credit worthiness of the issuer or the securitized assets underlying asset backed securities. Management considers the $1 thousand allowance for credit losses on debt securities held to maturity to be adequate as a reserve against current expected credit losses in the debt securities held to maturity as of March 31, 2026.

 

The following table presents the activity in the allowance for credit losses for debt securities held to maturity:

 

   

For the Three Months Ended March 31,

 
   

2026

   

2025

 
   

(In thousands)

 

Allowance for credit losses:

               

Beginning balance

  $ 1     $ 1  

Provision

    -       -  

Chargeoffs

    -       -  

Recoveries

    -       -  

Total ending balance

  $ 1     $ 1  

 

Agency mortgage-backed securities were assigned no credit loss allowance due to the perceived backing of government sponsored entities. Municipal securities were evaluated for risk of default based on credit rating and remaining term to maturity using Moody’s risk of default factors; Moody’s loss upon default factors were applied to the assumed defaulted principal amounts to estimate the amount for credit loss allowance. 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 March 31, 2026, no credit loss allowance was assigned to corporate securities held to maturity.

 

The following table summarizes the amortized cost of debt securities held to maturity at March 31, 2026, aggregated by credit rating:

 

   

Credit Risk Profile by Credit Rating

 
   

At March 31, 2026

 
   

AAA/AA/A

   

BBB+/BBB

   

Not Rated

   

Total

 
   

(In thousands)

 

Agency residential MBS

  $ 40,840     $ -     $ 431     $ 41,271  

Obligations of states and political subdivisions

    26,120       -       -       26,120  

Corporate securities

    578,078       154,090       -       732,168  

Total

  $ 645,038     $ 154,090     $ 431     $ 799,559  

 

There were no debt securities held to maturity on nonaccrual status or past due 30 days or more as of March 31, 2026.

 

-16-

 

The following table provides information about the amount of interest income earned on investment securities which is fully taxable and which is exempt from federal income tax:

 

   

For the Three Months

 
   

Ended March 31,

 
   

2026

   

2025

 
   

(In thousands)

 
                 

Taxable

  $ 41,029     $ 41,280  

Tax-exempt from regular federal income tax

    606       839  

Total interest income from investment securities

  $ 41,635     $ 42,119  

  

 

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

 

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

 

   

At March 31,

   

At December 31,

 
   

2026

   

2025

 
   

(In thousands)

 
                 

Commercial

  $ 108,476     $ 117,009  

Commercial real estate

    471,961       482,230  

Construction

    -       -  

Residential real estate

    6,601       7,186  

Consumer installment & other

    109,166       120,057  

Total

  $ 696,204     $ 726,482  

 

The following summarizes activity in the allowance for credit losses:

 

   

Allowance for Credit Losses

 
   

For the Three Months Ended March 31, 2026

 
                                   

Consumer

         
           

Commercial

           

Residential

   

Installment

         
   

Commercial

   

Real Estate

   

Construction

   

Real Estate

   

and Other

   

Total

 
   

(In thousands)

 

Allowance for credit losses:

                                               

Balance at beginning of period

  $ 4,048     $ 6,109     $ -     $ 22     $ 1,394     $ 11,573  

(Reversal) provision

    (681 )     (307 )     -       2       686       (300 )

Chargeoffs

    -       -       -       -       (791 )     (791 )

Recoveries

    80       19       -       -       570       669  

Total allowance for credit losses

  $ 3,447     $ 5,821     $ -     $ 24     $ 1,859     $ 11,151  

 

   

Allowance for Credit Losses

 
   

For the Three Months Ended March 31, 2025

 
                                   

Consumer

         
           

Commercial

           

Residential

   

Installment

         
   

Commercial

   

Real Estate

   

Construction

   

Real Estate

   

and Other

   

Total

 
   

(In thousands)

 

Allowance for credit losses:

                                               

Balance at beginning of period

  $ 4,197     $ 6,034     $ 247     $ 22     $ 4,280     $ 14,780  

(Reversal) provision

    (41 )     309       -       4       (822 )     (550 )

Chargeoffs

    (10 )     (191 )     -       -       (1,525 )     (1,726 )

Recoveries

    265       13       -       -       1,132       1,410  

Total allowance for credit losses

  $ 4,411     $ 6,165     $ 247     $ 26     $ 3,065     $ 13,914  

 

The Company’s customers are primarily small businesses, professionals and consumers. Given the scale of these borrowers, corporate credit rating agencies do not evaluate the borrowers’ financial condition. 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.

 

-17-

 

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

 

   

Credit Risk Profile by Internally Assigned Grade

 
   

At March 31, 2026

 
   

Commercial

   

Commercial Real Estate

   

Construction

   

Residential Real Estate

   

Consumer Installment and Other

   

Total

 
   

(In thousands)

 

Grade:

                                               

Pass

  $ 106,835     $ 464,136     $ -     $ 6,401     $ 107,394     $ 684,766  

Substandard

    955       7,825       -       200       1,363       10,343  

Doubtful

    686       -       -       -       48       734  

Loss

    -       -       -       -       361       361  

Total

  $ 108,476     $ 471,961     $ -     $ 6,601     $ 109,166     $ 696,204  

 

   

Credit Risk Profile by Internally Assigned Grade

 
   

At December 31, 2025

 
   

Commercial

   

Commercial Real Estate

   

Construction

   

Residential Real Estate

   

Consumer Installment and Other

   

Total

 
   

(In thousands)

 

Grade:

                                               

Pass

  $ 114,861     $ 474,140     $ -     $ 6,983     $ 118,036     $ 714,020  

Substandard

    1,053       8,090       -       203       1,646       10,992  

Doubtful

    1,095       -       -       -       57       1,152  

Loss

    -       -       -       -       318       318  

Total

  $ 117,009     $ 482,230     $ -     $ 7,186     $ 120,057     $ 726,482  

 

The following tables summarize loans by delinquency and nonaccrual status:

 

   

Summary of Loans by Delinquency and Nonaccrual Status

 
   

At March 31, 2026

 
   

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

  $ 107,447     $ 244     $ -     $ -     $ 785     $ 108,476  

Commercial real estate

    469,992       1,501       88       -       380       471,961  

Construction

    -       -       -       -       -       -  

Residential real estate

    6,601       -       -       -       -       6,601  

Consumer installment and other

    106,885       1,647       357       277       -       109,166  

Total

  $ 690,925     $ 3,392     $ 445     $ 277     $ 1,165     $ 696,204  

 

   

Summary of Loans by Delinquency and Nonaccrual Status

 
   

At December 31, 2025

 
   

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

  $ 115,595     $ 295     $ 24     $ -     $ 1,095     $ 117,009  

Commercial real estate

    481,664       187       -       -       379       482,230  

Construction

    -       -       -       -       -       -  

Residential real estate

    7,186       -       -       -       -       7,186  

Consumer installment and other

    116,657       2,428       632       340       -       120,057  

Total

  $ 721,102     $ 2,910     $ 656     $ 340     $ 1,474     $ 726,482  

 

At March 31, 2026, $78 thousand was allocated as allowance for credit losses to one loan with a carrying balance of $686 thousand on nonaccrual status. At December 31, 2025, $388 thousand was allocated as allowance for credit losses to one loan with a carrying balance of $388 thousand on nonaccrual status.

 

-18-

 

There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at March 31, 2026 or December 31, 2025.

 

There were no loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2026 and March 31, 2025.

 

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. Loans considered collateral dependent are reassessed quarterly. Loans that were considered collateral dependent at March 31, 2026 included the following: five commercial real estate loans totaling $6.9 million secured by real property, one $156 thousand commercial loan secured by real property and $245 thousand of indirect consumer installment loans secured by personal property. There were no other collateral dependent loans at March 31, 2026. Loans that were considered collateral dependent at December 31, 2025 included the following: five commercial real estate loans totaling $7.0 million secured by real property, one $182 thousand commercial loan secured by real property and $295 thousand of indirect consumer installment loans secured by personal property. There were no other collateral dependent loans at December 31, 2025.

 

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

 

   

At March 31, 2026

 
                                                           

Line of

         
                                                           

Credit

         
   

Term Loans Amortized Cost Basis by Origination Year

   

Total

   

Amortized

         
   

Prior

   

2022

   

2023

   

2024

   

2025

   

2026

   

Term Loans

   

Cost Basis

   

Total

 
   

(In thousands)

 

Commercial loans by grade:

                                                                       

Pass

  $ 22,620     $ 7,246     $ 6,040     $ 15,861     $ 30,197     $ 1,748     $ 83,712     $ 23,123     $ 106,835  

Substandard

    187       -       -       -       291       -       478       477       955  

Doubtful

    -       -       -       -       686       -       686       -       686  

Loss

    -       -       -       -       -       -       -       -       -  

Total

  $ 22,807     $ 7,246     $ 6,040     $ 15,861     $ 31,174     $ 1,748     $ 84,876     $ 23,600     $ 108,476  
                                                                         

Current gross chargeoffs on commercial loans:

                                                               

For the three months ended March 31, 2026

                                                               
    $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

 

   

At December 31, 2025

 
                                                           

Line of

         
                                                           

Credit

         
   

Term Loans Amortized Cost Basis by Origination Year

   

Total

   

Amortized

         
   

Prior

   

2021

   

2022

   

2023

   

2024

   

2025

   

Term Loans

   

Cost Basis

   

Total

 
   

(In thousands)

 

Commercial loans by grade:

                                                                       

Pass

  $ 20,092     $ 4,407     $ 8,072     $ 6,806     $ 16,560     $ 35,914     $ 91,851     $ 23,010     $ 114,861  

Substandard

    201       -       -       -       -       446       647       406       1,053  

Doubtful

    -       -       -       -       -       707       707       388       1,095  

Loss

    -       -       -       -       -       -       -       -       -  

Total

  $ 20,293     $ 4,407     $ 8,072     $ 6,806     $ 16,560     $ 37,067     $ 93,205     $ 23,804     $ 117,009  
                                                                         

Current gross chargeoffs on commercial loans:

                                                                 

For the year ended December 31, 2025

                                                                 
    $ -     $ 1,559     $ -     $ 5     $ -     $ -     $ 1,564     $ 33     $ 1,597  

 

During 2025, $1,559 thousand was charged off on an individually evaluated commercial loan originated in 2021.

 

   

At March 31, 2026

 
                                                           

Line of

         
                                                           

Credit

         
   

Term Loans Amortized Cost Basis by Origination Year

   

Total

   

Amortized

         
   

Prior

   

2022

   

2023

   

2024

   

2025

   

2026

   

Term Loans

   

Cost Basis

   

Total

 
   

(In thousands)

 

Commercial real estate loans by grade:

                                                                 

Pass

  $ 239,495     $ 45,739     $ 40,779     $ 67,722     $ 55,927     $ 14,474     $ 464,136     $ -     $ 464,136  

Substandard

    7,825       -       -       -       -       -       7,825       -       7,825  

Doubtful

    -       -       -       -       -       -       -       -       -  

Loss

    -       -       -       -       -       -       -       -       -  

Total

  $ 247,320     $ 45,739     $ 40,779     $ 67,722     $ 55,927     $ 14,474     $ 471,961     $ -     $ 471,961  
                                                                         

Current gross chargeoffs on commercial real estate loans:

                                                         

For the three months ended March 31, 2026

                                                             
    $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

 

-19-

 

   

At December 31, 2025

 
                                                           

Line of

         
                                                           

Credit

         
   

Term Loans Amortized Cost Basis by Origination Year

   

Total

   

Amortized

         
   

Prior

   

2021

   

2022

   

2023

   

2024

   

2025

   

Term Loans

   

Cost Basis

   

Total

 
   

(In thousands)

 

Commercial real estate loans by grade:

                                                             

Pass

  $ 206,896     $ 55,247     $ 46,224     $ 41,080     $ 68,136     $ 56,557     $ 474,140     $ -     $ 474,140  

Substandard

    7,922       -       -       -       -       168       8,090       -       8,090  

Doubtful

    -       -       -       -       -       -       -       -       -  

Loss

    -       -       -       -       -       -       -       -       -  

Total

  $ 214,818     $ 55,247     $ 46,224     $ 41,080     $ 68,136     $ 56,725     $ 482,230     $ -     $ 482,230  
                                                                         

