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 credit 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 any difficulties in the global, national and California economies and the effects of government efforts to address those difficulties; (2) liquidity levels in capital markets; (3) fluctuations in asset prices including, but not limited to stocks, bonds, real estate, and commodities; (4) the effect of acquisitions and integration of acquired businesses; (5) economic uncertainty created by riots, terrorist threats and attacks on the United States, the actions taken in response, and the uncertain effect of these events on the local, regional and national economies; (6) changes in the interest rate environment; (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, hurricanes, fire, flood, drought, ~~pandemics~~ and other disasters, ~~on the Company, including~~ 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 duration and severity of the COVID-19 pandemic and governmental responses to the pandemic; (15) the performance of loans deferred under the CARES Act following their respective deferral periods; and ~~(15)~~(16) 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, ~~2019~~2020 and Part II – Item 1A of this report, 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.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission and follow general practices within the banking industry. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and which, in the opinion of Management, are necessary for a fair presentation of the results for the interim periods presented. The interim results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 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, ~~2019.~~2020.

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, ~~2019.~~2020. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, it is reasonably possible conditions could change materially affecting results of operations and financial conditions. Certain risks, uncertainties and other factors, including those discussed in Note 20 “Impact of COVID-19” to the consolidated financial statements and “Risk Factors” in Part I – Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 may cause actual future results to differ materially from the results discussed in this report on Form 10-Q. Management continues to evaluate the impact of the pandemic on the Company’s business. The extent of the impact on the Company’s results of operations, cash flow liquidity, and financial performance, as well as the Company’s ability to execute near- and long-term business strategies and initiatives, will depend on numerous evolving factors and future developments, which are highly uncertain and cannot be reasonably predicted.

Application of ~~these~~accounting principles requires the Company to make certain estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain accounting policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants a writedown or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. 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.

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

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

The Company follows the guidance issued by the Board of Governors of the Federal Reserve System, “Investing in Securities without Reliance on Nationally Recognized Statistical Rating Agencies” (SR 12-15) and other regulatory guidance when performing investment security pre-purchase analysis or evaluating investment securities for credit loss. Credit ratings issued by recognized rating agencies are considered in the Company’s analysis only as a guide to the ~~current presentation.~~historical default rate associated with similarly-rated bonds.

To the extent that debt securities in the held-to-maturity portfolio share common risk characteristics, estimated expected credit losses are calculated in a manner like that used for loans held for investment. That is, for pools of such securities with common risk characteristics, the historical lifetime probability of default and severity of loss in the event of default is derived or obtained from external sources and adjusted for the expected effects of reasonable and supportable forecasts over the expected lives of the securities on those historical credit losses. Expected credit loss on each security in the held-to-maturity portfolio that do not share common risk characteristics with any of the pools of debt securities is individually evaluated and a reserve for credit losses is established at the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the recorded amortized cost basis of the security. For certain classes of debt securities, the bank considers the history of credit losses, current conditions, and reasonable and supportable forecasts, which may indicate that the expectation that nonpayment of the amortized cost basis is, or continues to be, zero. Therefore, for those securities, the bank does not record expected credit losses.

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

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

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

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

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

A troubled debt restructuring (“TDR”) occurs when the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower it would not otherwise consider. The Company follows its general nonaccrual policy for TDRs. Performing TDRs are reinstated to accrual status when improvements in credit quality eliminate the doubt as to full collectability of both principal and interest. Under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), banks may elect to deem that loan modifications do not result in TDRs if they are (1) related to the novel coronavirus disease; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) December 31, 2020. The Consolidated Appropriations Act, 2021, extended the period during which banks may elect to deem that qualified loan modifications do not result in TDR classification through January 1, 2022.

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

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

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

Loans that share common risk characteristics are segregated into pools based on common characteristics, which is primarily determined by loan, borrower, or collateral type. Historical loss rates are determined for each pool. For consumer installment loans, primarily secured by automobiles, historical loss rates are determined using a vintage methodology, which tracks losses based on period of origination. For commercial, construction, and commercial real estate, historical loss rates are determined using an open pool methodology where losses are tracked over time for all loans included in the pool at the historical measurement date. Historical loss rates are adjusted for factors that are not reflected in the historical loss rates that are attributable to national or local economic or industry trends which have occurred but have not yet been recognized in past loan charge-off history, estimated losses based on management’s reasonable and supportable expectation of economic trends over a forecast horizon of up to two years, and other factors that impact credit loss expectations that are not reflected in the historical loss rates. Other factors include, but are not limited to, the effectiveness of the Company’s loan review system, adequacy of lending Management and staff, loan policies and procedures, problem loan trends, and concentrations of credit. At the end of the two-year forecast period loss rates revert immediately to the historical loss rates. The results of this analysis are applied to the amortized cost of the loans included within each pool.

Loans that do not share risk characteristics with other loans in the pools are evaluated individually. A loan is considered ‘collateral dependent’ when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. A credit loss reserve for collateral dependent loans is established at the difference between the amortized cost basis in the loan and the fair value of the underlying collateral adjusted for costs to sell. For other individually evaluated loans that are not collateral dependent, a credit loss reserve is established at the difference between the amortized cost basis in the loan and the present value of expected future cash flows discounted at the loan’s effective interest rate. The impact of an expected TDR modification is included in the allowance for credit losses when management determines a TDR modification is likely.

Accrued interest is recorded in other assets and is excluded from the estimation of expected credit loss. Accrued interest is reversed through interest income when amounts are determined to be uncollectible, which generally occurs when the underlying receivable is placed on nonaccrual status or charged off.

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

In the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company adopted the following new accounting guidance:

FASB ASU ~~2016~~2019-~~13,~~12, ~~Financial Instruments – Credit Losses~~Income Taxes (Topic ~~326~~740): ~~Measurement of Credit Losses on Financial Instruments,~~Simplifying the Accounting for Income Taxes, was issued on ~~June 16, 2016.~~December 2019. The ASU ~~significantly changed estimates for credit losses~~is intended to simplify various aspects related to ~~financial assets measured at amortized cost~~accounting for income taxes, eliminates certain exceptions to the general principles in ASC Topic 740 related to intra-period tax allocation, simplifies when companies recognize deferred taxes in an interim period, and clarifies certain ~~other contracts. For estimating credit losses, the FASB replaced the incurred loss model with~~aspects of the current ~~expected credit loss (CECL) model, which accelerated recognition of credit losses. Additionally, credit losses relating~~guidance to ~~debt securities available-for-sale are recorded through an allowance~~promote consistent application. This guidance effective for ~~credit losses under the new standard. The Company is also required to provide additional disclosures related to the financial assets~~public entities for fiscal years beginning after December 15, 2020, and for interim period within ~~the scope of the new standard.~~

those fiscal years, with early adoption permitted. The Company adopted the ASU provisions on ~~a modified retrospective basis on~~ January 1, ~~2020.~~ Management evaluated available data, defined portfolio segments of loans with similar attributes, and selected loss estimate models for each identified loan portfolio segment. Management measured historical loss rates for each portfolio segment. Management also segmented debt securities held to maturity, selected methods to estimate losses for each segment, and measured a loss estimate. Agency mortgage-backed securities were assigned no credit loss allowance due to the perceived backing of government sponsored entities. Municipal securities were evaluated for risk of default based on credit rating and remaining term to maturity using Moody’s risk of default factors; Moody’s loss upon default factors were applied to the assumed defaulted principal amounts to estimate the amount for credit loss allowance. The adjustment to the allowance for credit losses was recorded through an offsetting after-tax adjustment to shareholders’ equity. The implementing entry increased allowance for credit losses by $2,017 thousand, reduced allowance for credit losses for unfunded credit commitments by $2,107 thousand and increased retained earnings by $52 thousand.

~~The following table summarizes the impact of adoption of ASU~~ ~~2016~~-~~13.~~

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

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

~~The Company follows the guidance issued by the Board of Governors of the Federal Reserve System, “Investing in Securities without Reliance on Nationally Recognized Statistical Rating Agencies” (SR~~ 12-15) and other regulatory guidance when performing investment security pre-purchase analysis or evaluating investment securities for credit loss. Credit ratings issued by recognized rating agencies are considered in the Company’s analysis only as a guide to the historical default rate associated with similarly-rated bonds.

To the extent that debt securities in the held-to-maturity portfolio share common risk characteristics, estimated expected credit losses are calculated in a manner like that used for loans held for investment. That is, for pools of such securities with common risk characteristics, the historical lifetime probability of default and severity of loss in the event of default is derived or obtained from external sources and adjusted for the expected effects of reasonable and supportable forecasts over the expected lives of the securities on those historical credit losses. Expected credit loss on each security in the held-to-maturity portfolio that do ~~not~~ share common risk characteristics with any of the pools of debt securities is individually evaluated and a reserve for credit losses is established at the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the recorded amortized cost basis of the security. For certain classes of debt securities, the bank considers the history of credit losses, current conditions and reasonable and supportable forecasts, which ~~may~~ ~~indicate that the expectation that nonpayment of the amortized cost basis is or continues to be zero. Therefore, for those securities, the bank does~~ ~~not~~ ~~record expected credit losses.~~

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

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

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

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

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

~~A troubled debt restructuring (“TDR”) occurs when the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower it would~~ ~~not~~ otherwise consider. The Company follows its general nonaccrual policy for TDRs. Performing TDRs are reinstated to accrual status when improvements in credit quality eliminate the doubt as to full collectability of both principal and interest. Under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), banks ~~may~~ ~~elect to deem that loan modifications do~~ ~~not~~ ~~result in TDRs if they are (~~1~~) related to the novel coronavirus disease; (~~2~~) executed on a loan that was~~ ~~not~~ ~~more than~~ 30 ~~days past due as of~~ ~~December 31, 2019;~~ ~~and (~~3~~) executed between~~ ~~March 1, 2020,~~2021 and the ~~earlier of (A)~~ 60 ~~days after the date of termination of the National Emergency or (B)~~ ~~December 31, 2020.~~

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

Loans that share common risk characteristics are segregated into pools based on common characteristics, which is primarily determined by loan, borrower, or collateral type. Historical loss rates are determined for each pool. For consumer installment loans, primarily secured by automobiles, historical loss rates are determined using a vintage methodology, which tracks losses based on period of origination. For commercial, construction, and commercial real estate, historical loss rates are determined using an open pool methodology where losses are tracked over time for all loans included in the pool at the historical measurement date. Historical loss rates are adjusted for factors that are ~~not~~ ~~reflected in the historical loss rates that are attributable to national or local economic or industry trends which have occurred but have~~ ~~not~~ ~~yet been recognized in past loan charge-off history, estimated losses based on management’s reasonable and supportable expectation of economic trends over a forecast horizon of up to~~ ~~two~~ ~~years, and other factors that impact credit loss expectations that are~~ ~~not~~ ~~reflected in the historical loss rates. Other factors include, but are~~ ~~not~~ limited to, the effectiveness of the Company’s loan review system, adequacy of lending Management and staff, loan policies and procedures, problem loan trends, and concentrations of credit. At the end of the ~~two~~~~-year forecast period loss rates revert immediately to the historical loss rates. The results of this analysis are applied to the amortized cost of the loans included within each pool.~~

~~Loans that do~~ ~~not~~ share risk characteristics with other loans in the pools are evaluated individually. A loan is considered ‘collateral-dependent’ when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. A credit loss reserve for collateral-dependent loans is established at the difference between the amortized cost basis in the loan and the fair value of the underlying collateral adjusted for costs to sell. For other individually evaluated loans that are ~~not~~ collateral dependent, a credit loss reserve is established at the difference between the amortized cost basis in the loan and the present value of expected future cash flows discounted at the loan’s effective interest rate. The impact of an expected TDR modification is included in the allowance for credit losses when management determines a TDR modification is likely.

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

~~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~~adoption of the ASU ~~were effective~~provisions did ~~January 1, 2020~~ not~~with~~ have a significant impact on 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 unauditedCompany’s consolidated financial statements. ~~The requirement to include additional disclosures was adopted by the Company~~ ~~January 1, 2020.~~ ~~The additional disclosures did~~ ~~not~~ ~~affect the financial results upon adoption.~~

~~FASB ASU~~ ~~2019~~-12, ~~Income Taxes (Topic~~ ~~740~~~~): Simplifying the Accounting for Income Taxes~~~~, was issued~~ ~~December 2019.~~ ~~The ASU is intended to simplify various aspects related to accounting for income taxes, eliminates certain exceptions to the general principles in ASC Topic~~ ~~740~~ related to intra-period tax allocation, simplifies when companies recognize deferred taxes in an interim period, and clarifies certain aspects of the current guidance to promote consistent application. This guidance effective for public entities for fiscal years beginning after ~~December 15, 2020,~~ ~~and for interim period within those fiscal years, with early adoption permitted. This guidance is applicable to the Company’s fiscal year beginning~~ ~~January 1, 2021.~~ ~~The Company is currently evaluating the potential effects of this guidance on its consolidated financial statements.~~

FASB ASU 2020-04, Reference Rate Reform (Topic 848): ~~Simplifying~~Facilitation of the ~~Accounting for Income Taxes~~Effects of Reference Rate Reform on Financial Reporting, was issued March 2020. The ASU provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company ~~is currently evaluating the impacts of this ASU and has~~does not ~~yet determined whether LIBOR transition and this ASU will have~~expect any material ~~effects~~impact on ~~our business operations and~~its consolidated financial ~~statements.~~statements since the Company has an insignificant number of financial instruments applicable to this ASU.

~~The Company’s marketable equity securities were sold in the~~Effective ~~third~~ ~~quarter~~ ~~2019.~~ ~~During the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2019,~~ ~~the Company recognized gross unrealized holding gains of $50 thousand in earnings. The Company had~~ 0 ~~marketable equity securities at~~ ~~September 30, 2020~~ ~~and~~ ~~December 31, 2019.~~

~~During the quarter and~~ ~~nine~~ ~~months ended~~ ~~September 30,~~January 1, 2020, the Company ~~provided~~adopted FASB ASU no2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Upon adoption of the ASU the Company recorded an allowance for credit losses for debt securities held to maturity of $16 thousand. During the fourth quarter ended December 31, 2020, the Company recorded a $7 thousand reversal of the provision for credit ~~loss~~losses on debt securities held to maturity, resulting in the balance of $9 thousand allowance for credit losses for debt securities held to maturity.

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, before allowance for credit losses of ~~$16~~$9 thousand, follows:

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

Expected maturities of mortgage-related securities can differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. In addition, such factors as prepayments and interest rates may affect the yield on the carrying value of mortgage-related securities. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had no0 high-risk collateralized mortgage obligations as defined by regulatory guidelines.

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

- 1514-

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

Debt Securities Held to Maturity

At September 30, 2020

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
2 $ 153 $ (1 ) 3 $ 1,109 $ (38 ) 5 $ 1,262 $ (39 )

	Debt Securities Held to Maturity
	At June 30, 2021
	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		2	$	146	$	0			3	$	643	$	(17	)		5	$	789	$	(17	)
Non-agency residential MBS		1		648		(12	)		0		0		0			1		648		(12	)
Total		3	$	794	$	(12	)		3	$	643	$	(17	)		6	$	1,437	$	(29	)

Based upon the most recent evaluation, the unrealized losses on the Company’s debt securities available for sale were most likely caused by market conditions for these types of investments, particularly changes in risk-free interest rates and/or market bid-ask spreads. The Company does not intend to sell any debt securities available for sale 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 have credit related ~~loss~~losses as of ~~September~~June 30, ~~2020.~~2021.

The fair values of debt securities available for sale 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, significant credit ~~loss~~losses on debt securities available for sale may occur in the future.

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had debt securities pledged to secure public deposits and short-term borrowed funds of ~~$850,245~~$866,373 thousand and ~~$760,365~~$888,577 thousand, respectively.

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

Debt Securities Available for Sale

At December 31, 2019

No. of

Less than 12 months

No. of

12 months or longer

No. of

Total

Investment

Unrealized

Investment

Unrealized

Investment

Unrealized

Positions

Fair Value

Losses

Positions

Fair Value

Losses

Positions

Fair Value

Losses

($ in thousands)

Securities of U.S. Government sponsored entities
1 $ 9,951 $ (49 ) 3 $ 45,877 $ (49 ) 4 $ 55,828 $ (98 )
Agency residential MBS
6 11,674 (100 ) 47 347,384 (5,738 ) 53 359,058 (5,838 )
Agency commercial MBS
1 3,708 (3 ) 0 0 0 1 3,708 (3 )
Securities of U.S. Government entities
0 0 0 2 544 (9 ) 2 544 (9 )
Obligations of states and political subdivisions
0 0 0 7 4,163 (44 ) 7 4,163 (44 )
Corporate securities
8 71,577 (162 ) 11 64,380 (717 ) 19 135,957 (879 )
Total
16 $ 96,910 $ (314 ) 70 $ 462,348 $ (6,557 ) 86 $ 559,258 $ (6,871 )

	Debt Securities Available for Sale
	At December 31, 2020
	No. of		Less than 12 months					No. of		12 months or longer					No. of		Total
	Investment				Unrealized			Investment				Unrealized			Investment				Unrealized
	Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses
	($ in thousands)
Agency residential MBS		1	$	96	$	(1	)		1	$	17	$	0			2	$	113	$	(1	)
Securities of U.S. Government entities		1		154		0			0		0		0			1		154		0
Obligations of states and political subdivisions		2		692		(1	)		0		0		0			2		692		(1	)
Corporate securities		0		0		0			1		14,963		(42	)		1		14,963		(42	)
Collateralized loan obligations		36		268,584		(1,098	)		0		0		0			36		268,584		(1,098	)
Total		40	$	269,526	$	(1,100	)		2	$	14,980	$	(42	)		42	$	284,506	$	(1,142	)

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

Debt Securities Held to Maturity

At December 31, 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
6 $ 12,098 $ (87 ) 54 $ 277,203 $ (2,148 ) 60 $ 289,301 $ (2,235 )
Obligations of states and political subdivisions
0 0 0 1 251 (1 ) 1 251 (1 )
Total
6 $ 12,098 $ (87 ) 55 $ 277,454 $ (2,149 ) 61 $ 289,552 $ (2,236 )

	Debt Securities Held to Maturity
	At December 31, 2020
	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		3	$	377	$	(1	)		3	$	788	$	(31	)		6	$	1,165	$	(32	)

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, collateral levels, 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 ~~$14.9~~$14.95 million at ~~September~~June 30, ~~2020,~~2021, is rated below investment grade. The ~~$14.9~~$14.95 million corporate bond was issued by a pharmaceutical company which develops, manufactures and markets generic and branded human pharmaceuticals, as well as active pharmaceutical ingredients, to customers worldwide. The bond ~~matures~~paid off in ~~2021,~~ ~~and the issuing Company has refinanced much of its debt obligations beyond the~~full at maturity ~~date.~~ in July 2021. 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.

- 1615-

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

	For
	the Nine Months
	Ended September 30,		For the Six Months Ended June 30,
	2020		2021		2020
	(In thousands)		(In thousands)
Allowance for credit losses:
Beginning balance, prior to adoption of ASU 2016-13	$	0
Balance, end of prior period			$	9	$	0
Impact of adopting ASU 2016-13		16		0		16
Beginning balance				9		16
Provision		0		0		0
Chargeoffs		0		0		0
Recoveries		0		0		0
Total ending balance	$	16	$	9	$	16

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

The following table summarizes the amortized cost of debt securities held to maturity at ~~September~~June 30, ~~2020,~~2021, aggregated by credit rating:

	Credit Risk Profile by Credit Rating
	At September 30, 2020								Credit Risk Profile by Credit Rating
	(In thousands)								At June 30, 2021
	AAA/AA/A		BBB		BB/B		Total		AAA/AA/A		BBB		BB/B/NR		Total
									(In thousands)
Agency residential MBS	$	272,460	$	0	$	0	$	272,460	$	186,702	$	0	$	0	$	186,702
Non-agency residential MBS		1,005		0		1,015		2,020		286		0		913		1,199
Obligations of states and political subdivisions		303,230		101		0		303,331		219,231		690		6,600		226,521
Total	$	576,695	$	101	$	1,015	$	577,811	$	406,219	$	690	$	7,513	$	414,422

There were 0 debt securities held to maturity on nonaccrual status or past due 30 days or more as of ~~September~~June 30, ~~2020.~~2021.

