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 ~~September 30, 2016~~March 31, 2017

☐

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~~

~~(State or Other Jurisdiction of~~

~~Incorporation or Organization)~~

~~94-2156203~~

~~(I.R.S. Employer~~

~~Identification No.)~~

CALIFORNIA	94-2156203
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification Number)

1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA 94901

(Address of Principal Executive Offices) (Zip Code)

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

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes ☒

No ☐

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

Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐	~~Smaller reporting company ☐~~
	~~(Do~~ (Do not check if a smaller reporting company)

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 ~~October~~April 25, ~~2016~~2017

Common Stock, No Par Value	~~25,671,339~~26,298,078

TABLE OF CONTENTS

		Page

Forward Looking Statements		3

PART I - FINANCIAL INFORMATION

Item 1	Financial Statements	4

	Notes to Unaudited Consolidated Financial Statements	9

	~~Financial Summary~~	30

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	3128

Item 3	Quantitative and Qualitative Disclosures about Market Risk	5247

Item 4	Controls and Procedures	5347

PART II - OTHER INFORMATION

Item 1	Legal Proceedings	5348

Item 1A	Risk Factors	5348

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	5348

Item 3	Defaults upon Senior Securities	5449

Item 4	Mine Safety Disclosures	5449

Item 5	Other Information	5449

Item 6	Exhibits	5449

Signatures		5550

Exhibit Index		5651

Exhibit 31.1 - Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)		5752

Exhibit 31.2 - Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)		5853

Exhibit 32.1 - Certification of Chief Executive Officer Required by 18 U.S.C. Section 1350		5954

Exhibit 32.2 - Certification of Chief Financial Officer Required by 18 U.S.C. Section 1350		6055

~~- 2 -~~

-2-

FORWARD-LOOKING STATEMENTS

This report on Form 10-Q contains forward-looking statements about Westamerica Bancorporation (the “Company”) for which it claims the protection of the safe harbor provisions contained in 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 loan losses, loan growth or ~~the~~ reduction, mitigation of risk in the Company’s loan and investment securities portfolios, income or loss, earnings or loss per share, the payment or nonpayment of dividends, 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 Management’s current knowledge and belief 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 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 terrorist threats and attacks on the United States, the actions taken in response, and the uncertain effect of these events on the national and regional economies; (6) changes in the interest rate environment; (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; (11) asset/liability management risks and liquidity risks; (12) the effect of natural disasters, including earthquakes, 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; (13) changes in the securities markets and (14) the outcome of contingencies, such as legal proceedings. The reader is directed to the Company's annual report on Form 10-K for the year ended December 31, 2015, 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. However, the reader should not consider ~~these~~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~~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 the Company's annual report on Form 10-K for the year ended December 31, 2016, 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 -~~

-3-

PART I - FINANCIAL INFORMATION

Item 1Financial Statements

WESTAMERICA BANCORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited)

At March 31,
2017 At December 31,
2016
(In thousands)
Assets:
Cash and due from banks $ 546,815 $ 462,271
Investment securities available for sale 1,893,309 1,890,758
Investment securities held to maturity, with fair values of: $1,296,738 at March 31, 2017 and $1,340,741 at December 31, 2016 1,298,414 1,346,312
Loans 1,351,090 1,352,711
Allowance for loan losses (24,919 ) (25,954 )
Loans, net of allowance for loan losses 1,326,171 1,326,757
Other real estate owned 2,136 3,095
Premises and equipment, net 36,025 36,566
Identifiable intangibles, net 6,127 6,927
Goodwill 121,673 121,673
Other assets 165,277 171,724
Total Assets $ 5,395,947 $ 5,366,083

Liabilities:
Noninterest-bearing deposits $ 2,046,390 $ 2,089,443
Interest-bearing deposits 2,651,583 2,615,298
Total deposits 4,697,973 4,704,741
Short-term borrowed funds 73,611 59,078
Other liabilities 39,475 40,897
Total Liabilities 4,811,059 4,804,716

Contingencies (Note 10)

Shareholders' Equity:
Common stock (no par value), authorized - 150,000 shares Issued and outstanding: 26,283 at March 31, 2017 and 25,907 at December 31, 2016 422,670 404,606
Deferred compensation 1,533 1,533
Accumulated other comprehensive loss (9,443 ) (10,074 )
Retained earnings 170,128 165,302
Total Shareholders' Equity 584,888 561,367
Total Liabilities and Shareholders' Equity $ 5,395,947 $ 5,366,083

At September 30,
2016 At December 31,
2015
(In thousands)
Assets:
Cash and due from banks $ 471,367 $ 433,044
Investment securities available for sale 1,762,408 1,570,216
Investment securities held to maturity, with fair values of: $1,440,119 at September 30, 2016 and $1,325,699 at December 31, 2015 1,411,019 1,316,075
Loans 1,364,329 1,533,396
Allowance for loan losses (26,359 ) (29,771 )
Loans, net of allowance for loan losses 1,337,970 1,503,625
Other real estate owned 3,032 9,264
Premises and equipment, net 37,059 38,693
Identifiable intangibles, net 7,789 10,431
Goodwill 121,673 121,673
Other assets 154,461 165,854
Total Assets $ 5,306,778 $ 5,168,875

Liabilities:
Noninterest bearing deposits $ 2,064,988 $ 2,026,049
Interest bearing deposits 2,579,882 2,514,610
Total deposits 4,644,870 4,540,659
Short-term borrowed funds 56,358 53,028
Other liabilities 42,554 42,983
Total Liabilities 4,743,782 4,636,670

Shareholders' Equity:
Common stock (no par value), authorized - 150,000 shares Issued and outstanding:25,665 at September 30, 2016 and 25,528 at December 31, 2015 391,601 378,858
Deferred compensation 1,533 2,578
Accumulated other comprehensive income 9,001 675
Retained earnings 160,861 150,094
Total Shareholders' Equity 562,996 532,205
Total Liabilities and Shareholders' Equity $ 5,306,778 $ 5,168,875

See accompanying notes to unaudited consolidated financial statements.

~~- 4 -~~

-4-

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	For the Three Months					For the Nine Months
	Ended September 30,										For the Three Months Ended March 31,
	2016			2015		2016			2015		2017			2016
	(In thousands, except per share data)										(In thousands, except per share data)
Interest and Fee Income:
Loans	$	16,968		$	19,378	$	52,904		$	59,643	$	15,780		$	18,353
Investment securities available for sale		8,796			7,880		24,855			23,347		10,249			7,967
Investment securities held to maturity		7,704			7,041		23,083			19,651		7,295			7,327
Total Interest and Fee Income		33,468			34,299		100,842			102,641		33,324			33,647
Interest Expense:
Deposits		512			573		1,586			1,816		469			543
Short-term borrowed funds		11			12		30			44		11			9
Federal Home Loan Bank advances		-			-		-			1
Total Interest Expense		523			585		1,616			1,861		480			552
Net Interest Income		32,945			33,714		99,226			100,780
Reversal of Provision for Loan Losses		(3,200	)		-		(3,200	)		-
Net Interest Income After Reversal of Provision For Loan Losses		36,145			33,714		102,426			100,780
Net Interest and Fee Income												32,844			33,095
Provision for Loan Losses												-			-
Net Interest and Fee Income After Provision For Loan Losses												32,844			33,095
Noninterest Income:
Service charges on deposit accounts		5,303			5,581		15,790			16,981		4,923			5,248
Merchant processing services												1,875			1,529
Debit card fees		1,587			1,538		4,724			4,528		1,481			1,516
Merchant processing services		1,532			1,485		4,699			4,971
Trust fees		686			682		2,004			2,061		702			661
Other service fees		671			693		1,951			2,041		650			629
ATM processing fees		600			616		1,860			1,828		575			658
Financial services commissions		118			177		411			527		195			156
Other		1,101			1,221		3,590			3,625
Other noninterest income												1,256			1,332
Total Noninterest Income		11,598			11,993		35,029			36,562		11,657			11,729
Noninterest Expense:
Salaries and related benefits		13,063			12,761		39,067			39,795		13,070			13,117
Occupancy		3,749			3,746		10,546			11,199		3,633			3,398
Outsourced data processing services		2,114			2,115		6,375			6,334		2,139			2,130
Professional fees		1,693			746		3,183			1,876
Furniture and equipment		1,211			1,075		3,611			3,353		1,254			1,213
Amortization of identifiable intangibles		867			952		2,642			2,908		800			905
Professional fees												611			732
Courier service		451			604		1,458			1,744		421			545
Other real estate owned		(206	)		83		(487	)		451		(40	)		111
Other		3,146			4,091		10,780			12,136
Other noninterest expense												2,727			3,707
Total Noninterest Expense		26,088			26,173		77,175			79,796		24,615			25,858
Income Before Income Taxes		21,655			19,534		60,280			57,546		19,886			18,966
Provision for income taxes		6,027			4,677		15,880			13,371		4,837			4,740
Net Income	$	15,628		$	14,857	$	44,400		$	44,175	$	15,049		$	14,226

Average Common Shares Outstanding		25,641			25,530		25,558			25,565		26,171			25,445
Diluted Average Common Shares Outstanding		25,687			25,565		25,595			25,585
Average Diluted Common Shares Outstanding												26,329			25,468
Per Common Share Data:
Basic earnings	$	0.61		$	0.58	$	1.74		$	1.73	$	0.58		$	0.56
Diluted earnings		0.61			0.58		1.73			1.73		0.57			0.56
Dividends paid		0.39			0.38		1.17			1.14		0.39			0.39

See accompanying notes to unaudited consolidated financial statements.

~~- 5 -~~

-5-

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

For the Three Months Ended
March 31,
2017 2016
(In thousands)
Net income $ 15,049 $ 14,226
Other comprehensive income:
Increase in net unrealized gains on securities available for sale 1,074 10,241
Deferred tax expense (452 ) (4,306 )
Increase in net unrealized gains on securities available for sale, net of tax 622 5,935
Post-retirement benefit transition obligation amortization 15 15
Deferred tax expense (6 ) (6 )
Post-retirement benefit transition obligation amortization, net of tax 9 9
Total other comprehensive income 631 5,944
Total comprehensive income $ 15,680 $ 20,170

For the Three Months For the Nine Months
Ended September 30,
2016 2015 2016 2015
(In thousands)
Net income $ 15,628 $ 14,857 $ 44,400 $ 44,175
Other comprehensive (loss) income:
(Decrease) increase in net unrealized gains on securities available for sale (4,992 ) 5,522 14,319 3,242
Deferred tax benefit (expense) 2,099 (2,321 ) (6,020 ) (1,363 )
(Decrease) increase in net unrealized gains on securities available for sale, net of tax (2,893 ) 3,201 8,299 1,879
Post-retirement benefit transition obligation amortization 15 15 45 45
Deferred tax expense (6 ) (6 ) (18 ) (18 )
Post-retirement benefit transition obligation amortization, net of tax 9 9 27 27
Total other comprehensive (loss) income (2,884 ) 3,210 8,326 1,906
Total comprehensive income $ 12,744 $ 18,067 $ 52,726 $ 46,081

See accompanying notes to unaudited consolidated financial statements.

~~- 6 -~~

-6-

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(unaudited)

	Common Shares Outstanding			Common Stock			Deferred Compensation			Accumulated Other Comprehensive Income		Retained Earnings			Total			Common Shares Outstanding			Common Stock			Deferred Compensation			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	(In thousands)																	(In thousands)

Balance, December 31, 2014		25,745		$	378,132		$	2,711		$	5,292	$	140,468		$	526,603
Balance, December 31, 2015																			25,528		$	378,858		$	2,578		$	675		$	150,094		$	532,205
Net income for the period													44,175			44,175															14,226			14,226
Other comprehensive income											1,906					1,906												5,944						5,944
Exercise of stock options		108			4,848											4,848			40			1,717												1,717
Tax benefit decrease upon exercise and expiration of stock options					(1,215	)										(1,215	)					(181	)											(181	)
Restricted stock activity		17			874			(133	)							741						1,045			(1,045	)								-
Stock based compensation					987											987						390												390
Stock awarded to employees		2			89											89			-			15												15
Retirement of common stock		(342	)		(5,066	)							(9,962	)		(15,028	)		(130	)		(1,951	)								(3,473	)		(5,424	)
Dividends													(29,168	)		(29,168	)														(9,919	)		(9,919	)
Balance, September 30, 2015		25,530		$	378,649		$	2,578		$	7,198	$	145,513		$	533,938
Balance, March 31, 2016																			25,438		$	379,893		$	1,533		$	6,619		$	150,928		$	538,973

Balance, December 31, 2015		25,528		$	378,858		$	2,578		$	675	$	150,094		$	532,205
Balance, December 31, 2016																			25,907		$	404,606		$	1,533		$	(10,074	)	$	165,302		$	561,367
Net income for the period													44,400			44,400															15,049			15,049
Other comprehensive income											8,326					8,326												631						631
Exercise of stock options		258			11,588											11,588			376			17,593												17,593
Tax benefit increase upon exercise and expiration of stock options					199											199
Restricted stock activity		15			1,798			(1,045	)							753
Stock based compensation					1,142											1,142						456												456
Stock awarded to employees		1			75											75			-			15												15
Retirement of common stock		(137	)		(2,059	)							(3,721	)		(5,780	)
Dividends													(29,912	)		(29,912	)														(10,223	)		(10,223	)
Balance, September 30, 2016		25,665		$	391,601		$	1,533		$	9,001	$	160,861		$	562,996
Balance, March 31, 2017																			26,283		$	422,670		$	1,533		$	(9,443	)	$	170,128		$	584,888

See accompanying notes to unaudited consolidated financial statements.

~~- 7 -~~

-7-

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2016			2015			2017			2016
	(In thousands)						(In thousands)
Operating Activities:
Net income	$	44,400		$	44,175		$	15,049		$	14,226
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		14,211			12,379
Reversal of provision for loan losses		(3,200	)		-
Net amortization of deferred loan fees		(281	)		(263	)
Depreciation and amortization/accretion								5,754			4,065
Net amortization of deferred net loan cost (fees)								26			(54	)
Decrease in interest income receivable		475			757			1,744			1,379
(Increase) decrease in other assets		(753	)		107
Increase (decrease) in income taxes payable		403			(257	)
Decrease in net deferred tax asset		3,258			968
Decrease in interest expense payable		(19	)		(56	)
Life insurance premiums paid								(126	)		(126	)
Increase in income taxes payable								2,896			3,424
Decrease in deferred tax asset								1,441			115
Tax benefit decrease upon exercise and expiration of stock options								-			181
Decrease (increase) in other assets								895			(5,476	)
Stock option compensation expense								456			390
Increase in interest expense payable								8			25
Decrease in other liabilities		143			(2,571	)		(2,864	)		(4	)
Stock option compensation expense		1,142			987
Tax benefit (increase) decrease upon exercise and expiration of stock options		(199	)		1,215
Net writedown/loss on sale of premises and equipment		21			24
Writedown/loss on sale of premises and equipment								50			5
Net gain on sale of foreclosed assets		(1,182	)		(73	)		(55	)		(58	)
Writedown of foreclosed assets		759			315			-			126
Net Cash Provided by Operating Activities		59,178			57,707			25,274			18,218

Investing Activities:
Net repayments of loans		171,573			124,615			1,526			61,070
Change in payable to FDIC⁽¹⁾		3,180			-
Net receipts under FDIC⁽¹⁾ indemnification agreements								129			5,189
Purchases of investment securities available for sale		(812,697	)		(828,169	)		(51,297	)		(152,128	)
Proceeds from sale/maturity/calls of securities available for sale		632,795			858,850			47,600			166,023
Purchases of investment securities held to maturity		(246,956	)		(366,247	)		-			(56,182	)
Proceeds from maturity/calls of securities held to maturity		141,770			117,877			45,640			33,531
Purchases of premises and equipment		(1,299	)		(4,049	)		(501	)		(283	)
Net change in FRB⁽²⁾/FHLB⁽³⁾ securities		-			940
Proceeds from sale of FRB⁽²⁾ stock								24			-
Proceeds from sale of foreclosed assets		7,143			1,774			1,014			975
Net Cash Used in Investing Activities		(104,491	)		(94,409	)
Net Cash Provided by Investing Activities								44,135			58,195

Financing Activities:
Net increase in deposits		104,211			17,737
Net increase (decrease) in short-term borrowings and FHLB⁽³⁾advances		3,330			(52,721	)
Net change in deposits								(6,768	)		(23,909	)
Net change in short-term borrowings								14,533			(577	)
Exercise of stock options/issuance of shares		11,588			4,848			17,593			1,717
Tax benefit increase (decrease) upon exercise and expiration of stock options		199			(1,215	)
Tax benefit decrease upon exercise and expiration of stock options								-			(181	)
Retirement of common stock		(5,780	)		(15,028	)		-			(5,424	)
Common stock dividends paid		(29,912	)		(29,168	)		(10,223	)		(9,919	)
Net Cash Provided by (Used in) Financing Activities		83,636			(75,547	)		15,135			(38,293	)
Net Change In Cash and Due from Banks		38,323			(112,249	)		84,544			38,120
Cash and Due from Banks at Beginning of Period		433,044			380,836			462,271			433,044
Cash and Due from Banks at End of Period	$	471,367		$	268,587		$	546,815		$	471,164

Supplemental Cash Flow Disclosures:
Supplemental disclosure of non cash activities:
Supplemental disclosure of noncash activities:
Loan collateral transferred to other real estate owned	$	488		$	4,911		$	-		$	217
Securities purchases pending settlement		171			-			-			44,580
Supplemental disclosure of cash flow activities:
Interest paid for the period		1,635			1,941			504			526
Income tax payments for the period		14,032			12,596			500			1,200

See accompanying notes to unaudited consolidated financial statements.

⁽¹⁾ Federal Deposit Insurance Corporation ("FDIC")

⁽²⁾Federal Reserve Bank ("FRB")

⁽³⁾ ~~Federal Home Loan Bank ("FHLB")~~

~~- 8 -~~

-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 ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 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, ~~2015.~~

2016.

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, ~~2015.~~2016. 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, Management has identified the allowance for loan losses accounting to be the accounting area requiring the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available. A discussion of the factors affecting accounting for the allowance for loan losses ~~and purchased loans~~ is included in the “Provision for Loan Losses,” “Loan Portfolio Credit Risk” and “Allowance for Loan Losses” discussion below. Certain amounts in prior periods have been reclassified to conform to the current presentation.

Application of these 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 an impairment 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. 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.

Recently Adopted Accounting Standards

FASB ASU 2016-09,Improvements to Employee Share-Based Payment Accounting, was issued March 30, 2016. The provisions of the new standard changes several aspects of the accounting for share-based payment award transactions, including: (1) Accounting and Cash Flow Classification for Excess Tax Benefits, (2) Forfeitures, and (3) Tax Withholding Requirements and Cash Flow Classification. The Company adopted the ASU provisions effective January 1, 2017, which has the potential to create volatility in the book tax provision at the time nonqualified stock options are exercised or expire. During the first quarter 2017, 376 thousand shares were issued due to the exercise of nonqualified stock options resulting in a tax deduction exceeding related share based compensation by $1.6 million. First quarter 2017 income tax provision was $671 thousand lower than would have been under accounting standards prior to the adoption of ASU 2016-09. The Company elected to account for forfeitures as they occur.

Recently Issued Accounting Standards

FASB Accounting Standards Update (ASU) 2016-01,Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,was issued January 2016. The ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, the ASU changes the income statement impact of equity investments held by the Company and the requirement for the Company to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

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The Company will be required to adopt the ASU provisions on January 1, 2018. Management ~~does not expect~~is evaluating the ~~adoption of~~impact that the ASU towill have ~~a material effect~~ on the Company’s financial statements.

FASB Accounting Standards Update (ASU) 2016-02,Leases (Topic 842), was issued February 25, 2016. The provisions of the new standard require lessees to recognize most leases on-balance sheet, increasing reported assets and liabilities. Lessor accounting remains substantially similar to current U.S. GAAP.

The Company will be required to adopt the ASU provisions January 1, 2019, utilizing the modified retrospective transition approach. Management is evaluating the impact that the ASU will have on the Company’s financial statements.

~~- 9 -~~

~~FASB ASU 2016-09,~~~~Improvements to Employee Share-Based Payment Accounting,~~ was issued March 30, 2016. The provisions of the new standard changes several aspects of the accounting for share-based payment award transactions, including: (1) Accounting and Cash Flow Classification for Excess Tax Benefits, (2) Forfeitures, and (3) Tax Withholding Requirements and Cash Flow Classification.

The Company will be required to adopt the ASU provisions January 1, 2017. Management does not expect the adoption of the ASU to have a material effect on the Company’s financial statements. The most notable impact will be the effect of Excess Tax Benefits on the provision for income taxes.

FASB ASU 2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, was issued on June 16, 2016. The ASU significantly changes estimates for credit losses related to financial assets measured at amortized cost and certain other contracts. For estimating credit losses, the FASB is replacing the incurred loss model with the current expected credit loss (CECL) model, which will accelerate recognition of credit losses. Additionally, credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses under the new standard. The Company will also be required to provide additional disclosures related to the financial assets within the scope of the new standard.

The Company will be required to adopt the ASU provisions on January 1, 2020. Management is evaluating the impact that the ASU will have on the Company’s consolidated financial statements.

FASB ASU 2017-08, Receivables – Non-Refundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, was issued March 2017. The ASU will shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.

The Company will be required to adopt the ASU provisions on January 1, 2019. Management is evaluating the impact the ASU will have on the Company’s financial statements.