Current gross chargeoffs on commercial real estate loans:

                                                         

For the year ended December 31, 2025

                                                             
    $ 191     $ -     $ -     $ -     $ -     $ -     $ 191     $ -     $ 191  

 

   

At March 31, 2026

 
                                                           

Line of

         
                                                           

Credit

         
   

Term Loans Amortized Cost Basis by Origination Year

   

Total

   

Amortized

         
   

Prior

   

2022

   

2023

   

2024

   

2025

   

2026

   

Term Loans

   

Cost Basis

   

Total

 
   

(In thousands)

 

Residential real estate loans by grade:

                                                             

Pass

  $ 6,401     $ -     $ -     $ -     $ -     $ -     $ 6,401     $ -     $ 6,401  

Substandard

    200       -       -       -       -       -       200       -       200  

Doubtful

    -       -       -       -       -       -       -       -       -  

Loss

    -       -       -       -       -       -       -       -       -  

Total

  $ 6,601     $ -     $ -     $ -     $ -     $ -     $ 6,601     $ -     $ 6,601  
                                                                         

Current gross chargeoffs on residential real estate loans:

                                                         

For the three months ended March 31, 2026

                                                         
    $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

 

   

At December 31, 2025

 
                                                           

Line of

         
                                                           

Credit

         
   

Term Loans Amortized Cost Basis by Origination Year

   

Total

   

Amortized

         
   

Prior

   

2021

   

2022

   

2023

   

2024

   

2025

   

Term Loans

   

Cost Basis

   

Total

 
   

(In thousands)

 

Residential real estate loans by grade:

                                                                 

Pass

  $ 6,983     $ -     $ -     $ -     $ -     $ -     $ 6,983     $ -     $ 6,983  

Substandard

    203       -       -       -       -       -       203       -       203  

Doubtful

    -       -       -       -       -       -       -       -       -  

Loss

    -       -       -       -       -       -       -       -       -  

Total

  $ 7,186     $ -     $ -     $ -     $ -     $ -     $ 7,186     $ -     $ 7,186  
                                                                         

Current gross chargeoffs on residential real estate loans:

                                                         

For the year ended December 31, 2025

                                                         
    $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

 

There were no construction loans outstanding at March 31, 2026 and December 31, 2025. There were no gross chargeoffs on construction loans during the three months ended March 31, 2026 and the year ended December 31, 2025.

 

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 March 31, 2026

 
                                                           

Line of

         
                                                           

Credit

         
   

Term Loans Amortized Cost Basis by Origination Year

   

Total

   

Amortized

         
   

Prior

   

2022

   

2023

   

2024

   

2025

   

2026

   

Term Loans

   

Cost Basis

   

Total

 
   

(In thousands)

         

Consumer installment and other loans by delinquency and nonaccrual status:

                                                 

Current

  $ 19,071     $ 25,991     $ 16,059     $ 15,166     $ 13,139     $ 4,004     $ 93,430     $ 13,455     $ 106,885  

30-59 days past due

    591       563       141       183       140       25       1,643       4       1,647  

60-89 days past due

    88       60       26       33       149       -       356       1       357  

Past due 90 days or more

    32       88       -       33       98       -       251       26       277  

Nonaccrual

    -       -       -       -       -       -       -       -       -  

Total

  $ 19,782     $ 26,702     $ 16,226     $ 15,415     $ 13,526     $ 4,029     $ 95,680     $ 13,486     $ 109,166  
                                                                         

Current gross chargeoffs on consumer installment and other loans:

                                                         

For the three months ended March 31, 2026

                                                         
    $ 66     $ 220     $ 147     $ 107     $ 123     $ -     $ 663     $ 128     $ 791  

 

-20-

 

   

At December 31, 2025

 
                                                           

Line of

         
                                                           

Credit

         
   

Term Loans Amortized Cost Basis by Origination Year

   

Total

   

Amortized

         
   

Prior

   

2021

   

2022

   

2023

   

2024

   

2025

   

Term Loans

   

Cost Basis

   

Total

 
   

(In thousands)

         

Consumer installment and other loans by delinquency and nonaccrual status:

                                                 

Current

  $ 6,006     $ 17,795     $ 29,917     $ 17,712     $ 16,822     $ 14,780     $ 103,032     $ 13,625     $ 116,657  

30-59 days past due

    193       804       799       270       81       120       2,267       161       2,428  

60-89 days past due

    14       103       164       41       190       44       556       76       632  

Past due 90 days or more

    1       37       49       69       71       91       318       22       340  

Nonaccrual

    -       -       -       -       -       -       -       -       -  

Total

  $ 6,214     $ 18,739     $ 30,929     $ 18,092     $ 17,164     $ 15,035     $ 106,173     $ 13,884     $ 120,057  
                                                                         

Current gross chargeoffs on consumer installment and other loans:

                                                         

For the year ended December 31, 2025

                                                         
    $ 250     $ 679     $ 1,551     $ 657     $ 727     $ 10     $ 3,874     $ 226     $ 4,100  

 

There were no loans held for sale at March 31, 2026 and December 31, 2025.

 

The Company held no other real estate owned (OREO) at March 31, 2026 and December 31, 2025. At March 31, 2026 and December 31, 2025, there were no consumer mortgage loans outstanding secured by residential real estate properties for which formal foreclosure proceedings were in process.

 

 

Note 5: Concentration of Credit Risk

 

Under the California Financial Code, credit extended to any one person at any one time shall not exceed the following limitations: (a) unsecured credits shall not exceed 15 percent of the sum of the Bank’s shareholders’ equity, allowance for loan losses, capital notes, and debentures, or (b) secured and unsecured credits in all shall not exceed 25 percent of the sum of the Bank’s shareholders’ equity, allowance for credit losses, capital notes, and debentures. At March 31, 2026, the Bank did not have credit extended to any one entity exceeding these limits. At March 31, 2026, the Bank had 25 lending relationships each with aggregate amounts of $5 million or more. The Company has significant credit arrangements that are secured by real estate collateral. In addition to real estate loans outstanding as disclosed in Note 4, the Company had loan commitments related to real estate loans of $22,272 thousand and $22,358 thousand at March 31, 2026 and December 31, 2025, respectively. The Company requires collateral on all real estate loans with loan-to-value ratios at origination generally no greater than 75% on commercial real estate loans and no greater than 80% on residential real estate loans. At March 31, 2026, the Bank held corporate bonds of 109 issuing entities that exceeded $5 million for each issuer.

 

 

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-21-

 

  

 

Note 6: Other Assets and Other Liabilities

 

Other assets consisted of the following:

 

   

At March 31,

   

At December 31,

 
   

2026

   

2025

 
   

(In thousands)

 

Equity securities not held for trading at cost:

               

Federal Reserve Bank stock (1)

  $ 14,069     $ 14,069  

Other investments

    158       158  

Total equity securities not held for trading at cost

    14,227       14,227  

Equity securities held for trading at fair value

    219       466  

Total equity securities

    14,446       14,693  

Bank owned life insurance cash surrender value

    72,657       71,562  

Net deferred tax asset

    56,388       53,274  

Right-of-use asset

    21,026       22,206  

Limited partnership investments

    28,780       29,891  

Interest receivable:

               

Debt securities available for sale

    26,500       26,276  

Debt securities held to maturity

    6,502       6,979  

Loans

    3,760       3,888  

Total interest receivable

    36,762       37,143  

Prepaid assets

    4,773       5,843  

Other assets

    3,227       7,155  

Total other assets

  $ 238,059     $ 241,767  

 

(1)

A bank applying for membership in the Federal Reserve System is required to subscribe to stock in the Federal Reserve Bank (FRB) in its district in a sum equal to six percent of the bank’s paid-up capital stock and surplus. One-half of the amount of the bank's subscription shall be paid to the FRB and the remaining half will be subject to call when deemed necessary by the Board of Governors of the Federal Reserve System.

 

At March 31, 2026, the Company had marketable equity securities held for trading at fair value of $219 thousand. The Company recognized unrealized losses of $247 thousand in net income during the three months ended March 31, 2026. There were no purchases or sales of securities held for trading during the three months ended March 31, 2026 and December 31, 2025. There were no marketable equity securities at March 31, 2025.

 

The Company owns 211 thousand shares of Visa Inc. (“Visa”) Class B-1 common stock, which have transfer restrictions and no carrying value. Following the resolution of certain litigation involving Visa, shares of Visa’s Class B-1 stock will convert to shares of Visa Class A common stock based on a conversion factor (1.5475 as of March 31, 2026), which is periodically adjusted to reflect Visa’s ongoing litigation costs. Given the transfer restrictions and continuing uncertainty regarding the likelihood, ultimate timing and eventual conversion of Visa Class B-1 common stock for shares of Visa Class A common stock or other marketable classes of Visa common stock, these shares are not considered to have a readily determinable fair value and have no carrying value. Visa Class A common stock trades on the New York Stock Exchange and had a closing price of $302.24 per share on March 31, 2026, the last trading day for the first quarter 2026. The ultimate value of the Company’s Visa Class B-1 shares is subject to the extent of Visa’s future litigation escrow fundings, the resulting conversion rate to Visa Class A common stock, and current and future transfer restrictions on the Visa Class B-1 common stock. At March 31, 2026, the Company did not record an adjustment to the carrying value of the Visa Class B-1 shares.

 

The Company invests in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for low-income housing tax credits. At March 31, 2026, these investments totaled $28,780 thousand and $9,869 thousand of this amount represents outstanding equity capital commitments that are included in other liabilities. At December 31, 2025, these investments totaled $29,891 thousand and $10,518 thousand of this amount represents outstanding equity capital commitments that are included in other liabilities. At March 31, 2026, the $9,869 thousand of outstanding equity capital commitments are expected to be paid as follows: $4,931 thousand in the remainder of 2026, $2,943 thousand in 2027, $1,095 thousand in 2028, $396 thousand in 2029, $62 thousand in 2030, and $442 thousand in 2031 or thereafter.

 

-22-

 

 

The amounts recognized in net income for these investments include:

 

   

For the Three Months Ended

 
   

March 31,

 
   

2026

   

2025

 
   

(In thousands)

 

Investment loss included in pre-tax income

  $ 1,110     $ 915  

Tax credits recognized in provision for income taxes

    1,200       975  

 

Other liabilities consisted of the following:

 

   

At March 31,

   

At December 31,

 
   

2026

   

2025

 
   

(In thousands)

 

Operating lease liability

  $ 21,026     $ 22,206  

Securities purchases pending settlement

    2,217       -  

Other liabilities

    30,309       27,148  

Total other liabilities

  $ 53,552     $ 49,354  

 

The Company has entered into leases for most branch locations and certain other offices that were classified as operating leases primarily with original terms of five years. Certain lease arrangements contain extension options, which can be exercised at the Company’s option, for one or more additional five year terms. Unexercised extension options are not considered reasonably certain of exercise and have not been included in the lease term used to determine the lease liability or right-of-use asset. The Company did not have any finance leases as of March 31, 2026.

 

As of March 31, 2026, the Company’s lease liability and right-of-use asset were $21,026 thousand. The weighted average remaining life of operating leases and weighted average discount rate used to determine operating lease liabilities were 3.8 years and 3.89%, respectively, at March 31, 2026. The Company did not have any material lease incentives, unamortized initial direct costs, prepaid lease expense, or accrued lease expense as of March 31, 2026.

 

Total lease costs were $1,737 thousand and $1,680 thousand in the three months ended March 31, 2026 and March 31, 2025, respectively, and were recorded within occupancy and equipment expense. The Company did not have any material short-term or variable lease costs or sublease income during the three months ended March 31, 2026 and March 31, 2025.

