UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☑

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

For the quarterly period ended September 30, 2023

~~For the quarterly period ended September 30, 2022~~

☐

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

For the transition period from __________ to __________.

Commission file number: 001-09383

WESTAMERICA BANCORPORATION

(Exact Name of Registrant as Specified in Its Charter)

California

94-2156203

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

1108 FIFTH AVENUE, SAN RAFAEL, California 94901

(Address of Principal Executive Offices) (Zip Code)

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

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

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

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

Yes ☑ No ☐

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

Yes ☑ No ☐

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

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

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

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

Yes ☐ No ☑

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

Title of Class

Shares outstanding as of October ~~26, 2022~~30, 2023

Common Stock,

No Par Value

~~26,912,487~~26,649,036

TABLE OF CONTENTS

-2-

FORWARD-LOOKING STATEMENTS

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

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

These factors include but are not limited to (1) the length and severity of any difficulties in the global, national and California economies and the effects of government efforts to address those difficulties; (2) liquidity levels in capital markets; (3) fluctuations in asset prices including, but not limited to stocks, bonds, real estate, and commodities; (4) the effect of acquisitions and integration of acquired businesses; (5) economic uncertainty created by riots, terrorist threats and attacks on the United States, the actions taken in response, and the uncertain effect of these events on the local, regional and national economies; (6) changes in the interest rate environment and monetary policy; (7) changes in the regulatory environment; (8) competitive pressure in the banking industry; (9) operational risks including a failure or breach in data processing or security systems or those of third party vendors and other service providers, including as a result of cyber attacks or fraud; (10) volatility of interest rate sensitive loans, deposits and ~~investments;~~investments, particularly the impact of rising interest rates on the Company’s securities portfolio; (11) asset/liability management ~~risks and liquidity~~ risks; (12) liquidity risks including the impact of recent adverse developments in the banking industry; (13) the effect of climate change, natural disasters, including earthquakes, hurricanes, fire, flood, drought, and other disasters, on the uninsured value of the Company’s assets and of loan collateral, the financial condition of debtors and issuers of investment securities, the economic conditions affecting the Company’s market place, and commodities and asset values; ~~(13)~~(14) changes in the securities markets; ~~(14)~~(15) the duration and severity of ~~the COVID-19 pandemic~~pandemics and governmental and customer ~~responses to the pandemic; (15)~~responses; (16) inflation and ~~(16)~~(17) 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, ~~2021,~~2022 and 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.

-3-

~~-3-~~

PART I - FINANCIAL INFORMATION

Item 1 Financial Statements

WESTAMERICA BANCORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)

	At September 30,			At December 31,			At September 30,			At December 31,
	2022			2021			2023			2022
	(In thousands)						(In thousands)
Assets:
Cash and due from banks	$	413,665		$	1,132,085		$	420,550		$	294,236
Debt securities available for sale		4,376,331			4,638,855			3,906,233			4,331,743
Debt securities held to maturity, net of allowance for credit losses of $7 at September 30, 2022 and December 31, 2021 (Fair value of $878,462 at September 30, 2022 and $312,562 at December 31, 2021)		936,267			306,396
Debt securities held to maturity, net of allowance for credit losses of $1 at September 30, 2023 and December 31, 2022 (Fair value of $818,395 at September 30, 2023 and $873,511 at December 31, 2022)								888,856			915,913
Loans		979,033			1,068,126			885,850			958,488
Allowance for credit losses on loans		(21,218	)		(23,514	)		(17,744	)		(20,284	)
Loans, net of allowance for credit losses on loans		957,815			1,044,612			868,106			938,204
Premises and equipment, net		29,756			31,155			27,490			28,819
Identifiable intangibles, net		644			835			404			583
Goodwill		121,673			121,673			121,673			121,673
Other assets		340,874			185,415			333,976			319,146
Total Assets	$	7,177,025		$	7,461,026		$	6,567,288		$	6,950,317

Liabilities:
Noninterest-bearing deposits	$	3,069,907		$	3,069,080		$	2,723,403		$	2,947,277
Interest-bearing deposits		3,425,349			3,344,876			2,975,610			3,278,013
Total deposits		6,495,256			6,413,956			5,699,013			6,225,290
Short-term borrowed funds		76,886			146,246			115,341			57,792
Other liabilities		65,895			73,722			104,511			65,125
Total Liabilities		6,638,037			6,633,924			5,918,865			6,348,207

Contingencies (Note 10)

Shareholders' Equity:
Common stock (no par value), authorized: 150,000 shares Issued and outstanding: 26,911 at September 30, 2022 and 26,866 at December 31, 2021		474,697			471,008
Common stock (no par value), authorized: 150,000 shares issued and outstanding: 26,649 at September 30, 2023 and 26,913 at December 31, 2022								471,827			475,086
Deferred compensation		35			35			35			35
Accumulated other comprehensive (loss) income		(290,797	)		49,664
Accumulated other comprehensive loss								(285,709	)		(256,105	)
Retained earnings		355,053			306,395			462,270			383,094
Total Shareholders' Equity		538,988			827,102			648,423			602,110
Total Liabilities and Shareholders' Equity	$	7,177,025		$	7,461,026		$	6,567,288		$	6,950,317

See accompanying notes to unaudited consolidated financial statements.