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

	For the Three Months				For the Nine Months				For the Three Months				For the Six Months
	Ended September 30,								Ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
	(In thousands)								(In thousands)

Taxable	$	23,079	$	19,586	$	67,963	$	56,992	$	26,692	$	22,920	$	51,890	$	44,884
Tax-exempt from federal income tax		2,911		3,777		9,501		12,165
Tax-exempt from regular federal income tax										2,261		3,228		4,660		6,590
Total interest income from investment securities	$	25,990	$	23,363	$	77,464	$	69,157	$	28,953	$	26,148	$	56,550	$	51,474

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- 1716-

Note 44:: Loans,, Allowance for ~~Loan Losses/~~Credit Lossesand Other Real Estate Owned

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

	At September 30,		At December 31,		At June 30,		At December 31,
	2020		2019		2021		2020
	(In thousands)				(In thousands)
Commercial:
Paycheck Protection Program ("PPP") loans	$	243,982	$	0	$	165,075	$	186,945
Other		201,623		222,085		188,399		207,861
Total commercial		445,605		222,085
Total Commercial						353,474		394,806
Commercial Real Estate		563,707		578,758		542,627		564,300
Construction		140		1,618		113		129
Residential Real Estate		25,076		32,748		20,431		23,471
Consumer Installment & Other		275,481		291,455		278,189		273,537
Total	$	1,310,009	$	1,126,664	$	1,194,834	$	1,256,243

~~The following summarizes activity in the allowance for loan losses/credit losses:~~

Allowance for Credit Losses

For the Three Months Ended September 30, 2020

Consumer

Commercial

Residential

Installment

Commercial

Real Estate

Construction

Real Estate

and Other

Total

(In thousands)

Allowance for credit losses:

Balance at beginning of period
$ 8,072 $ 4,623 $ 7 $ 57 $ 11,770 $ 24,529
Provision (reversal)
867 1,030 0 (5 ) (1,892 ) 0
Chargeoffs
0 0 0 0 (872 ) (872 )
Recoveries
46 12 0 0 427 485
Total allowance for credit losses
$ 8,985 $ 5,665 $ 7 $ 52 $ 9,433 $ 24,142

Allowance for Credit Losses

For the Nine Months Ended September 30, 2020

Consumer

Commercial

Residential

Installment

Commercial

Real Estate

Construction

Real Estate

and Other

Unallocated

Total

(In thousands)

Allowance for credit losses:

Balance at beginning of period, prior to adoption of ASU 2016-13
$ 4,959 $ 4,064 $ 109 $ 206 $ 6,445 $ 3,701 $ 19,484
Impact of adopting ASU 2016-13
3,385 618 (31 ) (132 ) 1,878 (3,701 ) 2,017
Adjusted beginning balance
8,344 4,682 78 74 8,323 0 21,501
Provision (reversal)
537 946 (71 ) (22 ) 2,910 0 4,300
Chargeoffs
(178 ) 0 0 0 (3,071 ) 0 (3,249 )
Recoveries
282 37 0 0 1,271 0 1,590
Total allowance for credit losses
$ 8,985 $ 5,665 $ 7 $ 52 $ 9,433 $ 0 $ 24,142

~~The growth in commercial loan balances was due to originations of~~ PPP loans ~~which~~ are 100% guaranteed by the Small Business Administration (“SBA”). PPP loan proceeds used for eligible payroll and certain other operating costs are ~~to be forgiven~~eligible for forgiveness, with repayment of loan principal and accrued interest made by the SBA. Management does not expect credit losses on PPP loans. The following summarizes activity in the allowance for credit losses:

	Allowance for Loan Losses																				Allowance for Credit Losses
	For the Three Months Ended September 30, 2019																				For the Three Months Ended June 30, 2021
												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			Total
	(In thousands)																				(In thousands)
Allowance for loan losses:
Allowance for credit losses:
Balance at beginning of period	$	5,235		$	4,057		$	1,117	$	238		$	5,418		$	4,052		$	20,117		$	9,554		$	5,505	$	6		$	43	$	8,375		$	23,483
(Reversal) provision		(596	)		(1	)		482		(16	)		655			(524	)		0			(2,771	)		1,235		(1	)		14		1,523			0
Chargeoffs		0			0			0		0			(1,039	)		0			(1,039	)		0			0		0			0		(331	)		(331	)
Recoveries		233			12			0		0			505			0			750			75			12		0			0		498			585
Total allowance for loan losses	$	4,872		$	4,068		$	1,599	$	222		$	5,539		$	3,528		$	19,828
Total allowance for credit losses																					$	6,858		$	6,752	$	5		$	57	$	10,065		$	23,737

	Allowance for Credit Losses
	For the Six Months Ended June 30, 2021
											Consumer
				Commercial					Residential		Installment
	Commercial			Real Estate		Construction			Real Estate		and Other			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	9,205		$	5,660	$	6		$	47	$	8,936		$	23,854
(Reversal) provision		(2,435	)		1,068		(1	)		10		1,358			0
Chargeoffs		0			0		0			0		(1,260	)		(1,260	)
Recoveries		88			24		0			0		1,031			1,143
Total allowance for credit losses	$	6,858		$	6,752	$	5		$	57	$	10,065		$	23,737

	Allowance for Credit Losses
	For the Three Months Ended June 30, 2020
													Consumer
				Commercial						Residential			Installment
	Commercial			Real Estate			Construction			Real Estate			and Other			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	8,336		$	4,753		$	107		$	70		$	11,538		$	24,804
(Reversal) provision		(357	)		(142	)		(100	)		(13	)		612			0
Chargeoffs		0			0			0			0			(804	)		(804	)
Recoveries		93			12			0			0			424			529
Total allowance for credit losses	$	8,072		$	4,623		$	7		$	57		$	11,770		$	24,529

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- 1817-

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 0
Chargeoffs
(71 ) 0 0 0 (3,332 ) 0 (3,403 )
Recoveries
449 38 0 0 1,393 0 1,880
Total allowance for loan losses
$ 4,872 $ 4,068 $ 1,599 $ 222 $ 5,539 $ 3,528 $ 19,828

~~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

At December 31, 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
$ 2,413 $ 0 $ 0 $ 0 $ 0 $ 0 $ 2,413
Collectively evaluated for impairment
2,546 4,064 109 206 6,445 3,701 17,071
Total
$ 4,959 $ 4,064 $ 109 $ 206 $ 6,445 $ 3,701 $ 19,484
Carrying value of loans:

Individually evaluated for impairment
$ 8,182 $ 7,409 $ 0 $ 190 $ 43 $ 0 $ 15,824
Collectively evaluated for impairment
213,903 571,349 1,618 32,558 291,412 0 1,110,840
Total
$ 222,085 $ 578,758 $ 1,618 $ 32,748 $ 291,455 $ 0 $ 1,126,664

	Allowance for Credit Losses
	For the Six Months Ended June 30, 2020
													Consumer
				Commercial						Residential			Installment
	Commercial			Real Estate			Construction			Real Estate			and Other			Unallocated			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period, prior to adoption of ASU 2016-13	$	4,959		$	4,064		$	109		$	206		$	6,445		$	3,701		$	19,484
Impact of adopting ASU 2016-13		3,385			618			(31	)		(132	)		1,878			(3,701	)		2,017
Adjusted beginning balance		8,344			4,682			78			74			8,323			0			21,501
(Reversal) provision		(330	)		(84	)		(71	)		(17	)		4,802			0			4,300
Chargeoffs		(178	)		0			0			0			(2,199	)		0			(2,377	)
Recoveries		236			25			0			0			844			0			1,105
Total allowance for credit losses	$	8,072		$	4,623		$	7		$	57		$	11,770		$	0		$	24,529

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.

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

	Credit Risk Profile by Internally Assigned Grade												Credit Risk Profile by Internally Assigned Grade
	At September 30, 2020												At June 30, 2021
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total		Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total
	(In thousands)												(In thousands)
Grade:
Pass	$	437,216	$	546,714	$	140	$	23,699	$	274,251	$	1,282,020	$	352,791	$	525,992	$	113	$	18,861	$	275,630	$	1,173,387
Substandard		8,389		16,993		0		1,377		320		27,079		683		16,635		0		1,570		1,483		20,371
Doubtful		0		0		0		0		505		505		0		0		0		0		797		797
Loss		0		0		0		0		405		405		0		0		0		0		279		279
Total	$	445,605	$	563,707	$	140	$	25,076	$	275,481	$	1,310,009	$	353,474	$	542,627	$	113	$	20,431	$	278,189	$	1,194,834

	Credit Risk Profile by Internally Assigned Grade												Credit Risk Profile by Internally Assigned Grade
	At December 31, 2019												At December 31, 2020
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total		Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total
	(In thousands)												(In thousands)
Grade:
Pass	$	213,542	$	567,525	$	1,618	$	31,055	$	289,424	$	1,103,164	$	386,144	$	545,398	$	129	$	22,105	$	270,925	$	1,224,701
Substandard		8,543		11,233		0		1,693		1,329		22,798		8,662		18,902		0		1,366		1,498		30,428
Doubtful		0		0		0		0		308		308		0		0		0		0		543		543
Loss		0		0		0		0		394		394		0		0		0		0		571		571
Total	$	222,085	$	578,758	$	1,618	$	32,748	$	291,455	$	1,126,664	$	394,806	$	564,300	$	129	$	23,471	$	273,537	$	1,256,243

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- 1918-

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 September 30, 2020												At June 30, 2021
	Current and Accruing		30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Past Due 90 Days or More and Accruing		Nonaccrual		Total Loans		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	$	444,496	$	963	$	39	$	0	$	107	$	445,605	$	352,911	$	270	$	293	$	0	$	0	$	353,474
Commercial real estate		559,361		624		0		0		3,722		563,707		537,835		773		602		0		3,417		542,627
Construction		140		0		0		0		0		140		113		0		0		0		0		113
Residential real estate		24,357		558		0		0		161		25,076		19,738		263		17		0		413		20,431
Consumer installment and other		272,631		1,328		772		360		390		275,481		274,931		1,869		836		167		386		278,189
Total	$	1,300,985	$	3,473	$	811	$	360	$	4,380	$	1,310,009	$	1,185,528	$	3,175	$	1,748	$	167	$	4,216	$	1,194,834

	Summary of Loans by Delinquency and Nonaccrual Status												Summary of Loans by Delinquency and Nonaccrual Status
	At December 31, 2019												At December 31, 2020
	Current and Accruing		30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Past Due 90 Days or More and Accruing		Nonaccrual		Total Loans		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	$	221,199	$	531	$	158	$	0	$	197	$	222,085	$	394,004	$	713	$	6	$	0	$	83	$	394,806
Commercial real estate		573,809		432		421		0		4,096		578,758		560,580		0		0		0		3,720		564,300
Construction		1,618		0		0		0		0		1,618		129		0		0		0		0		129
Residential real estate		31,934		274		540		0		0		32,748		22,269		770		271		0		161		23,471
Consumer installment and other		286,391		2,960		1,517		440		147		291,455		270,240		2,010		472		450		365		273,537
Total	$	1,114,951	$	4,197	$	2,636	$	440	$	4,440	$	1,126,664	$	1,247,222	$	3,493	$	749	$	450	$	4,329	$	1,256,243

There was 0 allowance for credit losses allocated to loans on nonaccrual status as of ~~September~~June 30, 2021 and December 31, 2020. There were 0 commitments to lend additional funds to borrowers whose loans were on nonaccrual status at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

~~The following summarizes impaired loans as of~~ ~~December 31, 2019:~~

Impaired Loans

At December 31,

2019

Unpaid

Recorded

Principal

Related

Investment

Balance

Allowance

(In thousands)

With no related allowance recorded:

Commercial
$ 21 $ 21 $ -
Commercial real estate
7,408 8,856 -
Residential real estate
190 220 -
Consumer installment and other
43 43 -
Total with no related allowance recorded
7,662 9,140 -

With an allowance recorded:

Commercial
8,160 8,160 2,413
Total with an allowance recorded
8,160 8,160 2,413
Total
$ 15,822 $ 17,300 $ 2,413

~~Impaired loans at~~ ~~December 31, 2019,~~ ~~included $6,713 thousand of restructured loans, $3,670 thousand of which were on nonaccrual status.~~

- 20-

Impaired Loans

For the Three Months

For the Nine Months

Ended September 30, 2019

Average

Recognized

Average

Recognized

Recorded

Interest

Recorded

Interest

Investment

Income

Investment

Income

(In thousands)

Commercial
$ 8,701 $ 144 $ 9,404 $ 476
Commercial real estate
7,968 60 7,133 333
Residential real estate
194 4 196 10
Consumer installment and other
99 0 103 0
Total
$ 16,962 $ 208 $ 16,836 $ 819

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

	Troubled Debt Restructurings								Troubled Debt Restructurings
	At September 30, 2020								At June 30, 2021
							Period-End								Period-End
							Individual								Individual
	Number of		Pre-Modification		Period-End		Credit Loss		Number of		Pre-Modification		Period-End		Credit Loss
	Contracts		Carrying Value		Carrying Value		Allowance		Contracts		Carrying Value		Carrying Value		Allowance
	($ in thousands)								($ in thousands)
Commercial real estate		6	$	8,367	$	6,121	$	0		3	$	7,445	$	4,998	$	0
Residential real estate		1		241		183		0		1		241		176		0
Total		7	$	8,608	$	6,304	$	0		4	$	7,686	$	5,174	$	0

Troubled Debt Restructurings

At December 31, 2019

Period-End

Individual

Number of

Pre-Modification

Period-End

Impairment

Contracts

Carrying Value

Carrying Value

Allowance

($ in thousands)

Commercial
2 $ 278 $ 32 $ 11
Commercial real estate
6 8,367 6,492 0
Residential real estate
1 241 189 0
Total
9 $ 8,886 $ 6,713 $ 11

	Troubled Debt Restructurings
	At December 31, 2020
							Period-End
							Individual
	Number of		Pre-Modification		Period-End		Credit Loss
	Contracts		Carrying Value		Carrying Value		Allowance
	($ in thousands)
Commercial real estate		6	$	8,367	$	6,040	$	0
Residential real estate		1		241		181		0
Total		7	$	8,608	$	6,221	$	0

- 19-

During the three and ~~nine~~six months ended ~~September~~June 30, 2021 and June 30, 2020, the Company did not modify any loans that were considered ~~TDRs~~troubled debt restructurings for accounting purposes. Section 4013 of the CARES Act allowed certain loan modifications for borrowers impacted by the COVID-19 pandemic to be excluded from TDR accounting. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company modified loans under Section 4013 of the CARES Act, granting 90 day deferrals of principal and interest payments. As of ~~September~~June 30, ~~2020,~~2021, ~~17 commercial real estate~~ loans ~~with~~ deferred ~~payments totaled $19.1 million, primarily for hospitality and retail properties. As~~under the CARES Act that are not considered TDRs consisted of ~~September 30, 2020,~~ ~~140~~ consumer ~~and 5 commercial loan deferrals were $5.0 million and $209 thousand, respectively. During the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2019,~~ ~~the Company did~~ ~~not~~ ~~modify any~~ loans ~~that were considered TDRs.~~totaling $586 thousand. There were 0 chargeoffs related to ~~TDRs~~troubled debt restructurings made during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~June 30, 2020. During the three and ~~nine~~six months ended ~~September~~June 30, 2021 and June 30, 2020, ~~and~~ ~~2019,~~0 troubled debt restructured loans defaulted within 12 months of the modification date. A ~~TDR~~troubled debt restructuring is considered to be in default when payments are ninety days or more past due.

TDRs of ~~$6,304~~$5,174 thousand included ~~loans~~a loan with a balance of $3,120 thousand on non-accrual status at June 30, 2021. NaN allowance for credit losses was allocated to this commercial real estate loan secured by real property. TDRs of $6,221 thousand included a loan with a balance of $3,420 thousand on nonaccrual status at ~~September 30, 2020.~~December 31, 2020; No0 allowance for credit losses was allocated to ~~one~~this commercial real estate loan secured by real ~~property with a balance of $3,420 thousand, which was considered collateral-dependent at~~ ~~September 30, 2020.~~ ~~NaN other commercial real estate loans totaling $7.7 million were secured by real property and considered collateral-dependent at~~ ~~September 30, 2020.~~ At ~~September 30, 2020,~~ ~~$357 thousand of indirect consumer installment loans secured by personal property were past due~~ 90 ~~days or more and considered collateral-dependent and 2 residential real estate loans totaling $410 thousand secured by real property were considered collateral-dependent. There were~~ no ~~other collateral-dependent loans at~~ ~~September 30, 2020.~~ property.

A loan is considered ~~collateral-dependent~~collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following loans were considered collateral dependent at June 30, 2021: 5 commercial real estate loans totaling $10.8 million secured by real property, $399 thousand of indirect consumer installment loans secured by personal property, 1 commercial loan with a balance of $108 thousand secured by business assets, and 5 residential real estate loans totaling $562 thousand secured by real property. There were no other collateral dependent loans at June 30, 2021. The following loans were considered collateral dependent at December 31, 2020: 5 commercial real estate loans totaling $11.1 million secured by real property, $446 thousand of indirect consumer installment loans secured by personal property and 2 residential real estate loans totaling $346 thousand secured by real property. There were no other collateral dependent loans at December 31, 2020.

- 21-

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

		At September 30, 2020																				At June 30, 2021
																		Revolving																		Revolving
																		Loans																		Loans
		Term Loans Amortized Cost Basis by Origination Year														Total		Amortized				Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
		Prior		2015		2016		2017		2018		2019		2020		Term Loans		Cost Basis		Total		Prior		2017		2018		2019		2020		2021		Term Loans		Cost Basis		Total
		(In thousands)																				(In thousands)
Commercial loans by grade	Commercial loans by grade
Pass		$	20,496	$	5,205	$	26,132	$	10,860	$	21,343	$	42,380	$	270,664	$	397,080	$	40,136	$	437,216	$	41,570	$	6,211	$	11,163	$	34,282	$	94,307	$	137,817	$	325,350	$	27,441	$	352,791
Substandard			64		0		1		0		0		0		7,876		7,941		448		8,389		36		0		0		0		0		108		144		539		683
Doubtful			0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0
Loss			0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0
Total		$	20,560	$	5,205	$	26,133	$	10,860	$	21,343	$	42,380	$	278,540	$	405,021	$	40,584	$	445,605	$	41,606	$	6,211	$	11,163	$	34,282	$	94,307	$	137,925	$	325,494	$	27,980	$	353,474

		At September 30, 2020																					At June 30, 2021
																		Revolving																			Revolving
																		Loans																			Loans
		Term Loans Amortized Cost Basis by Origination Year														Total		Amortized					Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
		Prior		2015		2016		2017		2018		2019		2020		Term Loans		Cost Basis		Total			Prior		2017		2018		2019		2020		2021		Term Loans		Cost Basis		Total
		(In thousands)																					(In thousands)
Commercial real estate loans by grade	Commercial real estate loans by grade																					Commercial real estate loans by grade
Pass		$	88,661	$	50,764	$	43,804	$	101,731	$	95,622	$	94,531	$	71,601	$	546,714	$	0	$	546,714		$	137,062	$	93,405	$	82,629	$	80,577	$	87,395	$	44,924	$	525,992	$	0	$	525,992
Substandard			4,807		1,314		9,921		107		-		0		844		16,993		0		16,993			13,519		255		0		2,029		832		0		16,635		0		16,635
Doubtful			0		0		0		0		0		0				0		0		0			0		0		0		0		0		0		0		0		0
Loss			0		0		0		0		0		0				0		0		0			0		0		0		0		0		0		0		0		0
Total		$	93,468	$	52,078	$	53,725	$	101,838	$	95,622	$	94,531	$	72,445	$	563,707	$	0	$	563,707		$	150,581	$	93,660	$	82,629	$	82,606	$	88,227	$	44,924	$	542,627	$	0	$	542,627

		At September 30, 2020																				At June 30, 2021
																		Revolving																		Revolving
																		Loans																		Loans
		Term Loans Amortized Cost Basis by Origination Year														Total		Amortized				Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
		Prior		2015		2016		2017		2018		2019		2020		Term Loans		Cost Basis		Total		Prior		2017		2018		2019		2020		2021		Term Loans		Cost Basis		Total
		(In thousands)																				(In thousands)
Construction loans by grade	Construction loans by grade
Pass		$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	140	$	140	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	113	$	113
Substandard			0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0
Doubtful			0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0
Loss			0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0
Total		$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	140	$	140	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	113	$	113

At September 30, 2020

Revolving

Loans

Term Loans Amortized Cost Basis by Origination Year

Total

Amortized

Prior

2015

2016

2017

2018

2019

2020

Term Loans

Cost Basis

Total

(In thousands)

Residential Real Estate loans by grade

Pass
$ 23,699 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 23,699 $ 0 $ 23,699
Substandard
1,377 0 0 0 0 0 0 1,377 0 1,377
Doubtful
0 0 0 0 0 0 0 0 0 0
Loss
0 0 0 0 0 0 0 0 0 0
Total
$ 25,076 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 25,076 $ 0 $ 25,076

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- 20-

	At June 30, 2021
															Revolving
															Loans
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2017		2018		2019		2020		2021		Term Loans		Cost Basis		Total
	(In thousands)
Residential Real Estate loans by grade															��
Pass	$	18,861	$	0	$	0	$	0	$	0	$	0	$	18,861	$	0	$	18,861
Substandard		1,570		0		0		0		0		0		1,570		0		1,570
Doubtful		0		0		0		0		0		0		0		0		0
Loss		0		0		0		0		0		0		0		0		0
Total	$	20,431	$	0	$	0	$	0	$	0	$	0	$	20,431	$	0	$	20,431

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

		At September 30, 2020																					At June 30, 2021
																		Revolving																			Revolving
																		Loans																			Loans
		Term Loans Amortized Cost Basis by Origination Year														Total		Amortized					Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
		Prior		2015		2016		2017		2018		2019		2020		Term Loans		Cost Basis		Total			Prior		2017		2018		2019		2020		2021		Term Loans		Cost Basis		Total
		(In thousands)																					(In thousands)
Consumer installment and other loans by delinquency and nonaccrual status	Consumer installment and other loans by delinquency and nonaccrual status																					Consumer installment and other loans by delinquency and nonaccrual status
Current		$	5,087	$	6,457	$	19,339	$	24,554	$	53,347	$	69,313	$	64,893	$	242,990	$	29,641	$	272,631		$	14,196	$	15,298	$	36,279	$	49,183	$	73,442	$	62,030	$	250,428	$	24,503	$	274,931
30-59 days past due			35		91		147		224		266		402		148		1,313		15		1,328			156		63		246		497		644		262		1,868		1		1,869
60-89 days past due			2		30		48		163		327		160		40		770		2		772			51		59		125		191		274		41		741		95		836
Past due 90 days or more			0		5		29		0		226		66		31		357		3		360			0		0		47		75		27		18		167		0		167
Nonaccrual			0		0		0		0		0		0		0		0		390		390			0		0		0		0		0		0		0		386		386
Total		$	5,124	$	6,583	$	19,563	$	24,941	$	54,166	$	69,941	$	65,112	$	245,430	$	30,051	$	275,481		$	14,403	$	15,420	$	36,697	$	49,946	$	74,387	$	62,351	$	253,204	$	24,985	$	278,189

There were no0 loans held for sale at ~~September~~June 30, ~~2020~~2021, and December 31, ~~2019.~~2020.

- 22-

At ~~September 30, 2020~~ ~~and~~ ~~December 31, 2019,~~ ~~the~~The Company held ~~total~~0 other real estate owned (OREO) ~~of $43 thousand. There was~~ no ~~reserve applied against OREO~~ at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~ ~~There were~~ no ~~foreclosed residential real estate properties at~~ ~~September 30, 2020~~ ~~and~~ ~~December 31, 2019.~~2020. The amount of consumer mortgage loans outstanding secured by residential real estate properties for which formal foreclosure proceedings were in process was ~~$410~~$386 thousand at ~~September~~June 30, ~~2020~~2021 and ~~$124~~$346 thousand at December 31, ~~2019.~~2020.

Note 55:: 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 credit 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 credit losses, capital notes, and debentures of the bank. At ~~September~~June 30, ~~2020,~~2021, the Bank did not have credit extended to any one entity exceeding these limits. At ~~September~~June 30, ~~2020,~~2021, the Bank had 3132 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 ~~$39,779~~$36,893 thousand and ~~$43,129~~$37,456 thousand at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The Company requires collateral on all real estate loans with loan-to-value ratios at origination generally no greater than 75% on commercial real estate loans and no greater than 80% on residential real estate loans. At ~~September~~June 30, ~~2020,~~2021, the Bank held corporate bonds in ~~97 issuing entities and commercial paper in 9~~113 issuing entities that exceeded $5 million for each issuer.