Note 3: Investment Securities

An analysis of the amortized cost, gross unrealized gains and losses accumulated in other comprehensive income, and fair value of the available for sale investment securities portfolio follows:

	Investment Securities Available for Sale At September 30, 2016									Investment Securities Available for Sale At March 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)									(In thousands)
Securities of U.S. Government sponsored entities	$	171,579	$	300	$	(33	)	$	171,846	$	141,595	$	33	$	(2,691	)	$	138,937
Agency residential mortgage-backed securities (MBS)		499,860		1,712		(1,883	)		499,689		742,713		825		(21,334	)		722,204
Non-agency residential MBS		301		1		-			302		196		-		-			196
Non-agency commercial MBS		2,127		1		(10	)		2,118		1,955		-		(16	)		1,939
Obligations of states and political subdivisions		177,786		8,086		(378	)		185,494		176,739		5,425		(3,293	)		178,871
Asset-backed securities		1,003		-		(3	)		1,000		355		-		-			355
FHLMC⁽¹⁾and FNMA⁽²⁾ stock		775		3,481		-			4,256		749		8,651		-			9,400
Corporate securities		891,335		5,808		(1,911	)		895,232		843,249		2,037		(6,150	)		839,136
Other securities		2,034		577		(140	)		2,471		2,005		456		(190	)		2,271
Total	$	1,746,800	$	19,966	$	(4,358	)	$	1,762,408	$	1,909,556	$	17,427	$	(33,674	)	$	1,893,309

⁽¹⁾ Federal Home Loan Mortgage Corporation

⁽²⁾ Federal National Mortgage Association

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An analysis of the amortized cost, gross unrecognized gains and losses, and fair value of the held to maturity investment securities portfolio follows:

Investment Securities Held to Maturity
At September 30, 2016
Amortized
Cost Gross
Unrecognized
Gains Gross
Unrecognized
Losses Fair
Value
(In thousands)
Securities of U.S. government sponsored entities $ 621 $ 3 $ - $ 624
Agency residential MBS 712,470 10,210 (194 ) 722,486
Non-agency residential MBS 5,678 54 (1 ) 5,731
Agency commercial MBS 9,404 24 (163 ) 9,265
Obligations of states and political subdivisions 682,846 19,508 (341 ) 702,013
Total $ 1,411,019 $ 29,799 $ (699 ) $ 1,440,119

Investment Securities Held to Maturity
At March 31, 2017
Amortized
Cost Gross
Unrecognized
Gains Gross
Unrecognized
Losses Fair
Value
(In thousands)
Securities of U.S. Government sponsored entities $ 538 $ - $ - $ 538
Agency residential MBS 634,958 1,007 (9,093 ) 626,872
Non-agency residential MBS 5,103 62 - 5,165
Agency commercial MBS 9,258 4 (123 ) 9,139
Obligations of states and political subdivisions 648,557 8,503 (2,036 ) 655,024
Total $ 1,298,414 $ 9,576 $ (11,252 ) $ 1,296,738

An analysis of the amortized cost, gross unrealized gains and losses accumulated in other comprehensive income, and fair value of the available for sale investment securities portfolio follows:

	Investment Securities Available for Sale At December 31, 2015									Investment Securities Available for Sale At December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)									(In thousands)
Securities of U.S. Government sponsored entities	$	302,292	$	255	$	(665	)	$	301,882	$	141,599	$	35	$	(2,974	)	$	138,660
Agency residential MBS		208,046		1,407		(6,909	)		202,544		711,623		921		(21,045	)		691,499
Non-agency residential MBS		354		16		-			370		272		-		(1	)		271
Non-agency commercial MBS		2,383		5		(9	)		2,379		2,041		-		(16	)		2,025
Obligations of states and political subdivisions		148,705		8,861		(57	)		157,509		182,230		5,107		(3,926	)		183,411
Asset-backed securities		2,025		-		(22	)		2,003		696		-		(1	)		695
FHLMC⁽¹⁾and FNMA⁽²⁾ stock		775		3,554		-			4,329		749		10,120		-			10,869
Corporate securities		902,308		882		(6,821	)		896,369		866,835		1,690		(7,668	)		860,857
Other securities		2,039		952		(160	)		2,831		2,034		621		(184	)		2,471
Total	$	1,568,927	$	15,932	$	(14,643	)	$	1,570,216	$	1,908,079	$	18,494	$	(35,815	)	$	1,890,758

⁽¹⁾ Federal Home Loan Mortgage Corporation

⁽²⁾ Federal National Mortgage Association

An analysis of the amortized cost, gross unrecognized gains and losses, and fair value of the held to maturity investment securities portfolio follows:

	Investment Securities Held to Maturity At December 31, 2015									Investment Securities Held to Maturity At December 31, 2016
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value		Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
	(In thousands)									(In thousands)
Securities of U.S. government sponsored entities	$	764	$	-	$	-		$	764
Securities of U.S. Government sponsored entities										$	581	$	1	$	-		$	582
Agency residential MBS		595,503		1,810		(4,966	)		592,347		668,235		1,122		(8,602	)		660,755
Non-agency residential MBS		9,667		185		-			9,852		5,370		76		-			5,446
Agency commercial MBS		16,258		20		(274	)		16,004		9,332		11		(143	)		9,200
Obligations of states and political subdivisions		693,883		13,638		(789	)		706,732		662,794		6,031		(4,067	)		664,758
Total	$	1,316,075	$	15,653	$	(6,029	)	$	1,325,699	$	1,346,312	$	7,241	$	(12,812	)	$	1,340,741

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

At September 30, 2016
Securities Available
for Sale Securities Held
to Maturity
Amortized
Cost Fair
Value Amortized
Cost Fair
Value
(In thousands)
Maturity in years:
1 year or less $ 159,685 $ 160,009 $ 18,809 $ 19,437
Over 1 to 5 years 745,541 750,330 290,412 295,190
Over 5 to 10 years 301,266 308,276 308,222 319,417
Over 10 years 35,211 34,957 66,024 68,593
Subtotal 1,241,703 1,253,572 683,467 702,637
MBS 502,288 502,109 727,552 737,482
Other securities 2,809 6,727 - -
Total $ 1,746,800 $ 1,762,408 $ 1,411,019 $ 1,440,119

At March 31, 2017
Securities Available
for Sale Securities Held
to Maturity
Amortized
Cost Fair
Value Amortized
Cost Fair
Value
(In thousands)
Maturity in years:
1 year or less $ 200,403 $ 200,533 $ 21,359 $ 22,112
Over 1 to 5 years 687,340 683,836 296,478 298,933
Over 5 to 10 years 226,589 228,155 303,309 306,228
Over 10 years 47,606 44,775 27,949 28,289
Subtotal 1,161,938 1,157,299 649,095 655,562
MBS 744,864 724,339 649,319 641,176
Other securities 2,754 11,671 - -
Total $ 1,909,556 $ 1,893,309 $ 1,298,414 $ 1,296,738

	At December 31, 2015								At December 31, 2016
	Securities Available for Sale				Securities Held to Maturity				Securities Available for Sale				Securities Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)								(In thousands)
Maturity in years:
1 year or less	$	136,717	$	136,976	$	20,709	$	21,354	$	154,693	$	154,835	$	14,961	$	15,639
Over 1 to 5 years		1,049,786		1,044,453		259,556		262,163		750,834		745,219		292,024		292,062
Over 5 to 10 years		166,352		173,585		289,568		296,352		238,077		239,153		318,580		319,587
Over 10 years		2,475		2,749		124,814		127,627		47,756		44,416		37,810		38,052
Subtotal		1,355,330		1,357,763		694,647		707,496		1,191,360		1,183,623		663,375		665,340
MBS		210,783		205,293		621,428		618,203		713,936		693,795		682,937		675,401
Other securities		2,814		7,160		-		-		2,783		13,340		-		-
Total	$	1,568,927	$	1,570,216	$	1,316,075	$	1,325,699	$	1,908,079	$	1,890,758	$	1,346,312	$	1,340,741

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. At ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, the Company had no high-risk collateralized mortgage obligations as defined by regulatory guidelines.

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

Investment Securities Available for Sale
At September 30, 2016
No. of Less than 12 months No. of 12 months or longer No. of Total
Investment
Positions Fair Value Unrealized
Losses Investment
Positions Fair Value Unrealized
Losses Investment
Positions Fair Value Unrealized
Losses
($ in thousands)
Securities of U.S. Government sponsored entities 3 $ 39,965 $ (33 ) - $ - $ - 3 $ 39,965 $ (33 )
Agency residential MBS 9 109,244 (222 ) 28 133,665 (1,661 ) 37 242,909 (1,883 )
Non-agency residential MBS 1 31 - - - - 1 31 -
Non-agency commercial MBS 1 324 (4 ) 1 794 (6 ) 2 1,118 (10 )
Obligations of states and political subdivisions 30 42,214 (356 ) 3 1,118 (22 ) 33 43,332 (378 )
Asset-backed securities - - - 1 1,000 (3 ) 1 1,000 (3 )
Corporate securities 25 136,421 (704 ) 26 102,085 (1,207 ) 51 238,506 (1,911 )
Other securities - - - 1 1,860 (140 ) 1 1,860 (140 )
Total 69 $ 328,199 $ (1,319 ) 60 $ 240,522 $ (3,039 ) 129 $ 568,721 $ (4,358 )

Investment Securities Available for Sale
At March 31, 2017
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)
Securities of U.S. Government sponsored entities 9 $ 120,654 $ (2,691 ) - $ - $ - 9 $ 120,654 $ (2,691 )
Agency residential MBS 26 564,037 (16,571 ) 28 117,356 (4,763 ) 54 681,393 (21,334 )
Non-agency residential MBS 1 177 - - - - 1 177 -
Non-agency commercial MBS 2 1,189 (9 ) 1 750 (7 ) 3 1,939 (16 )
Obligations of states and political subdivisions 42 55,505 (3,272 ) 4 1,653 (21 ) 46 57,158 (3,293 )
Corporate securities 48 360,788 (5,201 ) 25 88,217 (949 ) 73 449,005 (6,150 )
Other securities - - - 1 1,810 (190 ) 1 1,810 (190 )
Total 128 $ 1,102,350 $ (27,744 ) 59 $ 209,786 $ (5,930 ) 187 $ 1,312,136 $ (33,674 )

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

Investment Securities Held to Maturity
At September 30, 2016
No. of Less than 12 months No. of 12 months or longer No. of Total
Investment
Positions Fair Value Unrecognized
Losses Investment
Positions Fair Value Unrecognized
Losses Investment
Positions Fair Value Unrecognized
Losses
($ in thousands)
Agency residential MBS 6 $ 12,463 $ (79 ) 3 $ 11,615 $ (115 ) 9 $ 24,078 $ (194 )
Non-agency residential MBS 1 1,253 (1 ) - - - 1 1,253 (1 )
Agency commercial MBS - - - 1 7,250 (163 ) 1 7,250 (163 )
Obligations of states and political subdivisions 31 30,041 (182 ) 9 6,779 (159 ) 40 36,820 (341 )
Total 38 $ 43,757 $ (262 ) 13 $ 25,644 $ (437 ) 51 $ 69,401 $ (699 )

Investment Securities Held to Maturity
At March 31, 2017
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 66 $ 551,095 $ (8,789 ) 3 $ 11,465 $ (304 ) 69 $ 562,560 $ (9,093 )
Agency commercial MBS - - - 1 7,175 (123 ) 1 7,175 (123 )
Obligations of states and political subdivisions 137 128,434 (1,668 ) 13 12,905 (368 ) 150 141,339 (2,036 )
Total 203 $ 679,529 $ (10,457 ) 17 $ 31,545 $ (795 ) 220 $ 711,074 $ (11,252 )

The unrealized losses on the Company’s investment securities were caused by market conditions for these types of investments, particularly changes in risk-free interest rates. The Company evaluates securities on a quarterly basis including changes in security ratings issued by rating agencies, changes in the financial condition of the issuer, 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. Substantially all of these securities continue to be investment grade rated by a major rating agency. 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 does not intend to sell any investments and has concluded that it is more likely than not that it will not be required to sell the investments prior to recovery of the amortized cost basis. Therefore, the Company does not consider these investments to be other-than-temporarily impaired as of ~~September 30, 2016.~~March 31, 2017.

The fair values of the investment securities could decline in the future if the general economy deteriorates, inflation increases, credit ratings decline, the issuer’s financial condition deteriorates, or the liquidity for securities declines. As a result, other than temporary impairments may occur in the future.

As of ~~September 30, 2016, $755,762~~March 31, 2017, $774,283 thousand of investment securities were pledged to secure public deposits and short-term borrowed funds. As of December 31, ~~2015, $738,865~~2016, $768,845 thousand of investment securities were pledged to secure public deposits and short-term borrowed funds.

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An analysis of gross unrealized losses of investment securities available for sale follows:

Investment Securities Available for Sale
At December 31, 2015
No. of Less than 12 months No. of 12 months or longer No. of Total
Investment
Positions Fair Value Unrealized
Losses Investment
Positions Fair Value Unrealized
Losses Investment
Positions Fair Value Unrealized
Losses
($ in thousands)
Securities of U.S. Government sponsored entities 8 $ 121,392 $ (665 ) - $ - $ - 8 $ 121,392 $ (665 )
Agency residential MBS 2 12,491 (366 ) 31 161,296 (6,543 ) 33 173,787 (6,909 )
Non-agency commercial MBS 1 1,071 - 1 855 (9 ) 2 1,926 (9 )
Obligations of states and political subdivisions 3 2,728 (18 ) 4 1,644 (39 ) 7 4,372 (57 )
Asset-backed securities - - - 1 2,003 (22 ) 1 2,003 (22 )
Corporate securities 97 548,177 (5,442 ) 25 86,762 (1,379 ) 122 634,939 (6,821 )
Other securities - - - 1 1,840 (160 ) 1 1,840 (160 )
Total 111 $ 685,859 $ (6,491 ) 63 $ 254,400 $ (8,152 ) 174 $ 940,259 $ (14,643 )

Investment Securities Available for Sale
At December 31, 2016
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)
Securities of U.S. Government sponsored entities 8 $ 117,227 $ (2,974 ) - $ - $ - 8 $ 117,227 $ (2,974 )
Agency residential MBS 21 524,269 (16,494 ) 28 122,901 (4,551 ) 49 647,170 (21,045 )
Non-agency residential MBS 2 246 (1 ) - - - 2 246 (1 )
Non-agency commercial MBS 2 1,253 (9 ) 1 772 (7 ) 3 2,025 (16 )
Obligations of states and political subdivisions 43 57,989 (3,905 ) 3 1,117 (21 ) 46 59,106 (3,926 )
Asset-backed securities - - - 1 695 (1 ) 1 695 (1 )
Corporate securities 53 385,175 (6,551 ) 27 96,145 (1,117 ) 80 481,320 (7,668 )
Other securities - - - 1 1,816 (184 ) 1 1,816 (184 )
Total 129 $ 1,086,159 $ (29,934 ) 61 $ 223,446 $ (5,881 ) 190 $ 1,309,605 $ (35,815 )

An analysis of gross unrecognized losses of investment securities held to maturity follows:

																						Investment Securities Held to Maturity At December 31, 2016
	Investment Securities Held to Maturity At December 31, 2015																					No. of		Less than 12 months					No. of		12 months or longer					No. of		Total
	No. of		Less than 12 months					No. of		12 months or longer					No. of		Total					Investment				Unrecognized			Investment				Unrecognized			Investment				Unrecognized
	Investment Positions		Fair Value		Unrecognized Losses			Investment Positions		Fair Value		Unrecognized Losses			Investment Positions		Fair Value		Unrecognized Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses
	($ in thousands)																					($ in thousands)
Agency residential MBS		41	$	426,317	$	(3,490	)		13	$	62,041	$	(1,476	)		54	$	488,358	$	(4,966	)		66	$	569,876	$	(8,285	)		3	$	10,480	$	(317	)		69	$	580,356	$	(8,602	)
Agency commercial MBS		-		-		-			2		13,951		(274	)		2		13,951		(274	)		-		-		-			1		7,214		(143	)		1		7,214		(143	)
Obligations of states and political subdivisions		55		44,585		(249	)		54		42,081		(540	)		109		86,666		(789	)		295		272,496		(3,710	)		12		13,126		(357	)		307		285,622		(4,067	)
Total		96	$	470,902	$	(3,739	)		69	$	118,073	$	(2,290	)		165	$	588,975	$	(6,029	)		361	$	842,372	$	(11,995	)		16	$	30,820	$	(817	)		377	$	873,192	$	(12,812	)

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

	For the Three Months				For the Nine Months
	Ended September 30,								For the Three Months Ended March 31,
	2016		2015		2016		2015		2017		2016
	(In thousands)								(In thousands)

Taxable	$	11,024	$	9,120	$	31,256	$	25,067	$	12,147	$	9,674
Tax-exempt from regular federal income tax		5,476		5,801		16,682		17,931		5,397		5,620
Total interest income from investment securities	$	16,500	$	14,921	$	47,938	$	42,998	$	17,544	$	15,294

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~~- 14 -~~

-14-

Note 4: Loans and Allowance for Loan Losses

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

At September 30, 2016
Commercial Commercial
Real Estate Construction Residential
Real Estate Consumer
Installment
& Other Total
(In thousands)
Originated loans $ 331,429 $ 480,950 $ 2,282 $ 91,934 $ 335,629 $ 1,242,224
Purchased covered loans - - - 2,233 9,512 11,745
Purchased non-covered loans:
Gross purchased non-covered loans 12,337 74,595 153 224 27,973 115,282
Purchased loan discount (682 ) (3,197 ) - (23 ) (1,020 ) (4,922 )
Total $ 343,084 $ 552,348 $ 2,435 $ 94,368 $ 372,094 $ 1,364,329

At December 31, 2015
Commercial Commercial
Real Estate Construction Residential
Real Estate Consumer
Installment
& Other Total
(In thousands)
Originated loans $ 368,117 $ 517,070 $ 2,978 $ 117,631 $ 346,043 $ 1,351,839
Purchased covered loans:
Gross purchased covered loans - - - 2,385 11,828 14,213
Purchased loan discount - - - (133 ) (19 ) (152 )
Purchased non-covered loans:
Gross purchased non-covered loans 15,620 124,650 973 231 32,454 173,928
Purchased loan discount (989 ) (4,264 ) - (23 ) (1,156 ) (6,432 )
Total $ 382,748 $ 637,456 $ 3,951 $ 120,091 $ 389,150 $ 1,533,396
At March 31, 2017 At December 31, 2016
(In thousands)
Commercial $ 354,500 $ 354,697
Commercial Real Estate 565,604 542,171
Construction 1,880 2,555
Residential Real Estate 79,481 87,724
Consumer Installment & Other 349,625 365,564
Total $ 1,351,090 $ 1,352,711

~~Changes~~Total loans outstanding reported above include purchased loans of $113,207 thousand and $121,210 thousand at March 31, 2017 and December 31, 2016, respectively. Purchased loans were separately reported in prior periods and have been reclassified into their respective categories in the ~~carrying amount of impaired purchased loans were as follows:~~current presentation.

For the
Nine Months Ended
September 30, 2016 For the Year Ended
December 31, 2015
Impaired purchased loans (In thousands)
Carrying amount at the beginning of the period $ 3,887 $ 4,672
Reductions during the period (2,651 ) (785 )
Carrying amount at the end of the period $ 1,236 $ 3,887

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

	For the Nine Months Ended September 30, 2016			For the Year Ended December 31, 2015			For the Three Months Ended March 31, 2017			For the Year Ended December 31, 2016
Accretable yield:	(In thousands)						(In thousands)
Balance at the beginning of the period	$	1,259		$	2,261		$	1,237		$	1,259
Reclassification from nonaccretable difference		3,322			3,051			871			3,912
Accretion		(2,936	)		(4,053	)		(970	)		(3,934	)
Balance at the end of the period	$	1,645		$	1,259		$	1,138		$	1,237

Accretion	$	(2,936	)	$	(4,053	)	$	(970	)	$	(3,934	)
Change in FDIC indemnification		995			698			189			1,053
(Increase) in interest income	$	(1,941	)	$	(3,355	)	$	(781	)	$	(2,881	)

~~- 15 -~~

The following summarizes activity in the allowance for loan losses:

Allowance for Loan Losses
For the Three Months Ended September 30, 2016
Commercial Commercial
Real Estate Construction Residential
Real Estate Consumer
Installment
and Other Purchased
Non-covered
Loans Purchased
Covered
Loans Unallocated Total
(In thousands)
Allowance for loan losses:
Balance at beginning of period $ 10,402 $ 3,912 $ 127 $ 1,601 $ 6,616 $ 1,044 $ 66 $ 5,142 $ 28,910
Additions:
Provision (3,638 ) (328 ) 9 (193 ) 1,651 (399 ) (4 ) (298 ) (3,200 )
Deductions:
Chargeoffs (88 ) - - - (1,736 ) (112 ) - - (1,936 )
Recoveries 1,735 15 - - 337 498 - - 2,585
Net loan recoveries (losses) 1,647 15 - - (1,399 ) 386 - - 649
Total allowance for loan losses $ 8,411 $ 3,599 $ 136 $ 1,408 $ 6,868 $ 1,031 $ 62 $ 4,844 $ 26,359

Allowance for Loan Losses
For the Three Months Ended March 31, 2017
Commercial Commercial
Real Estate Construction Residential
Real Estate Consumer
Installment
and Other Unallocated Total
(In thousands)
Allowance for loan losses:
Balance at beginning of period $ 8,327 $ 3,330 $ 152 $ 1,330 $ 7,980 $ 4,835 $ 25,954
Additions:
Provision (reversal) 209 182 (40 ) (116 ) 106 (341 ) -
Deductions:
Chargeoffs (103 ) - - - (1,739 ) - (1,842 )
Recoveries 160 10 - - 637 - 807
Net loan recoveries (losses) 57 10 - - (1,102 ) - (1,035 )
Total allowance for loan losses $ 8,593 $ 3,522 $ 112 $ 1,214 $ 6,984 $ 4,494 $ 24,919

Allowance for Loan Losses
For the Nine Months Ended September 30, 2016
Commercial Commercial
Real Estate Construction Residential
Real Estate Consumer
Installment
and Other Purchased
Non-covered
Loans Purchased
Covered
Loans Unallocated Total
(In thousands)
Allowance for loan losses:
Balance at beginning of period $ 9,559 $ 4,224 $ 177 $ 1,801 $ 7,080 $ 967 $ - $ 5,963 $ 29,771
Additions:
Provision (1,641 ) (670 ) (41 ) (393 ) 2,074 (1,472 ) 62 (1,119 ) (3,200 )
Deductions:
Chargeoffs (2,024 ) - - - (3,418 ) (150 ) - - (5,592 )
Recoveries 2,517 45 - - 1,132 1,686 - - 5,380
Net loan recoveries (losses) 493 45 - - (2,286 ) 1,536 - - (212 )
Total allowance for loan losses $ 8,411 $ 3,599 $ 136 $ 1,408 $ 6,868 $ 1,031 $ 62 $ 4,844 $ 26,359

	Allowance for Loan Losses For the Three Months Ended September 30, 2015																										Allowance for Loan Losses For the Three Months Ended March 31, 2016
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Consumer Installment and Other			Purchased Non-covered Loans			Purchased Covered Loans		Unallocated			Total			Commercial			Commercial Real Estate		Construction			Residential Real Estate			Consumer Installment and Other			Unallocated			Total
	(In thousands)																										(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	7,107		$	4,896		$	403		$	2,058		$	7,248		$	1,244		$	-	$	7,872		$	30,828		$	9,559		$	4,212	$	235		$	1,801		$	8,001		$	5,963		$	29,771
Additions:
Provision		1,246			(96	)		(205	)		(50	)		367			(15	)		65		(1,312	)		-
Provision (reversal)																												38			10		(48	)		(94	)		124			(30	)		-
Deductions:
Chargeoffs		(239	)		(449	)		-			-			(773	)		-			-		-			(1,461	)		(1,171	)		-		-			-			(1,006	)		-			(2,177	)
Recoveries		300			27			-			-			336			6			-		-			669			1,421			15		-			-			457			-			1,893
Net loan recoveries (losses)		61			(422	)		-			-			(437	)		6			-		-			(792	)		250			15		-			-			(549	)		-			(284	)
Total allowance for loan losses	$	8,414		$	4,378		$	198		$	2,008		$	7,178		$	1,235		$	65	$	6,560		$	30,036		$	9,847		$	4,237	$	187		$	1,707		$	7,576		$	5,933		$	29,487

