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 June 30, 2019~~

For the quarterly period ended September 30, 2019

	☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
		~~For the transition period from __________ to __________.~~

For the transition period from __________ to __________.

Commission file number: 001-09383

WESTAMERICA BANCORPORATION

(Exact Name of Registrant as Specified in Its Charter)

California

94-2156203

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

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

Identification No.)

1108 Fifth Avenue, San Rafael, ~~California94901~~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 ☑~~

Yes ☑ No ☐

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

~~Yes ☑~~

Yes ☑ No ☐

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

Large accelerated filer ☑	Accelerated filer ☐		Non-accelerated filer ☐
Smaller reporting company ☐		Emerging growth company ☐

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

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

~~Yes ☐~~

~~No ☑~~

Yes ☐ No ☑

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	WABC	The Nasdaq Stock Market, LLC

Indicate 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 ~~July 29,~~October 28, 2019
Common Stock,		~~26,981,750~~	27,055,059
No Par Value

TABLE OF CONTENTS

	Page
Forward Looking Statements	3

PART I - FINANCIAL INFORMATION

Item 1 Financial Statements	4

Notes to Unaudited Consolidated Financial Statements	9

Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3 Quantitative and Qualitative Disclosures about Market Risk	5150

Item 4 Controls and Procedures	51

PART II - OTHER INFORMATION

Item 1 Legal Proceedings	51

Item 1A Risk Factors	51

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 3 Defaults upon Senior Securities	52

Item 4 Mine Safety Disclosures	52

Item 5 Other Information	52

Item 6 Exhibits	52

Signatures	53

Exhibit Index	54
Exhibit 10.1 - Westamerica Bancorporation 2019 Omnibus Equity Incentive Plan Stock Option Agreement Form	55
Exhibit 10.2 - Westamerica Bancorporation 2019 Omnibus Equity Incentive Plan Restricted Stock Unit Award Agreement Form	63
Exhibit 31.1 - Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)	5569

Exhibit 31.2 - Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)	5670

Exhibit 32.1 - Certification of Chief Executive Officer Required by 18 U.S.C. Section 1350	5771

Exhibit 32.2 - Certification of Chief Financial Officer Required by 18 U.S.C. Section 1350	5872

-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 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. However, the reader should not consider the above-mentioned factors to be a complete set of all potential risks or uncertainties.

Forward-looking statements speak only as of the date they are made. The Company undertakes no obligation to update any forward-looking statements in this report to reflect circumstances or events that occur after the date forward looking statements are made, except as may be required by law. The reader is directed to the Company's annual report on Form 10-K for the year ended December 31, 2018, for further discussion of factors which could affect the Company's business and cause actual results to differ materially from those expressed in any forward-looking statement made in this report.

-3-

PART I - FINANCIAL INFORMATION

Item 1 Financial Statements

WESTAMERICA BANCORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

At June 30,
2019

At December 31,
2018

(In thousands)

Assets:

Cash and due from banks
$ 418,586 $ 420,284
Equity securities
1,797 1,747
Debt securities available for sale
2,775,899 2,654,670
Debt securities held to maturity, with fair values of:

$872,976 at June 30, 2019 and $971,445 at December 31, 2018
867,989 984,609
Loans
1,161,712 1,207,202
Allowance for loan losses
(20,117 ) (21,351 )
Loans, net of allowance for loan losses
1,141,595 1,185,851
Other real estate owned
43 350
Premises and equipment, net
34,014 34,507
Identifiable intangibles, net
1,540 1,929
Goodwill
121,673 121,673
Other assets
160,312 162,906
Total Assets
$ 5,523,448 $ 5,568,526

Liabilities:

Noninterest-bearing deposits
$ 2,163,841 $ 2,243,251
Interest-bearing deposits
2,566,421 2,623,588
Total deposits
4,730,262 4,866,839
Short-term borrowed funds
54,581 51,247
Other liabilities
45,168 34,849
Total Liabilities
4,830,011 4,952,935

Contingencies (Note 10)

Shareholders' Equity:

Common stock (no par value), authorized - 150,000 shares Issued and outstanding: 26,962 at June 30, 2019 and 26,730 at December 31, 2018
459,369 448,351
Deferred compensation
771 1,395
Accumulated other comprehensive income (loss)
13,124 (39,996 )
Retained earnings
220,173 205,841
Total Shareholders' Equity
693,437 615,591
Total Liabilities and Shareholders' Equity
$ 5,523,448 $ 5,568,526

~~See accompanying notes to unaudited consolidated financial statements.~~WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
									(Unaudited)

~~-4-~~

	At September 30,			At December 31,
	2019			2018
	(In thousands)
Assets:
Cash and due from banks	$	415,639		$	420,284
Equity securities		-			1,747
Debt securities available for sale		2,983,767			2,654,670
Debt securities held to maturity, with fair values of: $799,241 at September 30, 2019 and $971,445 at December 31, 2018		793,216			984,609
Loans		1,133,229			1,207,202
Allowance for loan losses		(19,828	)		(21,351	)
Loans, net of allowance for loan losses		1,113,401			1,185,851
Other real estate owned		43			350
Premises and equipment, net		34,080			34,507
Identifiable intangibles, net		1,464			1,929
Goodwill		121,673			121,673
Other assets		152,772			162,906
Total Assets	$	5,616,055		$	5,568,526

Liabilities:
Noninterest-bearing deposits	$	2,265,640		$	2,243,251
Interest-bearing deposits		2,530,983			2,623,588
Total deposits		4,796,623			4,866,839
Short-term borrowed funds		45,646			51,247
Other liabilities		60,408			34,849
Total Liabilities		4,902,677			4,952,935

Contingencies (Note 10)

Shareholders' Equity:
Common stock (no par value), authorized - 150,000 shares
Issued and outstanding: 27,014 at September 30, 2019 and 26,730 at December 31, 2018		462,653			448,351
Deferred compensation		771			1,395
Accumulated other comprehensive income (loss)		20,454			(39,996	)
Retained earnings		229,500			205,841
Total Shareholders' Equity		713,378			615,591
Total Liabilities and Shareholders' Equity	$	5,616,055		$	5,568,526

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

For the Three Months

For the Six Months

Ended June 30,

2019

2018

2019

2018

(In thousands, except per share data)

Interest and Loan Fee Income:

Loans
$ 14,822 $ 14,957 $ 29,619 $ 29,654
Equity securities
99 86 197 171
Debt securities available for sale
17,823 14,323 35,344 27,874
Debt securities held to maturity
4,924 6,216 10,253 12,390
Interest-bearing cash
1,958 1,764 3,696 3,572
Total Interest and Loan Fee Income
39,626 37,346 79,109 73,661
Interest Expense:

Deposits
478 449 963 899
Short-term borrowed funds
9 10 18 19
Total Interest Expense
487 459 981 918
Net Interest and Loan Fee Income
39,139 36,887 78,128 72,743
Provision for Loan Losses
- - - -
Net Interest and Loan Fee Income After Provision for Loan Losses
39,139 36,887 78,128 72,743
Noninterest Income:

Service charges on deposit accounts
4,493 4,645 8,997 9,397
Merchant processing services
2,657 2,305 5,215 4,725
Debit card fees
1,641 1,698 3,148 3,303
Trust fees
749 726 1,466 1,469
ATM processing fees
722 698 1,355 1,362
Other service fees
585 650 1,162 1,281
Life insurance gains
433 - 433 -
Financial services commissions
93 141 194 255
Equity securities gains (losses)
26 (14 ) 50 (50 )
Other noninterest income
889 920 1,847 1,982
Total Noninterest Income
12,288 11,769 23,867 23,724
Noninterest Expense:

Salaries and related benefits
13,090 13,186 26,198 26,537
Occupancy and equipment
4,916 4,864 9,964 9,555
Outsourced data processing services
2,367 2,299 4,736 4,639
Loss contingency
553 - 553 -
Professional fees
481 871 1,146 1,656
Courier service
451 422 893 885
Amortization of identifiable intangibles
79 453 389 1,023
Other noninterest expense
3,624 3,646 6,865 7,468
Total Noninterest Expense
25,561 25,741 50,744 51,763
Income Before Income Taxes
25,866 22,915 51,251 44,704
Provision for income taxes
6,241 4,905 11,980 9,188
Net Income
$ 19,625 $ 18,010 $ 39,271 $ 35,516

Average Common Shares Outstanding
26,942 26,630 26,892 26,581
Average Diluted Common Shares Outstanding
26,987 26,728 26,950 26,696
Per Common Share Data:

Basic earnings
$ 0.73 $ 0.68 $ 1.46 $ 1.34
Diluted earnings
0.73 0.67 1.46 1.33
Dividends paid
0.41 0.40 0.81 0.80


~~See accompanying notes to unaudited consolidated financial statements.~~

~~-5-~~

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

For the Three Months

For the Six Months

Ended June 30,

2019

2018

2019

2018

(In thousands)

Net income
$ 19,625 $ 18,010 $ 39,271 $ 35,516
Other comprehensive income (loss):

Changes in net unrealized gains (losses) on debt securities available for sale
34,602 (9,154 ) 75,415 (42,000 )
Deferred tax (expense) benefit
(10,229 ) 2,706 (22,295 ) 12,415
Changes in net unrealized gains (losses) on debt securities available for sale, net of tax
24,373 (6,448 ) 53,120 (29,585 )
Total comprehensive income
$ 43,998 $ 11,562 $ 92,391 $ 5,931


~~See accompanying notes to unaudited consolidated financial statements.~~

~~-6-~~

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(unaudited)

Accumulated

Common

Other

Shares

Common

Deferred

Comprehensive

Retained

Outstanding

Stock

Compensation

(Loss) Income

Earnings

Total

(In thousands)

Balance, December 31, 2017 26,425 $ 431,734 $ 1,533 $ (16,832 ) $ 173,804 $ 590,239
Cumulative effect of equity securities losses reclassified
142 (142 ) -
Adjusted Balance, January 1, 2018 26,425 431,734 1,533 (16,690 ) 173,662 590,239
Reclass stranded tax effects resulting from the Tax Cuts and Jobs Act
(3,625 ) 3,625 -
Net income for the period
17,506 17,506
Other comprehensive loss
(23,137 ) (23,137 )
Exercise of stock options
166 7,534 7,534
Stock based compensation
- 525 525
Stock awarded to employees
- 24 24
Dividends ($0.40 per share)
(10,608 ) (10,608 )
Balance, March 31, 2018 26,591 $ 439,817 $ 1,533 $ (43,452 ) $ 184,185 $ 582,083
Net income for the period
18,010 18,010
Other comprehensive loss
(6,448 ) (6,448 )
Exercise of stock options
46 1,949 1,949
Restricted stock activity
20 1,143 1,143
Stock based compensation
- 525 525
Stock awarded to employees
1 53 53
Retirement of common stock
(9 ) (149 ) (375 ) (524 )
Dividends ($0.40 per share)
(10,653 ) (10,653 )
Balance, June 30, 2018 26,649 $ 443,338 $ 1,533 $ (49,900 ) $ 191,167 $ 586,138

Balance, December 31, 2018 26,730 $ 448,351 $ 1,395 $ (39,996 ) $ 205,841 $ 615,591
Cumulative effect of bond premium amortization adjustment, net of tax
(2,801 ) (2,801 )
Adjusted Balance, January 1, 2019
26,730 448,351 1,395 (39,996 ) 203,040 612,790
Net income for the period
19,646 19,646
Other comprehensive income
28,747 28,747
Shares issued from stock warrant exercise, net of repurchase
51 -
Exercise of stock options
120 5,771 5,771
Restricted stock activity
624 (624 ) -
Stock based compensation
- 541 541
Stock awarded to employees
- 17 17
Dividends ($0.40 per share)
(10,745 ) (10,745 )
Balance, March 31, 2019 26,901 $ 455,304 $ 771 $ (11,249 ) $ 211,941 $ 656,767
Net income for the period
19,625 19,625
Other comprehensive income
24,373 24,373
Exercise of stock options
50 2,539 2,539
Restricted stock activity
18 1,073 1,073
Stock based compensation
- 541 541
Stock awarded to employees
1 48 48
Retirement of common stock
(8 ) (136 ) (352 ) (488 )
Dividends ($0.41 per share)
(11,041 ) (11,041 )
Balance, June 30, 2019 26,962 $ 459,369 $ 771 $ 13,124 $ 220,173 $ 693,437

~~See accompanying notes to unaudited consolidated financial statements.~~

~~-7-~~

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

For the Six Months

Ended June 30,

2019

2018

(In thousands)

Operating Activities:

Net income
$ 39,271 $ 35,516
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization/accretion
9,852 12,594
Provision for loan losses
- -
Net amortization of deferred loan fees
(215 ) (112 )
Increase in interest income receivable
(673 ) (1,375 )
(Increase) decrease in income taxes receivable
(6,549 ) 2,556
Decrease (increase) in net deferred tax asset
4,902 (204 )
Increase in other assets
(20,013 ) (346 )
Stock option compensation expense
1,082 1,050
Increase in interest expense payable
44 50
(Decrease) increase in other liabilities
12,323 137
Equity securities (gains) losses
(50 ) 50
Life insurance gains
(433 ) -
Net writedown of premises and equipment
- 3
Net gain on sale of foreclosed assets
- (46 )
Writedown of foreclosed assets
- 27
Net Cash Provided by Operating Activities
$ 39,541 49,900

Investing Activities:

Net repayments of loans
44,721 89,041
Proceeds from life insurance policies
1,273 -
Purchases of debt securities available for sale
(418,223 ) (439,212 )
Proceeds from sale/maturity/calls of debt securities available for sale
368,216 220,037
Proceeds from maturity/calls of debt securities held to maturity
111,099 78,551
Purchases of premises and equipment
(1,425 ) (2,309 )
Proceeds from sale of foreclosed assets
307 506
Net Cash Provided by (Used in) Investing Activities
105,968 (53,386 )

Financing Activities:

Net change in deposits
(136,577 ) 59,509
Net change in short-term borrowings
3,334 10,423
Exercise of stock options
8,310 9,483
Retirement of common stock
(488 ) (524 )
Common stock dividends paid
(21,786 ) (21,261 )
Net Cash (Used in) Provided by Financing Activities
(147,207 ) 57,630
Net Change In Cash and Due from Banks (1,698 ) 54,144
Cash and Due from Banks at Beginning of Period
420,284 575,002
Cash and Due from Banks at End of Period
418,586 629,146

Supplemental Cash Flow Disclosures:

Supplemental disclosure of non cash activities:

Right-of-use assets acquired in exchange for operating lease liabilities
$ 23,087 $ -
Amount recognized upon initial adoption of ASU 2016-02 included above
15,325 -
Loan collateral transferred to other real estate owned
- -
Securities purchases pending settlement
- 3,159
Supplemental disclosure of cash flow activities:

Cash paid for amounts included in operating lease liabilities
3,411 -
Interest paid for the period
874 885
Income tax payments for the period
12,910 6,776

See accompanying notes to unaudited consolidated financial statements.

-4-

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	For the Three Months					For the Nine Months
	Ended September 30,
	2019		2018			2019		2018
	(In thousands, except per share data)
Interest and Loan Fee Income:
Loans	$	14,431	$	14,593		$	44,050	$	44,247
Equity securities		92		85			289		256
Debt securities available for sale		18,736		15,644			54,080		43,518
Debt securities held to maturity		4,535		5,931			14,788		18,321
Interest-bearing cash		1,901		2,361			5,597		5,933
Total Interest and Loan Fee Income		39,695		38,614			118,804		112,275
Interest Expense:
Deposits		447		518			1,410		1,417
Short-term borrowed funds		8		9			27		28
Total Interest Expense		455		527			1,437		1,445
Net Interest and Loan Fee Income		39,240		38,087			117,367		110,830
Provision for Loan Losses		-		-			-		-
Net Interest and Loan Fee Income After Provision for Loan Losses		39,240		38,087			117,367		110,830
Noninterest Income:
Service charges on deposit accounts		4,510		4,615			13,508		14,012
Merchant processing services		2,494		2,464			7,708		7,190
Debit card fees		1,641		1,656			4,789		4,959
Trust fees		733		733			2,199		2,202
ATM processing fees		725		687			2,080		2,049
Other service fees		580		665			1,742		1,946
Financial services commissions		75		132			270		387
Life insurance gains		-		585			433		585
Equity securities(losses) gains		-		(16	)		50		(66	)
Other noninterest income		1,051		1,007			2,897		2,988
Total Noninterest Income		11,809		12,528			35,676		36,252
Noninterest Expense:
Salaries and related benefits		12,559		13,415			38,757		39,952
Occupancy and equipment		5,199		4,809			15,163		14,365
Outsourced data processing services		2,374		2,292			7,110		6,930
Professional fees		645		621			1,791		2,277
Courier service		456		448			1,349		1,333
Amortization of identifiable intangibles		76		451			465		1,474
Loss contingency		-		3,500			553		3,500
Other noninterest expense		2,724		3,830			9,589		11,298
Total Noninterest Expense		24,033		29,366			74,777		81,129
Income Before Income Taxes		27,016		21,249			78,266		65,953
Provision for income taxes		6,626		4,256			18,605		13,444
Net Income	$	20,390	$	16,993		$	59,661	$	52,509

Average Common Shares Outstanding		26,986		26,701			26,924		26,622
Average Diluted Common Shares Outstanding		27,027		26,815			26,976		26,736
Per Common Share Data:
Basic earnings	$	0.76	$	0.64		$	2.22	$	1.97
Diluted earnings		0.75		0.63			2.21		1.96
Dividends paid		0.41		0.40			1.22		1.20

See accompanying notes to unaudited consolidated financial statements.

-5-

WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

	For the Three Months						For the Nine Months
	Ended September 30,
	2019			2018			2019			2018
	(In thousands)
Net income	$	20,390		$	16,993		$	59,661		$	52,509
Other comprehensive income (loss):
Changes in unrealized gains (losses) on debt securities available for sale		10,407			(5,915	)		85,822			(47,915	)
Deferred tax (expense) benefit		(3,077	)		1,749			(25,372	)		14,164
Changes in unrealized gains (losses) on debt securities available for sale, net of tax		7,330			(4,166	)		60,450			(33,751	)
Total comprehensive income	$	27,720		$	12,827		$	120,111		$	18,758

See accompanying notes to unaudited consolidated financial statements.

-6-

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(unaudited)

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

Balance, June 30, 2019		26,962		$	459,369		$	771		$	13,124		$	220,173		$	693,437
Net income for the period														20,390			20,390
Other comprehensive income											7,330						7,330
Exercise of stock options		52			2,867												2,867
Stock based compensation		-			402												402
Stock awarded to employees		-			15												15
Dividends ($0.41 per share)														(11,063	)		(11,063	)
Balance, September 30, 2019		27,014		$	462,653		$	771		$	20,454		$	229,500		$	713,378

Balance, June 30, 2018		26,649		$	443,338		$	1,533		$	(49,900	)	$	191,167		$	586,138
Net income for the period														16,993			16,993
Other comprehensive loss											(4,166	)					(4,166	)
Exercise of stock options		77			3,762												3,762
Restricted stock activity		-			138			(138	)								-
Stock based compensation		-			525												525
Stock awarded to employees		1			22												22
Dividends ($0.40 per share)														(10,683	)		(10,683	)
Balance, September 30, 2018		26,727		$	447,785		$	1,395		$	(54,066	)	$	197,477		$	592,591

Balance, December 31, 2018		26,730		$	448,351		$	1,395		$	(39,996	)	$	205,841		$	615,591
Cumulative effect of bond premium amortization adjustment, net of tax														(2,801	)		(2,801	)
Adjusted Balance, January 1, 2019		26,730			448,351			1,395			(39,996	)		203,040			612,790
Net income for the period														59,661			59,661
Other comprehensive income											60,450						60,450
Shares issued from stock warrant exercise, net of repurchase		51			-												-
Exercise of stock options		222			11,177												11,177
Restricted stock activity		18			1,697			(624	)								1,073
Stock based compensation		-			1,484												1,484
Stock awarded to employees		1			80												80
Retirement of common stock		(8	)		(136	)								(352	)		(488	)
Dividends ($1.22 per share)														(32,849	)		(32,849	)
Balance, September 30, 2019		27,014		$	462,653		$	771		$	20,454		$	229,500		$	713,378

Balance, December 31, 2017		26,425		$	431,734		$	1,533		$	(16,832	)	$	173,804		$	590,239
Cumulative effect of equity securities losses reclassified											142			(142	)		-
Adjusted Balance, January 1, 2018		26,425			431,734			1,533			(16,690	)		173,662			590,239
Reclass stranded tax effects resulting from the Tax Cuts and Jobs Act											(3,625	)		3,625			-
Net income for the period														52,509			52,509
Other comprehensive loss											(33,751	)					(33,751	)
Exercise of stock options		289			13,245												13,245
Restricted stock activity		20			1,281			(138	)								1,143
Stock based compensation		-			1,575												1,575
Stock awarded to employees		2			99												99
Retirement of common stock		(9	)		(149	)								(375	)		(524	)
Dividends ($1.20 per share)														(31,944	)		(31,944	)
Balance, September 30, 2018		26,727		$	447,785		$	1,395		$	(54,066	)	$	197,477		$	592,591

See accompanying notes to unaudited consolidated financial statements.

-7-

WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

	Ended September 30,
	2019			2018
	(In thousands)
Operating Activities:
Net income	$	59,661		$	52,509
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		15,178			18,964
Provision for loan losses		-			-
Net amortization of deferred loan fees		(215	)		(181	)
Decrease (increase) in interest income receivable		323			(177	)
Increase in other assets		(2,073	)		(1,896	)
(Decrease) increase in income taxes payable		(3,386	)		7,760
Decrease (increase) in net deferred tax asset		6,386			(1,345	)
Stock option compensation expense		1,484			1,575
Increase in interest expense payable		19			5
(Decrease) increase in other liabilities		(12,233	)		3,793
Life insurance gains		(433	)		(585	)
Equity securities (gains) losses		(50	)		66
Net writedown of premises and equipment		-			3
Net gain on sale of foreclosed assets		-			(94	)
Writedown of foreclosed assets		-			27
Net Cash Provided by Operating Activities		64,661			80,424
Investing Activities:
Net repayments of loans		73,026			91,594
Proceeds from life insurance policies		1,273			1,183
Purchases of debt securities available for sale		(732,690	)		(634,113	)
Proceeds from sale of equity securities		1,797			-
Proceeds from sale/maturity/calls of debt securities available for sale		502,928			290,663
Proceeds from maturity/calls of debt securities held to maturity		184,525			127,578
Purchases of premises and equipment		(2,495	)		(2,830	)
Proceeds from sale of foreclosed assets		307			873
Net Cash Provided by (Used in) Investing Activities		28,671			(125,052	)
Financing Activities:
Net change in deposits		(70,216	)		8,224
Net change in short-term borrowings		(5,601	)		3,285
Exercise of stock options		11,177			13,245
Retirement of common stock		(488	)		(524	)
Common stock dividends paid		(32,849	)		(31,944	)
Net Cash Used in Financing Activities		(97,977	)		(7,714	)
Net Change In Cash and Due from Banks		(4,645	)		(52,342	)
Cash and Due from Banks at Beginning of Period		420,284			575,002
Cash and Due from Banks at End of Period	$	415,639		$	522,660

Supplemental Cash Flow Disclosures:
Supplemental disclosure of non cash activities:
Right-of-use assets acquired in exchange for operating lease liabilities	$	23,587		$	-
Amount recognized upon initial adoption of ASU 2016-02 included above		15,325			-
Loan collateral transferred to other real estate owned		-			-
Securities purchases pending settlement		20,114			-
Supplemental disclosure of cash flow activities:
Cash paid for amounts included in operating lease liabilities		5,123			-
Interest paid for the period		1,417			1,440
Income tax payments for the period		16,021			7,028

See accompanying notes to unaudited consolidated financial statements.