-4-

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

	For the Three Months				For the Nine Months				For the Three Months				For the Nine Months
	Ended September 30,								Ended September 30,
	2022		2021		2022		2021		2023		2022		2023			2022
	(In thousands, except per share data)								(In thousands, except per share data)
Interest and Loan Fee Income:
Loans	$	12,208	$	14,789	$	37,481	$	44,434	$	11,925	$	12,208	$	35,510		$	37,481
Equity securities		127		109		384		329		152		127		456			384
Debt securities available for sale		39,100		26,452		99,430		77,822		47,994		39,100		142,256			99,430
Debt securities held to maturity		6,625		2,091		10,040		7,051		8,848		6,625		26,758			10,040
Interest-bearing cash		2,742		369		5,223		766		3,929		2,742		7,981			5,223
Total Interest and Loan Fee Income		60,802		43,810		152,558		130,402		72,848		60,802		212,961			152,558
Interest Expense:
Deposits		470		473		1,383		1,398		1,095		470		2,135			1,383
Short-term borrowed funds		17		19		67		53		38		17		76			67
Total Interest Expense		487		492		1,450		1,451		1,133		487		2,211			1,450
Net Interest and Loan Fee Income		60,315		43,318		151,108		128,951		71,715		60,315		210,750			151,108
Provision for Credit Losses		-		-		-		-
Net Interest and Loan Fee Income After Provision for Credit Losses		60,315		43,318		151,108		128,951
Provision (Reversal of Provision) for Credit Losses										400		-		(1,150	)		-
Net Interest and Loan Fee Income After Provision (Reversal of Provision) for Credit Losses										71,315		60,315		211,900			151,108
Noninterest Income:
Service charges on deposit accounts		3,737		3,578		11,006		10,117		3,705		3,737		10,629			11,006
Merchant processing services		2,925		3,159		8,922		8,998		2,911		2,925		8,417			8,922
Debit card fees		1,594		1,740		6,175		5,132		1,717		1,594		5,118			6,175
Trust fees		810		839		2,462		2,467		783		810		2,358			2,462
ATM processing fees		594		573		1,514		1,792		640		594		1,996			1,514
Other service fees		463		475		1,392		1,435		463		463		1,320			1,392
Financial services commissions		79		95		314		260		78		79		270			314
Life insurance gains		923		-		923		-		278		923		278			923
Securities gains		-		-		-		34
Securities losses										-		-		(125	)		-
Other noninterest income		693		823		1,950		2,268		706		693		2,269			1,950
Total Noninterest Income		11,818		11,282		34,658		32,503		11,281		11,818		32,530			34,658
Noninterest Expense:
Salaries and related benefits		11,311		11,813		34,643		36,575		11,820		11,311		35,715			34,643
Occupancy and equipment		5,064		4,759		14,666		14,447		5,065		5,064		15,562			14,666
Outsourced data processing services		2,434		2,429		7,294		7,244		2,473		2,434		7,405			7,294
Limited partnership operating losses		1,431		620		4,293		1,820		1,440		1,431		4,314			4,293
Courier service										745		671		1,971			1,914
Professional fees		582		724		2,054		2,496		401		582		1,362			2,054
Courier service		671		534		1,914		1,605
Other noninterest expense		3,274		3,818		9,407		9,707		3,706		3,274		11,370			9,407
Total Noninterest Expense		24,767		24,697		74,271		73,894		25,650		24,767		77,699			74,271
Income Before Income Taxes		47,366		29,903		111,495		87,560		56,946		47,366		166,731			111,495
Provision for income taxes		12,606		7,840		28,805		22,771		15,345		12,606		44,431			28,805
Net Income	$	34,760	$	22,063	$	82,690	$	64,789	$	41,601	$	34,760	$	122,300		$	82,690

Average Common Shares Outstanding		26,906		26,866		26,889		26,851		26,648		26,906		26,718			26,889
Average Diluted Common Shares Outstanding		26,916		26,875		26,901		26,868		26,650		26,916		26,721			26,901
Per Common Share Data:
Basic earnings	$	1.29	$	0.82	$	3.08	$	2.41	$	1.56	$	1.29	$	4.58		$	3.08
Diluted earnings		1.29		0.82		3.07		2.41		1.56		1.29		4.58			3.07
Dividends paid		0.42		0.41		1.26		1.23		0.44		0.42		1.28			1.26

See accompanying notes to unaudited consolidated financial statements.

-5-

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

For the Three Months

For the Nine Months

Ended September 30,

2022

2021

2022

2021

(In thousands)

Net income
$ 34,760 $ 22,063 $ 82,690 $ 64,789
Other comprehensive (loss) income:

Changes in net unrealized (losses) gains on debt securities available for sale
(145,907 ) (22,200 ) (483,359 ) (61,196 )
Deferred tax benefit
43,135 6,563 142,898 18,092
Reclassification of gains included in net income
- - - (34 )
Deferred tax expense on gains included in net income
- - - 10
Changes in net unrealized (losses) gains on debt securities available for sale, net of tax
(102,772 ) (15,637 ) (340,461 ) (43,128 )
Total comprehensive (loss) income
$ (68,012 ) $ 6,426 $ (257,771 ) $ 21,661

	For the Three Months						For the Nine Months
	Ended September 30,
	2023			2022			2023			2022
	(In thousands)
Net income	$	41,601		$	34,760		$	122,300		$	82,690
Other comprehensive (loss) income:
Changes in net unrealized losses/gains on debt securities available for sale		(47,797	)		(145,907	)		(42,030	)		(483,359	)
Deferred tax benefit		14,131			43,135			12,426			142,898
Changes in net unrealized losses/gains on debt securities available for sale, net of tax		(33,666	)		(102,772	)		(29,604	)		(340,461	)
Total comprehensive income (loss)	$	7,935		$	(68,012	)	$	92,696		$	(257,771	)

See accompanying notes to unaudited consolidated financial statements.

~~-6-~~

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(unaudited)

Accumulated

Common

Other

Shares

Common

Deferred

Comprehensive

Retained

Outstanding

Stock

Compensation

(Loss) Income

Earnings

Total

(In thousands except dividend per share)

Balance, June 30, 2022
26,896 $ 473,520 $ 35 $ (188,025 ) $ 331,596 $ 617,126
Net income for the period
34,760 34,760
Other comprehensive loss
(102,772 ) (102,772 )
Exercise of stock options
15 816 816
Stock based compensation
- 339 339
Stock awarded to employees
- 22 22
Dividends ($0.42 per share)
(11,303 ) (11,303 )
Balance, September 30, 2022
26,911 $ 474,697 $ 35 $ (290,797 ) $ 355,053 $ 538,988

Balance, December 31, 2021
26,866 $ 471,008 $ 35 $ 49,664 $ 306,395 $ 827,102
Net income for the period
82,690 82,690
Other comprehensive loss
(340,461 ) (340,461 )
Exercise of stock options
39 2,171 2,171
Restricted stock activity
8 492 492
Stock based compensation
- 1,017 1,017
Stock awarded to employees
1 74 74
Retirement of common stock
(3 ) (65 ) (153 ) (218 )
Dividends ($1.26 per share)
(33,879 ) (33,879 )
Balance, September 30, 2022
26,911 $ 474,697 $ 35 $ (290,797 ) $ 355,053 $ 538,988