Allowance for Loan Losses
For the Nine Months Ended September 30, 2015
Commercial Commercial
Real Estate Construction Residential
Real Estate Consumer
Installment
and Other Purchased
Non-covered
Loans Purchased
Covered
Loans Unallocated Total
(In thousands)
Allowance for loan losses:
Balance at beginning of period $ 5,460 $ 4,245 $ 644 $ 2,241 $ 7,717 $ 2,120 $ - $ 9,058 $ 31,485
Additions:
Provision 2,840 525 (446 ) (233 ) 436 (689 ) 65 (2,498 ) -
Deductions:
Chargeoffs (700 ) (449 ) - - (2,344 ) (431 ) - - (3,924 )
Recoveries 814 57 - - 1,369 235 - - 2,475
Net loan recoveries (losses) 114 (392 ) - - (975 ) (196 ) - - (1,449 )
Total allowance for loan losses $ 8,414 $ 4,378 $ 198 $ 2,008 $ 7,178 $ 1,235 $ 65 $ 6,560 $ 30,036

~~- 16 -~~

-15-

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

	Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment At September 30, 2016																			Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment At March 31, 2017
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non-covered Loans		Purchased Covered Loans			Unallocated		Total		Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Unallocated		Total
	(In thousands)																			(In thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	5,070	$	216	$	-	$	-	$	-	$	-	$	-		$	-	$	5,286	$	4,991	$	-	$	-	$	-	$	-	$	-	$	4,991
Collectively evaluated for impairment		3,341		3,383		136		1,408		6,868		1,031		62			4,844		21,073		3,602		3,522		112		1,214		6,984		4,494		19,928
Purchased loans with evidence of credit deterioration		-		-		-		-		-		-		-			-		-		-		-		-		-		-		-		-
Total	$	8,411	$	3,599	$	136	$	1,408	$	6,868	$	1,031	$	62		$	4,844	$	26,359	$	8,593	$	3,522	$	112	$	1,214	$	6,984	$	4,494	$	24,919
Carrying value of loans:
Individually evaluated for impairment	$	11,210	$	5,270	$	-	$	-	$	-	$	6,125	$	-		$	-	$	22,605	$	11,128	$	15,243	$	-	$	217	$	-	$	-	$	26,588
Collectively evaluated for impairment		320,219		475,680		2,282		91,934		335,629		103,189		11,555			-		1,340,488		343,345		549,838		1,880		79,264		349,303		-		1,323,630
Purchased loans with evidence of credit deterioration		-		-		-		-		-		1,046		190			-		1,236		27		523		-		-		322		-		872
Total	$	331,429	$	480,950	$	2,282	$	91,934	$	335,629	$	110,360	$	11,745	��	$	-	$	1,364,329	$	354,500	$	565,604	$	1,880	$	79,481	$	349,625	$	-	$	1,351,090

	Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment At December 31, 2015																		Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment At December 31, 2016
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non-covered Loans		Purchased Covered Loans		Unallocated		Total		Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Unallocated		Total
	(In thousands)																		(In thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	4,942	$	585	$	-	$	-	$	-	$	-	$	-	$	-	$	5,527	$	5,048	$	-	$	-	$	-	$	-	$	-	$	5,048
Collectively evaluated for impairment		4,617		3,639		177		1,801		7,080		967		-		5,963		24,244		3,279		3,330		152		1,330		7,980		4,835		20,906
Purchased loans with evidence of credit deterioration		-		-		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Total	$	9,559	$	4,224	$	177	$	1,801	$	7,080	$	967	$	-	$	5,963	$	29,771	$	8,327	$	3,330	$	152	$	1,330	$	7,980	$	4,835	$	25,954
Carrying value of loans:
Individually evaluated for impairment	$	12,587	$	5,541	$	-	$	-	$	-	$	11,777	$	-	$	-	$	29,905	$	11,174	$	12,706	$	-	$	835	$	-	$	-	$	24,715
Collectively evaluated for impairment		355,530		511,529		2,978		117,631		346,043		152,038		13,855		-		1,499,604		343,494		528,957		2,555		86,889		365,236		-		1,327,131
Purchased loans with evidence of credit deterioration		-		-		-		-		-		3,681		206		-		3,887		29		508		-		-		328		-		865
Total	$	368,117	$	517,070	$	2,978	$	117,631	$	346,043	$	167,496	$	14,061	$	-	$	1,533,396	$	354,697	$	542,171	$	2,555	$	87,724	$	365,564	$	-	$	1,352,711

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

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-16-

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

	Credit Risk Profile by Internally Assigned Grade At September 30, 2016																		Credit Risk Profile by Internally Assigned Grade At March 31, 2017
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non-covered Loans			Purchased Covered Loans⁽¹⁾		Total			Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total
	(In thousands)																		(In thousands)
Grade:
Pass	$	318,077	$	466,364	$	2,282	$	88,920	$	334,163	$	101,295		$	10,126	$	1,321,227		$	339,296	$	538,750	$	1,880	$	79,481	$	346,864	$	1,306,271
Substandard		13,352		14,586		-		3,014		1,000		13,983			1,619		47,554			15,204		25,558		-		-		2,447		43,209
Doubtful		-		-		-		-		26		-			-		26			-		1,296		-		-		-		1,296
Loss		-		-		-		-		440		4			-		444			-		-		-		-		314		314
Purchased loan discount		-		-		-		-		-		(4,922	)		-		(4,922	)
Total	$	331,429	$	480,950	$	2,282	$	91,934	$	335,629	$	110,360		$	11,745	$	1,364,329		$	354,500	$	565,604	$	1,880	$	79,481	$	349,625	$	1,351,090

⁽¹⁾

⁽¹⁾

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

~~- 17 -~~

	Credit Risk Profile by Internally Assigned Grade At December 31, 2015																			Credit Risk Profile by Internally Assigned Grade At December 31, 2016
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non-covered Loans			Purchased Covered Loans⁽¹⁾			Total			Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total
	(In thousands)																			(In thousands)
Grade:
Pass	$	353,474	$	496,744	$	2,978	$	114,525	$	344,876	$	149,100		$	12,563		$	1,474,260		$	340,973	$	515,045	$	2,555	$	84,384	$	362,597	$	1,305,554
Substandard		14,643		20,326		-		3,106		781		24,810			1,650			65,316			13,724		25,830		-		3,340		2,477		45,371
Doubtful		-		-		-		-		12		18			-			30			-		1,296		-		-		10		1,306
Loss		-		-		-		-		374		-			-			374			-		-		-		-		480		480
Purchased loan discount		-		-		-		-		-		(6,432	)		(152	)		(6,584	)
Total	$	368,117	$	517,070	$	2,978	$	117,631	$	346,043	$	167,496		$	14,061		$	1,533,396		$	354,697	$	542,171	$	2,555	$	87,724	$	365,564	$	1,352,711

⁽¹⁾

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

⁽¹⁾ Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification.

The following tables summarize loans by delinquency and nonaccrual status:

	Summary of Loans by Delinquency and Nonaccrual Status At September 30, 2016												Summary of Loans by Delinquency and Nonaccrual Status At March 31, 2017
	Current and Accruing		30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Past Due 90 Days or More and Accruing		Nonaccrual		Total Loans		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)												(In thousands)
Commercial	$	330,596	$	647	$	186	$	-	$	-	$	331,429	$	351,417	$	1,979	$	1,072	$	-	$	32	$	354,500
Commercial real estate		474,741		914		-		-		5,295		480,950		553,637		4,922		605		-		6,440		565,604
Construction		2,282		-		-		-		-		2,282		1,880		-		-		-		-		1,880
Residential real estate		90,713		908		-		-		313		91,934		78,182		1,299		-		-		-		79,481
Consumer installment and other		331,310		3,198		683		438		-		335,629		345,600		2,764		693		373		195		349,625
Total originated loans		1,229,642		5,667		869		438		5,608		1,242,224
Purchased non-covered loans		105,255		4,030		370		49		656		110,360
Purchased covered loans		11,716		-		-		-		29		11,745
Total	$	1,346,613	$	9,697	$	1,239	$	487	$	6,293	$	1,364,329	$	1,330,716	$	10,964	$	2,370	$	373	$	6,667	$	1,351,090

	Summary of Loans by Delinquency and Nonaccrual Status At December 31, 2015												Summary of Loans by Delinquency and Nonaccrual Status At December 31, 2016
	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		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)												(In thousands)
Commercial	$	365,450	$	1,777	$	122	$	-	$	768	$	368,117	$	353,497	$	966	$	40	$	-	$	194	$	354,697
Commercial real estate		504,970		5,930		726		-		5,444		517,070		533,377		1,460		445		-		6,889		542,171
Construction		2,978		-		-		-		-		2,978		2,329		226		-		-		-		2,555
Residential real estate		115,575		1,202		414		-		440		117,631		86,098		528		37		-		1,061		87,724
Consumer installment and other		341,566		3,263		919		295		-		346,043		360,549		3,288		989		497		241		365,564
Total originated loans		1,330,539		12,172		2,181		295		6,652		1,351,839
Purchased non-covered loans		158,554		589		7		-		8,346		167,496
Purchased covered loans		13,929		132		-		-		-		14,061
Total	$	1,503,022	$	12,893	$	2,188	$	295	$	14,998	$	1,533,396	$	1,335,850	$	6,468	$	1,511	$	497	$	8,385	$	1,352,711

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~~- 18 -~~

-17-

~~The following is a summary of the effect of nonaccrual loans on interest income:~~

For the Three Months Ended For the Nine Months Ended
September 30,
2016 2015 2016 2015
(In thousands)
Interest income that would have been recognized had the loans performed in accordance with their original terms $ 193 $ 315 $ 756 $ 969
Less: Interest income (recognized) reversed on nonaccrual loans (500 ) 17 (1,033 ) (308 )
Total (addition) reduction of interest income $ (307 ) $ 332 $ (277 ) $ 661

There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

The following summarizes impaired loans:

Impaired Loans
At September 30, 2016
Recorded
Investment Unpaid
Principal
Balance Related
Allowance
(In thousands)
Impaired loans with no related allowance recorded:
Commercial $ 1,058 $ 1,145 $ -
Commercial real estate 8,013 9,560 -
Construction - - -
Residential real estate 533 563 -
Consumer installment and other 611 718 -

Impaired loans with an allowance recorded:
Commercial 10,202 10,211 5,070
Commercial real estate 4,410 5,427 216
Construction - - -
Residential real estate - - -
Consumer installment and other - - -

Total:
Commercial $ 11,260 $ 11,356 $ 5,070
Commercial real estate 12,423 14,987 216
Construction - - -
Residential real estate 533 563 -
Consumer installment and other 611 718 -

Impaired Loans
At March 31, 2017
Recorded
Investment Unpaid
Principal
Balance Related
Allowance
(In thousands)
Impaired loans with no related allowance recorded:
Commercial $ 1,080 $ 1,148 $ -
Commercial real estate 15,766 17,788 -
Construction - - -
Residential real estate 217 247 -
Consumer installment and other 517 623 -

Impaired loans with an allowance recorded:
Commercial 10,106 10,115 4,991
Commercial real estate - - -
Construction - - -
Residential real estate - - -
Consumer installment and other - - -

Total:
Commercial $ 11,186 $ 11,263 $ 4,991
Commercial real estate 15,766 17,788 -
Construction - - -
Residential real estate 217 247 -
Consumer installment and other 517 623 -

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~~- 19 -~~

-18-

	Impaired Loans At December 31, 2015						Impaired Loans At December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)						(In thousands)
Impaired loans with no related allowance recorded:
Commercial	$	2,917	$	2,979	$	-	$	1,234	$	1,303	$	-
Commercial real estate		16,309		21,168		-		13,233		15,610		-
Construction		271		271		-		-		-		-
Residential real estate		666		697		-		1,279		1,309		-
Consumer installment and other		350		456		-		569		675		-

Impaired loans with an allowance recorded:
Commercial		10,170		10,170		4,942		10,163		10,172		5,048
Commercial real estate		4,660		5,109		585		-		-		-
Construction		-		-		-		-		-		-
Residential real estate		-		-		-		-		-		-
Consumer installment and other		-		-		-		-		-		-

Total:
Commercial	$	13,087	$	13,149	$	4,942	$	11,397	$	11,475	$	5,048
Commercial real estate		20,969		26,277		585		13,233		15,610		-
Construction		271		271		-		-		-		-
Residential real estate		666		697		-		1,279		1,309		-
Consumer installment and other		350		456		-		569		675		-

Impaired loans include troubled debt restructured loans. Impaired loans at ~~September 30, 2016,~~March 31, 2017, included $~~12,402~~$12,403 thousand of restructured loans, $~~5,307~~$5,172 thousand of which were on nonaccrual status. Impaired loans at December 31, ~~2015,~~2016, included ~~$15,712~~$12,381 thousand of restructured loans, ~~$7,464~~$5,302 thousand of which were on nonaccrual status.

	Impaired Loans
	For the Three Months Ended September 30,								For the Nine Months Ended September 30,								Impaired Loans For the Three Months Ended March 31,
	2016				2015				2016				2015				2017				2016
	Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income
	(In thousands)																(In thousands)
Commercial	$	12,858	$	126	$	12,750	$	147	$	13,454	$	394	$	12,513	$	440	$	11,292	$	118	$	13,410	$	133
Commercial real estate		14,486		188		21,923		142		17,991		549		19,985		546		14,500		237		20,849		159
Construction		-		-		-		-		136		-		306		-		-		-		271		-
Residential real estate		530		4		403		9		693		13		652		23		748		4		810		4
Consumer installment and other		545		6		516		6		435		18		856		19		543		7		347		6
Total	$	28,419	$	324	$	35,592	$	304	$	32,709	$	974	$	34,312	$	1,028	$	27,083	$	366	$	35,687	$	302

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-19-

The following table provides information on troubled debt restructurings:

Troubled Debt Restructurings
At September 30, 2016
Number of
Contracts Pre-Modification
Carrying Value Period-End
Carrying Value Period-End
Individual
Impairment
Allowance
($ in thousands)
Commercial 7 $ 2,719 $ 1,519 $ 169
Commercial real estate 10 11,257 10,663 216
Residential real estate 1 241 220 -
Total 18 $ 14,217 $ 12,402 $ 385

~~- 20 -~~

Troubled Debt Restructurings
At March 31, 2017
Number of
Contracts Pre-Modification
Carrying Value Period-End
Carrying Value Period-End
Individual
Impairment
Allowance
($ in thousands)
Commercial 8 $ 2,768 $ 1,468 $ 107
Commercial real estate 11 11,576 10,718 -
Residential real estate 1 241 217 -
Total 20 $ 14,585 $ 12,403 $ 107

	Troubled Debt Restructurings At December 31, 2015								Troubled Debt Restructurings At December 31, 2016
	Number of Contracts		Pre-Modification Carrying Value		Period-End Carrying Value		Period-End Individual Impairment Allowance		Number of Contracts		Pre-Modification Carrying Value		Period-End Carrying Value		Period-End Individual Impairment Allowance
	($ in thousands)								($ in thousands)
Commercial		6	$	3,138	$	2,802	$	194		7	$	2,719	$	1,489	$	113
Commercial real estate		10		12,927		12,684		-		10		11,257		10,673		-
Residential real estate		1		242		226		-		1		241		219		-
Total		17	$	16,307	$	15,712	$	194		18	$	14,217	$	12,381	$	113

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017, the Company modified two loans with a carrying value of $273 thousand that were considered troubled debt restructurings. The two concessions granted in the first quarter 2017 consisted of modifications of payment terms to extend the maturity date to allow for deferred principal repayment and under-market terms. During the three months ended March 31, 2016, the Company modified~~zero~~ ~~loans andfour~~ three loans with a ~~total~~ carrying value of $~~4,843~~$4,757 thousand ~~respectively,~~ that were considered troubled debt restructurings. The concessions granted in the~~four~~ ~~restructurings completed in the~~ first ~~nine months of~~quarter 2016 consisted of~~three~~ two modifications of payment terms to extend the maturity date to allow for deferred principal repayment and under-market terms andone court order requiring under-market terms.

There were no chargeoffs related to troubled debt restructurings made during the three months ended March 31, 2017 and March 31, 2016. During the three ~~and nine~~ months ended ~~September 30, 2015, the Company modified one loan with a carrying value of $6,330 thousand~~March 31, 2017 and seven loans with an aggregate carrying value of $8,150 thousand, respectively, that were considered troubled debt restructurings. The concessions granted in the seven restructurings completed in the first nine months of 2015 consisted of modification of payment terms to extend the maturity date to allow for deferred principal repayment, under-market terms and court order.

~~During the three and nine months ended September 30,~~ 2016, ~~and 2015,~~ no troubled debt restructured loans defaulted within 12 months of the modification date. A troubled debt restructuring is considered to be in default when payments are 90ninety days or more past due.

There were no loans restricted due to collateral requirements at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

There were no loans held for sale at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

At ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, the Company held total other real estate owned (OREO) of $~~3,032~~$2,136 thousand net of reserve of $~~2,238~~$1,685 thousand and ~~$9,264~~$3,095 thousand net of reserve of ~~$1,986~~$1,816 thousand, respectively, of which $~~-0-~~$-0- thousand was foreclosed residential real estate properties or covered OREO at both dates. The amount of consumer mortgage loans outstanding secured by residential real estate properties for which formal foreclosure proceedings were in process was $~~-0-~~ ~~thousand at September 30, 2016 and~~ $-0- thousand at March 31, 2017 and December 31, ~~2015.~~

2016.

Note 5: Concentration of Credit Risk

Under the California Financial Code, credit extended to any one person owing to a commercial bank at any one time shall not exceed the following limitations: (a) unsecured loans shall not exceed 15 percent of the sum of the shareholders' equity, allowance for loan losses, capital notes, and debentures of the bank, or (b) secured and unsecured loans in all shall not exceed 25 percent of the sum of the shareholders' equity, allowance for loan losses, capital notes, and debentures of the bank. At ~~September 30, 2016,~~March 31, 2017, Westamerica Bank did not have credit extended to any one entity exceeding these limits. At ~~September 30, 2016,~~March 31, 2017, Westamerica Bank had32 39 lending relationships each with aggregate loans exceeding $5 million. 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 $~~58,148~~$60,831 thousand and ~~$61,190~~$57,721 thousand at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, 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 ~~September 30, 2016,~~March 31, 2017, Westamerica Bank held corporate bonds in51 50 issuing entities ~~which~~that exceeded $5 million offor each issuer.

~~- 21 -~~

-20-

Note 6: Other Assets

Other assets consisted of the following:

At March 31, 2017 At December 31, 2016
(In thousands)
Cost method equity investments:
Federal Reserve Bank stock ⁽¹⁾ $ 14,045 $ 14,069
Other investments 201 201
Total cost method equity investments 14,246 14,270
Life insurance cash surrender value 52,177 51,535
Net deferred tax asset 53,518 55,417
Limited partnership investments 12,141 12,591
Interest receivable 19,745 21,489
Prepaid assets 4,997 4,825
Other assets 8,453 11,597
Total other assets $ 165,277 $ 171,724

At September 30,
2016 At December 31,
2015
(In thousands)
Cost method equity investments:
Federal Reserve Bank stock⁽¹⁾ $ 14,069 $ 14,069
Other investments 201 201
Total cost method equity investments 14,270 14,270
Life insurance cash surrender value 50,883 48,972
Net deferred tax asset 42,505 51,748
Limited partnership investments 13,188 15,259
Interest receivable 19,699 20,174
Prepaid assets 4,112 4,771
Other assets 9,804 10,660
Total other assets $ 154,461 $ 165,854

⁽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.

⁽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.

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 ~~September 30, 2016,~~March 31, 2017, this investment totaled $~~13,188~~$12,141 thousand and $~~2,299~~$2,299 thousand of this amount represents outstanding equity capital commitments that are included in other liabilities. At December 31, ~~2015,~~2016, this investment totaled ~~$15,259~~$12,591 thousand and $2,299 thousand of this amount ~~represents~~represented outstanding equity capital commitments. At ~~September 30, 2016,~~March 31, 2017, the $~~2,299~~$2,299 thousand of outstanding equity capital commitments are expected to be paid as follows, $~~453~~$722 thousand in ~~2016, $763~~2020, $131 thousand in ~~2017, and $1,083~~2023, $90 thousand in ~~2018~~2024 and $1,356 thousand in 2025 or thereafter.

The amounts recognized in net income for these investments include:

	For the Three Months Ended				For the Nine Months Ended
	September 30,								For the Three Months Ended March 31,
	2016		2015		2016		2015		2017		2016
	(In thousands)								(In thousands)
Investment loss included in pre-tax income	$	675	$	750	$	2,025	$	2,175	$	450	$	675
Tax credits recognized in provision for income taxes		562		663		1,723		1,988		463		598

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~~- 22 -~~

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 ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and year ended December 31, ~~2015.~~2016. 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. During the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and year ended December 31, ~~2015,~~2016, no such adjustments were recorded.

-21-

The carrying values of goodwill were:

At September 30,
2016 At December 31,
2015
(In thousands)
Goodwill $ 121,673 $ 121,673

At March 31, 2017 At December 31, 2016
(In thousands)
Goodwill $ 121,673 $ 121,673

The gross carrying amount of identifiable intangible assets and accumulated amortization was:

At September 30, 2016 At December 31, 2015
Gross
Carrying
Amount Accumulated
Amortization Gross
Carrying
Amount Accumulated
Amortization
(In thousands)
Core Deposit Intangibles $ 56,808 $ (49,263 ) $ 56,808 $ (46,782 )
Merchant Draft Processing Intangible 10,300 (10,056 ) 10,300 (9,895 )
Total Identifiable Intangible Assets $ 67,108 $ (59,319 ) $ 67,108 $ (56,677 )

At March 31, 2017 At December 31, 2016
Gross
Carrying
Amount Accumulated
Amortization Gross
Carrying
Amount Accumulated
Amortization
(In thousands)
Core Deposit Intangibles $ 56,808 $ (50,827 ) $ 56,808 $ (50,074 )
Merchant Draft Processing Intangible 10,300 (10,154 ) 10,300 (10,107 )
Total Identifiable Intangible Assets $ 67,108 $ (60,981 ) $ 67,108 $ (60,181 )

As of ~~September 30, 2016,~~March 31, 2017, the current period and estimated future amortization expense for identifiable intangible assets was:

Core
Deposit
Intangibles Merchant
Draft
Processing
Intangible Total
(In thousands)
For the Nine Months ended September 30, 2016 (actual) $ 2,481 $ 161 $ 2,642
Estimate for the remainder of year ended December 31, 2016 811 51 862
Estimate for year ended December 31, 2017 2,913 164 3,077
2018 1,892 29 1,921
2019 538 - 538
2020 287 - 287
2021 269 - 269

Core
Deposit
Intangibles Merchant
Draft
Processing
Intangible Total
(In thousands)
For the Three Months ended March 31, 2017 (actual) $ 753 $ 47 $ 800
Estimate for the remainder of year ending December 31, 2017 2,160 117 2,277
Estimate for year ending December 31, 2018 1,892 29 1,921
2019 538 - 538
2020 287 - 287
2021 269 - 269
2022 252 - 252

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~~- 23 -~~

Note 8: Deposits and Borrowed Funds

The following table provides additional detail regarding deposits.