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- 21-

Note 66:: Other Assets and Other Liabilities

Other assets consisted of the following:

	At September 30,		At December 31,		At June 30,		At December 31,
	2020		2019		2021		2020
	(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		59,868		57,810		61,755		60,444
Net deferred tax asset		0		11,085
Right-of-use asset		19,098		17,136		20,694		18,832
Limited partnership investments		18,935		20,773		17,006		18,335
Interest receivable		30,779		28,797		34,793		33,022
Prepaid assets		3,619		3,737		3,747		4,572
Other assets		13,743		10,767		11,236		10,471
Total other assets	$	160,269	$	164,332	$	163,458	$	159,903

⁽¹⁾

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

The Company owns 211 thousand shares of Visa Inc. class B common stock which have transfer restrictions; the carrying value is $-0- thousand. On September 30, 2019, Visa Inc. announced a revised conversion rate applicable to its class B common stock resulting from its 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 1.6228 per share, effective as of September 27, 2019. Visa Inc. class A common stock had a closing price of ~~$199.97~~$233.82 per share on ~~September~~June 30, ~~2020,~~2021, the last day of stock market trading for the ~~third~~second quarter ~~2020.~~2021. 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 ~~September~~June 30, ~~2020,~~2021, this investment totaled ~~$18,935~~$17,006 thousand and ~~$13,397~~$10,944 thousand of this amount represents outstanding equity capital commitments that are included in other liabilities. At December 31, ~~2019,~~2020, this investment totaled ~~$20,773~~$18,335 thousand and ~~$16,231~~$12,202 thousand of this amount represents outstanding equity capital commitments that are included in other liabilities. At ~~September~~June 30, ~~2020,~~2021, the ~~$13,397~~$10,944 thousand of outstanding equity capital commitments are expected to be paid as follows, ~~$2,248~~$1,802 thousand in the remainder of ~~2020,~~ ~~$4,071 thousand in~~ 2021, ~~$5,983~~$4,908 thousand in 2022, ~~$295~~$3,485 thousand in 2023, ~~$24~~$96 thousand in 2024, ~~$228~~$81 thousand in 2025, $74 thousand in 2026, and ~~$474~~$498 thousand in 2027 or thereafter.

- 23-

The amounts recognized in net income for these investments include:

	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended				For the Six Months Ended
	September 30,								June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
	(In thousands)								(In thousands)
Investment loss included in pre-tax income	$	640	$	600	$	1,840	$	1,800	$	600	$	600	$	1,200	$	1,200
Tax credits recognized in provision for income taxes		225		225		675		675		225		225		450		450

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- 22-

Other liabilities consisted of the following:

	At September 30,		At December 31,		At June 30,		At December 31,
	2020		2019		2021		2020
	(In thousands)				(In thousands)
Net deferred tax liability	$	21,819	$	0	$	12,810	$	25,778
Operating lease liability		19,098		17,136		20,694		18,832
Securities purchases pending settlement						64,993		29,000
Other liabilities		49,559		27,453		40,654		38,988
Total other liabilities	$	90,476	$	44,589	$	139,151	$	112,598

The net deferred tax liability at ~~September~~June 30, ~~2020~~2021 of ~~$21,819~~$12,810 thousand was net of deferred tax benefits of ~~$21,942~~$23,673 thousand, and included deferred tax obligations of ~~$43,492~~$36,483 thousand related to unrealized gains of ~~$147,115~~$123,404 thousand on available for sale debt securities. The ~~net~~ deferred tax ~~asset~~liability at December 31, ~~2019~~2020 of ~~$11,085~~$25,778 thousand, ~~was~~ net of deferred tax benefits of $22,805 thousand, included deferred tax obligations of ~~$10,934~~$48,021 thousand related to unrealized gains of $162,434 thousand on available for sale debt ~~securities unrealized gains.~~securities.

The Company has entered into leases for most branch locations and certain other offices that were classified as operating leases primarily with original terms of five years. Certain lease arrangements contain extension options, which can be exercised at the Company’s option, for one or more additional five year terms. Unexercised extension options are not considered reasonably certain of exercise and have not been included in the lease term used to determine the lease liability or right-of-use asset. The Company did not have any finance leases as of ~~September~~June 30, ~~2020.~~2021.

As of ~~September~~June 30, ~~2020,~~2021, the Company recorded a lease liability of ~~$19,098~~$20,694 thousand and a right-of-use asset of ~~$19,098~~$20,694 thousand. The weighted average remaining life of operating leases and weighted average discount rate used to determine operating lease liabilities were ~~4.8~~4.5 years and ~~2.25%~~1.73%, respectively, at ~~September~~June 30, ~~2020.~~2021. The Company did not have any material lease incentives, unamortized initial direct costs, prepaid lease expense, or accrued lease expense as of ~~September~~June 30, ~~2020.~~2021.

Total lease costs during the three and ~~nine~~six months ended ~~September~~June 30, 2021, of $1,658 thousand and $3,312 thousand, respectively, were recorded within occupancy and equipment expense. Total lease costs during the three and six months ended June 30, 2020, of ~~$1,671~~$1,657 thousand and ~~$4,988~~$3,317 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 ~~nine~~six months ended ~~September~~June 30, 2021 and June 30, 2020.

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- 24-

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

	Minimum future lease payments			Minimum future lease payments
	At September 30,			At June 30,
	2020			2021
	(In thousands)			(In thousands)
The remaining three months of 2020	$	1,599
2021		5,353		$	3,068
2022		4,426			5,649
2023		3,689			4,941
2024		2,078			3,353
2025					2,162
Thereafter		2,863			2,251
Total minimum lease payments		20,008			21,424
Less: discount		(910	)		(730	)
Present value of lease liability	$	19,098		$	20,694

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- 23-

Note 77:: Goodwill and Identifiable Intangible Assets

The Company has recorded goodwill and other identifiable intangibles associated with purchase business combinations. Goodwill is not amortized, but is evaluated for impairment at least annually. The Company did not recognize impairment during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and year ended December 31, ~~2019.~~2020. Identifiable intangibles are amortized to their estimated residual values over their expected useful lives. Such lives and residual values are also periodically reassessed to determine if any amortization period adjustments are indicated. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and year ended December 31, ~~2019~~2020 0 such adjustments were recorded.

The carrying values of goodwill were:

At September 30, 2020

At December 31, 2019

(In thousands)

Goodwill
$ 121,673 $ 121,673

	At June 30, 2021		At December 31, 2020
	(In thousands)
Goodwill	$	121,673	$	121,673

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

At September 30, 2020

At December 31, 2019

Gross

Gross

Carrying

Accumulated

Carrying

Accumulated

Amount

Amortization

Amount

Amortization

(In thousands)

Core deposit intangibles
$ 56,808 $ (55,635 ) $ 56,808 $ (55,417 )

	At June 30, 2021					At December 31, 2020
	Gross					Gross
	Carrying		Accumulated			Carrying		Accumulated
	Amount		Amortization			Amount		Amortization
	(In thousands)
Core deposit intangibles	$	56,808	$	(55,841	)	$	56,808	$	(55,704	)

As of ~~September~~June 30, ~~2020,~~2021, the current period and estimated future amortization expense for identifiable intangible assets, to be fully amortized in 2025,was:

Total

Core

Deposit

Intangibles

(In thousands)

For the nine months ended September 30, 2020 (actual)
$ 218
Estimate for the remainder of year ending December 31, 2020
69
Estimate for year ending December 31, 2021
269
2022
252
2023
236
2024
222
2025
125

	Total
	Core
	Deposit
	Intangibles
	(In thousands)
For the six months ended June 30, 2021 (actual)	$	137
Estimate for the remainder of 2021		132
Estimate for year ending December 31, 2022		252
2023		236
2024		222
2025		125

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- 2524-

Note 88:: Deposits and Borrowed Funds

The following table provides additional detail regarding deposits.

	Deposits				Deposits
	At September 30,		At December 31,		At June 30,		At December 31,
	2020		2019		2021		2020
	(In thousands)				(In thousands)
Noninterest-bearing	$	2,684,028	$	2,240,112	$	2,872,920	$	2,725,177
Interest-bearing:
Transaction		1,040,712		931,888		1,200,634		1,102,601
Savings		1,653,000		1,471,284		1,849,258		1,703,812
Time deposits less than $100 thousand		83,838		88,355		76,474		79,825
Time deposits $100 thousand through $250 thousand		50,378		54,874		50,754		49,323
Time deposits more than $250 thousand		27,234		26,108		26,349		27,241
Total deposits	$	5,539,190	$	4,812,621	$	6,076,389	$	5,687,979

Demand deposit overdrafts of ~~$1,466~~$708 thousand and ~~$1,055~~$682 thousand were included as loan balances at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Interest expense for aggregate time deposits with individual account balances in excess of $100 thousand was ~~$80~~$68 thousand and ~~$238~~$146 thousand for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, and ~~$81~~$79 thousand and ~~$246~~$158 thousand for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively.

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

	Repurchase Agreements (Sweep) Accounted for as Secured Borrowings				Repurchase Agreements (Sweep) Accounted for as Secured Borrowings
	Remaining Contractual Maturity of the Agreements				Remaining Contractual Maturity of the Agreements
	Overnight and Continuous				Overnight and Continuous
	At September 30,		At December 31,		At June 30,		At December 31,
	2020		2019		2021		2020
Repurchase agreements:	(In thousands)				(In thousands)
Collateral securing borrowings:
Securities of U.S. Government sponsored entities	$	0	$	65,833
Agency residential MBS		76,715		52,485	$	52,266	$	67,019
Corporate securities		183,447		146,253		187,252		188,195
Total collateral carrying value	$	260,162	$	264,571	$	239,518	$	255,214
Total short-term borrowed funds	$	107,973	$	30,928	$	90,043	$	102,545

Note 99:: Fair Value Measurements

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

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

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

- 26-

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.

- 25-

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

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

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

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

Assets Recorded at Fair Value on a Recurring Basis

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

	At September 30, 2020								At June 30, 2021
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3) ⁽¹⁾		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)								(In thousands)
Debt securities available for sale
Agency residential mortgage-backed securities (MBS)	$	745,297	$	0	$	745,297	$	0	$	510,460	$	0	$	510,460	$	0
Agency commercial MBS		3,585		0		3,585		0
Securities of U.S. Government entities		163		0		163		0		137		0		137		0
Obligations of states and political subdivisions		127,172		0		127,172		0		104,603		0		104,603		0
Corporate securities		2,212,827		0		2,212,827		0		2,596,850		0		2,596,850		0
Commercial paper		224,816				224,816
Collateralized loan obligations		670,134		0		670,134		0		1,092,112		0		1,092,112		0
Total debt securities available for sale	$	3,983,994	$	0	$	3,983,994	$	0	$	4,304,162	$	0	$	4,304,162	$	0

⁽¹⁾There were no transfers in to or out of level 3 during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

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- 2726-

	At December 31, 2019								At December 31, 2020
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3) ⁽¹⁾		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)								(In thousands)
Debt securities available for sale
U.S. Treasury securities	$	20,000	$	20,000	$	0	$	0
Securities of U.S. Government sponsored entities		111,167		0		111,167		0
Agency residential MBS		939,750		0		939,750		0	$	652,952	$	0	$	652,952	$	0
Agency commercial MBS		3,708		0		3,708		0
Securities of U.S. Government entities		544		0		544		0		154		0		154		0
Obligations of states and political subdivisions		163,139		0		163,139		0		111,010		0		111,010		0
Corporate securities		1,833,783		0		1,833,783		0		2,117,978		0		2,117,978		0
Commercial paper										24,990		0		24,990		0
Collateralized loan obligations		6,755		0		6,755		0		1,156,101		0		1,156,101		0
Total debt securities available for sale	$	3,078,846	$	20,000	$	3,058,846	$	0	$	4,063,185	$	0	$	4,063,185	$	0

⁽¹⁾There were no transfers in to or out of level 3 during the ~~twelve~~ ~~months~~year ended December 31, ~~2019.~~2020.

Assets Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of ~~lower of cost~~lower-of-cost or ~~fair value~~fair-value accounting of individual assets. For assets measured at fair value on a nonrecurring basis that were recorded in the balance sheet at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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										For the Six
									Nine Months Ended										Months Ended
	At September 30, 2020								September 30, 2020		At June 30, 2021								June 30, 2021
	Carrying Value		Level 1		Level 2		Level 3		Total Losses		Carrying Value		Level 1		Level 2		Level 3		Total Losses
	(In thousands)										(In thousands)
Other real estate owned	$	43	$	0	$	0	$	43	$	0
Loans:
Commercial		5,354		0		0		5,354		0
Commercial real estate		3,773		0		0		3,773		0	$	3,409	$	0	$	0	$	3,409	$	0
Residential real estate		183		0		0		183		0		175		0		0		175		0
Total assets measured at fair value on a nonrecurring basis	$	9,353	$	0	$	0	$	9,353	$	0	$	3,584	$	0	$	0	$	3,584	$	0

									For the										For the
									Twelve Months Ended										Year Ended
	At December 31, 2019								December 31, 2019		At December 31, 2020								December 31, 2020
	Carrying Value		Level 1		Level 2		Level 3		Total Losses		Carrying Value		Level 1		Level 2		Level 3		Total Losses
	(In thousands)										(In thousands)
Other real estate owned	$	43	$	0	$	0	$	43	$	0
Impaired loans:
Loans:
Commercial		5,747		0		0		5,747		0	$	5,270	$	0	$	0	$	5,270	$	0
Commercial real estate		4,091		0		0		4,091		0		3,710		0		0		3,710		0
Residential real estate		190		0		0		190		0		181		0		0		181		0
Total assets measured at fair value on a nonrecurring basis	$	10,071	$	0	$	0	$	10,071	$	0	$	9,161	$	0	$	0	$	9,161	$	0

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 loans collateralized by real property and other business asset collateral individually evaluated for credit loss 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.

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- 2827-

Disclosures about Fair Value of Financial Instruments

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

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

	At September 30, 2020										At June 30, 2021
	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	$	398,964	$	398,964	$	398,964	$	0	$	0	$	939,929	$	939,929	$	939,929	$	0	$	0
Debt securities held to maturity		577,795		593,701		0		593,701		0		414,413		424,599		0		424,599		0
Loans		1,285,867		1,347,245		0		0		1,347,245		1,171,097		1,188,428		0		0		1,188,428

Financial Liabilities:
Deposits	$	5,539,190	$	5,539,300	$	0	$	5,377,740	$	161,560	$	6,076,389	$	6,076,339	$	0	$	5,922,812	$	153,527
Short-term borrowed funds		107,973		107,973		0		107,973		0		90,043		90,043		0		90,043		0

	At December 31, 2019										At December 31, 2020
	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	$	373,421	$	373,421	$	373,421	$	0	$	0	$	621,275	$	621,275	$	621,275	$	0	$	0
Debt securities held to maturity		738,072		744,296		0		744,296		0		515,589		529,678		0		529,678		0
Loans		1,107,180		1,152,949		0		0		1,152,949		1,232,389		1,290,938		0		0		1,290,938

Financial Liabilities:
Deposits	$	4,812,621	$	4,810,934	$	0	$	4,643,284	$	167,650	$	5,687,979	$	5,688,049	$	0	$	5,531,590	$	156,459
Short-term borrowed funds		30,928		30,928		0		30,928		0		102,545		102,545		0		102,545		0

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.

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- 29-

Note 1010:: Commitments and Contingent Liabilities

Loan commitments are agreements to lend to a customer provided there is no violation of any condition established in the agreement. Certain agreements provide the Company the right to cancel or reduce its obligations to lend to customers. The portions that are not cancellable unconditionally by the Company aggregated ~~$39,779~~$36,893 thousand at ~~September~~June 30, ~~2020.~~2021. 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 ~~$279,330~~$248,111 thousand at ~~September~~June 30, ~~2020~~2021 and ~~$265,311~~$277,878 thousand at December 31, ~~2019.~~2020. 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 ~~$2,356~~$4,070 thousand at ~~September~~June 30, ~~2020~~2021 and ~~$3,099~~$2,357 thousand at December 31, ~~2019.~~2020. The Company had 0 commitments outstanding for commercial and similar letters of credit at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. The Company had $580 ~~thousand and $550~~ thousand in outstanding full recourse guarantees to a 3^rd party credit card company at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020. ~~respectively. The~~At June 30, 2021, the Company had a reserve for unfunded commitments of ~~$53~~$101 thousand atfor the above-mentioned loan commitments of $36,893 thousand that are ~~September 30, 2020~~ not~~and $2,160~~ cancellable unconditionally by the Company. The Company’s reserve for unfunded commitments was $101 thousand at December 31, ~~2019,~~2020. The reserve for unfunded commitments is included in other liabilities.

- 28-

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. The Company paid $54 thousand and $439 thousand during the three and six months ended June 30, 2021, respectively, and $4,410 thousand during the year ended December 31, 2020 to customers eligible for refunds. The remaining accrued obligations at June 30, 2021 totaled $994 thousand, included in other liabilities.

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

Note 111:1: Earnings Per Common Share

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

	For the Three Months				For the Nine Months				For the Three Months				For the Six Months
	Ended September 30,								Ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
	(In thousands, except per share data)								(In thousands, except per share data)
Net income applicable to common equity (numerator)	$	20,051	$	20,390	$	56,575	$	59,661	$	22,579	$	19,562	$	42,726	$	36,524
Basic earnings per common share
Weighted average number of common shares outstanding - basic (denominator)		26,930		26,986		26,977		26,924		26,865		26,935		26,843		27,001
Basic earnings per common share	$	0.74	$	0.76	$	2.10	$	2.22	$	0.84	$	0.72	$	1.59	$	1.35
Diluted earnings per common share
Weighted average number of common shares outstanding - basic		26,930		26,986		26,977		26,924		26,865		26,935		26,843		27,001
Add common stock equivalents for options		16		41		21		52		22		16		22		23
Weighted average number of common shares outstanding - diluted (denominator)		26,946		27,027		26,998		26,976		26,887		26,951		26,865		27,024
Diluted earnings per common share	$	0.74	$	0.75	$	2.10	$	2.21	$	0.84	$	0.72	$	1.59	$	1.35

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, options to purchase ~~567~~510 thousand and ~~560~~554 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 ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, options to purchase ~~379~~599 thousand and ~~425~~556 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.

- 30-

~~Note~~ ~~12:~~ ~~Impact of COVID-~~19

~~The COVID-~~19 ~~Coronavirus Pandemic Will Have an Uncertain Impact on the Company's Financial Condition and Results of Operations~~

~~The COVID-~~19 ~~coronavirus pandemic caused escalating infections in the United States beginning in the~~ ~~first~~ ~~quarter of~~ ~~2020~~ ~~that continued through the~~ ~~third~~ ~~quarter of~~ ~~2020~~ ~~and~~ ~~may~~ continue for some time. The spread of the outbreak has disrupted the United States economy including banking and other financial activity in the market areas in which the Company and its banking subsidiary, Westamerica Bank (the "Bank"), operate. Regions and states of the United States of America have implemented varying degrees of "stay at home" directives in an effort to prevent the spread of the virus. On ~~March 19, 2020,~~ the Governor of the State of California ordered all individuals living in the State of California to stay within their residence to prevent the spread of the novel coronavirus and many businesses have suspended or reduced business activities. The California "stay at home" directive excludes essential businesses, including banks, and the Bank remains open and fully operational. These "stay at home" directives have, however, significantly reduced economic activity in the United States and the State of California. In the ~~second~~ ~~and~~ ~~third~~ ~~quarters of~~ ~~2020~~ the “stay at home” directives were gradually lifted in varying stages in counties of the State of California, though restrictions could be re-imposed to some degree if infections increase. Counties with high infection rates delayed reopening and restrictions on certain economic activity remains. California-based claims for unemployment remain elevated during the ~~third~~ ~~quarter of~~ ~~2020.~~

The Bank's deposits are exclusively sourced within California and its loans are primarily to borrowers domiciled within California. Demand for the Bank's products and services, such as loans and deposits, could be affected as a result of the decline in economic activity within the state.

The Bank's investment portfolio contains bonds for which the source of repayment is domestic mortgage repayments, domestic municipalities throughout the United States, and domestic and global corporations. The value of the Bank's investment portfolio ~~may~~ ~~decline if, for example, the general economy deteriorates, inflation increases, credit ratings decline, the issuers’ financial condition deteriorates or the liquidity for debt securities declines.~~

~~In response to the pandemic, the Federal Reserve has engaged significant levels of monetary policy to provide liquidity and credit facilities to the financial markets. On~~ ~~March 15, 2020,~~ ~~the Federal Open Market Committee ("FOMC") reduced the target range for the federal funds rate to~~ 0 to ~~0.25~~ ~~percent; relatedly, the FOMC reduced the interest rate paid on deposit balances to~~ ~~0.10~~ ~~percent effective~~ ~~March 16, 2020,~~ ~~all of which~~ ~~may~~ negatively impact net interest income. The Bank maintains deposit balances at the Federal Reserve Bank; the amount that earns interest is identified in the Company's financial statements as "interest-bearing cash".

~~In response to the pandemic, the United States federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") on~~ ~~March 27, 2020,~~ ~~providing an estimated~~ $2 ~~trillion fiscal stimulus to the United States economy. The CARES Act established the Paycheck Protection Program (PPP) with~~ ~~$350~~ billion to provide businesses with federally guaranteed loans to support payroll and certain operating expenses. The loans were guaranteed by the United States Small Business Administration (“SBA”) and funded through banks. In ~~April 2020,~~ ~~the PPP program was expanded with an additional~~ ~~$310~~ ~~billion. At~~ ~~June 30, 2020,~~ the Bank funded $249 million in government guaranteed PPP loans which meaningfully increased interest-earning assets and related interest and fee income. PPP loans, net of deferred fees and costs, were $244 million at ~~September 30, 2020.~~

On ~~April 7, 2020,~~ the U.S. banking agencies issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised). The statement describes accounting for COVID-19-related loan modifications, including clarifying the interaction between current accounting rules and the temporary relief provided by the CARES Act. The Bank continues to work with loan customers requesting deferral of loan payments due to economic weakness caused by the pandemic. At ~~September 30, 2020,~~ consumer loans granted loan deferrals totaled $5.0 million, commercial real estate loans with deferred payments totaled $19.1 million, primarily for hospitality and retail properties, and commercial loans with deferred payments totaled $209 thousand.

The extent of the spread of the coronavirus, its ultimate containment and its effects on the economy and the Company are uncertain at this time. The effectiveness of the Federal Reserve Bank's monetary policies and the federal government's fiscal policies in stimulating the United States economy is uncertain at this time.

- 31-

Management expects the Company's net interest margin and non-interest income to decline and credit-related losses to increase for an uncertain period given the decline in economic activity occurring due to the coronavirus. The amount of impact on the Company's financial results is uncertain.