Balance, June 30, 2021
26,865 $ 470,330 $ 35 $ 86,921 $ 284,910 $ 842,196
Net income for the period
22,063 22,063
Other comprehensive loss
(15,637 ) (15,637 )
Exercise of stock options
- - -
Stock based compensation
- 324 324
Stock awarded to employees
1 22 22
Dividends ($0.41 per share)
(11,015 ) (11,015 )
Balance, September 30, 2021
26,866 $ 470,676 $ 35 $ 71,284 $ 295,958 $ 837,953

Balance, December 31, 2020
26,807 $ 466,006 $ 35 $ 114,412 $ 264,356 $ 844,809
Net income for the period
64,789 64,789
Other comprehensive loss
(43,128 ) (43,128 )
Exercise of stock options
53 3,017 3,017
Restricted stock activity
9 526 526
Stock based compensation
- 1,100 1,100
Stock awarded to employees
1 93 93
Retirement of common stock
(4 ) (66 ) (166 ) (232 )
Dividends ($1.23 per share)
(33,021 ) (33,021 )
Balance, September 30, 2021
26,866 $ 470,676 $ 35 $ 71,284 $ 295,958 $ 837,953

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

~~-7-~~

-6-

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

For the Nine Months

Ended September 30,

2022

2021

(In thousands)

Operating Activities:

Net income
$ 82,690 $ 64,789
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization
13,736 11,748
Provision for credit losses
- -
Net amortization of deferred loan fees
(1,445 ) (4,671 )
Stock option compensation expense
1,017 1,100
Life insurance gains
(923 ) -
Securities gains
- (34 )
Net changes in:

Interest income receivable
(13,985 ) (282 )
Other assets
(5,317 ) (13,255 )
Income taxes payable
3,055 4,580
Net deferred tax asset
510 (3,109 )
Interest expense payable
21 (8 )
Other liabilities
(7,476 ) 10,272
Net Cash Provided by Operating Activities
71,883 71,130
Investing Activities:

Net repayments of loans
88,242 128,791
Purchases of debt securities available for sale
(619,601 ) (1,593,799 )
Purchases of debt securities held to maturity
(718,940 ) -
Proceeds from maturity/calls of debt securities available for sale
391,548 1,040,179
Proceeds from maturity/calls of debt securities held to maturity
89,246 157,221
Purchases of premises and equipment
(812 ) (1,052 )
Net Cash Used in Investing Activities
(770,317 ) (268,660 )
Financing Activities:

Net change in deposits
81,300 600,982
Net change in short-term borrowings
(69,360 ) 16,557
Exercise of stock options
2,171 3,017
Retirement of common stock
(218 ) (232 )
Common stock dividends paid
(33,879 ) (33,021 )
Net Cash (Used in) Provided by Financing Activities
(19,986 ) 587,303
Net Change In Cash and Due from Banks
(718,420 ) 389,773
Cash and Due from Banks at Beginning of Period
1,132,085 621,275
Cash and Due from Banks at End of Period
$ 413,665 $ 1,011,048

Supplemental Cash Flow Disclosures:

Supplemental disclosure of non cash activities:

Right-of-use assets acquired in exchange for operating lease liabilities
$ 2,925 $ 4,972
Securities purchases pending settlement
- 81,618
Supplemental disclosure of cash flow activities:

Cash paid for amounts included in operating lease liabilities
4,553 4,791
Interest paid for the period
1,429 1,459
Income tax payments for the period
25,240 21,300

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)

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

Balance, June 30, 2023		26,648		$	471,475		$	35	$	(252,043	)	$	432,395		$	651,862
Net income for the period													41,601			41,601
Other comprehensive loss										(33,666	)					(33,666	)
Stock based compensation		-			339											339
Stock awarded to employees		1			13											13
Dividends ($0.44 per share)													(11,726	)		(11,726	)
Balance, September 30, 2023		26,649		$	471,827		$	35	$	(285,709	)	$	462,270		$	648,423

Balance, December 31, 2022		26,913		$	475,086		$	35	$	(256,105	)	$	383,094		$	602,110
Net income for the period													122,300			122,300
Other comprehensive loss										(29,604	)					(29,604	)
Restricted stock activity		9			508											508
Stock based compensation		-			1,017											1,017
Stock awarded to employees		1			60											60
Retirement of common stock		(274	)		(4,844	)							(8,903	)		(13,747	)
Dividends ($1.28 per share)													(34,221	)		(34,221	)
Balance, September 30, 2023		26,649		$	471,827		$	35	$	(285,709	)	$	462,270		$	648,423

Balance, June 30, 2022		26,896		$	473,520		$	35	$	(188,025	)	$	331,596		$	617,126
Net income for the period													34,760			34,760
Other comprehensive loss										(102,772	)					(102,772	)
Exercise of stock options		15			816											816
Stock based compensation		-			339											339
Stock awarded to employees		-			22											22
Dividends ($0.42 per share)													(11,303	)		(11,303	)
Balance, September 30, 2022		26,911		$	474,697		$	35	$	(290,797	)	$	355,053		$	538,988

Balance, December 31, 2021		26,866		$	471,008		$	35	$	49,664		$	306,395		$	827,102
Net income for the period													82,690			82,690
Other comprehensive loss										(340,461	)					(340,461	)
Exercise of stock options		39			2,171											2,171
Restricted stock activity		8			492											492
Stock based compensation		-			1,017											1,017
Stock awarded to employees		1			74											74
Retirement of common stock		(3	)		(65	)							(153	)		(218	)
Dividends ($1.26 per share)													(33,879	)		(33,879	)
Balance, September 30, 2022		26,911		$	474,697		$	35	$	(290,797	)	$	355,053		$	538,988

See accompanying notes to unaudited consolidated financial statements.