-8-

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission and follow general practices within the banking industry. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and which, in the opinion of Management, are necessary for a fair presentation of the results for the interim periods presented. The interim results for the three and ~~six~~nine months ended ~~June~~September 30, 2019 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, 2018.

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, 2018. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, it is reasonably possible conditions could change materially affecting results of operations and financial conditions.

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.

Certain amounts in prior periods have been reclassified to conform to the current presentation.

Recently Adopted Accounting Standards

In the nine~~six~~ months ended ~~June~~September 30, 2019, the Company adopted the following new accounting guidance:

FASB 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 adopted the ASU provisions effective January 1, 2019, and elected the modified retrospective transition approach. The Company elected the package of practical expedients provided in the ASU, which allowed the Company to rely on lease classification determinations made under prior accounting guidance and forego reevaluation of (i) whether any existing contracts are or contain a lease, (ii) whether existing leases are operating or finance leases, and (iii) the initial direct cost for any existing leases. The Company also elected to combine lease and non-lease components and exempt short-term leases with an original term of one year or less from on-balance sheet recognition. The implementing entry recognized a lease liability of ~~$15.3~~$15.3 million and right-of-use asset of ~~$15.3~~$15.3 million for facilities leases. The change in occupancy and equipment expense was not material.

-9-

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 shortens the amortization period for certain callable debt securities held at a premium. Specifically, the ASU requires the premium to be amortized to the earliest call date. The ASU does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.
~~-9-~~

The Company adopted the ASU provisions on January 1, 2019. The implementing entry reduced the carrying value of investment securities, specifically obligations of states and political subdivisions, by ~~$3.1~~$3.1 million and reduced retained earnings by ~~$2.8~~$2.8 million, net of tax. The change in premium amortization method was not material to revenue recognition.
FASB ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, was issued August 2017. The ASU expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The ASU also provides for a one-time reclassification of prepayable assets from held-to-maturity (HTM) to available for sale (AFS) regardless of derivative use.
The Company adopted the ASU provisions on January 1, 2019. 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. The Company evaluated the prepayable assets in the HTM portfolio and did not effect a one-time reclassification of prepayable assets from HTM to the AFS upon implementation.
Recently Issued Accounting Standards
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 debt securities available-for-sale 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 has evaluated available data, defined portfolio segments of loans with similar attributes, and selected loss estimate models for each identified loan portfolio segment. Management has preliminarily measured historical loss rates for each portfolio segment. Management has also segmented debt securities held to maturity, selected methods to estimate losses for each segment, and preliminarily measured a loss estimate. The ultimate adjustment to the allowance for loan losses will be accomplished through an offsetting after-tax adjustment to shareholders’ equity. Economic conditions and the composition of the Company’s loan portfolio and debt securities held to maturity at the time of adoption will influence the extent of the adopting accounting adjustment. Management expects to develop an aggregate loss estimate by December 31, 2019.
FASB ASU 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, was issued August 2018. The ASU is part of the disclosure framework project, where the primary focus is to improve the effectiveness of disclosures in the financial statements. The ASU removes, modifies and adds disclosure requirements related to Fair Value Measurements.
The provisions of the ASU are effective January 1, 2020 with the option to early adopt any removed or modified disclosures upon issuance of the ASU. The Company early adopted the provisions to remove and/or modify relevant disclosures in the “Fair Value Measurements” note to the unaudited consolidated financial statements. The requirement to include additional disclosures will be adopted by the Company January 1, 2020. The additional disclosures will not affect the financial results upon adoption.
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-10-

Note 3: Investment Securities

Effective January 1, 2018, upon adoption of ASU 2016-01, equity securities included in the Company’s available for sale portfolio of $1,800 thousand were reclassified to equity securities. The reclassification of equity securities resulted in recording a cumulative effect adjustment to decrease retained earnings by $142 thousand, net of tax.

The Company had no equity securities at September 30, 2019 due to the sales of such securities during the third quarter 2019. The market value of equity securities was ~~$1,797 thousand and~~ $1,747 thousand at ~~June 30, 2019~~ ~~and~~ December 31, ~~2018,~~2018. ~~respectively.~~ During the ~~six~~nine months ended ~~June~~September 30, 2019, the Company recognized gross unrealized holding gains of $50 thousand in earnings. During the ~~six~~nine months ended ~~June~~September 30, 2018, the Company recognized gross unrealized holding losses of ~~$50~~$66 thousand in earnings.

An analysis of the amortized cost and fair value by major categories of debt securities available for sale, which are carried at fair value with net unrealized gains (losses) reported on an after-tax basis as a component of cumulative other comprehensive income, and debt securities held to maturity, which are carried at amortized cost, follows:

At June 30, 2019

At September 30, 2019

Gross

Gross

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

Cost

Gains

Losses

Value

(In thousands)

(In thousands)

Debt securities available for sale

Debt securities available for sale

U.S. Treasury securities
$ 44,473 $ 100 $ - $ 44,573 $ 44,758 $ 68 $ - $ 44,826
Securities of U.S. Government sponsored entities
167,239 69 (170 ) 167,138 122,245 23 (160 ) 122,108
Agency residential mortgage-backed securities (MBS)
987,024 8,236 (8,314 ) 986,946 976,066 10,294 (6,609 ) 979,751
Non-agency residential MBS
109 3 - 112 101 3 - 104
Agency commercial MBS
5,635 5 (19 ) 5,621 3,748 3 - 3,751
Securities of U.S. Government entities
815 - (7 ) 808 786 - (9 ) 777
Obligations of states and political subdivisions
172,268 3,486 (100 ) 175,654 161,506 3,944 (47 ) 165,403
Corporate securities
1,379,704 17,462 (2,119 ) 1,395,047 1,645,518 24,520 (2,991 ) 1,667,047
Total debt securities available for sale
2,757,267 29,361 (10,729 ) 2,775,899 2,954,728 38,855 (9,816 ) 2,983,767
Debt securities held to maturity

Debt securities held to maturity

Agency residential MBS
402,961 824 (3,861 ) 399,924 377,995 817 (2,647 ) 376,165
Non-agency residential MBS
2,610 96 - 2,706 2,471 62 - 2,533
Obligations of states and political subdivisions
462,418 7,947 (19 ) 470,346 412,750 7,804 (11 ) 420,543
Total debt securities held to maturity
867,989 8,867 (3,880 ) 872,976 793,216 8,683 (2,658 ) 799,241
Total
$ 3,625,256 $ 38,228 $ (14,609 ) $ 3,648,875 $ 3,747,944 $ 47,538 $ (12,474 ) $ 3,783,008

At December 31, 2018

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

(In thousands)

Debt securities available for sale

U.S. Treasury securities
$ 139,572 $ 5 $ (3 ) $ 139,574
Securities of U.S. Government sponsored entities
167,228 65 (3,275 ) 164,018
Agency residential MBS
883,715 595 (30,439 ) 853,871
Non-agency residential MBS
113 1 - 114
Agency commercial MBS
1,869 - (27 ) 1,842
Securities of U.S. Government entities
1,128 - (9 ) 1,119
Obligations of states and political subdivisions
180,220 1,856 (2,985 ) 179,091
Corporate securities
1,337,608 1,075 (23,642 ) 1,315,041
Total debt securities available for sale
2,711,453 3,597 (60,380 ) 2,654,670
Debt securities held to maturity

Agency residential MBS
447,332 249 (14,129 ) 433,452
Non-agency residential MBS
3,387 40 - 3,427
Obligations of states and political subdivisions
533,890 3,403 (2,727 ) 534,566
Total debt securities held to maturity
984,609 3,692 (16,856 ) 971,445
Total
$ 3,696,062 $ 7,289 $ (77,236 ) $ 3,626,115

-11-

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

At June 30, 2019

At September 30, 2019

Debt Securities Available

Debt Securities Held

Debt Securities Available

Debt Securities Held

for Sale

to Maturity

for Sale

to Maturity

Amortized

Fair

Amortized

Fair

Amortized

Fair

Amortized

Fair

Cost

Value

Cost

Value

Cost

Value

Cost

Value

(In thousands)

(In thousands)

Maturity in years:

Maturity in years:

1 year or less
$ 202,597 $ 202,637 $ 81,436 $ 81,589 $ 284,550 $ 285,060 $ 64,092 $ 64,247
Over 1 to 5 years
1,329,781 1,342,419 177,675 180,218 1,182,895 1,199,153 179,576 182,635
Over 5 to 10 years
193,678 199,098 202,280 207,471 471,434 478,841 169,082 173,661
Over 10 years
38,443 39,066 1,027 1,068 35,934 37,107 - -
Subtotal
1,764,499 1,783,220 462,418 470,346 1,974,813 2,000,161 412,750 420,543
MBS
992,768 992,679 405,571 402,630 979,915 983,606 380,466 378,698
Total
$ 2,757,267 $ 2,775,899 $ 867,989 $ 872,976 $ 2,954,728 $ 2,983,767 $ 793,216 $ 799,241

At December 31, 2018

Debt Securities Available

Debt Securities Held

for Sale

to Maturity

Amortized

Fair

Amortized

Fair

Cost

Value

Cost

Value

(In thousands)

Maturity in years:

1 year or less
$ 262,418 $ 261,976 $ 86,172 $ 86,148
Over 1 to 5 years
1,438,849 1,414,020 214,137 213,829
Over 5 to 10 years
85,817 85,877 232,544 233,515
Over 10 years
38,672 36,970 1,037 1,074
Subtotal
1,825,756 1,798,843 533,890 534,566
MBS
885,697 855,827 450,719 436,879
Total
$ 2,711,453 $ 2,654,670 $ 984,609 $ 971,445

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 ~~June~~September 30, 2019 and December 31, 2018, the Company had no0 high-risk collateralized mortgage obligations as defined by regulatory guidelines.
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-12-

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

Debt Securities Available for Sale

Debt Securities Available for Sale

At June 30, 2019

At September 30, 2019

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

Unrealized

Investment

Unrealized

Investment

Unrealized

Investment

Unrealized

Investment

Unrealized

Investment

Unrealized

Positions

Fair Value

Losses

Positions

Fair Value

Losses

Positions

Fair Value

Losses

Positions

Fair Value

Losses

Positions

Fair Value

Losses

Positions

Fair Value

Losses

($ in thousands)

($ in thousands)

Securities of U.S. Government sponsored entities
- $ - $ - 7 $ 77,714 $ (170 ) 7 $ 77,714 $ (170 ) 2 $ 19,970 $ (30 ) 4 $ 55,794 $ (130 ) 6 $ 75,764 $ (160 )
Agency residential MBS
- - - 54 533,982 (8,314 ) 54 533,982 (8,314 ) 1 3,750 (62 ) 49 400,690 (6,547 ) 50 404,440 (6,609 )
Agency commercial MBS
- - - 1 1,833 (19 ) 1 1,833 (19 )
Securities of U.S. Government entities
- - - 2 808 (7 ) 2 808 (7 ) - - - 2 777 (9 ) 2 777 (9 )
Obligations of states and political subdivisions
2 1,054 - 25 10,643 (100 ) 27 11,697 (100 ) - - - 9 4,692 (47 ) 9 4,692 (47 )
Corporate securities
2 10,692 (67 ) 32 275,533 (2,052 ) 34 286,225 (2,119 ) 16 146,067 (1,196 ) 21 166,633 (1,795 ) 37 312,700 (2,991 )
Total
4 $ 11,746 $ (67 ) 121 $ 900,513 $ (10,662 ) 125 $ 912,259 $ (10,729 ) 19 $ 169,787 $ (1,288 ) 85 $ 628,586 $ (8,528 ) 104 $ 798,373 $ (9,816 )

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

Debt Securities Held to Maturity

At June 30, 2019

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
1 $ 55 $ - 63 $ 350,418 $ (3,861 ) 64 $ 350,473 $ (3,861 )
Obligations of states
and political
subdivisions
- - - 13 10,516 (19 ) 13 10,516 (19 )
Total
1 $ 55 $ - 76 $ 360,934 $ (3,880 ) 77 $ 360,989 $ (3,880 )

Debt Securities Held to Maturity

At September 30, 2019

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
7 $ 13,020 $ (90 ) 57 $ 306,728 $ (2,557 ) 64 $ 319,748 $ (2,647 )
Obligations of states and political subdivisions
- - - 9 8,562 (11 ) 9 8,562 (11 )
Total
7 $ 13,020 $ (90 ) 66 $ 315,290 $ (2,568 ) 73 $ 328,310 $ (2,658 )
The unrealized losses on the Company’s debt securities were caused by market conditions for these types of investments, particularly changes in risk-free interest rates. The Company evaluates debt securities on a quarterly basis including changes in security ratings issued by rating agencies, changes in the financial condition of the issuer, 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. One corporate bond with an amortized cost of $15.0 million and a fair value of ~~$14.2~~$13.7 million at ~~June~~September 30, 2019, is rated below investment grade. 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 debt securities and has concluded that it is more likely than not that it will not be required to sell the debt securities prior to recovery of the amortized cost basis. Therefore, the Company does not consider these debt securities to be other-than-temporarily impaired as of ~~June~~September 30, 2019.

The fair values of the debt 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 debt securities declines. As a result, other than temporary impairments may occur in the future.

As of ~~June~~September 30, 2019 and December 31, 2018, the Company had debt securities pledged to secure public deposits and short-term borrowed funds of ~~$746,876~~$721,741 thousand and $728,161 thousand, respectively.

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-13-

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

Debt Securities Available for Sale

At December 31, 2018

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)

U.S. Treasury securities
2 $ 54,805 $ (3 ) - $ - $ - 2 $ 54,805 $ (3 )
Securities of U.S.
Government
sponsored entities
1 990 (5 ) 9 117,963 (3,270 ) 10 118,953 (3,275 )
Agency residential MBS
8 107,497 (507 ) 58 640,210 (29,932 ) 66 747,707 (30,439 )
Agency commercial
MBS
1 1,842 (27 ) - - - 1 1,842 (27 )
Securities of U.S.
Government entities
- - - 2 1,119 (9 ) 2 1,119 (9 )
Obligations of states
and political
subdivisions
32 26,452 (166 ) 71 67,121 (2,819 ) 103 93,573 (2,985 )
Corporate securities
38 308,157 (3,403 ) 79 722,740 (20,239 ) 117 1,030,897 (23,642 )
Total
82 $ 499,743 $ (4,111 ) 219 $ 1,549,153 $ (56,269 ) 301 $ 2,048,896 $ (60,380 )

Debt Securities Available for Sale

At December 31, 2018

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)

U.S. Treasury securities
2 $ 54,805 $ (3 ) - $ - $ - 2 $ 54,805 $ (3 )
Securities of U.S. Government sponsored entities
1 990 (5 ) 9 117,963 (3,270 ) 10 118,953 (3,275 )
Agency residential MBS
8 107,497 (507 ) 58 640,210 (29,932 ) 66 747,707 (30,439 )
Agency commercial MBS
1 1,842 (27 ) - - - 1 1,842 (27 )
Securities of U.S. Government entities
- - - 2 1,119 (9 ) 2 1,119 (9 )
Obligations of states and political subdivisions
32 26,452 (166 ) 71 67,121 (2,819 ) 103 93,573 (2,985 )
Corporate securities
38 308,157 (3,403 ) 79 722,740 (20,239 ) 117 1,030,897 (23,642 )
Total
82 $ 499,743 $ (4,111 ) 219 $ 1,549,153 $ (56,269 ) 301 $ 2,048,896 $ (60,380 )

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

Debt Securities Held to Maturity

Debt Securities Held to Maturity

At December 31, 2018

At December 31, 2018

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

Unrecognized

Investment

Unrecognized

Investment

Unrecognized

Positions

Fair Value

Losses

Positions

Fair Value

Losses

Positions

Fair Value

Losses

Positions

Fair Value

Losses

Positions

Fair Value

Losses

Positions

Fair Value

Losses

($ in thousands)

($ in thousands)

Agency residential MBS
16 $ 8,495 $ (34 ) 78 $ 412,574 $ (14,095 ) 94 $ 421,069 $ (14,129 ) 16 $ 8,495 $ (34 ) 78 $ 412,574 $ (14,095 ) 94 $ 421,069 $ (14,129 )
Non-agency residential
MBS
1 26 - - - - 1 26 - 1 26 - - - - 1 26 -
Obligations of states
and political
subdivisions
97 83,633 (271 ) 142 151,546 (2,456 ) 239 235,179 (2,727 ) 97 83,633 (271 ) 142 151,546 (2,456 ) 239 235,179 (2,727 )
Total
114 $ 92,154 $ (305 ) 220 $ 564,120 $ (16,551 ) 334 $ 656,274 $ (16,856 ) 114 $ 92,154 $ (305 ) 220 $ 564,120 $ (16,551 ) 334 $ 656,274 $ (16,856 )

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 Six Months

Ended June 30,

2019

2018

2019

2018

(In thousands)

Taxable
$ 18,773 $ 15,598 $ 37,406 $ 30,547
Tax-exempt from regular federal income tax
4,073 5,027 8,388 9,888
Total interest income from investment securities
$ 22,846 $ 20,625 $ 45,794 $ 40,435

For the Three Months

For the Nine Months

Ended September 30,

2019

2018

2019

2018

(In thousands)

Taxable
$ 19,586 $ 16,780 $ 56,992 $ 47,327
Tax-exempt from federal income tax
3,777 4,880 12,165 14,768
Total interest income from investment securities
$ 23,363 $ 21,660 $ 69,157 $ 62,095

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-14-

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

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

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

At June 30,

At December 31,

At September 30,

At December 31,

2019

2018

2019

2018

(In thousands)

(In thousands)

Commercial
$ 243,577 $ 275,080 $ 216,273 $ 275,080
Commercial Real Estate
577,665 580,480 579,227 580,480
Construction
5,482 3,982 6,678 3,982
Residential Real Estate
37,813 44,866 35,348 44,866
Consumer Installment & Other
297,175 302,794 295,703 302,794
Total
$ 1,161,712 $ 1,207,202 $ 1,133,229 $ 1,207,202

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

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

For the

For the

For the

For the

Six Months Ended

Year Ended

Nine Months Ended

Year Ended

June 30, 2019

December 31, 2018

September 30, 2019

December 31, 2018

Accretable yield:

(In thousands)

(In thousands)

Balance at the beginning of the period
$ 182 $ 738 $ 182 $ 738
Reclassification from nonaccretable difference
1,103 1,119 1,103 1,119
Accretion
(257 ) (1,675 ) (368 ) (1,675 )
Balance at the end of the period
$ 1,028 $ 182 $ 917 $ 182

Accretion
$ (257 ) $ (1,675 ) $ (368 ) $ (1,675 )
Change in FDIC indemnification
- 2 - 2
(Increase) in interest income
$ (257 ) $ (1,673 ) $ (368 ) $ (1,673 )

The following summarizes activity in the allowance for loan losses:

Allowance for Loan Losses

Allowance for Loan Losses

For the Three Months Ended June 30, 2019

For the Three Months Ended September 30, 2019

Consumer

Consumer

Commercial

Residential

Installment

Commercial

Residential

Installment

Commercial

Real Estate

Construction

Real Estate

and Other

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
$ 6,506 $ 3,927 $ 853 $ 261 $ 5,481 $ 3,449 $ 20,477 $ 5,235 $ 4,057 $ 1,117 $ 238 $ 5,418 $ 4,052 $ 20,117
(Reversal) provision
(1,346 ) 116 264 (23 ) 386 603 - (596 ) (1 ) 482 (16 ) 655 (524 ) -
Chargeoffs
(48 ) - - - (925 ) - (973 ) - - - - (1,039 ) - (1,039 )
Recoveries
123 14 - - 476 - 613 233 12 - - 505 - 750
Total allowance for loan losses
$ 5,235 $ 4,057 $ 1,117 $ 238 $ 5,418 $ 4,052 $ 20,117 $ 4,872 $ 4,068 $ 1,599 $ 222 $ 5,539 $ 3,528 $ 19,828

Allowance for Loan Losses

For the Six Months Ended June 30, 2019

Consumer

Commercial

Residential

Installment

Commercial

Real Estate

Construction

Real Estate

and Other

Unallocated

Total

(In thousands)

Allowance for loan losses:

Balance at beginning of period
$ 6,311 $ 3,884 $ 1,465 $ 869 $ 5,645 $ 3,177 $ 21,351
(Reversal) provision
(1,221 ) 147 (348 ) (631 ) 1,178 875 -
Chargeoffs
(71 ) - - - (2,293 ) - (2,364 )
Recoveries
216 26 - - 888 - 1,130
Total allowance for loan losses
$ 5,235 $ 4,057 $ 1,117 $ 238 $ 5,418 $ 4,052 $ 20,117

Allowance for Loan Losses

For the Nine Months Ended September 30, 2019

Consumer

Commercial

Residential

Installment

Commercial

Real Estate

Construction

Real Estate

and Other

Unallocated

Total

(In thousands)

Allowance for loan losses:

Balance at beginning of period
$ 6,311 $ 3,884 $ 1,465 $ 869 $ 5,645 $ 3,177 $ 21,351
(Reversal) provision
(1,817 ) 146 134 (647 ) 1,833 351 -
Chargeoffs
(71 ) - - - (3,332 ) - (3,403 )
Recoveries
449 38 - - 1,393 - 1,880
Total allowance for loan losses
$ 4,872 $ 4,068 $ 1,599 $ 222 $ 5,539 $ 3,528 $ 19,828