	Deposits				Deposits
	At September 30, 2016		At December 31, 2015		At March 31, 2017		At December 31, 2016
	(In thousands)				(In thousands)
Noninterest-bearing	$	2,064,988	$	2,026,049	$	2,046,390	$	2,089,443
Interest-bearing:
Transaction		851,885		860,706		905,588		865,701
Savings		1,462,860		1,366,936		1,494,854		1,493,427
Time deposits less than $100 thousand		138,655		150,780		129,889		133,712
Time deposits $100 thousand through $250 thousand		88,666		96,971		83,636		84,925
Time deposits more than $250 thousand		37,816		39,217		37,616		37,533
Total deposits	$	4,644,870	$	4,540,659	$	4,697,973	$	4,704,741

Demand deposit overdrafts of $~~2,880~~$806 thousand and ~~$3,038~~$2,679 thousand were included as loan balances at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively. Interest expense for aggregate time deposits with individual account balances in excess of $100 thousand was $~~124~~$106 thousand in the first quarter 2017 and $~~395~~$137 thousand ~~for~~in the ~~three months and nine months ended September 30, 2016, respectively and $164 thousand and $543 thousand for the three months and nine months ended September 30, 2015, respectively.~~first quarter 2016.

-22-

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 September 30, 2016 At December 31, 2015
Repurchase agreements: (In thousands)
Collateral securing borrowings:
Securities of U.S. Government sponsored entities $ 86,034 $ 98,969
Agency residential MBS 20,742 -
Obligations of states and political subdivisions 1,015 3,975
Corporate securities 91,160 54,681
Total collateral carrying value $ 198,951 $ 157,625
Total short-term borrowed funds $ 56,358 $ 53,028

~~The Company had a $35,000 thousand unsecured line of credit which expired March 18, 2016. There was no outstanding balance at December 31, 2015.~~

Repurchase Agreements (Sweep)
Accounted for as Secured Borrowings
Remaining Contractual Maturity of the Agreements
Overnight and Continuous
At March 31, 2017 At December 31, 2016
Repurchase agreements: (In thousands)
Collateral securing borrowings:
Securities of U.S. Government sponsored entities $ 74,205 $ 74,031
Agency residential MBS 62,217 63,277
Corporate securities 90,598 90,554
Total collateral carrying value $ 227,020 $ 227,862
Total short-term borrowed funds $ 73,611 $ 59,078

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. Available for sale investment securities 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, impaired loans, certain loans held for investment, investment 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 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.

~~- 24 -~~

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 federal agency securities, mortgage-backed securities, corporate securities, asset-backed securities, and municipal bonds.

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 investment securities available for sale and investment 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 closely affecting the market generally used as the fair value estimate. In addition, the Company conducts “other than temporary impairment (OTTI)” analysis on a quarterly basis; securities selected for OTTI analysis include all securities at a market price below 95 percent of par ~~value or with a market to book ratio below 95:100.~~value. 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.

-23-

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. When the Company changes its valuation assumptions for measuring financial assets and financial liabilities at fair value, either due to changes in current market conditions or other factors, or reevaluates the valuation techniques and assumptions used by its vendors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new information. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the ~~nine months ended September 30, 2016, and~~ three months ended March 31, ~~2015,~~2017 and year ended December 31, 2016, there were no transfers in or out of levels 1, 2 or 3. During the three months ended June 30, 2015, the Company reevaluated the valuation techniques and assumptions used by its vendors in valuing the Company’s available for sale securities, and based on the evaluation, transferred $437,715 thousand out of level 1 and transferred $437,715 thousand into level 2. There were no transfers into level 1 or into or out of level 3 during this same period. Subsequent to June 30, 2015 and through the year ended December 31, 2015, there were no transfers into or out of levels 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 September 30, 2016
Fair Value Quoted Prices in Active Markets for Identical Assets
(Level 1) Significant Other Observable Inputs
(Level 2 ) Significant Unobservable Inputs
(Level 3 )
(In thousands)
Securities of U.S. Government sponsored entities $ 171,846 $ - $ 171,846 $ -
Agency residential MBS 499,689 - 499,689 -
Non-agency residential MBS 302 - 302 -
Non-agency commercial MBS 2,118 - 2,118 -
Obligations of states and political subdivisions 185,494 - 185,494 -
Asset-backed securities 1,000 - 1,000 -
FHLMC and FNMA stock 4,256 7 4,249 -
Corporate securities 895,232 - 895,232 -
Other securities 2,471 611 1,860 -
Total securities available for sale $ 1,762,408 $ 618 $ 1,761,790 $ -

	At December 31, 2015								At March 31, 2017
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2 )		Significant Unobservable Inputs (Level 3 )		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)								(In thousands)
Securities of U.S. Government sponsored entities	$	301,882	$	-	$	301,882	$	-	$	138,937	$	-	$	138,937	$	-
Agency residential MBS		202,544		-		202,544		-		722,204		-		722,204		-
Non-agency residential MBS		370		-		370		-		196		-		196		-
Non-agency commercial MBS		2,379		-		2,379		-		1,939		-		1,939		-
Obligations of states and political subdivisions		157,509		-		157,509		-		178,871		-		178,871		-
Asset-backed securities		2,003		-		2,003		-		355		-		355		-
FHLMC and FNMA stock		4,329		7		4,322		-		9,400		12		9,388		-
Corporate securities		896,369		-		896,369		-		839,136		-		839,136		-
Other securities		2,831		991		1,840		-		2,271		461		1,810		-
Total securities available for sale	$	1,570,216	$	998	$	1,569,218	$	-	$	1,893,309	$	473	$	1,892,836	$	-

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At December 31, 2016
Fair Value Quoted Prices in Active Markets for Identical Assets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3)
(In thousands)
Securities of U.S. Government sponsored entities $ 138,660 $ - $ 138,660 $ -
Agency residential MBS 691,499 - 691,499 -
Non-agency residential MBS 271 - 271 -
Non-agency commercial MBS 2,025 - 2,025 -
Obligations of states and political subdivisions 183,411 - 183,411 -
Asset-backed securities 695 - 695 -
FHLMC and FNMA stock 10,869 17 10,852 -
Corporate securities 860,857 - 860,857 -
Other securities 2,471 656 1,815 -
Total securities available for sale $ 1,890,758 $ 673 $ 1,890,085 $ -

~~- 26 -~~

-24-

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 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 ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, the following table provides 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 September 30, 2016								For the Nine Months Ended September 30, 2016			At March 31, 2017								March 31, 2017
	Carrying Value		Level 1		Level 2		Level 3		Total Losses			Carrying Value		Level 1		Level 2		Level 3		Total Losses
	(In thousands)											(In thousands)
Other real estate owned	$	3,032	$	-	$	-	$	3,032	$	(705	)	$	2,136	$	-	$	-	$	2,136	$	-
Impaired loans		9,326		-		-		9,326		-			9,400		-		-		9,400		-
Total assets measured at fair value on a nonrecurring basis	$	12,358	$	-	$	-	$	12,358	$	(705	)	$	11,536	$	-	$	-	$	11,536	$	-

																				For the Year Ended
	At December 31, 2015								For the Year Ended December 31, 2015			At December 31, 2016								December 31, 2016
	Carrying Value		Level 1		Level 2		Level 3		Total Losses			Carrying Value		Level 1		Level 2		Level 3		Total Losses
	(In thousands)											(In thousands)
Other real estate owned	$	9,264	$	-	$	-	$	9,264	$	(320	)	$	3,095	$	-	$	-	$	3,095	$	(705	)
Impaired loans		15,633		-		-		15,633		(449	)		9,525		-		-		9,525		-
Total assets measured at fair value on a nonrecurring basis	$	24,897	$	-	$	-	$	24,897	$	(769	)	$	12,620	$	-	$	-	$	12,620	$	(705	)

Level 3 – Valuation is based upon present value of expected future cash flows, independent market prices, estimated liquidation values of loan collateral or appraised value of the collateral as determined by third-party independent appraisers, less 10% for selling costs, generally. Level 3 includes other real estate owned that has been measured at fair value upon transfer to foreclosed assets and impaired loans collateralized by real property and other business asset collateral where a specific reserve has been established or a chargeoff has been recorded. Losses on other real estate owned represent losses recognized in earnings during the period subsequent to its initial classification as foreclosed assets. The unobservable inputs and qualitative information about the unobservable inputs are not presented due to the unavailability from third party evaluators.

Disclosures about Fair Value of Financial Instruments

The following section describes the valuation methodologies used by the Company for estimating fair value of financial instruments not recorded at fair value in the balance sheet.

Cash and Due from Banks Cash and due from banks represent U.S. dollar denominated coin and currency, deposits at the Federal Reserve Bank and correspondent banks, and amounts being settled with other banks to complete the processing of customers’ daily transactions. Collectively, the Federal Reserve Bank and financial institutions operate in a market in which cash and due from banks transactions are processed continuously in significant daily volumes honoring the face value of the U.S. dollar.

Investment Securities Held to Maturity The fair values of investment securities were estimated using quoted prices as described above for Level 2 valuation.

Loans Loans were separated into two groups for valuation. Variable rate loans, except for those described below, which reprice frequently with changes in market rates were valued using historical cost. Fixed rate loans and variable rate loans that have reached their minimum contractual interest rates were valued by discounting the future cash flows expected to be received from the loans using current interest rates charged on loans with similar characteristics. Additionally, the allowance for loan losses of $~~26,359~~$24,919 thousand at ~~September 30, 2016~~March 31, 2017 and ~~$29,771~~$25,954 thousand at December 31, ~~2015 and the purchased loan discount associated with purchased covered and purchased non-covered loans of $-0- thousand and $4,922~~ ~~thousand, respectively at September 30,~~ 2016 ~~and $152 thousand and $6,432 thousand, respectively at December 31, 2015 were~~was applied against the estimated fair values to recognize estimated future defaults of contractual cash flows. The Company does not consider these values to be a liquidation price for the loans.

~~- 27 -~~

-25-

Deposit Liabilities Deposits with no stated maturity such as checking accounts, savings accounts and money market accounts can be readily converted to cash or used to settle transactions at face value through the broad financial system operated by the Federal Reserve Bank and financial institutions. The fair value of deposits with no stated maturity is equal to the amount payable on demand. The fair values of time deposits were estimated by discounting estimated future contractual cash flows using current market rates for financial instruments with similar characteristics.

Short-Term Borrowed Funds The carrying amount of securities sold under agreement to repurchase and other short-term borrowed funds approximate fair value due to the relatively short period of time between their origination and their expected realization.

The table below is 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 table 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 September 30, 2016										At March 31, 2017
	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)		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)										(In thousands)
Cash and due from banks	$	471,367	$	471,367	$	471,367	$	-	$	-	$	546,815	$	546,815	$	546,815	$	-	$	-
Investment securities held to maturity		1,411,019		1,440,119		-		1,440,119		-		1,298,414		1,296,738		-		1,296,738		-
Loans		1,337,970		1,358,225		-		-		1,358,225		1,326,171		1,332,148		-		-		1,332,148

Financial Liabilities:
Deposits	$	4,644,870	$	4,643,754	$	-	$	4,379,733	$	264,021	$	4,697,973		4,695,676	$	-	$	4,446,832		248,844
Short-term borrowed funds		56,358		56,358		-		56,358		-		73,611		73,611		-		73,611		-

	At December 31, 2015										At December 31, 2016
	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)		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)										(In thousands)
Cash and due from banks	$	433,044	$	433,044	$	433,044	$	-	$	-	$	462,271	$	462,271	$	462,271	$	-	$	-
Investment securities held to maturity		1,316,075		1,325,699		-		1,325,699		-		1,346,312		1,340,741		-		1,340,741		-
Loans		1,503,625		1,517,394		-		-		1,517,394		1,326,757		1,337,774		-		-		1,337,774

Financial Liabilities:
Deposits	$	4,540,659	$	4,539,455	$	-	$	4,253,691	$	285,764	$	4,704,741	$	4,702,797	$	-	$	4,448,571	$	254,226
Short-term borrowed funds		53,028		53,028		-		53,028		-		59,078		59,078		-		59,078		-

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.

-26-

~~- 28 -~~

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. 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 $~~312,592~~$305,544 thousand and ~~$299,884~~$304,508 thousand at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively. 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 $~~21,131~~$19,762 thousand and ~~$26,149~~$21,732 thousand at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively. The Company also had commitments for commercial and similar letters of credit of $~~-0-~~$-0- thousand at ~~September 30, 2016 and $40 thousand at December~~March 31, ~~2015. At September 30, 2016~~2017 and December 31, ~~2015, the~~2016. The Company had a reserve for unfunded commitments of $~~2,593~~$2,308 thousand at March 31, 2017 and $2,408 thousand at December 31, 2016, 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 iscan be reasonably ~~estimable.~~

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				For the Nine Months				For the Three Months Ended March 31,
	Ended September 30,								2017		2016
	2016		2015		2016		2015		(In thousands, except per share data)
	(In thousands, except per share data)
Net income applicable to common equity (numerator)	$	15,628	$	14,857	$	44,400	$	44,175
Net income (numerator)									$	15,049	$	14,226
Basic earnings per common share
Weighted average number of common shares outstanding - basic (denominator)		25,641		25,530		25,558		25,565		26,171		25,445
Basic earnings per common share	$	0.61	$	0.58	$	1.74	$	1.73	$	0.58	$	0.56
Diluted earnings per common share
Weighted average number of common shares outstanding - basic		25,641		25,530		25,558		25,565		26,171		25,445
Add common stock equivalents for options		46		35		37		20		158		23
Weighted average number of common shares outstanding - diluted (denominator)		25,687		25,565		25,595		25,585		26,329		25,468
Diluted earnings per common share	$	0.61	$	0.58	$	1.73	$	1.73	$	0.57	$	0.56

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016, options to purchase~~771~~ 299 thousand and~~948~~ 1,297 thousand shares of common stock, respectively, were outstanding but not included in the computation of diluted net income 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.

For the three and nine months ended September 30, 2015, options to purchase 1,043 thousand and 1,396 thousand shares of common stock, respectively, were outstanding but not included in the computation of diluted net income 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.

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~~- 29 -~~

-27-

~~WESTAMERICA BANCORPORATION~~

~~FINANCIAL SUMMARY~~

For the Three Months For the Nine Months
Ended September 30,
2016 2015 2016 2015
(In thousands, except per share data)
Net Interest and Fee Income (FTE)⁽¹⁾ $ 36,176 $ 37,179 $ 109,118 $ 111,524
Reversal of Provision for Loan Losses (3,200 ) - (3,200 ) -
Noninterest Income 11,598 11,993 35,029 36,562
Noninterest Expense 26,088 26,173 77,175 79,796
Income Before Income Taxes (FTE)⁽¹⁾ 24,886 22,999 70,172 68,290
Income Tax Provision (FTE)⁽¹⁾ 9,258 8,142 25,772 24,115
Net Income $ 15,628 $ 14,857 $ 44,400 $ 44,175

Average Common Shares Outstanding 25,641 25,530 25,558 25,565
Average Diluted Common Shares Outstanding 25,687 25,565 25,595 25,585
Common Shares Outstanding at Period End 25,665 25,530

Per Common Share:
Basic Earnings $ 0.61 $ 0.58 $ 1.74 $ 1.73
Diluted Earnings 0.61 0.58 1.73 1.73
Book Value $ 21.94 $ 20.91

Financial Ratios:
Return on Assets 1.18 % 1.16 % 1.14 % 1.17 %
Return on Common Equity 11.39 % 11.33 % 11.04 % 11.42 %
Net Interest Margin (FTE)⁽¹⁾ 3.21 % 3.31 % 3.27 % 3.37 %
Net Loan (Recoveries) Losses to Average Loans (0.19 %) 0.20 % 0.02 % 0.12 %
Efficiency Ratio⁽²⁾ 54.6 % 53.2 % 53.5 % 53.9 %

Average Balances:
Assets $ 5,253,502 $ 5,062,334 $ 5,204,418 $ 5,055,421
Earning Assets 4,489,317 4,471,690 4,448,261 4,417,114
Loans 1,386,186 1,591,798 1,447,061 1,643,438
Deposits 4,588,762 4,414,711 4,552,819 4,404,379
Shareholders' Equity 545,771 520,261 537,010 517,054

Period End Balances:
Assets $ 5,306,778 $ 5,001,395
Earning Assets 4,537,756 4,422,367
Loans 1,364,329 1,571,843
Deposits 4,644,870 4,366,920
Shareholders' Equity 562,996 533,938

Capital Ratios at Period End:
Total Risk Based Capital 15.16 % 13.39 %
Tangible Equity to Tangible Assets 8.37 % 8.23 %

Dividends Paid Per Common Share $ 0.39 $ 0.38 $ 1.17 $ 1.14
Common Dividend Payout Ratio 64 % 66 % 68 % 66 %

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 a "fully taxable equivalent" ("FTE") basis, which is a non-GAAPfinancial measure, 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, which is anon-GAAP financial measure, and noninterest income).~~

~~- 30 -~~

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, March 31, December 31,
2017 2016 2016
(In thousands, except per share data)
Net Interest and Fee Income (FTE)⁽¹⁾ $ 36,030 $ 36,447 $ 35,959
Provision for Loan Losses - - -
Noninterest Income 11,657 11,729 11,545
Noninterest Expense 24,615 25,858 24,577
Income Before Income Taxes (FTE)⁽¹⁾ 23,072 22,318 22,927
Provision for Income Taxes (FTE)⁽¹⁾ 8,023 8,092 8,474
Net Income $ 15,049 $ 14,226 $ 14,453

Average Common Shares Outstanding 26,171 25,445 25,773
Average Diluted Common Shares Outstanding 26,329 25,468 25,925
Common Shares Outstanding at Period End 26,283 25,438 25,907

Per Common Share:
Basic Earnings $ 0.58 $ 0.56 $ 0.56
Diluted Earnings 0.57 0.56 0.56
Book Value Per Common Share $ 22.25 $ 21.19 $ 21.67

Financial Ratios:
Return On Assets 1.13 % 1.11 % 1.07 %
Return On Common Equity 10.48 % 10.85 % 10.30 %
Net Interest Margin (FTE)⁽¹⁾ 3.14 % 3.34 % 3.15 %
Net Loan Losses to Average Loans 0.31 % 0.08 % 0.12 %
Efficiency Ratio⁽²⁾ 51.6 % 53.7 % 51.7 %

Average Balances:
Assets $ 5,395,783 $ 5,174,804 $ 5,370,412
Earning Assets 4,620,001 4,381,423 4,561,619
Loans 1,355,250 1,500,616 1,356,350
Deposits 4,692,746 4,537,548 4,702,129
Shareholders' Equity 582,384 527,177 558,057

Period End Balances:
Assets $ 5,395,947 $ 5,199,868 $ 5,366,083
Earning Assets 4,542,813 4,417,305 4,589,781
Loans 1,351,090 1,473,196 1,352,711
Deposits 4,697,973 4,516,750 4,704,741
Shareholders' Equity 584,888 538,973 561,367

Capital Ratios at Period End:
Total Risk Based Capital 16.91 % 13.51 % 15.95 %
Tangible Equity to Tangible Assets 8.68 % 8.04 % 8.26 %

Dividends Paid Per Common Share $ 0.39 $ 0.39 $ 0.39
Common Dividend Payout Ratio 68 % 70 % 70 %
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).
-28-
Financial Overview
Westamerica Bancorporation and subsidiaries’ (the ~~“Company”~~Company”) principal source of revenue is net interest and loan fee income, which represents interest and fees earned on loans and investment securities (“~~interest-earning~~earning assets”) reduced by interest paid on deposits and other borrowings (“interest-bearing liabilities”). ~~The relatively low level of market~~Market interest rates ~~reduced~~declined considerably following the ~~spread between interest~~recession of 2008 and 2009. Interest rates ~~on earning assets and interest bearing liabilities. The Company’s net interest margin and net interest income declined~~remained historically low through 2016 as ~~market interest rates on newly originated loans remain below~~ the ~~yields earned on older-dated loans and on the overall loan portfolio. The Company’s loan portfolio has declined from the third quarter 2015 through the third quarter 2016;~~Federal Open Market Committee’s (“FOMC”) monetary policy was highly accommodative. During this period, Management ~~has been avoiding~~avoided originating long-dated, low-yielding loans given ~~historically low interest rates. Management has also maintained, in their opinion, conservative loan underwriting, terms~~the potential impact of such assets on forward earning potential; as a result, loans declined and ~~conditions. During this period, the investment portfolio has grown. The Company has been reducing its exposure to rising interest rates by purchasing shorter-duration~~ investment securities ~~which have lower yields than longer-duration securities.~~increased. The changing composition of ~~interest~~the earning assets and low market interest rates has pressured the net interest margin onto lower levels. The FOMC’s first post-recession increase in the federal funds rate occurred in December 2015, although longer-term rates declined. The FOMC’s second and third post-recession increases in the federal funds rate occurred in December 2016 and March 2017, and longer-term rates increased as well. The recent increase in rates has resulted in competitive loan yields, which are more appealing from a ~~fully taxable equivalent (“FTE”) basis. In~~profitability perspective, in Management’s opinion. Total average loan volumes were stable during the ~~third~~first quarter ~~2016~~2017.
The funding of the Company’s ~~average~~earning assets is primarily customer deposits. The Company’s long-term strategy includes maximizing checking and savings deposits ~~were~~5 ~~percent higher than~~as these types of deposits are lower-cost and less sensitive to changes in ~~the third quarter 2015. These lower-costing deposit products, which earn relatively low~~ interest rates compared to time deposits. The first quarter 2017 average volume of checking and ~~are less volatile than time~~savings deposits ~~during periods of rising market interest rates, represented 94~~was 95 percent of average total ~~deposits~~deposits.
Credit quality improved during the ~~third~~first quarter ~~2016. Credit quality improved~~2017 with nonperforming assets declining $3 million to $~~9.8~~$9 million at ~~September 30, 2016 from $26.2~~ million at September 30, 2015; the resolution of these problem loans contributed to net recoveries of prior loan losses of $649 thousand during the third quarter 2016. Reflecting Management's evaluation of losses inherent in the loan portfolio, including improvements in most credit metrics during the third quarter, theMarch 31, 2017. The Company ~~recorded~~did not recognize a ~~reversal of the~~ provision for loan losses in the first quarter 2017.
The Company’s long-term strategy also includes controlling operating costs, or “noninterest expense.” Noninterest expense of ~~$3.2~~$24.6 million for the ~~third~~first quarter 2017 was $1.3 million lower than the comparable first quarter 2016. ~~Management is focused on controlling all noninterest expense levels, particularly due to market interest rate pressure on net interest income.~~

The Company presents its net interest margin and net interest income on a FTE basis using the current statutory federal tax ~~rate, which is a non-generally accepted accounting principles (GAAP) financial measure.~~rate. Management believes the FTE basis is valuable to the reader because the Company’s loan and investment securities portfolios contain a relatively large portion of 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 a FTE basis.