~~-8-~~-7-

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	For the Nine Months
	Ended September 30,
	2023			2022
	(In thousands)
Operating Activities:
Net income	$	122,300		$	82,690
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,760			13,736
Reversal of credit provision for credit losses		(1,150	)		-
Net amortization of deferred loan fees		(424	)		(1,445	)
Stock option compensation expense		1,017			1,017
Life insurance gains		(278	)		(923	)
Securities losses		125			-
Net changes in:
Interest income receivable		(2,039	)		(13,985	)
Other assets		(336	)		(5,317	)
Income taxes payable		43,323			3,055
Net deferred tax asset		1,107			510
Interest expense payable		53			21
Other liabilities		(6,269	)		(7,476	)
Net Cash Provided by Operating Activities		166,189			71,883
Investing Activities:
Net repayments of loans		71,672			88,242
Purchases of debt securities available for sale		-			(619,601	)
Proceeds from sale/maturity/calls of debt securities available for sale		376,842			391,548
Purchases of debt securities held to maturity		-			(718,940	)
Proceeds from maturity/calls of debt securities held to maturity		31,530			89,246
Purchases of Federal Reserve Bank stock		(2,326	)		-
Purchases of premises and equipment		(897	)		(812	)
Net Cash Provided by (Used in) Investing Activities		476,821			(770,317	)
Financing Activities:
Net change in deposits		(526,277	)		81,300
Net change in short-term borrowings		57,549			(69,360	)
Exercise of stock options		-			2,171
Retirement of common stock		(13,747	)		(218	)
Common stock dividends paid		(34,221	)		(33,879	)
Net Cash Used in Financing Activities		(516,696	)		(19,986	)
Net Change In Cash and Due from Banks		126,314			(718,420	)
Cash and Due from Banks at Beginning of Period		294,236			1,132,085
Cash and Due from Banks at End of Period	$	420,550		$	413,665

Supplemental Cash Flow Disclosures:
Supplemental disclosure of non cash activities:
Right-of-use assets acquired in exchange for operating lease liabilities	$	7,160		$	2,925
Supplemental disclosure of cash flow activities:
Cash paid for amounts included in operating lease liabilities		4,604			4,553
Interest paid for the period		2,158			1,429
Income tax payments for the period		-			25,240

See accompanying notes to unaudited consolidated financial statements.

-8-

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission and follow general practices within the banking industry. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and which, in the opinion of Management, are necessary for a fair presentation of the results for the interim periods presented. The interim results for the three and nine months ended September 30, ~~2022~~2023 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, ~~2021.~~2022.

Note 2: Accounting Policies

The most significant accounting policies followed by the Company are presented in Note 1 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, it is reasonably possible conditions could change materially affecting results of operations and financial conditions. Certain risks, uncertainties and other factors, including those discussed in “Risk Factors” in Part I – Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 may cause actual future results to differ materially from the results discussed in this report on Form 10-Q. Management continues to evaluate the impacts of the ~~COVID-~~19 ~~pandemic,~~ inflation, ~~and~~ the Federal Reserve’s monetary policy and climate changes ~~and the war in Ukraine~~ on the Company’s business. During the first half of 2023, the banking industry experienced significant volatility with recent bank failures. Industrywide concerns developed related to liquidity, deposit outflows and unrealized losses on investment debt securities. These recent events could adversely affect the Company’s ability to effectively fund its operations. Any one or a combination of such risk factors, or other factors, could materially adversely affect the Company's business, financial condition, results of operations and prospects. The extent of the impact on the Company’s results of operations, cash flow, liquidity, and financial performance, as well as the Company’s ability to execute near- and long-term business strategies and initiatives, will depend on numerous evolving factors and future developments, which are highly uncertain and cannot be reasonably predicted. ~~However,~~Furthermore, the effects could have a material impact on the Company’s results of operations and heighten many of the risk factors discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~ 2022.~~Any~~ ~~one~~ ~~or a combination of such risk factors, or other factors, could materially adversely affect the Company's business, financial condition, results of operations and prospects.~~

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

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

- 9-

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

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

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

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

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

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

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.

- 10-

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

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

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

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

- 11-

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 to be made to loans to borrowers experiencing financial difficulty is included in the allowance for credit losses when management determines ~~a TDR~~such modification is likely.

- 11-

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~~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~~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.

Recently Adopted Accounting Standards

FASB ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, issued March 2022, eliminates the recognition and measurement guidance for troubled debt restructurings and requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. This ASU also requires enhanced disclosure for loans that have been charged off. The ASU became effective January 1, 2023 under a prospective approach. The Company adopted the provisions to remove the recognition and measurement guidance for troubled debt restructurings and/or modify relevant disclosures in the “Loans” note to the unaudited consolidated financial statements. The requirement to include additional disclosures was adopted by the Company January 1, 2023. The additional disclosures did not affect the financial results upon adoption.

Recently Issued Accounting Standards

~~FASB ASU~~ ~~2022~~-02, ~~Financial Instruments~~ – ~~Credit Losses (Topic~~ ~~326~~~~): Troubled Debt Restructurings and Vintage Disclosures~~~~, was issued~~ ~~March 2022.~~ The ASU eliminates the accounting guidance for Troubled Debt Restructurings (“TDR”) Loans by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. Upon adoption of this ASU, an entity is required to disclose current period gross chargeoffs by year of origination for loans. The ASU is to be applied prospectively, with the exception of the guidance related to the recognition and measurement of TDR loans that ~~may~~ ~~be applied by recording a cumulative effect adjustment to retained earnings as of the beginning of the~~ ~~first~~ ~~reporting period in which the guidance is effective. This guidance is effective for reporting periods beginning after~~ ~~December 15, 2022,~~ ~~with early adoption permitted, for public entities that have adopted ASU~~ ~~2016~~-~~13,~~~~Financial Instruments~~ – ~~Credit Losses (Topic~~ ~~326~~). ~~The Company adopted ASU~~ ~~2016~~-13 ~~effective~~ ~~January 1, 2020.~~ ~~FASB ASU~~ ~~2022~~-02 ~~is applicable to the Company’s fiscal year beginning~~ ~~January 1, 2023.~~ ~~The Company is currently evaluating the impact of adopting this standard.~~

FASB ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the 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. In December 2022, the FASB issued ASU 2022-06,Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” The ASU 2022-06 deferred the sunset date of ASU 2020-04 ~~is effective~~ ~~March 12, 2020~~ ~~through~~to December ~~31, 2022.~~2024. ~~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 does not expect any material impact on its consolidated financial ~~statements since~~statements.

FASB ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, was issued June 2022. The ASU clarifies the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. Additionally, the ASU requires specific disclosures related to equity securities that are subject to contractual sale restrictions. The required disclosures include (1) the fair value of such equity securities reflected in the balance sheet, (2) the nature and remaining duration of the corresponding restrictions, and (3) any circumstances that could cause a lapse in the restrictions. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted. The Company ~~has an insignificant number~~is currently evaluating the impact of this ASU on its consolidated financial ~~instruments applicable~~statements.