In addition, the Company's future success and profitability substantially depends upon the skills and experience of its executive officers and directors, many of whom have held positions with the Company for many years. The unanticipated loss or unavailability of key employees due to the outbreak could adversely affect the Company's ability to operate its business or execute its business strategy.

~~Any~~ ~~one~~ ~~or a combination of the factors identified above, or other factors, could materially adversely affect the Company's business, financial condition, results of operations and prospects.~~

~~The Recent Decline in Oil Prices Could Have an Impact on the Company's Financial Condition and Results of Operations~~

~~Oil prices have declined considerably in the~~ ~~first~~~~nine~~ ~~months of~~ ~~2020.~~ The decline in oil prices could negatively affect the financial results of industrial sector-based and energy sector-based corporate issuers of corporate bonds owned by the Company. The Company’s corporate debt securities include 14 issuers in industrial and energy sectors with aggregate amortized cost of $275.3 million and fair value of $288.7 million at ~~September 30, 2020.~~ ~~These securities continue to be investment grade rated by a major rating agency.~~

The Company’s participation in the SBA PPP loan program exposes it to risks of noncompliance with the PPP and litigation, which could have a material adverse impact on the Company’s business, financial condition and results of operations.

~~The Company is a participating lender in the PPP. The SBA guarantees~~ ~~100%~~ of loans funded under the PPP. Loan proceeds used for eligible payroll and certain other operating costs are forgiven with repayment of loan principal and accrued interest made by the SBA. There is some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes the Company to potential risks relating to noncompliance with the PPP. Any financial liability, litigation costs or reputational damage related to the PPP or related litigation or regulatory enforcement actions could have a material adverse impact on the Company’s business, financial condition and results of operations. In addition, the Company ~~may~~ be exposed to credit risk on PPP loans if the SBA determines that there is a deficiency in the manner in which the loan was originated, funded, or serviced. If the SBA identifies a deficiency, it could deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company.

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- 3229-

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

~~WESTAMERICA BANCORPORATION~~

WESTAMERICA BANCORPORATION

FINANCIAL SUMMARY

For the Three Months

For the Three Months

For the Nine Months

Ended September 30,

2020

2019

2020

2019

(In thousands, except per share data)

Net Interest and Loan Fee Income (FTE)⁽¹⁾
$ 41,780 $ 40,349 $ 124,390 $ 120,925
Provision for Credit Losses
- - 4,300 -
Noninterest Income
10,476 11,809 31,678 35,676
Noninterest Expense
24,603 24,033 74,021 74,777
Income Before Income Taxes (FTE)⁽¹⁾
27,653 28,125 77,747 81,824
Income Tax Provision (FTE)⁽¹⁾
7,602 7,735 21,172 22,163
Net Income
$ 20,051 $ 20,390 $ 56,575 $ 59,661

Average Common Shares Outstanding
26,930 26,986 26,977 26,924
Average Diluted Common Shares Outstanding
26,946 27,027 26,998 26,976
Common Shares Outstanding at Period End
26,898 27,014

Per Common Share:

Basic Earnings
$ 0.74 $ 0.76 $ 2.10 $ 2.22
Diluted Earnings
0.74 0.75 2.10 2.21
Book Value
30.69 26.41

Financial Ratios:

Return on Assets
1.24 % 1.45 % 1.25 % 1.43 %
Return on Common Equity
11.17 % 11.87 % 10.67 % 11.92 %
Net Interest Margin (FTE)⁽¹⁾
2.78 % 3.11 % 2.95 % 3.12 %
Net Loan Losses to Average Loans
0.12 % 0.10 % 0.18 % 0.17 %
Efficiency Ratio⁽²⁾
47.1 % 46.1 % 47.4 % 47.8 %

Average Balances:

Assets
$ 6,414,399 $ 5,570,843 $ 6,044,098 $ 5,580,965
Loans
1,312,758 1,142,668 1,223,250 1,177,057
Investment securities
4,360,119 3,687,049 4,055,733 3,675,102
Deposits
5,533,144 4,770,976 5,188,797 4,789,084
Shareholders' Equity
714,400 681,513 708,559 669,043

Period End Balances:

Assets
$ 6,563,215 $ 5,616,055
Loans
1,310,009 1,133,229
Investment securities
4,561,805 3,776,983
Deposits
5,539,190 4,796,623
Shareholders' Equity
825,576 713,378

Capital Ratios at Period End:

Total Risk Based Capital
15.42 % 17.20 %
Tangible Equity to Tangible Assets
10.91 % 10.75 %

Dividends Paid Per Common Share
$ 0.41 $ 0.41 $ 1.23 $ 1.22
Common Dividend Payout Ratio
55 % 55 % 59 % 55 %

For the Six Months

Ended June 30,

2021

2020

2021

2020

(In thousands, except per share data)

Net Interest and Loan Fee Income (FTE)⁽¹⁾

44,499

42,063

87,082

82,610

Provision for Loan Losses

4,300

Noninterest Income

11,032

9,554

21,221

21,202

Noninterest Expense

24,291

24,754

49,197

49,418

Income Before Income Taxes (FTE)⁽¹⁾

31,240

26,863

59,106

50,094

Income Tax Provision (FTE)⁽¹⁾

8,661

7,301

16,380

13,570

Net Income

22,579

19,562

42,726

36,524

Average Common Shares Outstanding

26,865

26,935

26,843

27,001

Average Diluted Common Shares Outstanding

26,887

26,951

26,865

27,024

Common Shares Outstanding at Period End

26,865

26,933

Per Common Share:

Basic Earnings

0.84

0.72

1.59

1.35

Diluted Earnings

0.84

0.72

1.59

1.35

Book Value

31.35

30.00

Financial Ratios:

Return on Assets

1.29

1.30

1.26

1.25

Return on Common Equity

12.16

11.15

11.64

10.41

Net Interest Margin (FTE)⁽¹⁾

2.70

2.99

2.72

3.04

Net Loan (Recoveries) Losses to Average Loans

(0.08

0.09

0.02

0.22

Efficiency Ratio⁽²⁾

43.7

48.0

45.4

47.6

Average Balances:

Assets

7,004,695

6,058,365

6,828,409

5,856,913

Loans

1,257,087

1,232,073

1,254,328

1,178,004

Investment Securities

4,394,169

3,957,851

4,417,267

3,901,868

Deposits

6,074,730

5,200,475

5,912,303

5,014,731

Shareholders' Equity

744,746

705,882

740,147

705,606

Period End Balances:

Assets

7,147,779

6,463,889

Loans

1,194,834

1,316,359

Investment Securities

4,718,584

4,346,667

Deposits

6,076,389

5,468,412

Shareholders' Equity

842,196

808,076

Capital Ratios at Period End:

Total Risk Based Capital

15.75

14.88

Tangible Equity to Tangible Assets

10.24

10.81

Dividends Paid Per Common Share

0.41

0.82

Common Dividend Payout Ratio

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⁾

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

⁽²⁾

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

~~-33-~~

-30-

Westamerica Bancorporation and ~~subsidiaries’~~subsidiaries (collectively, the “Company”) reported net income of ~~$20.1~~$22.6 million or ~~$0.74~~$0.84 diluted earnings per common share (“EPS”) for the ~~third~~second quarter 2021 and net income of $42.7 million or $1.59 EPS for the six months ended June 30, 2021. Results for 2021 include “make-whole” interest income on corporate bonds redeemed prior to maturity of $1.4 million for the second quarter 2021, which increased EPS $0.04, and $2.1 million for the first six months of 2021, which increased EPS $0.06. These results compare with net income of $19.6 million or $0.72 EPS for the second quarter 2020 and net income of ~~$56.6~~$36.5 million or ~~$2.10 diluted earnings per common share~~$1.35 EPS for the ~~nine~~six months ended ~~September~~June 30, 2020.

The COVID-19 coronavirus pandemic began in the United States and California in the first quarter 2020 and continued to cause escalating infections in the United States through the third quarter 2020. In response to the pandemic, the Company’s primary and wholly-owned subsidiary bank, Westamerica Bank (the “Bank”), ~~funded $249~~continued to support the Bank’s customers during the pandemic. The Bank originated $106 million in loans under the second round of the Paycheck Protection Program (“PPP”) ~~loans for the Bank’s customers~~ during the ~~second quarter 2020.~~first six months of 2021. PPP loans meaningfully increased interest-earning assets and related interest and fee income. The Bank continues to work with loan customers requesting deferral of loan payments due to economic weakness caused by the pandemic. At ~~September~~June 30, ~~2020, consumer~~2021, loans granted ~~loan~~ deferrals totaled $5.0 million, commercial real estate loans with deferred payments totaled $19.1 million, primarily for hospitality and retail properties, and commercial loans with deferred payments totaled $209 thousand.under the CARES Act included $586 thousand, all of which were consumer automobile loans. The results for the ~~nine months ended September 30,~~first half of 2020 ~~included~~include a provision for credit losses of $4.3 million, which reduced EPS $0.11, representing Management’s estimate of additional reserves needed over the remaining life of its loans due to increased credit-risk from deteriorating economic conditions caused by the COVID-19 pandemic. These results compare to net income of $20.4 million or $0.75 diluted earnings per common share for the third quarter 2019 and net income of $59.7 million or $2.21 diluted earnings per common share for the nine months ended September 30, 2019. Results for the nine months ended September 30, 2019 include a 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.

Regions and states of the United States of America, including California implemented varying degrees of “stay at home” directives in an effort to prevent the spread of the virus in the first quarter of 2020. These directives have significantly reduced economic activity in the United States and the State of California. In the second and third quarters 2020 the “stay at home” directives were gradually lifted in varying stages in counties of the State of California, though restrictions could be re-imposed to some degree if infections increase. Counties with high infection rates delayed reopening and restrictions on certain economic activity remains. California-based claims for unemployment remain elevated during the third quarter of 2020. The California “stay at home” directive excludes essential businesses including banks. The Bank remains open and fully operational.

In response to the pandemic, the Federal Reserve has engaged significant levels of monetary policy to provide liquidity and credit facilities to the financial markets. On March 15, 2020, the Federal Open Market Committee (“FOMC”) reduced the target range for the federal funds rate to 0 to 0.25 percent; relatedly, the FOMC reduced the interest rate paid on deposit balances to 0.10 percent effective March 16, 2020. Effective June 17, 2021, FOMC increased the interest rate paid on excess reserve balances to 0.15%. The Bank maintains deposit balances at the Federal Reserve Bank; the amount that earns interest is identified in the Company’s financial statements as “interest-bearing cash”.

The extent of the spread of the coronavirus and its ultimate containment are uncertain at this time. The effectiveness of the Federal Reserve Bank’s monetary policies and the federal government’s fiscal policies in stimulating the United States economy is uncertain at this time. Management expects the Company’s net interest margin and non-interest income to decline and credit-related losses to increase for an uncertain period given the decline in economic activity occurring due to the coronavirus. The amount of impact on the Company’s financial results is uncertain. Please refer to Note 12 and Part II, Item 1A “Risk factors” in this Form 10-Q.

The Company presents its net interest margin and net interest income on a fully taxable equivalent (“FTE”) basis using the current statutory federal tax rate. Management believes the FTE basis is valuable to the reader because the Company’s loan and investment securities portfolios contain 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.

The Company’s significant accounting policies (see Note 1, “Summary of Significant Accounting Policies,” to Financial Statements in the Company’s ~~2019~~2020 Form 10-K and Note 2 “Summary of Significant Accounting Policies” in this Form 10-Q) are fundamental to understanding the Company’s results of operations and financial condition. Certain risks, uncertainties and other factors, including those discussed in Note 20 “Impact of COVID-19” to the consolidated financial statements and “Risk Factors” in Part I – Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 may cause actual future results to differ materially from the results discussed in this report on Form 10-Q. Management continues to evaluate the impact of the pandemic on the Company’s business. The ~~Company adopted~~extent of the ~~following new accounting guidance:~~impact on the Company’s results of operations, cash flow liquidity, and financial performance, as well as the Company’s ability to execute near- and long-term business strategies and initiatives, will depend on numerous evolving factors and future developments, which are highly uncertain and cannot be reasonably predicted.

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

The Company adopted the ASU provisions on January 1, 2020. Management evaluated available data, defined portfolio segments of loans with similar attributes, and selected loss estimate models for each identified loan portfolio segment. Management measured historical loss rates for each portfolio segment. Management also segmented debt securities held to maturity, selected methods to estimate losses for each segment, and measured a loss estimate. Agency mortgage-backed securities were assigned no credit loss allowance due to the perceived backing of government sponsored entities. Municipal securities were evaluated for risk of default based on credit rating and remaining term to maturity using Moody’s risk of default factors; Moody’s loss upon default factors were applied to the assumed defaulted principal amounts to estimate the amount for credit loss allowance. The adjustment to the allowance for credit losses was recorded through an offsetting after-tax adjustment to shareholders’ equity. The implementing entry increased allowance for credit losses by $2,017 thousand, reduced allowance for unfunded credit commitments by $2,107 thousand and increased retained earnings by $52 thousand.

~~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 were 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 was adopted by the Company January 1, 2020. The additional disclosures did not affect the financial results upon adoption.

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

Net income for the ~~third~~second quarter ~~2020 decreased $339 thousand~~2021 increased $3.0 million compared with the ~~third~~second quarter ~~2019.~~2020. Net interest and loan fee income (FTE) increased ~~$1.4~~$2.4 million in the ~~third~~second quarter ~~2020~~2021 compared with the ~~third~~second quarter ~~2019 mainly~~2020 due to higher average balances of investments, ~~and~~ PPP loans and interest-bearing cash, partially offset by lower yield on interest-earning ~~assets and loan payoffs and paydowns.~~assets. Additionally, second quarter 2021 results include “make-whole” interest income on corporate bonds redeemed prior to maturity of $1.4 million. The provision for credit losses ~~remained~~was zero for the second quarter 2021 and the second quarter 2020, reflecting Management's evaluation of credit risk over the remaining life of loans and bonds. ~~Third~~Second quarter 2021 noninterest income increased $1.5 million compared with second quarter 2020 due to higher levels of merchant processing services fees and debit card fees. Second quarter 2021 noninterest ~~income~~expense decreased ~~$1.3 million~~$463 thousand due to lower ~~economic activity~~salaries and related to the COVID-19 pandemic. Third quarter 2020 noninterest expense increased $570 thousand mostly because third quarter 2019 FDIC assessments were reduced by application of the Bank’s FDIC assessment credit.benefits resulting from attrition. The tax rate (FTE) was 27.7% for the ~~third~~second quarter ~~2020~~2021 and 27.2% for the ~~third~~second quarter ~~2019 was 27.5%.~~2020.

Comparing the ~~nine~~first six months ~~ended September 30, 2020~~of 2021 with the ~~nine~~first six months ~~ended September 30, 2019~~of 2020 net income ~~decreased $3.1~~increased $6.2 million. Net interest and loan fee (FTE) income increased ~~$3.5~~$4.5 million due to higher average balances of investments, ~~and~~ PPP loans and interest-bearing cash, partially offset by lower yield on interest-earning ~~assets and loan payoffs and paydowns.~~assets. Results for the ~~nine~~first six months ~~ended September 30,~~of 2021 include “make-whole” interest income on corporate bonds redeemed prior to maturity of $2.1 million. The provision for credit losses was zero in the first six months of 2021, reflecting Management's evaluation of credit risk over the remaining life of loans and bonds. Results for the first quarter 2020 include a provision of credit losses of $4.3 million, which reduced EPS $0.11, representing ~~Management~~Management’s estimate of additional reserves needed over the remaining life of its loans due to credit-risk from economic weakness caused by the COVID-19 pandemic. InNoninterest income remained at the ~~nine months ended September 30, 2019, the provision for loan losses remained zero, reflecting Management's evaluation of losses inherent~~same level in the ~~loan portfolio. In~~first six month of 2021 compared with the ~~nine~~first six months ~~ended September 30,~~of 2020 ~~noninterest income decreased $4.0 million primarily~~ due to ~~lower economic activity related to the COVID-19 pandemic, partially~~higher fee income from merchant card processing and debit cards, offset by lower deposit services charges. Additionally, the first six months of 2020 results included a $603 thousand recovery ~~in excess of~~on previously charged off ~~loan amounts in~~loans. In the first ~~nine~~six months of ~~2020. In the nine months ended September 30, 2020~~2021 noninterest expense decreased ~~$756~~$221 thousand compared with the ~~nine~~first six months ~~ended September 30, 2019~~of 2020 due to lower salaries ~~occupancy~~ and ~~equipment expenses, and lower amortization of intangible assets, and because the nine months ended September 30, 2019 included $553 thousand in loss contingency. The decrease was partially~~related benefits offset by higher ~~FDIC assessments in the nine months ended September 30, 2020 because FDIC assessments in the nine months ended September 30, 2019 were reduced by application of the Bank’s FDIC assessment credit.~~professional fees. The tax rate (FTE) was 27.7% for the ~~nine~~first six months ~~ended September 30, 2020 was 27.2% compared with~~of 2021 and 27.1% for the ~~nine~~first six months ~~ended September 30, 2019.~~of 2020.

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

Net interest and loan fee income (FTE) increased ~~$1.4~~$2.4 million in the ~~third~~second quarter ~~2020~~2021 compared with the ~~third~~second quarter ~~2019 mainly~~2020 due to higher average balances of investments (up ~~$673~~$436 million), PPP loans (up $75 million) and ~~average balances of $243 million of PPP loans,~~interest-bearing cash (up $507 million), partially offset by lower yield on interest-earning assets (down ~~0.34%~~0.29%) ~~and lower average balances~~. Results for the second quarter 2021 results include “make-whole” interest income on corporate bonds redeemed prior to maturity of ~~other loans (down $73 million).~~$1.4 million.

Net interest and loan fee (FTE) income increased ~~$3.5~~$4.5 million in the first ~~nine~~six months of ~~2020~~2021 compared with the first ~~nine~~six months of ~~2019~~2020 due to higher average balances of investments (up ~~$381~~$515 million), PPP loans (up $132 million) and ~~average balances of $126 million of PPP loans,~~interest-bearing cash (up $395 million), partially offset by lower yield on ~~interest-bearing earning~~interest-earning assets (down ~~0.18%~~0.32%) ~~and lower average balances~~. Results for the first six months of ~~other loans (down $80 million).~~2021 include “make-whole” interest income on corporate bonds redeemed prior to maturity of $2.1 million.

The annualized net interest margin (FTE) was ~~2.78%~~2.70% in the ~~third~~second quarter 2021 and 2.72% in the first six months of 2021 compared with 2.99% in the second quarter 2020 and ~~2.95%~~3.04% in the first ~~nine~~six months of ~~2020 compared with 3.11% in the third quarter 2019 and 3.12% in the first nine months of 2019.~~2020. The lower yield in in the ~~third~~second quarter ~~2020~~2021 and the first ~~nine~~six months of ~~2020~~2021 compared with ~~2019~~the same periods of 2020 is primarily due to ~~lower yields~~low yield on ~~loans, investments and~~ interest-bearing ~~cash. Additionally, investments,~~cash which ~~generally carry lower yield than loans,~~ made up a higher percentage of total earning assets in the current periods ~~(72.7%~~(14.4% in the ~~third~~second quarter 2021 compared with 7.9% in the second quarter 2020 ~~compared with 71.2% in the third quarter 2019~~ and ~~72.1%~~11.7% in the first ~~nine~~six months of 2020 compared with ~~71.0%~~6.6% in the first ~~nine~~six months of ~~2019)~~2020).

The Company’s funding costs were 0.03% in the ~~third~~second quarter 2021 and 2020 and in the first ~~nine~~six months of ~~2020 compared with 0.04% in the third quarter 2019~~2021 and ~~in the first nine months of 2019.~~2020. Average balances of time deposits in the ~~third quarter 2020~~first six months of 2021 declined ~~$16~~$10 million from the ~~third quarter 2019 and $20 million in the~~ first ~~nine~~six months of ~~2020 from the first nine months of 2019.~~2020. Average balances of checking and saving deposits increased $908 million in the first six months of 2021 compared with the first six months of 2020. Average balances of those checking and saving deposits accounted for ~~97.1%~~97.4% of average total deposits in the ~~third quarter 2020 and 96.8%~~first six months of 2021 compared with 96.7% in the first ~~nine~~six months of ~~2020 compared with 96.2% in the third quarter 2019 and 96.1% in the first nine months of 2019.~~2020.