-15-

Allowance for Loan Losses

Allowance for Loan Losses

For the Three Months Ended June 30, 2018

For the Three Months Ended September 30, 2018

Consumer

Consumer

Commercial

Residential

Installment

Commercial

Residential

Installment

Commercial

Real Estate

Construction

Real Estate

and Other

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
$ 8,517 $ 3,824 $ 175 $ 908 $ 5,739 $ 3,918 $ 23,081 $ 8,275 $ 3,789 $ 210 $ 1,064 $ 5,943 $ 3,759 $ 23,040
(Reversal) provision
(662 ) (35 ) 35 156 665 (159 ) - (184 ) 372 44 (120 ) (137 ) 25 -
Chargeoffs
- - - - (805 ) - (805 ) (384 ) (240 ) - - (845 ) - (1,469 )
Recoveries
420 - - - 344 - 764 103 - - - 353 - 456
Total allowance for loan losses
$ 8,275 $ 3,789 $ 210 $ 1,064 $ 5,943 $ 3,759 $ 23,040 $ 7,810 $ 3,921 $ 254 $ 944 $ 5,314 $ 3,784 $ 22,027

Allowance for Loan Losses

Allowance for Loan Losses

For the Six Months Ended June 30, 2018

For the Nine Months Ended September 30, 2018

Consumer

Consumer

Commercial

Residential

Installment

Commercial

Residential

Installment

Commercial

Real Estate

Construction

Real Estate

and Other

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
$ 7,746 $ 3,849 $ 335 $ 995 $ 6,418 $ 3,666 $ 23,009 $ 7,746 $ 3,849 $ 335 $ 995 $ 6,418 $ 3,666 $ 23,009
(Reversal) provision
(679 ) (60 ) (125 ) 69 702 93 - (863 ) 312 (81 ) (51 ) 565 118 -
Chargeoffs
(41 ) - - - (2,170 ) - (2,211 ) (425 ) (240 ) - - (3,015 ) - (3,680 )
Recoveries
1,249 - - - 993 - 2,242 1,352 - - - 1,346 - 2,698
Total allowance for loan losses
$ 8,275 $ 3,789 $ 210 $ 1,064 $ 5,943 $ 3,759 $ 23,040 $ 7,810 $ 3,921 $ 254 $ 944 $ 5,314 $ 3,784 $ 22,027

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

Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment

Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment

At June 30, 2019

At September 30, 2019

Commercial

Commercial Real Estate

Construction

Residential Real Estate

Consumer Installment and Other

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
$ 2,587 $ - $ - $ - $ - $ - $ 2,587 $ 2,550 $ - $ - $ - $ - $ - $ 2,550
Collectively evaluated for impairment
2,648 4,057 1,117 238 5,418 4,052 17,530 2,322 4,068 1,599 222 5,539 3,528 17,278
Total
$ 5,235 $ 4,057 $ 1,117 $ 238 $ 5,418 $ 4,052 $ 20,117 $ 4,872 $ 4,068 $ 1,599 $ 222 $ 5,539 $ 3,528 $ 19,828
Carrying value of loans:

Individually evaluated for impairment
$ 9,368 $ 6,531 $ - $ 195 $ 77 $ - $ 16,171 $ 8,647 $ 7,445 $ - $ 193 $ 44 $ - $ 16,329
Collectively evaluated for impairment
234,209 571,134 5,482 37,618 297,098 - 1,145,541 207,626 571,782 6,678 35,155 295,659 - 1,116,900
Total
$ 243,577 $ 577,665 $ 5,482 $ 37,813 $ 297,175 $ - $ 1,161,712 $ 216,273 $ 579,227 $ 6,678 $ 35,348 $ 295,703 $ - $ 1,133,229

Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment

At December 31, 2018

Commercial

Commercial Real Estate

Construction

Residential Real Estate

Consumer Installment and Other

Unallocated

Total

(In thousands)

Allowance for loan losses:

Individually evaluated for impairment
$ 2,752 $ - $ - $ - $ - $ - $ 2,752
Collectively evaluated for impairment
3,559 3,884 1,465 869 5,645 3,177 18,599
Total
$ 6,311 $ 3,884 $ 1,465 $ 869 $ 5,645 $ 3,177 $ 21,351
Carrying value of loans:

Individually evaluated for impairment
$ 9,944 $ 8,438 $ - $ 717 $ 143 $ - $ 19,242
Collectively evaluated for impairment
265,136 572,042 3,982 44,149 302,651 - 1,187,960
Total
$ 275,080 $ 580,480 $ 3,982 $ 44,866 $ 302,794 $ - $ 1,207,202

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

-16-

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

Credit Risk Profile by Internally Assigned Grade

At June 30, 2019

Commercial

Commercial Real Estate

Construction

Residential Real Estate

Consumer Installment and Other

Total

(In thousands)

Grade:

Pass
$ 234,053 $ 566,359 $ 5,482 $ 36,076 $ 295,177 $ 1,137,147
Substandard
9,524 11,306 - 1,737 1,551 24,118 ��
Doubtful
- - - - 271 271
Loss
- - - - 176 176
Total
$ 243,577 $ 577,665 $ 5,482 $ 37,813 $ 297,175 $ 1,161,712

Credit Risk Profile by Internally Assigned Grade

At September 30, 2019

Commercial

Commercial Real Estate

Construction

Residential Real Estate

Consumer Installment and Other

Total

(In thousands)

Grade:

Pass
$ 207,350 $ 568,009 $ 6,678 $ 33,629 $ 293,893 $ 1,109,559
Substandard
8,923 11,218 - 1,719 1,395 23,255
Doubtful
- - - - 111 111
Loss
- - - - 304 304
Total
$ 216,273 $ 579,227 $ 6,678 $ 35,348 $ 295,703 $ 1,133,229

Credit Risk Profile by Internally Assigned Grade

At December 31, 2018

Commercial

Commercial Real Estate

Construction

Residential Real Estate

Consumer Installment and Other

Total

(In thousands)

Grade:

Pass
$ 264,634 $ 567,578 $ 3,982 $ 43,112 $ 300,553 $ 1,179,859
Substandard
10,446 12,902 - 1,754 1,556 26,658
Doubtful
- - - - 135 135
Loss
- - - - 550 550
Total
$ 275,080 $ 580,480 $ 3,982 $ 44,866 $ 302,794 $ 1,207,202

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

Summary of Loans by Delinquency and Nonaccrual Status

Summary of Loans by Delinquency and Nonaccrual Status

At June 30, 2019

At September 30, 2019

Current and Accruing

30-59 Days Past Due and Accruing

60-89 Days Past Due and Accruing

Past Due 90 Days or More and Accruing

Nonaccrual

Total Loans

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
$ 243,187 $ 290 $ - $ - $ 100 $ 243,577 $ 215,787 $ 339 $ 119 $ 2 $ 26 $ 216,273
Commercial real estate
570,463 3,472 60 - 3,670 577,665 574,321 729 - - 4,177 579,227
Construction
5,482 - - - - 5,482 6,678 - - - - 6,678
Residential real estate
37,533 280 - - - 37,813 34,064 828 456 - - 35,348
Consumer installment and other
293,684 2,404 761 249 77 297,175 291,638 2,879 737 349 100 295,703
Total
$ 1,150,349 $ 6,446 $ 821 $ 249 $ 3,847 $ 1,161,712 $ 1,122,488 $ 4,775 $ 1,312 $ 351 $ 4,303 $ 1,133,229

Summary of Loans by Delinquency and Nonaccrual Status

At December 31, 2018

Current and Accruing

30-59 Days Past Due and Accruing

60-89 Days Past Due and Accruing

Past Due 90 Days or More and Accruing

Nonaccrual

Total Loans

(In thousands)

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

There ~~wereno~~were 0 commitments to lend additional funds to borrowers whose loans were on nonaccrual status at ~~June~~September 30, 2019 and December 31, 2018.

-17-

The following summarizes impaired loans:

Impaired Loans

Impaired Loans

At June 30, 2019

At December 31, 2018

At September 30, 2019

At December 31, 2018

Unpaid

Unpaid

Unpaid

Unpaid

Recorded

Principal

Related

Recorded

Principal

Related

Recorded

Principal

Related

Recorded

Principal

Related

Investment

Balance

Allowance

Investment

Balance

Allowance

Investment

Balance

Allowance

Investment

Balance

Allowance

(In thousands)

(In thousands)

With no related allowance recorded:

Commercial
$ 755 $ 755 $ - $ 755 $ 759 $ - $ 72 $ 72 $ - $ 755 $ 759 $ -
Commercial real estate
6,531 7,978 - 8,438 10,373 - 7,953 9,400 - 8,438 10,373 -
Residential real estate
195 225 - 717 747 - 193 224 - 717 747 -
Consumer installment and other
77 112 - 270 377 - 144 178 - 270 377 -
Total with no related allowance recorded
7,558 9,070 - 10,180 12,256 - 8,362 9,874 - 10,180 12,256 -

With an allowance recorded:

Commercial
8,613 8,613 2,587 9,189 9,189 2,752 8,600 8,600 2,550 9,189 9,189 2,752
Commercial real estate
- - - - - -
Total with an allowance recorded
8,613 8,613 2,587 9,189 9,189 2,752 8,600 8,600 2,550 9,189 9,189 2,752
Total
$ 16,171 $ 17,683 $ 2,587 $ 19,369 $ 21,445 $ 2,752 $ 16,962 $ 18,474 $ 2,550 $ 19,369 $ 21,445 $ 2,752

Impaired loans include troubled debt restructured loans. Impaired loans at ~~June~~September 30, 2019, included ~~$7,434~~$6,754 thousand of restructured loans, $3,670 thousand of which were on nonaccrual status. Impaired loans at December 31, 2018, included $8,579 thousand of restructured loans, $4,225 thousand of which were on nonaccrual status.

Impaired Loans

Impaired Loans

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2019

2018

2019

2018

2019

2018

2019

2018

Average

Recognized

Average

Recognized

Average

Recognized

Average

Recognized

Average

Recognized

Average

Recognized

Average

Recognized

Average

Recognized

Recorded

Interest

Recorded

Interest

Recorded

Interest

Recorded

Interest

Recorded

Interest

Recorded

Interest

Recorded

Interest

Recorded

Interest

Investment

Income

Investment

Income

Investment

Income

Investment

Income

Investment

Income

Investment

Income

Investment

Income

Investment

Income

(In thousands)

(In thousands)

Commercial
$ 9,662 $ 165 $ 10,689 $ 145 $ 9,755 $ 332 $ 10,793 $ 320 $ 8,701 $ 144 $ 10,426 $ 175 $ 9,404 $ 476 $ 10,671 $ 495
Commercial real estate
6,539 126 11,837 211 $ 6,716 273 12,796 426 7,968 60 11,282 189 7,133 333 12,291 615
Residential real estate
196 3 205 4 $ 197 6 206 8 194 4 203 4 196 10 205 12
Consumer installment and other
77 - 254 3 $ 105 - 305 6 99 - 173 4 103 - 261 10
Total
$ 16,474 $ 294 $ 22,985 $ 363 $ 16,773 $ 611 $ 24,100 $ 760 $ 16,962 $ 208 $ 22,084 $ 372 $ 16,836 $ 819 $ 23,428 $ 1,132

The following tables provide information on troubled debt restructurings:

Troubled Debt Restructurings

Troubled Debt Restructurings

At June 30, 2019

At September 30, 2019

Period-End

Period-End

Individual

Individual

Number of

Pre-Modification

Period-End

Impairment

Number of

Pre-Modification

Period-End

Impairment

Contracts

Carrying Value

Carrying Value

Allowance

Contracts

Carrying Value

Carrying Value

Allowance

($ in thousands)

($ in thousands)

Commercial
4 $ 2,274 $ 708 $ 19 3 $ 327 $ 44 $ 18
Commercial real estate
6 8,367 6,531 - 6 8,830 6,517 -
Residential real estate
1 241 195 - 1 241 193 -
Total
11 $ 10,882 $ 7,434 $ 19 10 $ 9,398 $ 6,754 $ 18

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-18-

Troubled Debt Restructurings

At December 31, 2018

Period-End

Individual

Number of

Pre-Modification

Period-End

Impairment

Contracts

Carrying Value

Carrying Value

Allowance

($ in thousands)

Commercial
4 $ 2,274 $ 811 $ 19
Commercial real estate
8 9,237 7,568 -
Residential real estate
1 241 200 -
Total
13 $ 11,752 $ 8,579 $ 19

During the three and ~~six~~nine months ended ~~June~~September 30, 2019 and ~~June~~September 30, 2018, the Company did not modify any loans that were considered troubled debt restructurings, and had no0 troubled debt restructured loans that defaulted within 12 months of the modification date. A troubled debt restructuring is considered to be in default when payments are ninety days or more past due.

There were no0 loans restricted due to collateral requirements at ~~June~~September 30, 2019 and December 31, 2018.

There ~~wereno~~were 0 loans held for sale at ~~June~~September 30, 2019 and December 31, 2018.

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

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 ~~June~~September 30, 2019, the Bank did not have credit extended to any one entity exceeding these limits. At ~~June~~September 30, 2019, the Bank had 33 lending relationships each with aggregate amounts of $5 million or more. The Company has significant credit arrangements that are secured by real estate collateral. In addition to real estate loans outstanding as disclosed in Note 4, the Company had loan commitments related to real estate loans of ~~$49,166~~$44,964 thousand and $53,891 thousand at ~~June~~September 30, 2019 and December 31, 2018, 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 ~~June~~September 30, 2019, the Bank held corporate bonds in 7788 issuing entities that exceeded $5 million for each issuer.

[The remainder of this page intentionally left blank]

-19-

Note 6: Other Assets and Other Liabilities

Other assets consisted of the following:

At June 30,

At December 31,

At September 30,

At December 31,

2019

2018

2019

2018

(In thousands)

(In thousands)

Cost method equity investments:

Federal Reserve Bank stock ⁽¹⁾
$ 14,069 $ 14,069 $ 14,069 $ 14,069
Other investments
158 158 158 158
Total cost method equity investments
14,227 14,227 14,227 14,227
Life insurance cash surrender value
56,528 56,083 57,169 56,083
Net deferred tax asset
15,375 42,256 11,947 42,256
Right-of-use asset
20,506 - 19,721 -
Limited partnership investments
8,743 10,219 8,143 10,219
Interest receivable
26,507 25,834 25,511 25,834
Prepaid assets
3,717 4,658 3,530 4,658
Other assets
14,709 9,629 12,524 9,629
Total other assets
$ 160,312 $ 162,906 $ 152,772 $ 162,906

⁽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 6six 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 net deferred tax asset at ~~June~~September 30, 2019 of ~~$15,375~~$11,947 thousand was net of deferred tax obligations of ~~$5,509~~$8,585 thousand related to available for sale debt securities unrealized gains. The net deferred tax asset at December 31, 2018 of $42,256 thousand included deferred tax benefits of $16,787 thousand related to available for sale debt securities unrealized losses.

The Company owns 211 thousand shares of Visa Inc. class B common stock which have transfer restrictions; the carrying value is $-0- thousand. On ~~July 5, 2018,~~September 30, 2019, Visa Inc. announced a ~~new~~revised conversion rate applicable to its class B common stock resulting from its ~~June 28, 2018~~September 27, 2019 deposit of funds into its litigation escrow account. This funding reduced the conversion rate of class B common stock into class A common stock, which is unrestricted and trades actively on the New York Stock Exchange, from 1.6298 to ~~1.6298~~1.6228 per ~~share.~~ share, effective as of September 27, 2019. Visa Inc. class A common stock had a closing price of ~~$173.55~~$172.01 per share on ~~June 28,~~September 30, 2019, the last day of stock market trading for the ~~second~~third quarter 2019. The ultimate value of the Company’s Visa Inc. class B shares is subject to the extent of Visa Inc.’s future litigation escrow fundings, the resulting conversion rate to class A common stock, and current and future trading restrictions on the class B common stock.

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 ~~June~~September 30, 2019, this investment totaled ~~$8,743~~$8,143 thousand and ~~$4,766~~~~[WU10]~~$4,754 thousand of this amount represents outstanding equity capital commitments that are included in other liabilities. At December 31, 2018, this investment totaled $10,219 thousand and $4,799~~[WU11]~~ thousand of this amount represented outstanding equity capital commitments. At ~~June~~September 30, 2019, the ~~$4,766~~$4,754 thousand of outstanding equity capital commitments are expected to be paid as follows, $601 thousand in the remainder of 2019, $2,027 thousand in 2020, $138 thousand in 2021, $261 thousand in 2022, $134 thousand in 2023, $1,041 thousand in 2024 and ~~$564~~$552 thousand in 2025 or thereafter.

The amounts recognized in net income for these investments include:

For the Three Months Ended

For the Six Months Ended

June 30,

2019

2018

2019

2018

(In thousands)

Investment loss included in pre-tax income
$ 600 $ 700 $ 1,200 $ 1,300
Tax credits recognized in provision for income taxes
225 336 450 672

For the Three Months Ended

For the Nine Months Ended

September 30,

2019

2018

2019

2018

(In thousands)

Investment loss included in pre-tax income
$ 600 $ 900 $ 1,800 $ 2,200
Tax credits recognized in provision for income taxes
225 336 675 1,008

-20-

Other liabilities consisted of the following:

At June 30,

At December 31,

2019

2018

(In thousands)

Operating lease liability
$ 20,506 $ -
Other liabilities
24,662 34,849
Total other liabilities
$ 45,168 $ 34,849

At September 30,

At December 31,

2019

2018

(In thousands)

Operating lease liability
$ 19,721 $ -
Other liabilities
40,687 34,849
Total other liabilities
$ 60,408 $ 34,849

The Company has entered into leases for most branch locations and certain other offices that were classified as operating leases primarily with original terms of 5 years. Certain lease arrangements contain extension options, which can be exercised at the Company’s option, for one or more additional 5 year terms. Unexercised extension options are not considered reasonably certain of exercise and have not been included in the lease term used to determine the lease liability or right-of-use asset. The Company did not have any finance leases as of ~~June~~September 30, 2019.

As of ~~June~~September 30, 2019, the Company recorded a lease liability of ~~$20,506~~$19,721 thousand and a right-of-use asset of ~~$20,506~~$19,721 thousand, respectively. The weighted average remaining life of operating leases and weighted average discount rate used to determine operating lease liabilities were ~~3.94~~3.82 years and ~~2.97%~~2.93%, respectively, at ~~June~~September 30, 2019. The Company did not have any material lease incentives, unamortized initial direct costs, prepaid lease expense, or accrued lease expense as of ~~June~~September 30, 2019.

Total lease costs during the three and ~~six~~nine months ended ~~June~~September 30, 2019, of ~~$1,714~~$1,726 thousand and ~~$3,419~~$5,145 thousand, respectively, were recorded within occupancy and equipment expense. The Company did not have any material short-term or variable leases costs or sublease income during the ~~six~~nine months ended ~~June~~September 30, 2019.

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

Minimum
future lease
payments

Minimum
future lease
payments

At June 30,

At September 30,

2019

2019

(In thousands)

(In thousands)

Remaining six months of 2019
$ 3,220
Remaining three months of 2019
$ 2,719
2020
6,091 6,283
2021
4,376 4,574
2022
3,485 3,632
2023
2,804 2,912
Thereafter
1,955 2,057
Total minimum lease payments
21,931 22,177
Less: discount
(1,425 ) (2,456 )
Present value of lease liability
$ 20,506 $ 19,721

Minimum future rental payments under noncancelable operating leases as of December 31, 2018, prior to adoption of ASU 2016-02, ~~are~~were as follows:

Minimum
future rental
payments

(In thousands)

2019
$ 5,996
2020
4,409
2021
2,741
2022
1,921
2023
1,223
Thereafter
1,044
Total minimum lease payments
$ 17,334
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-21-

Minimum
future rental
payments

(In thousands)

2019
$ 5,996
2020
4,409
2021
2,741
2022
1,921
2023
1,223
Thereafter
1,044
Total minimum lease payments
$ 17,334

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 ~~six~~nine months ended ~~June~~September 30, 2019 and year ended December 31, 2018. 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 ~~six~~nine months ended ~~June~~September 30, 2019 and year ended December 31, 2018 no0 such adjustments were recorded.

The carrying values of goodwill were:

At June 30, 2019

At December 31, 2018

(In thousands)

Goodwill
$ 121,673 $ 121,673

At September 30, 2019

At December 31, 2018

(In thousands)

Goodwill
$ 121,673 $ 121,673

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

At June 30,

At December 31,

2019

2018

Gross

Gross

Carrying

Accumulated

Carrying

Accumulated

Amount

Amortization

Amount

Amortization

(In thousands)

Core Deposit Intangibles
$ 56,808 $ (55,268 ) $ 56,808 $ (54,879 )

At September 30, 2019

At December 31, 2018

Gross

Gross

Carrying

Accumulated

Carrying

Accumulated

Amount

Amortization

Amount

Amortization

(In thousands)

Core deposit intangibles
$ 56,808 $ (55,344 ) $ 56,808 $ (54,879 )

As of ~~June~~September 30, 2019, the current period and estimated future amortization expense for identifiable intangible assets was:

Total

Core

Deposit

Intangibles

(In thousands)

For the Six Months ended June 30, 2019 (actual)
$ 389
Estimate for the remainder of year ending December 31, 2019
149
Estimate for year ending December 31, 2020
287
2021
269
2022
252
2023
236
2024
222

Total

Core

Deposit

Intangibles

(In thousands)

For the nine months ended September 30, 2019 (actual)
$ 465
Estimate for the remainder of year ending December 31, 2019
73
Estimate for year ending December 31, 2020
287
2021
269
2022
252
2023
236
2024
222

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-22-

Note 8: Deposits and Borrowed Funds

The following table provides additional detail regarding deposits.


Deposits

Deposits

At June 30,

At December 31,

At September 30,

At December 31,

2019

2018

2019

2018

(In thousands)

(In thousands)

Noninterest-bearing
$ 2,163,841 $ 2,243,251 $ 2,265,640 $ 2,243,251
Interest-bearing:

Transaction
942,140 929,346 910,566 929,346
Savings
1,442,552 1,498,991 1,445,210 1,498,991
Time deposits less than $100 thousand
95,587 102,654 92,300 102,654
Time deposits $100 thousand through $250 thousand
58,667 64,512 56,066 64,512
Time deposits more than $250 thousand
27,475 28,085 26,841 28,085
Total deposits
$ 4,730,262 $ 4,866,839 $ 4,796,623 $ 4,866,839

Demand deposit overdrafts of ~~$866~~$1,078 thousand and $980 thousand were included as loan balances at ~~June~~September 30, 2019 and December 31, 2018, respectively. Interest expense for aggregate time deposits with individual account balances in excess of $100 thousand was ~~$82~~$81 thousand and ~~$164~~$246 thousand for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, and ~~$95~~$91 thousand and ~~$192~~$283 thousand for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively.