FASB ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323):Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, was issued March 2023. The ASU expands the use of the proportional amortization method of accounting, currently only available to investments in low-income housing tax credit structures, to equity investments in other tax credit structures that meet certain criteria. The ASU also requires additional disclosures for any tax credit program where the proportional amortization method is elected. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of this ~~ASU.~~

ASU on its consolidated financial statements.

~~-12-~~- 12-

Note 3:Investment Securities

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 accumulated other comprehensive income, and debt securities held to maturity, which are carried at amortized cost, before allowance for credit losses of $7$1 thousand at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, ~~follows:~~follows. In accordance with GAAP, unrealized gains and losses on held to maturity securities have not been recognized in the Company’s financial statements.

	At September 30, 2022									At September 30, 2023
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(In thousands)									(In thousands)
Debt securities available for sale
Debt securities available for sale:
Agency residential mortgage-backed securities ("MBS")	$	326,577	$	3	$	(29,891	)	$	296,689	$	269,883	$	-	$	(30,155	)	$	239,728
Securities of U.S. Government sponsored entities		289,105		-		(16,580	)		272,525		308,160		-		(28,796	)		279,364
Obligations of states and political subdivisions		85,178		50		(4,241	)		80,987		73,614		4		(3,979	)		69,639
Corporate securities		2,491,591		1,085		(354,168	)		2,138,508		2,134,535		625		(320,736	)		1,814,424
Collateralized loan obligations		1,596,730		497		(9,605	)		1,587,622		1,525,669		702		(23,293	)		1,503,078
Total debt securities available for sale		4,789,181		1,635		(414,485	)		4,376,331		4,311,861		1,331		(406,959	)		3,906,233
Debt securities held to maturity
Debt securities held to maturity:
Agency residential MBS		112,371		20		(8,278	)		104,113		84,347		9		(8,116	)		76,240
Obligations of states and political subdivisions		103,749		29		(1,654	)		102,124		77,559		4		(1,957	)		75,606
Corporate securities		720,154		-		(47,929	)		672,225		726,951		-		(60,402	)		666,549
Total debt securities held to maturity		936,274		49		(57,861	)		878,462		888,857		13		(70,475	)		818,395
Total	$	5,725,455	$	1,684	$	(472,346	)	$	5,254,793	$	5,200,718	$	1,344	$	(477,434	)	$	4,724,628

	At December 31, 2021									At December 31, 2022
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(In thousands)									(In thousands)
Debt securities available for sale
Debt securities available for sale:
Agency residential MBS	$	399,997	$	11,766	$	(37	)	$	411,726	$	311,089	$	4	$	(25,045	)	$	286,048
Securities of U.S. Government entities		119		-		-			119
Securities of U.S. Government sponsored entities											306,336		3		(15,486	)		290,853
Obligations of states and political subdivisions		90,107		3,842		(29	)		93,920		84,024		59		(2,079	)		82,004
Corporate securities		2,692,792		63,573		(9,630	)		2,746,735		2,406,566		1,032		(307,643	)		2,099,955
Collateralized loan obligations		1,385,331		1,743		(719	)		1,386,355		1,587,326		527		(14,970	)		1,572,883
Total debt securities available for sale		4,568,346		80,924		(10,415	)		4,638,855		4,695,341		1,625		(365,223	)		4,331,743
Debt securities held to maturity
Debt securities held to maturity:
Agency residential MBS		148,390		3,114		(37	)		151,467		104,852		13		(7,503	)		97,362
Obligations of states and political subdivisions		158,013		3,082		-			161,095		89,208		73		(538	)		88,743
Corporate securities											721,854		-		(34,448	)		687,406
Total debt securities held to maturity		306,403		6,196		(37	)		312,562		915,914		86		(42,489	)		873,511
Total	$	4,874,749	$	87,120	$	(10,452	)	$	4,951,417	$	5,611,255	$	1,711	$	(407,712	)	$	5,205,254

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- 13-

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

	At September 30, 2022								At September 30, 2023
	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:
1 year or less	$	331,756	$	329,956	$	14,686	$	14,634	$	45,005	$	44,479	$	17,851	$	17,714
Over 1 to 5 years		557,420		523,563		170,979		165,738		773,732		715,554		273,548		259,494
Over 5 to 10 years		2,823,019		2,482,869		638,238		593,977		2,667,773		2,362,742		513,111		464,947
Over 10 years		750,409		743,254		-		-		555,468		543,730		-		-
Subtotal		4,462,604		4,079,642		823,903		774,349		4,041,978		3,666,505		804,510		742,155
MBS		326,577		296,689		112,371		104,113		269,883		239,728		84,347		76,240
Total	$	4,789,181	$	4,376,331	$	936,274	$	878,462	$	4,311,861	$	3,906,233	$	888,857	$	818,395

	At December 31, 2021								At December 31, 2022
	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:
1 year or less	$	306,333	$	309,257	$	15,836	$	15,941	$	251,578	$	250,317	$	12,676	$	12,659
Over 1 to 5 years		707,062		738,057		125,001		127,539		584,707		554,596		161,653		158,409
Over 5 to 10 years		2,320,559		2,347,242		17,176		17,615		2,869,559		2,570,159		636,733		605,081
Over 10 years		834,395		832,573		-		-		678,408		670,623		-		-
Subtotal		4,168,349		4,227,129		158,013		161,095		4,384,252		4,045,695		811,062		776,149
MBS		399,997		411,726		148,390		151,467		311,089		286,048		104,852		97,362
Total	$	4,568,346	$	4,638,855	$	306,403	$	312,562	$	4,695,341	$	4,331,743	$	915,914	$	873,511

Expected maturities of mortgage-related securities can differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. In addition, such factors as prepayments and interest rates may affect the yield on the carrying value of mortgage-related securities.