 

The following table summarizes the remaining lease payments of operating lease liabilities:

 

   

Minimum
future lease
payments

 
   

At March 31,

 
   

2026

 
   

(In thousands)

 

The remainder of 2026

  $ 4,768  

2027

    6,186  

2028

    5,254  

2029

    3,484  

2030

    2,221  

Thereafter

    780  

Total minimum lease payments

    22,693  

Less: discount

    (1,667 )

Present value of lease liability

  $ 21,026  

 

-23-

 

  

 

Note 7: Goodwill and Identifiable Intangible Assets

 

The Company has recorded goodwill and other identifiable intangibles associated with purchase business combinations. Goodwill is not amortized, but is evaluated for impairment at least annually. The Company did not recognize impairment during the three months ended March 31, 2026 and the year ended December 31, 2025, as no triggering events occurred during such periods. Identifiable intangibles are amortized to their estimated residual values over their expected useful lives. Such lives and residual values are also periodically reassessed to determine if any amortization period adjustments are indicated. The Company’s identifiable intangible assets were fully amortized in the year ended December 31, 2025.

 

The carrying values of goodwill were:

 

   

At March 31, 2026

   

At December 31, 2025

 
   

(In thousands)

 

Goodwill

  $ 121,673     $ 121,673  

  

 

Note 8: Deposits and Borrowed Funds

 

The following table provides additional detail regarding deposits.

 

   

Deposits

 
   

At March 31,

   

At December 31,

 
   

2026

   

2025

 
   

(In thousands)

 

Noninterest-bearing

  $ 2,135,925     $ 2,252,490  

Interest-bearing:

               

Transaction

    939,285       907,124  

Savings

    1,643,599       1,613,384  

Time deposits less than $100 thousand

    39,031       39,845  

Time deposits $100 thousand through $250 thousand

    18,736       19,708  

Time deposits more than $250 thousand

    7,176       7,468  

Total deposits

  $ 4,783,752     $ 4,840,019  

 

Demand deposit overdrafts of $735 thousand and $769 thousand were included as loan balances at March 31, 2026 and December 31, 2025, respectively. Interest expense for aggregate time deposits with individual account balances in excess of $100 thousand was $11 thousand in the three months ended March 31, 2026 and $17 thousand in the three months ended March 31, 2025.

 

The following table provides additional detail regarding short-term borrowed funds.

 

   

Repurchase Agreements (Sweep)
Accounted for as Secured Borrowings

 
   

Remaining Contractual Maturity of the Agreements

 
   

Overnight and Continuous

 
   

At March 31,

   

At December 31,

 
   

2026

   

2025

 

Repurchase agreements:

  (In thousands)  

Collateral securing borrowings:

               

Agency residential MBS

  $ 16,757     $ 17,799  

Corporate securities

    395,694       398,465  

Total collateral carrying value

  $ 412,451     $ 416,264  

Total short-term borrowed funds

  $ 144,456     $ 137,298  

 

At March 31, 2026, the Company had access to borrowing from the Federal Reserve up to $765,854 thousand based on the collateral pledged at March 31, 2026. The Company had a $60,000 thousand line of credit with a correspondent bank at March 31, 2026. There were no borrowings from the Federal Reserve Bank or correspondent banks at March 31, 2026.

 

-24-

  

 

Note 9: Fair Value Measurements

 

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Debt securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as other real estate owned, loans individually evaluated for credit loss, certain loans held for investment, debt securities held to maturity, and other assets. These nonrecurring fair value adjustments typically involve the lower-of-cost or fair-value accounting of individual assets.

 

In accordance with the Fair Value Measurement and Disclosure topic of the FASB Accounting Standards Codification, the Company bases its fair values on the price that would be received to sell an asset or paid to transfer a liability in the principal market or most advantageous market for an asset or liability in an orderly transaction between market participants on the measurement date under current market conditions. A fair value measurement reflects all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset, and the risk of nonperformance.

 

The Company groups its assets and liabilities measured at fair value into a three-level hierarchy, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. When the valuation assumptions used to measure the fair value of the asset or liability are categorized within different levels of the fair value hierarchy, the asset or liability is categorized in its entirety within the lowest level of the hierarchy. These levels are:

 

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active exchange markets, such as the New York Stock Exchange. Level 1 includes U.S. Treasury and equity securities, which are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

 

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 2 includes mutual funds, federal agency securities, mortgage-backed securities, corporate securities, commercial paper, collateralized loan obligations, municipal bonds and securities of U.S. government entities and U.S. government sponsored entities.

 

Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

 

The Company relies on independent vendor pricing services to measure fair value for equity securities, debt securities available for sale and debt securities held to maturity. The Company employs three pricing services. To validate the pricing of these vendors, the Company compares vendors’ pricing for each of the securities for consistency; significant pricing differences, if any, are evaluated using all available independent quotes with the quote most closely reflecting the market generally used as the fair value estimate. In addition, the Company evaluates debt securities for credit losses on a quarterly basis. As with any valuation technique used to estimate fair value, changes in underlying assumptions used could significantly affect the results of current and future values. Accordingly, these fair value estimates may not be realized in an actual sale of the securities.

 

The Company regularly reviews the valuation techniques and assumptions used by its vendors and determines which valuation techniques are utilized based on observable market inputs for the type of securities being measured. The Company uses the information to determine the placement in the fair value hierarchy as level 1, 2 or 3.

 

 

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-25-

 

 

Assets Recorded at Fair Value on a Recurring Basis

 

The tables below present assets measured at fair value on a recurring basis on the dates indicated.

 

   

At March 31, 2026

 
   

Fair Value

   

Quoted Prices in Active Markets for Identical Assets
(Level 1)

   

Significant Other Observable Inputs
(Level 2)

   

Significant Unobservable Inputs
(Level 3) (1)

 
   

(In thousands)

 

Debt securities available for sale:

                               

Agency residential MBS

  $ 177,308     $ -     $ 177,308     $ -  

Agency commercial MBS

    946,114       -       946,114       -  

Securities of U.S. Government sponsored entities

    298,502       -       298,502       -  

Obligations of states and political subdivisions

    45,422       -       45,422       -  

Corporate securities

    1,835,522       -       1,835,522       -  

Collateralized loan obligations

    293,987       -       293,987       -  

Total debt securities available for sale

    3,596,855       -       3,596,855       -  

Equity securities held for trading

    219       219       -       -  

Total securities measured at fair value

  $ 3,597,074     $ 219     $ 3,596,855     $ -  

 

(1) There were no transfers into or out of level 3 during the three months ended March 31, 2026.

 

   

At December 31, 2025

 
   

Fair Value

   

Quoted Prices in Active Markets for Identical Assets
(Level 1)

   

Significant Other Observable Inputs
(Level 2)

   

Significant Unobservable Inputs
(Level 3) (1)

 
   

(In thousands)

 

Debt securities available for sale:

                               

Agency residential MBS

  $ 184,346     $ -     $ 184,346     $ -  

Agency commercial MBS

    707,560       -       707,560       -  

Securities of U.S. Government sponsored entities

    302,412       -       302,412       -  

Obligations of states and political subdivisions

    45,722       -       45,722       -  

Corporate securities

    1,804,080       -       1,804,080       -  

Collateralized loan obligations

    424,614       -       424,614       -  

Total debt securities available for sale

    3,468,734       -       3,468,734       -  

Equity securities held for trading

    466       466       -       -  

Total securities measured at fair value

  $ 3,469,200     $ 466     $ 3,468,734     $ -  

 

(1) There were no transfers into or out of level 3 during the year ended December 31, 2025.

 

Assets Recorded at Fair Value on a Nonrecurring Basis

 

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower-of-cost or fair-value accounting of individual assets. For assets measured at fair value on a nonrecurring basis that were recorded in the balance sheet at March 31, 2026 and December 31, 2025, the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets at period end.

 

                                   

For the Three

 
                                   

Months Ended

 
   

At March31, 2026

   

March 31, 2026

 
   

Carrying Value

   

Level 1

   

Level 2

   

Level 3

   

Total Losses

 
   

(In thousands)

 

Loans:

                                       

Commercial

  $ 608     $ -     $ -     $ 608     $ -  

Total assets measured at fair value on a nonrecurring basis

  $ 608     $ -     $ -     $ 608     $ -  

 

-26-

 

                                   

For the

 
                                   

Year Ended

 
   

At December 31, 2025

   

December 31, 2025

 
   

Carrying Value

   

Level 1

   

Level 2

   

Level 3

   

Total Losses

 
   

(In thousands)

 

Loans:

                                       

Commercial

  $ 707     $ -     $ -     $ 707     $ -  

Total assets measured at fair value on a nonrecurring basis

  $ 707     $ -     $ -     $ 707     $ -  

 

Level 3 – Valuation is based upon present value of expected future cash flows, independent market prices or estimated liquidation values of loan collateral, generally. The unobservable inputs and qualitative information about the inputs are not presented as the inputs were not developed by the Company.

 

Disclosures about Fair Value of Financial Instruments

 

The tables below are a summary of fair value estimates for financial instruments and the level of the fair value hierarchy within which the fair value measurements are categorized, excluding financial instruments recorded at fair value on a recurring basis. The values assigned do not necessarily represent amounts which ultimately may be realized for assets or paid to settle liabilities. In addition, these values do not give effect to adjustments to fair value which may occur when financial instruments are sold or settled in larger quantities. The carrying amounts in the following tables are recorded in the balance sheet under the indicated captions.

 

The Company has not included assets and liabilities that are not financial instruments such as goodwill, long-term relationships with deposit, merchant processing and trust customers, other purchased intangibles, premises and equipment, deferred taxes, and other assets and liabilities. The total estimated fair values do not represent, and should not be construed to represent, the underlying value of the Company.

 

 

   

At March 31, 2026

 
   

Carrying Amount

   

Estimated Fair Value

   

Quoted Prices in Active Markets for Identical Assets
(Level 1)

   

Significant Other Observable Inputs
(Level 2 )

   

Significant Unobservable Inputs
(Level 3 )

 

Financial Assets:

  (In thousands)  

Cash and due from banks

  $ 397,284     $ 397,284     $ 397,284     $ -     $ -  

Debt securities held to maturity

    799,558       784,304       -       784,304       -  

Loans

    685,053       683,792       -       -       683,792  
                                         

Financial Liabilities:

                                       

Deposits

  $ 4,783,752     $ 4,779,959     $ -     $ 4,718,809     $ 61,150  

Securities sold under repurchase agreements

    144,456       144,456       -       144,456       -  

 

   

At December 31, 2025

 
   

Carrying Amount

   

Estimated Fair Value

   

Quoted Prices in Active Markets for Identical Assets
(Level 1)

   

Significant Other Observable Inputs
(Level 2 )

   

Significant Unobservable Inputs
(Level 3 )

 

Financial Assets:

  (In thousands)  

Cash and due from banks

  $ 567,801     $ 567,801     $ 567,801     $ -     $ -  

Debt securities held to maturity

    819,574       812,580       -       812,580       -  

Loans

    714,909       716,439       -       -       716,439  
                                         

Financial Liabilities:

                                       

Deposits

  $ 4,840,019     $ 4,836,933     $ -     $ 4,772,998     $ 63,935  

Securities sold under repurchase agreements

    137,298       137,298       -       137,298       -  

 

The majority of the Company’s standby letters of credit and other commitments to extend credit carry current market interest rates if converted to loans. No premium or discount was ascribed to these commitments because virtually all funding would be at current market rates.

 

-27-

  

 

Note 10: Commitments and Contingent Liabilities

 

Loan commitments are agreements to lend to a customer provided there is no violation of any condition established in the agreement. Certain agreements provide the Company the right to cancel or reduce its obligations to lend to customers. The portions that are equity based and not unconditionally cancellable by the Company aggregated $22,272 thousand at March 31, 2026 and $22,358 thousand at December 31, 2025. Commitments generally have fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future funding requirements. Loan commitments are subject to the Company’s normal credit policies and collateral requirements. Unfunded loan commitments were $167,776 thousand at March 31, 2026 and $162,625 thousand at December 31, 2025. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. Standby letters of credit are primarily issued to support customers’ short-term financing requirements and must meet the Company’s normal credit policies and collateral requirements. Financial and performance standby letters of credit outstanding totaled $567 thousand at March 31, 2026 and $562 thousand at December 31, 2025. The Company had no commitments for commercial and similar letters of credit at March 31, 2026 or at December 31, 2025. The Company had $1,025 thousand in outstanding full recourse guarantees to a third party credit card company at March 31, 2026 and December 31, 2025. The Company had a $201 thousand reserve for certain unfunded loan commitments at March 31, 2026 and December 31, 2025, respectively. The reserve for unfunded commitments is included in other liabilities.