The Company’s significant accounting policies ~~are presented in~~(see Note 1 (“Summary of Significant Accounting Policies”) to ~~the audited consolidated financial statements included~~Financial Statements in the Company’s ~~Annual Report on~~2016 Form ~~10-K for the year ended December 31, 2015, and~~10-K) are fundamental to understanding the Company’s results of operations and financial condition. ~~There have been no changes~~The Company adopted the FASB ASU 2016-09,Improvements to ~~the Company’s significant accounting policies during the first nine months of 2016.~~Employee Share-Based Payment Accounting effective January 1, 2017.

The Company reported first quarter 2017 net income of $~~15.6~~$15.0 million or $~~0.61~~$0.57 diluted earnings per common share. First quarter 2017 results reflect the Company’s prospective adoption of ASU 2016-09; first quarter 2017 diluted earnings per common share measured $0.02 higher than would have been measured under accounting standards applied in 2016. First quarter 2017 results compare to net income of $14.2 million or $0.56 diluted earnings per common share for the ~~third~~first quarter 2016 and ~~net income of $44.4~~$14.5 million or $~~1.73~~$0.56 diluted earnings per common share for the ~~nine months ended September 30,~~fourth quarter 2016. ~~These results compare to net income of $14.9~~ ~~million or $0.58~~ ~~diluted earnings per common share for the third quarter 2015 and net income of $44.2~~ ~~million or $1.73~~ ~~diluted earnings per common share for the nine months ended September 30, 2015.~~

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~~- 31 -~~ -29-
Net Income

Following is a summary of the components of net income for the periods indicated:
For the Three Months For the Nine Months
Ended September 30,
2016 2015 2016 2015
(In thousands, except per share data)
Net interest and fee income (FTE) $ 36,176 $ 37,179 $ 109,118 $ 111,524
Reversal of provision for loan losses 3,200 - 3,200 -
Noninterest income 11,598 11,993 35,029 36,562
Noninterest expense (26,088 ) (26,173 ) (77,175 ) (79,796 )
Income  before taxes (FTE) 24,886 22,999 70,172 68,290
Income tax provision (FTE) (9,258 ) (8,142 ) (25,772 ) (24,115 )
Net income $ 15,628 $ 14,857 $ 44,400 $ 44,175

Average diluted common shares 25,687 25,565 25,595 25,585
Diluted earnings per common share $ 0.61 $ 0.58 $ 1.73 $ 1.73

Average total assets $ 5,253,502 $ 5,062,334 $ 5,204,418 $ 5,055,421
Net income to average total assets (annualized) 1.18 % 1.16 % 1.14 % 1.17 %
Net income to average common shareholders' equity (annualized) 11.39 % 11.33 % 11.04 % 11.42 %
For the Three Months Ended
March 31, December 31,
2017 2016 2016
(In thousands, except per share data)
Net interest and loan fee income (FTE) $ 36,030 $ 36,447 $ 35,959
Provision for loan losses - - -
Noninterest income 11,657 11,729 11,545
Noninterest expense 24,615 25,858 24,577
Income  before taxes (FTE) 23,072 22,318 22,927
Income tax provision (FTE) 8,023 8,092 8,474
Net income $ 15,049 $ 14,226 $ 14,453

Average diluted common shares 26,329 25,468 25,925
Diluted earnings per common share $ 0.57 $ 0.56 $ 0.56

Average total assets $ 5,395,783 $ 5,174,804 $ 5,370,412
Net income to average total assets (annualized) 1.13 % 1.11 % 1.07 %
Net income to average common shareholders' equity (annualized) 10.48 % 10.85 % 10.30 %

Net income for the ~~third~~first quarter of ~~2016~~2017 was ~~$771~~$823 thousand more than the same quarter of ~~2015, the net result of a reversal of provision for loan losses, partially offset by lower net~~2016. Net interest and ~~fee income (FTE), lower noninterest income and higher income tax provision (FTE). A decrease in net interest and~~loan fee income (FTE) ~~was~~decreased in the first quarter 2017 compared with first quarter 2016 mostly ~~attributed~~attributable to lower average balances of loans and lower yield on interest-earning assets, partially offset by higher average balances of investments and lower average balances of higher-costing time deposits. The ~~Company recorded a reversal of~~ provision for loan losses remained zero, reflecting Management's evaluation of ~~$3.2 million,~~losses inherent in the loan portfolio. Noninterest expense decreased mostly due to reductions in professional fees, courier costs, postage, correspondent service charges, OREO expense, insurance premiums, limited partnership operating losses and intangible amortization. The effective tax rate decreased to 34.8% in the first quarter 2017 from 36.3% in the first quarter 2016 primarily due to the adoption of ASU 2016-09.
Comparing the first quarter of 2017 with the fourth quarter of 2016, net income increased $596 thousand due to lower income tax provision (FTE) and higher noninterest income. The provision for loan losses remained zero, reflecting Management's evaluation of losses inherent in the loan portfolio. Noninterest income ~~decreased~~increased primarily due to ~~reduced levels of service charges on deposit accounts. The income tax provision (FTE) was~~ higher ~~in the third quarter 2016 due to reduced levels of federally tax-exempt income on interest-earning assets relative to pre-tax income, and lower tax credits.~~
Comparing the first nine months of 2016 with the first nine months of 2015, net income increased $225 thousand due to a reversal of provision for loan losses and lower noninterest expense, partially offset by lower net interest and fee income (FTE), lower noninterest income and higher income tax provision (FTE). The lower net interest and fee income (FTE) was primarily caused by lower average balances of loans, partially offset by higher average balances of investments and lower average balances of higher-costing time deposits. The Company recorded a reversal of provision for loan losses of $3.2 million, reflecting Management's evaluation of losses inherent in the loan portfolio. Noninterest income decreased primarily due to reduced levels of service charges on deposit accounts and lower merchant credit card ~~fees, partially offset by higher debit card~~ fees. Noninterest expense decreased mostly due to lower net expenses for foreclosed properties, lower personnel costs, lower occupancy expense and lower other expenses, offset in part by higher legal fees. Income tax provision (FTE) increased in the first nine months of 2016 due to reduced levels of federally tax-exempt income on interest-earning assets relative to pre-tax income, and lower tax credits.

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~~- 32 -~~
Net Interest and Loan Fee Income (FTE)

Following is a summary of the components of net interest and loan fee income (FTE) for the periods indicated:

For the Three Months For the Nine Months
Ended September 30,
2016 2015 2016 2015
($ in thousands)
Interest and fee income $ 33,468 $ 34,299 $ 100,842 $ 102,641
Interest expense (523 ) (585 ) (1,616 ) (1,861 )
FTE adjustment 3,231 3,465 9,892 10,744
Net interest and fee income (FTE) $ 36,176 $ 37,179 $ 109,118 $ 111,524

Average earning assets $ 4,489,317 $ 4,471,690 $ 4,448,261 $ 4,417,114
Net interest margin (FTE) (annualized) 3.21 % 3.31 % 3.27 % 3.37 %
For the Three Months Ended
March 31, December 31,
2017 2016 2016
(In thousands)
Interest and loan fee income $ 33,324 $ 33,647 $ 33,209
Interest expense 480 552 500
FTE adjustment 3,186 3,352 3,250
Net interest and loan fee income (FTE) $ 36,030 $ 36,447 $ 35,959

Average earning assets $ 4,620,001 $ 4,381,423 $ 4,561,619
Net interest margin (FTE) (annualized) 3.14 % 3.34 % 3.15 %

Net interest and fee income (FTE) decreased during the ~~third~~first quarter ~~2016~~2017 by ~~$1.0 million~~$417 thousand from the same period in ~~2015,~~2016, mainly due to lower average balances of loans (down ~~$206~~$145 million), and lower yield on interest-earning assets, partially offset by higher average balances of investments (up ~~$223~~$384 million) and lower average balances of higher-costing time deposits (down ~~$47~~$30 million).

-30-
Comparing the first ~~nine months of 2016~~quarter 2017 with the ~~first nine months of 2015,~~fourth quarter 2016, net interest and fee income (FTE) ~~decreased $2.4 million~~increased $71 thousand due to ~~lower average balances of loans (down $196 million), partially offset by~~ higher average balances of investments (up ~~$228~~$59 million) and higher yield on those investments (up 0.01%), offset by lower ~~average balances of higher-costing time deposits~~net yield on loans (down ~~$72 million)~~0.04%).
Loan volumes have declined due to problem loan workout activities (such as chargeoffs, collateral repossessions and principal payments), particularly with purchased loans, and reduced volumes of loan originations. In Management’s opinion, current levels of competitive loan pricing do not provide adequate forward earnings potential. As a result, the Company has not currently taken an aggressive posture relative to loan portfolio growth. Management has maintained relatively stable interest-earning asset volumes by increasing investment securities as loan volumes have declined.

Yields on interest-earning assets declined due to relatively low interest rates prevailing in the market. The annualized net interest margin (FTE) was ~~3.21%~~3.14% in the ~~third~~first quarter 2017 compared with 3.34% in the first quarter 2016 and ~~3.27%~~3.15% in the ~~first nine months of 2016 compared with 3.31% in the third~~fourth quarter ~~2015 and 3.37% in the first nine months of 2015.~~2016. The volume of older-dated higher-yielding loans declined due to principal maturities and paydowns. The Company, in anticipation of rising interest rates, has been purchasing shorter-duration investment securities with lower yields than longer-duration securities to increase liquidity. The Company’s high levels of liquidity will provide an opportunity to invest in higher yielding assets assuming market interest rates ~~start rising.~~increase to levels higher than yields on maturing securities and security paydowns.

The Company has been replacing higher-cost funding sources with low-cost deposits and interest expense has declined to offset some of the decline in interest income. Average balances of time deposits declined ~~$47~~$30 million from the ~~third~~first quarter ~~2015~~2016 to ~~third~~first quarter ~~2016~~2017 while lower-cost checking and savings deposits grew 5%4% in the same period. Average balances of checking and saving deposits accounted for ~~94.1%~~94.6% of average total deposits in the ~~third~~first quarter 2017 compared with 93.7% in the first quarter 2016 and ~~93.9%~~94.5% in the ~~first nine months of 2016 compared with 92.8% and 92.1% in the third~~fourth quarter ~~2015 and first nine months of 2015, respectively.~~2016.

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~~- 33 -~~
Net Interest Margin (FTE)

The following summarizes the components of the Company's net interest margin for the periods indicated (percentages are annualized.):

For the Three Months For the Nine Months For the Three Months Ended
Ended September 30, March 31, December 31,
2016 2015 2016 2015 2017 2016 2016

Yield on earning assets (FTE) 3.26 % 3.36 % 3.32 % 3.43 % 3.18 % 3.39 % 3.19 %
Rate paid on interest-bearing liabilities 0.08 % 0.09 % 0.08 % 0.10 % 0.07 % 0.09 % 0.07 %
Net interest spread (FTE) 3.18 % 3.27 % 3.24 % 3.33 % 3.11 % 3.30 % 3.12 %
Impact of noninterest-bearing demand deposits 0.03 % 0.04 % 0.03 % 0.04 %
Impact of noninterest-bearing funds 0.03 % 0.04 % 0.03 %
Net interest margin (FTE) 3.21 % 3.31 % 3.27 % 3.37 % 3.14 % 3.34 % 3.15 %

During ~~2015~~2016 and ~~2016,~~through the first quarter 2017, the net interest margin (FTE) was affected by historically low market interest rates. The volume of older-dated higher-yielding loans and securities declined due to principal maturities and paydowns. Management has avoided long-dated, low-yielding loans given historically low interest rates. Management has also maintained conservative loan underwriting, terms and conditions. During this period, the investment portfolio has grown. The changing composition of interest-earning assets and low market rates has pressured the net interest margin. Rates on interest-bearing liabilities were kept low by reducing the volume of higher-cost time deposits and increasing balances of checking and savings deposits, which earn relatively low interest rates and are less volatile than time deposits during periods of rising market interest rates.

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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 reversal of previously accrued interest on loans placed on non-accrual status during the period and 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 on tax-exempt securities and loans have been adjusted upward to reflect the effect of income exempt from federal income taxation at the current statutory tax rate. Yields, rates and interest margins are annualized.

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

For the Three Months Ended September 30, 2016 For the Three Months Ended March 31, 2017
Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Balance Expense Rates Balance Expense Rates
($ in thousands) ($ in thousands)
Assets
Investment securities:
Taxable $ 2,265,883 $ 11,024 1.95 % $ 2,433,669 $ 12,147 2.00 %
Tax-exempt⁽¹⁾ 837,248 8,415 4.02 % 831,082 8,294 3.99 %
Total investments⁽¹⁾ 3,103,131 19,439 2.51 % 3,264,751 20,441 2.50 %
Loans:
Taxable 1,320,635 16,424 4.95 % 1,290,093 15,243 4.79 %
Tax-exempt⁽¹⁾ 65,551 836 5.07 % 65,157 826 5.14 %
Total loans⁽¹⁾ 1,386,186 17,260 4.95 % 1,355,250 16,069 4.81 %
Total Interest-earning assets⁽¹⁾ 4,489,317 36,699 3.26 % 4,620,001 36,510 3.18 %
Other assets 764,185 775,782
Total assets $ 5,253,502 $ 5,395,783

Liabilities and shareholders' equity
Noninterest-bearing demand $ 2,041,045 $ - - % $ 2,056,858 $ - - %
Savings and interest-bearing transaction 2,277,462 293 0.05 % 2,382,348 280 0.05 %
Time less than $100,000 152,142 95 0.25 % 141,400 83 0.24 %
Time $100,000 or more 118,113 124 0.42 % 112,140 106 0.38 %
Total interest-bearing deposits 2,547,717 512 0.08 % 2,635,888 469 0.07 %
Short-term borrowed funds 68,640 11 0.06 % 68,584 11 0.06 %
Total interest-bearing liabilities 2,616,357 523 0.08 % 2,704,472 480 0.07 %
Other liabilities 50,329 52,069
Shareholders' equity 545,771 582,384
Total liabilities and shareholders' equity $ 5,253,502 $ 5,395,783
Net interest spread^{(1) (2)} 3.18 % 3.11 %
Net interest and fee income and interest margin^{(1) (3)} $ 36,176 3.21 % $ 36,030 3.14 %

⁽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-bearingliabilities.
⁽³⁾ Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balanceof 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 September 30, 2015 For the Three Months Ended March 31, 2016
Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Balance Expense Rates Balance Expense Rates
($ in thousands) ($ in thousands)
Assets
Investment securities:
Taxable $ 2,043,470 $ 9,120 1.79 % $ 2,046,547 $ 9,674 1.89 %
Tax-exempt⁽¹⁾ 836,422 8,912 4.26 % 834,260 8,636 4.14 %
Total investments⁽¹⁾ 2,879,892 18,032 2.50 % 2,880,807 18,310 2.54 %
Loans:
Taxable 1,516,937 18,719 4.90 % 1,429,106 17,726 4.99 %
Tax-exempt⁽¹⁾ 74,861 1,013 5.37 % 71,510 963 5.41 %
Total loans⁽¹⁾ 1,591,798 19,732 4.92 % 1,500,616 18,689 5.01 %
Total Interest-earning assets⁽¹⁾ 4,471,690 $ 37,764 3.36 % 4,381,423 36,999 3.39 %
Other assets 590,644 793,381
Total assets $ 5,062,334 $ 5,174,804

Liabilities and shareholders' equity
Noninterest-bearing demand $ 1,975,498 $ - - % $ 1,993,986 $ - - %
Savings and interest-bearing transaction 2,121,607 276 0.05 % 2,259,681 293 0.05 %
Time less than $100,000 170,390 133 0.31 % 160,190 113 0.28 %
Time $100,000 or more 147,216 164 0.44 % 123,691 137 0.44 %
Total interest-bearing deposits 2,439,213 573 0.09 % 2,543,562 543 0.09 %
Short-term borrowed funds 72,607 12 0.07 % 57,846 9 0.07 %
Total interest-bearing liabilities 2,511,820 $ 585 0.09 % 2,601,408 552 0.09 %
Other liabilities 54,755 52,233
Shareholders' equity 520,261 527,177
Total liabilities and shareholders' equity $ 5,062,334 $ 5,174,804
Net interest spread^{(1) (2)} 3.27 % 3.30 %
Net interest and fee income and interest margin^{(1) (3)} $ 37,179 3.31 % $ 36,447 3.34 %

⁽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-bearingliabilities.
⁽³⁾ Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balanceof 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 Nine Months Ended September 30, 2016 For the Three Months Ended December 31, 2016
Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Balance Expense Rates Balance Expense Rates
($ in thousands) ($ in thousands)
Assets
Investment securities:
Taxable $ 2,165,463 $ 31,256 1.92 % $ 2,351,530 $ 11,462 1.95 %
Tax-exempt⁽¹⁾ 835,737 25,632 4.09 % 853,739 8,471 3.97 %
Total investments⁽¹⁾ 3,001,200 56,888 2.53 % 3,205,269 19,933 2.49 %
Loans:
Taxable 1,378,593 51,150 4.96 % 1,290,372 15,693 4.84 %
Tax-exempt⁽¹⁾ 68,468 2,696 5.26 % 65,978 833 5.02 %
Total loans⁽¹⁾ 1,447,061 53,846 4.97 % 1,356,350 16,526 4.85 %
Total Interest-earning assets⁽¹⁾ 4,448,261 110,734 3.32 %
Total interest-earning assets ⁽¹⁾ 4,561,619 36,459 3.19 %
Other assets 756,157 808,793
Total assets $ 5,204,418 $ 5,370,412

Liabilities and shareholders' equity
Deposits:
Noninterest-bearing demand $ 2,010,058 $ - - % $ 2,077,213 $ - - %
Savings and interest-bearing transaction 2,265,775 878 0.05 % 2,364,695 288 0.05 %
Time less than $100,000 156,568 313 0.27 % 146,440 90 0.24 %
Time $100,000 or more 120,418 395 0.44 % 113,781 113 0.40 %
Total interest-bearing deposits 2,542,761 1,586 0.08 % 2,624,916 491 0.07 %
Short-term borrowed funds 62,823 30 0.06 % 56,669 9 0.06 %
Total interest-bearing liabilities 2,605,584 1,616 0.08 % 2,681,585 500 0.07 %
Other liabilities 51,766 53,557
Shareholders' equity 537,010 558,057
Total liabilities and shareholders' equity $ 5,204,418 $ 5,370,412
Net interest spread^{(1) (2)} 3.24 % 3.12 %
Net interest and fee income and interest margin^{(1) (3)} $ 109,118 3.27 % $ 35,959 3.15 %

⁽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-bearingliabilities.
⁽³⁾ Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balanceof 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 Nine months Ended September 30, 2015
Interest
Average Income/ Yields/
Balance Expense Rates
($ in thousands)
Assets
Investment securities:
Taxable $ 1,918,319 $ 25,067 1.74 %
Tax-exempt⁽¹⁾ 855,357 27,549 4.29 %
Total investments⁽¹⁾ 2,773,676 52,616 2.53 %
Loans:
Taxable 1,566,333 57,547 4.91 %
Tax-exempt⁽¹⁾ 77,105 3,222 5.59 %
Total loans⁽¹⁾ 1,643,438 60,769 4.94 %
Total Interest-earning assets⁽¹⁾ 4,417,114 $ 113,385 3.43 %
Other assets 638,307
Total assets $ 5,055,421

Liabilities and shareholders' equity
Noninterest-bearing demand $ 1,946,018 $ - - %
Savings and interest-bearing transaction 2,109,831 824 0.05 %
Time less than $100,000 175,696 449 0.34 %
Time $100,000 or more 172,834 543 0.42 %
Total interest-bearing deposits 2,458,361 1,816 0.10 %
Short-term borrowed funds 81,926 44 0.07 %
Federal Home Loan Bank advances 661 1 0.20 %
Total interest-bearing liabilities 2,540,948 $ 1,861 0.10 %
Other liabilities 51,401
Shareholders' equity 517,054
Total liabilities and shareholders' equity $ 5,055,421
Net interest spread^{(1) (2)} 3.33 %
Net interest and fee income and interest margin^{(1) (3)} $ 111,524 3.37 %
⁽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-bearingliabilities.~~
⁽³⁾ ~~Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balanceof 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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~~- 38 -~~
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 September 30, 2016 For the Three Months Ended March 31, 2017
Compared with Compared with
For the Three Months Ended September 30, 2015 For the Three Months Ended March 31, 2016
Volume Yield/Rate Total Volume Yield/Rate Total
(In thousands) (In thousands)
Increase (decrease) in interest and loan fee income:
Investment securities:
Taxable $ 993 $ 911 $ 1,904 $ 1,830 $ 643 $ 2,473
Tax-exempt⁽¹⁾ 9 (506 ) (497 ) (33 ) (309 ) (342 )
Total investments⁽¹⁾ 1,002 405 1,407 1,797 334 2,131
Loans:
Taxable (2,462 ) 167 (2,295 ) (1,697 ) (786 ) (2,483 )
Tax-exempt⁽¹⁾ (128 ) (49 ) (177 ) (84 ) (53 ) (137 )
Total loans⁽¹⁾ (2,590 ) 118 (2,472 ) (1,781 ) (839 ) (2,620 )
Total (decrease) increase in interest and loan fee income⁽¹⁾ (1,588 ) 523 (1,065 )
Total increase (decrease) in interest and loan fee income ⁽¹⁾ 16 (505 ) (489 )
Increase (decrease) in interest expense:
Deposits:
Savings and interest-bearing transaction 20 (3 ) 17 16 (29 ) (13 )
Time less than $100,000 (14 ) (24 ) (38 ) (13 ) (17 ) (30 )
Time $100,000 or more (33 ) (7 ) (40 ) (13 ) (18 ) (31 )
Total interest-bearing deposits (27 ) (34 ) (61 ) (10 ) (64 ) (74 )
Short-term borrowed funds (1 ) - (1 ) 3 (1 ) 2
Total decrease in interest expense (28 ) (34 ) (62 ) (7 ) (65 ) (72 )
(Decrease) increase in net interest and loan fee income⁽¹⁾ $ (1,560 ) $ 557 $ (1,003 )
Increase (decrease) in net interest and loan fee income ⁽¹⁾ $ 23 $ (440 ) $ (417 )

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

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~~- 39 -~~ -35-
Summary of Changes in Interest Income and Expense

For the Nine Months Ended September 30, 2016 For the Three Months Ended March 31, 2017
Compared with Compared with
For the Nine Months Ended September 30, 2015 For the Three Months Ended December 31, 2016
Volume Yield/Rate Total Volume Yield/Rate Total
(In thousands) (In thousands)
Increase (decrease) in interest and loan fee income:
Investment securities:
Taxable $ 3,229 $ 2,960 $ 6,189 $ 400 $ 285 $ 685
Tax-exempt⁽¹⁾ (632 ) (1,285 ) (1,917 ) (225 ) 48 (177 )
Total investments⁽¹⁾ 2,597 1,675 4,272 175 333 508
Loans:
Taxable (6,854 ) 457 (6,397 ) (10 ) (440 ) (450 )
Tax-exempt⁽¹⁾ (359 ) (167 ) (526 ) (16 ) 9 (7 )
Total loans⁽¹⁾ (7,213 ) 290 (6,923 ) (26 ) (431 ) (457 )
Total (decrease) increase in interest and loan fee income⁽¹⁾ (4,616 ) 1,965 (2,651 )
Total increase (decrease) in interest and loan fee income ⁽¹⁾ 149 (98 ) 51
Increase (decrease) in interest expense:
Deposits:
Savings and interest-bearing transaction 62 (8 ) 54 0 (8 ) (8 )
Time less than $100,000 (49 ) (87 ) (136 ) (4 ) (3 ) (7 )
Time $100,000 or more (164 ) 16 (148 ) (2 ) (5 ) (7 )
Total interest-bearing deposits (151 ) (79 ) (230 ) (6 ) (16 ) (22 )
Short-term borrowed funds (11 ) (3 ) (14 ) 2 - 2
Federal Home Loan Bank advances (1 ) - (1 )
Total decrease in interest expense (163 ) (82 ) (245 ) (4 ) (16 ) (20 )
(Decrease) increase in net interest and loan fee income⁽¹⁾ $ (4,453 ) $ 2,047 $ (2,406 )
Increase (decrease) in net interest and loan fee income ⁽¹⁾ $ 153 $ (82 ) $ 71

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

Provision for Loan Losses

The Company manages credit costs by consistently enforcing ~~in Management’s opinion,~~ conservative underwriting and administration procedures and aggressively pursuing collection efforts with debtors experiencing financial difficulties. The provision for loan losses reflects Management's assessment of credit risk in the loan portfolio during each of the periods presented.