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

The following tables present information regarding the consolidated average assets, liabilities and shareholders’ equity, the amounts of interest income earned from average interest earning assets and the resulting yields, and the amounts of interest expense incurred on average interest-bearing liabilities and the resulting rates. Average loan balances include nonperforming loans. Interest income includes the reversal of previously accrued interest on loans placed on 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’~~Shareholders’ Equity and Yields, Rates & Interest Margin

~~-41-~~-36-

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

	For the Six Months Ended June 30, 2020
			Interest
	Average		Income/		Yields/
	Balance		Expense		Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	3,399,930	$	44,884		2.64	%
Tax-exempt ⁽¹⁾		501,938		8,348		3.33	%
Total investments ⁽¹⁾		3,901,868		53,232		2.73	%
Loans:
Taxable:
PPP loans		66,250		1,673		5.07	%
Other		1,065,395		26,666		5.03	%
Total taxable		1,131,645		28,339		5.04	%
Tax-exempt ⁽¹⁾		46,359		947		4.11	%
Total loans ⁽¹⁾		1,178,004		29,286		5.00	%
Total interest-bearing cash		358,706		969		0.53	%
Total Interest-earning assets ⁽¹⁾		5,438,578		83,487		3.07	%
Other assets		418,335
Total assets	$	5,856,913

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,359,788	$	-		-	%
Savings and interest-bearing transaction		2,488,577		599		0.05	%
Time less than $100,000		93,308		101		0.22	%
Time $100,000 or more		73,058		158		0.44	%
Total interest-bearing deposits		2,654,943		858		0.06	%
Short-term borrowed funds		56,223		18		0.07	%
Other borrowed funds		349		1		0.35	%
Total interest-bearing liabilities		2,711,515		877		0.07	%
Other liabilities		80,004
Shareholders' equity		705,606
Total liabilities and shareholders' equity	$	5,856,913
Net interest spread ^{(1) (2)}						3.00	%
Net interest and fee income and interest margin ^{(1) (3)}			$	82,610		3.04	%

⁽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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-37-

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

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

~~Summary of Changes in Interest Income and Expense~~

For the Three Months Ended September 30, 2020

Compared with

For the Three Months Ended September 30, 2019

Volume

Yield/Rate

Total

(In thousands)

Increase (decrease) in interest and loan fee income:

Investment securities:

Taxable
$ 5,203 $ (1,710 ) $ 3,493
Tax-exempt ⁽¹⁾
(1,210 ) 117 (1,093 )
Total investments ⁽¹⁾
3,993 (1,593 ) 2,400
Loans:

Taxable:

PPP loans
2,501 - 2,501
Other
(946 ) (689 ) (1,635 )
Total taxable
1,555 (689 ) 866
Tax-exempt ⁽¹⁾
8 (15 ) (7 )
Total loans ⁽¹⁾
1,563 (704 ) 859
Total interest-bearing cash
(102 ) (1,715 ) (1,817 )
Total increase (decrease) in interest and loan fee income ⁽¹⁾
5,454 (4,012 ) 1,442
Increase (decrease) in interest expense:

Deposits:

Savings and interest-bearing transaction
41 (20 ) 21
Time less than $100,000
(7 ) (10 ) (17 )
Time $100,000 or more
(6 ) 5 (1 )
Total interest-bearing deposits
28 (25 ) 3
Short-term borrowed funds
7 1 8
Total increase (decrease) in interest expense
35 (24 ) 11
Increase (decrease) in net interest and loan fee income ⁽¹⁾
$ 5,419 $ (3,988 ) $ 1,431

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

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~~-42-~~

~~Summary of Changes in~~Noninterest Income

11,0329,55421,22121,202

Noninterest Expense

24,29124,75449,19749,418

Income Before Income Taxes (FTE)⁽¹⁾

31,24026,86359,10650,094

Income Tax Provision (FTE)⁽¹⁾

8,6617,30116,38013,570

Net Income

$22,579$19,562$42,726$36,524

Average Common Shares Outstanding

26,86526,93526,84327,001

Average Diluted Common Shares Outstanding

26,88726,95126,86527,024

Common Shares Outstanding at Period End

26,86526,933

Per Common Share:

Basic Earnings

$0.84$0.72$1.59$1.35

Diluted Earnings

0.840.721.591.35

Book Value

31.3530.00

Financial Ratios:

Return on Assets

1.29%1.30%1.26%1.25%

Return on Common Equity

12.16%11.15%11.64%10.41%

Net Interest ~~Income and Expense~~Margin (FTE)⁽¹⁾

2.70%2.99%2.72%3.04%

Net Loan (Recoveries) Losses to Average Loans

(0.08)%0.09%0.02%0.22%

Efficiency Ratio⁽²⁾

43.7%48.0%45.4%47.6%

Average Balances:

Assets

$7,004,695$6,058,365$6,828,409$5,856,913

Loans

1,257,0871,232,0731,254,3281,178,004

Investment Securities

4,394,1693,957,8514,417,2673,901,868

Deposits

6,074,7305,200,4755,912,3035,014,731

Shareholders' Equity

744,746705,882740,147705,606

Period End Balances:

Assets

$7,147,779$6,463,889

Loans

1,194,8341,316,359

Investment Securities

4,718,5844,346,667

Deposits

6,076,3895,468,412

Shareholders' Equity

842,196808,076

Capital Ratios at Period End:

Total Risk Based Capital

15.75%14.88%

Tangible Equity to Tangible Assets

10.24%10.81%

Dividends Paid Per Common Share

$0.41$0.41$0.82$0.82

Common Dividend Payout Ratio

49%57%52%61%

For the Nine Months Ended September 30, 2020

Compared with

For the Nine Months Ended September 30, 2019

Volume

Yield/Rate

Total

(In thousands)

Increase (decrease) in interest and loan fee income:

Investment securities:

Taxable
$ 10,064 $ 907 $ 10,971
Tax-exempt ⁽¹⁾
(3,765 ) 401 (3,364 )
Total investments ⁽¹⁾
6,299 1,308 7,607
Loans:

Taxable:

PPP loans
4,174 - 4,174
Other
(2,886 ) (879 ) (3,765 )
Total taxable
1,288 (879 ) 409
Tax-exempt ⁽¹⁾
(85 ) (16 ) (101 )
Total loans ⁽¹⁾
1,203 (895 ) 308
Total interest-bearing cash
474 (5,018 ) (4,544 )
Total increase (decrease) in interest and loan fee income ⁽¹⁾
7,976 (4,605 ) 3,371
Increase (decrease) in interest expense:

Deposits:

Savings and interest-bearing transaction
61 (109 ) (48 )
Time less than $100,000
(24 ) (22 ) (46 )
Time $100,000 or more
(23 ) 15 (8 )
Total interest-bearing deposits
14 (116 ) (102 )
Short-term borrowed funds
7 - 7
Other borrowed funds
1 - 1
Total increase (decrease) in interest expense
22 (116 ) (94 )
Increase (decrease) in net interest and loan fee income ⁽¹⁾
$ 7,954 $ (4,489 ) $ 3,465

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

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

-30-

Financial Overview

Westamerica Bancorporation and subsidiaries (collectively, the “Company”) reported net income of $22.6 million or $0.84 diluted earnings per common share (“EPS”) for the second quarter 2021 and net income of $42.7 million or $1.59 EPS for the six months ended June 30, 2021. Results for 2021 include “make-whole” interest income on corporate bonds redeemed prior to maturity of $1.4 million for the second quarter 2021, which increased EPS $0.04, and $2.1 million for the first six months of 2021, which increased EPS $0.06. These results compare with net income of $19.6 million or $0.72 EPS for the second quarter 2020 and net income of $36.5 million or $1.35 EPS for the six months ended June 30, 2020.

The Company’s primary and wholly-owned subsidiary bank, Westamerica Bank (the “Bank”), continued to support the Bank’s customers during the pandemic. The Bank originated $106 million in loans under the second round of the Paycheck Protection Program (“PPP”) during the first six months of 2021. PPP loans meaningfully increased interest-earning assets and related interest and fee income. The Bank continues to work with loan customers requesting deferral of loan payments due to economic weakness caused by the pandemic. At June 30, 2021, loans granted deferrals under the CARES Act included $586 thousand, all of which were consumer automobile loans. The results for the first half of 2020 include a provision for credit losses of $4.3 million, which reduced EPS $0.11, representing Management’s estimate of additional reserves needed over the remaining life of its loans due to increased credit-risk from deteriorating economic conditions caused by the COVID-19 pandemic.

The Company’s significant accounting policies (see Note 1, “Summary of Significant Accounting Policies,” to Financial Statements in the Company’s 2020 Form 10-K and Note 2 “Summary of Significant Accounting Policies” in this Form 10-Q) are fundamental to understanding the Company’s results of operations and financial condition. Certain risks, uncertainties and other factors, including those discussed in Note 20 “Impact of COVID-19” to the consolidated financial statements and “Risk Factors” in Part I – Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 may cause actual future results to differ materially from the results discussed in this report on Form 10-Q. Management continues to evaluate the impact of the pandemic on the Company’s business. The extent of the impact on the Company’s results of operations, cash flow liquidity, and financial performance, as well as the Company’s ability to execute near- and long-term business strategies and initiatives, will depend on numerous evolving factors and future developments, which are highly uncertain and cannot be reasonably predicted.

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-31-

Net Income

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

	For the Three Months						For the Six Months
	Ended June 30,
	2021			2020			2021			2020
	(In thousands, except per share data)
Net interest and loan fee income (FTE)	$	44,499		$	42,063		$	87,082		$	82,610
Provision for loan losses		-			-			-			4,300
Noninterest income		11,032			9,554			21,221			21,202
Noninterest expense		24,291			24,754			49,197			49,418
Income before taxes (FTE)		31,240			26,863			59,106			50,094
Income tax provision (FTE)		8,661			7,301			16,380			13,570
Net income	$	22,579		$	19,562		$	42,726		$	36,524

Average diluted common shares		26,887			26,951			26,865			27,024
Diluted earnings per common share	$	0.84		$	0.72		$	1.59		$	1.35

Average total assets	$	7,004,695		$	6,058,365		$	6,828,409		$	5,856,913
Net income to average total assets (annualized)		1.29	%		1.30	%		1.26	%		1.25	%
Net income to average common shareholders' equity (annualized)		12.16	%		11.15	%		11.64	%		10.41	%

Net income for the second quarter 2021 increased $3.0 million compared with the second quarter 2020. Net interest and loan fee income (FTE) increased $2.4 million in the second quarter 2021 compared with the second quarter 2020 due to higher average balances of investments, PPP loans and interest-bearing cash, partially offset by lower yield on interest-earning assets. Additionally, second quarter 2021 results include “make-whole” interest income on corporate bonds redeemed prior to maturity of $1.4 million. The provision for credit losses was zero for the second quarter 2021 and the second quarter 2020, reflecting Management's evaluation of credit risk over the remaining life of loans and bonds. Second quarter 2021 noninterest income increased $1.5 million compared with second quarter 2020 due to higher levels of merchant processing services fees and debit card fees. Second quarter 2021 noninterest expense decreased $463 thousand due to lower salaries and related benefits resulting from attrition. The tax rate (FTE) was 27.7% for the second quarter 2021 and 27.2% for the second quarter 2020.

Comparing the first six months of 2021 with the first six months of 2020 net income increased $6.2 million. Net interest and loan fee (FTE) income increased $4.5 million due to higher average balances of investments, PPP loans and interest-bearing cash, partially offset by lower yield on interest-earning assets. Results for the first six months of 2021 include “make-whole” interest income on corporate bonds redeemed prior to maturity of $2.1 million. The provision for credit losses was zero in the first six months of 2021, reflecting Management's evaluation of credit risk over the remaining life of loans and bonds. Results for the first quarter 2020 include a provision of credit losses of $4.3 million, which reduced EPS $0.11, representing Management’s estimate of additional reserves needed over the remaining life of its loans due to credit-risk from economic weakness caused by the COVID-19 pandemic. Noninterest income remained at the same level in the first six month of 2021 compared with the first six months of 2020 due to higher fee income from merchant card processing and debit cards, offset by lower deposit services charges. Additionally, the first six months of 2020 results included a $603 thousand recovery on previously charged off loans. In the first six months of 2021 noninterest expense decreased $221 thousand compared with the first six months of 2020 due to lower salaries and related benefits offset by higher professional fees. The tax rate (FTE) was 27.7% for the first six months of 2021 and 27.1% for the first six months of 2020.

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-32-

Net Interest and Loan Fee Income (FTE)

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

	For the Three Months						For the Six Months
	Ended June 30,
	2021			2020			2021			2020
	($ in thousands)
Interest and loan fee income	$	44,276		$	41,539		$	86,592		$	81,530
Interest expense		484			435			959			877
FTE adjustment		707			959			1,449			1,957
Net interest and loan fee income (FTE)	$	44,499		$	42,063		$	87,082		$	82,610

Average earning assets	$	6,603,343		$	5,635,014		$	6,424,973		$	5,438,578
Net interest margin (FTE) (annualized)		2.70	%		2.99	%		2.72	%		3.04	%

Net interest and loan fee income (FTE) increased $2.4 million in the second quarter 2021 compared with the second quarter 2020 due to higher average balances of investments (up $436 million), PPP loans (up $75 million) and interest-bearing cash (up $507 million), partially offset by lower yield on interest-earning assets (down 0.29%). Results for the second quarter 2021 results include “make-whole” interest income on corporate bonds redeemed prior to maturity of $1.4 million.

Net interest and loan fee (FTE) income increased $4.5 million in the first six months of 2021 compared with the first six months of 2020 due to higher average balances of investments (up $515 million), PPP loans (up $132 million) and interest-bearing cash (up $395 million), partially offset by lower yield on interest-earning assets (down 0.32%). Results for the first six months of 2021 include “make-whole” interest income on corporate bonds redeemed prior to maturity of $2.1 million.

The annualized net interest margin (FTE) was 2.70% in the second quarter 2021 and 2.72% in the first six months of 2021 compared with 2.99% in the second quarter 2020 and 3.04% in the first six months of 2020. The lower yield in the second quarter 2021 and the first six months of 2021 compared with the same periods of 2020 is primarily due to low yield on interest-bearing cash which made up a higher percentage of total earning assets in the current periods (14.4% in the second quarter 2021 compared with 7.9% in the second quarter 2020 and 11.7% in the first six months of 2020 compared with 6.6% in the first six months of 2020).

The Company’s funding costs were 0.03% in the second quarter 2021 and 2020 and in the first six months of 2021 and 2020. Average balances of time deposits in the first six months of 2021 declined $10 million from the first six months of 2020. Average balances of checking and saving deposits increased $908 million in the first six months of 2021 compared with the first six months of 2020. Average balances of those checking and saving deposits accounted for 97.4% of average total deposits in the first six months of 2021 compared with 96.7% in the first six months of 2020.

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
	Ended June 30,
	2021			2020			2021			2020

Yield on earning assets (FTE)		2.73	%		3.02	%		2.75	%		3.07	%
Rate paid on interest-bearing liabilities		0.06	%		0.06	%		0.06	%		0.07	%
Net interest spread (FTE)		2.67	%		2.96	%		2.69	%		3.00	%
Impact of noninterest-bearing demand deposits		0.03	%		0.03	%		0.03	%		0.04	%
Net interest margin (FTE)		2.70	%		2.99	%		2.72	%		3.04	%

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-33-

Summary of Average Balances, Yields/Rates and Interest Differential

The following tables present information regarding the consolidated average assets, liabilities and shareholders’ equity, the amounts of interest income earned from average interest earning assets and the resulting yields, and the amounts of interest expense incurred on average interest-bearing liabilities and the resulting rates. Average loan balances include nonperforming loans. Interest income includes the reversal of previously accrued interest on loans placed on non-accrual status during the period, proceeds from loans on nonaccrual status only to the extent cash payments have been received and applied as interest income, and accretion of purchased loan discounts. Yields, rates and interest margins are annualized.

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

	For the Three Months Ended June 30, 2021
			Interest
	Average		Income/		Yields/
	Balance		Expense		Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	4,058,026	$	26,692		2.63	%
Tax-exempt ⁽¹⁾		336,143		2,864		3.41	%
Total investments ⁽¹⁾		4,394,169		29,556		2.69	%
Loans:
Taxable
Paycheck Protection Program ("PPP") loans		207,515		2,713		5.25	%
Other taxable		997,043		11,960		4.81	%
Total taxable		1,204,558		14,673		4.89	%
Tax-exempt ⁽¹⁾		52,529		495		3.78	%
Total loans ⁽¹⁾		1,257,087		15,168		4.84	%
Total interest-bearing cash		952,087		259		0.11	%
Total Interest-earning assets ⁽¹⁾		6,603,343		44,983		2.73	%
Other assets		401,352
Total assets	$	7,004,695

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,888,259	$	-		-	%
Savings and interest-bearing transaction		3,031,209		356		0.05	%
Time less than $100,000		84,512		42		0.20	%
Time $100,000 or more		70,750		68		0.39	%
Total interest-bearing deposits		3,186,471		466		0.06	%
Short-term borrowed funds		111,750		18		0.07	%
Total interest-bearing liabilities		3,298,221		484		0.06	%
Other liabilities		73,469
Shareholders' equity		744,746
Total liabilities and shareholders' equity	$	7,004,695
Net interest spread ^{(1) (2)}						2.67	%
Net interest and fee income and interest margin ^{(1) (3)}			$	44,499		2.70	%

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

-34-

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

	For the Three Months Ended June 30, 2020
			Interest
	Average		Income/		Yields/
	Balance		Expense		Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	3,469,925	$	22,920		2.64	%
Tax-exempt ⁽¹⁾		487,926		4,089		3.35	%
Total investments ⁽¹⁾		3,957,851		27,009		2.73	%
Loans:
Taxable
Paycheck Protection Program ("PPP") loans		132,500		1,673		5.07	%
Other		1,053,420		13,235		5.05	%
Total taxable		1,185,920		14,908		5.06	%
Tax-exempt ⁽¹⁾		46,153		468		4.08	%
Total loans ⁽¹⁾		1,232,073		15,376		5.02	%
Total interest-bearing cash		445,090		113		0.10	%
Total Interest-earning assets ⁽¹⁾		5,635,014		42,498		3.02	%
Other assets		423,351
Total assets	$	6,058,365

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,496,840	$	-		-	%
Savings and interest-bearing transaction		2,539,073		298		0.05	%
Time less than $100,000		92,295		47		0.20	%
Time $100,000 or more		72,267		79		0.44	%
Total interest-bearing deposits		2,703,635		424		0.06	%
Short-term borrowed funds		70,116		10		0.06	%
Other borrowed funds		699		1		0.35	%
Total interest-bearing liabilities		2,774,450		435		0.06	%
Other liabilities		81,193
Shareholders' equity		705,882
Total liabilities and shareholders' equity	$	6,058,365
Net interest spread ^{(1) (2)}						2.96	%
Net interest and fee income and interest margin ^{(1) (3)}			$	42,063		2.99	%

⁽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.

~~Provision for~~ ~~Credit~~ ~~Losses~~

⁽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 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 credit losses reflects Management's assessment of credit risk innet interest margin is greater than the ~~loan portfolio and debt securities held to maturity during each of the periods presented.~~

The Company’s first nine months of 2020 results include a provision of credit losses of $4.3 million recorded in the first quarter 2020. The provision represents Management’s estimate of additional reserves needed over the remaining life of its loansnet interest spread due to ~~credit-risk from weakened economic conditions caused by~~ the ~~COVID-19 pandemic. The Company provided no provision for credit losses in the third quarter 2020, the third quarter 2019 and the first nine months~~benefit of 2019 based on Management’s evaluation of credit quality and the adequacy of the allowance for credit losses. For further information regarding credit risk, net credit losses and the allowance for credit losses, see the “Loan Portfolio Credit Risk” and “Allowance for Credit Losses” sections of this Report.noninterest-bearing demand deposits.

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~~-43-~~

-35-

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

	For the Six Months Ended June 30, 2021
			Interest
	Average		Income/		Yields/
	Balance		Expense		Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	4,068,690	$	51,890		2.55	%
Tax-exempt ⁽¹⁾		348,577		5,902		3.39	%
Total investments ⁽¹⁾		4,417,267		57,792		2.62	%
Loans:
Taxable
Paycheck Protection Program ("PPP") loans		198,294		4,566		4.64	%
Other taxable		1,004,467		24,299		4.88	%
Total taxable		1,202,761		28,865		4.84	%
Tax-exempt ⁽¹⁾		51,567		987		3.86	%
Total loans ⁽¹⁾		1,254,328		29,852		4.80	%
Total interest-bearing cash		753,378		397		0.10	%
Total Interest-earning assets ⁽¹⁾		6,424,973		88,041		2.75	%
Other assets		403,436
Total assets	$	6,828,409

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,801,428	$	-		-	%
Savings and interest-bearing transaction		2,954,817		695		0.05	%
Time less than $100,000		85,064		84		0.20	%
Time $100,000 or more		70,994		146		0.41	%
Total interest-bearing deposits		3,110,875		925		0.06	%
Short-term borrowed funds		103,707		34		0.07	%
Other borrowed funds		106		-		0.35	%
Total interest-bearing liabilities		3,214,688		959		0.06	%
Other liabilities		72,146
Shareholders' equity		740,147
Total liabilities and shareholders' equity	$	6,828,409
Net interest spread ^{(1) (2)}						2.69	%
Net interest and fee income and interest margin ^{(1) (3)}			$	87,082		2.72	%

⁽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

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-36-

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

	For the Six Months Ended June 30, 2020
			Interest
	Average		Income/		Yields/
	Balance		Expense		Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	3,399,930	$	44,884		2.64	%
Tax-exempt ⁽¹⁾		501,938		8,348		3.33	%
Total investments ⁽¹⁾		3,901,868		53,232		2.73	%
Loans:
Taxable:
PPP loans		66,250		1,673		5.07	%
Other		1,065,395		26,666		5.03	%
Total taxable		1,131,645		28,339		5.04	%
Tax-exempt ⁽¹⁾		46,359		947		4.11	%
Total loans ⁽¹⁾		1,178,004		29,286		5.00	%
Total interest-bearing cash		358,706		969		0.53	%
Total Interest-earning assets ⁽¹⁾		5,438,578		83,487		3.07	%
Other assets		418,335
Total assets	$	5,856,913

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,359,788	$	-		-	%
Savings and interest-bearing transaction		2,488,577		599		0.05	%
Time less than $100,000		93,308		101		0.22	%
Time $100,000 or more		73,058		158		0.44	%
Total interest-bearing deposits		2,654,943		858		0.06	%
Short-term borrowed funds		56,223		18		0.07	%
Other borrowed funds		349		1		0.35	%
Total interest-bearing liabilities		2,711,515		877		0.07	%
Other liabilities		80,004
Shareholders' equity		705,606
Total liabilities and shareholders' equity	$	5,856,913
Net interest spread ^{(1) (2)}						3.00	%
Net interest and fee income and interest margin ^{(1) (3)}			$	82,610		3.04	%

⁽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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-37-

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

Noninterest Income

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

For the Three Months

For the Nine Months

Ended September 30,

2020

2019

2020

2019

(In thousands)

Service charges on deposit accounts
$ 3,298 $ 4,510 $ 10,697 $ 13,508
Merchant processing services
2,860 2,494 7,495 7,708
Debit card fees
1,611 1,641 4,538 4,789
Trust fees
756 733 2,247 2,199
ATM processing fees
606 725 1,703 2,080
Other service fees
454 580 1,380 1,742
Financial services commissions
58 75 306 270
Life insurance gains
- - - 433
Securities gains
- - 71 50
Other noninterest income
833 1,051 3,241 2,897
Total
$ 10,476 $ 11,809 $ 31,678 $ 35,676

Third quarter 2020 noninterest income decreased $1.3 million compared with third quarter 2019 due to lower activity based fees from reduced economic activity related to the COVID-19 pandemic. The decrease in noninterest income was partially offset by higher income from merchant processing services.

In the first nine months of 2020, noninterest income decreased $4.0 million compared with the first nine months of 2019 due to lower income from activity based fees due to reduced economic activity related to the COVID-19 pandemic. Additionally, the first nine months of 2019 included a life insurance gain of $433 thousand. The decrease was partially offset by a $603 thousand recovery in excess of previously charged off loan amounts in the first nine months of 2020.