 

Due to the nature of its business, the Company is subject to various threatened or filed legal cases. Based on the advice of legal counsel, the Company does not expect such cases will have a material, adverse effect on its financial position or results of operations. Legal liabilities are accrued when obligations become probable and the amount can be reasonably estimated.

 

 

Note 11: Earnings Per Common Share

 

The table below shows earnings per common share and diluted earnings per common share. Basic earnings per common share are computed by dividing net income by the average number of common shares outstanding during the period. Diluted earnings per common share are computed by dividing net income by the average number of common shares outstanding during the period plus the impact of common stock equivalents.

 

   

For the Three Months Ended

 
   

March 31,

 
   

2026

   

2025

 
   

(In thousands, except per share data)

 

Net income (numerator)

  $ 27,355     $ 31,037  

Basic earnings per common share

               

Weighted average number of common shares outstanding - basic (denominator)

    24,306       26,642  

Basic earnings per common share

  $ 1.13     $ 1.16  

Diluted earnings per common share

               

Weighted average number of common shares outstanding - basic

    24,306       26,642  

Add common stock equivalents for options

    -       -  

Weighted average number of common shares outstanding - diluted (denominator)

    24,306       26,642  

Diluted earnings per common share

  $ 1.13     $ 1.16  

 

For the three months ended March 31, 2026 and March 31, 2025, options to purchase 1,182 thousand and 1,269 thousand shares of common stock, respectively, were outstanding but not included in the computation of diluted earnings per share because the option exercise price exceeded the fair value of the stock such that their inclusion would have had an anti-dilutive effect.

 

 

Note 12: Operating Segments

 

The Company’s reportable segment is determined by the Chief Financial Officer, who is the designated chief decision maker, based upon information provided about the Company’s products and services offered, primarily banking operations. Loans, investments, and deposits provide revenues in the banking operation. Interest expense, provisions for credit losses, and payroll provide the significant expenses in the banking operations. While the chief decision-maker monitors the revenue streams of the various products and services, operations are managed, and financial performance is evaluated on a Company-wide basis as reflected in the consolidated financial statements contained in this report. The consolidated net income is used to benchmark the Company against its competitors. The benchmarking analysis coupled with monitoring of budget to actual results are used in assessment performance and in establishing compensation.

 

-28-

  

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

WESTAMERICA BANCORPORATION

FINANCIAL SUMMARY

 

   

For the Three Months Ended

 
   

March 31,

   

December 31,

 
   

2026

   

2025

   

2025

 
   

(In thousands, except per share data)

 

Net Interest and Fee Income (FTE)(1)

  $ 52,690     $ 56,390     $ 53,549  

(Reversal of) Provision for Credit Losses

    (300 )     (550 )     -  

Noninterest Income

    9,607       10,321       10,003  

Noninterest Expense

    25,911       25,127       25,466  

Income Before Income Taxes (FTE)(1)

    36,686       42,134       38,086  

Provision for Income Taxes (FTE)(1)

    9,331       11,097       10,279  

Net Income

  $ 27,355     $ 31,037     $ 27,807  
                         

Average Common Shares Outstanding

    24,306       26,642       24,849  

Average Diluted Common Shares Outstanding

    24,306       26,642       24,849  

Common Shares Outstanding at Period End

    23,631       26,360       24,623  
                         

Per Common Share:

                       

Basic Earnings

  $ 1.13     $ 1.16     $ 1.12  

Diluted Earnings

    1.13       1.16       1.12  

Book Value Per Common Share

    37.35       35.02       37.91  
                         

Financial Ratios:

                       

Return On Assets

    1.84 %     2.03 %     1.82 %

Return On Common Equity

    11.00 %     11.92 %     10.83 %

Net Interest Margin (FTE)(1)

    3.74 %     3.90 %     3.76 %

Net Loan (Chargeoffs) to Average Loans

    (0.07 )%     (0.16 )%     (0.16 )%

Efficiency Ratio(2)

    41.6 %     37.7 %     40.1 %
                         

Average Balances:

                       

Assets

  $ 6,034,899     $ 6,187,321     $ 6,055,696  

Loans

    708,613       789,935       727,540  

Debt securities

    4,454,472       4,395,565       4,328,668  

Deposits

    4,822,635       4,958,554       4,837,964  

Shareholders' Equity

    1,008,613       1,055,925       1,019,086  
                         

Period End Balances:

                       

Assets

  $ 5,864,450     $ 5,966,624     $ 5,960,180  

Loans

    696,204       771,030       726,482  

Debt securities

    4,396,414       4,075,398       4,288,309  

Deposits

    4,783,752       4,874,095       4,840,019  

Shareholders' Equity

    882,690       923,138       933,509  
                         

Capital Ratios at Period End:

                       

Total Risk Based Capital

    22.11 %     23.68 %     23.05 %

Tangible Equity to Tangible Assets

    13.25 %     13.71 %     13.90 %
                         

Dividends Paid Per Common Share

  $ 0.46     $ 0.44     $ 0.46  

Common Dividend Payout Ratio

    41 %     38 %     41 %

 

The above financial summary has been derived from the Company's unaudited consolidated financial statements. This information should be read in conjunction with those statements, notes and the other information included elsewhere herein. Percentages under the heading "Financial Ratios" are annualized with the exception of the efficiency ratio.

 

(1) Yields on securities and certain loans have been adjusted upward to an FTE basis in order to reflect the effect of income which is exempt from federal income taxation at the current statutory tax rate.

 

(2) The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income on an FTE basis and noninterest income).

 

-29-

 

Financial Overview

 

Westamerica Bancorporation and subsidiaries (collectively, the “Company”) reported net income of $27.4 million or $1.13 diluted earnings per common share (“EPS”) in the three months ended March 31, 2026. The results in the three months ended March 31, 2026 included a $300 thousand reversal of provision for credit losses, which increased EPS $0.01. The results in the three months ended March 31, 2026 compare with net income of $31.0 million or $1.16 EPS in the three months ended March 31, 2025 and $27.8 million or $1.12 EPS in the three months ended December 31, 2025. The results in the three months ended March 31, 2025 included a $550 thousand reversal of provision for credit losses, which increased EPS $0.01. The results in the three months ended December 31, 2025 included a $628 thousand increase to the book tax provision to reconcile the 2024 income tax provision to the filed 2024 tax returns, which reduced EPS $0.02.

 

The Federal Open Market Committee of the Federal Reserve Board (“FOMC”) maintained the target federal funds rate range of 3.50 to 3.75 percent in March 2026 after a 0.25 percent cut in December 2025. The FOMC press release in March 2026 stated, “Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has been little changed in recent months. Inflation remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the long run. Uncertainty about the economic outlook remains elevated. The implications of developments in the Middle East for the U.S. economy are uncertain. The Committee is attentive to the risks to both sides of its dual mandate.” The interest rate paid on reserve balances at the Federal Reserve Bank remained at 3.65 percent after a 0.25 percent cut in December 2025. The Bank maintains reserve balances at the Federal Reserve Bank; the amount that earns interest is identified as “interest-bearing cash”.

 

Management continues to evaluate the impacts of inflation, the Federal Reserve’s monetary policy, the impacts of the war in the Middle East, tariffs, international trade tensions, and climate changes on the Company’s business. The banking industry could experience significant volatility as it did with several regional bank failures in 2023. Industrywide concerns could develop related to liquidity, deposit outflows and unrealized losses on investment debt securities. These events and concerns could adversely affect the Company’s ability to effectively fund its operations. 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. 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 Company presents its net interest margin and net interest income on a fully taxable equivalent (“FTE”) basis using the current statutory federal tax rate. Management believes the FTE basis is valuable to the reader because the Company’s loan and investment securities portfolios contain municipal loans and securities that are federally tax exempt. The Company’s tax exempt loans and securities composition may not be similar to that of other banks, therefore in order to reflect the impact of the federally tax exempt loans and securities on the net interest margin and net interest income for comparability with other banks, the Company presents its net interest margin and net interest income on an FTE basis.

 

The Company’s significant accounting policies (see Note 1 “Summary of Significant Accounting Policies” to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 and Note 2 “Accounting Policies” to the unaudited consolidated financial statements in this Form 10-Q) are fundamental to understanding the Company’s results of operations and financial condition.

 

 

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-30-

 

 

Net Income

 

Following is a summary of the components of net income for the periods indicated:

 

   

For the Three Months Ended

 
   

March 31,

   

December 31,

 
   

2026

   

2025

   

2025

 
   

(In thousands, except per share data)

 

Net interest and loan fee income

  $ 52,475     $ 56,095     $ 53,306  

FTE adjustment

    215       295       243  

Net interest and loan fee income (FTE)

    52,690       56,390       53,549  

(Reversal of) provision for credit losses

    (300 )     (550 )     -  

Noninterest income

    9,607       10,321       10,003  

Noninterest expense

    25,911       25,127       25,466  

Income before taxes (FTE)

    36,686       42,134       38,086  

Income tax provision (FTE)

    9,331       11,097       10,279  

Net income

  $ 27,355     $ 31,037     $ 27,807  
                         

Average diluted common shares

    24,306       26,642       24,849  

Diluted earnings per common share

  $ 1.13     $ 1.16     $ 1.12  
                         

Average total assets

  $ 6,034,899     $ 6,187,321     $ 6,055,696  

Net income to average total assets (annualized)

    1.84 %     2.03 %     1.82 %

Net income to average common shareholders' equity (annualized)

    11.00 %     11.92 %     10.83 %

 

Net income for the three months ended March 31, 2026 decreased $3.7 million compared with the three months ended March 31, 2025 primarily due to lower net interest and loan fee income (FTE), lower noninterest income and higher noninterest expense, partially offset by lower tax provision (FTE). Net interest and loan fee income (FTE) decreased $3.7 million in the three months ended March 31, 2026 compared with the three months ended March 31, 2025 due to lower average balances of loans and interest-bearing cash, lower yield on investment securities and interest-bearing cash, partially offset by higher average balances of investment securities. Based on the results of its current expected credit losses (“CECL”) model and Management’s estimate of credit losses over the remaining life of its loans, the Company recorded a $300 thousand reversal of provision for credit losses in the three months ended March 31, 2026 and a $550 thousand reversal of provision for credit losses in the three months ended March 31, 2025. Noninterest income for the three months ended March 31, 2026 decreased compared with the three months ended March 31, 2025 due to lower debit card fees and recognition of unrealized securities losses of $247 thousand in the three months ended March 31, 2026. Noninterest expense for the three months ended March 31, 2026 increased compared with the three months ended March 31, 2025 primarily due to increases in salaries and benefits expense, occupancy and equipment expense and estimated operating losses from limited partnership investments. The tax rate (FTE) was 25.4% for the three months ended March 31, 2026 and 26.3% for the three months ended March 31, 2025.

 

Net income for the three months ended March 31, 2026 decreased $452 thousand compared with the three months ended December 31, 2025 primarily due to lower net interest and loan fee income (FTE), lower noninterest income and higher noninterest expense, partially offset by lower tax provision (FTE). Net interest and loan fee income (FTE) decreased $859 thousand in the three months ended March 31, 2026 compared with the three months ended December 31, 2025 due to lower average balances of loans and interest-bearing cash and lower yield on interest-bearing cash, partially offset by higher average balances of investment securities. Based on the results of its CECL model and Management’s estimate of credit losses over the remaining life of its loans, the Company recorded a $300 thousand reversal of provision for credit losses in the three months ended March 31, 2026 and provided no provision for credit losses in the three months ended December 31, 2025. Noninterest income for the three months ended March 31, 2026 decreased compared with the three months ended December 31, 2025 due to lower debit card fees and recognition of unrealized securities losses of $247 thousand in the three months ended March 31, 2026. Noninterest expense for the three months ended March 31, 2026 increased compared with the three months ended December 31, 2025 due to higher salaries and benefits expense and estimated operating losses from limited partnership investments. The tax rate (FTE) was 25.4% for the three months ended March 31, 2026 and 27.0% for the three months ended December 31, 2025. The results in the three months ended December 31, 2025 included a $628 thousand increase to the book tax provision to reconcile the 2024 income tax provision to the filed 2024 tax returns.