The Company ~~recorded a reversal of the provision for loan losses of $3.2 million in the three months and nine months ended September 30, 2016. The Company~~ provided no provision for loan losses in the ~~three months~~first quarter of 2017 and ~~nine months ended September 30, 2015. During~~ the ~~third quarter 2016, classified~~first and fourth quarters of 2016. Management’s evaluation of credit quality includes originated and purchased loans. Classified loans declined ~~$15.6~~$26.8 million (which included nonperforming loans of ~~$7.1~~$6.7 million) ~~and~~during the ~~Company achieved net recoveries of prior loan losses of $649 thousand; these developments were~~period from March 31, 2016 to March 31, 2017. This development was reflected in Management’s evaluation of credit quality, the level of the provision for loan losses, and the adequacy of the allowance for loan losses at ~~September 30, 2016.~~March 31, 2017. Management’s evaluation of credit quality includes originated and purchased loans. The Company recorded purchased loans at estimated fair value upon the acquisition dates. Such estimated fair values were recognized for individual loans, although small balance homogenous loans were pooled for valuation purposes. The valuation discounts recorded for purchased loans included Management’s assessment of the risk of principal loss under economic and borrower conditions prevailing on the dates of purchase. The purchased County Bank loans secured by single-family residential real estate are “covered” through February 6, 2019 by loss-sharing agreements the Company entered with the FDIC which mitigates losses during the term of the agreements. Any deterioration in estimated value related to principal loss subsequent to the acquisition dates requires additional loss recognition through a provision for loan losses. No assurance can be given future provisions for loan losses related to purchased loans will not be necessary. For further information regarding credit risk, ~~the FDIC loss-sharing agreements,~~ net credit losses and the allowance for loan losses, see the “Loan Portfolio Credit Risk” and “Allowance for Loan Losses” sections of this ~~report.~~
Report.

~~- 40 -~~ -36-
Noninterest Income

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

For the Three Months For the Nine Months
Ended September 30,
2016 2015 2016 2015
(In thousands)

Service charges on deposit accounts $ 5,303 $ 5,581 $ 15,790 $ 16,981
Debit card fees 1,587 1,538 4,724 4,528
Merchant processing services 1,532 1,485 4,699 4,971
Trust fees 686 682 2,004 2,061
Other service charges 671 693 1,951 2,041
ATM processing fees 600 616 1,860 1,828
Financial services commissions 118 177 411 527
Other noninterest income 1,101 1,221 3,590 3,625
Total $ 11,598 $ 11,993 $ 35,029 $ 36,562
For the Three Months Ended
March 31, December 31,
2017 2016 2016
(In thousands)

Service charges on deposit accounts $ 4,923 $ 5,248 $ 5,064
Merchant processing services 1,875 1,529 1,678
Debit card fees 1,481 1,516 1,566
Trust fees 702 661 682
Other service fees 650 629 620
ATM processing fees 575 658 551
Financial services commissions 195 156 157
Other noninterest income 1,256 1,332 1,227
Total $ 11,657 $ 11,729 $ 11,545

Noninterest income for the ~~third~~first quarter ~~2016~~2017 declined by $~~395~~$72 thousand or~~3.3~~% from the same period in ~~2015.~~2016. Service charges on deposits decreased $~~278~~$325 thousand due to declines in fees charged on overdrawn and insufficient funds accounts (down $~~292~~$259 thousand)~~, partially offset by the effect of deposit fee increases effective February 2016. Other noninterest income decreased $120~~ and lower fees on analyzed accounts (down $95 thousand). Merchant processing services fees increased $346 thousand primarily due to ~~a decline in interest recoveries on charged off loans.~~increased transaction volumes.

In the first ~~nine months of 2016,~~quarter 2017, noninterest income ~~decreased $1.5~~ ~~million or4.2~~%increased $112 thousand compared with the ~~first nine months~~fourth quarter 2016 mostly due to a $197 thousand increase in merchant processing services fees primarily due to the improved margin mix of ~~2015.~~transaction volumes. Service charges on deposits decreased $~~1.2~~ ~~million~~$141 thousand due to declines in fees charged on overdrawn and insufficient funds accounts (down $~~826~~$181 thousand) and lower fees on analyzed accounts (down $~~391~~$48 thousand), partially offset by ~~the effect of deposit~~ fee increases ~~effective February 2016. Merchant processing services fees decreased $272~~ ~~thousand primarily due to lower transaction volumes~~ and ~~because larger sales relationships with low margins accounted for a significant portion~~collection of ~~transaction volumes, offset in part by increased debit card fees of $196~~ ~~thousand as a result of increased transaction volumes.~~annual IRA account fees.

Noninterest Expense

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

For the Three Months For the Nine Months
Ended September 30,
2016 2015 2016 2015
(In thousands)

Salaries and related benefits $ 13,063 $ 12,761 $ 39,067 $ 39,795
Occupancy 3,749 3,746 10,546 11,199
Outsourced data processing services 2,114 2,115 6,375 6,334
Professional services 1,693 746 3,183 1,876
Furniture and equipment 1,211 1,075 3,611 3,353
Amortization of identifiable intangibles 867 952 2,642 2,908
Courier service 451 604 1,458 1,744
Other real estate owned (206 ) 83 (487 ) 451
Other noninterest expense 3,146 4,091 10,780 12,136
Total $ 26,088 $ 26,173 $ 77,175 $ 79,796
For the Three Months Ended
March 31, December 31,
2017 2016 2016
(In thousands)

Salaries and related benefits $ 13,070 $ 13,117 $ 12,439
Occupancy 3,633 3,398 3,570
Outsourced data processing services 2,139 2,130 2,131
Furniture and equipment 1,254 1,213 1,290
Amortization of identifiable intangibles 800 905 863
Professional fees 611 732 797
Courier service 421 545 494
Other real estate owned (40 ) 111 7
Other noninterest expense 2,727 3,707 2,986
Total $ 24,615 $ 25,858 $ 24,577

Noninterest expense decreased $85 ~~thousand~~$1.3 million in the ~~third~~first quarter ~~2016~~2017 compared with the same period in ~~2015. Expenses for~~2016 mostly due to reductions in professional fees, courier costs, OREO expense, intangible amortization and other ~~real estate owned in the third quarter 2016 were reduced by net gains from the sale of foreclosed properties. Courier~~noninterest expense. Other noninterest expense decreased ~~$153~~$980 thousand primarily due to ~~switching to new low-cost vendors. Other categories~~decreases in insurance premiums, correspondent bank service charges, limited partnership operating losses, postage and amortization of expense offset the decrease: Professional fees increased $947 thousand due to higher legal fees associated with loan administration and collection activities. Salaries and related benefits increased $302 thousand in the third quarter 2016 compared with the same period in 2015 mostly due to higher employee benefit costs. Furniture and equipment expense increased $136 thousand due to increases in depreciation and maintenance expenses.
~~- 41 -~~
In the first nine months of 2016, noninterest expense decreased $2.6 million or 3.3% compared with the first nine months of 2015. Expenses for other real estate owned in the first nine months of 2016 were reduced by net gains from the sale of foreclosed properties. Salaries and related benefits decreased $728 thousand primarily due to lower salaries resulting from employee attrition. Occupancy expense decreased $653 thousand in the first nine months of 2016 compared with the first nine months of 2015 mostly due to branch closures and a lease expiration related to a non-branch building. Courier expense decreased $286 thousand primarily due to logistical changes and switching to new low-cost vendors.intangibles. Amortization of ~~identifiable~~ intangibles decreased $105 thousand as assets are amortized on a declining balance method. ~~Two categories of expense offset the decrease:~~ Professional fees ~~increased $1.3 million~~decreased $121 thousand due to ~~higher~~lower legal fees associated with ~~loan administration~~nonperforming assets. Expenses of other real estate owned decreased in the first quarter 2017 due to gains on sale of disposition of foreclosed assets and ~~collection activities. Furniture and equipment~~because first quarter 2016 included net writedowns. Occupancy expense increased ~~$258~~$235 thousand ~~mainly~~ due to higher maintenance and utility costs.
-37-
In the first quarter 2017, noninterest expense increased ~~depreciation costs for technology.~~$38 thousand compared with the fourth quarter 2016. Salaries and related benefits increased $631 thousand primarily due to seasonally higher payroll taxes. Professional fees decreased $186 thousand due to lower legal fees. Other noninterest expense decreased $259 thousand primarily due to lower correspondent bank service charges.

Provision for Income Tax

~~During the third~~The Company’s first quarter ~~2016, the Company recorded an~~2017 income tax provision (FTE) was $8.0 million. Effective January 1, 2017, the Company adopted ASU 2016-09 which has the potential to create volatility in the book tax provision at the time nonqualified stock options are exercised or expire. During the first quarter 2017, 376 thousand shares were issued due to the exercise of $~~9.3million,~~nonqualified stock options resulting in a tax deduction exceeding related share based compensation by $1.6 million. First quarter 2017 income tax provision was $671 thousand lower than would have been under accounting standards prior to the adoption of ASU 2016-09. First quarter 2017 income tax provision (FTE) compared with $~~8.1~~$8.1 million inand $8.5 million for the ~~third~~first and fourth quarters 2016, respectively. The current quarter ~~2015. The third quarter 2016~~ provision represents an effective tax rate (FTE) of~~37.2~~% 34.8%, compared with ~~35.4% for the third quarter 2015. The income tax provision (FTE) was $25.8~~ ~~million~~36.3% and 37.0% for the first ~~nine months of~~and fourth quarters 2016, ~~compared with $24.1~~ ~~million for the corresponding period of 2015.~~respectively. The first ~~nine months of 2016~~quarter 2017 effective tax rate (FTE) ~~was36.7% compared to35.3~~% for the same period of 2015. The effective tax rates (FTE) for the third quarter 2015 and the first nine months of 2015 were lower than the effective tax rates for the respective periods in 2016 due to higher pre-tax income and declining tax preference items. Interest income earned on municipal securities and tax free loans which are exempt from federal income taxeswould have ~~declined in 2016. The tax credits earned from investments in limited partnerships have also declined~~been 37.7% under accounting rules applied in 2016.

Investment Portfolio

The Company maintains aan investment securities portfolio consisting of securities issued by U.S. Government sponsored entities, agency and non-agency mortgage backed securities, state and political subdivisions, corporations, and asset-backed and other securities. Investment securities are held in safekeeping by an independent custodian.

Management has increased the investment securities portfolio in response to deposit growth and loan volume declines. The carrying value of the Company’s investment securities portfolio was $~~3.2~~$3.2 billion as of ~~September 30, 2016, an increase of $287~~ ~~million compared to~~March 31, 2017 and December 31, ~~2015.~~2016.

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. ~~During the nine months ended September 30,~~In 2016 Management reduced securities of U.S. Government sponsored entities to reduce call optionality and increased agency residential MBS to develop more reliable cash flows.

As of ~~September 30, 2016,~~March 31, 2017, substantially all of the Company’s investment securities continue to be investment grade 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. Credit ratings are considered in our analysis only as a guide to the historical default rate associated with similarly-rated bonds. There have been no significant differences in our internal analyses compared with the ratings assigned by the third party credit rating agencies.

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~~- 42 -~~ -38-
The following tables summarize the total general obligation and revenue bonds issued by states and political subdivisions held in the Company’s investment securities portfolios as of the dates indicated, identifying the state in which the issuing government municipality or agency operates.

At ~~September 30, 2016,~~March 31, 2017, the Company’s investment securities portfolios included securities issued by~~718~~ 687 state and local government municipalities and agencies located within44 states with a fair value of $~~887.5~~$833.9 million. None of the Company’s investment securities were issued by Puerto Rican government entities. The largest exposure to any one municipality or agency was $~~10.5~~$10.1 million (fair value) represented by nine general obligation bonds.

At September 30, 2016
Amortized Fair
Cost Value
(In thousands)
Obligations of states and political subdivisions:
General obligation bonds:
California $ 110,820 $ 115,071
Texas 69,205 70,598
New Jersey 40,198 41,236
Pennsylvania 39,844 40,367
Minnesota 33,019 33,761
Other (36 states) 277,560 286,215
Total general obligation bonds $ 570,646 $ 587,248

Revenue bonds:
California $ 49,641 $ 51,653
Kentucky 23,912 24,667
Pennsylvania 23,617 23,905
Iowa 18,103 18,638
Colorado 16,100 16,717
Other (30 states) 158,613 164,679
Total revenue bonds $ 289,986 $ 300,259
Total obligations of states and political subdivisions $ 860,632 $ 887,507
At March 31, 2017
Amortized Fair
Cost Value
(In thousands)
Obligations of states and political subdivisions:
General obligation bonds:
California $ 102,125 $ 104,225
Texas 68,829 68,944
New Jersey 40,024 40,346
Minnesota 30,703 30,947
Pennsylvania 29,690 29,888
Other (36 states) 277,881 278,999
Total general obligation bonds $ 549,252 $ 553,349

Revenue bonds:
California $ 46,448 $ 47,514
Kentucky 22,811 23,062
Iowa 18,068 18,309
Pennsylvania 16,067 16,179
Colorado 15,553 15,739
Washington 13,557 14,179
Other (29 states) 143,540 145,564
Total revenue bonds $ 276,044 $ 280,546
Total obligations of states and political subdivisions $ 825,296 $ 833,895

At December 31, ~~2015,~~2016, the Company’s investment securities portfolios included securities issued by ~~725~~698 state and local government municipalities and agencies located within 44 states with a fair value of ~~$864.2~~$848.2 million. None of the Company’s investment securities were issued by Puerto Rican government entities. The largest exposure to any one municipality or agency was ~~$10.3~~$10.0 million (fair value) represented by nine general obligation bonds.

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~~- 43 -~~ -39-
At December 31, 2015
Amortized Fair
Cost Value
(In thousands)
Obligations of states and political subdivisions:
General obligation bonds:
California $ 117,968 $ 121,096
Texas 62,030 63,394
Pennsylvania 51,547 52,115
New Jersey 38,651 39,322
Minnesota 32,588 33,133
Other (34 states) 243,488 249,854
Total general obligation bonds $ 546,272 $ 558,914

Revenue bonds:
California $ 49,095 $ 51,206
Pennsylvania 29,446 29,841
Kentucky 19,825 20,400
Iowa 18,156 18,728
Colorado 16,161 16,560
Other (31 states) 163,633 168,592
Total revenue bonds $ 296,316 $ 305,327
Total obligations of states and political subdivisions $ 842,588 $ 864,241
At December 31, 2016
Amortized Fair
Cost Value
(In thousands)
Obligations of states and political subdivisions:
General obligation bonds:
California $ 105,129 $ 106,391
Texas 69,017 68,671
New Jersey 40,111 40,102
Pennsylvania 37,384 37,543
Minnesota 32,946 32,847
Other (36 states) 280,488 279,571
Total general obligation bonds $ 565,075 $ 565,125

Revenue bonds:
California $ 47,415 $ 48,429
Kentucky 22,854 22,902
Pennsylvania 18,568 18,683
Iowa 18,086 18,302
Colorado 15,574 15,674
Other (30 states) 157,452 159,054
Total revenue bonds $ 279,949 $ 283,044
Total obligations of states and political subdivisions $ 845,024 $ 848,169

At ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, the revenue bonds in the Company’s investment securities portfolios were issued by state and local government municipalities and agencies to fund public services such as water utility, sewer utility, recreational and school facilities, and general public and economic improvements. The revenue bonds were payable from22 23 revenue ~~sources at September 30, 2016 and December 31, 2015.~~sources. The revenue sources that represent 5% or more individually of the total revenue bonds are summarized in the following tables.

At September 30, 2016
Amortized Fair
Cost Value
(In thousands)
Revenue bonds by revenue source:
Water $ 55,972 $ 58,898
Sewer 41,629 43,204
Sales tax 31,598 33,184
Lease (renewal) 25,291 26,134
College & University 18,312 18,594
Lease (abatement) 15,211 15,948
Other 101,973 104,297
Total revenue bonds by revenue source $ 289,986 $ 300,259
At March 31, 2017
Amortized Fair
Cost Value
(In thousands)
Revenue bonds by revenue source:
Water $ 55,334 $ 57,043
Sewer 35,455 36,187
Sales tax 31,119 31,951
Lease (renewal) 24,208 24,411
College & University 17,806 17,808
Other (18 sources) 112,122 113,146
Total revenue bonds by revenue source $ 276,044 $ 280,546

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At December 31, 2016
Amortized Fair
Cost Value
(In thousands)
Revenue bonds by revenue source:
Water $ 55,401 $ 56,826
Sewer 37,996 38,497
Sales tax 31,146 31,835
Lease (renewal) 24,242 24,235
College & University 17,856 17,762
Other (18 sources) 113,308 113,889
Total revenue bonds by revenue source $ 279,949 $ 283,044

~~- 44 -~~
At December 31, 2015
Amortized Fair
Cost Value
(In thousands)
Revenue bonds by revenue source:
Water $ 62,661 $ 65,412
Sewer 45,912 47,242
Sales tax 31,680 32,945
Lease (renewal) 21,673 22,227
College & University 17,967 18,215
Lease (abatement) 17,017 17,769
Other 99,406 101,517
Total revenue bonds by revenue source $ 296,316 $ 305,327
See Note 3 to the unaudited consolidated financial statements for additional information related to the investment securities.

-40-
Loan Portfolio Credit Risk

The Company extends loans to commercial and consumer customers which 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 losses inherent in the loan portfolio and establish an allowance for credit losses. The allowance for credit losses is established by assessing a provision for loan losses against the Company’s earnings. In estimating credit losses, Management must exercise judgment in evaluating information deemed relevant, such as financial information regarding individual borrowers, overall credit loss experience, the amount of past due, nonperforming and classified loans, recommendations of regulatory authorities, prevailing economic conditions and other information. 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 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 organization 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 Board of Directors. The Loan Review Department performs independent evaluations of loans and assigns credit risk grades to evaluated loans 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 to maximize collection.
· The Bank maintains a Loan Review Department which reports directly to the Board of Directors. The Loan Review Department performs independent evaluations of loans and assigns credit risk grades to evaluated loans 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 to maximize collection.

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

At March 31, At December 31,
2017 2016 2016
(In thousands)

Nonperforming nonaccrual loans $ 2,382 $ 15,806 $ 3,956
Performing nonaccrual loans 4,285 1,921 4,429
Total nonaccrual loans 6,667 17,727 8,385
Accruing loans 90 or more days past due 373 260 497
Total nonperforming loans 7,040 17,987 8,882
Other real estate owned 2,136 8,438 3,095
Total nonperforming assets $ 9,176 $ 26,425 $ 11,977
~~- 45 -~~ -41-
The former County Bank loans and repossessed loan collateral were purchased from the FDIC with indemnifying loss-sharing agreements. The loss-sharing agreement on single-family residential real estate assets expires February 6, 2019. The loss-sharing agreement on non-single-family residential real estate assets expired February 6, 2014 as to losses and expires February 6, 2017 as to loss recoveries.

Nonperforming Assets
At September 30, At December 31,
2016 2015 2015
(In thousands)
Originated:
Nonperforming nonaccrual loans $ 1,198 $ 7,578 $ 6,302
Performing nonaccrual loans 4,410 - 350
Total nonaccrual loans 5,608 7,578 6,652
Accruing loans 90 or more days past due 438 481 295
Total nonperforming loans 6,046 8,059 6,947
Other real estate owned 666 5,834 5,829
Total nonperforming assets $ 6,712 $ 13,893 $ 12,776

Purchased covered:
Nonperforming nonaccrual loans $ 29 $ - $ -
Performing nonaccrual loans - - -
Total nonaccrual loans 29 - -
Accruing loans 90 or more days past due - - -
Total nonperforming loans 29 - -
Other real estate owned - 486 -
Total nonperforming assets $ 29 $ 486 $ -

Purchased non-covered:
Nonperforming nonaccrual loans $ 634 $ 8,784 $ 8,346
Performing nonaccrual loans 22 84 -
Total nonaccrual loans 656 8,868 8,346
Accruing loans 90 or more days past due 49 - -
Total nonperforming loans 705 8,868 8,346
Other real estate owned 2,366 2,949 3,435
Total nonperforming assets $ 3,071 $ 11,817 $ 11,781

Total nonperforming assets $ 9,812 $ 26,196 $ 24,557
Nonperforming assets have declined during 2016 and the ~~nine months ended September 30, 2016~~first quarter 2017 due to payoffs and chargeoffs. At ~~September 30, 2016,~~March 31, 2017, one loan secured by commercial real estate with a balance of $~~4.4~~$4.3 million was on nonaccrual status. ~~During the third quarter 2016, nonaccrual loans declined due to loan payoffs which generated recoveries of prior charge-offs.~~ The remaining~~nine~~ seven nonaccrual loans held at ~~September 30, 2016~~March 31, 2017 had an average carrying value of $~~209~~$340 thousand and the largest carrying value was $~~584~~ ~~thousand.~~$1.3 million.

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, 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 Company’s allowance for loan losses represents Management’s estimate of loan losses inherent in the loan portfolio. In evaluating credit risk for loans, Management measures 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. Further, the carrying value of purchased loans includes fair value discounts assigned at the time of purchase under the provisions of FASB ASC 805, Business Combinations, and FASB ASC 310-30, Loans or Debt Securities with Deteriorated Credit Quality. The allowance for loan losses represents Management’s estimate of loan losses in excess of these reductions to the carrying value of loans within the loan portfolio.