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 June 30,

At December 31,

2019

2018

Repurchase agreements:

(In thousands)

Collateral securing borrowings:

Securities of U.S. Government sponsored entities
$ 75,785 $ 73,803
Agency residential MBS
56,960 58,380
Corporate securities
114,644 91,837
Total collateral carrying value
$ 247,389 $ 224,020
Total short-term borrowed funds
$ 54,581 $ 51,247

Repurchase Agreements (Sweep)
Accounted for as Secured Borrowings

Remaining Contractual Maturity of the Agreements

Overnight and Continuous

At September 30,

At December 31,

2019

2018

Repurchase agreements:

(In thousands)

Collateral securing borrowings:

Securities of U.S. Government sponsored entities
$ 75,784 $ 73,803
Agency residential MBS
55,013 58,380
Corporate securities
115,018 91,837
Total collateral carrying value
$ 245,815 $ 224,020
Total short-term borrowed funds
$ 45,646 $ 51,247

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. Equity securities and debt securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as other real estate owned, impaired loans, certain loans held for investment, debt securities held to maturity, and other assets. These nonrecurring fair value adjustments typically involve the lower-of-cost or fair-value accounting of individual assets.

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

~~-23-~~

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:
-23-

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

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 2 includes mutual funds, federal agency securities, mortgage-backed securities, corporate securities, 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 equity securities, debt securities available for sale and debt securities held to maturity. The Company employs three pricing services. To validate the pricing of these vendors, the Company compares vendors’ pricing for each of the securities for consistency; significant pricing differences, if any, are evaluated using all available independent quotes with the quote most closely reflecting the market generally used as the fair value estimate. In addition, the Company conducts “other than temporary impairment (OTTI)” analysis on a quarterly basis; debt securities selected for OTTI analysis include all debt securities at a market price below 95% of par 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.

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.

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 June 30, 2019

Fair Value

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

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3) ⁽¹⁾

(In thousands)

Equity securities

Mutual funds
$ 1,797 $ - $ 1,797 $ -
Total equity securities
1,797 - 1,797 -
Debt securities available for sale

U.S. Treasury securities
44,573 44,573 - -
Securities of U.S. Government sponsored entities
167,138 - 167,138 -
Agency residential MBS
986,946 - 986,946 -
Non-agency residential MBS
112 - 112 -
Agency commercial MBS
5,621 - 5,621 -
Securities of U.S. Government entities
808 - 808 -
Obligations of states and political subdivisions
175,654 - 175,654 -
Corporate securities
1,395,047 - 1,395,047 -
Total debt securities available for sale
2,775,899 44,573 2,731,326 -
Total
$ 2,777,696 $ 44,573 $ 2,733,123 $ -

At September 30, 2019

Fair Value

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

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3) ⁽¹⁾

(In thousands)

Debt securities available for sale

U.S. Treasury securities
$ 44,826 $ 44,826 $ - $ -
Securities of U.S. Government sponsored entities
122,108 - 122,108 -
Agency residential MBS
979,751 - 979,751 -
Non-agency residential MBS
104 - 104 -
Agency commercial MBS
3,751 - 3,751 -
Securities of U.S. Government entities
777 - 777 -
Obligations of states and political subdivisions
165,403 - 165,403 -
Corporate securities
1,667,047 - 1,667,047 -
Total debt securities available for sale
$ 2,983,767 $ 44,826 $ 2,938,941 $ -

⁽¹⁾There were no transfers in to or out of level 3 during the ~~six~~nine months ended ~~June~~September 30, 2019.
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-24-

At December 31, 2018

Fair Value

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

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3) ⁽¹⁾

(In thousands)

Equity securities

Mutual funds
$ 1,747 $ - $ 1,747 $ -
Total equity securities
1,747 - 1,747 -
Debt securities available for sale

U.S. Treasury securities
139,574 139,574 - -
Securities of U.S. Government sponsored entities
164,018 - 164,018 -
Agency residential MBS
853,871 - 853,871 -
Non-agency residential MBS
114 - 114 -
Agency commercial MBS
1,842 - 1,842 -
Securities of U.S. Government entities
1,119 - 1,119 -
Obligations of states and political subdivisions
179,091 - 179,091 -
Corporate securities
1,315,041 - 1,315,041 -
Total debt securities available for sale
2,654,670 139,574 2,515,096 -
Total
$ 2,656,417 $ 139,574 $ 2,516,843 $ -

⁽¹⁾There were no transfers in to or out of level 3 during the year ended December 31, 2018.

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 ~~June~~September 30, 2019 and December 31, 2018, the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets at period end.

For the

Six Months Ended

At June 30, 2019

June 30, 2019

Carrying Value

Level 1

Level 2

Level 3

Total Losses

(In thousands)

Other real estate owned
$ 43 $ - $ - $ 43 $ -
Impaired loans:

Commercial
6,026 - - 6,026 -
Commercial real estate
4,100 - - 4,100 -
Residential real estate
195 - - 195 -
Consumer installment and other
77 - - 77 -
Total assets measured at fair value on a nonrecurring basis
$ 10,441 $ - $ - $ 10,441 $ -

For the

Nine Months Ended

At September 30, 2019

September 30, 2019

Carrying Value

Level 1

Level 2

Level 3

Total Losses

(In thousands)

Other real estate owned
$ 43 $ - $ - $ 43 $ -
Impaired loans:

Commercial
6,050 - - 6,050 -
Commercial real estate
4,099 - - 4,099 -
Residential real estate
193 - - 193 -
Consumer installment and other
77 - - 77 (34 )
Total assets measured at fair value on a nonrecurring basis
$ 10,462 $ - $ - $ 10,462 $ (34 )

For the

Year Ended

At December 31, 2018

December 31, 2018

Carrying Value

Level 1

Level 2

Level 3

Total Losses

(In thousands)

Other real estate owned
$ 350 $ - $ - $ 350 $ -
Impaired loans:

Commercial
6,437 - - 6,437 -
Commercial real estate
3,870 - - 3,870 (240 )
Total assets measured at fair value on a nonrecurring basis
$ 10,657 $ - $ - $ 10,657 $ (240 )

~~-25-~~

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 as the inputs were not developed by the Company.
-25-

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.

Equity Securities The fair values of equity securities were estimated using quoted prices as describe above for Level 2 valuation.

Debt Securities Held to Maturity The fair values of debt securities were estimated using quoted prices as described above for Level 1 and Level 2 valuation.

Loans Loans are valued using the exit price notion. The Company uses a net present value of cash flows methodology that seeks to incorporate interest rate, credit, liquidity and prepayment risks in the fair market value estimation. Inputs to the calculation include market rates for similarly offered products, market interest rate projections, credit spreads, estimated credit losses and prepayment assumptions.

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 Banks and financial institutions. The fair value of deposits with no stated maturity is equal to the amount payable on demand. The fair value of time deposits was estimated using a net present value of cash flows methodology, incorporating market interest rate projections and rates on alternative funding sources.

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

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

[The remainder of this page intentionally left blank]
-26-

At June 30, 2019

At September 30, 2019

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
$ 418,586 $ 418,586 $ 418,586 $ - $ - $ 415,639 $ 415,639 $ 415,639 $ - $ -
Debt securities held to maturity
867,989 872,976 - 872,976 - 793,216 799,241 - 799,241 -
Loans
1,141,595 1,184,231 - - 1,184,231 1,113,401 1,178,305 - - 1,178,305

Financial Liabilities:

Deposits
$ 4,730,262 $ 4,727,480 $ - $ 4,548,533 $ 178,947 $ 4,796,623 $ 4,794,970 $ - $ 4,621,416 $ 173,554
Short-term borrowed funds
54,581 54,581 - 54,581 - 45,646 45,646 - 45,646 -

At December 31, 2018

Carrying Amount

Estimated Fair Value

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

Significant Other Observable Inputs
(Level 2 )

Significant Unobservable Inputs
(Level 3 )

Financial Assets:

(In thousands)

Cash and due from banks
$ 420,284 $ 420,284 $ 420,284 $ - $ -
Debt securities held to maturity
984,609 971,445 - 971,445 -
Loans
1,185,851 1,184,770 - - 1,184,770

Financial Liabilities:

Deposits
$ 4,866,839 $ 4,862,668 $ - $ 4,671,588 $ 191,080
Short-term borrowed funds
51,247 51,247 - 51,247 -

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.

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 ~~$276,157~~$286,876 thousand at ~~June~~September 30, 2019 and $278,598 thousand at December 31, 2018. 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 ~~$2,760~~$3,099 thousand at ~~June~~September 30, 2019 and $2,772 thousand at December 31, 2018. The Company had no0 commitments outstanding for commercial and similar letters of credit at ~~June~~September 30, 2019 and December 31, 2018. The Company had $550 thousand and $75 thousand in outstanding full recourse guarantees to a 3^rd party credit card company at ~~June~~September 30, 2019 and December 31, 2018, respectively. The Company had a reserve for unfunded commitments of $2,308 thousand at ~~June~~September 30, 2019 and December 31, 2018, included in other liabilities.

Due to the nature of its business, the Company is subject to various threatened or filed legal cases. Based on the advice of legal counsel, the Company does not expect such cases will have a material, adverse effect on its financial position or results of operations. Legal liabilities are accrued when obligations become probable and the amount can be reasonably estimated. In the second quarter 2019, the Company achieved a mediated settlement to dismiss a lawsuit and paid the resulting liability of $252 thousand.

The Company determined that it will be obligated to provide refunds of revenue recognized in years prior to 2018 to some customers. The Company initially estimated the probable amount of these obligations to be $5,542 thousand and accrued a liability for such amount in 2017; based on additional information received in the second quarter 2019, the Company increased such liability to $5,843 thousand by recognizing an expense of $301 thousand.

-27-

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 Six Months

For the Three Months

For the Nine Months

Ended June 30,

Ended September 30,

2019

2018

2019

2018

2019

2018

2019

2018

(In thousands, except per share data)

(In thousands, except per share data)

Net income applicable to common equity (numerator)
$ 19,625 $ 18,010 $ 39,271 $ 35,516 $ 20,390 $ 16,993 $ 59,661 $ 52,509
Basic earnings per common share

Weighted average number of common shares outstanding - basic (denominator)
26,942 26,630 26,892 26,581 26,986 26,701 26,924 26,622
Basic earnings per common share
$ 0.73 $ 0.68 $ 1.46 $ 1.34 $ 0.76 $ 0.64 $ 2.22 $ 1.97
Diluted earnings per common share

Weighted average number of common shares outstanding - basic
26,942 26,630 26,892 26,581 26,986 26,701 26,924 26,622
Add common stock equivalents for options
45 98 58 115 41 114 52 114
Weighted average number of common shares outstanding - diluted (denominator)
26,987 26,728 26,950 26,696 27,027 26,815 26,976 26,736
Diluted earnings per common share
$ 0.73 $ 0.67 $ 1.46 $ 1.33 $ 0.75 $ 0.63 $ 2.21 $ 1.96

For the three and ~~six~~nine months ended ~~June~~September 30, 2019, options to purchase ~~436~~379 thousand and ~~449~~425 thousand shares of common stock, respectively, were outstanding but not included in the computation of diluted earnings per common 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 ~~six~~nine months ended ~~June~~September 30, 2018, options to purchase ~~482~~326 thousand and ~~486~~432 thousand shares of common stock, respectively, were outstanding but not included in the computation of diluted earnings per common share because the option exercise price exceeded the fair value of the stock such that their inclusion would have had an anti-dilutive effect.

Note 12: Income Taxes

In the second quarter 2019, the Company decreased unrecognized tax benefits by $909 thousand related to settlements with taxing authorities. The settlements incorporated amended tax returns for which the Company had recognized a deferred tax asset in the amount of $1,003 thousand.

In the second quarter 2019, the Company re-assessed its ability to realize benefits from California capital loss carryforwards. The Company established a $269 thousand valuation allowance related to the deferred tax asset.

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-28-

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

WESTAMERICA BANCORPORATION

FINANCIAL SUMMARY

For the Three Months

For the Six Months

Ended June 30,

2019

2018

2019

2018

(In thousands, except per share data)

Net Interest and Loan Fee Income (FTE)⁽¹⁾
$ 40,330 $ 38,349 $ 80,577 $ 75,624
Provision for Loan Losses
- - - -
Noninterest Income
12,288 11,769 23,867 23,724
Noninterest Expense
25,561 25,741 50,744 51,763
Income Before Income Taxes (FTE)⁽¹⁾
27,057 24,377 53,700 47,585
Income Tax Provision (FTE)⁽¹⁾
7,432 6,367 14,429 12,069
Net Income
$ 19,625 $ 18,010 $ 39,271 $ 35,516

Average Common Shares Outstanding
26,942 26,630 26,892 26,581
Average Diluted Common Shares Outstanding
26,987 26,728 26,950 26,696
Common Shares Outstanding at Period End
26,962 26,649

Per Common Share:

Basic Earnings
$ 0.73 $ 0.68 $ 1.46 $ 1.34
Diluted Earnings
0.73 0.67 1.46 1.33
Book Value
$ 25.72 $ 21.99

Financial Ratios:

Return on Assets
1.42 % 1.29 % 1.42 % 1.28 %
Return on Common Equity
11.75 % 11.55 % 11.95 % 11.56 %
Net Interest Margin (FTE)⁽¹⁾
3.13 % 2.97 % 3.12 % 2.93 %
Net Loan Losses (Recoveries) to Average Loans
0.12 % 0.01 % 0.21 % (0.01 %)
Efficiency Ratio⁽²⁾
48.6 % 51.4 % 48.6 % 52.1 %

Average Balances:

Assets
$ 5,560,740 $ 5,587,871 $ 5,586,110 $ 5,576,352
Loans
1,183,539 1,209,049 1,194,536 1,226,304
Investment Securities
3,648,435 3,543,838 3,669,029 3,511,828
Deposits
4,762,286 4,846,986 4,798,288 4,837,721
Shareholders' Equity
669,947 625,409 662,704 619,666

Period End Balances:

Assets
$ 5,523,448 $ 5,577,844
Loans
1,161,712 1,200,192
Investment Securities
3,645,685 3,441,400
Deposits
4,730,262 4,887,122
Shareholders' Equity
693,437 586,138

Capital Ratios at Period End:

Total Risk Based Capital
17.88 % 16.97 %
Tangible Equity to Tangible Assets
10.56 % 8.47 %

Dividends Paid Per Common Share
$ 0.41 $ 0.40 $ 0.81 $ 0.80
Common Dividend Payout Ratio
56 % 60 % 55 % 60 %
WESTAMERICA BANCORPORATION
FINANCIAL SUMMARY

For the Three Months

For the Nine Months

Ended September 30,

2019

2018

2019

2018

(In thousands, except per share data)

Net Interest and Loan Fee Income (FTE)⁽¹⁾
$ 40,349 $ 39,498 $ 120,925 $ 115,122
Provision for Loan Losses
- - - -
Noninterest Income:

Life Insurance Gains
- 585 433 585
Other Noninterest income
11,809 11,943 35,243 35,667
Total Noninterest Income
11,809 12,528 35,676 36,252
Noninterest Expense:

Loss Contingency
- 3,500 553 3,500
Other Noninterest Expense
24,033 25,866 74,224 77,629
Total Noninterest Expense
24,033 29,366 74,777 81,129
Income Before Income Taxes (FTE)⁽¹⁾
28,125 22,660 81,824 70,245
Income Tax Provision (FTE)⁽¹⁾
7,735 5,667 22,163 17,736
Net Income
$ 20,390 $ 16,993 $ 59,661 $ 52,509

Average Common Shares Outstanding
26,986 26,701 26,924 26,622
Average Diluted Common Shares Outstanding
27,027 26,815 26,976 26,736
Common Shares Outstanding at Period End
27,014 26,727

Per Common Share:

Basic Earnings
$ 0.76 $ 0.64 $ 2.22 $ 1.97
Diluted Earnings
0.75 0.63 2.21 1.96
Book Value
$ 26.41 $ 22.17

Financial Ratios:

Return on Assets
1.45 % 1.19 % 1.43 % 1.25 %
Return on Common Equity
11.87 % 10.58 % 11.92 % 11.22 %
Net Interest Margin (FTE)⁽¹⁾
3.11 % 3.00 % 3.12 % 2.95 %
Net Loan Losses to Average Loans
0.10 % 0.34 % 0.17 % 0.11 %
Efficiency Ratio⁽²⁾
46.1 % 56.4 % 47.8 % 53.6 %

Average Balances:

Assets
$ 5,570,843 $ 5,648,004 $ 5,580,965 $ 5,600,499
Loans
1,142,668 1,194,874 1,177,057 1,215,712
Investment securities
3,687,049 3,591,637 3,675,102 3,538,724
Deposits
4,770,976 4,893,859 4,789,084 4,856,639
Shareholders' Equity
681,513 636,965 669,043 625,496

Period End Balances:

Assets
$ 5,616,055 $ 5,529,463
Loans
1,133,229 1,196,955
Investment securities
3,776,983 3,506,341
Deposits
4,796,623 4,835,837
Shareholders' Equity
713,378 592,591

Capital Ratios at Period End:

Total Risk Based Capital
17.20 % 16.99 %
Tangible Equity to Tangible Assets
10.75 % 8.67 %

Dividends Paid Per Common Share
$ 0.41 $ 0.40 $ 1.22 $ 1.20
Common Dividend Payout Ratio
55 % 63 % 55 % 61 %

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~~a "fully taxable equivalent" ("FTE") basis in order to reflect the effect of income which is exempt from federal income taxation at the current statutory tax rate.
⁽²⁾ The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income on an FTE basis and noninterest income).

-29-

Financial Overview

Westamerica Bancorporation and subsidiaries’ (collectively, the “Company”) reported net income of ~~$19.6~~$20.4 million or ~~$0.73~~$0.75 diluted earnings per common share for the ~~second~~third quarter 2019 and net income of ~~$39.3~~$59.7 million or ~~$1.46~~$2.21 diluted earnings per common share for the ~~six~~nine months ended ~~June~~September 30, 2019. These results compare to net income of $18.0 million or $0.67 diluted earnings per common share for the second quarter 2018 and net income of $35.5 million or $1.33 diluted earnings per common share for the six months ended June 30, 2018. Results for the ~~second quarter 2019 and six~~nine months ended ~~June~~September 30, 2019 include a tax-exempt life insurance gain of $433 thousand and $553 thousand in loss contingencies. The loss contingencies include a $301 thousand increase in estimated customer refunds of revenue recognized prior to 2018 and a $252 thousand settlement to dismiss a lawsuit. Although loss contingencies represent estimated liabilities, which are subject to revision, the Company does not anticipate additional losses for either of these matters. These results compare to net income of $17.0 million or $0.63 diluted earnings per common share for the third quarter 2018 and net income of $52.5 million or $1.96 diluted earnings per common share for the nine months ended September 30, 2018. The third quarter 2018 results include a $585 thousand tax-exempt life insurance gain and a $3.5 million loss contingency resulting from a mediated settlement to dismiss a lawsuit.

The Company’s principal source of revenue is net interest and loan fee income, which represents interest and fees earned on loans and investment securities (“earning assets”) reduced by interest paid on deposits and other borrowings (“interest-bearing liabilities”). Market interest rates declined considerably following the recession of 2008 and 2009. Interest rates remained historically low through 2016 as the monetary policy of the Federal Open Market Committee (the “FOMC”) was highly accommodative. During this period, Management avoided originating long-dated, low-yielding loans given the potential impact of such assets on forward earning potential; as a result, loans declined and investment securities increased. The changed composition of the earning assets and low market interest rates pressured the net interest margin to lower levels. The FOMC began removing monetary stimulus in December 2016 and ~~has~~ increased the federal funds rate by 2.00% to 2.50% through June 2019, although longer-term rates ~~have~~did not ~~increased~~increase by a similar magnitude. ~~This recent~~The increase in market interest rates ~~has begun benefiting~~benefited the Company’s earning asset ~~yields. However,~~yields until the ~~rising market rates have resulted~~FOMC cut the federal funds rate in ~~a 0.01% increase~~July 2019 by 0.25% and in ~~rates paid on deposits.~~ September 2019 by 0.25%.
The funding source of the Company’s earning assets is primarily customer deposits. The Company’s long-term strategy includes maximizing checking and savings deposits as these types of deposits are lower-cost and less sensitive to changes in interest rates compared to time deposits. During the three and ~~six~~nine months ended ~~June~~September 30, 2019 the average volume of checking and savings deposits was 96.2% and 96.1%, respectively, of average total deposits. Net interest income (FTE) was $40.3 million and $80.6 million for the three months and six months ended June 30, 2019, respectively, compared with $38.3 million and $75.6 million for the three months and six months ended June 30, 2018, respectively. The increase in net interest income (FTE) in 2019 is primarily due to higher asset yields.

Credit quality remained solid with nonperforming assets totaling ~~$4.1~~$4.7 million at ~~June~~September 30, 2019 compared with $5.8 million at December 31, 2018 and ~~$6.0~~$6.5 million at ~~June~~September 30, 2018. The Company did not recognize a provision for loan losses in the three months and ~~six~~nine months ended ~~June~~September 30, 2019.

The Company presents its net interest margin and net interest income on an FTE basis using the current statutory federal tax rate. Management believes the FTE basis is valuable to the reader because the Company’s loan and investment securities portfolios contain 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 an FTE basis. Yields on tax-exempt securities and loans have been adjusted upward to reflect the effect of income exempt from federal income taxation at the federal statutory tax rate.

The Company’s significant accounting policies (see Note 1, “Summary of Significant Accounting Policies,” to Financial Statements in the Company’s 2018 Form 10-K) are fundamental to understanding the Company’s results of operations and financial condition.