 

-31-

 

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 following summarizes the components of the Company's net interest margin (FTE) for the periods indicated.

 

   

For the Three Months Ended

 
   

March 31,

   

December 31,

 
   

2026

   

2025

   

2025

 
   

(In thousands)

 

Interest and loan fee income

  $ 55,770     $ 59,491     $ 56,788  

Interest expense

    3,295       3,396       3,482  

FTE adjustment

    215       295       243  

Net interest and loan fee income (FTE)

  $ 52,690     $ 56,390     $ 53,549  
                         

Average earning assets

  $ 5,644,066     $ 5,794,836     $ 5,666,854  

Net interest margin (FTE) (annualized)

    3.74 %     3.90 %     3.76 %

 

Net interest and loan fee income (FTE) decreased $3.7 million in the three months ended March 31, 2026 compared with the three months ended March 31, 2025 due to lower average balances of loans (down $81 million) and interest-bearing cash (down $143 million), lower yield on investment securities (down 0.11%) and interest-bearing cash (down 0.75%), partially offset by higher average balances of investment securities (up $74 million).

 

Net interest and loan fee income (FTE) decreased $859 thousand in the three months ended March 31, 2026 compared with the three months ended December 31, 2025 due to lower average balances of loans (down $19 million) and interest-bearing cash (down $130 million) and lower yield on interest-bearing cash (down 0.28%), partially offset by higher average balances of investment securities (up $126 million).

 

The net interest margin (FTE) was 3.74% in the three months ended March 31, 2026, 3.90% in the three months ended March 31, 2025, and 3.76% in the three months ended December 31, 2025. The yield on earning assets (FTE) was 3.98% in the three months ended March 31, 2026, 4.14% in the three months ended March 31, 2025, and 4.00% in the three months ended December 31, 2025.

 

The Company’s funding costs were 0.24% in the three months ended March 31, 2026, March 31, 2025 and December 31, 2025. Noninterest bearing deposits represented 46% of average deposits in the three months ended March 31, 2026, March 31, 2025 and December 31, 2025. Average balances of checking and saving deposits accounted for 98.6% of average total deposits in the three months ended March 31, 2026, 98.4% in the three months ended March 31, 2025 and 98.6% in the three months ended December 31, 2025.

 

Net Interest Margin (FTE)

 

The following summarizes the components of the Company's net interest margin (FTE) for the periods indicated.

 

   

For the Three Months Ended

 
   

March 31,

   

December 31,

 
   

2026

   

2025

   

2025

 
                         

Yield on earning assets (FTE)

    3.98 %     4.14 %     4.00 %

Rate paid on interest-bearing liabilities

    0.49 %     0.50 %     0.51 %

Net interest spread (FTE)

    3.49 %     3.64 %     3.49 %

Impact of noninterest-bearing funds

    0.25 %     0.26 %     0.27 %

Net interest margin (FTE)

    3.74 %     3.90 %     3.76 %

 

-32-

 

The Company’s net interest margin during the three months ended March 31, 2026 decreased compared with the three months ended March 31, 2025 and December 31, 2025 primarily affected by lower yield on earning assets due to declining market interest rates. The yield on investment securities decreased in the three months ended March 31, 2026 compared with the three months ended March 31, 2025, and stabilized compared with the three months ended December 31, 2025. The volume of higher-yielding CLOs declined due to calls and principal paydowns. Newly purchased investment securities have lower yields compared with CLOs. The CLOs have interest coupons that change once every three months by the amount of change in the three-month SOFR base rate. The average balances and yields of CLOs for the three months ended March 31, 2026 and March 31, 2025 were $349 million yielding 5.64% and $916 million yielding 6.30%, respectively. The average balances and yields of agency mortgage backed securities for the three months ended March 31, 2026 and March 31, 2025 were $1,061 million yielding 4.67% and $310 million yielding 3.05%, 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 balances and yields of interest-bearing cash decreased for the three months ended March 31, 2026, March 31, 2025 and December 31, 2025, which were $466 million yielding 3.65%, $609 million yielding 4.40%, and $596 million yielding 3.93%, respectively. 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.”

 

 

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-33-

 

 

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. Average loan balances include nonperforming loans. Interest income includes the reversal of previously accrued interest on loans placed on nonaccrual status during the period, proceeds from loans on nonaccrual status only to the extent cash payments have been received and applied as interest income, and accretion of purchased loan discounts. Yields, rates and interest margins are annualized. Yields on tax-exempt securities and loans have been adjusted upward to reflect the effect of income exempt from federal income taxation at the federal statutory tax rate of 21 percent.

 

Distribution of Assets, Liabilities & Shareholders Equity and Yields, Rates & Interest Margin

 

   

For the Three Months Ended March 31, 2026

 
           

Interest

         
   

Average

   

Income/

   

Yields/

 
   

Balance

   

Expense

   

Rates

 
   

($ in thousands)

 

Assets

                       

Investment securities:

                       

Taxable

  $ 4,393,305     $ 41,029       3.74 %

Tax-exempt (1)

    75,767       764       4.03 %

Total investments (1)

    4,469,072       41,793       3.74 %

Loans:

                       

Taxable

    681,938       9,660       5.74 %

Tax-exempt (1)

    26,675       276       4.15 %

Total loans (1)

    708,613       9,936       5.68 %

Total interest-bearing cash

    466,381       4,256       3.65 %

Total interest-earning assets (1)

    5,644,066       55,985       3.98 %

Other assets

    390,833                  

Total assets

  $ 6,034,899                  
                         

Liabilities and shareholders' equity

                       

Noninterest-bearing demand

  $ 2,206,530     $ -       - %

Savings and interest-bearing transaction

    2,548,723       3,047       0.48 %

Time less than $100,000

    43,644       31       0.29 %

Time $100,000 or more

    23,738       11       0.18 %

Total interest-bearing deposits

    2,616,105       3,089       0.48 %

Securities sold under repurchase agreements

    138,193       206       0.61 %

Total interest-bearing liabilities

    2,754,298       3,295       0.49 %

Other liabilities

    65,458                  

Shareholders' equity

    1,008,613                  

Total liabilities and shareholders' equity

  $ 6,034,899                  

Net interest spread (1) (2)

                    3.49 %

Net interest and fee income and interest margin (1) (3)

          $ 52,690       3.74 %

 

(1) Amounts calculated on an FTE basis using the current statutory federal tax rate.

(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 net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits.

-34-

 

Distribution of Assets, Liabilities & Shareholders Equity and Yields, Rates & Interest Margin

 

   

For the Three Months Ended March 31, 2025

 
           

Interest

         
   

Average

   

Income/

   

Yields/

 
   

Balance

   

Expense

   

Rates

 
   

($ in thousands)

 

Assets

                       

Investment securities:

                       

Taxable

  $ 4,284,044     $ 41,280       3.85 %

Tax-exempt (1)

    111,521       1,059       3.80 %

Total investments (1)

    4,395,565       42,339       3.85 %

Loans:

                       

Taxable

    754,864       10,381       5.58 %

Tax-exempt (1)

    35,071       363       4.20 %

Total loans (1)

    789,935       10,744       5.51 %

Total interest-bearing cash

    609,336       6,703       4.40 %

Total interest-earning assets (1)

    5,794,836       59,786       4.14 %

Other assets

    392,485                  

Total assets

  $ 6,187,321                  
                         

Liabilities and shareholders' equity

                       

Noninterest-bearing demand

  $ 2,293,059     $ -       - %

Savings and interest-bearing transaction

    2,584,685       3,174       0.50 %

Time less than $100,000

    51,350       38       0.30 %

Time $100,000 or more

    29,460       17       0.24 %

Total interest-bearing deposits

    2,665,495       3,229       0.49 %

Securities sold under repurchase agreements

    104,604       167       0.65 %

Total interest-bearing liabilities

    2,770,099       3,396       0.50 %

Other liabilities

    68,238                  

Shareholders' equity

    1,055,925                  

Total liabilities and shareholders' equity

  $ 6,187,321                  

Net interest spread (1) (2)

                    3.64 %

Net interest and fee income and interest margin (1) (3)

          $ 56,390       3.90 %

 

(1) Amounts calculated on an FTE basis using the current statutory federal tax rate.

(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 net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits.

 

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-35-

 

 

Distribution of Assets, Liabilities & Shareholders Equity and Yields, Rates & Interest Margin

 

   

For the Three Months Ended December 31, 2025

 
           

Interest

         
   

Average

   

Income/

   

Yields/

 
   

Balance

   

Expense

   

Rates

 
   

($ in thousands)

 

Assets

                       

Investment securities:

                       

Taxable

  $ 4,255,410     $ 39,879       3.75 %

Tax-exempt (1)

    87,963       869       3.95 %

Total investments (1)

    4,343,373       40,748       3.74 %

Loans:

                       

Taxable

    699,333       10,001       5.67 %

Tax-exempt (1)

    28,207       294       4.16 %

Total loans (1)

    727,540       10,295       5.62 %

Total interest-bearing cash

    595,941       5,988       3.93 %

Total interest-earning assets (1)

    5,666,854       57,031       4.00 %

Other assets

    388,842                  

Total assets

  $ 6,055,696                  
                         

Liabilities and shareholders' equity

                       

Noninterest-bearing demand

  $ 2,236,646     $ -       - %

Savings and interest-bearing transaction

    2,531,633       3,240       0.51 %

Time less than $100,000

    45,257       33       0.29 %

Time $100,000 or more

    24,428       12       0.18 %

Total interest-bearing deposits

    2,601,318       3,285       0.50 %

Securities sold under repurchase agreements

    130,502       197       0.60 %

Total interest-bearing liabilities

    2,731,820       3,482       0.51 %

Other liabilities

    68,144                  

Shareholders' equity

    1,019,086                  

Total liabilities and shareholders' equity

  $ 6,055,696                  

Net interest spread (1) (2)

                    3.49 %

Net interest and fee income and interest margin (1) (3)

          $ 53,549       3.76 %

 

(1) Amounts calculated on an FTE basis using the current statutory federal tax rate.

(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 net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits.

 

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-36-

 

 

 

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. Changes not solely attributable to volume or yields/rates have been allocated in proportion to the respective volume and yield/rate components.

 

Summary of Changes in Interest Income and Expense

 

   

For the Three Months Ended March 31, 2026

 
   

Compared with

 
   

For the Three Months Ended March 31, 2025

 
   

Volume

   

Yield/Rate

   

Total

 
   

(In thousands)

 

Increase (decrease) in interest and loan fee income:

                       

Investment securities:

                       

Taxable

  $ 1,053     $ (1,304 )   $ (251 )

Tax-exempt (1)

    (340 )     45       (295 )

Total investments (1)

    713       (1,259 )     (546 )

Loans:

                       

Taxable

    (1,022 )     301       (721 )

Tax-exempt (1)

    (84 )     (3 )     (87 )

Total loans (1)

    (1,106 )     298       (808 )

Total interest-bearing cash

    (1,573 )     (874 )     (2,447 )

Total decrease in interest and loan fee income (1)

    (1,966 )     (1,835 )     (3,801 )

(Decrease) increase in interest expense:

                       

Deposits:

                       

Savings and interest-bearing transaction

    (44 )     (83 )     (127 )

Time less than $100,000

    (6 )     (1 )     (7 )

Time $100,000 or more

    (3 )     (3 )     (6 )

Total interest-bearing deposits

    (53 )     (87 )     (140 )

Securities sold under repurchase agreements

    53       (14 )     39  

Total decrease in interest expense

    -       (101 )     (101 )

Decrease in net interest and loan fee income (1)

  $ (1,966 )   $ (1,734 )   $ (3,700 )

 

(1) Amounts calculated on an FTE basis using the current statutory federal tax rate.