~~- 46 -~~
The following table summarizes the allowance for loan losses, chargeoffs and recoveries of the Company for the periods indicated:

For the Three Months For the Nine Months
Ended September 30,
2016 2015 2016 2015
($ in thousands)
Analysis of the Allowance for Loan Losses
Balance, beginning of period $ 28,910 $ 30,828 $ 29,771 $ 31,485
Reversal of provision for loan losses (3,200 ) - (3,200 ) -
Loans charged off
Commercial (88 ) (239 ) (2,024 ) (700 )
Commercial real estate - (449 ) - (449 )
Real estate residential - - - -
Consumer installment and other (1,736 ) (773 ) (3,418 ) (2,344 )
Purchased non-covered loans (112 ) - (150 ) (431 )
Total chargeoffs (1,936 ) (1,461 ) (5,592 ) (3,924 )
Recoveries of loans previously charged off
Commercial 1,735 300 2,517 814
Commercial real estate 15 27 45 57
Real estate construction - - - -
Consumer installment and other 337 336 1,132 1,369
Purchased non-covered loans 498 6 1,686 235
Total recoveries 2,585 669 5,380 2,475
Net loan recoveries (losses) 649 (792 ) (212 ) (1,449 )
Balance, end of period $ 26,359 $ 30,036 $ 26,359 $ 30,036

Net loan recoveries (losses):
Originated loans $ 263 $ (798 ) $ (1,748 ) $ (1,253 )
Purchased non-covered loans 386 6 1,536 (196 )
Net loan (recoveries) losses as a percentage of average total loans (annualized) (0.19 %) 0.20 % 0.02 % 0.12 %
For the Three Months Ended
March 31, December 31,
2017 2016 2016
(In thousands)
Analysis of the Allowance for Loan Losses
Balance, beginning of period $ 25,954 $ 29,771 $ 26,359
Provision for loan losses - - -
Provision for unfunded commitments - - -
Loans charged off
Commercial (103 ) (1,171 ) -
Commercial real estate - - -
Consumer installment and other (1,739 ) (1,006 ) (1,180 )
Total chargeoffs (1,842 ) (2,177 ) (1,180 )
Recoveries of loans previously charged off
Commercial 160 1,421 325
Commercial real estate 10 15 15
Construction - - -
Consumer installment and other 637 457 435
Total recoveries 807 1,893 775
Net loan losses (1,035 ) (284 ) (405 )
Balance, end of period $ 24,919 $ 29,487 $ 25,954

Net loan losses as a percentage of
average total loans (annualized) 0.31 % 0.08 % 0.12 %

The Company's allowance for loan losses is maintained at a level considered appropriate to provide for losses that can be estimated based upon specific and general conditions. These include conditions unique to individual borrowers, as well as overall loan loss experience, the amount of past due, nonperforming and classified ~~loans, the amount of non-indemnified purchased~~ loans, recommendations of regulatory authorities, prevailing economic conditions and other factors. A portion of the allowance is individually allocated to impaired loans whose full collectability of principal is uncertain. Such allocations are determined by Management based on loan-by-loan analyses. The Company evaluates for impairment all loans with outstanding principal balances in excess of $500 thousand which are classified or on nonaccrual status and all “troubled debt restructured” loans. The remainder of the loan portfolio is collectively evaluated for impairment based in part on quantitative analyses of historical loan loss experience of loan portfolio segments to determine standard loss rates for each segment. The loss rate for each loan portfolio segment reflects both the historical loss experience during a look-back period and the loss emergence period. ~~The loss rates are applied to segmented loan balances to allocate the allowance to the segments of the loan portfolio.~~
Purchased loans were recorded on the date of purchase at estimated fair value; fair value discounts include a component for estimated loan losses. The Company evaluates all nonaccrual purchased loans with outstanding principal balances in excess of $500 thousand for impairment; the impaired loan value is compared to the recorded investment in the loan, which has been reduced by the loan default discount estimated on the date of purchase. If Management’s impairment analysis determines the impaired loan value is less than the recorded investment in the purchased loan, an allocation of the allowance for loan losses is established for the deficiency. For all other purchased loan portfolio segments, Management applies loss rates to the purchased loan portfolio segments to determine initial allocations of the allowance. Further, liquidatingLiquidating purchased consumer installment loans are evaluated separately by applying historical loss rates to forecasted liquidating principal balances to initially measure losses inherent in this portfolio segment. The ~~initial allocations of~~loss rates are applied to segmented loan balances to allocate the allowance to ~~purchased loan portfolio~~the segments ~~are compared to loan default discounts ascribed to each segment. Management establishes allocations~~ of the ~~allowance for~~ loan ~~losses for any estimated deficiency.~~portfolio.

~~- 47 -~~ -42-
The remainder of the allowance is considered to be unallocated. The unallocated allowance is established to provide for probable losses that have been incurred as of the reporting date but not reflected in the allocated allowance. The unallocated allowance addresses additional qualitative factors consistent with Management's analysis of the level of risks inherent in the loan portfolio, which are related to the risks of the Company's general lending activity. Included in the unallocated allowance is the risk of losses that are attributable to national or local economic or industry trends which have occurred but have not yet been recognized in loan chargeoff history (external factors). The primary external factor evaluated by the Company and the judgmental amount of unallocated reserve assigned by Management as of ~~September 30, 2016~~March 31, 2017 is economic and business conditions $~~0.8~~$1.1 million. Also included in the unallocated allowance is the risk of losses attributable to general attributes of the Company's loan portfolio and credit administration (internal factors). The internal factors evaluated by the Company and the judgmental amount of unallocated reserve assigned by Management are: loan review system $~~1.4~~$1.1 million, adequacy of lending Management and staff $~~1.0~~$0.9 million and concentrations of credit $~~1.3~~$1.3 million.

Allowance for Loan Losses Allowance for Loan Losses
For the Three Months Ended September 30, 2016 For the Three Months Ended March 31, 2017
Consumer Purchased Purchased Consumer
Commercial Residential Installment Non-covered Covered Commercial Residential Installment
Commercial Real Estate Construction Real Estate and Other Loans Loans Unallocated Total Commercial Real Estate Construction Real Estate and Other Unallocated Total
(In thousands) (In thousands)
Allowance for loan losses:
Balance at beginning of period $ 10,402 $ 3,912 $ 127 $ 1,601 $ 6,616 $ 1,044 $ 66 $ 5,142 $ 28,910 $ 8,327 $ 3,330 $ 152 $ 1,330 $ 7,980 $ 4,835 $ 25,954
Additions:
Provision (3,638 ) (328 ) 9 (193 ) 1,651 (399 ) (4 ) (298 ) (3,200 )
Provision (reversal) 209 182 (40 ) (116 ) 106 (341 ) -
Deductions:
Chargeoffs (88 ) - - - (1,736 ) (112 ) - - (1,936 ) (103 ) - - - (1,739 ) - (1,842 )
Recoveries 1,735 15 - - 337 498 - - 2,585 160 10 - - 637 - 807
Net loan recoveries (losses) 1,647 15 - - (1,399 ) 386 - - 649 57 10 - - (1,102 ) - (1,035 )
Total allowance for loan losses $ 8,411 $ 3,599 $ 136 $ 1,408 $ 6,868 $ 1,031 $ 62 $ 4,844 $ 26,359 $ 8,593 $ 3,522 $ 112 $ 1,214 $ 6,984 $ 4,494 $ 24,919
Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
At March 31, 2017
Commercial Commercial Real Estate Construction Residential Real Estate Consumer Installment and Other Unallocated Total
(In thousands)
Allowance for loan losses:
Individually evaluated for impairment $ 4,991 $ - $ - $ - $ - $ - $ 4,991
Collectively evaluated for impairment 3,602 3,522 112 1,214 6,984 4,494 19,928
Purchased loans with evidence of credit deterioration - - - - - - -
Total $ 8,593 $ 3,522 $ 112 $ 1,214 $ 6,984 $ 4,494 $ 24,919
Carrying value of loans:
Individually evaluated for impairment $ 11,128 $ 15,243 $ - $ 217 $ - $ - $ 26,588
Collectively evaluated for impairment 343,345 549,838 1,880 79,264 349,303 - 1,323,630
Purchased loans with evidence of credit deterioration 27 523 - - 322 - 872
Total $ 354,500 $ 565,604 $ 1,880 $ 79,481 $ 349,625 $ - $ 1,351,090

The ~~decline in the~~ portion of the allowance for loan losses ascribed to ~~commercial loans was~~loan segments declined from March 31, 2016 to March 31, 2017 due to declines in classified ~~commercial loans.~~
Allowance for Loan Losses
For the Nine Months Ended September 30, 2016
Consumer Purchased Purchased
Commercial Residential Installment Non-covered Covered
Commercial Real Estate Construction Real Estate and Other Loans Loans Unallocated Total
(In thousands)
Allowance for loan losses:
Balance at beginning of period $ 9,559 $ 4,224 $ 177 $ 1,801 $ 7,080 $ 967 $ - $ 5,963 $ 29,771
Additions:
Provision (1,641 ) (670 ) (41 ) (393 ) 2,074 (1,472 ) 62 (1,119 ) (3,200 )
Deductions:
Chargeoffs (2,024 ) - - - (3,418 ) (150 ) - - (5,592 )
Recoveries 2,517 45 - - 1,132 1,686 - - 5,380
Net loan recoveries (losses) 493 45 - - (2,286 ) 1,536 - - (212 )
Total allowance for loan losses $ 8,411 $ 3,599 $ 136 $ 1,408 $ 6,868 $ 1,031 $ 62 $ 4,844 $ 26,359
Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
At September 30, 2016
Commercial Commercial
Real Estate Construction Residential
Real Estate Consumer
Installment
and Other Purchased
Non-covered
Loans Purchased
Covered
Loans Unallocated Total
(In thousands)
Allowance for loan losses:
Individually evaluated for impairment $ 5,070 $ 216 $ - $ - $ - $ - $ - $ - $ 5,286
Collectively evaluated for impairment 3,341 3,383 136 1,408 6,868 1,031 62 4,844 21,073
Purchased loans with evidence of credit deterioration - - - - - - - - -
Total $ 8,411 $ 3,599 $ 136 $ 1,408 $ 6,868 $ 1,031 $ 62 $ 4,844 $ 26,359
Carrying value of loans:
Individually evaluated for impairment $ 11,210 $ 5,270 $ - $ - $ - $ 6,125 $ - $ - $ 22,605
Collectively evaluated for impairment 320,219 475,680 2,282 91,934 335,629 103,189 11,555 - 1,340,488
Purchased loans with evidence of credit deterioration - - - - - 1,046 190 - 1,236
Total $ 331,429 $ 480,950 $ 2,282 $ 91,934 $ 335,629 $ 110,360 $ 11,745 $ - $ 1,364,329
loans, delinquent loans, and the overall loan portfolio. The decline in the unallocated portion was due to improved economic conditions within the Company’s geographic markets and credit quality metrics.

Management considers the $~~26.4~~$24.9 million allowance for loan losses to be adequate as a reserve against loan losses inherent in the loan portfolio as of ~~September 30, 2016.~~March 31, 2017.

See Note 4 to the unaudited consolidated financial statements for additional information related to the loan portfolio, loan portfolio credit risk, and allowance for loan losses.
~~- 48 -~~
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. Assets and liabilities may mature or re-price at different times. Assets and liabilities 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 assets or liabilities may shorten or lengthen as interest rates change. In addition, the changing levels of interest rates may have an impact on loan demand, demand for various deposit products, credit losses, and other elements of earnings such as account analysis fees on commercial deposit accounts and correspondent bank service charges.

-43-
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 Federal Reserve Board (the “FRB”). The monetary policies of the FRB can influence the overall growth of loans, investment securities, and deposits and the level of interest rates earned on assets and paid for liabilities. The nature and impact of future changes in monetary policies are generally not predictable.

Management expects a high level of uncertainty in regard to interest rate levels in the immediate term, and Management’s most likely earnings forecast for the twelve months ending ~~September 30, 2017~~March 31, 2018 assumes market interest rates will ~~either remain at relatively low levels or~~gradually rise, with short-term rates ~~will rise gradually.~~rising more than long-term rates.

In adjusting the Company's asset/liability position, 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 general 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 in order to manage its net interest margin and net interest income. 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 and short-term interest rates.

The Company’s asset and liability position was “neutral” to slightly “asset sensitive” at ~~September 30, 2016,~~March 31, 2017, depending on the interest rate assumptions applied to the simulation model employed by Management to measure interest rate risk. An “asset sensitive” position results in a slightly larger change in interest income than in interest expense resulting from application of assumed interest rate changes. Simulation estimates depend on, and will change with, the size and mix of the actual and projected balance sheet at the time of each simulation. Management continues to monitor the interest rate environment as well as economic conditions and other factors it deems relevant in managing the Company's exposure to interest rate 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.

Market Risk - Equity Markets

Equity price risk can affect the Company. As an example, any preferred or common stock holdings, as permitted by banking regulations, can fluctuate in value. Management regularly assesses the extent and duration of any declines in market value, the causes of such declines, the likelihood of a recovery in market value, and its intent to hold securities until a recovery in value occurs. Declines in value of preferred or common stock holdings that are deemed “other than temporary” could result in loss recognition 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 regularly 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.~~outstanding and potentially adding volatility to the book tax provision. Finally, the amount of compensation expense associated with share based compensation fluctuates with changes in and the volatility of the Company's common stock price.

~~- 49 -~~
Market Risk - Other

Market values of loan collateral can directly impact the level of loan chargeoffs and the provision for loan 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 recognize other than temporary impairment charges. Other types of market risk, such as foreign currency exchange risk, are not significant in the normal course of the Company's business activities.

-44-
Liquidity and Funding

The objective of liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund the Company's operations and meet obligations and other commitments on a timely basis and at a reasonable cost. The Company achieves this objective through the selection of asset and liability maturity mixes that it believes best meet its needs. The Company's liquidity position is enhanced by its ability to raise additional funds as needed in the wholesale markets.

In recent years, the Company's deposit base has provided the majority of the Company's funding requirements. This relatively stable and low-cost source of funds, along with shareholders' equity, provided98 percent of funding for average total assets in the first ~~nine months of 2016~~quarter 2017 and ~~97 percent~~ in ~~2015.~~2016. The stability of the Company’s funding from customer deposits is in part reliant on the confidence clients have in the Company. The Company places a very high priority in maintaining this confidence through conservative credit and capital management practices and by maintaining an appropriate level of liquidity reserves.

Liquidity is further provided by assets such as balances held at the Federal Reserve Bank, investment securities, and amortizing loans. The Company's investment securities portfolio provides a substantial secondary liquidity reserve. The Company held $~~3.2~~$3.2 billion in total investment securities at ~~September 30, 2016.~~March 31, 2017. Under certain deposit, borrowing and other arrangements, the Company must hold and pledge investment securities as collateral. At ~~September 30, 2016,~~March 31, 2017, such collateral requirements totaled approximately $~~756~~$774 million.

Liquidity risk can result from the mismatching of asset and liability cash flows, or from disruptions in the financial markets. The Company performs liquidity stress tests on a periodic basis to evaluate the sustainability of its liquidity. Under the stress testing, the Company assumes outflows of funds increase beyond expected levels. Measurement of such heightened outflows considers the composition of the Company’s deposit base, including any concentration of deposits, non-deposit funding such as short-term borrowings, and unfunded lending commitments. The Company 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 Federal Reserve Bank reserve requirements, and investment securities based on regulatory risk-weighting guidelines. Based on the results of the most recent liquidity stress test, Management is satisfied with the liquidity condition of the Bank and the Company. However, no assurance can be given the Bank or Company will not experience a period of reduced liquidity.

Management will monitor the Company’s cash levels throughout ~~2016.~~2017. Loan demand from credit worthy borrowers will be dictated by economic and competitive conditions. The Company 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 Company's sales efforts, delivery of superior customer service, new regulations and market conditions. The Company does not aggressively solicit higher-costing time deposits; as a result, Management anticipates such deposits will decline. Changes in interest rates, most notably rising interest rates, could impact deposit volumes. Depending on economic conditions, interest rate levels, liquidity management and a variety of other conditions, 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 Westamerica Bank (“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. 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~~ proceeds from the exercise of stock options, and Parent Company cash balances provided adequate cash ~~flow~~ for the Parent Company to pay shareholder dividends of $30$10 million in the first ~~nine months of 2016~~quarter 2017 and ~~$39~~$40 million in ~~2015,~~2016, and retire common stock in the amount of $-0- million in the first quarter 2017 and $6 million ~~and $15 million, respectively.~~in 2016. 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 have an impact on the Parent Company's ability to meet its ongoing cash obligations.

~~- 50 -~~ -45-
Capital Resources

The Company has historically generated high levels of earnings, which ~~provides~~provide a means of accumulating capital. The Company's net income as a percentage of average shareholders' equity (“return on equity” or “ROE”) has been~~11.0% (annualized)~~ 10.5% in the first ~~nine months of 2016~~quarter 2017 and ~~11.3%~~10.9% in ~~2015.~~2016. The Company also raises capital as employees exercise stock options. Capital raised through the exercise of stock options was $12$18 million in the first ~~nine months of 2016 compared with $5~~quarter 2017 and $24 million in ~~2015.~~2016.

The Company paid common dividends totaling $30$10 million in the first ~~nine months of 2016~~quarter 2017 and ~~$39~~$40 million in ~~2015,~~2016, which represent dividends per common share of $~~1.17, $1.53~~$0.39 and ~~$1.52,~~$1.56, 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 repurchased and retired its common stock as another means to return earnings to shareholders. The Company repurchased and retired -0- shares in the first quarter 2017 and 137 thousand shares valued at $6$6 million in ~~the first nine months of 2016 and 344 thousand shares valued at $15 million in 2015.~~2016.

The Company's primary capital resource is shareholders' equity, which was $~~563~~$585 million at ~~September 30, 2016~~March 31, 2017 compared with ~~$532~~$561 million at December 31, ~~2015.~~2016. The Company's ratio of equity to total assets was~~10.61~~% 10.84% at ~~September 30, 2016~~March 31, 2017 and ~~10.30%~~10.46% at December 31, ~~2015.~~2016.

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, unanticipated asset devaluations, and significant operational lapses. 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

On July 2, 2013, the Federal Reserve Board approved a final rule that implements changes to the regulatory capital framework for all banking organizations. The rule’s provisions which most affected the regulatory capital requirements of the Company and the Bank:

~~Introduced a new “Common Equity Tier 1” capital measurement,~~
~~Established higher minimum levels of capital,~~
~~Introduced a “capital conservation buffer,”~~
~~Increased the risk-weighting of certain assets, and~~
~~Established limits on the amount of deferred tax assets with any excess treated as a deduction from Tier 1 capital.~~
· Introduced a new “Common Equity Tier 1” capital measurement,
· Established higher minimum levels of capital,
· Introduced a “capital conservation buffer,”
· Increased the risk-weighting of certain assets, and
· Established limits on the amount of deferred tax assets with any excess treated as a deduction from Tier 1 capital.

Under the final rule, a banking organization that is not subject to the “advanced approaches rule” may make a one-time election not to include most elements of Accumulated Other Comprehensive Income, including net-of-tax unrealized gains and losses on available for sale investment securities, in regulatory capital. Neither the Company nor the Bank ~~are~~is subject to the “advanced approaches rule” and both made the election not to include most elements of Accumulated Other Comprehensive Income in regulatory capital.

Banking organizations that are not subject to the “advanced approaches rule” began complying with the final rule on January 1, 2015; on such date, the Company and the Bank became subject to the revised definitions of regulatory capital, the new minimum regulatory capital ratios, and various regulatory capital adjustments and deductions according to transition provisions and timelines. All banking organizations began calculating standardized total risk-weighted assets on January 1, 2015. The transition period for the capital conservation buffer for all banking organizations began on January 1, 2016 and will end January 1, 2019. Any bank subject to the rule which is unable to maintain its “capital conservation buffer” will be restricted in the payment of discretionary executive compensation and shareholder distributions, such as dividends and share repurchases.

~~- 51 -~~
The final rule did not supersede provisions of the Federal Deposit Insurance Corporation Improvement Act (FDICIA) requiring federal banking agencies to take prompt corrective action (PCA) to resolve problems of insured depository institutions. The final rule revised the PCA thresholds to incorporate the higher minimum levels of capital, including the “common equity tier 1” ratio.

-46-
The capital ratios for the Company and the Bank under the new capital framework are presented in the table ~~below.~~below, on the dates indicated.

Transitional Well-capitalized
Minimum Minimum by Regulatory To Be
Regulatory Regulatory Definition Required for Well-capitalized
Requirement Requirement Under FDICIA Capital Adequacy Purposes Under Prompt
At September 30, 2016 Effective Effective Effective At March 31, 2017 Effective Effective Corrective Action
Company Bank January 1, 2016 January 1, 2019 January 1, 2015 Company Bank January 1, 2017 January 1, 2019 Regulations (Bank)

Common Equity Tier I Capital 14.32 % 11.75 % 5.125 % ⁽¹⁾ 7.00 % ⁽²⁾ 6.50 % 15.85 % 11.97 % 5.75 %⁽¹⁾ 7.00 %⁽²⁾ 6.50 %
Tier I Capital 14.32 % 11.75 % 6.625 % ⁽¹⁾ 8.50 % ⁽²⁾ 8.00 % 15.85 % 11.97 % 7.25 %⁽¹⁾ 8.50 %⁽²⁾ 8.00 %
Total Capital 15.16 % 12.64 % 8.625 % ⁽¹⁾ 10.50 % ⁽²⁾ 10.00 % 16.91 % 13.24 % 9.25 %⁽¹⁾ 10.50 %⁽²⁾ 10.00 %
Leverage Ratio 8.30 % 6.76 % 4.000 % 4.00 % 5.00 % 8.84 % 6.64 % 4.00 % 4.00 % 5.00 %
⁽¹⁾ Includes 1.25% capital conservation buffer.
⁽²⁾ Includes 2.5% capital conservation buffer.
⁽¹⁾ ~~Includes 0.625% capital conservation buffer.~~
⁽²⁾ ~~Includes 2.5% capital conservation buffer.~~

Transitional Well-capitalized
Minimum Minimum by Regulatory
Regulatory Regulatory Definition
Requirement Requirement Under FDICIA
At December 31, 2015 Effective Effective Effective
Company Bank January 1, 2015 January 1, 2019 January 1, 2015

Common Equity Tier I Capital 12.82 % 11.00 % 4.50 %     7.00 % ⁽³⁾ 6.50 %
Tier I Capital 12.82 % 11.00 % 6.00 % 8.50 % ⁽³⁾ 8.00 %
Total Capital 13.39 % 11.68 % 8.00 % 10.50 % ⁽³⁾ 10.00 %
Leverage Ratio 7.99 % 6.82 % 4.00 % 4.00 % 5.00 %
To Be
Required for Well-capitalized
Capital Adequacy Purposes Under Prompt
At December 31, 2016 Effective Effective Corrective Action
Company Bank January 1, 2016 January 1, 2019 Regulations (Bank)

Common Equity Tier I Capital 14.85 % 11.70 % 5.125 %⁽³⁾ 7.00 %⁽⁴⁾ 6.50 %
Tier I Capital 14.85 % 11.70 % 6.625 %⁽³⁾ 8.50 %⁽⁴⁾ 8.00 %
Total Capital 15.95 % 13.02 % 8.625 %⁽³⁾ 10.50 %⁽⁴⁾ 10.00 %
Leverage Ratio 8.46 % 6.63 % 4.000 % 4.00 % 5.00 %
⁽³⁾ ~~Includes 2.5% capital conservation buffer.~~
⁽³⁾ Includes 0.625% capital conservation buffer.
⁽⁴⁾ Includes 2.5% capital conservation buffer.