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

	Debt Securities Available for Sale																					Debt Securities Available for Sale
	At September 30, 2022																					At September 30, 2023
	No. of		Less than 12 months					No. of		12 months or longer					No. of		Total					No. of		Less than 12 months					No. of		12 months or longer					No. of		Total
	Investment				Unrealized			Investment				Unrealized			Investment				Unrealized			Investment				Unrealized			Investment				Unrealized			Investment				Unrealized
	Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses
	($ in thousands)																					($ in thousands)
Agency residential MBS		114	$	295,984	$	(29,890	)		2	$	39	$	(1	)		116	$	296,023	$	(29,891	)		5	$	803	$	(26	)		108	$	238,914	$	(30,129	)		113	$	239,717	$	(30,155	)
Securities of U.S. Government sponsored entities		19		272,525		(16,580	)		-		-		-			19		272,525		(16,580	)		4		16,293		(365	)		19		263,071		(28,431	)		23		279,364		(28,796	)
Obligations of states and political subdivisions		63		66,998		(4,148	)		3		1,309		(93	)		66		68,307		(4,241	)		8		8,887		(227	)		51		55,722		(3,752	)		59		64,609		(3,979	)
Corporate securities		156		1,787,045		(256,786	)		36		323,597		(97,382	)		192		2,110,642		(354,168	)		-		-		-			152		1,799,419		(320,736	)		152		1,799,419		(320,736	)
Collateralized loan obligations		58		535,175		(8,768	)		16		151,448		(837	)		74		686,623		(9,605	)		36		441,715		(12,234	)		67		594,769		(11,059	)		103		1,036,484		(23,293	)
Total		410	$	2,957,727	$	(316,172	)		57	$	476,393	$	(98,313	)		467	$	3,434,120	$	(414,485	)		53	$	467,698	$	(12,852	)		397	$	2,951,895	$	(394,107	)		450	$	3,419,593	$	(406,959	)

- 14-

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

	Debt Securities Held to Maturity																					Debt Securities Held to Maturity
	At September 30, 2022																					At September 30, 2023
	No. of		Less than 12 months					No. of		12 months or longer					No. of		Total					No. of		Less than 12 months					No. of		12 months or longer					No. of		Total
	Investment				Unrecognized			Investment				Unrecognized			Investment				Unrecognized			Investment				Unrecognized			Investment				Unrecognized			Investment				Unrecognized
	Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses
	($ in thousands)																					($ in thousands)
Agency residential MBS		93	$	102,485	$	(8,183	)		3	$	710	$	(95	)		96	$	103,195	$	(8,278	)		5	$	3	$	-			93	$	75,493	$	(8,116	)		98	$	75,496	$	(8,116	)
Obligations of states and political subdivisions		99		82,394		(1,654	)		-		-		-			99		82,394		(1,654	)		64		40,812		(1,109	)		28		27,638		(848	)		92		68,450		(1,957	)
Corporate securities		49		657,226		(47,929	)		-		-		-			49		657,226		(47,929	)		3		25,930		(1,792	)		48		640,619		(58,610	)		51		666,549		(60,402	)
Total		241	$	842,105	$	(57,766	)		3	$	710	$	(95	)		244	$	842,815	$	(57,861	)		72	$	66,745	$	(2,901	)		169	$	743,750	$	(67,574	)		241	$	810,495	$	(70,475	)

Based upon the Company’s September 30, ~~2022~~2023 evaluation, the unrealized losses on debt securities were caused by market conditions for these types of securities. ~~In the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2022,~~ ~~the market yields on~~ ~~five~~~~-year and~~ ~~ten~~~~-year Treasury notes have increased 2.83% and 2.32%, respectively; these increasing~~Increasing risk-free interest rates have caused large declines in bond values generally. Additionally, market rates for non-Treasury bonds are determined by the risk-free interest rate plus a risk premium spread; such spreads for investment grade, fixed rate, taxable corporate bonds have increased, ~~0.67% in the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2022,~~ also broadly reducing corporate bond values. The Company continually monitors interest rate changes, risk premium spread changes, credit rating changes for issuers of bonds owned, collateralized loan obligations’ collateral levels, and corporate bond issuers’ common stock price changes. All collateralized loan obligations and corporate ~~bonds~~securities were investment grade rated at September 30, ~~2022.~~2023.

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

The Company evaluates held to maturity corporate securities individually, monitoring each issuer’s financial condition, profitability, cash flows and credit rating agency conclusions. The Company has an expectation that nonpayment of the amortized cost basis continues to be zero.

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

As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the ~~Company had~~Company’s debt securities pledged to secure public deposits, Federal Reserve Bank borrowings and short-term borrowed funds had a carrying amount of ~~$1,023,398~~$1,962,357 thousand and ~~$1,021,566~~$1,180,010 thousand, respectively.

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

	Debt Securities Available for Sale																					Debt Securities Available for Sale
	At December 31, 2021																					At December 31, 2022
	No. of		Less than 12 months					No. of		12 months or longer					No. of		Total					No. of		Less than 12 months					No. of		12 months or longer					No. of		Total
	Investment				Unrealized			Investment				Unrealized			Investment				Unrealized			Investment				Unrealized			Investment				Unrealized			Investment				Unrealized
	Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses
	($ in thousands)																					($ in thousands)
Agency residential MBS		7	$	8,900	$	(37	)		2	$	47	$	-			9	$	8,947	$	(37	)		107	$	279,139	$	(24,222	)		9	$	6,110	$	(823	)		116	$	285,249	$	(25,045	)
Securities of U.S. Government entities		-		-		-			1		119		-			1		119		-
Securities of U.S. Government sponsored entities																							22		289,067		(15,486	)		-		-		-			22		289,067		(15,486	)
Obligations of states and political subdivisions		6		2,859		(27	)		2		669		(2	)		8		3,528		(29	)		56		65,633		(1,902	)		8		3,265		(177	)		64		68,898		(2,079	)
Corporate securities		56		691,555		(9,630	)		-		-		-			56		691,555		(9,630	)		133		1,521,294		(170,453	)		56		555,727		(137,190	)		189		2,077,021		(307,643	)
Collateralized loan obligations		19		208,199		(521	)		8		51,523		(198	)		27		259,722		(719	)		58		518,074		(13,772	)		20		192,692		(1,198	)		78		710,766		(14,970	)
Total		88	$	911,513	$	(10,215	)		13	$	52,358	$	(200	)		101	$	963,871	$	(10,415	)		376	$	2,673,207	$	(225,835	)		93	$	757,794	$	(139,388	)		469	$	3,431,001	$	(365,223	)