 

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-37-

 

 

Summary of Changes in Interest Income and Expense

 

   

For the Three Months Ended March 31, 2026

 
   

Compared with

 
   

For the Three Months Ended December 31, 2025

 
   

Volume

   

Yield/Rate

   

Total

 
   

(In thousands)

 

Increase (decrease) in interest and loan fee income:

                       

Investment securities:

                       

Taxable

  $ 1,292     $ (142 )   $ 1,150  

Tax-exempt (1)

    (120 )     15       (105 )

Total investments (1)

    1,172       (127 )     1,045  

Loans:

                       

Taxable

    (387 )     46       (341 )

Tax-exempt (1)

    (18 )     -       (18 )

Total loans (1)

    (405 )     46       (359 )

Total interest-bearing cash

    (1,378 )     (354 )     (1,732 )

Total decrease in interest and loan fee income (1)

    (611 )     (435 )     (1,046 )

Increase (decrease) in interest expense:

                       

Deposits:

                       

Savings and interest-bearing transaction

    13       (206 )     (193 )

Time less than $100,000

    (2 )     -       (2 )

Time $100,000 or more

    -       (1 )     (1 )

Total interest-bearing deposits

    11       (207 )     (196 )

Securities sold under repurchase agreements

    7       2       9  

Total increase (decrease) in interest expense

    18       (205 )     (187 )

Decrease in net interest and loan fee income (1)

  $ (629 )   $ (230 )   $ (859 )

 

(1) Amounts calculated on an FTE basis using the current statutory federal tax rate.

 

Provision for Credit Losses

 

The Company manages credit risk by enforcing conservative underwriting and administration procedures and aggressively pursuing collection efforts with debtors experiencing financial difficulties. The provision for credit losses reflects Management's assessment of credit risk in the loan portfolio and debt securities held to maturity portfolio during each of the periods presented.

 

Based on Management’s estimate of credit losses over the remaining life of its loans and debt securities held to maturity, the Company recorded a $300 thousand reversal of provision for credit losses in the three months ended March 31, 2026, and a $550 thousand reversal of provision for credit losses in the three months ended March 31, 2025. 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.

 

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-38-

 

 

Noninterest Income

 

The following table summarizes the components of noninterest income for the periods indicated.

 

   

For the Three Months Ended

 
   

March 31,

   

December 31,

 
   

2026

   

2025

   

2025

 
   

(In thousands)

 
                         

Service charges on deposit accounts

  $ 3,332     $ 3,381     $ 3,270  

Merchant processing services

    2,739       2,733       2,690  

Debit card fees

    1,324       1,581       1,498  

Trust fees

    927       899       923  

ATM processing fees

    450       463       484  

Other service fees

    408       429       426  

Bank owned life insurance gains

    -       102       -  

Unrealized (losses) gains on equity securities

    (247 )     -       30  

Other noninterest income

    674       733       682  

Total

  $ 9,607     $ 10,321     $ 10,003  

 

Noninterest income for the three months ended March 31, 2026 decreased $714 thousand compared with the three months ended March 31, 2025. Debit card fees declined $257 thousand from the three months ended March 31, 2025 to the three months ended March 31, 2026. The Company recognized unrealized securities losses of $247 thousand in the three months ended March 31, 2026. The same period in 2025 included a $102 thousand gain on bank owned life insurance.

 

Noninterest income for the three months ended March 31, 2026 decreased $396 thousand compared with the three months ended December 31, 2025. Debit card fees declined $174 thousand from the three months ended December 31, 2025 to the three months ended March 31, 2026. The Company recognized unrealized securities losses of $247 thousand in the three months ended March 31, 2026.

 

Noninterest Expense

 

The following table summarizes the components of noninterest expense for the periods indicated.

 

   

For the Three Months Ended

 
   

March 31,

   

December 31,

 
   

2026

   

2025

   

2025

 
   

(In thousands)

 
                         

Salaries and related benefits

  $ 12,325     $ 12,126     $ 11,871  

Occupancy and equipment

    5,427       5,038       5,426  

Outsourced data processing services

    2,788       2,697       2,701  

Limited partnership operating losses

    1,110       915       891  

Professional fees

    462       395       540  

Courier service

    734       688       843  

Other noninterest expense

    3,065       3,268       3,194  

Total

  $ 25,911     $ 25,127     $ 25,466  

 

Noninterest expense for the three months ended March 31, 2026 increased $784 thousand compared with the three months ended March 31, 2025 primarily due to increases in salaries and benefits expense, occupancy and equipment expense and estimated operating losses from limited partnership investments.

 

Noninterest expense for the three months ended March 31, 2026 increased $445 thousand compared with the three months ended December 31, 2025. Salaries and benefits expense increased in the three months ended March 31, 2026 due to seasonally higher payroll taxes and higher benefit costs. Estimated operating losses from limited partnership investments increased from the three months ended December 31, 2025 to the three months ended March 31, 2026.

 

-39-

 

Provision for Income Tax

 

The Company’s income tax provision (FTE) was $9.3 million for the three months ended March 31, 2026 compared with $11.1 million for the three months ended March 31, 2025 and $10.3 million for the three months ended December 31, 2025, representing effective tax rates (FTE) of 25.4%, 26.3% and 27.0%, respectively. The effective tax rates (FTE) for the three months ended December 31, 2025 was higher than the three months ended March 31, 2026 and the three months ended March 31, 2025 primarily due to a $628 thousand increase in book tax provision to reconcile the 2024 income tax provision to the filed 2024 tax returns.

 

Investment Securities Portfolio

 

The Company maintains an investment securities portfolio consisting of securities issued by U.S. Government sponsored entities, state and political subdivisions, corporations and banks. The Company had marketable equity securities held for trading at fair value of $219 thousand at March 31, 2026 and $466 thousand at December 31, 2025. The Company had no marketable equity securities not held for trading at March 31, 2026 and December 31, 2025.

 

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 $4.4 billion at March 31, 2026 and $4.3 billion at December 31, 2025. 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 March 31, 2026 and December 31, 2025. Debt securities available for sale are listed at fair value.

 

   

At March 31, 2026

   

At December 31, 2025

 
   

Carrying Value

   

As a percent of total investment securities

   

Carrying Value

   

As a percent of total investment securities

 
   

($ in thousands)

 

Securities of U.S. Government sponsored entities

  $ 298,502       7 %   $ 302,412       7 %

Agency residential mortgage-backed securities ("MBS")

    218,579       5 %     228,080       5 %

Agency commercial MBS

    946,114       22 %     707,560       16 %

Obligations of states and political subdivisions

    71,542       2 %     79,319       2 %

Corporate securities

    2,567,690       57 %     2,546,324       60 %

Collateralized loan obligations

    293,987       7 %     424,614       10 %

Total

  $ 4,396,414       100 %   $ 4,288,309       100 %
                                 

Debt securities available for sale

  $ 3,596,855             $ 3,468,734          

Debt securities held to maturity

    799,559               819,575          

Total

  $ 4,396,414             $ 4,288,309          

 

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. 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 March 31, 2026, substantially all of the Company’s investment securities were investment grade as rated by one or more major rating agencies. In addition to monitoring credit rating agency evaluations, Management performs its own evaluations regarding the credit worthiness of the issuer or the securitized assets underlying asset-backed securities. 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.

 

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-40-

 

 

The Company had corporate securities as shown below at the dates indicated:

 

   

Corporate securities

 
   

At March 31, 2026

   

At December 31, 2025

 
   

Amortized

   

Fair

   

Amortized

   

Fair

 
   

Cost

   

Value

   

Cost

   

Value

 
   

(In thousands)

 

Debt securities available for sale

  $ 1,957,629     $ 1,835,522     $ 1,913,553     $ 1,804,080  

Debt securities held to maturity

    732,168       719,207       742,244       737,480  

Total corporate securities

  $ 2,689,797     $ 2,554,729     $ 2,655,797     $ 2,541,560  

 

The following table summarizes total corporate securities by credit rating:

 

   

At March 31, 2026

   

At December 31, 2025

 
   

Fair value

   

As a percent of total corporate securities

   

Fair value

   

As a percent of total corporate securities

 
   

($ in thousands)

 

AA/AA-

  $ 81,538       3 %   $ 77,304       3 %

A+

    279,492       11 %     272,496       11 %

A

    448,795       18 %     423,726       17 %

A-

    800,811       31 %     801,466       31 %

BBB+

    610,129       24 %     624,557       25 %

BBB

    295,454       12 %     342,011       13 %

BBB-

    38,510       1 %     -       - %

Total corporate securities

  $ 2,554,729       100 %   $ 2,541,560       100 %

 

The following table summarizes total corporate securities by the industry sector in which the issuing companies operate:

 

   

At March 31, 2026

   

At December 31, 2025

 
   

Fair value

   

As a percent of total corporate securities

   

Fair value

   

As a percent of total corporate securities

 
   

($ in thousands)

 

Financial

  $ 1,494,268       59 %   $ 1,448,196       57 %

Utilities

    286,630       11 %     288,995       11 %

Industrial

    210,675       8 %     214,154       8 %

Consumer, Non-cyclical

    163,867       6 %     174,853       7 %

Communications

    129,511       5 %     130,355       5 %

Basic Materials

    101,897       4 %     102,612       4 %

Energy

    71,411       3 %     71,815       3 %

Technology

    62,739       3 %     63,158       3 %

Consumer, Cyclical

    33,731       1 %     47,422       2 %

Total corporate securities

  $ 2,554,729       100 %   $ 2,541,560       100 %

 

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-41-

 

The following table summarizes total corporate securities by the location of the issuers’ headquarters; all the corporate securities are denominated in United States dollars:

 

 

   

At March 31, 2026

   

At December 31, 2025

 
   

Fair value

   

As a percent of total corporate securities

   

Fair value

   

As a percent of total corporate securities

 
   

($ in thousands)

 

United States of America

  $ 1,821,408       71 %   $ 1,815,106       71 %

Canada

    201,375       8 %     203,940       8 %

Japan

    156,919       6 %     159,249       6 %

United Kingdom

    116,558       4 %     112,636       4 %

France

    80,160       3 %     80,668       3 %

Switzerland

    75,732       3 %     76,127       3 %

Netherlands

    37,034       2 %     37,660       2 %

Australia

    25,074       1 %     25,305       1 %

Germany

    23,442       1 %     13,658       1 %

Belgium

    17,027       1 %     17,211       1 %

Total corporate securities

  $ 2,554,729       100 %   $ 2,541,560       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 corporate securities are denominated in United States dollars:

 

 

   

At March 31, 2026

   

At December 31, 2025

 
   

Fair value

   

As a percent of total foreign corporate securities

   

Fair value

   

As a percent of total foreign corporate securities

 
   

($ in thousands)

 

Financial

  $ 634,352       87 %   $ 626,661       86 %

Energy

    33,360       5 %     33,540       5 %

Basic Materials

    25,074       3 %     25,305       4 %

Consumer, Non-cyclical

    17,028       2 %     17,211       2 %

Consumer, Cyclical

    13,513       2 %     13,658       2 %

Utilities

    9,994       1 %     10,079       1 %

Total foreign corporate securities

  $ 733,321       100 %   $ 726,454       100 %

 

 

The Company’s $294 million (fair value) in collateralized loan obligations at March 31, 2026, consist of investments in 31 issues that are within the senior tranches of their respective fund securitization structures. The following table summarizes total collateralized loan obligations by credit rating:

 

 

   

At March 31, 2026

 
   

Amortized

   

Fair

 
   

Cost

   

Value

 
   

(In thousands)

 

AAA

  $ 142,227     $ 142,256  

AA+/AA

    151,700       151,731  

Total

  $ 293,927     $ 293,987  

 

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-42-

 

The Company’s $425 million (fair value) in collateralized loan obligations at December 31, 2025, consist of investments in 41 issues that are within the senior tranches of their respective fund securitization structures. The following table summarizes total collateralized loan obligations by credit rating:

 

   

At December 31, 2025

 
   

Amortized

   

Fair

 
   

Cost

   

Value

 
   

(In thousands)

 

AAA

  $ 156,335     $ 155,881  

AA+/AA

    269,130       268,733  

Total

  $ 425,465     $ 424,614  

 

See Note 3 “Debt Securities Available for Sale and Held to Maturity” to the unaudited consolidated financial statements in this Form 10-Q for additional information related to the investment securities.