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-30-

Net I~~ncome~~Income

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

For the Three Months

For the Six Months

For the Three Months

For the Nine Months

Ended June 30,

Ended September 30,

2019

2018

2019

2018

2019

2018

2019

2018

(In thousands, except per share data)

(In thousands, except per share data)

Net interest and loan fee income (FTE)
$ 40,330 $ 38,349 $ 80,577 $ 75,624 $ 40,349 $ 39,498 $ 120,925 $ 115,122
Provision for loan losses
- - - - - - - -
Noninterest income
12,288 11,769 23,867 23,724 11,809 12,528 35,676 36,252
Noninterest expense
25,561 25,741 50,744 51,763 24,033 29,366 74,777 81,129
Income before taxes (FTE)
27,057 24,377 53,700 47,585 28,125 22,660 81,824 70,245
Income tax provision (FTE)
7,432 6,367 14,429 12,069 7,735 5,667 22,163 17,736
Net income
$ 19,625 $ 18,010 $ 39,271 $ 35,516 $ 20,390 $ 16,993 $ 59,661 $ 52,509

Average diluted common shares
26,987 26,728 26,950 26,696 27,027 26,815 26,976 26,736
Diluted earnings per common share
$ 0.73 $ 0.67 $ 1.46 $ 1.33 $ 0.75 $ 0.63 $ 2.21 $ 1.96

Average total assets
$ 5,560,740 $ 5,587,871 $ 5,586,110 $ 5,576,352 $ 5,570,843 $ 5,648,004 $ 5,580,965 $ 5,600,499
Net income to average total assets (annualized)
1.42 % 1.29 % 1.42 % 1.28 % 1.45 % 1.19 % 1.43 % 1.25 %
Net income to average common shareholders' equity (annualized)
11.75 % 11.55 % 11.95 % 11.56 % 11.87 % 10.58 % 11.92 % 11.22 %

Net income for the ~~second~~third quarter 2019 was ~~$1.6~~$3.4 million more than the ~~second~~third quarter 2018. Net interest and loan fee income (FTE) increased ~~$2.0 million~~$851 thousand in the ~~second~~third quarter 2019 compared with the ~~second~~third quarter 2018 mainly due to a higher net yield on earning assets and higher average balances of investments, partially offset by lower average balances of interest-bearing cash and loans. The provision for loan losses remained zero, reflecting Management's evaluation of losses inherent in the loan portfolio. Noninterest income ~~increased $519~~decreased $719 thousand from the third quarter 2018 primarily due to lower income from service charges on deposit accounts in the third quarter 2019 and a life insurance gain of $585 thousand in the ~~second~~third quarter 2018. Noninterest expense decreased $5.3 million in the third quarter 2019 compared with the ~~second quarter 2018 primarily due to a life insurance gain of $433 thousand. Noninterest expense decreased $180 thousand in the second quarter 2019 compared with the second~~third quarter 2018 due to ~~lower professional fees and amortization of intangible assets, offset~~a $3.5 million loss contingency recognized in ~~part by $553 thousand in loss contingencies. The loss contingencies include a $301 thousand increase in estimated customer refunds of revenue recognized prior to~~the third quarter 2018 and ~~a $252 thousand settlement~~lower FDIC insurance assessments, employee benefit costs, and intangible amortization in the third quarter 2019. The lower third quarter 2019 FDIC assessments are due to ~~dismiss a lawsuit. Although loss contingencies represent estimated liabilities, which are subject to revision,~~application of the ~~Company does not anticipate additional losses~~Bank’s assessment credit described in the Company’s December 31, 2018 Form 10-K, Part 1, Item 1, “Premiums for ~~either of these matters.~~Deposit Insurance.” The tax rate (FTE) for the ~~second~~third quarter 2019 was 27.5% ~~on an FTE basis and 24.1% on a non-FTE basis~~ compared with ~~26.1% on an FTE basis and 21.4% on a non-FTE basis~~25.0% for the ~~second~~third quarter 2018. InThe higher tax rate in the ~~second~~third quarter 2019 is due to lower levels of tax-exempt interest income and stock compensation tax deductions in the ~~Company established a $269 thousand valuation allowance against certain deferred tax assets, which, combined with~~third quarter 2019 and the tax exempt nature of the life insurance gains ~~and excess tax benefits of $83 thousand from stock options, increased~~realized in the ~~tax rate on an FTE and non-FTE basis by 0.3%.~~third quarter 2018.

Comparing the ~~six~~nine months ended ~~June~~September 30, 2019 with the ~~six~~nine months ended ~~June~~September 30, 2018 net income increased ~~$3.8~~$7.2 million. Net interest and loan fee (FTE) income increased ~~$5.0~~$5.8 million due to a higher net yield on earning assets and higher average balances of investments, partially offset by lower average balances of interest-bearing cash and loans. The provision for loan losses remained zero, reflecting Management's evaluation of losses inherent in the loan portfolio. In the ~~six~~nine months ended ~~June~~September 30, 2019, noninterest income decreased $576 thousand compared with the nine months ended September 30, 2018 due to lower income from service charges on deposit accounts, other service charges and debit card fees, offset in part by an increase in merchant processing services. In the nine months ended September 30, 2019 noninterest expense decreased ~~$1.0~~$6.4 million compared with the ~~six~~nine months ended ~~June~~September 30, 2018 primarily due to decreases in loss contingencies, FDIC insurance assessments, employee benefit costs, and intangible amortization in the nine months ended September 30, 2019. The effective tax rates (FTE) was 27.1% for the nine months ended September 30, 2019 compared with 25.2% for the nine months ended September 30, 2018. The higher effective tax rate (FTE) in the nine months ended September 30, 2019 compared with the same period in 2018 is due to lower ~~legal expenses~~levels of tax-exempt interest income and ~~lower amortization of intangible assets, partially offset by $553 thousand in loss contingencies. The~~stock compensation tax rate for the six months ended June 30, 2019 was 26.9% on an FTE basis and 23.4% on a non-FTE basis compared with 25.4% on an FTE basis and 20.6% on a non-FTE basis for the six months ended June 30, 2018. In the six months ended June 30, 2019, the Company established a $269 thousand valuation allowance against certain deferred tax assets, which, combined with the tax exempt nature of the life insurance gains and excess tax benefits of $367 thousand from stock options, decreased the tax rate on an FTE and non-FTE basis by 0.4%.
deductions.

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-31-

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 Six Months

For the Three Months

For the Nine Months

Ended June 30,

Ended September 30,

2019

2018

2019

2018

2019

2018

2019

2018

($ in thousands)

($ in thousands)

Interest and loan fee income
$ 39,626 $ 37,346 $ 79,109 $ 73,661 $ 39,695 $ 38,614 $ 118,804 $ 112,275
FTE adjustment
1,109 1,411 3,558 4,292
Interest expense
487 459 981 918 455 527 1,437 1,445
Net interest and loan fee income
39,139 36,887 78,128 72,743
FTE adjustment
1,191 1,462 2,449 2,881
Net interest and loan fee income (FTE)
$ 40,330 $ 38,349 $ 80,577 $ 75,624 $ 40,349 $ 39,498 $ 120,925 $ 115,122

Average earning assets
$ 5,159,112 $ 5,180,524 $ 5,171,973 $ 5,171,312 $ 5,176,744 $ 5,231,257 $ 5,173,581 $ 5,191,664
Net interest margin (FTE) (annualized)
3.13 % 2.97 % 3.12 % 2.93 % 3.11 % 3.00 % 3.12 % 2.95 %

Net interest and loan fee income (FTE) increased ~~$2.0 million~~$851 thousand in the ~~second~~third quarter 2019 compared with the ~~second~~third quarter 2018 mainly due to a higher net yield on earning assets (up ~~0.16%~~0.11%) and higher average balances of investments (up ~~$105~~$95 million), partially offset by ~~interest-bearing cash (down $100 million) and~~ lower average balances of interest-bearing cash (down $98 million) and loans (down ~~$26~~$52 million).

Comparing the first ~~six~~nine months ended ~~June~~September 30, 2019 with the ~~six~~nine months ended ~~June~~September 30, 2018, net interest and loan fee (FTE) income increased ~~$5.0~~$5.8 million due to a higher net yield on earning assets (up ~~0.19%~~0.17%) and higher average balances of investments (up ~~$157~~$136 million), partially offset by ~~interest-bearing cash (down $125 million) and~~ lower average balances of interest-bearing cash (down $116 million) and loans (down ~~$32~~$39 million).

The annualized net interest margin (FTE) increased to ~~3.13%~~3.11% in the ~~second~~third quarter 2019 and 3.12% in the ~~six~~nine months ended ~~June~~September 30, 2019 from ~~2.97%~~3.00% in the ~~second~~third quarter 2018 and ~~2.93%~~2.95% in the ~~six~~nine months ended ~~June~~September 30, 2018. The net interest margin (FTE) increased in 2019, reflecting earning assets repriced to higher ~~yield.~~yields.

The Company’s funding costs were 0.04% in the ~~second~~third quarter and ~~six~~nine months ended ~~June~~September 30, 2019, unchanged from the same periods in 2018. Average balances of time deposits declined ~~$36~~$34 million from the ~~six~~nine months ended ~~June~~September 30, 2018 to the ~~six~~nine months ended ~~June~~September 30, 2019. Average balances of checking and saving deposits accounted for 96.1% of average total deposits in the ~~six~~nine months ended ~~June~~September 30, 2019 compared with ~~95.4%~~95.5% in the ~~six~~nine months ended ~~June~~September 30, 2018.

Net Interest Margin (FTE)

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

For the Three Months

For the Six Months

For the Three Months

For the Nine Months

Ended June 30,

Ended September 30,

2019

2018

2019

2018

2019

2018

2019

2018

Yield on earning assets (FTE)
Yield on earning assets (FTE)
3.17 % 3.01 % 3.16 % 2.97 % 3.15 % 3.04 % 3.16 % 2.99 %
Rate paid on interest-bearing liabilities
Rate paid on interest-bearing liabilities
0.08 % 0.07 % 0.08 % 0.07 % 0.07 % 0.08 % 0.07 % 0.07 %
Net interest spread (FTE)
Net interest spread (FTE)
3.09 % 2.94 % 3.08 % 2.90 % 3.08 % 2.96 % 3.09 % 2.92 %
Impact of noninterest-bearing demand deposits
Impact of noninterest-bearing demand deposits
0.04 % 0.03 % 0.04 % 0.03 % 0.03 % 0.04 % 0.03 % 0.03 %
Net interest margin (FTE)
Net interest margin (FTE)
3.13 % 2.97 % 3.12 % 2.93 % 3.11 % 3.00 % 3.12 % 2.95 %

The FOMC increased the federal funds rate between December 2016 and December 2018. In the ~~second~~third quarter and first ~~six~~nine months of 2019 the yield on earning assets increased compared with the comparable periods of 2018 as earning assets repriced to higher ~~yield.~~yields. Rates on interest-bearing liabilities were kept low by reducing the volume of higher-cost time deposits and ~~maintaining~~managing rates paid on checking and savings deposits.

-32-

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, rates and interest margins are annualized.

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

For the Three Months Ended June 30, 2019

Interest

Average

Income/

Yields/

Balance

Expense

Rates

($ in thousands)

Assets

Investment securities:

Taxable
$ 3,006,905 $ 18,773 2.50 %
Tax-exempt ⁽¹⁾
641,531 5,157 3.22 %
Total investments ⁽¹⁾
3,648,436 23,930 2.62 %
Loans:

Taxable
1,133,168 14,417 5.10 %
Tax-exempt ⁽¹⁾
50,371 512 4.08 %
Total loans ⁽¹⁾
1,183,539 14,929 5.06 %
Total interest-bearing cash
327,137 1,958 2.37 %
Total Interest-earning assets ⁽¹⁾
5,159,112 40,817 3.17 %
Other assets
401,628
Total assets
$ 5,560,740

Liabilities and shareholders' equity

Noninterest-bearing demand
$ 2,172,207 $ - - %
Savings and interest-bearing transaction
2,404,415 331 0.06 %
Time less than $100,000
105,544 65 0.25 %
Time $100,000 or more
80,120 82 0.41 %
Total interest-bearing deposits
2,590,079 478 0.07 %
Short-term borrowed funds
56,602 9 0.06 %
Total interest-bearing liabilities
2,646,681 487 0.08 %
Other liabilities
71,905
Shareholders' equity
669,947
Total liabilities and shareholders' equity
$ 5,560,740
Net interest spread ^{(1) (2)}
3.09 %
Net interest and fee income and interest margin ^{(1) (3)}
$ 40,330 3.13 %
⁽¹⁾ ~~Amounts calculated on an FTE basis using the current statutory federal tax rate.~~
⁽²⁾ ~~Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities.~~
⁽³⁾ Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits.
~~-33-~~

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

For the Three Months Ended June 30, 2018

For the Three Months Ended September 30, 2019

Interest

Interest

Average

Income/

Yields/

Average

Income/

Yields/

Balance

Expense

Rates

Balance

Expense

Rates

($ in thousands)

($ in thousands)

Assets

Investment securities:

Taxable
$ 2,785,079 $ 15,598 2.24 % $ 3,096,255 $ 19,586 2.53 %
Tax-exempt ⁽¹⁾
758,759 6,365 3.36 % 590,794 4,782 3.24 %
Total investments ⁽¹⁾
3,543,838 21,963 2.48 % 3,687,049 24,368 2.64 %
Loans:

Taxable
1,152,469 14,492 5.04 % 1,094,107 14,038 5.09 %
Tax-exempt ⁽¹⁾
56,580 589 4.17 % 48,561 497 4.06 %
Total loans ⁽¹⁾
1,209,049 15,081 5.00 % 1,142,668 14,535 5.05 %
Total interest-bearing cash
427,637 1,764 1.77 % 347,027 1,901 2.14 %
Total Interest-earning assets ⁽¹⁾
5,180,524 38,808 3.01 % 5,176,744 40,804 3.15 %
Other assets
407,347 394,099
Total assets
$ 5,587,871 $ 5,570,843

Liabilities and shareholders' equity

Noninterest-bearing demand
$ 2,177,708 $ - - % $ 2,234,494 $ - - %
Savings and interest-bearing transaction
2,447,566 284 0.05 % 2,357,462 302 0.05 %
Time less than $100,000
121,757 70 0.23 % 101,452 64 0.25 %
Time $100,000 or more
99,955 95 0.38 % 77,568 81 0.41 %
Total interest-bearing deposits
2,669,278 449 0.07 % 2,536,482 447 0.07 %
Short-term borrowed funds
60,393 10 0.06 % 50,398 8 0.06 %
Total interest-bearing liabilities
2,729,671 459 0.07 % 2,586,880 455 0.07 %
Other liabilities
55,083 67,956
Shareholders' equity
625,409 681,513
Total liabilities and shareholders' equity
$ 5,587,871 $ 5,570,843
Net interest spread ^{(1) (2)}
2.94 % 3.08 %
Net interest and fee income and interest margin ^{(1) (3)}
$ 38,349 2.97 % $ 40,349 3.11 %

⁽¹⁾ Amounts calculated on an FTE basis using the current statutory federal tax rate.
⁽²⁾ Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities.
⁽³⁾ Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits.

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

For the Six Months Ended June 30, 2019

Interest

Average

Income/

Yields/

Balance

Expense

Rates

($ in thousands)

Assets

Investment securities:

Taxable
$ 3,007,970 $ 37,406 2.49 %
Tax-exempt ⁽¹⁾
661,059 10,619 3.21 %
Total investments ⁽¹⁾
3,669,029 48,025 2.62 %
Loans:

Taxable
1,143,516 28,795 5.08 %
Tax-exempt ⁽¹⁾
51,020 1,042 4.12 %
Total loans ⁽¹⁾
1,194,536 29,837 5.04 %
Total interest-bearing cash
308,408 3,696 2.38 %
Total Interest-earning assets ⁽¹⁾
5,171,973 81,558 3.16 %
Other assets
414,137
Total assets
$ 5,586,110

Liabilities and shareholders' equity

Noninterest-bearing demand
$ 2,188,131 $ - - %
Savings and interest-bearing transaction
2,421,392 668 0.06 %
Time less than $100,000
107,314 131 0.25 %
Time $100,000 or more
81,451 164 0.41 %
Total interest-bearing deposits
2,610,157 963 0.07 %
Short-term borrowed funds
57,906 18 0.06 %
Total interest-bearing liabilities
2,668,063 981 0.08 %
Other liabilities
67,212
Shareholders' equity
662,704
Total liabilities and shareholders' equity
$ 5,586,110
Net interest spread ^{(1) (2)}
3.08 %
Net interest and fee income and interest margin ^{(1) (3)}
$ 80,577 3.12 %
⁽¹⁾ ~~Amounts calculated on an FTE basis using the current statutory federal tax rate.~~
⁽²⁾ ~~Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities.~~
⁽³⁾ Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits.
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~~-35-~~

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

For the Six Months Ended June 30, 2018

For the Three Months Ended September 30, 2018

Interest

Interest

Average

Income/

Yields/

Average

Income/

Yields/

Balance

Expense

Rates

Balance

Expense

Rates

($ in thousands)

($ in thousands)

Assets

Investment securities:

Taxable
$ 2,747,569 $ 30,547 2.22 % $ 2,849,187 $ 16,780 2.36 %
Tax-exempt ⁽¹⁾
764,259 12,520 3.28 % 742,450 6,177 3.33 %
Total investments ⁽¹⁾
3,511,828 43,067 2.45 % 3,591,637 22,957 2.56 %
Loans:

Taxable
1,168,503 28,715 4.96 % 1,140,448 14,161 4.93 %
Tax-exempt ⁽¹⁾
57,801 1,188 4.15 % 54,426 546 3.98 %
Total loans ⁽¹⁾
1,226,304 29,903 4.92 % 1,194,874 14,707 4.88 %
Total interest-bearing cash
433,180 3,572 1.63 % 444,746 2,361 1.98 %
Total Interest-earning assets ⁽¹⁾
5,171,312 76,542 2.97 % 5,231,257 40,025 3.04 %
Other assets
405,040 416,747
Total assets
$ 5,576,352 $ 5,648,004

Liabilities and shareholders' equity

Noninterest-bearing demand
$ 2,167,226 $ - - % $ 2,223,678 $ - - %
Savings and interest-bearing transaction
2,445,574 566 0.05 % 2,461,357 358 0.06 %
Time less than $100,000
123,380 141 0.23 % 118,156 69 0.23 %
Time $100,000 or more
101,541 192 0.38 % 90,668 91 0.40 %
Total interest-bearing deposits
2,670,495 899 �� 0.07 % 2,670,181 518 0.08 %
Short-term borrowed funds
61,441 19 0.06 % 63,489 9 0.06 %
Total interest-bearing liabilities
2,731,936 918 0.07 % 2,733,670 527 0.08 %
Other liabilities
57,524 53,691
Shareholders' equity
619,666 636,965
Total liabilities and shareholders' equity
$ 5,576,352 $ 5,648,004
Net interest spread ^{(1) (2)}
2.90 % 2.96 %
Net interest and fee income and interest margin ^{(1) (3)}
$ 75,624 2.93 % $ 39,498 3.00 %

⁽¹⁾ Amounts calculated on an FTE basis using the current statutory federal tax rate.
⁽²⁾ Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities.
⁽³⁾ Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits.

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

For the Nine Months Ended September 30, 2019

Interest

Average

Income/

Yields/

Balance

Expense

Rates

($ in thousands)

Assets

Investment securities:

Taxable
$ 3,037,722 $ 56,992 2.50 %
Tax-exempt ⁽¹⁾
637,380 15,401 3.22 %
Total investments ⁽¹⁾
3,675,102 72,393 2.63 %
Loans:

Taxable
1,126,866 42,834 5.08 %
Tax-exempt ⁽¹⁾
50,191 1,538 4.10 %
Total loans ⁽¹⁾
1,177,057 44,372 5.04 %
Total interest-bearing cash
321,422 5,597 2.30 %
Total Interest-earning assets ⁽¹⁾
5,173,581 122,362 3.16 %
Other assets
407,384
Total assets
$ 5,580,965

Liabilities and shareholders' equity

Noninterest-bearing demand
$ 2,203,755 $ - - %
Savings and interest-bearing transaction
2,399,848 970 0.05 %
Time less than $100,000
105,339 194 0.25 %
Time $100,000 or more
80,142 246 0.41 %
Total interest-bearing deposits
2,585,329 1,410 0.07 %
Short-term borrowed funds
55,376 27 0.06 %
Total interest-bearing liabilities
2,640,705 1,437 0.07 %
Other liabilities
67,462
Shareholders' equity
669,043
Total liabilities and shareholders' equity
$ 5,580,965
Net interest spread ^{(1) (2)}
3.09 %
Net interest and fee income and interest margin ^{(1) (3)}
$ 120,925 3.12 %
⁽¹⁾ Amounts calculated on an FTE basis using the current statutory federal tax rate.
⁽²⁾ Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities.
⁽³⁾ Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits.
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-35-
Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin

For the Nine Months Ended September 30, 2018

Interest

Average

Income/

Yields/

Balance

Expense

Rates

($ in thousands)

Assets

Investment securities:

Taxable
$ 2,781,814 $ 47,327 2.27 %
Tax-exempt ⁽¹⁾
756,910 18,697 3.29 %
Total investments ⁽¹⁾
3,538,724 66,024 2.49 %
Loans:

Taxable
1,159,049 42,876 4.95 %
Tax-exempt ⁽¹⁾
56,663 1,734 4.09 %
Total loans ⁽¹⁾
1,215,712 44,610 4.91 %
Total interest-bearing cash
437,228 5,933 1.74 %
Total Interest-earning assets ⁽¹⁾
5,191,664 116,567 2.99 %
Other assets
408,835
Total assets
$ 5,600,499

Liabilities and shareholders' equity

Noninterest-bearing demand
$ 2,186,250 $ - - %
Savings and interest-bearing transaction
2,450,893 924 0.05 %
Time less than $100,000
121,619 210 0.23 %
Time $100,000 or more
97,877 283 0.39 %
Total interest-bearing deposits
2,670,389 1,417 0.07 %
Short-term borrowed funds
62,131 28 0.06 %
Total interest-bearing liabilities
2,732,520 1,445 0.07 %
Other liabilities
56,233
Shareholders' equity
625,496
Total liabilities and shareholders' equity
$ 5,600,499
Net interest spread ^{(1) (2)}
2.92 %
Net interest and fee income and interest margin ^{(1) (3)}
$ 115,122 2.95 %
⁽¹⁾ Amounts calculated on an FTE basis using the current statutory federal tax rate.
⁽²⁾ Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities.
⁽³⁾ Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits.

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-36-

Summary of Changes in Interest Income and Expense due to Changes in Average Asset & Liability Balances and Yields Earned & Rates Paid

The following tables set forth a summary of the changes in interest income and interest expense due to changes in average assets and liability balances (volume) and changes in average interest yields/rates for the periods indicated. Changes not solely attributable to volume or yields/rates have been allocated in proportion to the respective volume and yield/rate components.