11,0329,55421,22121,202

Noninterest Expense

24,29124,75449,19749,418

Income Before Income Taxes (FTE)⁽¹⁾

31,24026,86359,10650,094

Income Tax Provision (FTE)⁽¹⁾

8,6617,30116,38013,570

Net Income

$22,579$19,562$42,726$36,524

Average Common Shares Outstanding

26,86526,93526,84327,001

Average Diluted Common Shares Outstanding

26,88726,95126,86527,024

Common Shares Outstanding at Period End

26,86526,933

Per Common Share:

Basic Earnings

$0.84$0.72$1.59$1.35

Diluted Earnings

0.840.721.591.35

Book Value

31.3530.00

Financial Ratios:

Return on Assets

1.29%1.30%1.26%1.25%

Return on Common Equity

12.16%11.15%11.64%10.41%

Net Interest Margin (FTE)⁽¹⁾

2.70%2.99%2.72%3.04%

Net Loan (Recoveries) Losses to Average Loans

(0.08)%0.09%0.02%0.22%

Efficiency Ratio⁽²⁾

43.7%48.0%45.4%47.6%

Average Balances:

Assets

$7,004,695$6,058,365$6,828,409$5,856,913

Loans

1,257,0871,232,0731,254,3281,178,004

Investment Securities

4,394,1693,957,8514,417,2673,901,868

Deposits

6,074,7305,200,4755,912,3035,014,731

Shareholders' Equity

744,746705,882740,147705,606

Period End Balances:

Assets

$7,147,779$6,463,889

Loans

1,194,8341,316,359

Investment Securities

4,718,5844,346,667

Deposits

6,076,3895,468,412

Shareholders' Equity

842,196808,076

Capital Ratios at Period End:

Total Risk Based Capital

15.75%14.88%

Tangible Equity to Tangible Assets

10.24%10.81%

Dividends Paid Per Common Share

$0.41$0.41$0.82$0.82

Common Dividend Payout Ratio

49%57%52%61%

⁽¹⁾

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

⁽²⁾

The ~~following table summarizes the components of~~efficiency ratio is defined as noninterest expense ~~for the periods indicated.~~

For the Three Months

For the Nine Months

Ended September 30,

2020

2019

2020

2019

(In thousands)

Salaries and related benefits
$ 12,540 $ 12,559 $ 38,458 $ 38,757
Occupancy and equipment
5,014 5,199 14,737 15,163
Outsourced data processing services
2,338 2,374 7,067 7,110
Professional fees
669 645 1,701 1,791
Courier service
500 456 1,499 1,349
Amortization of identifiable intangibles
72 76 218 465
Loss contingency
- - - 553
Other noninterest expense
3,470 2,724 10,341 9,589
Total
$ 24,603 $ 24,033 $ 74,021 $ 74,777

~~Noninterest expense increased $570 thousand in the third quarter 2020 compared with the third quarter 2019 primarily because third quarter 2019 FDIC assessments were reduced~~divided by ~~application of the Bank’s FDIC assessment credit; the Company’s credit is fully exhausted. Additionally, lower occupancy~~total revenue (net interest income on an FTE basis and ~~equipment costs also contributed to reducing~~ noninterest ~~expense in the third quarter 2020.~~income).

In the first nine months of 2020, noninterest expense decreased $756 thousand compared with the nine months ended September 30, 2019 due to lower salaries, occupancy and equipment expenses, and lower amortization of intangible assets, and because the nine months ended September 30, 2019 included $553 thousand of loss contingency. The decrease was partially offset by higher FDIC assessments in the first nine months of 2020 because FDIC assessments in the first nine months of 2019 were reduced by application of the Bank’s FDIC assessment credit.

~~-44-~~

-30-

Financial Overview

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-31-

Net Income

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

	For the Three Months						For the Six Months
	Ended June 30,
	2021			2020			2021			2020
	(In thousands, except per share data)
Net interest and loan fee income (FTE)	$	44,499		$	42,063		$	87,082		$	82,610
Provision for loan losses		-			-			-			4,300
Noninterest income		11,032			9,554			21,221			21,202
Noninterest expense		24,291			24,754			49,197			49,418
Income before taxes (FTE)		31,240			26,863			59,106			50,094
Income tax provision (FTE)		8,661			7,301			16,380			13,570
Net income	$	22,579		$	19,562		$	42,726		$	36,524

Average diluted common shares		26,887			26,951			26,865			27,024
Diluted earnings per common share	$	0.84		$	0.72		$	1.59		$	1.35

Average total assets	$	7,004,695		$	6,058,365		$	6,828,409		$	5,856,913
Net income to average total assets (annualized)		1.29	%		1.30	%		1.26	%		1.25	%
Net income to average common shareholders' equity (annualized)		12.16	%		11.15	%		11.64	%		10.41	%

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-32-

Net Interest and Loan Fee Income (FTE)

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

	For the Three Months						For the Six Months
	Ended June 30,
	2021			2020			2021			2020
	($ in thousands)
Interest and loan fee income	$	44,276		$	41,539		$	86,592		$	81,530
Interest expense		484			435			959			877
FTE adjustment		707			959			1,449			1,957
Net interest and loan fee income (FTE)	$	44,499		$	42,063		$	87,082		$	82,610

Average earning assets	$	6,603,343		$	5,635,014		$	6,424,973		$	5,438,578
Net interest margin (FTE) (annualized)		2.70	%		2.99	%		2.72	%		3.04	%

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
	Ended June 30,
	2021			2020			2021			2020

Yield on earning assets (FTE)		2.73	%		3.02	%		2.75	%		3.07	%
Rate paid on interest-bearing liabilities		0.06	%		0.06	%		0.06	%		0.07	%
Net interest spread (FTE)		2.67	%		2.96	%		2.69	%		3.00	%
Impact of noninterest-bearing demand deposits		0.03	%		0.03	%		0.03	%		0.04	%
Net interest margin (FTE)		2.70	%		2.99	%		2.72	%		3.04	%

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-33-

Summary of Average Balances, Yields/Rates and Interest Differential

The following tables present information regarding the consolidated average assets, liabilities and shareholders’ equity, the amounts of interest income earned from average interest earning assets and the resulting yields, and the amounts of interest expense incurred on average interest-bearing liabilities and the resulting rates. Average loan balances include nonperforming loans. Interest income includes the reversal of previously accrued interest on loans placed on non-accrual status during the period, proceeds from loans on nonaccrual status only to the extent cash payments have been received and applied as interest income, and accretion of purchased loan discounts. Yields, rates and interest margins are annualized.

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

	For the Three Months Ended June 30, 2021
			Interest
	Average		Income/		Yields/
	Balance		Expense		Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	4,058,026	$	26,692		2.63	%
Tax-exempt ⁽¹⁾		336,143		2,864		3.41	%
Total investments ⁽¹⁾		4,394,169		29,556		2.69	%
Loans:
Taxable
Paycheck Protection Program ("PPP") loans		207,515		2,713		5.25	%
Other taxable		997,043		11,960		4.81	%
Total taxable		1,204,558		14,673		4.89	%
Tax-exempt ⁽¹⁾		52,529		495		3.78	%
Total loans ⁽¹⁾		1,257,087		15,168		4.84	%
Total interest-bearing cash		952,087		259		0.11	%
Total Interest-earning assets ⁽¹⁾		6,603,343		44,983		2.73	%
Other assets		401,352
Total assets	$	7,004,695

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,888,259	$	-		-	%
Savings and interest-bearing transaction		3,031,209		356		0.05	%
Time less than $100,000		84,512		42		0.20	%
Time $100,000 or more		70,750		68		0.39	%
Total interest-bearing deposits		3,186,471		466		0.06	%
Short-term borrowed funds		111,750		18		0.07	%
Total interest-bearing liabilities		3,298,221		484		0.06	%
Other liabilities		73,469
Shareholders' equity		744,746
Total liabilities and shareholders' equity	$	7,004,695
Net interest spread ^{(1) (2)}						2.67	%
Net interest and fee income and interest margin ^{(1) (3)}			$	44,499		2.70	%

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

-34-

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

	For the Three Months Ended June 30, 2020
			Interest
	Average		Income/		Yields/
	Balance		Expense		Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	3,469,925	$	22,920		2.64	%
Tax-exempt ⁽¹⁾		487,926		4,089		3.35	%
Total investments ⁽¹⁾		3,957,851		27,009		2.73	%
Loans:
Taxable
Paycheck Protection Program ("PPP") loans		132,500		1,673		5.07	%
Other		1,053,420		13,235		5.05	%
Total taxable		1,185,920		14,908		5.06	%
Tax-exempt ⁽¹⁾		46,153		468		4.08	%
Total loans ⁽¹⁾		1,232,073		15,376		5.02	%
Total interest-bearing cash		445,090		113		0.10	%
Total Interest-earning assets ⁽¹⁾		5,635,014		42,498		3.02	%
Other assets		423,351
Total assets	$	6,058,365

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,496,840	$	-		-	%
Savings and interest-bearing transaction		2,539,073		298		0.05	%
Time less than $100,000		92,295		47		0.20	%
Time $100,000 or more		72,267		79		0.44	%
Total interest-bearing deposits		2,703,635		424		0.06	%
Short-term borrowed funds		70,116		10		0.06	%
Other borrowed funds		699		1		0.35	%
Total interest-bearing liabilities		2,774,450		435		0.06	%
Other liabilities		81,193
Shareholders' equity		705,882
Total liabilities and shareholders' equity	$	6,058,365
Net interest spread ^{(1) (2)}						2.96	%
Net interest and fee income and interest margin ^{(1) (3)}			$	42,063		2.99	%

⁽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, 2021
			Interest
	Average		Income/		Yields/
	Balance		Expense		Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	4,068,690	$	51,890		2.55	%
Tax-exempt ⁽¹⁾		348,577		5,902		3.39	%
Total investments ⁽¹⁾		4,417,267		57,792		2.62	%
Loans:
Taxable
Paycheck Protection Program ("PPP") loans		198,294		4,566		4.64	%
Other taxable		1,004,467		24,299		4.88	%
Total taxable		1,202,761		28,865		4.84	%
Tax-exempt ⁽¹⁾		51,567		987		3.86	%
Total loans ⁽¹⁾		1,254,328		29,852		4.80	%
Total interest-bearing cash		753,378		397		0.10	%
Total Interest-earning assets ⁽¹⁾		6,424,973		88,041		2.75	%
Other assets		403,436
Total assets	$	6,828,409

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,801,428	$	-		-	%
Savings and interest-bearing transaction		2,954,817		695		0.05	%
Time less than $100,000		85,064		84		0.20	%
Time $100,000 or more		70,994		146		0.41	%
Total interest-bearing deposits		3,110,875		925		0.06	%
Short-term borrowed funds		103,707		34		0.07	%
Other borrowed funds		106		-		0.35	%
Total interest-bearing liabilities		3,214,688		959		0.06	%
Other liabilities		72,146
Shareholders' equity		740,147
Total liabilities and shareholders' equity	$	6,828,409
Net interest spread ^{(1) (2)}						2.69	%
Net interest and fee income and interest margin ^{(1) (3)}			$	87,082		2.72	%

⁽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

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-36-

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

	For the Six Months Ended June 30, 2020
			Interest
	Average		Income/		Yields/
	Balance		Expense		Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	3,399,930	$	44,884		2.64	%
Tax-exempt ⁽¹⁾		501,938		8,348		3.33	%
Total investments ⁽¹⁾		3,901,868		53,232		2.73	%
Loans:
Taxable:
PPP loans		66,250		1,673		5.07	%
Other		1,065,395		26,666		5.03	%
Total taxable		1,131,645		28,339		5.04	%
Tax-exempt ⁽¹⁾		46,359		947		4.11	%
Total loans ⁽¹⁾		1,178,004		29,286		5.00	%
Total interest-bearing cash		358,706		969		0.53	%
Total Interest-earning assets ⁽¹⁾		5,438,578		83,487		3.07	%
Other assets		418,335
Total assets	$	5,856,913

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,359,788	$	-		-	%
Savings and interest-bearing transaction		2,488,577		599		0.05	%
Time less than $100,000		93,308		101		0.22	%
Time $100,000 or more		73,058		158		0.44	%
Total interest-bearing deposits		2,654,943		858		0.06	%
Short-term borrowed funds		56,223		18		0.07	%
Other borrowed funds		349		1		0.35	%
Total interest-bearing liabilities		2,711,515		877		0.07	%
Other liabilities		80,004
Shareholders' equity		705,606
Total liabilities and shareholders' equity	$	5,856,913
Net interest spread ^{(1) (2)}						3.00	%
Net interest and fee income and interest margin ^{(1) (3)}			$	82,610		3.04	%

⁽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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-37-

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

Summary of Changes in Interest Income and Expense

	For the Three Months Ended June 30, 2021
	Compared with
	For the Three Months Ended June 30, 2020
	Volume			Yield/Rate			Total
	(In thousands)
Increase (decrease) in interest and loan fee income:
Investment securities:
Taxable	$	3,885		$	(113	)	$	3,772
Tax-exempt ⁽¹⁾		(1,272	)		47			(1,225	)
Total investments ⁽¹⁾		2,613			(66	)		2,547
Loans:
Taxable:
PPP loans		947			93			1,040
Other		(691	)		(584	)		(1,275	)
Total taxable		256			(491	)		(235	)
Tax-exempt ⁽¹⁾		66			(39	)		27
Total loans ⁽¹⁾		322			(530	)		(208	)
Total interest-bearing cash		129			17			146
Total increase (decrease) in interest and loan fee income ⁽¹⁾		3,064			(579	)		2,485
Increase (decrease) in interest expense:
Deposits:
Savings and interest-bearing transaction		59			(1	)		58
Time less than $100,000		(4	)		(1	)		(5	)
Time $100,000 or more		(2	)		(9	)		(11	)
Total interest-bearing deposits		53			(11	)		42
Short-term borrowed funds		4			4			8
Other borrowed funds		(1	)		-			(1	)
Total increase (decrease) in interest expense		56			(7	)		49
Increase (decrease) in net interest and loan fee income ⁽¹⁾	$	3,008		$	(572	)	$	2,436

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

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-38-

Summary of Changes in Interest Income and Expense

	For the Six Months Ended June 30, 2021
	Compared with
	For the Six Months Ended June 30, 2020
	Volume			Yield/Rate			Total
	(In thousands)
Increase (decrease) in interest and loan fee income:
Investment securities:
Taxable	$	8,829		$	(1,823	)	$	7,006
Tax-exempt ⁽¹⁾		(2,551	)		105			(2,446	)
Total investments ⁽¹⁾		6,278			(1,718	)		4,560
Loans:
Taxable:
PPP loans		3,320			(427	)		2,893
Other		(1,568	)		(799	)		(2,367	)
Total taxable		1,752			(1,226	)		526
Tax-exempt ⁽¹⁾		105			(65	)		40
Total loans ⁽¹⁾		1,857			(1,291	)		566
Total interest-bearing cash		1,062			(1,634	)		(572	)
Total increase (decrease) in interest and loan fee income ⁽¹⁾		9,197			(4,643	)		4,554
Increase (decrease) in interest expense:
Deposits:
Savings and interest-bearing transaction		110			(14	)		96
Time less than $100,000		(9	)		(8	)		(17	)
Time $100,000 or more		(5	)		(7	)		(12	)
Total interest-bearing deposits		96			(29	)		67
Short-term borrowed funds		20			(4	)		16
Other borrowed funds		(1	)		-			(1	)
Total increase (decrease) in interest expense		115			(33	)		82
Increase (decrease) in net interest and loan fee income ⁽¹⁾	$	9,082		$	(4,610	)	$	4,472

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

Provision for Credit 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 credit losses reflects Management's assessment of credit risk in the loan portfolio and debt securities held to maturity during each of the periods presented.

The Company provided no provision for credit losses in the second quarter and first six months of 2021, and the second quarter 2020, based on Management’s evaluation of credit quality and the adequacy of the allowance for credit losses. The Company’s first six months of 2020 results include a provision for credit losses of $4.3 million recorded in the first quarter of 2020, which represented Management’s estimate of additional reserves needed over the remaining life of its loans due to the credit-risk from weakened economic conditions caused by the COVID-19 pandemic. For further information regarding credit risk, net credit losses, and the allowance for credit losses, see the “Loan Portfolio Credit Risk” and “Allowance for Credit Losses” sections of this Report.

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Noninterest Income

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

	For the Three Months				For the Six Months
	Ended June 30,
	2021		2020		2021		2020
	(In thousands)

Service charges on deposit accounts	$	3,235	$	3,151	$	6,539	$	7,399
Merchant processing services		3,279		2,277		5,839		4,635
Debit card fees		1,791		1,459		3,392		2,927
Trust fees		827		714		1,628		1,491
ATM processing fees		618		518		1,219		1,097
Other service fees		491		420		960		926
Financial services commissions		95		123		165		248
Securities gains		34		71		34		71
Other noninterest income		662		821		1,445		2,408
Total	$	11,032	$	9,554	$	21,221	$	21,202

Second quarter 2021 noninterest income increased $1.5 million compared with second quarter 2020 due to higher transaction volumes from merchant processing services and debit cards.

Noninterest income increased $19 thousand in the first six months of 2021 compared with the first six months of 2020. Higher transaction volumes from merchant processing services and debit cards were offset by decreases in service charges on deposits accounts. Additionally, the first six months of 2020 included a $603 thousand recovery in excess of previously charged off loan amounts.

Noninterest Expense

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

	For the Three Months				For the Six Months
	Ended June 30,
	2021		2020		2021		2020
	(In thousands)

Salaries and related benefits	$	12,097	$	12,900	$	24,762	$	25,918
Occupancy and equipment		4,808		4,791		9,688		9,723
Outsourced data processing services		2,425		2,324		4,815		4,729
Professional fees		830		643		1,772		1,032
Courier service		567		508		1,071		999
Amortization of identifiable intangibles		68		73		137		146
Other noninterest expense		3,496		3,515		6,952		6,871
Total	$	24,291	$	24,754	$	49,197	$	49,418

Noninterest expense decreased $463 thousand in the second quarter 2021 compared with the second quarter 2020 due to lower salaries and related benefits resulting from attrition, partially offset by higher professional fees.

In the first six months of 2021 noninterest expense decreased $221 thousand compared with the first six months of 2020 due to lower salaries and related benefits resulting from attrition, partially offset by higher professional fees.

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-40-

Provision for Income Tax

The Company’s income tax provision (FTE) was ~~$7.6~~$8.7 million for the ~~third~~second quarter 2021 and $16.4 million for the six months ended June 30, 2021 compared with $7.3 million for the second quarter 2020 and ~~$21.2~~$13.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020 compared with $7.7 million for the third quarter 2019 and $22.2 million for the nine months ended September 30, 2019.~~2020. The effective tax rates (FTE) ~~of 27.5%~~were 27.7% for the ~~third~~second quarter ~~2020~~2021 and for the six months ended June 30, 2021 compared with 27.2% for the ~~nine months ended September 30,~~second quarter 2020 ~~compared with 27.5% for the third quarter 2019~~ and 27.1% for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

In the 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 Securities Portfolio

The Company maintains an investment securities portfolio consisting of securities issued by ~~U.S. Government sponsored entities, agency and non-agency mortgage backed securities,~~ state and political subdivisions and corporations, collateralized loan obligations, ~~commercial paper~~agency and non-agency issued mortgage backed securities, and other securities.

Management managed the investment securities portfolio in response to changes in deposit and loan volumes. The carrying value of the Company’s investment securities portfolio was $4.7 billion at June 30, 2021 and $4.6 billion at December 31, 2020. The following table indicates the carrying values of investment securities in the Company’s portfolio by type as of the indicated dates. The Company adopted ASU 2016-13 effective January 1, 2020. Debt securities held to maturity of ~~$577,795~~$414,422 thousand at ~~September~~June 30, 2021 and $515,598 thousand at December 31, 2020, ~~is net of~~are listed at amortized cost before related reserve for expected credit losses of ~~$16~~$9 thousand.

	At September 30, 2020					At December 31, 2019					At June 30, 2021					At December 31, 2020
	($ in thousands)										Carrying Value		As a percent of total investment securities			Carrying Value		As a percent of total investment securities
	Carrying Value		As a percent of total investment securities			Carrying Value		As a percent of total investment securities			($ in thousands)
Agency mortgage-backed securities	$	1,021,342		22	%	$	1,297,395		34	%
Agency residential mortgage-backed securities											$	697,162		15	%	$	893,284		20	%
Obligations of states and political subdivisions		430,487		9	%		544,920		14	%		331,124		7	%		384,932		8	%
Corporate securities		2,212,827		49	%		1,833,783		48	%		2,596,850		55	%		2,117,978		46	%
Commercial paper		224,816		5	%		-		-	%		-		-	%		24,990		1	%
Collateralized loan obligations		670,134		15	%		6,755		-	%		1,092,112		23	%		1,156,101		25	%
U.S. Treasuries and agencies		-		-	%		131,167		4	%
Other		2,183		-	%		2,898		-	%		1,336		-	%		1,498		-	%
Total	$	4,561,789		100	%	$	3,816,918		100	%	$	4,718,584		100	%	$	4,578,783		100	%

Debt securities available for sale	$	3,983,994				$	3,078,846				$	4,304,162				$	4,063,185
Debt securities held to maturity		577,795					738,072					414,422					515,598
Total	$	4,561,789				$	3,816,918				$	4,718,584				$	4,578,783

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 ~~September~~June 30, ~~2020,~~2021, substantially all of the Company’s investment securities continue to be investment grade as rated by one or more major rating agencies. In addition to monitoring credit rating agency evaluations, Management performs its own evaluations regarding the credit worthiness of the issuer or the securitized assets underlying asset-backed securities. The Company’s procedures for evaluating investments in securities are in accordance with guidance issued by the Board of Governors of the Federal Reserve System, “Investing in Securities without Reliance on Nationally Recognized Statistical Rating Agencies” (SR 12-15) and other regulatory guidance. There have been no significant differences in the Company’s internal analyses compared with the ratings assigned by the third party credit rating agencies.

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The following table summarizes total corporate securities by credit rating:

	At September 30, 2020					At December 31, 2019					At June 30, 2021					At December 31, 2020
	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)
AAA	$	21,926		1	%	$	26,148		1	%	$	21,680		1	%	$	21,905		1	%
AA+		21,058		1	%		45,697		2	%		20,750		1	%		20,979		1	%
AA		41,381		2	%		19,776		1	%		20,076		1	%		41,232		2	%
AA-		47,139		2	%		46,099		3	%		117,014		4	%		46,969		2	%
A+		147,496		7	%		179,217		10	%		139,354		5	%		153,917		7	%
A		410,904		18	%		439,017		24	%		458,674		18	%		374,155		18	%
A-		387,321		17	%		351,909		19	%		514,225		20	%		385,642		18	%
BBB+		528,288		24	%		384,788		21	%		753,729		29	%		489,677		23	%
BBB		506,442		23	%		314,868		17	%		502,290		19	%		486,108		23	%
BBB-		86,015		4	%		11,737		1	%		34,113		1	%		82,431		4	%
Investment grade		2,197,970		99	%		1,819,256		99	%		2,581,905		99	%		2,103,015		99	%
BB		14,857		1	%		14,527		1	%
Below investment grade												14,945		1	%		14,963		1	%
Total Corporate securities	$	2,212,827		100	%	$	1,833,783		100	%	$	2,596,850		100	%	$	2,117,978		100	%

The Company’s below investment grade corporate bond with a balance of $14.9 million corporate bond rated BB represents a bond of one pharmaceutical company which develops, manufactures and markets generic and branded human pharmaceuticals, as well as active pharmaceutical ingredients, to customers worldwide. The bond maturesat June 30, 2021 paid off in ~~2021; the issuing company has refinanced much of its debt obligations beyond the~~full at maturity ~~date.~~in July 2021.