 

Loan Portfolio Credit Risk

 

The Company extends loans to commercial and consumer customers which expose the Company to the risk that the borrowers will default, causing loss. 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. Significant risk characteristics related to the commercial real estate segment include the borrowers’ business performance and the value of properties collateralizing the loans. Significant risk characteristics related to the construction loan segment include the borrowers’ performance in successfully developing the real estate into the intended purpose and the value of the property collateralizing the loans. Significant risk characteristics related to the residential real estate segment include the borrowers’ financial wherewithal to service the mortgages and the value of the property collateralizing the loans. Significant risk characteristics related to the consumer loan segment include the financial condition of the borrowers and the value of collateral securing the loans.

 

The Company closely monitors the markets in which it conducts its lending operations and follows a strategy to control exposure to loans with high credit risk. The Bank’s organizational structure separates the functions of business development and loan underwriting; Management believes this segregation of duties avoids inherent conflicts of combining business development and loan approval functions. In measuring and managing credit risk, the Company adheres to the following practices:

 

 

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 to challenge the credit risk grades assigned by Management, using grading standards employed by bank regulatory agencies. Those loans judged to carry higher risk attributes are referred to as “classified loans.” Classified loans receive elevated Management attention in order to maximize collection.

 

 

The Bank maintains two loan administration offices whose sole responsibility is to manage and collect classified loans.

 

Classified loans with higher levels of credit risk are further designated as “nonaccrual loans.” Management places classified loans on nonaccrual status when full collection of contractual interest and principal payments is in doubt. Uncollected interest previously accrued on loans placed on nonaccrual status is reversed as a charge against interest income. The Company does not accrue interest income on loans following placement on nonaccrual status. Interest payments received on nonaccrual loans are applied to reduce the carrying amount of the loan unless the carrying amount is well secured by loan collateral. “Nonperforming assets” include nonaccrual loans, loans 90 or more days past due and still accruing, and repossessed loan collateral (commonly referred to as “Other Real Estate Owned”).

 

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-43-

 

Nonperforming Loans

 

 

   

At March 31,

   

At December 31,

 
   

2026

   

2025

 
   

(In thousands)

 
                 

Nonperforming nonaccrual loans

  $ 380     $ 768  

Performing nonaccrual loans

    785       706  

Total nonaccrual loans

    1,165       1,474  

Accruing loans 90 or more days past due

    277       340  

Total nonperforming loans

  $ 1,442     $ 1,814  

 

Management believes the overall credit quality of the loan portfolio is reasonably stable; however, classified and nonperforming assets could fluctuate from period to period. The performance of any individual loan can be affected by external factors such as the interest rate environment, economic conditions, pandemics, and collateral values or factors particular to the borrower. No assurance can be given that additional increases in nonaccrual and delinquent loans will not occur in the future.

 

Allowance for Credit Losses

 

The following table summarizes allowance for credit losses at the dates indicated:

 

   

At March 31,

   

At December 31,

 
   

2026

   

2025

 
   

(In thousands)

 
                 

Allowance for credit losses on loans

  $ 11,151     $ 11,573  

Allowance for credit losses on held to maturity debt securities

    1       1  

Total allowance for credit losses

  $ 11,152     $ 11,574  
                 

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. 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 has evaluated each issuer’s historical financial performance and ability to service debt payments throughout and following the 2008-2009 recession. The Company has an expectation that nonpayment of the amortized cost basis continues to be zero. At March 31, 2026, no credit loss allowance was assigned to corporate securities held to maturity based on evaluation of each individual issuer’s historical financial performance throughout full business cycles. Municipal securities were evaluated for risk of default based on credit rating and remaining term to maturity using Moody’s risk of default factors; Moody’s loss upon default factors were applied to the assumed defaulted principal amounts to estimate the amount for credit loss allowance. Allowance for credit losses related to debt securities held to maturity was $1 thousand related to municipal securities at March 31, 2026 and December 31, 2025, reflecting the expected credit losses on debt securities held to maturity.

 

Allowance for Credit Losses on Loans

 

The Company’s allowance for credit losses on loans represents Management’s estimate of forecasted credit losses in the loan portfolio based on the current expected credit loss model. In evaluating credit risk for loans, Management measures the loss potential of the carrying value of loans. 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 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. Loan agreements generally include a maturity date, and the Company considers the contractual life of a loan agreement to extend from the date of origination to the contractual maturity date. In estimating credit losses, Management must exercise significant judgment in evaluating information deemed relevant. The amount of ultimate losses on the loan portfolio can vary from the estimated amounts. Management follows a systematic methodology to estimate loss potential in an effort to reduce the differences between estimated and actual losses.

 

-44-

 

The allowance for credit losses is established through provisions for credit losses charged to income. Losses on loans are charged to the allowance for credit losses when all or a portion of the recorded amount of a loan is deemed to be uncollectible. Recoveries of loans previously charged off are credited to the allowance when realized. The Company’s allowance for credit losses 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. These include conditions unique to individual borrowers, as well as overall credit loss experience, the amount of past due, nonperforming and classified loans, recommendations of regulatory authorities, prevailing economic conditions, or credit protection agreements and other factors.

 

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. For consumer installment loans, primarily secured by automobiles, historical loss rates are determined using a vintage methodology, which tracks losses based on period of origination. For commercial, construction, and commercial real estate, historical loss rates are determined using an open pool methodology where losses are tracked over time for all loans included in the pool at the historical measurement date. Historical loss rates are adjusted for factors that are not reflected in the historical loss rates that are attributable to national or local economic or industry trends which have occurred but have not yet been recognized in past loan charge-off history, estimated losses based on management’s reasonable and supportable expectation of economic trends over a forecast horizon of up to two years, and other factors that impact credit loss expectations that are not reflected in the historical loss rates. Other factors include, but are not limited to, the effectiveness of the Company’s loan review system, adequacy of lending Management and staff, loan policies and procedures, problem loan trends, and concentrations of credit. At the end of the two-year forecast period loss rates revert immediately to the historical loss 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. 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. A credit loss reserve for collateral-dependent loans is established at the difference between the amortized cost basis in the loan and the fair value of the underlying collateral adjusted for costs to sell. For other individually evaluated loans that are not collateral dependent, a credit loss reserve is established at the difference between the amortized cost basis in the loan and the present value of expected future cash flows discounted at the loan’s effective interest rate. 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. 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.

 

 

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-45-

 

 

 

The following table summarizes the allowance for credit losses, chargeoffs and recoveries for the periods indicated.

 

 

   

For the Three Months Ended

 
   

March 31,

   

December 31,

 
   

2026

   

2025

   

2025

 
   

(In thousands)

 

Analysis of the Allowance for Credit Losses on Loans

                       

Balance, beginning of period

  $ 11,573     $ 14,780     $ 11,859  

(Reversal of) provision for credit losses

    (300 )     (550 )     -  

Loans charged off:

                       

Commercial

    -       (10 )     -  

Commercial real estate

    -       (191 )     -  

Consumer installment and other

    (791 )     (1,525 )     (739 )

Total chargeoffs

    (791 )     (1,726 )     (739 )

Recoveries of loans previously charged off:

                       

Commercial

    80       265       152  

Commercial real estate

    19       13       14  

Consumer installment and other

    570       1,132       287  

Total recoveries

    669       1,410       453  

Net chargeoffs

    (122 )     (316 )     (286 )

Balance, end of period

  $ 11,151     $ 13,914     $ 11,573  
                         

Net chargeoffs as a percentage of average total loans (annualized)

    (0.07 )%     (0.16 )%     (0.16 )%

 

Selected financial data: (At the dates indicated)

 

   

At March 31,

   

At December 31,

 
   

2026

   

2025

   

2025

 

Loans

  $ 696,204     $ 771,030     $ 726,482  

Nonaccrual loans

    1,165       -       1,474  

Allowance for credit losses as a percentage of loans

    1.60 %     1.80 %     1.59 %

Nonaccrual loans as a percentage of loans

    0.17 %     - %     0.20 %

Allowance for credit losses to nonaccrual loans

    957.17 %  

n/m

      785.14 %

 

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. These include conditions unique to individual borrowers, as well as overall loan loss experience, the amount of past due, nonperforming and classified loans, recommendations of regulatory authorities, prevailing and forecasted economic conditions, or credit protection agreements and other factors. 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. See Note 2 “Accounting Policies” to the unaudited consolidated financial statements in this Form 10-Q for additional information.

 

   

Allowance for Credit Losses

 
   

For the Three Months Ended March 31, 2026

 
                                   

Consumer

         
           

Commercial

           

Residential

   

Installment

         
   

Commercial

   

Real Estate

   

Construction

   

Real Estate

   

and Other

   

Total

 
   

(In thousands)

 

Allowance for credit losses:

                                               

Balance at beginning of period

  $ 4,048     $ 6,109     $ -     $ 22     $ 1,394     $ 11,573  

(Reversal) provision

    (681 )     (307 )     -       2       686       (300 )

Chargeoffs

    -       -       -       -       (791 )     (791 )

Recoveries

    80       19       -       -       570       669  

Total allowance for credit losses

  $ 3,447     $ 5,821     $ -     $ 24     $ 1,859     $ 11,151  

 

Management considers the $11.2 million allowance for credit losses on loans to be adequate as a reserve against current expected credit losses in the loan portfolio as of March 31, 2026.

 

See Note 4 “Loans and Allowance for Credit Losses” to the unaudited consolidated financial statements in this Form 10-Q for additional information related to the loan portfolio, loan portfolio credit risk and allowance for credit losses on loans.

 

-46-

 

Climate-Related Financial Risk

 

Climate change presents risk to the Company, our critical vendors and our customers. Our risk management practices incorporate the challenges brought about by climate change. The operations conducted in our centralized facilities and branch locations can be disrupted by acute physical risks such as flooding and windstorms, and by chronic physical risks such as rising sea levels, sustained higher temperatures, drought, and increased wildfires. Over the intermediate and longer-term, the Company can be subject to transition risks such as market demand, and policy and law changes.

 

None of the Company’s physical locations are located near sea level, and only a limited number of branches are located in flood zones. The Company and its critical vendors maintain property and casualty insurance, and maintain and regularly test disaster recovery plans, which include redundant operational locations and power sources. The Company’s operations do not use a significant amount of water in producing its products and services.

 

The Company monitors the climate risks of its loan customers. Borrowers with real estate loan collateral located in flood zones must carry flood insurance under the loans’ terms. At March 31, 2026, the Company had $14 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 and volatile commodity prices without encountering financial hardship. The Company makes automobile loans; changes in consumer demand, or governmental laws or policies, regarding gasoline, electric and hybrid vehicles are not considered to be material risks to the Company’s automobile lending practices. The Company considers climate risk in its underwriting of corporate bonds, and avoids purchasing bonds of issuers, which, in Management’s judgement, have elevated climate risk.

 

While the Company follows risk management practices related to climate risk, the Company may experience financial losses due to climate risk despite these precautions.

 

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.

 

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. 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. The timing and amount of cash flows of various financial instruments may change as interest rates change. In addition, the changing levels of interest rates may have an impact on bond portfolio volumes, accumulated other comprehensive (loss) income, loan demand and demand for various deposit products.

 

The Company’s earnings are affected not only by general economic conditions, but also by the monetary and fiscal policies of the United States government and its agencies, particularly the FOMC. The monetary policies of the FOMC can influence the overall demand for loans and growth of deposits and the level of interest rates earned on loans and investment securities and paid for deposits and other borrowings. The nature and impact of future changes in monetary policies are generally not predictable.

 

Management attempts to manage interest rate risk while enhancing the net interest margin and net interest income. At times, depending on expected increases or decreases in market interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, Management may adjust the Company's interest rate risk position. The Company's results of operations and net portfolio values remain subject to changes in interest rates and to fluctuations in the difference between long, intermediate, and short-term interest rates.

 

Management monitors the Company’s interest rate risk using a licensed third party simulation model, which is periodically assessed using supervisory guidance issued by the Board of Governors of the Federal Reserve System, SR 11-7 “Guidance on Model Risk Management.” Management measures its exposure to interest rate risk using a dynamic composition simulation and static simulation. 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. 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 March 31, 2026, based on the interest rate assumptions applied to the simulation model. An “asset sensitive” position results in a larger change in interest income than in interest expense resulting from application of assumed interest rate changes. However, in the dynamic simulation, an assumed decline in interest rates is expected to result in improved deposit balances funding higher earning asset levels. Further, in the dynamic simulation, no change in interest rates is expected to result in a decline in net interest income as asset yields remain stable and deposit costs rise as the Bank negotiates deposit rates with customers in the current environment.