- 15-

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

	Debt Securities Held to Maturity																						Debt Securities Held to Maturity
	At December 31, 2021																						At December 31, 2022
	No. of		Less than 12 months					No. of			12 months or longer					No. of		Total					No. of		Less than 12 months					No. of		12 months or longer					No. of		Total
	Investment				Unrecognized			Investment					Unrecognized			Investment				Unrecognized			Investment				Unrecognized			Investment				Unrecognized			Investment				Unrecognized
	Positions		Fair Value		Losses			Positions		��	Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses
	($ in thousands)																						($ in thousands)
Agency residential MBS		1	$	542	$	(19	)		3		$	530	$	(18	)		4	$	1,072	$	(37	)		97	$	95,814	$	(7,404	)		2	$	682	$	(99	)		99	$	96,496	$	(7,503	)
Obligations of states and political subdivisions																								54		53,536		(538	)		-		-		-			54		53,536		(538	)
Corporate securities																								49		672,406		(34,448	)		-		-		-			49		672,406		(34,448	)
Total		1	$	542	$	(19	)		3		$	530	$	(18	)		4	$	1,072	$	(37	)		200	$	821,756	$	(42,390	)		2	$	682	$	(99	)		202	$	822,438	$	(42,489	)

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. 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 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 Nine Months Ended September 30,
	2022		2021			2023		2022
	(In thousands)					(In thousands)
Allowance for credit losses:
Beginning balance	$	7	$	9		$	1	$	7
Provision (Reversal)		-		(2	)
Provision							-		-
Chargeoffs		-		-			-		-
Recoveries		-		-			-		-
Total ending balance	$	7	$	7		$	1	$	7

Agency mortgage-backed securities were assigned no credit loss allowance due to the perceived backing of government sponsored entities. Municipal securities were evaluated for risk of default based on credit rating and remaining term to maturity using Moody’s risk of default factors; Moody’s loss upon default factors were applied to the assumed defaulted principal amounts to estimate the amount for credit loss allowance. Corporate securities held to maturity were individually evaluated for expected credit loss by evaluating the issuer’s financial condition, profitability, cash flows, and credit ratings. At September 30, ~~2022,~~2023, no credit loss allowance was assigned to corporate securities held to maturity.

~~The following table summarizes the amortized cost of debt securities held to maturity at~~ ~~September 30, 2022,~~ ~~aggregated by credit rating:~~

Credit Risk Profile by Credit Rating

At September 30, 2022

AAA/AA/A

BBB+

B-

Not Rated

Total

(In thousands)

Agency residential MBS
$ 111,837 $ - $ 487 $ 47 $ 112,371
Obligations of states and political subdivisions
103,484 - - 265 103,749
Corporate securities
466,906 253,248 - - 720,154
Total
$ 682,227 $ 253,248 $ 487 $ 312 $ 936,274

There were no debt securities held to maturity on nonaccrual status or past due 30 days or more as of September 30, ~~2022.~~2023.

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- 16-

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

	For the Three Months				For the Nine Months				For the Three Months				For the Nine Months
	Ended September 30,								Ended September 30,
	2022		2021		2022		2021		2023		2022		2023		2022
	(In thousands)								(In thousands)

Taxable	$	44,461	$	26,674	$	105,286	$	78,564	$	55,911	$	44,461	$	166,031	$	105,286
Tax-exempt from federal income tax		1,391		1,978		4,568		6,638		1,083		1,391		3,439		4,568
Total interest income from investment securities	$	45,852	$	28,652	$	109,854	$	85,202	$	56,994	$	45,852	$	169,470	$	109,854

[The remainder of this page intentionally left blank]

- 16-

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

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

At September 30,

At December 31,

2022

2021

(In thousands)

Commercial:

Paycheck Protection Program ("PPP") loans
$ 6,095 $ 45,888
Other
174,321 187,202
Total Commercial
180,416 233,090
Commercial Real Estate
492,749 535,261
Construction
2,635 48
Residential Real Estate
14,719 18,133
Consumer Installment & Other
288,514 281,594
Total
$ 979,033 $ 1,068,126

	At September 30,		At December 31,
	2023		2022
	(In thousands)

Commercial	$	135,575	$	169,617
Commercial real estate		494,282		491,107
Construction		5,043		3,088
Residential real estate		11,283		13,834
Consumer installment & other		239,667		280,842
Total	$	885,850	$	958,488

	Allowance for Credit Losses
	For the Three Months Ended September 30, 2023
												Consumer
				Commercial					Residential			Installment
	Commercial			Real Estate			Construction		Real Estate			and Other			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	4,764		$	6,083		$	202	$	32		$	7,399		$	18,480
(Reversal) provision		(345	)		(194	)		40		(6	)		905			400
Chargeoffs		(262	)		-			-		-			(1,827	)		(2,089	)
Recoveries		10			15			-		-			928			953
Total allowance for credit losses	$	4,167		$	5,904		$	242	$	26		$	7,405		$	17,744

PPP loans are guaranteed by the Small Business Administration (“SBA”). PPP loan proceeds used for eligible payroll and certain other operating costs are eligible for forgiveness, with repayment of loan principal and accrued interest made by the SBA. Management does ~~not~~ ~~expect credit losses on PPP loans. Therefore, there is~~ no ~~allowance for such loans. The following summarizes activity in the allowance for credit losses.~~

	Allowance for Credit Losses
	For the Nine Months Ended September 30, 2023
												Consumer
				Commercial					Residential			Installment
	Commercial			Real Estate			Construction		Real Estate			and Other			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	6,138		$	5,888		$	150	$	32		$	8,076		$	20,284
(Reversal) provision		(3,755	)		(29	)		92		(6	)		2,548			(1,150	)
Chargeoffs		(410	)		-			-		-			(5,379	)		(5,789	)
Recoveries		2,194			45			-		-			2,160			4,399
Total allowance for credit losses	$	4,167		$	5,904		$	242	$	26		$	7,405		$	17,744

	Allowance for Credit Losses
	For the Three Months Ended September 30, 2022
										Consumer
				Commercial				Residential		Installment
	Commercial			Real Estate		Construction		Real Estate		and Other			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	6,536		$	5,916	$	96	$	35	$	9,730		$	22,313
(Reversal) provision		(164	)		14		32		-		118			-
Chargeoffs		-			-		-		-		(1,917	)		(1,917	)
Recoveries		72			14		-		-		736			822
Total allowance for credit losses	$	6,444		$	5,944	$	128	$	35	$	8,667		$	21,218

	Allowance for Credit Losses
	For the Nine Months Ended September 30, 2022
												Consumer
				Commercial					Residential			Installment
	Commercial			Real Estate			Construction		Real Estate			and Other			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	6,966		$	6,529		$	2	$	45		$	9,972		$	23,514
(Reversal) provision		(837	)		(631	)		126		(10	)		1,352			-
Chargeoffs		(20	)		-			-		-			(4,522	)		(4,542	)
Recoveries		335			46			-		-			1,865			2,246
Total allowance for credit losses	$	6,444		$	5,944		$	128	$	35		$	8,667		$	21,218