Summary of Changes in Interest Income and Expense

For the Three Months Ended June 30, 2019

For the Three Months Ended September 30, 2019

Compared with

Compared with

For the Three Months Ended June 30, 2018

For the Three Months Ended September 30, 2018

Volume

Yield/Rate

Total

Volume

Yield/Rate

Total

(In thousands)

(In thousands)

Increase (decrease) in interest and loan fee income:

Investment securities:

Taxable
$ 1,242 $ 1,933 $ 3,175 $ 1,455 $ 1,351 $ 2,806
Tax-exempt ⁽¹⁾
(983 ) (225 ) (1,208 ) (1,262 ) (133 ) (1,395 )
Total investments ⁽¹⁾
259 1,708 1,967 193 1,218 1,411
Loans:

Taxable
(243 ) 168 (75 ) (575 ) 452 (123 )
Tax-exempt ⁽¹⁾
(66 ) (11 ) (77 ) (59 ) 10 (49 )
Total loans ⁽¹⁾
(309 ) 157 (152 ) (634 ) 462 (172 )
Total interest-bearing cash
(357 ) 551 194 (585 ) 125 (460 )
Total (decrease) increase in interest and loan fee income ⁽¹⁾
(407 ) 2,416 2,009 (1,026 ) 1,805 779
(Decrease) increase in interest expense:

Deposits:

Savings and interest-bearing transaction
(5 ) 52 47 (15 ) (41 ) (56 )
Time less than $100,000
(9 ) 4 (5 ) (10 ) 5 (5 )
Time $100,000 or more
(19 ) 6 (13 ) (13 ) 3 (10 )
Total interest-bearing deposits
(33 ) 62 29 (38 ) (33 ) (71 )
Short-term borrowed funds
(1 ) - (1 ) (2 ) 1 (1 )
Total (decrease) increase in interest expense
(34 ) 62 28
Total decrease in interest expense
(40 ) (32 ) (72 )
(Decrease) increase in net interest and loan fee income ⁽¹⁾
$ (373 ) $ 2,354 $ 1,981 $ (986 ) $ 1,837 $ 851

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

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-37-

Summary of Changes in Interest Income and Expense

For the Six Months Ended June 30, 2019

For the Nine Months Ended September 30, 2019

Compared with

Compared with

For the Six Months Ended June 30, 2018

For the Nine Months Ended September 30, 2018

Volume

Yield/Rate

Total

Volume

Yield/Rate

Total

(In thousands)

(In thousands)

Increase (decrease) in interest and loan fee income:

Investment securities:

Taxable
$ 2,895 $ 3,964 $ 6,859 $ 4,354 $ 5,311 $ 9,665
Tax-exempt ⁽¹⁾
(1,691 ) (210 ) (1,901 ) (2,953 ) (343 ) (3,296 )
Total investments ⁽¹⁾
1,204 3,754 4,958 1,401 4,968 6,369
Loans:

Taxable
(614 ) 694 80 (1,191 ) 1,149 (42 )
Tax-exempt ⁽¹⁾
(140 ) (6 ) (146 ) (198 ) 2 (196 )
Total loans ⁽¹⁾
(754 ) 688 (66 ) (1,389 ) 1,151 (238 )
Total interest-bearing cash
(1,036 ) 1,160 124 (1,623 ) 1,287 (336 )
Total (decrease) increase in interest and loan fee income ⁽¹⁾
(586 ) 5,602 5,016 (1,611 ) 7,406 5,795
(Decrease) increase in interest expense:

Deposits:

Savings and interest-bearing transaction
(6 ) 108 102 (19 ) 65 46
Time less than $100,000
(18 ) 8 (10 ) (28 ) 12 (16 )
Time $100,000 or more
(38 ) 10 (28 ) (51 ) 14 (37 )
Total interest-bearing deposits
(62 ) 126 64 (98 ) 91 (7 )
Short-term borrowed funds
(1 ) - (1 ) (3 ) 2 (1 )
Total (decrease) increase in interest expense
(63 ) 126 63 (101 ) 93 (8 )
(Decrease) increase in net interest and loan fee income ⁽¹⁾
$ (523 ) $ 5,476 $ 4,953 $ (1,510 ) $ 7,313 $ 5,803

⁽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 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 provided no provision for loan losses in the ~~second~~third quarters of 2019 and 2018 and the ~~six~~nine months ended ~~June~~September 30, 2019 and ~~June~~September 30, 2018. Classified loans declined from $27 million at December 31, 2018 to ~~$25~~$24 million at ~~June~~September 30, 2019. ~~Nonperforming~~Nonaccrual loans were $4 million at ~~June~~September 30, 2019 compared with $5 million at ~~June~~September 30, 2018 and December 31, 2018. These factors were 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 ~~June~~September 30, 2019. For further information regarding credit risk, net credit losses and the allowance for loan losses, see the “Loan Portfolio Credit Risk” and “Allowance for Loan Losses” sections of this Report.

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-38-

Noninterest Income

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

For the Three Months

For the Six Months

For the Three Months

For the Nine Months

Ended June 30,

Ended September 30,

2019

2018

2019

2018

2019

2018

2019

2018

(In thousands)

(In thousands)

Service charges on deposit accounts
$ 4,493 $ 4,645 $ 8,997 $ 9,397 $ 4,510 $ 4,615 $ 13,508 $ 14,012
Merchant processing services
2,657 2,305 5,215 4,725 2,494 2,464 7,708 7,190
Debit card fees
1,641 1,698 3,148 3,303 1,641 1,656 4,789 4,959
Trust fees
749 726 1,466 1,469 733 733 2,199 2,202
ATM processing fees
722 698 1,355 1,362 725 687 2,080 2,049
Other service fees
585 650 1,162 1,281 580 665 1,742 1,946
Financial services commissions
75 132 270 387
Life insurance gains
433 - 433 - - 585 433 585
Financial services commissions
93 141 194 255
Equity securities gains (losses)
26 (14 ) 50 (50 )
Equity securities (losses) gains
- (16 ) 50 (66 )
Other noninterest income
889 920 1,847 1,982 1,051 1,007 2,897 2,988
Total
$ 12,288 $ 11,769 $ 23,867 $ 23,724 $ 11,809 $ 12,528 $ 35,676 $ 36,252

Noninterest income for the ~~second~~third quarter 2019 ~~increased~~decreased by ~~$519~~$719 thousand from the ~~second~~third quarter 2018 primarily due to lower income from service charges on deposit accounts in the third quarter 2019 and a life insurance gain of ~~$433 thousand. Merchant processing services increased due to higher transaction volumes.~~$585 thousand in the third quarter 2018. Service charges on deposit accounts decreased due to declines in overdraft ~~fees.~~fees in the third quarter 2019.

In the ~~six~~nine months ended ~~June~~September 30, 2019, noninterest income ~~increased $143~~decreased $576 thousand compared with the ~~six~~nine months ended ~~June~~September 30, ~~2018 due to a life insurance gain of $433 thousand and higher income~~2018. Income from ~~merchant processing services. The increases were partially offset by decreases in overdraft fees (which are included in~~ service charges on deposit ~~accounts), debit~~accounts decreased due to lower overdraft fees in the nine months ended September 30, 2019. Other service charges decreased due to lower income from internet banking. Debit card fees and ~~internet banking~~financial services commissions decreased in the nine months ended September 30, 2019. An increase in merchant processing services partially offset the decrease in noninterest income ~~(which is included~~ in ~~other service charges).~~the nine months ended September 30, 2019 compared with nine months ended September 30, 2018.

Noninterest Expense

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

For the Three Months

For the Six Months

For the Three Months

For the Nine Months

Ended June 30,

Ended September 30,

2019

2018

2019

2018

2019

2018

2019

2018

(In thousands)

(In thousands)

Salaries and related benefits
$ 13,090 $ 13,186 $ 26,198 $ 26,537 $ 12,559 $ 13,415 $ 38,757 $ 39,952
Occupancy and equipment
4,916 4,864 9,964 9,555 5,199 4,809 15,163 14,365
Outsourced data processing services
2,367 2,299 4,736 4,639 2,374 2,292 7,110 6,930
Loss contingencies
553 - 553 -
Professional fees
481 871 1,146 1,656 645 621 1,791 2,277
Courier service
451 453 893 1,023 456 448 1,349 1,333
Amortization of identifiable intangibles
79 422 389 885 76 451 465 1,474
Loss contingency
- 3,500 553 3,500
Other noninterest expense
3,624 3,646 6,865 7,468 2,724 3,830 9,589 11,298
Total
$ 25,561 $ 25,741 $ 50,744 $ 51,763 $ 24,033 $ 29,366 $ 74,777 $ 81,129

Noninterest expense decreased ~~$180 thousand~~$5.3 million in the ~~second~~third quarter 2019 compared with the ~~second~~third quarter ~~2018. Professional fees decreased~~2018 due to ~~lower legal and consulting fees. Amortization of intangibles decreased as assets are amortized on~~ a ~~declining balance method. The decreases were partially offset by $553 thousand~~loss contingency recognized in ~~loss contingencies. The loss contingencies include a $301 thousand increase in estimated customer refunds of revenue recognized prior to~~the third quarter 2018 and ~~a $252 thousand settlement~~lower FDIC insurance assessments, employee benefit costs, and intangible amortization in the third quarter 2019. The lower third quarter 2019 FDIC assessments are due to ~~dismiss a lawsuit. Although loss contingencies represent estimated liabilities, which are subject to revision,~~application of Westamerica Bank’s assessment credit described in the ~~Company does not anticipate additional losses~~Company’s December 31, 2018 Form 10-K, Part 1, Item 1, “Premiums for ~~either of these matters.~~Deposit Insurance.”

-39-

In the ~~six~~nine months ended ~~June~~September 30, 2019 noninterest expense decreased ~~$1.0~~$6.4 million compared with the ~~six~~nine months ended ~~June~~September 30, 2018 primarily due to ~~lower legal expenses and lower amortization of intangible assets, partially offset by $553 thousand~~decreases in loss ~~contingencies.~~contingencies, FDIC insurance assessments, employee benefit costs, and intangible amortization in the nine months ended September 30, 2019.

Provision for Income Tax

The Company’s income tax provision (FTE) was ~~$7.4~~$7.7 million for the ~~second~~third quarter 2019 and ~~$14.4~~$22.2 million for the ~~six~~nine months ended ~~June~~September 30, 2019 compared with ~~$6.4~~$5.7 million for the ~~second~~third quarter 2018 and ~~$12.1~~$17.7 million for the ~~six~~nine months ended ~~June~~September 30, 2018. The effective tax rates (FTE) of 27.5% for the ~~second~~third quarter 2019 and ~~26.9%~~27.1% for the ~~six~~nine months ended ~~June~~September 30, 2019 compared with ~~26.1%~~25.0% for the ~~second~~third quarter 2018 and ~~25.4%~~25.2% for the ~~six~~nine months ended ~~June~~September 30, 2018.

InThe higher effective tax rate (FTE) in the ~~second~~third quarter 2019 compared with the ~~Company re-assessed its ability~~same period in 2018 is due to ~~realize benefits from California capital loss carryforwards. The Company established a $269 thousand valuation allowance against certain deferred~~lower levels of tax-exempt interest income and stock compensation tax ~~assets, which, combined with~~deductions in the third quarter 2019 and the tax exempt nature of the life insurance gains realized in the third quarter 2018. The tax provisions (FTE) for the third quarter 2019 and ~~excess~~the third quarter 2018 include tax benefits of ~~$83~~$-0- thousand and $152 thousand, respectively, for tax deductions from the exercise of employee stock options ~~increased~~which exceed related compensation expenses recognized in the financial statements.
The higher effective tax rate ~~on an FTE~~(FTE) in the nine months ended September 30, 2019 compared with the same period in 2018 is due to lower levels of tax-exempt interest income and ~~non-FTE basis by 0.3%.~~stock compensation tax deductions in the nine months ended September 30, 2019. The tax provisions (FTE) for the nine months ended September 30, 2019 and September 30, 2018 include tax benefits of $365 thousand and $731 thousand, respectively, for tax deductions from the exercise of employee stock options which exceed related compensation expenses recognized in the financial statements.

In the ~~second quarter~~nine months ended September 30, 2019, the Company decreased unrecognized tax benefits by $909 thousand related to settlements with taxing authorities. The settlements incorporated amended tax returns for which the Company had recognized a deferred tax asset in the amount of $1,003 thousand.

Investment Portfolio

The Company maintains an investment securities portfolio consisting of securities issued by the U.S. Treasury, U.S. Government sponsored entities, agency and non-agency mortgage backed securities, state and political subdivisions, corporations, and other securities.

Management has managed the investment securities portfolio in response to changes in deposit ~~growth~~ and loan ~~volume declines.~~volumes. The carrying value of the Company’s investment securities portfolio was $3.8 billion at September 30, 2019 and $3.6 billion at ~~June 30, 2019 and~~ December 31, 2018.

Management continually evaluates the Company’s investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability, liquidity, and the level of interest rate risk to which the Company is exposed. These evaluations may cause Management to change the level of funds the Company deploys into investment securities and change the composition of the Company’s investment securities portfolio.

At ~~June~~September 30, 2019, 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. There have been no significant differences in the Company’s internal analyses compared with the ratings assigned by the third party credit rating agencies.

The Company had no equity securities at September 30, 2019. All of the equity securities were sold with no gains or losses from the sale during the third quarter 2019. The market value of the equity securities was ~~$1,797 thousand at June 30, 2019 and~~ $1,747 thousand at December 31, 2018. During the ~~six~~nine months ended ~~June~~September 30, 2019, the Company recognized gross unrealized holding gains of $50 thousand in earnings.
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-40-

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

At June 30, 2019

At December 31, 2018

At September 30, 2019

At December 31, 2018

Market value

As a percent of total corporate securities

Market value

As a percent of total corporate securities

Market value

As a percent of total corporate securities

Market value

As a percent of total corporate securities

($ in thousands)

($ in thousands)

Financial
$ 547,680 39 % $ 531,512 40 % $ 719,601 43 % $ 531,512 40 %
Utilities
223,247 16 % 197,568 15 % 223,428 14 % 197,568 15 %
Consumer, Non-cyclical
184,521 13 % 169,851 13 % 184,859 11 % 169,851 13 %
Industrial
154,437 11 % 152,636 12 % 151,452 9 % 152,636 12 %
Technology
122,284 9 % 105,324 8 % 123,107 7 % 105,324 8 %
Consumer, Cyclical
60,717 5 % 58,430 5 %
Communications
50,654 4 % 49,642 4 % 89,559 5 % 49,642 4 %
Basic Materials
31,081 2 % 30,410 2 % 66,978 4 % 30,410 2 %
Consumer, Cyclical
61,053 4 % 58,430 5 %
Energy
20,426 1 % 19,668 1 % 47,010 3 % 19,668 1 %
Total Corporate securities
$ 1,395,047 100 % $ 1,315,041 100 % $ 1,667,047 100 % $ 1,315,041 100 %

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 ~~June~~September 30, 2019, the Company’s investment securities portfolios included securities issued by ~~528~~481 state and local government municipalities and agencies located within 42 states. The largest exposure to any one municipality or agency was ~~$8.9~~$9.0 million (fair value) represented by ~~seven~~one general obligation ~~bonds.~~bond.

At June 30, 2019

At September 30, 2019

Amortized

Fair

Amortized

Fair

Cost

Value

Cost

Value

(In thousands)

(In thousands)

Obligations of states and political subdivisions:
Obligations of states and political subdivisions:

General obligation bonds:
General obligation bonds:

California
$ 105,597 $ 108,146 $ 84,879 $ 87,392
Texas
43,577 43,962 38,245 38,698
New Jersey
32,619 33,007 29,798 30,150
Washington
23,985 24,623 23,924 24,626
Other (34 states)
240,597 244,534
Minnesota
20,661 20,918
Other (33 states)
203,785 207,899
Total general obligation bonds
$ 446,375 $ 454,272 $ 401,292 $ 409,683

Revenue bonds:

California
$ 31,885 $ 32,384 $ 32,277 $ 32,787
Kentucky
17,204 17,481 16,399 16,680
Colorado
12,934 13,269 12,917 13,243
Washington
11,223 11,567
Indiana
11,962 12,151 9,944 10,149
Washington
11,669 12,037
Iowa
10,853 10,887
Other (28 states)
91,804 93,519 90,204 91,837
Total revenue bonds
$ 188,311 $ 191,728 $ 172,964 $ 176,263
Total obligations of states and political subdivisions
$ 634,686 $ 646,000 $ 574,256 $ 585,946
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-41-

At December 31, 2018, the Company’s investment securities portfolios included securities issued by 583 state and local government municipalities and agencies located within 43 states. The largest exposure to any one municipality or agency was $9.3 million (fair value) represented by eight general obligation bonds.

At December 31, 2018

Amortized

Fair

Cost

Value

(In thousands)

Obligations of states and political subdivisions:

General obligation bonds:

California
$ 104,607 $ 105,730
Texas
56,653 56,286
New Jersey
35,501 35,527
Minnesota
29,609 29,593
Other (35 states)
267,402 266,136
Total general obligation bonds
$ 493,772 $ 493,272

Revenue bonds:

California
$ 35,164 $ 35,399
Kentucky
19,320 19,328
Colorado
14,564 14,539
Washington
13,034 13,228
Iowa
13,202 13,052
Indiana
12,007 12,034
Other (28 states)
113,047 112,805
Total revenue bonds
$ 220,338 $ 220,385
Total obligations of states and political subdivisions
$ 714,110 $ 713,657

At ~~June~~September 30, 2019 and December 31, 2018, 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 from 2119 revenue sources at ~~June~~September 30, 2019 and 22 revenue sources December 31, 2018. The revenue sources that represent 5% or more individually of the total revenue bonds are summarized in the following tables.

At June 30, 2019

Amortized

Fair

Cost

Value

(In thousands)

Revenue bonds by revenue source:

Water
$ 45,406 $ 46,313
Sales tax
25,970 26,502
Sewer
21,711 22,225
Lease (renewal)
16,167 16,446
Other (17 sources)
79,057 80,242
Total revenue bonds by revenue source
$ 188,311 $ 191,728

At September 30, 2019

Amortized

Fair

Cost

Value

(In thousands)

Revenue bonds by revenue source:

Water
$ 39,657 $ 40,489
Sales tax
23,030 23,532
Sewer
19,667 20,196
Lease (renewal)
15,368 15,656
Lease (abatement)
10,924 11,190
Other (14 sources)
64,318 65,200
Total revenue bonds by revenue source
$ 172,964 $ 176,263

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-42-

At December 31, 2018

Amortized

Fair

Cost

Value

(In thousands)

Revenue bonds by revenue source:

Water
$ 46,326 $ 46,671
Sales tax
28,264 28,517
Sewer
28,335 28,502
Lease (renewal)
17,013 17,051
College & University
13,919 13,714
Other (17 sources)
86,481 85,930
Total revenue bonds by revenue source
$ 220,338 $ 220,385

See Note 3 to the unaudited consolidated financial statements for additional information related to the investment securities.

Loan Portfolio Credit Risk

The Company extends loans to commercial and consumer customers which expose the Company to the risk 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 maintained by assessing or reversing a provision for loan losses through 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 audit committee of the Board of Directors. The Loan Review Department performs independent evaluations of loans to challenge the credit risk grades assigned by Management using grading standards employed by bank regulatory agencies. Those loans judged to carry higher risk attributes are referred to as “classified loans.” Classified loans receive elevated Management attention to maximize collection.

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

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

-43-

~~Nonperforming Assets~~
Nonperforming Assets

At June 30,

At December 31,

At September 30,

At December 31,

2019

2018

2018

2019

2018

2018

(In thousands)

(In thousands)

Nonperforming nonaccrual loans
$ 177 $ 783 $ 998 $ 633 $ 1,611 $ 998
Performing nonaccrual loans
3,670 4,110 3,870 3,670 3,870 3,870
Total nonaccrual loans
3,847 4,893 4,868 4,303 5,481 4,868
Accruing loans 90 or more days past due
249 193 551 351 361 551
Total nonperforming loans
4,096 5,086 5,419 4,654 5,842 5,419
Other real estate owned
43 939 350 43 620 350
Total nonperforming assets
$ 4,139 $ 6,025 $ 5,769 $ 4,697 $ 6,462 $ 5,769

Nonperforming assets have declined at ~~June~~September 30, 2019 compared with ~~June~~September 30, 2018 due to payoffs, chargeoffs and sale of Other Real Estate Owned. At ~~June~~September 30, 2019, one loan secured by commercial real estate with a balance of $3.7 million was on nonaccrual status. The remaining ~~two~~five nonaccrual loans held at ~~June~~September 30, 2019 had an average carrying ~~values~~value of ~~$100 thousand and $77~~$127 thousand.

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.

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-44-

Allowance for Loan 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.

The following table summarizes the allowance for loan losses, chargeoffs and recoveries for the periods indicated:

For the Three Months

For the Six Months

For the Three Months

For the Nine Months

Ended June 30,

Ended September 30,

2019

2018

2019

2018

2019

2018

2019

2018

($ in thousands)

($ in thousands)

Analysis of the Allowance for Loan Losses

Balance, beginning of period
$ 20,477 $ 23,081 $ 21,351 $ 23,009 $ 20,117 $ 23,040 $ 21,351 $ 23,009
Provision for loan losses
- - - - - - - -
Loans charged off

Commercial
(48 ) - (71 ) (41 ) - (384 ) (71 ) (425 )
Commercial real estate
- (240 ) - (240 )
Consumer installment and other
(925 ) (805 ) (2,293 ) (2,170 ) (1,039 ) (845 ) (3,332 ) (3,015 )
Total chargeoffs
(973 ) (805 ) (2,364 ) (2,211 ) (1,039 ) (1,469 ) (3,403 ) (3,680 )
Recoveries of loans previously charged off

Commercial
123 420 216 1,249 233 103 449 1,352
Commercial real estate
14 - 26 - 12 - 38 -
Construction
- - - -
Consumer installment and other
476 344 888 993 505 353 1,393 1,346
Total recoveries
613 764 1,130 2,242 750 456 1,880 2,698
Net loan (losses) recoveries
(360 ) (41 ) (1,234 ) 31
Net loan losses
(289 ) (1,013 ) (1,523 ) (982 )
Balance, end of period
$ 20,117 $ 23,040 $ 20,117 $ 23,040 $ 19,828 $ 22,027 $ 19,828 $ 22,027

Net loan losses (recoveries) as a percentage of average total loans (annualized)
0.12 % 0.01 % 0.21 % (0.01% )
Net loan losses as a percentage of average total loans (annualized)
0.10 % 0.34 % 0.17 % 0.11 %

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, 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 all loans with outstanding principal balances in excess of $500 thousand that are classified or on nonaccrual status and all “troubled debt restructured” loans for impairment. 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 a loss emergence period. Liquidating purchased consumer installment loans are evaluated separately by applying historical loss rates to forecasted liquidating principal balances to measure losses inherent in this portfolio segment. The loss rates are applied to segmented loan balances to allocate the allowance to the segments of the loan portfolio.