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

	At September 30, 2020					At December 31, 2019					At June 30, 2021					At December 31, 2020
	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	$	956,862		43	%	$	772,852		42	%	$	1,215,316		47	%	$	938,222		44	%
Consumer, Non-cyclical												287,678		11	%		184,069		9	%
Utilities		237,090		11	%		222,951		12	%		229,992		9	%		185,486		9	%
Industrial		188,866		9	%		177,051		10	%		229,849		9	%		188,803		9	%
Consumer, Non-cyclical		188,789		9	%		185,784		10	%
Communications		182,994		8	%		128,635		7	%		169,845		6	%		173,483		8	%
Basic Materials		135,279		6	%		76,434		4	%		127,497		5	%		120,811		6	%
Technology		130,312		6	%		107,632		6	%		118,798		5	%		130,725		6	%
Consumer, Cyclical												116,637		4	%		93,330		4	%
Energy		99,815		4	%		86,883		5	%		101,238		4	%		103,049		5	%
Consumer, Cyclical		92,820		4	%		75,561		4	%
Total Corporate securities	$	2,212,827		100	%	$	1,833,783		100	%	$	2,596,850		100	%	$	2,117,978		100	%

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-42-

The following table summarizes total consumer, cyclical by sub-sector:

	At September 30, 2020		At June 30, 2021
	Market value		Market value
	($ in thousands)		(In thousands)
Hotels	$	-	$	-
Restaurants		21,184		20,856
Department Stores		-		-
Casinos		-		-
Airlines		-		-
Other		71,636		95,781
Total Consumer, Cyclical	$	92,820	$	116,637

The Company’s ~~$21.2~~$20.9 million (fair value) in corporate bonds to issuers operating in the consumer cyclical – restaurant subsector represent bonds of one company which retails, roasts and provides its own brand of specialty coffee and other ~~complimentary~~complementary products through retail locations worldwide and sells coffee through several distribution channels. The bonds mature in 2023. At ~~September~~June 30, ~~2020,~~2021, the bonds were rated BBB and priced with an unrealized gain of ~~$1.2 million.~~$859 thousand.

~~-46-~~

	At September 30, 2020
	Amortized		Fair		At June 30, 2021
	Cost		Value		Amortized		Fair
	(In thousands)				Cost		Value
					(In thousands)
Energy	$	95,712	$	99,815	$	95,513	$	101,238
Industrial		179,626		188,866		222,713		229,849
Total	$	275,338	$	288,681	$	318,226	$	331,087

The ~~$99.8M~~$101.2 million (fair value) in corporate bonds in the energy sector are issued by 4four issuers at ~~September~~June 30, ~~2020.~~2021. The ~~$188.9M~~$229.8 million (fair value) in corporate bonds in the industrial sector are issued by 1011 issuers at ~~September~~June 30, ~~2020.~~2021.

The Company’s $1.1 billion (fair value) in collateralized loan obligations at June 30, 2021, include investments in 149 issues that are within the senior tranches of their respective fund securitization structures. All of the Company’s collateralized loan obligation investments are rated AAA or AA at June 30, 2021.

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-43-

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

At ~~September~~June 30, 2021, the Company’s investment securities portfolios included securities issued by 269 state and local government municipalities and agencies located within 35 states. The largest exposure to any one municipality or agency was $7.6 million (fair value) represented by five general obligation bonds.

	At June 30, 2021
	Amortized		Fair
	Cost		Value
	(In thousands)
Obligations of states and political subdivisions:
General obligation bonds:
California	$	65,571	$	67,610
Washington		16,144		16,756
Texas		15,544		15,994
Arizona		12,154		12,392
Other (28 states)		128,976		133,192
Total general obligation bonds	$	238,389	$	245,944

Revenue bonds:
California	$	17,065	$	17,474
Kentucky		10,320		10,658
Indiana		9,333		9,483
Virginia		7,590		7,903
Colorado		6,300		6,456
Maryland		5,974		6,020
Washington		5,866		5,928
Other (14 states)		25,799		26,155
Total revenue bonds		88,247		90,077
Total obligations of states and political subdivisions	$	326,636	$	336,021

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-44-

At December 31, 2020, the Company’s investment securities portfolios included securities issued by ~~361~~317 state and local government municipalities and agencies located within 40 states. The largest exposure to any one municipality or agency was ~~$8.3~~$8.2 million (fair value) represented by six general obligation bonds.

At September 30, 2020

Amortized

Fair

Cost

Value

(In thousands)

Obligations of states and political subdivisions:

General obligation bonds:

California
$ 67,516 $ 70,437
New Jersey
23,692 23,990
Washington
23,079 23,956
Texas
20,698 21,369
Other (32 states)
172,470 178,334
Total general obligation bonds
$ 307,455 $ 318,086

Revenue bonds:

California
$ 18,579 $ 19,042
Colorado
12,133 12,385
Kentucky
10,825 11,243
Indiana
9,358 9,607
Washington
8,829 9,011
Virginia
7,611 8,037
Arizona
6,110 6,216
Maryland
5,972 6,067
Other (19 states)
38,410 39,070
Total revenue bonds
$ 117,827 $ 120,678
Total obligations of states and political subdivisions
$ 425,282 $ 438,764

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~~-47-~~

	At December 31, 2020
	Amortized		Fair
	Cost		Value
	(In thousands)
Obligations of states and political subdivisions:
General obligation bonds:
California	$	67,386	$	70,075
Texas		20,644		21,283
New Jersey		17,403		17,629
Washington		16,226		17,000
Other (32 states)		159,019		164,764
Total general obligation bonds	$	280,678	$	290,751

Revenue bonds:
California	$	17,587	$	18,054
Kentucky		10,822		11,210
Indiana		9,350		9,565
Virginia		7,604		8,019
Colorado		6,302		6,519
Washington		6,225		6,358
Maryland		5,972		6,043
Other (19 states)		35,061		35,656
Total revenue bonds		98,923		101,424
Total obligations of states and political subdivisions	$	379,601	$	392,175

At December 31, 2019, the Company’s investment securities portfolios included securities issued by 451 state and local government municipalities and agencies located within 42 states. The largest exposure to any one municipality or agency was $9.0 million (fair value) represented by one general obligation bond.

At December 31, 2019

Amortized

Fair

Cost

Value

(In thousands)

Obligations of states and political subdivisions:

General obligation bonds:

California
$ 83,984 $ 86,527
Texas
36,396 36,815
New Jersey
29,347 29,688
Washington
23,862 24,516
Minnesota
20,624 20,871
Other (33 states)
189,286 193,302
Total general obligation bonds
$ 383,499 $ 391,719

Revenue bonds:

California
$ 31,829 $ 32,278
Kentucky
16,384 16,680
Colorado
12,176 12,479
Washington
11,208 11,509
Indiana
9,935 10,145
Virginia
8,027 8,328
Arizona
7,912 8,106
Other (25 states)
60,338 61,347
Total revenue bonds
$ 157,809 $ 160,872
Total obligations of states and political subdivisions
$ 541,308 $ 552,591

~~At September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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,~~utilities, sewer ~~utility,~~utilities, recreational and school facilities, and general public and economic improvements. The revenue bonds were payable from 2018 revenue sources at ~~September~~June 30, ~~2020~~2021 and 19 revenue sources December 31, ~~2019.~~2020. The revenue sources that represent 5% or more individually of the total revenue bonds are summarized in the following tables.

At September 30, 2020

Amortized

Fair

Cost

Value

(In thousands)

Revenue bonds by revenue source:

Water
$ 29,268 $ 29,752
Sewer
16,159 16,744
Sales tax
14,975 15,288
Lease (renewal)
9,342 9,709
Lease (abatement)
8,494 8,711
Other (15 sources)
39,589 40,474
Total revenue bonds by revenue source
$ 117,827 $ 120,678

	At June 30, 2021
	Amortized		Fair
	Cost		Value
	(In thousands)
Revenue bonds by revenue source:
Water	$	17,987	$	18,180
Sewer		12,052		12,458
Sales tax		9,630		9,828
Lease (renewal)		8,708		8,998
Lease (abatement)		7,960		8,099
Lease (appropriation)		4,568		4,666
Other (13 sources)		27,342		27,848
Total revenue bonds by revenue source	$	88,247	$	90,077

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~~-48-~~-45-

	At December 31, 2019				At December 31, 2020
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In thousands)				(In thousands)
Revenue bonds by revenue source:
Water	$	36,960	$	37,699	$	22,731	$	23,095
Sewer		19,039		19,545		12,447		12,989
Sales tax		15,695		16,101		10,738		11,013
Lease (renewal)		15,230		15,539		9,209		9,545
Lease (abatement)		10,913		11,160		8,483		8,674
Other (15 sources)		59,972		60,828
Other (14 sources)						35,315		36,108
Total revenue bonds by revenue source	$	157,809	$	160,872	$	98,923	$	101,424

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 that the borrowers will default, causing ~~loan losses.~~loss. The Company’s lending activities are exposed to various qualitative risks. All loan segments are exposed to risks inherent in the economy and market conditions. Significant risk characteristics related to the commercial loan segment include the borrowers’ business performance and financial condition, and the value of collateral for secured loans. Significant risk characteristics related to the commercial real estate segment include the borrowers’ business performance and the value of properties collateralizing the loans. Significant risk characteristics related to the construction loan segment include the borrowers’ performance in successfully developing the real estate into the intended purpose and the value of the property collateralizing the loans. Significant risk characteristics related to the residential real estate segment include the borrowers’ financial wherewithal to service the mortgages and the value of the property collateralizing the loans. Significant risk characteristics related to the consumer loan segment include the financial condition of the borrowers and the value of collateral securing the loans.

~~The~~During 2020 and the first six months of 2021, the Bank processed customer ~~Paycheck Protection Program~~PPP loan ~~(“PPP loan”)~~ applications ~~as established by~~pursuant to the ~~Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).~~CARES Act. The United States Small Business Administration guarantees PPP loans; given this guarantee, the PPP loans are not considered to have default risk. The ~~Company funded $249~~Company’s average PPP loan balances increased $19 million ~~PPP loans~~ in the second quarter ~~2020.~~2021. The outstanding balances of PPP loans, net of deferred fees and costs, were ~~$244~~$165 million at ~~September~~June 30, ~~2020.~~2021.

On April 7, 2020, the U.S. banking agencies issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised). The statement describes accounting for COVID-19-related loan modifications, including clarifying the interaction between current accounting rules and the temporary relief provided by the CARES Act. The Bank has been actively working with consumer and commercial borrowers requesting deferral of loan payments, granting deferrals of principal and interest payments for 90 days. At ~~September~~June 30, ~~2020, 140 consumer~~2021, loans granted loan deferrals totaled $5.0 million, 17 commercial real estate loans with deferred payments totaled $19.1 million, primarily for hospitality and retail properties, and five commercial loans with deferred payments totaled $209 thousand.$586 thousand, all of which were consumer automobile loans.

The preparation of the financial statements requires Management to estimate the amount of expected losses 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~~credit 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.

~~-49-~~

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.~~practices:

●

The Bank maintains a Loan Review Department which reports directly to the audit committee of the Board of Directors. The Loan Review Department performs independent evaluations of loans to challenge the credit risk grades assigned by Management, using grading standards employed by bank regulatory agencies. Those loans judged to carry higher risk attributes are referred to as “classified loans.” Classified loans receive elevated Management attention in order to maximize collection.

-46-

●

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”).

Nonperforming Assets
	At September 30,				At December 31,		At June 30,				At December 31,
	2020		2019		2019		2021		2020		2020
	(In thousands)						(In thousands)

Nonperforming nonaccrual loans	$	409	$	633	$	659	$	652	$	590	$	526
Performing nonaccrual loans		3,971		3,670		3,781		3,564		3,643		3,803
Total nonaccrual loans		4,380		4,303		4,440		4,216		4,233		4,329
Accruing loans 90 or more days past due		360		351		440		167		290		450
Total nonperforming loans		4,740		4,654		4,880		4,383		4,523		4,779
Other real estate owned		43		43		43		-		43		-
Total nonperforming assets	$	4,783	$	4,697	$	4,923	$	4,383	$	4,566	$	4,779

At ~~September~~June 30, ~~2020,~~2021, one loan secured by commercial real estate with a balance of ~~$3.4~~$3.1 million was on nonaccrual status. The remaining ~~eight~~seven nonaccrual loans held at ~~September~~June 30, ~~2020~~2021 had an average carrying value of ~~$120~~$157 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, pandemics, and collateral values or factors particular to the borrower. No assurance can be given that additional increases in nonaccrual and delinquent loans will not occur in the future.

Allowance for Credit Losses

Effective January 1, 2020, the Company adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial ~~Instrum~~~~ents~~Instruments (“CECL”). The following table summarizes allowance for credit losses at the dates indicated:

	At September 30,				At December 31,		At June 30,				At December 31,
	2020		2019		2019		2021		2020		2020
	(In thousands)						(In thousands)

Allowance for Credit Losses on Loans	$	24,142	$	19,828	$	19,484	$	23,737	$	24,529	$	23,854
Allowance for Credit Losses on Held to Maturity Debt Securities		16		-		-		9		16		9
Total Allowance for Credit Losses	$	24,158	$	19,828	$	19,484	$	23,746	$	24,545	$	23,863

Allowance for unfunded credit commitments							$	101	$	53	$	101

Allowance for Credit Losses on Debt Securities Held to Maturity

Management segmented debt securities held to maturity, selected methods to estimate losses for each segment, and measured a loss estimate. Agency mortgage-backed securities were assigned no credit loss allowance due to the perceived backing of government sponsored entities. Municipal securities were evaluated for risk of default based on credit rating and remaining term to maturity using Moody’s risk of default factors; Moody’s loss upon default factors were applied to the assumed defaulted principal amounts to estimate the amount for credit loss allowance. The adoption of the ASU resulted in the establishment of an allowance for credit losses related to debt securities held to maturity of $16 thousand. It was reduced to $9 thousand at December 31, 2020, and at June 30, 2021, the outstanding amount for credit losses on debt securities held to maturity was $9 thousand.

~~-50-~~-47-

Allowance for Credit Losses on Loans

The Company’s allowance for credit losses on loans represents Management’s estimate of forecasted credit losses in the loan portfolio based on the current expected credit loss (CECL) model. In evaluating credit risk for loans, Management measures the loss potential of the carrying value of loans. As described above, payments received on nonaccrual loans may be applied against the principal balance of the loans until such time as full collection of the remaining recorded balance is expected.

The following table summarizes the allowance for ~~loan losses/~~credit losses, ~~on loans,~~ chargeoffs and recoveries for the periods indicated:

	For the Three Months						For the Nine Months						For the Three Months						For the Six Months
	Ended September 30,												Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
	($ in thousands)												($ in thousands)
Analysis of the Allowance for Credit Losses
Balance, beginning of period	$	24,529		$	20,117		$	19,484		$	21,351
Analysis of the Allowance for Loan Losses/Credit Losses
Balance, end of prior period													$	23,483		$	24,804		$	23,854		$	19,484
Adoption of ASU 2016-13		-			-			2,017			-			-			-			-			2,017
Balance, beginning of period		24,529			20,117			21,501			21,351			23,483			24,804			23,854			21,501
Provision for credit losses		-			-			4,300			-			-			-			-			4,300
Loans charged off
Commercial		-			-			(178	)		(71	)		-			-			-			(178	)
Consumer installment and other		(872	)		(1,039	)		(3,071	)		(3,332	)		(331	)		(804	)		(1,260	)		(2,199	)
Total chargeoffs		(872	)		(1,039	)		(3,249	)		(3,403	)		(331	)		(804	)		(1,260	)		(2,377	)
Recoveries of loans previously charged off
Commercial		46			233			282			449			75			93			88			236
Commercial real estate		12			12			37			38			12			12			24			25
Consumer installment and other		427			505			1,271			1,393			498			424			1,031			844
Total recoveries		485			750			1,590			1,880			585			529			1,143			1,105
Net loan losses		(387	)		(289	)		(1,659	)		(1,523	)
Net loan recoveries (losses)														254			(275	)		(117	)		(1,272	)
Balance, end of period	$	24,142		$	19,828		$	24,142		$	19,828		$	23,737		$	24,529		$	23,737		$	24,529

Net loan losses as a percentage of average total loans (annualized)		0.12	%		0.10	%		0.18	%		0.17	%
Net loan (recoveries) losses as a percentage of average total loans (annualized)														(0.08	)%		0.09	%		0.02	%		0.22	%

The Company's allowance for credit losses on loans is maintained at a level considered adequate to provide for expected losses based on historical loss rates adjusted for current and expected conditions over a forecast period. These include conditions unique to individual borrowers as well as overall ~~credit~~ loss experience, the amount of past due, nonperforming and classified loans, recommendations of regulatory authorities, prevailing and forecasted economic conditions, or credit protection agreements and other factors. Loans that share common risk characteristics are segregated into pools based on common characteristics, which is primarily determined by loan, borrower, or collateral type. Historical loss rates are determined for each pool. Loans that do not share risk characteristics with other loans in the pools are evaluated individually. See Note 2 to the unaudited consolidated financial statements for additional information.

	Allowance for Credit Losses															Allowance for Credit Losses
	For the Three Months Ended September 30, 2020															For the Three Months Ended June 30, 2021
										Consumer																Consumer
			Commercial				Residential			Installment									Commercial					Residential		Installment
	Commercial		Real Estate		Construction		Real Estate			and Other			Total			Commercial			Real Estate		Construction			Real Estate		and Other			Total
	(In thousands)															(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	8,072	$	4,623	$	7	$	57		$	11,770		$	24,529		$	9,554		$	5,505	$	6		$	43	$	8,375		$	23,483
Provision (reversal)		867		1,030		-		(5	)		(1,892	)		-
(Reversal) provision																	(2,771	)		1,235		(1	)		14		1,523			-
Chargeoffs		-		-		-		-			(872	)		(872	)		-			-		-			-		(331	)		(331	)
Recoveries		46		12		-		-			427			485			75			12		-			-		498			585
Total allowance for credit losses	$	8,985	$	5,665	$	7	$	52		$	9,433		$	24,142		$	6,858		$	6,752	$	5		$	57	$	10,065		$	23,737

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~~-51-~~-48-

	Allowance for Credit Losses																				Allowance for Credit Losses
	For the Nine Months Ended September 30, 2020																				For the Six Months Ended June 30, 2021
												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			Total
	(In thousands)																				(In thousands)
Allowance for credit losses:
Balance at beginning of period, prior to adoption of ASU 2016-13	$	4,959		$	4,064	$	109		$	206		$	6,445		$	3,701		$	19,484
Impact of adopting ASU 2016-13		3,385			618		(31	)		(132	)		1,878			(3,701	)		2,017
Adjusted beginning balance		8,344			4,682		78			74			8,323			-			21,501
Provision (reversal)		537			946		(71	)		(22	)		2,910			-			4,300
Balance at beginning of period																					$	9,205		$	5,660	$	6		$	47	$	8,936		$	23,854
(Reversal) provision																						(2,435	)		1,068		(1	)		10		1,358			-
Chargeoffs		(178	)		-		-			-			(3,071	)		-			(3,249	)		-			-		-			-		(1,260	)		(1,260	)
Recoveries		282			37		-			-			1,271			-			1,590			88			24		-			-		1,031			1,143
Total allowance for credit losses	$	8,985		$	5,665	$	7		$	52		$	9,433		$	-		$	24,142		$	6,858		$	6,752	$	5		$	57	$	10,065		$	23,737

The allowance for credit losses on commercial real estate loans increased in the first six months of 2021 due to the financial impacts of wildfires, drought, and other climate issues on expected losses, and the impact of work from home trends on the demand for office space. The allowance for credit losses on consumer loans increased due to a higher than average volume of loans in the first six months of 2021, which increased the size of the total consumer loan portfolio. The allowance for credit losses on commercial loans decreased due to the pay down of a previously individually evaluated loan, resulting in lower future expected losses. Management considers the ~~$24.1~~$23.7 million allowance for credit losses on loans to be adequate as a reserve against current expected credit losses in the loan portfolio as of ~~September~~June 30, ~~2020.~~2021.

See Note 4 to the unaudited consolidated financial statements for additional information related to the loan portfolio, loan portfolio credit risk, allowance for credit losses on loans, 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.

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.

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, except cash flows from PPP loans are reinvested into interest-bearing cash. 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.~~instruments. Both simulations are used to measure expected changes in net interest income assuming various levels of change in market interest rates.

-49-

The Company’s asset and liability position was ~~slightly~~ “asset sensitive” at ~~September~~June 30, ~~2020,~~2021, 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.

~~-52-~~

At ~~September~~June 30, ~~2020,~~2021, Management’s most recent measurements of estimated changes in net interest income were:

Static Simulation (balance sheet composition unchanged):
Assumed Immediate Parallel Shift in Interest Rates	~~0.00~~	%	+~~1.00~~	%1.00%
First Year Change in Net Interest Income	~~-6.00~~	%	+~~5.70~~	%13.7%

Dynamic Simulation (balance sheet composition changes):
Assumed Change in Interest Rates Over 1 Year	~~0.00~~	%	+~~1.00~~	%1.00%
First Year Change in Net Interest Income	~~-1.75~~	%	+~~2.60~~	%7.1%

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.

Market Risk - Other

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

Liquidity and Funding

The objective of liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund the 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 by selling debt securities available-for-sale or borrowing 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%~~97% of funding for average total assets in the ~~nine months~~quarter ended ~~September~~June 30, ~~2020~~2021 and in the ~~twelve months~~year ended December 31, ~~2019.~~2020. 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.

-50-

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 ~~$4.6~~$4.7 billion in total investment securities at ~~September~~June 30, ~~2020.~~2021. Under certain deposit, borrowing and other arrangements, the Company must hold and pledge investment securities as collateral. At ~~September~~June 30, ~~2020,~~2021, such collateral requirements totaled approximately ~~$850~~$866 million.

