Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

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).

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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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.

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	%

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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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.

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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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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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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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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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.

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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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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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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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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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.

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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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.

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.

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.

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.

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	%

														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.