The Company and the Bank routinely project capital levels by analyzing forecasted earnings, credit quality, securities valuations, shareholder dividends, asset volumes, share repurchase activity, stock option exercise proceeds, and other factors. Based on current capital projections, the Company and the Bank expect to maintain regulatory capital levels exceeding the highest effective regulatory standard and pay 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.
~~- 52 -~~
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) of the Securities Exchange Act of 1934, as amended, as of ~~September 30, 2016.~~March 31, 2017.

-47-
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,~~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 ~~September 30, 2016~~March 31, 2017 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

Neither the Company nor any of its subsidiaries is a party to any material pending legal proceeding, nor is ~~its~~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. None of these proceedings is expected to have a material adverse impact upon the Company’s business, financial position or results of operations.

Item 1A. Risk Factors

The Company’s Form 10-K as of December 31, ~~2015~~2016 includes detailed disclosure about the risks faced by the Company’s business; such risks have not materially changed since the Form 10-K was filed.

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

(a) Previously reported on Form 8-K.
(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), of common stock during the quarter ended ~~September 30, 2016~~March 31, 2017 (in thousands, except per share data).

~~2016~~2017
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)
~~July~~January 1 through ~~July~~January 31 - $ - - 1,750
~~August~~February 1 through ~~August 31~~February 28 - - - 1,750
~~September~~March 1 through ~~September 30~~March 31 - - - 1,750
Total - $ - - 1,750

The Company repurchases shares of its common stock in the open market on a discretionary basis 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.

~~- 53 -~~
No shares were repurchased during the period from ~~July~~January 1, ~~2016~~2017 through ~~September 30, 2016.~~March 31, 2017. A ~~replacement~~ program approved by the Board of Directors on July 28, 2016 ~~authorizes~~authorized the purchase of up to 1,750 thousand shares of the Company’s common stock from time to time prior to September 1, 2017.
-48-
Item 3. Defaults upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None~~(a) Submission of Matters to a Vote of Security Holders
The information required by this item is incorporated by reference to Item 5.07 to the Registrant’s Form 8-K, filed with the Securities and Exchange Commission on May 1, 2017.

Item 6. Exhibits

The exhibit list required by this item is incorporated by reference to the Exhibit Index filed with this report.

[The remainder of this page intentionally left blank]

~~- 54 -~~ -49-
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 hereunto duly authorized.

WESTAMERICA BANCORPORATION
(Registrant)

~~/s/ JOHN "ROBERT" THORSON~~
~~John "Robert" Thorson~~
~~Senior Vice President and Chief Financial Officer~~
~~(Chief Financial and Accounting Officer)~~
/s/ JOHN "ROBERT" THORSON
John "Robert" Thorson
Senior Vice President and Chief Financial Officer
(Chief Financial and Accounting Officer)
Date: ~~November 2, 2016~~May 5, 2017

~~- 55 -~~ -50-
EXHIBIT INDEX

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: Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended ~~September 30, 2016,~~March 31, 2017, is formatted in XBRL interactive data files: (i) Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015;~~2016; (ii) Consolidated Balance Sheets at ~~September 30, 2016,~~March 31, 2017, and December 31, ~~2015;~~2016; (iii) Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ (iv) Consolidated Statements of Changes in Shareholders’ Equity for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 and ~~2015;~~2016; (v) Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 and ~~2015~~2016; and (vi) Notes to the Unaudited Consolidated Financial Statements.

~~- 56 -~~

	At March 31, 2017			At December 31, 2016
	(In thousands)
Assets:
Cash and due from banks	$	546,815		$	462,271
Investment securities available for sale		1,893,309			1,890,758
Investment securities held to maturity, with fair values of: $1,296,738 at March 31, 2017 and $1,340,741 at December 31, 2016		1,298,414			1,346,312
Loans		1,351,090			1,352,711
Allowance for loan losses		(24,919	)		(25,954	)
Loans, net of allowance for loan losses		1,326,171			1,326,757
Other real estate owned		2,136			3,095
Premises and equipment, net		36,025			36,566
Identifiable intangibles, net		6,127			6,927
Goodwill		121,673			121,673
Other assets		165,277			171,724
Total Assets	$	5,395,947		$	5,366,083

Liabilities:
Noninterest-bearing deposits	$	2,046,390		$	2,089,443
Interest-bearing deposits		2,651,583			2,615,298
Total deposits		4,697,973			4,704,741
Short-term borrowed funds		73,611			59,078
Other liabilities		39,475			40,897
Total Liabilities		4,811,059			4,804,716

Contingencies (Note 10)

Shareholders' Equity:
Common stock (no par value), authorized - 150,000 shares Issued and outstanding: 26,283 at March 31, 2017 and 25,907 at December 31, 2016		422,670			404,606
Deferred compensation		1,533			1,533
Accumulated other comprehensive loss		(9,443	)		(10,074	)
Retained earnings		170,128			165,302
Total Shareholders' Equity		584,888			561,367
Total Liabilities and Shareholders' Equity	$	5,395,947		$	5,366,083

	For the Nine Months Ended September 30, 2016			For the Year Ended December 31, 2015
Impaired purchased loans	(In thousands)
Carrying amount at the beginning of the period	$	3,887		$	4,672
Reductions during the period		(2,651	)		(785	)
Carrying amount at the end of the period	$	1,236		$	3,887

	Impaired Loans At September 30, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
Impaired loans with no related allowance recorded:
Commercial	$	1,058	$	1,145	$	-
Commercial real estate		8,013		9,560		-
Construction		-		-		-
Residential real estate		533		563		-
Consumer installment and other		611		718		-

Impaired loans with an allowance recorded:
Commercial		10,202		10,211		5,070
Commercial real estate		4,410		5,427		216
Construction		-		-		-
Residential real estate		-		-		-
Consumer installment and other		-		-		-

Total:
Commercial	$	11,260	$	11,356	$	5,070
Commercial real estate		12,423		14,987		216
Construction		-		-		-
Residential real estate		533		563		-
Consumer installment and other		611		718		-

	Impaired Loans At March 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
Impaired loans with no related allowance recorded:
Commercial	$	1,080	$	1,148	$	-
Commercial real estate		15,766		17,788		-
Construction		-		-		-
Residential real estate		217		247		-
Consumer installment and other		517		623		-

Impaired loans with an allowance recorded:
Commercial		10,106		10,115		4,991
Commercial real estate		-		-		-
Construction		-		-		-
Residential real estate		-		-		-
Consumer installment and other		-		-		-

Total:
Commercial	$	11,186	$	11,263	$	4,991
Commercial real estate		15,766		17,788		-
Construction		-		-		-
Residential real estate		217		247		-
Consumer installment and other		517		623		-

	At September 30, 2016					At December 31, 2015
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
	(In thousands)
Core Deposit Intangibles	$	56,808	$	(49,263	)	$	56,808	$	(46,782	)
Merchant Draft Processing Intangible		10,300		(10,056	)		10,300		(9,895	)
Total Identifiable Intangible Assets	$	67,108	$	(59,319	)	$	67,108	$	(56,677	)

	Core Deposit Intangibles		Merchant Draft Processing Intangible		Total
	(In thousands)
For the Nine Months ended September 30, 2016 (actual)	$	2,481	$	161	$	2,642
Estimate for the remainder of year ended December 31, 2016		811		51		862
Estimate for year ended December 31, 2017		2,913		164		3,077
2018		1,892		29		1,921
2019		538		-		538
2020		287		-		287
2021		269		-		269

	Repurchase Agreements (Sweep) Accounted for as Secured Borrowings
	Remaining Contractual Maturity of the Agreements Overnight and Continuous
	At September 30, 2016		At December 31, 2015
Repurchase agreements:	(In thousands)
Collateral securing borrowings:
Securities of U.S. Government sponsored entities	$	86,034	$	98,969
Agency residential MBS		20,742		-
Obligations of states and political subdivisions		1,015		3,975
Corporate securities		91,160		54,681
Total collateral carrying value	$	198,951	$	157,625
Total short-term borrowed funds	$	56,358	$	53,028

	For the Three Months Ended
	March 31,			March 31,			December 31,
	2017			2016			2016
	(In thousands, except per share data)
Net Interest and Fee Income (FTE)⁽¹⁾	$	36,030		$	36,447		$	35,959
Provision for Loan Losses		-			-			-
Noninterest Income		11,657			11,729			11,545
Noninterest Expense		24,615			25,858			24,577
Income Before Income Taxes (FTE)⁽¹⁾		23,072			22,318			22,927
Provision for Income Taxes (FTE)⁽¹⁾		8,023			8,092			8,474
Net Income	$	15,049		$	14,226		$	14,453

Average Common Shares Outstanding		26,171			25,445			25,773
Average Diluted Common Shares Outstanding		26,329			25,468			25,925
Common Shares Outstanding at Period End		26,283			25,438			25,907

Per Common Share:
Basic Earnings	$	0.58		$	0.56		$	0.56
Diluted Earnings		0.57			0.56			0.56
Book Value Per Common Share	$	22.25		$	21.19		$	21.67

Financial Ratios:
Return On Assets		1.13	%		1.11	%		1.07	%
Return On Common Equity		10.48	%		10.85	%		10.30	%
Net Interest Margin (FTE)⁽¹⁾		3.14	%		3.34	%		3.15	%
Net Loan Losses to Average Loans		0.31	%		0.08	%		0.12	%
Efficiency Ratio⁽²⁾		51.6	%		53.7	%		51.7	%

Average Balances:
Assets	$	5,395,783		$	5,174,804		$	5,370,412
Earning Assets		4,620,001			4,381,423			4,561,619
Loans		1,355,250			1,500,616			1,356,350
Deposits		4,692,746			4,537,548			4,702,129
Shareholders' Equity		582,384			527,177			558,057

Period End Balances:
Assets	$	5,395,947		$	5,199,868		$	5,366,083
Earning Assets		4,542,813			4,417,305			4,589,781
Loans		1,351,090			1,473,196			1,352,711
Deposits		4,697,973			4,516,750			4,704,741
Shareholders' Equity		584,888			538,973			561,367

Capital Ratios at Period End:
Total Risk Based Capital		16.91	%		13.51	%		15.95	%
Tangible Equity to Tangible Assets		8.68	%		8.04	%		8.26	%

Dividends Paid Per Common Share	$	0.39		$	0.39		$	0.39
Common Dividend Payout Ratio		68	%		70	%		70	%

	For the Three Months Ended September 30, 2016							For the Three Months Ended March 31, 2017
			Interest							Interest
	Average		Income/		Yields/			Average		Income/		Yields/
	Balance		Expense		Rates			Balance		Expense		Rates
	($ in thousands)							($ in thousands)
Assets
Investment securities:
Taxable	$	2,265,883	$	11,024		1.95	%	$	2,433,669	$	12,147		2.00	%
Tax-exempt⁽¹⁾		837,248		8,415		4.02	%		831,082		8,294		3.99	%
Total investments⁽¹⁾		3,103,131		19,439		2.51	%		3,264,751		20,441		2.50	%
Loans:
Taxable		1,320,635		16,424		4.95	%		1,290,093		15,243		4.79	%
Tax-exempt⁽¹⁾		65,551		836		5.07	%		65,157		826		5.14	%
Total loans⁽¹⁾		1,386,186		17,260		4.95	%		1,355,250		16,069		4.81	%
Total Interest-earning assets⁽¹⁾		4,489,317		36,699		3.26	%		4,620,001		36,510		3.18	%
Other assets		764,185							775,782
Total assets	$	5,253,502						$	5,395,783

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,041,045	$	-		-	%	$	2,056,858	$	-		-	%
Savings and interest-bearing transaction		2,277,462		293		0.05	%		2,382,348		280		0.05	%
Time less than $100,000		152,142		95		0.25	%		141,400		83		0.24	%
Time $100,000 or more		118,113		124		0.42	%		112,140		106		0.38	%
Total interest-bearing deposits		2,547,717		512		0.08	%		2,635,888		469		0.07	%
Short-term borrowed funds		68,640		11		0.06	%		68,584		11		0.06	%
Total interest-bearing liabilities		2,616,357		523		0.08	%		2,704,472		480		0.07	%
Other liabilities		50,329							52,069
Shareholders' equity		545,771							582,384
Total liabilities and shareholders' equity	$	5,253,502						$	5,395,783
Net interest spread^{(1) (2)}						3.18	%						3.11	%
Net interest and fee income and interest margin^{(1) (3)}			$	36,176		3.21	%			$	36,030		3.14	%

	For the Nine Months Ended September 30, 2016							For the Three Months Ended December 31, 2016
			Interest							Interest
	Average		Income/		Yields/			Average		Income/		Yields/
	Balance		Expense		Rates			Balance		Expense		Rates
	($ in thousands)							($ in thousands)
Assets
Investment securities:
Taxable	$	2,165,463	$	31,256		1.92	%	$	2,351,530	$	11,462		1.95	%
Tax-exempt⁽¹⁾		835,737		25,632		4.09	%		853,739		8,471		3.97	%
Total investments⁽¹⁾		3,001,200		56,888		2.53	%		3,205,269		19,933		2.49	%
Loans:
Taxable		1,378,593		51,150		4.96	%		1,290,372		15,693		4.84	%
Tax-exempt⁽¹⁾		68,468		2,696		5.26	%		65,978		833		5.02	%
Total loans⁽¹⁾		1,447,061		53,846		4.97	%		1,356,350		16,526		4.85	%
Total Interest-earning assets⁽¹⁾		4,448,261		110,734		3.32	%
Total interest-earning assets ⁽¹⁾									4,561,619		36,459		3.19	%
Other assets		756,157							808,793
Total assets	$	5,204,418						$	5,370,412

Liabilities and shareholders' equity
Deposits:
Noninterest-bearing demand	$	2,010,058	$	-		-	%	$	2,077,213	$	-		-	%
Savings and interest-bearing transaction		2,265,775		878		0.05	%		2,364,695		288		0.05	%
Time less than $100,000		156,568		313		0.27	%		146,440		90		0.24	%
Time $100,000 or more		120,418		395		0.44	%		113,781		113		0.40	%
Total interest-bearing deposits		2,542,761		1,586		0.08	%		2,624,916		491		0.07	%
Short-term borrowed funds		62,823		30		0.06	%		56,669		9		0.06	%
Total interest-bearing liabilities		2,605,584		1,616		0.08	%		2,681,585		500		0.07	%
Other liabilities		51,766							53,557
Shareholders' equity		537,010							558,057
Total liabilities and shareholders' equity	$	5,204,418						$	5,370,412
Net interest spread^{(1) (2)}						3.24	%						3.12	%
Net interest and fee income and interest margin^{(1) (3)}			$	109,118		3.27	%			$	35,959		3.15	%

	For the Three Months Ended September 30, 2016									For the Three Months Ended March 31, 2017
	Compared with									Compared with
	For the Three Months Ended September 30, 2015									For the Three Months Ended March 31, 2016
	Volume			Yield/Rate			Total			Volume			Yield/Rate			Total
	(In thousands)									(In thousands)
Increase (decrease) in interest and loan fee income:
Investment securities:
Taxable	$	993		$	911		$	1,904		$	1,830		$	643		$	2,473
Tax-exempt⁽¹⁾		9			(506	)		(497	)		(33	)		(309	)		(342	)
Total investments⁽¹⁾		1,002			405			1,407			1,797			334			2,131
Loans:
Taxable		(2,462	)		167			(2,295	)		(1,697	)		(786	)		(2,483	)
Tax-exempt⁽¹⁾		(128	)		(49	)		(177	)		(84	)		(53	)		(137	)
Total loans⁽¹⁾		(2,590	)		118			(2,472	)		(1,781	)		(839	)		(2,620	)
Total (decrease) increase in interest and loan fee income⁽¹⁾		(1,588	)		523			(1,065	)
Total increase (decrease) in interest and loan fee income ⁽¹⁾											16			(505	)		(489	)
Increase (decrease) in interest expense:
Deposits:
Savings and interest-bearing transaction		20			(3	)		17			16			(29	)		(13	)
Time less than $100,000		(14	)		(24	)		(38	)		(13	)		(17	)		(30	)
Time $100,000 or more		(33	)		(7	)		(40	)		(13	)		(18	)		(31	)
Total interest-bearing deposits		(27	)		(34	)		(61	)		(10	)		(64	)		(74	)
Short-term borrowed funds		(1	)		-			(1	)		3			(1	)		2
Total decrease in interest expense		(28	)		(34	)		(62	)		(7	)		(65	)		(72	)
(Decrease) increase in net interest and loan fee income⁽¹⁾	$	(1,560	)	$	557		$	(1,003	)
Increase (decrease) in net interest and loan fee income ⁽¹⁾										$	23		$	(440	)	$	(417	)

	At September 30, 2016
	Amortized		Fair
	Cost		Value
	(In thousands)
Obligations of states and political subdivisions:
General obligation bonds:
California	$	110,820	$	115,071
Texas		69,205		70,598
New Jersey		40,198		41,236
Pennsylvania		39,844		40,367
Minnesota		33,019		33,761
Other (36 states)		277,560		286,215
Total general obligation bonds	$	570,646	$	587,248

Revenue bonds:
California	$	49,641	$	51,653
Kentucky		23,912		24,667
Pennsylvania		23,617		23,905
Iowa		18,103		18,638
Colorado		16,100		16,717
Other (30 states)		158,613		164,679
Total revenue bonds	$	289,986	$	300,259
Total obligations of states and political subdivisions	$	860,632	$	887,507

	At March 31,				At December 31,
	2017		2016		2016
	(In thousands)

Nonperforming nonaccrual loans	$	2,382	$	15,806	$	3,956
Performing nonaccrual loans		4,285		1,921		4,429
Total nonaccrual loans		6,667		17,727		8,385
Accruing loans 90 or more days past due		373		260		497
Total nonperforming loans		7,040		17,987		8,882
Other real estate owned		2,136		8,438		3,095
Total nonperforming assets	$	9,176	$	26,425	$	11,977

Nonperforming Assets
	At September 30,				At December 31,
	2016		2015		2015
	(In thousands)
Originated:
Nonperforming nonaccrual loans	$	1,198	$	7,578	$	6,302
Performing nonaccrual loans		4,410		-		350
Total nonaccrual loans		5,608		7,578		6,652
Accruing loans 90 or more days past due		438		481		295
Total nonperforming loans		6,046		8,059		6,947
Other real estate owned		666		5,834		5,829
Total nonperforming assets	$	6,712	$	13,893	$	12,776

Purchased covered:
Nonperforming nonaccrual loans	$	29	$	-	$	-
Performing nonaccrual loans		-		-		-
Total nonaccrual loans		29		-		-
Accruing loans 90 or more days past due		-		-		-
Total nonperforming loans		29		-		-
Other real estate owned		-		486		-
Total nonperforming assets	$	29	$	486	$	-

Purchased non-covered:
Nonperforming nonaccrual loans	$	634	$	8,784	$	8,346
Performing nonaccrual loans		22		84		-
Total nonaccrual loans		656		8,868		8,346
Accruing loans 90 or more days past due		49		-		-
Total nonperforming loans		705		8,868		8,346
Other real estate owned		2,366		2,949		3,435
Total nonperforming assets	$	3,071	$	11,817	$	11,781

Total nonperforming assets	$	9,812	$	26,196	$	24,557

	Allowance for Loan Losses
	For the Nine Months Ended September 30, 2016
													Consumer			Purchased			Purchased
				Commercial						Residential			Installment			Non-covered			Covered
	Commercial			Real Estate			Construction			Real Estate			and Other			Loans			Loans		Unallocated			Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	9,559		$	4,224		$	177		$	1,801		$	7,080		$	967		$	-	$	5,963		$	29,771
Additions:
Provision		(1,641	)		(670	)		(41	)		(393	)		2,074			(1,472	)		62		(1,119	)		(3,200	)
Deductions:
Chargeoffs		(2,024	)		-			-			-			(3,418	)		(150	)		-		-			(5,592	)
Recoveries		2,517			45			-			-			1,132			1,686			-		-			5,380
Net loan recoveries (losses)		493			45			-			-			(2,286	)		1,536			-		-			(212	)
Total allowance for loan losses	$	8,411		$	3,599		$	136		$	1,408		$	6,868		$	1,031		$	62	$	4,844		$	26,359

							Transitional								Well-capitalized
							Minimum				Minimum				by Regulatory															To Be
							Regulatory				Regulatory				Definition									Required for						Well-capitalized
							Requirement				Requirement				Under FDICIA									Capital Adequacy Purposes						Under Prompt
	At September 30, 2016						Effective				Effective				Effective			At March 31, 2017						Effective			Effective			Corrective Action
	Company			Bank			January 1, 2016				January 1, 2019				January 1, 2015			Company			Bank			January 1, 2017			January 1, 2019			Regulations (Bank)

Common Equity Tier I Capital		14.32	%		11.75	%		5.125	%	⁽¹⁾		7.00	%	⁽²⁾		6.50	%		15.85	%		11.97	%		5.75	%⁽¹⁾		7.00	%⁽²⁾		6.50	%
Tier I Capital		14.32	%		11.75	%		6.625	%	⁽¹⁾		8.50	%	⁽²⁾		8.00	%		15.85	%		11.97	%		7.25	%⁽¹⁾		8.50	%⁽²⁾		8.00	%
Total Capital		15.16	%		12.64	%		8.625	%	⁽¹⁾		10.50	%	⁽²⁾		10.00	%		16.91	%		13.24	%		9.25	%⁽¹⁾		10.50	%⁽²⁾		10.00	%
Leverage Ratio		8.30	%		6.76	%		4.000	%			4.00	%			5.00	%		8.84	%		6.64	%		4.00	%		4.00	%		5.00	%

	~~2016~~2017
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)
~~July~~January 1 through ~~July~~January 31		-	$	-		-		1,750
~~August~~February 1 through ~~August 31~~February 28		-		-		-		1,750
~~September~~March 1 through ~~September 30~~March 31		-		-		-		1,750
Total		-	$	-		-		1,750

~~/s/ JOHN "ROBERT" THORSON~~
~~John "Robert" Thorson~~
~~Senior Vice President and Chief Financial Officer~~
~~(Chief Financial and Accounting Officer)~~