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 ~~June~~September 30, 2019 is economic and business conditions ~~$0.5~~$0.4 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: concentrations of credit at ~~$1.3~~$1.0 million, adequacy of lending Management and staff at ~~$1.2~~$1.1 million, and loan review system at ~~$1.1~~$1.0 million.

-45-

Allowance for Loan Losses

Allowance for Loan Losses

For the Three Months Ended June 30, 2019

For the Three Months Ended September 30, 2019

Consumer

Consumer

Commercial

Residential

Installment

Commercial

Residential

Installment

Commercial

Real Estate

Construction

Real Estate

and Other

Unallocated

Total

Commercial

Real Estate

Construction

Real Estate

and Other

Unallocated

Total

(In thousands)

(In thousands)

Allowance for loan losses:
Allowance for loan losses:

Balance at beginning of period
$ 6,506 $ 3,927 $ 853 $ 261 $ 5,481 $ 3,449 $ 20,477 $ 5,235 $ 4,057 $ 1,117 $ 238 $ 5,418 $ 4,052 $ 20,117
(Reversal) provision
(1,346 ) 116 264 (23 ) 386 603 - (596 ) (1 ) 482 (16 ) 655 (524 ) -
Chargeoffs
(48 ) - - - (925 ) - (973 ) - - - - (1,039 ) - (1,039 )
Recoveries
123 14 - - 476 - 613 233 12 - - 505 - 750
Total allowance for loan losses
$ 5,235 $ 4,057 $ 1,117 $ 238 $ 5,418 $ 4,052 $ 20,117 $ 4,872 $ 4,068 $ 1,599 $ 222 $ 5,539 $ 3,528 $ 19,828

Allowance for Loan Losses

Allowance for Loan Losses

For the Six Months Ended June 30, 2019

For the Nine Months Ended September 30, 2019

Consumer

Consumer

Commercial

Residential

Installment

Commercial

Residential

Installment

Commercial

Real Estate

Construction

Real Estate

and Other

Unallocated

Total

Commercial

Real Estate

Construction

Real Estate

and Other

Unallocated

Total

(In thousands)

(In thousands)

Allowance for loan losses:
Allowance for loan losses:

Balance at beginning of period
$ 6,311 $ 3,884 $ 1,465 $ 869 $ 5,645 $ 3,177 $ 21,351 $ 6,311 $ 3,884 $ 1,465 $ 869 $ 5,645 $ 3,177 $ 21,351
(Reversal) provision
(1,221 ) 147 (348 ) (631 ) 1,178 875 - (1,817 ) 146 134 (647 ) 1,833 351 -
Chargeoffs
(71 ) - - - (2,293 ) - (2,364 ) (71 ) - - - (3,332 ) - (3,403 )
Recoveries
216 26 - - 888 - 1,130 449 38 - - 1,393 - 1,880
Total allowance for loan losses
$ 5,235 $ 4,057 $ 1,117 $ 238 $ 5,418 $ 4,052 $ 20,117 $ 4,872 $ 4,068 $ 1,599 $ 222 $ 5,539 $ 3,528 $ 19,828

Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment

At June 30, 2019

Commercial

Commercial Real Estate

Construction

Residential Real Estate

Consumer Installment and Other

Unallocated

Total

(In thousands)

Allowance for loan losses:

Individually evaluated for impairment
$ 2,587 $ - $ - $ - $ - $ - $ 2,587
Collectively evaluated for impairment
2,648 4,057 1,117 238 5,418 4,052 17,530
Total
$ 5,235 $ 4,057 $ 1,117 $ 238 $ 5,418 $ 4,052 $ 20,117
Carrying value of loans:

Individually evaluated for impairment
$ 9,268 $ 6,592 $ - $ 195 $ 77 $ - $ 16,132
Collectively evaluated for impairment
234,309 571,073 5,482 37,618 297,098 - 1,145,580
Total
$ 243,577 $ 577,665 $ 5,482 $ 37,813 $ 297,175 $ - $ 1,161,712
The portion of the allowance for loan losses ascribed to commercial loans decreased from December 31, 2018 to June 30, 2019 based on Management’s judgment of decreasing risk from debt service requirements for borrowers with variable rate loans. The allowance for loan losses ascribed to construction loans decreased from December 31, 2018 to June 30, 2019 based on a reduced level of credit exposure relative to real property values. The allowance for loan losses ascribed to residential real estate loans declined from December 31, 2018 to June 30, 2019 due to Management’s evaluation of collateral values and loan amortization. The increase in unallocated loan loss allowance was due to reassessment of qualitative factors associated with the Company’s lending activity.

Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment

At September 30, 2019

Commercial

Commercial Real Estate

Construction

Residential Real Estate

Consumer Installment and Other

Unallocated

Total

(In thousands)

Allowance for loan losses:

Individually evaluated for impairment
$ 2,550 $ - $ - $ - $ - $ - $ 2,550
Collectively evaluated for impairment
2,322 4,068 1,599 222 5,539 3,528 17,278
Total
$ 4,872 $ 4,068 $ 1,599 $ 222 $ 5,539 $ 3,528 $ 19,828
Carrying value of loans:

Individually evaluated for impairment
$ 8,672 $ 7,953 $ - $ 193 $ 144 $ - $ 16,962
Collectively evaluated for impairment
207,601 571,274 6,678 35,155 295,559 - 1,116,267
Total
$ 216,273 $ 579,227 $ 6,678 $ 35,348 $ 295,703 $ - $ 1,133,229

Management considers the ~~$20.1~~$19.8 million allowance for loan losses to be adequate as a reserve against probable incurred loan losses in the loan portfolio as of ~~June~~September 30, 2019.

See Note 4 to the unaudited consolidated financial statements for additional information related to the loan portfolio, loan portfolio credit risk, allowance for loan losses and other real estate owned.

Asset/Liability and Market Risk Management

Asset/liability management involves the evaluation, monitoring and management of interest rate risk, market risk, liquidity and funding. The fundamental objective of the Company's management of assets and liabilities is to maximize its economic value while maintaining adequate liquidity and a conservative level of interest rate risk.

Interest Rate Risk

Interest rate risk is a significant market risk affecting the Company. Many factors affect the Company’s exposure to interest rates, such as general economic and financial conditions, customer preferences, historical pricing relationships, and re-pricing characteristics of financial instruments. Financial instruments may mature or re-price at different times. Financial instruments may re-price at the same time but by different amounts. Short-term and long-term market interest rates may change by different amounts. The timing and amount of cash flows of various financial instruments may change as interest rates change. In addition, the changing levels of interest rates may have an impact on loan demand and demand for various deposit products.

~~-46-~~

The Company’s earnings are affected not only by general economic conditions, but also by the monetary and fiscal policies of the United States government and its agencies, particularly the FOMC. The monetary policies of the FOMC can influence the overall growth of loans, investment securities, and deposits and the level of interest rates earned on loans and investment securities and paid for deposits and other borrowings. The nature and impact of future changes in monetary policies are generally not predictable.
-46-

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

Management monitors the Company’s interest rate risk using a purchased simulation model, which is periodically validated using supervisory guidance issued by the Board of Governors of the Federal Reserve System, SR 11-7 “Guidance on Model Risk Management.” Management measures its exposure to interest rate risk using both a static and dynamic composition of financial instruments. Within the static composition simulation, cash flows are assumed redeployed into like financial instruments at prevailing rates and yields. Within the dynamic composition simulation, Management makes assumptions regarding the expected change in the volume of financial instruments given the assumed change in market interest rates. Both simulations are used to measure expected changes in net interest income assuming various levels of change in market interest rates.

The Company’s asset and liability position was slightly “asset sensitive” at ~~June~~September 30, 2019, depending on the interest rate assumptions applied to each simulation model. 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.

At ~~June~~September 30, 2019, Management’s most recent measurements of estimated changes in net interest income were:

~~Static Simulation (balance sheet composition unchanged):~~
Static Simulation (balance sheet composition unchanged):

Assumed Immediate Parallel Shift in Interest Rates

-1.00%

0.00%

+1.00%
-1.00 % 0.00 % +1.00 %
First Year Change in Net Interest Income

-7.40%

0.00%

+4.80%
-6.50 % 0.00 % +4.60 %

~~Dynamic Simulation (balance sheet composition changes):~~
Dynamic Simulation (balance sheet composition changes):

Assumed Change in Interest Rates Over 1 Year

-1.00%

0.00%

+1.00%
-1.00 % 0.00 % +1.00 %
First Year Change in Net Interest Income

-3.70%

0.00%

+2.90%
-3.60 % 0.00 % +2.00 %

Simulation estimates depend on, and will change with, the size and mix of the actual and projected composition of financial instruments at the time of each simulation.

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

Market Risk - Equity Markets

Equity price risk can affect the Company. Preferred or common stock holdings, as permitted by banking regulations, can fluctuate in value. Changes in value of preferred or common stock holdings are recognized in the Company's income statement.

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

~~-47-~~

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.
-47-

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, provided 98% of funding for average total assets in the ~~six~~nine months ended ~~June~~September 30, 2019 and the year ended December 31, 2018. 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.

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 source of liquidity. The Company held ~~$3.6~~$3.8 billion in total investment securities at ~~June~~September 30, 2019. Under certain deposit, borrowing and other arrangements, the Company must hold and pledge investment securities as collateral. At ~~June~~September 30, 2019, such collateral requirements totaled approximately ~~$747~~$722 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 continually monitors the Company’s cash levels. 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 the Bank and must provide for its own liquidity. In addition to its operating expenses, the Parent Company is responsible for the payment of dividends declared for its shareholders, and interest and principal on any outstanding debt. The Parent Company currently has no 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, proceeds from the exercise of stock options, and Parent Company cash balances provided adequate cash for the Parent Company to pay shareholder dividends of ~~$22~~$33 million and $43 million in the ~~six~~nine months ended ~~June~~September 30, 2019 and in the year ended December 31, 2018, respectively, and retire common stock in the amount of $488 thousand and $524 thousand, respectively. 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.

~~-48-~~

Capital Resources

The Company has historically generated high levels of earnings, which provide a means of accumulating capital. The Company's net income as a percentage of average shareholders' equity (“return on equity” or “ROE”) has been ~~12.0%~~11.9% in the ~~six~~nine months ended ~~June~~September 30, 2019 and 11.3% in the year ended December 31, 2018. The Company also raises capital as employees exercise stock options. Capital raised through the exercise of stock options was $8$11 million in the ~~six~~nine months ended ~~June~~September 30, 2019 and $13 million in the year ended December 31, 2018.

-48-
The Company paid common dividends totaling ~~$22~~$33 million in the ~~six~~nine months ended ~~June~~September 30, 2019 and $43 million in the year ended December 31, 2018, which represent dividends per common share of ~~$0.81~~$1.22 and $1.60, respectively. The Company's earnings have historically exceeded dividends paid to shareholders. The amount of earnings in excess of dividends provides the Company resources to finance growth and maintain appropriate levels of shareholders' equity. In the absence of profitable growth opportunities, the Company has at times repurchased and retired its common stock as another means to return earnings to shareholders. The Company repurchased and retired 8 thousand shares valued at $488 thousand in the ~~six~~nine months ended ~~June~~September 30, 2019 and 9 thousand shares valued at $524 thousand in the year ended December 31, 2018.

The Company's primary capital resource is shareholders' equity, which was ~~$693~~$713 million at ~~June~~September 30, 2019 compared with $616 million at December 31, 2018. The Company's ratio of equity to total assets was ~~12.6%~~12.7% at ~~June~~September 30, 2019 and 11.1% at December 31, 2018.

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.

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 debt securities available for sale, in regulatory capital. Neither the Company nor the Bank 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 ended January 1, 2019, when the 2.5% capital conservation buffer was fully implemented. Any bank subject to the rule which is unable to maintain its “capital conservation buffer” above the minimum regulatory capital ratios will be restricted in the payment of discretionary executive compensation and shareholder distributions, such as dividends and share repurchases.

~~-49-~~

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.

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

To Be

Well-capitalized

Required for

Under Prompt

At June 30, 2019

Capital Adequacy

Corrective Action

Company

Bank

Purposes

Regulations (Bank)

Common Equity Tier I Capital
17.18 % 13.05 % 7.00 %⁽¹⁾ 6.50 %
Tier I Capital
17.18 % 13.05 % 8.50 %⁽¹⁾ 8.00 %
Total Capital
17.88 % 13.94 % 10.50 %⁽¹⁾ 10.00 %
Leverage Ratio
10.19 % 7.69 % 4.00 % 5.00 %
-49-

To Be

Well-capitalized

Required for

Under Prompt

At September 30, 2019

Capital Adequacy

Corrective Action

Company

Bank

Purposes

Regulations (Bank)

Common Equity Tier I Capital
16.55 % 12.14 % 7.00% ⁽¹⁾ 6.50 %
Tier I Capital
16.55 % 12.14 % 8.50% ⁽¹⁾ 8.00 %
Total Capital
17.20 % 12.98 % 10.50% ⁽¹⁾ 10.00 %
Leverage Ratio
10.41 % 7.60 % 4.00% 5.00 %

⁽¹⁾ Includes 2.5% capital conservation buffer.

To Be

To Be

Required for

Well-capitalized

Required for

Well-capitalized

Capital Adequacy Purposes

Under Prompt

Capital Adequacy Purposes

Under Prompt

At December 31, 2018

Effective

Effective

Corrective Action

At December 31, 2018

Effective

Effective

Corrective Action

Company

Bank

January 1, 2018

January 1, 2019

Regulations (Bank)

Company

Bank

January 1, 2018

January 1, 2019

Regulations (Bank)

Common Equity Tier I Capital
16.30 % 13.01 % 6.375 %⁽²⁾ 7.00 %⁽³⁾ 6.50 % 16.30 % 13.01 % 6.375% ⁽²⁾ 7.00% ⁽³⁾ 6.50 %
Tier I Capital
16.30 % 13.01 % 7.875 %⁽²⁾ 8.50 %⁽³⁾ 8.00 % 16.30 % 13.01 % 7.875% ⁽²⁾ 8.50% ⁽³⁾ 8.00 %
Total Capital
17.03 % 13.94 % 9.875 %⁽²⁾ 10.50 %⁽³⁾ 10.00 % 17.03 % 13.94 % 9.875% ⁽²⁾ 10.50% ⁽³⁾ 10.00 %
Leverage Ratio
9.51 % 7.55 % 4.000 % 4.00 % 5.00 % 9.51 % 7.55 % 4.000% 4.00% 5.00 %

⁽²⁾⁽²⁾ Includes 1.875% capital conservation buffer.
⁽³⁾⁽³⁾ Includes 2.5% capital conservation buffer.

In June 2016, the Financial Accounting Standards Board issued an update to the accounting standards for credit losses known as the "Current Expected Credit Losses" (CECL) methodology, which replaces the existing incurred loss methodology for certain financial assets. The Company intends to timely adopt the CECL methodology January 1, 2020, which involves an implementing accounting entry to retained ~~earnings.~~earnings on a net-of-tax basis. In December 2018, the federal bank regulatory agencies approved a final rule which became effective April 1, 2019 modifying their regulatory capital rules and providing an option to phase in over a period of three years the day-one regulatory capital effects of implementing the CECL methodology. The Company has not determined whether it will elect the ~~three year~~three-year phase in period for the day-one regulatory capital effects. See Note 12 to the unaudited consolidated financial statements, ~~“Summary of Significant Accounting Policies: Recently~~“Recently Issued Accounting Standards” for more information on the CECL methodology.

The Company and the Bank routinely project capital levels by analyzing forecasted earnings, credit quality, shareholder dividends, asset volumes, share repurchase activity, stock option exercise proceeds, and other factors. Based on current capital projections, the 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.
~~-50-~~

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.
-50-

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 ~~June~~September 30, 2019.

Based upon their evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported as and when required and that such information is communicated to the Company’s management, including the principal executive officer and the principal financial officer, to allow for timely decisions regarding required disclosures. The evaluation did not identify any change in the Company’s internal control over financial reporting that occurred during the quarter ended ~~June~~September 30, 2019 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 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. Legal liabilities are accrued when obligations become probable and the amount can be reasonably estimated. In the second quarter 2019, the Company achieved a mediated settlement to dismiss a lawsuit and paid the resulting liability of $252 thousand. The Company determined that it will be obligated to provide refunds of revenue recognized in years prior to 2018 to some customers. The Company initially estimated the probable amount of these obligations to be $5,542 thousand and accrued a liability for such amount in 2017; based on additional information received in the second quarter 2019, the Company increased such liability to $5,843 thousand by recognizing an expense of $301 thousand.

Item 1A. Risk Factors

The Company’s Form 10-K as of December 31, 2018 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) None
(b) None
(c) Issuer Purchases of Equity Securities

The table below sets forth the information with respect to purchases made by or on behalf of Westamerica Bancorporation or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of common stock during the quarter ended ~~June~~September 30, 2019.
2019
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 1 through July 31
- $ - - 1,750
August 1 through August 31
- - - 1,750
September 1 through September 30
- - - 1,750
Total
- $ - - 1,750

-51-

2019

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)

April 1 through April 30
8 $ 61.98 8 1,742
May 1 through May 31
- - - 1,742
June 1 through June 30
- - - 1,742
Total
8 $ 61.98 8 1,742

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.

~~Shares~~No shares were repurchased during the period ~~April~~July 1, 2019 through ~~June~~September 30, ~~2019 pursuant to a~~2019. A program approved by the Board of Directors on July 26, 2018 ~~which authorizes~~authorizing the purchase of up to 1,750 thousand shares of the Company’s common stock from time to time prior to September 1, ~~2019.~~2019 was replaced by a program approved by the Board of Directors on July 25, 2019 authorizing the purchase of up to 1,750 thousand shares of the Company’s common stock from time to time prior to September 1, 2020.

Item 3. Defaults upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~(a)~~ ~~Submission of Matters to a Vote of Security Holders~~None
~~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 April 29, 2019.~~
~~(b)~~ ~~Entry into a Material Definitive Agreement~~
~~The information required by this item is incorporated by reference to Item 1.01 to the Registrant’s Form 8-K, filed with the Securities and Exchange Commission on June 27, 2019.~~

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]

-52-

SIGNATURES

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

WESTAMERICA BANCORPORATION
(Registrant)

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

Date: ~~August 5,~~November 4, 2019

-53-

EXHIBIT INDEX
Exhibit 10.1*: Westamerica Bancorporation 2019 Omnibus Equity Incentive Plan Stock Option Agreement Form
Exhibit 10.2*: Westamerica Bancorporation 2019 Omnibus Equity Incentive Plan Restricted Stock Unit Award Agreement Form

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

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

Exhibit 32.1: Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2: Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 101.INS: XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Exhibit 101.SCH: XBRL Taxonomy Extension Schema Document

Exhibit 101.CAL: XBRL Taxonomy Extension Calculation Linkbase Document

Exhibit 101.DEF: XBRL Taxonomy Extension Definitions Linkbase Document

Exhibit 101.LAB: XBRL Taxonomy Extension Label Linkbase Document

Exhibit 101.PRE: XBRL Taxonomy Extension Presentation Linkbase Document

* Indicates management contract, compensatory plan or arrangement.