 

-47-

 

At March 31, 2026, Management’s most recent measurements of estimated changes in net interest income were:

 

 

Dynamic Simulation (1)

Static Simulation (2)

Change in Interest Rates

First Year Change in Net Interest Income

+ 2.0%

+ 2.7%

+ 8.9%

+ 1.0%

+ 1.5%

+ 4.4%

 0.0%

- 1.7%

 0.0%

- 1.0%

- 2.3%

- 5.2%

- 2.0%

- 5.4%

- 10.1%

 

 

(1)

Balance sheet composition changes; Assumed change in interest rates over 1 year

 

(2)

Balance sheet composition unchanged; Assumed immediate change in interest rates

 

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. Assumptions made in the simulation may not materialize and unanticipated events and circumstances may occur. In addition, the simulation does not take into account any future actions Management may undertake to mitigate the impact of interest rate changes, loan prepayment estimates and spread relationships, which may change regularly.

 

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. 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. First, the Company has at times repurchased and retired its common stock; the market price paid to retire the Company's common stock affects the level of the Company's shareholders' equity, cash flows and shares outstanding. Second, the Company's common stock price impacts the number of dilutive equivalent shares used to compute diluted earnings per share. Third, fluctuations in the Company's common stock price can motivate holders of options to purchase Company common stock through the exercise of such options thereby increasing the number of shares outstanding and potentially adding volatility to the book tax provision. Finally, the amount of compensation expense and tax deductions associated with share based compensation fluctuates with changes in and the volatility of the Company's common stock price.

 

Market Risk - Other

 

Market values of loan collateral can directly impact the level of loan chargeoffs and the provision for credit losses. The financial condition and liquidity of debtors issuing bonds and debtors whose mortgages or other obligations are securitized can directly impact the credit quality of the Company’s investment securities portfolio requiring the Company to establish or increase reserves for expected credit losses. Other types of market risk, such as foreign currency exchange risk, are not significant in the normal course of the Company's business activities.

 

Liquidity and Funding

 

The objective of liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund the Bank's operations and meet obligations and other commitments on a timely basis and at a reasonable cost. 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.

 

-48-

 

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 for the three months ended March 31, 2026 and the year ended December 31, 2025. 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.

 

Total deposits were $4,784 million at March 31, 2026 and $4,840 million at December 31, 2025. Total time deposits were $65 million at March 31, 2026 and $67 million at December 31, 2025. The Company has no foreign time deposits. FDIC deposit insurance is $250,000 per depositor, for each account ownership category. At March 31, 2026, estimated federally uninsured total deposits and time deposits were $2,363 million and $4 million, respectively.

 

The following table shows the time remaining to maturity of the Company’s estimated amounts of uninsured time deposits with a balance greater than $250,000 per depositor per category:

 

   

At March 31, 2026

 
   

(In thousands)

 

Three months or less

  $ 1,535  

Over three through six months

    205  

Over six through twelve months

    1,851  

Over twelve months

    85  

Total

  $ 3,676  

 

Liquidity is further provided by assets such as balances held at the Federal Reserve Bank, and principal and interest payments from debt securities and loans. At March 31, 2026, the Company had $397,284 thousand in cash balances. During the twelve months ending March 31, 2027, the Company expects to receive $402,000 thousand in principal payments from its debt securities. If additional operational liquidity is required, the Company can pledge debt securities as collateral for borrowing purposes. At March 31, 2026, the Company had access to borrowing from the Federal Reserve Bank up to $765,854 thousand based on collateral pledged at March 31, 2026. Additionally, the Company had access to a $60,000 thousand line of credit with a correspondent bank at March 31, 2026.

 

Liquidity risk can result from the mismatching of asset and liability cash flows, or from disruptions in the financial markets. The Bank performs liquidity stress tests on a periodic basis to evaluate the sustainability of its liquidity. Under the stress testing, the Bank assumes outflows of funds increase beyond expected levels. Measurement of such heightened outflows considers the composition of the Bank’s deposit base, including any concentration of deposits, non-deposit funding such as short-term borrowings, and unfunded lending commitments. The composition of the Bank’s deposits is considered including the broad industry and geographic diversification in the Bank’s market area. 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 any Federal Reserve Bank reserve requirements, and investment securities based on regulatory guidelines. 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. The Bank aggressively solicits non-interest bearing demand deposits and money market checking deposits, which are the least sensitive to changes in interest rates. The growth of these deposit balances is subject to heightened competition, the success of the Bank's sales efforts, delivery of superior customer service, new regulations and market conditions. The Bank does not aggressively solicit higher-costing time deposits. Changes in interest rates, most notably rising or elevated 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. However, due to possible volatility in economic conditions, competition and political uncertainty, loan demand and levels of customer deposits are not certain. Shareholder dividends are expected to continue subject to the Board's discretion and continuing evaluation of capital levels, earnings, asset quality and other factors.

 

Westamerica Bancorporation ("Parent Company") is a separate entity apart from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Parent Company is responsible for the payment of dividends declared for its shareholders, and interest and principal on any outstanding debt. The Parent Company had no debt at March 31, 2026. Substantially all of the Parent Company's revenues are obtained from subsidiary dividends and service fees.

 

-49-

 

The Bank’s dividends paid to the Parent Company and Parent Company cash balances provided adequate cash for the Parent Company to pay shareholder dividends of $11 million for the three months ended March 31, 2026 and $47 million for the year ended December 31, 2025 and retire common stock in the amounts of $51 million in the three months ended March 31, 2026 and $104 million in the year ended December 31, 2025. Payment of dividends to the Parent Company by the Bank is limited under California and Federal laws. The Company believes these regulatory dividend restrictions will not impact the Parent Company's ability to meet its ongoing cash obligations. The Parent Company’s cash balance was $233 million at March 31, 2026 and $268 million at December 31, 2025.

 

Capital Resources

 

The Company has historically generated high levels of earnings, which provide a means of accumulating capital. The Company's net income as a percentage of average shareholders' equity (“return on equity” or “ROE”) was 11.0% for the three months ended March 31, 2026 and 11.2% for the year ended December 31, 2025. The Company also raises capital as employees exercise stock options. There were no stock option exercises during the three months ended March 31, 2026. The Company raised $376 thousand through the exercise of stock options in the year ended December 31, 2025.

 

The Company paid cash dividends on its common stock totaling $11 million in the three months ended March 31, 2026 and $47 million in the year ended December 31, 2025, which represent dividends per common share of $0.46 and $1.82, respectively. The Company's earnings have historically exceeded dividends paid to shareholders. The amount of earnings in excess of dividends provides the Company resources to finance growth and maintain appropriate levels of shareholders' equity. In the absence of profitable growth opportunities, the Company has at times repurchased and retired its common stock as another means to return capital to shareholders. The Company retired approximately 1 million shares valued at $51 million in the three months ended March 31, 2026 and 2 million shares valued at $104 million in the year ended December 31, 2025.

 

The Company's primary capital resource is shareholders' equity, which was $883 million at March 31, 2026 compared with $934 million at December 31, 2025. The Company's ratio of equity to total assets was 15.05% at March 31, 2026 and 15.66% at December 31, 2025.

 

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 measures the impact of these scenarios on its earnings and capital. Based on the results of the most recent stress tests, Management is satisfied with the capital condition of the Bank and the Company. 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.

 

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. 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 March 31, 2026

   

Capital Adequacy

   

Corrective Action

 
   

Company

   

Bank

   

Purposes

   

Regulations (Bank)

 
                                 

Common Equity Tier I Capital

    21.82 %     15.13 %     7.00 %     6.50 %

Tier I Capital

    21.82 %     15.13 %     8.50 %     8.00 %

Total Capital

    22.11 %     15.57 %     10.50 %     10.00 %

Leverage Ratio

    14.69 %     10.14 %     4.00 %     5.00 %

 

-50-

 

                           

To Be

 
                           

Well-capitalized

 
                   

Required for

   

Under Prompt

 
   

At December 31, 2025

   

Capital Adequacy

   

Corrective Action

 
   

Company

   

Bank

   

Purposes

   

Regulations (Bank)

 
                                 

Common Equity Tier I Capital

    22.75 %     15.14 %     7.00 %     6.50 %

Tier I Capital

    22.75 %     15.14 %     8.50 %     8.00 %

Total Capital

    23.05 %     15.59 %     10.50 %     10.00 %

Leverage Ratio

    15.22 %     10.09 %     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. 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.

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

The Company does not currently engage in trading activities or use derivative instruments to control interest rate risk, even though such activities may be permitted with the approval of the Company’s Board of Directors.

 

Credit risk and interest rate risk are the most significant market risks affecting the Company, and equity price risk can also affect the Company’s financial results. These risks are described in the preceding sections regarding “Loan Portfolio Credit Risk,” and “Asset/Liability and Market Risk Management.” Other types of market risk, such as foreign currency exchange risk and commodity price risk, are not significant in the normal course of the Company’s business activities.

 

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. Operational risk can also include the risk of loss due to failures by third parties with which the Company does business.

 

Item 4. Controls and Procedures

 

The Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of March 31, 2026.

 

Based upon their evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported as and when required and that such information is communicated to the Company’s management, including the principal executive officer and the principal financial officer, to allow for timely decisions regarding required disclosures. The evaluation did not identify any change in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2026 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Due to the nature of its business, the Company is subject to various threatened or filed legal cases. Neither the Company nor any of its subsidiaries is a party to any material pending legal proceeding, nor is their property the subject of any material pending legal proceeding, other than ordinary routine legal proceedings arising in the ordinary course of the Company’s business. Based on the advice of legal counsel, the Company does not expect such cases will have a material, adverse effect on its business, financial position or results of operations. Legal liabilities are accrued when obligations become probable and the amount can be reasonably estimated.

 

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Item 1A. Risk Factors

 

The Company’s Annual Report on Form 10-K for the year ended December 31, 2025 includes detailed disclosure about the risks faced by the Company’s business.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

(a) None

(b) None

(c) 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 three months ended March 31, 2026.

 

   

2026

 

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 price paid)

 

January 1 through January 31

    125     $ 49.90       125       1,773  

February 1 through February 28

    302       51.74       302       1,471  

March 1 through March 31

    570       50.74       570       901  

Total

    997     $ 50.94       997       901  

 

The Company may repurchase shares of its common stock in the open market from time to time 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.

 

The Company repurchased 997 thousand shares of its common stock during the three months ended March 31, 2026 pursuant to a program approved by the Board of Directors on December 18, 2025 authorizing the purchase of up to 2,000 thousand shares of its common stock from time to time prior to December 31, 2026.

 

On April 24, 2026, the Company announced that its Board of Directors had authorized the repurchase of 2,000 thousand additional shares of its common stock and extended the authorization to end on December 31, 2026. After accounting for shares previously purchased and the 785,023 shares remaining available under the prior authorization, 2,785,023 shares were authorized for repurchase as of April 23, 2026.

 

Item 3. Defaults upon Senior Securities

 

None

 

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

 

 

Item 5. Other Information

 

Rule 10b5-1 Trading Plans

 

During the quarter ended March 31, 2026, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408 of Regulation S‑K.

 

 

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Item 6. Exhibits

 

Exhibit No.   Description of Exhibit
     
Exhibit 31.1   Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
     
Exhibit 31.2   Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
     
Exhibit 32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
Exhibit 32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
Exhibit 101.INS   XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
     
Exhibit 101.SCH   Inline XBRL Taxonomy Extension Schema Document
     
Exhibit 101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document
     
Exhibit 101.DEF   Inline XBRL Taxonomy Extension Definitions Linkbase Document
     
Exhibit 101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document
     
Exhibit 101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document
     
Exhibit 104.   The Cover page of Westamerica Bancorporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2026, formatted in Inline XBRL (contained in Exhibit 101)

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

WESTAMERICA BANCORPORATION

(Registrant)

 

 

 

/s/ Anela Jonas                                                           

Anela Jonas

Senior Vice President and Chief Financial Officer

(Principal Financial and Chief Accounting Officer)

 

Date: May 8, 2026

 

 

 

 

 

 

 

 

 

 

 

 

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