~~-53-~~

The Bank funded $249 million in PPP loans in the second quarter 2020 and $106 million in the first six months of 2021 by crediting loan proceeds to the borrower’s deposit accounts. PPP loans, net of deferred fees and costs, were $165 million at June 30, 2021. The Federal Reserve ~~Bank~~Board established the Paycheck Protection Program Liquidity Facility (“PPPLF”) to provide funding for eligible firms extending PPP loans. Under the PPPLF, the Bank must pledge PPP loans as collateral for PPPLF borrowings. Principal reductions on the pledged PPP loans must immediately result in principal reduction of the PPPLF borrowing.

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, PPP loan originations, new regulations and market conditions. The Company does not aggressively solicit higher-costing time deposits. Changes in interest rates, most notably rising interest rates or increased consumer spending, could impact deposit volumes. Depending on economic conditions, interest rate levels, liquidity management and a variety of other conditions, 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 ~~$33~~$22 million in the six months ended June 30, 2021 and $44 million in the ~~nine months ended September 30, 2020 and the twelve months~~year ended December 31, ~~2019, respectively,~~2020 and retire common stock in the amount of ~~$11.7~~$232 thousand and $16 million, ~~and $488 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.

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 ~~10.7% in~~11.6% for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~11.9% in~~11.3% for the year ended December 31, ~~2019.~~2020. The Company also raises capital as employees exercise stock options. Capital raised through the exercise of stock options was ~~$2.8~~$3.0 million in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~$14~~$2.8 million in the year ended December 31, ~~2019.~~2020.

The Company paid common dividends totaling ~~$33~~$22 million in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and $44 million in the year ended December 31, ~~2019,~~2020, which represent dividends per common share of ~~$1.23~~$0.82 and ~~$1.63,~~$1.64, 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~~capital to shareholders. The Company repurchased and retired ~~228~~4 thousand shares valued at ~~$11.7 million~~$232 thousand in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and 8319 thousand shares valued at ~~$488 thousand~~$16 million in the year ended December 31, ~~2019.~~2020.

-51-

The Company's primary capital resource is shareholders' equity, which was ~~$826~~$842 million at ~~September~~June 30, ~~2020~~2021 compared with ~~$731~~$845 million at December 31, ~~2019.~~2020. The Company's ratio of equity to total assets was ~~12.6%~~11.8% at ~~September~~June 30, ~~2020~~2021 and ~~13.0%~~12.5% at December 31, ~~2019.~~2020.

~~-54-~~

The Company performs capital stress tests on a periodic basis to evaluate the sustainability of its capital. Under the stress testing, the Company assumes various scenarios such as deteriorating economic and operating conditions, and unanticipated asset ~~devaluations, and significant operational lapses.~~devaluations. The Company measures the impact of these scenarios on its earnings and capital. Based on the results of the most recent stress tests, Management is satisfied with the capital condition of the Bank and the Company. However, no assurance can be given the Bank or Company will not experience a period of reduced earnings or a reduction in capital from unanticipated events and circumstances.

Capital to Risk-Adjusted Assets

The capital ratios for the Company and the Bank under current regulatory capital standards are presented in the tables below, on the dates indicated. For Common Equity Tier I Capital, Tier I Capital and Total Capital, the minimum percentage required for regulatory capital adequacy purposes include a 2.5% “capital conservation buffer.”

										To Be
										Well-capitalized												Well-capitalized
							Required for			Under Prompt									Required for			Under Prompt
	At September 30, 2020						Capital Adequacy			Corrective Action			At June 30, 2021						Capital Adequacy			Corrective Action
	Company			Bank			Purposes			Regulations (Bank)			Company			Bank			Purposes			Regulations (Bank)

Common Equity Tier I Capital		14.82	%		11.89	%		7.00	%		6.50	%		15.18	%		12.36	%		7.00	%		6.50	%
Tier I Capital		14.82	%		11.89	%		8.50	%		8.00	%		15.18	%		12.36	%		8.50	%		8.00	%
Total Capital		15.42	%		12.65	%		10.50	%		10.00	%		15.75	%		13.09	%		10.50	%		10.00	%
Leverage Ratio		9.48	%		7.57	%		4.00	%		5.00	%		9.17	%		7.44	%		4.00	%		5.00	%

To Be

Well-capitalized

Required for

Under Prompt

At December 31, 2019

Capital Adequacy

Corrective Action

Company

Bank

Purposes

Regulations (Bank)

Common Equity Tier I Capital
16.22 % 11.80 % 7.00 % 6.50 %
Tier I Capital
16.22 % 11.80 % 8.50 % 8.00 %
Total Capital
16.83 % 12.58 % 10.50 % 10.00 %
Leverage Ratio
10.50 % 7.60 % 4.00 % 5.00 %

										To Be
										Well-capitalized
							Required for			Under Prompt
	At December 31, 2020						Capital Adequacy			Corrective Action
	Company			Bank			Purposes			Regulations (Bank)

Common Equity Tier I Capital		16.04	%		13.00	%		7.00	%		6.50	%
Tier I Capital		16.04	%		13.00	%		8.50	%		8.00	%
Total Capital		16.68	%		13.80	%		10.50	%		10.00	%
Leverage Ratio		9.40	%		7.58	%		4.00	%		5.00	%

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 replaced the existing incurred loss methodology for certain financial assets. The Company adopted the CECL methodology effective January 1, 2020, which involved an implementing accounting entry to retained earnings on a net-of-tax basis. The adoption of the CECL methodology did not have a material adverse day-one impact to capital ratios and the Company did not adopt the phase in regulatory capital relief. See Note 21 to ~~unaudited~~ consolidated financial statements, “Recently Adopted Accounting Standards” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, for more information on the CECL methodology.

PPP loans are zero percent risk weighted for regulatory capital purposes; average PPP loans of ~~$243~~$208 million did not affect regulatory capital ~~ratios, other than an insignificant impact on~~ratios. The Leverage ratio would have been approximately 0.3% higher for the ~~Leverage ratio.~~Company and 0.2% higher for the Bank without PPP loans. To the extent funding of PPP loans is through excess cash balances or PPPLF borrowings, the Leverage ratio is unaffected. However, PPP loans funded by increased non-PPPLF borrowings reduces the leverage ratio.

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 in excess of the minimum required to be considered well-capitalized under the prompt corrective action framework while continuing to pay quarterly dividends to shareholders. No assurance can be given that changes in capital management plans will not occur.

~~-55-~~-52-

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.

Item 4. Controls and Procedures

The Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of ~~September~~June 30, ~~2020.~~2021.

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 ~~September~~June 30, ~~2020~~2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

The Company’s Annual Report on Form 10-K ~~as of~~for the year ended December 31, ~~2019~~2020 includes detailed disclosure about the risks faced by the Company’s ~~business. The following is an update on risk factors that~~business; such risks have not materially changed since the Form 10-K was filed.

[The ~~COVID-19 Coronavirus Pandemic Will Have an Uncertain Impact on the Company's Financial Condition and Results~~remainder of ~~Operations~~this page intentionally left blank]

The COVID-19 coronavirus pandemic caused escalating infections in the United States beginning in the first quarter of 2020 that continued through the third quarter of 2020 and may continue for some time. The spread of the outbreak has disrupted the United States economy including banking and other financial activity in the market areas in which the Company and its banking subsidiary, Westamerica Bank (the "Bank"), operate. Regions and states of the United States of America have implemented varying degrees of "stay at home" directives in an effort to prevent the spread of the virus. On March 19, 2020, the Governor of the State of California ordered all individuals living in the State of California to stay within their residence to prevent the spread of the novel coronavirus and many businesses have suspended or reduced business activities. The California "stay at home" directive excludes essential businesses, including banks, and the Bank remains open and fully operational. These "stay at home" directives have, however, significantly reduced economic activity in the United States and the State of California. In the second and third quarters of 2020 the “stay at home” directives were gradually lifted in varying stages in counties of the State of California, though restrictions could be re-imposed to some degree if infections increase. Counties with high infection rates delayed reopening and restrictions on certain economic activity remains. California-based claims for unemployment remain elevated during the third quarter of 2020.

~~-56-~~-53-

The Bank's investment portfolio contains bonds for which the source of repayment is domestic mortgage repayments, domestic municipalities throughout the United States, and domestic and global corporations. The value of the Bank's investment portfolio may decline if, for example, the general economy deteriorates, inflation increases, credit ratings decline, the issuers’ financial condition deteriorates or the liquidity for debt securities declines.

In response to the pandemic, the Federal Reserve has engaged significant levels of monetary policy to provide liquidity and credit facilities to the financial markets. On March 15, 2020, the Federal Open Market Committee ("FOMC") reduced the target range for the federal funds rate to 0 to 0.25 percent; relatedly, the FOMC reduced the interest rate paid on deposit balances to 0.10 percent effective March 16, 2020, all of which may negatively impact net interest income. The Bank maintains deposit balances at the Federal Reserve Bank; the amount that earns interest is identified in the Company's financial statements as "interest-bearing cash".

In response to the pandemic, the United States federal government enacted the CARES Act on March 27, 2020, providing an estimated $2 trillion fiscal stimulus to the United States economy. The CARES Act established the Paycheck Protection Program (PPP) with $350 billion to provide businesses with federally guaranteed loans to support payroll and certain operating expenses. The loans were guaranteed by the United States Small Business Administration (“SBA”) and funded through banks. In April 2020, the PPP program was expanded with an additional $310 billion. At June 30, 2020, the Bank funded $249 million in government guaranteed PPP loans which meaningfully increased interest-earning assets and related interest and fee income. PPP loans, net of deferred fees and costs, were $244 million at September 30, 2020.

On April 7, 2020, the U.S. banking agencies issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised). The statement describes accounting for COVID-19-related loan modifications, including clarifying the interaction between current accounting rules and the temporary relief provided by the CARES Act. The Bank continues to work with loan customers requesting deferral of loan payments due to economic weakness caused by the pandemic. At September 30, 2020, consumer loans granted loan deferrals totaled $5.0 million, commercial real estate loans with deferred payments totaled $19.1 million, primarily for hospitality and retail properties, and commercial loans with deferred payments totaled $209 thousand.

~~Any one or a combination of the factors identified above, or other factors, could materially adversely affect the Company's business, financial condition, results of operations and prospects.~~

~~The Recent Decline in Oil Prices Could Have an Impact on the Company's Financial Condition and Results of Operations~~

Oil prices have declined considerably in the first nine months of 2020. The decline in oil prices could negatively affect the financial results of industrial sector-based and energy sector-based corporate issuers of corporate bonds owned by the Company. The Company’s corporate debt securities include 14 issuers in industrial and energy sectors with aggregate amortized cost of $275.3 million and fair value of $288.7 million at September 30, 2020. These securities continue to be investment grade rated by a major rating agency.

~~-57-~~

The Company is a participating lender in the PPP. The SBA guarantees 100% of loans funded under the PPP. Loan proceeds used for eligible payroll and certain other operating costs are forgiven with repayment of loan principal and accrued interest made by the SBA. There is some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes the Company to potential risks relating to noncompliance with the PPP. Any financial liability, litigation costs or reputational damage related to the PPP or related litigation or regulatory enforcement actions could have a material adverse impact on the Company’s business, financial condition and results of operations. In addition, the Company may be exposed to credit risk on PPP loans if the SBA determines that there is a deficiency in the manner in which the loan was originated, funded, or serviced. If the SBA identifies a deficiency, it could deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company.

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

(a) None

(b) None

The table below sets forth the information with respect to purchases made by or on behalf of Westamerica Bancorporation or any “affiliated purchaser”, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of common stock during the quarter ended ~~September~~June 30, ~~2020.~~2021.

2020

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
35 52.42 35 1,715
Total
35 $ 52.42 35 1,715

	2021
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		-	$	-		-		1,620
May 1 through May 31		-		-		-		1,620
June 1 through June 30				-		-		1,620
Total		-	$	-		-		1,620

The Company repurchases shares of its common stock in the open market on a discretionary basis from time to time to optimize the Company’s use of equity capital and enhance shareholder value and with the intention of lessening the dilutive impact of issuing new shares under ~~stock option~~equity incentive plans, and other ongoing requirements.

No shares were repurchased during the period from April 1, 2021 through June 30, 2021. A ~~share~~ repurchase program was approved by the ~~Company’s~~ 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. The Board of Directors approved and adopted a replacement program on July 23, 2020 authorizing the purchase of up to 1,750 thousand shares of the Company’s common stock from time to time prior to September 1, 2021.

Item 3. Defaults upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None

~~-58-~~

Item 6. Exhibits

Exhibit No.		Description of Exhibit

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

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

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

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

-54-


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

Exhibit 101.SCH		Inline XBRL Taxonomy Extension Schema Document

Exhibit 101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

Exhibit 101.DEF		Inline XBRL Taxonomy Extension Definitions Linkbase Document

Exhibit 101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

Exhibit 101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 104.		The Cover page of Westamerica Bancorporation’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2020,~~2021, formatted in Inline XBRL (contained in Exhibit 101)

[The remainder of this page intentionally left blank]

~~-59-~~-55-

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/ Jesse Leavitt
Jesse Leavitt
Senior Vice President and Chief Financial Officer
(Principal Financial and Chief Accounting Officer) Date: August 4, 2021

~~Date: November 5, 2020~~

~~-60-~~-56-

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

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

WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

	For the Three Months						For the Nine Months
	Ended September 30,
	2020			2019			2020			2019
	(In thousands)
Net income	$	20,051		$	20,390		$	56,575		$	59,661
Other comprehensive income:
Changes in unrealized gains on debt securities available for sale		14,042			10,407			110,200			85,822
Deferred tax expense		(4,151	)		(3,077	)		(32,578	)		(25,372	)
Reclassification of gains included in net income		0			0			(71	)		0
Deferred tax expense on gains included in net income		0			0			21			0
Changes in net unrealized gains on debt securities available for sale, net of tax		9,891			7,330			77,572			60,450
Total comprehensive income	$	29,942		$	27,720		$	134,147		$	120,111

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 except dividend per share)

Balance, June 30, 2020		26,933		$	467,351		$	35		$	93,732		$	246,958		$	808,076
Net income for the period														20,051			20,051
Other comprehensive income											9,891						9,891
Stock based compensation		-			450												450
Stock awarded to employees		-			19												19
Retirement of common stock		(35	)		(619	)								(1,249	)		(1,868	)
Dividends ($0.41 per share)														(11,043	)		(11,043	)
Balance, September 30, 2020		26,898		$	467,201		$	35		$	103,623		$	254,717		$	825,576

Balance, December 31, 2019		27,062		$	465,460		$	771		$	26,051		$	239,135		$	731,417
Adoption of ASU 2016-13														52			52
Adjusted Balance, January 1, 2020		27,062			465,460			771			26,051			239,187			731,469
Net income for the period														56,575			56,575
Other comprehensive income											77,572						77,572
Exercise of stock options		53			2,838												2,838
Restricted stock activity		10			1,270			(736	)								534
Stock based compensation		-			1,500												1,500
Stock awarded to employees		1			85												85
Retirement of common stock		(228	)		(3,952	)								(7,782	)		(11,734	)
Dividends ($1.23 per share)														(33,263	)		(33,263	)
Balance, September 30, 2020		26,898		$	467,201		$	35		$	103,623		$	254,717		$	825,576

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, 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

WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

	For the Nine Months
	Ended September 30,
	*2020*			*2019*
	(In thousands)
Operating Activities:
Net income	$	56,575		$	59,661
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		18,482			15,178
Provision for credit losses		4,300			0
Net amortization of deferred loan fees		(2,803	)		(215	)
Stock option compensation expense		1,500			1,484
Life insurance gains		0			(433	)
Securities gains		(71	)		(50	)
Net changes in:
Interest income receivable		(1,982	)		323
Other assets		(4,397	)		(2,073	)
Income taxes payable		(520	)		(3,386	)
Net deferred tax asset		325			6,386
Interest expense payable		33			19
Other liabilities		24,798			(12,233	)
Net Cash Provided by Operating Activities		96,240			64,661
Investing Activities:
Net (disbursements) repayments of loans		(181,894	)		73,026
Proceeds from life insurance policies		0			1,273
Purchases of debt securities available for sale		(1,612,633	)		(732,690	)
Proceeds from sale of equity securities		0			1,797
Proceeds from sale/maturity/calls of debt securities available for sale		807,064			502,928
Proceeds from maturity/calls of debt securities held to maturity		156,993			184,525
Purchases of premises and equipment		(1,682	)		(2,495	)
Proceeds from sale of foreclosed assets		0			307
Net Cash (Used in) Provided by Investing Activities		(832,152	)		28,671
Financing Activities:
Net change in deposits		726,569			(70,216	)
Net change in short-term borrowings		77,045			(5,601	)
Exercise of stock options		2,838			11,177
Retirement of common stock		(11,734	)		(488	)
Common stock dividends paid		(33,263	)		(32,849	)
Net Cash Provided by (Used in) Financing Activities		761,455			(97,977	)
Net Change In Cash and Due from Banks		25,543			(4,645	)
Cash and Due from Banks at Beginning of Period		373,421			420,284
Cash and Due from Banks at End of Period	$	398,964		$	415,639

Supplemental Cash Flow Disclosures:
Supplemental disclosure of non cash activities:
Right-of-use assets acquired in exchange for operating lease liabilities	$	6,457		$	23,587
Amount recognized upon initial adoption of ASU 2016-02 included above		0			15,325
Securities purchases pending settlement		0			20,114
Supplemental disclosure of cash flow activities:
Cash paid for amounts included in operating lease liabilities		4,905			5,123
Interest paid for the period		1,310			1,417
Income tax payments for the period		18,708			16,021

		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	3330
Item 3	Quantitative and Qualitative Disclosures about Market Risk	5653
Item 4	Controls and Procedures	5653
PART II - OTHER INFORMATION
Item 1	Legal Proceedings	5653
Item 1A	Risk Factors	5653
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	5854
Item 3	Defaults upon Senior Securities	5854
Item 4	Mine Safety Disclosures	5854
Item 5	Other Information	5854
Item 6	Exhibits	5954
Signatures		6056

WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

	For the Three Months				For the Nine Months
	Ended September 30,
	2020		2019		2020		2019
	(In thousands, except per share data)
Interest and Loan Fee Income:
Loans	$	15,291	$	14,431	$	44,378	$	44,050
Equity securities		103		92		309		289
Debt securities available for sale		22,652		18,736		66,396		54,080
Debt securities held to maturity		3,235		4,535		10,759		14,788
Interest-bearing cash		84		1,901		1,053		5,597
Total Interest and Loan Fee Income		41,365		39,695		122,895		118,804
Interest Expense:
Deposits		450		447		1,308		1,410
Short-term borrowed funds		16		8		34		27
Other borrowed funds		0		0		1		0
Total Interest Expense		466		455		1,343		1,437
Net Interest and Loan Fee Income		40,899		39,240		121,552		117,367
Provision for Credit Losses		0		0		4,300		0
Net Interest and Loan Fee Income After Provision for Credit Losses		40,899		39,240		117,252		117,367
Noninterest Income:
Service charges on deposit accounts		3,298		4,510		10,697		13,508
Merchant processing services		2,860		2,494		7,495		7,708
Debit card fees		1,611		1,641		4,538		4,789
Trust fees		756		733		2,247		2,199
ATM processing fees		606		725		1,703		2,080
Other service fees		454		580		1,380		1,742
Financial services commissions		58		75		306		270
Life insurance gains		0		0		0		433
Securities gains		0		0		71		50
Other noninterest income		833		1,051		3,241		2,897
Total Noninterest Income		10,476		11,809		31,678		35,676
Noninterest Expense:
Salaries and related benefits		12,540		12,559		38,458		38,757
Occupancy and equipment		5,014		5,199		14,737		15,163
Outsourced data processing services		2,338		2,374		7,067		7,110
Professional fees		669		645		1,701		1,791
Courier service		500		456		1,499		1,349
Amortization of identifiable intangibles		72		76		218		465
Loss contingency		0		0		0		553
Other noninterest expense		3,470		2,724		10,341		9,589
Total Noninterest Expense		24,603		24,033		74,021		74,777
Income Before Income Taxes		26,772		27,016		74,909		78,266
Provision for income taxes		6,721		6,626		18,334		18,605
Net Income	$	20,051	$	20,390	$	56,575	$	59,661

Average Common Shares Outstanding		26,930		26,986		26,977		26,924
Average Diluted Common Shares Outstanding		26,946		27,027		26,998		26,976
Per Common Share Data:
Basic earnings	$	0.74	$	0.76	$	2.10	$	2.22
Diluted earnings		0.74		0.75		2.10		2.21
Dividends paid		0.41		0.41		1.23		1.22

	January 1, 2020
	Balance,		Impact of			As reported
	prior to adoption		adoption of			under
	of ASU 2016-13		ASU 2016-13			ASU 2016-13
	(In thousands)
Assets:
Allowance for credit losses on loans:
Commercial	$	4,959	$	3,385		$	8,344
Commercial real estate		4,064		618			4,682
Construction		109		(31	)		78
Residential real estate		206		(132	)		74
Consumer and other installment loans		6,445		1,878			8,323
Unallocated		3,701		(3,701	)		0
Allowance for credit losses on loans:	$	19,484	$	2,017		$	21,501

Allowance for credit losses on debt securities held to maturity		0		16			16

Liabilities
Allowance for credit losses for unfunded commitments		2,160		(2,107	)		53

		At September 30, 2020								At June 30, 2021
		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		$	452,154	$	454,493	$	63,044	$	63,504	$	283,566	$	286,689	$	36,764	$	36,914
Over 1 to 5 years			973,305		1,026,667		132,750		136,640		785,821		829,793		130,690		133,710
Over 5 to 10 years			1,480,374		1,544,476		107,537		111,448		2,185,183		2,241,533		59,067		60,794
Over 10 years			207,322		209,476		0		0		433,725		435,687		0		0
Subtotal			3,113,155		3,235,112		303,331		311,592		3,688,295		3,793,702		226,521		231,418
MBS			723,724		748,882		274,480		282,125		492,463		510,460		187,901		193,190
Total		$	3,836,879	$	3,983,994	$	577,811	$	593,717	$	4,180,758	$	4,304,162	$	414,422	$	424,608

	Impaired Loans
	At December 31,
	2019
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
	(In thousands)
With no related allowance recorded:
Commercial	$	21	$	21	$	-
Commercial real estate		7,408		8,856		-
Residential real estate		190		220		-
Consumer installment and other		43		43		-
Total with no related allowance recorded		7,662		9,140		-

With an allowance recorded:
Commercial		8,160		8,160		2,413
Total with an allowance recorded		8,160		8,160		2,413
Total	$	15,822	$	17,300	$	2,413

	2020
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		35		52.42		35		1,715
Total		35	$	52.42		35		1,715