[The remainder of this page intentionally left blank]

-54-

	At June 30, 2019										At September 30, 2019
			Gross		Gross								Gross		Gross
	Amortized		Unrealized		Unrealized			Fair			Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value			Cost		Gains		Losses			Value
	(In thousands)										(In thousands)
Debt securities available for sale										Debt securities available for sale
U.S. Treasury securities	$	44,473	$	100	$	-		$	44,573		$	44,758	$	68	$	-		$	44,826
Securities of U.S. Government sponsored entities		167,239		69		(170	)		167,138			122,245		23		(160	)		122,108
Agency residential mortgage-backed securities (MBS)		987,024		8,236		(8,314	)		986,946			976,066		10,294		(6,609	)		979,751
Non-agency residential MBS		109		3		-			112			101		3		-			104
Agency commercial MBS		5,635		5		(19	)		5,621			3,748		3		-			3,751
Securities of U.S. Government entities		815		-		(7	)		808			786		-		(9	)		777
Obligations of states and political subdivisions		172,268		3,486		(100	)		175,654			161,506		3,944		(47	)		165,403
Corporate securities		1,379,704		17,462		(2,119	)		1,395,047			1,645,518		24,520		(2,991	)		1,667,047
Total debt securities available for sale		2,757,267		29,361		(10,729	)		2,775,899			2,954,728		38,855		(9,816	)		2,983,767
Debt securities held to maturity										Debt securities held to maturity
Agency residential MBS		402,961		824		(3,861	)		399,924			377,995		817		(2,647	)		376,165
Non-agency residential MBS		2,610		96		-			2,706			2,471		62		-			2,533
Obligations of states and political subdivisions		462,418		7,947		(19	)		470,346			412,750		7,804		(11	)		420,543
Total debt securities held to maturity		867,989		8,867		(3,880	)		872,976			793,216		8,683		(2,658	)		799,241
Total	$	3,625,256	$	38,228	$	(14,609	)	$	3,648,875		$	3,747,944	$	47,538	$	(12,474	)	$	3,783,008

	At December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Debt securities available for sale
U.S. Treasury securities	$	139,572	$	5	$	(3	)	$	139,574
Securities of U.S. Government sponsored entities		167,228		65		(3,275	)		164,018
Agency residential MBS		883,715		595		(30,439	)		853,871
Non-agency residential MBS		113		1		-			114
Agency commercial MBS		1,869		-		(27	)		1,842
Securities of U.S. Government entities		1,128		-		(9	)		1,119
Obligations of states and political subdivisions		180,220		1,856		(2,985	)		179,091
Corporate securities		1,337,608		1,075		(23,642	)		1,315,041
Total debt securities available for sale		2,711,453		3,597		(60,380	)		2,654,670
Debt securities held to maturity
Agency residential MBS		447,332		249		(14,129	)		433,452
Non-agency residential MBS		3,387		40		-			3,427
Obligations of states and political subdivisions		533,890		3,403		(2,727	)		534,566
Total debt securities held to maturity		984,609		3,692		(16,856	)		971,445
Total	$	3,696,062	$	7,289	$	(77,236	)	$	3,626,115

	At June 30, 2019									At September 30, 2019
	Debt Securities Available				Debt Securities Held					Debt Securities Available				Debt Securities Held
	for Sale				to Maturity					for Sale				to Maturity
	Amortized		Fair		Amortized		Fair			Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value			Cost		Value		Cost		Value
	(In thousands)									(In thousands)
Maturity in years:									Maturity in years:
1 year or less	$	202,597	$	202,637	$	81,436	$	81,589		$	284,550	$	285,060	$	64,092	$	64,247
Over 1 to 5 years		1,329,781		1,342,419		177,675		180,218			1,182,895		1,199,153		179,576		182,635
Over 5 to 10 years		193,678		199,098		202,280		207,471			471,434		478,841		169,082		173,661
Over 10 years		38,443		39,066		1,027		1,068			35,934		37,107		-		-
Subtotal		1,764,499		1,783,220		462,418		470,346			1,974,813		2,000,161		412,750		420,543
MBS		992,768		992,679		405,571		402,630			979,915		983,606		380,466		378,698
Total	$	2,757,267	$	2,775,899	$	867,989	$	872,976		$	2,954,728	$	2,983,767	$	793,216	$	799,241

	Debt Securities Held to Maturity
	At June 30, 2019
	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		1	$	55	$	-		63	$	350,418	$	(3,861	)		64	$	350,473	$	(3,861	)
Obligations of states and political subdivisions		-		-		-		13		10,516		(19	)		13		10,516		(19	)
Total		1	$	55	$	-		76	$	360,934	$	(3,880	)		77	$	360,989	$	(3,880	)

	For the Three Months				For the Six Months
	Ended June 30,
	2019		2018		2019		2018
	(In thousands)

Taxable	$	18,773	$	15,598	$	37,406	$	30,547
Tax-exempt from regular federal income tax		4,073		5,027		8,388		9,888
Total interest income from investment securities	$	22,846	$	20,625	$	45,794	$	40,435

	At June 30,		At December 31,		At September 30,		At December 31,
	2019		2018		2019		2018
	(In thousands)				(In thousands)
Commercial	$	243,577	$	275,080	$	216,273	$	275,080
Commercial Real Estate		577,665		580,480		579,227		580,480
Construction		5,482		3,982		6,678		3,982
Residential Real Estate		37,813		44,866		35,348		44,866
Consumer Installment & Other		297,175		302,794		295,703		302,794
Total	$	1,161,712	$	1,207,202	$	1,133,229	$	1,207,202

	For the			For the			For the			For the
	Six Months Ended			Year Ended			Nine Months Ended			Year Ended
	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Accretable yield:	(In thousands)						(In thousands)
Balance at the beginning of the period	$	182		$	738		$	182		$	738
Reclassification from nonaccretable difference		1,103			1,119			1,103			1,119
Accretion		(257	)		(1,675	)		(368	)		(1,675	)
Balance at the end of the period	$	1,028		$	182		$	917		$	182

Accretion	$	(257	)	$	(1,675	)	$	(368	)	$	(1,675	)
Change in FDIC indemnification		-			2			-			2
(Increase) in interest income	$	(257	)	$	(1,673	)	$	(368	)	$	(1,673	)

	Allowance for Loan Losses																		Allowance for Loan Losses
	For the Three Months Ended June 30, 2019																		For the Three Months Ended September 30, 2019
											Consumer																			Consumer
				Commercial				Residential			Installment											Commercial					Residential			Installment
	Commercial			Real Estate		Construction		Real Estate			and Other			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	$	6,506		$	3,927	$	853	$	261		$	5,481		$	3,449	$	20,477		$	5,235		$	4,057		$	1,117	$	238		$	5,418		$	4,052		$	20,117
(Reversal) provision		(1,346	)		116		264		(23	)		386			603		-			(596	)		(1	)		482		(16	)		655			(524	)		-
Chargeoffs		(48	)		-		-		-			(925	)		-		(973	)		-			-			-		-			(1,039	)		-			(1,039	)
Recoveries		123			14		-		-			476			-		613			233			12			-		-			505			-			750
Total allowance for loan losses	$	5,235		$	4,057	$	1,117	$	238		$	5,418		$	4,052	$	20,117		$	4,872		$	4,068		$	1,599	$	222		$	5,539		$	3,528		$	19,828

	Allowance for Loan Losses
	For the Six Months Ended June 30, 2019
												Consumer
				Commercial					Residential			Installment
	Commercial			Real Estate		Construction			Real Estate			and Other			Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	6,311		$	3,884	$	1,465		$	869		$	5,645		$	3,177	$	21,351
(Reversal) provision		(1,221	)		147		(348	)		(631	)		1,178			875		-
Chargeoffs		(71	)		-		-			-			(2,293	)		-		(2,364	)
Recoveries		216			26		-			-			888			-		1,130
Total allowance for loan losses	$	5,235		$	4,057	$	1,117		$	238		$	5,418		$	4,052	$	20,117

	Allowance for Loan Losses
	For the Nine Months Ended September 30, 2019
											Consumer
				Commercial				Residential			Installment
	Commercial			Real Estate		Construction		Real Estate			and Other			Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	6,311		$	3,884	$	1,465	$	869		$	5,645		$	3,177	$	21,351
(Reversal) provision		(1,817	)		146		134		(647	)		1,833			351		-
Chargeoffs		(71	)		-		-		-			(3,332	)		-		(3,403	)
Recoveries		449			38		-		-			1,393			-		1,880
Total allowance for loan losses	$	4,872		$	4,068	$	1,599	$	222		$	5,539		$	3,528	$	19,828

	Allowance for Loan Losses																			Allowance for Loan Losses
	For the Three Months Ended June 30, 2018																			For the Three Months Ended September 30, 2018
											Consumer																				Consumer
				Commercial					Residential		Installment												Commercial					Residential			Installment
	Commercial			Real Estate			Construction		Real Estate		and Other			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	$	8,517		$	3,824		$	175	$	908	$	5,739		$	3,918		$	23,081		$	8,275		$	3,789		$	210	$	1,064		$	5,943		$	3,759	$	23,040
(Reversal) provision		(662	)		(35	)		35		156		665			(159	)		-			(184	)		372			44		(120	)		(137	)		25		-
Chargeoffs		-			-			-		-		(805	)		-			(805	)		(384	)		(240	)		-		-			(845	)		-		(1,469	)
Recoveries		420			-			-		-		344			-			764			103			-			-		-			353			-		456
Total allowance for loan losses	$	8,275		$	3,789		$	210	$	1,064	$	5,943		$	3,759		$	23,040		$	7,810		$	3,921		$	254	$	944		$	5,314		$	3,784	$	22,027

	Allowance for Loan Losses																			Allowance for Loan Losses
	For the Six Months Ended June 30, 2018																			For the Nine Months Ended September 30, 2018
												Consumer																				Consumer
				Commercial						Residential		Installment											Commercial						Residential			Installment
	Commercial			Real Estate			Construction			Real Estate		and Other			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	$	7,746		$	3,849		$	335		$	995	$	6,418		$	3,666	$	23,009		$	7,746		$	3,849		$	335		$	995		$	6,418		$	3,666	$	23,009
(Reversal) provision		(679	)		(60	)		(125	)		69		702			93		-			(863	)		312			(81	)		(51	)		565			118		-
Chargeoffs		(41	)		-			-			-		(2,170	)		-		(2,211	)		(425	)		(240	)		-			-			(3,015	)		-		(3,680	)
Recoveries		1,249			-			-			-		993			-		2,242			1,352			-			-			-			1,346			-		2,698
Total allowance for loan losses	$	8,275		$	3,789		$	210		$	1,064	$	5,943		$	3,759	$	23,040		$	7,810		$	3,921		$	254		$	944		$	5,314		$	3,784	$	22,027

	Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment														Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
	At June 30, 2019														At September 30, 2019
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		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	$	2,587	$	-	$	-	$	-	$	-	$	-	$	2,587	$	2,550	$	-	$	-	$	-	$	-	$	-	$	2,550
Collectively evaluated for impairment		2,648		4,057		1,117		238		5,418		4,052		17,530		2,322		4,068		1,599		222		5,539		3,528		17,278
Total	$	5,235	$	4,057	$	1,117	$	238	$	5,418	$	4,052	$	20,117	$	4,872	$	4,068	$	1,599	$	222	$	5,539	$	3,528	$	19,828
Carrying value of loans:
Individually evaluated for impairment	$	9,368	$	6,531	$	-	$	195	$	77	$	-	$	16,171	$	8,647	$	7,445	$	-	$	193	$	44	$	-	$	16,329
Collectively evaluated for impairment		234,209		571,134		5,482		37,618		297,098		-		1,145,541		207,626		571,782		6,678		35,155		295,659		-		1,116,900
Total	$	243,577	$	577,665	$	5,482	$	37,813	$	297,175	$	-	$	1,161,712	$	216,273	$	579,227	$	6,678	$	35,348	$	295,703	$	-	$	1,133,229

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

	Summary of Loans by Delinquency and Nonaccrual Status												Summary of Loans by Delinquency and Nonaccrual Status
	At June 30, 2019												At September 30, 2019
	Current and Accruing		30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Past Due 90 Days or More and Accruing		Nonaccrual		Total Loans		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	$	243,187	$	290	$	-	$	-	$	100	$	243,577	$	215,787	$	339	$	119	$	2	$	26	$	216,273
Commercial real estate		570,463		3,472		60		-		3,670		577,665		574,321		729		-		-		4,177		579,227
Construction		5,482		-		-		-		-		5,482		6,678		-		-		-		-		6,678
Residential real estate		37,533		280		-		-		-		37,813		34,064		828		456		-		-		35,348
Consumer installment and other		293,684		2,404		761		249		77		297,175		291,638		2,879		737		349		100		295,703
Total	$	1,150,349	$	6,446	$	821	$	249	$	3,847	$	1,161,712	$	1,122,488	$	4,775	$	1,312	$	351	$	4,303	$	1,133,229

	Impaired Loans												Impaired Loans
	At June 30, 2019						At December 31, 2018						At September 30, 2019						At December 31, 2018
			Unpaid						Unpaid						Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related		Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance		Investment		Balance		Allowance		Investment		Balance		Allowance
	(In thousands)												(In thousands)
With no related allowance recorded:
Commercial	$	755	$	755	$	-	$	755	$	759	$	-	$	72	$	72	$	-	$	755	$	759	$	-
Commercial real estate		6,531		7,978		-		8,438		10,373		-		7,953		9,400		-		8,438		10,373		-
Residential real estate		195		225		-		717		747		-		193		224		-		717		747		-
Consumer installment and other		77		112		-		270		377		-		144		178		-		270		377		-
Total with no related allowance recorded		7,558		9,070		-		10,180		12,256		-		8,362		9,874		-		10,180		12,256		-

With an allowance recorded:
Commercial		8,613		8,613		2,587		9,189		9,189		2,752		8,600		8,600		2,550		9,189		9,189		2,752
Commercial real estate		-		-		-		-		-		-
Total with an allowance recorded		8,613		8,613		2,587		9,189		9,189		2,752		8,600		8,600		2,550		9,189		9,189		2,752
Total	$	16,171	$	17,683	$	2,587	$	19,369	$	21,445	$	2,752	$	16,962	$	18,474	$	2,550	$	19,369	$	21,445	$	2,752

	Impaired Loans																Impaired Loans
	For the Three Months Ended June 30,								For the Six Months Ended June 30,								For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2019				2018				2019				2018				2019				2018				2019				2018
	Average		Recognized		Average		Recognized		Average		Recognized		Average		Recognized		Average		Recognized		Average		Recognized		Average		Recognized		Average		Recognized
	Recorded		Interest		Recorded		Interest		Recorded		Interest		Recorded		Interest		Recorded		Interest		Recorded		Interest		Recorded		Interest		Recorded		Interest
	Investment		Income		Investment		Income		Investment		Income		Investment		Income		Investment		Income		Investment		Income		Investment		Income		Investment		Income
	(In thousands)																(In thousands)
Commercial	$	9,662	$	165	$	10,689	$	145	$	9,755	$	332	$	10,793	$	320	$	8,701	$	144	$	10,426	$	175	$	9,404	$	476	$	10,671	$	495
Commercial real estate		6,539		126		11,837		211	$	6,716		273		12,796		426		7,968		60		11,282		189		7,133		333		12,291		615
Residential real estate		196		3		205		4	$	197		6		206		8		194		4		203		4		196		10		205		12
Consumer installment and other		77		-		254		3	$	105		-		305		6		99		-		173		4		103		-		261		10
Total	$	16,474	$	294	$	22,985	$	363	$	16,773	$	611	$	24,100	$	760	$	16,962	$	208	$	22,084	$	372	$	16,836	$	819	$	23,428	$	1,132

	Troubled Debt Restructurings								Troubled Debt Restructurings
	At June 30, 2019								At September 30, 2019
							Period-End								Period-End
							Individual								Individual
	Number of		Pre-Modification		Period-End		Impairment		Number of		Pre-Modification		Period-End		Impairment
	Contracts		Carrying Value		Carrying Value		Allowance		Contracts		Carrying Value		Carrying Value		Allowance
	($ in thousands)								($ in thousands)
Commercial		4	$	2,274	$	708	$	19		3	$	327	$	44	$	18
Commercial real estate		6		8,367		6,531		-		6		8,830		6,517		-
Residential real estate		1		241		195		-		1		241		193		-
Total		11	$	10,882	$	7,434	$	19		10	$	9,398	$	6,754	$	18

	For the Three Months Ended				For the Six Months Ended
	June 30,
	2019		2018		2019		2018
	(In thousands)
Investment loss included in pre-tax income	$	600	$	700	$	1,200	$	1,300
Tax credits recognized in provision for income taxes		225		336		450		672

	For the Three Months Ended				For the Nine Months Ended
	September 30,
	2019		2018		2019		2018
	(In thousands)
Investment loss included in pre-tax income	$	600	$	900	$	1,800	$	2,200
Tax credits recognized in provision for income taxes		225		336		675		1,008

	Minimum future lease payments			Minimum future lease payments
	At June 30,			At September 30,
	2019			2019
	(In thousands)			(In thousands)
Remaining six months of 2019	$	3,220
Remaining three months of 2019				$	2,719
2020		6,091			6,283
2021		4,376			4,574
2022		3,485			3,632
2023		2,804			2,912
Thereafter		1,955			2,057
Total minimum lease payments		21,931			22,177
Less: discount		(1,425	)		(2,456	)
Present value of lease liability	$	20,506		$	19,721

	Minimum future rental payments
	(In thousands)
2019	$	5,996
2020		4,409
2021		2,741
2022		1,921
2023		1,223
Thereafter		1,044
Total minimum lease payments	$	17,334

	Total
	Core
	Deposit
	Intangibles
	(In thousands)
For the Six Months ended June 30, 2019 (actual)	$	389
Estimate for the remainder of year ending December 31, 2019		149
Estimate for year ending December 31, 2020		287
2021		269
2022		252
2023		236
2024		222

	Repurchase Agreements (Sweep) Accounted for as Secured Borrowings
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous
	At June 30,		At December 31,
	2019		2018
Repurchase agreements:	(In thousands)
Collateral securing borrowings:
Securities of U.S. Government sponsored entities	$	75,785	$	73,803
Agency residential MBS		56,960		58,380
Corporate securities		114,644		91,837
Total collateral carrying value	$	247,389	$	224,020
Total short-term borrowed funds	$	54,581	$	51,247

	At June 30, 2019
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3) ⁽¹⁾
	(In thousands)
Equity securities
Mutual funds	$	1,797	$	-	$	1,797	$	-
Total equity securities		1,797		-		1,797		-
Debt securities available for sale
U.S. Treasury securities		44,573		44,573		-		-
Securities of U.S. Government sponsored entities		167,138		-		167,138		-
Agency residential MBS		986,946		-		986,946		-
Non-agency residential MBS		112		-		112		-
Agency commercial MBS		5,621		-		5,621		-
Securities of U.S. Government entities		808		-		808		-
Obligations of states and political subdivisions		175,654		-		175,654		-
Corporate securities		1,395,047		-		1,395,047		-
Total debt securities available for sale		2,775,899		44,573		2,731,326		-
Total	$	2,777,696	$	44,573	$	2,733,123	$	-

	At June 30, 2019										At September 30, 2019
	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	$	418,586	$	418,586	$	418,586	$	-	$	-	$	415,639	$	415,639	$	415,639	$	-	$	-
Debt securities held to maturity		867,989		872,976		-		872,976		-		793,216		799,241		-		799,241		-
Loans		1,141,595		1,184,231		-		-		1,184,231		1,113,401		1,178,305		-		-		1,178,305

Financial Liabilities:
Deposits	$	4,730,262	$	4,727,480	$	-	$	4,548,533	$	178,947	$	4,796,623	$	4,794,970	$	-	$	4,621,416	$	173,554
Short-term borrowed funds		54,581		54,581		-		54,581		-		45,646		45,646		-		45,646		-

WESTAMERICA BANCORPORATION
FINANCIAL SUMMARY

	For the Three Months						For the Six Months
	Ended June 30,
	2019			2018			2019			2018
	(In thousands, except per share data)
Net Interest and Loan Fee Income (FTE)⁽¹⁾	$	40,330		$	38,349		$	80,577		$	75,624
Provision for Loan Losses		-			-			-			-
Noninterest Income		12,288			11,769			23,867			23,724
Noninterest Expense		25,561			25,741			50,744			51,763
Income Before Income Taxes (FTE)⁽¹⁾		27,057			24,377			53,700			47,585
Income Tax Provision (FTE)⁽¹⁾		7,432			6,367			14,429			12,069
Net Income	$	19,625		$	18,010		$	39,271		$	35,516

Average Common Shares Outstanding		26,942			26,630			26,892			26,581
Average Diluted Common Shares Outstanding		26,987			26,728			26,950			26,696
Common Shares Outstanding at Period End		26,962			26,649

Per Common Share:
Basic Earnings	$	0.73		$	0.68		$	1.46		$	1.34
Diluted Earnings		0.73			0.67			1.46			1.33
Book Value	$	25.72		$	21.99

Financial Ratios:
Return on Assets		1.42	%		1.29	%		1.42	%		1.28	%
Return on Common Equity		11.75	%		11.55	%		11.95	%		11.56	%
Net Interest Margin (FTE)⁽¹⁾		3.13	%		2.97	%		3.12	%		2.93	%
Net Loan Losses (Recoveries) to Average Loans		0.12	%		0.01	%		0.21	%		(0.01	%)
Efficiency Ratio⁽²⁾		48.6	%		51.4	%		48.6	%		52.1	%

Average Balances:
Assets	$	5,560,740		$	5,587,871		$	5,586,110		$	5,576,352
Loans		1,183,539			1,209,049			1,194,536			1,226,304
Investment Securities		3,648,435			3,543,838			3,669,029			3,511,828
Deposits		4,762,286			4,846,986			4,798,288			4,837,721
Shareholders' Equity		669,947			625,409			662,704			619,666

Period End Balances:
Assets	$	5,523,448		$	5,577,844
Loans		1,161,712			1,200,192
Investment Securities		3,645,685			3,441,400
Deposits		4,730,262			4,887,122
Shareholders' Equity		693,437			586,138

Capital Ratios at Period End:
Total Risk Based Capital		17.88	%		16.97	%
Tangible Equity to Tangible Assets		10.56	%		8.47	%

Dividends Paid Per Common Share	$	0.41		$	0.40		$	0.81		$	0.80
Common Dividend Payout Ratio		56	%		60	%		55	%		60	%

	For the Three Months Ended June 30, 2019									For the Three Months Ended September 30, 2019
	Compared with									Compared with
	For the Three Months Ended June 30, 2018									For the Three Months Ended September 30, 2018
	Volume			Yield/Rate			Total			Volume			Yield/Rate			Total
	(In thousands)									(In thousands)
Increase (decrease) in interest and loan fee income:
Investment securities:
Taxable	$	1,242		$	1,933		$	3,175		$	1,455		$	1,351		$	2,806
Tax-exempt ⁽¹⁾		(983	)		(225	)		(1,208	)		(1,262	)		(133	)		(1,395	)
Total investments ⁽¹⁾		259			1,708			1,967			193			1,218			1,411
Loans:
Taxable		(243	)		168			(75	)		(575	)		452			(123	)
Tax-exempt ⁽¹⁾		(66	)		(11	)		(77	)		(59	)		10			(49	)
Total loans ⁽¹⁾		(309	)		157			(152	)		(634	)		462			(172	)
Total interest-bearing cash		(357	)		551			194			(585	)		125			(460	)
Total (decrease) increase in interest and loan fee income ⁽¹⁾		(407	)		2,416			2,009			(1,026	)		1,805			779
(Decrease) increase in interest expense:
Deposits:
Savings and interest-bearing transaction		(5	)		52			47			(15	)		(41	)		(56	)
Time less than $100,000		(9	)		4			(5	)		(10	)		5			(5	)
Time $100,000 or more		(19	)		6			(13	)		(13	)		3			(10	)
Total interest-bearing deposits		(33	)		62			29			(38	)		(33	)		(71	)
Short-term borrowed funds		(1	)		-			(1	)		(2	)		1			(1	)
Total (decrease) increase in interest expense		(34	)		62			28
Total decrease in interest expense											(40	)		(32	)		(72	)
(Decrease) increase in net interest and loan fee income ⁽¹⁾	$	(373	)	$	2,354		$	1,981		$	(986	)	$	1,837		$	851

Nonperforming Assets
	At June 30,				At December 31,		At September 30,				At December 31,
	2019		2018		2018		2019		2018		2018
	(In thousands)						(In thousands)

Nonperforming nonaccrual loans	$	177	$	783	$	998	$	633	$	1,611	$	998
Performing nonaccrual loans		3,670		4,110		3,870		3,670		3,870		3,870
Total nonaccrual loans		3,847		4,893		4,868		4,303		5,481		4,868
Accruing loans 90 or more days past due		249		193		551		351		361		551
Total nonperforming loans		4,096		5,086		5,419		4,654		5,842		5,419
Other real estate owned		43		939		350		43		620		350
Total nonperforming assets	$	4,139	$	6,025	$	5,769	$	4,697	$	6,462	$	5,769

Static Simulation (balance sheet composition unchanged):
Assumed Immediate Parallel Shift in Interest Rates	-1.00%	0.00%	+1.00%	-1.00	%	0.00	%	+1.00	%
First Year Change in Net Interest Income	-7.40%	0.00%	+4.80%	-6.50	%	0.00	%	+4.60	%