- 17-

Allowance for Credit Losses

For the Three Months Ended September 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
$ 6,858 $ 6,752 $ 5 $ 57 $ 10,065 $ 23,737
Provision (reversal)
10 (754 ) (3 ) (7 ) 756 2
Chargeoffs
(56 ) - - - (916 ) (972 )
Recoveries
80 705 - - 330 1,115
Total allowance for credit losses
$ 6,892 $ 6,703 $ 2 $ 50 $ 10,235 $ 23,882

Allowance for Credit Losses

For the Nine Months Ended September 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
(2,425 ) 314 (4 ) 3 2,114 2
Chargeoffs
(56 ) - - - (2,176 ) (2,232 )
Recoveries
168 729 - - 1,361 2,258
Total allowance for credit losses
$ 6,892 $ 6,703 $ 2 $ 50 $ 10,235 $ 23,882

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

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, 2022												At September 30, 2023
	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	$	179,923	$	480,476	$	2,635	$	13,669	$	286,386	$	963,089	$	128,392	$	482,539	$	5,043	$	10,943	$	236,232	$	863,149
Substandard		493		12,273		-		1,050		419		14,235		7,183		11,743		-		340		863		20,129
Doubtful		-		-		-		-		739		739		-		-		-		-		1,422		1,422
Loss		-		-		-		-		970		970		-		-		-		-		1,150		1,150
Total	$	180,416	$	492,749	$	2,635	$	14,719	$	288,514	$	979,033	$	135,575	$	494,282	$	5,043	$	11,283	$	239,667	$	885,850

Credit Risk Profile by Internally Assigned Grade

At December 31, 2021

Commercial

Commercial
Real Estate

Construction

Residential
Real Estate

Consumer
Installment and
Other

Total

(In thousands)

Grade:

Pass
$ 232,710 $ 521,300 $ 48 $ 16,874 $ 278,922 $ 1,049,854
Substandard
380 13,961 - 1,259 1,207 16,807
Doubtful
- - - - 931 931
Loss
- - - - 534 534
Total
$ 233,090 $ 535,261 $ 48 $ 18,133 $ 281,594 $ 1,068,126

- 18-

	Credit Risk Profile by Internally Assigned Grade
	At December 31, 2022
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total
	(In thousands)
Grade:
Pass	$	169,040	$	477,842	$	3,088	$	13,457	$	278,223	$	941,650
Substandard		577		13,265		-		377		1,079		15,298
Doubtful		-		-		-		-		752		752
Loss		-		-		-		-		788		788
Total	$	169,617	$	491,107	$	3,088	$	13,834	$	280,842	$	958,488

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, 2022												At September 30, 2023
	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	$	179,272	$	1,041	$	53	$	-	$	50	$	180,416	$	135,477	$	-	$	25	$	73	$	-	$	135,575
Commercial real estate		491,955		367		371		-		56		492,749		493,537		443		110		-		192		494,282
Construction		2,635		-		-		-		-		2,635		5,043		-		-		-		-		5,043
Residential real estate		14,425		265		-		-		29		14,719		11,280		-		-		-		3		11,283
Consumer installment and other		282,954		3,739		990		769		62		288,514		232,558		5,014		1,125		956		14		239,667
Total	$	971,241	$	5,412	$	1,414	$	769	$	197	$	979,033	$	877,895	$	5,457	$	1,260	$	1,029	$	209	$	885,850

	Summary of Loans by Delinquency and Nonaccrual Status												Summary of Loans by Delinquency and Nonaccrual Status
	At December 31, 2021												At December 31, 2022
	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	$	232,444	$	383	$	263	$	-	$	-	$	233,090	$	169,337	$	172	$	58	$	-	$	50	$	169,617
Commercial real estate		534,748		223		-		-		290		535,261		490,354		508		192		-		53		491,107
Construction		48		-		-		-		-		48		3,088		-		-		-		-		3,088
Residential real estate		17,855		141		-		-		137		18,133		13,430		377		-		-		27		13,834
Consumer installment and other		276,793		3,184		1,013		339		265		281,594		273,247		5,101		1,850		628		16		280,842
Total	$	1,061,888	$	3,931	$	1,276	$	339	$	692	$	1,068,126	$	949,456	$	6,158	$	2,100	$	628	$	146	$	958,488

- 18-

There was no allowance for credit losses allocated to loans on nonaccrual status as of September 30, ~~2022~~2023 or December 31, ~~2021.~~2022. There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at September 30, ~~2022~~2023 or December 31, ~~2021.~~2022.

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

Troubled Debt Restructurings

At September 30, 2022

Period-End

Individual

Number of

Pre-Modification

Period-End

Credit Loss

Contracts

Carrying Value

Carrying Value

Allowance

($ in thousands)

Commercial real estate
2 $ 2,785 $ 1,760 $ -
Total
2 $ 2,785 $ 1,760 $ -

Troubled Debt Restructurings

At December 31, 2021

Period-End

Individual

Number of

Pre-Modification

Period-End

Credit Loss

Contracts

Carrying Value

Carrying Value

Allowance

($ in thousands)

Commercial real estate
2 $ 2,785 $ 1,793 $ -
Residential real estate
1 241 172 -
Total
3 $ 3,026 $ 1,965 $ -

- 19-

~~During~~There were no loan modifications made to borrowers experiencing financial difficulty during the~~three~~ ~~and~~ nine months ended September 30, ~~2022,~~ ~~the Company did~~ ~~not~~ ~~modify any loans that were considered TDRs. During the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2021,~~ ~~the Company did~~ ~~not~~ ~~modify any loans that were considered TDRs 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. This relief ended on~~ ~~January 1, 2022.~~ ~~During the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2021,~~ ~~the Company modified loans under Section~~ ~~4013~~ ~~of the CARES Act, granting~~ 90 ~~day deferrals of principal and interest payments. As of~~ ~~September 30, 2021,~~ ~~loans deferred under the CARES Act that are~~ ~~not~~ ~~considered TDRs consisted of consumer loans totaling $1.0 million. There were~~ no ~~chargeoffs related to TDRs made during the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2022~~2023 and September 30, ~~2021.~~ ~~During the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2022~~ ~~and~~ ~~September 30, 2021,~~ ~~no TDR loans defaulted within~~ 12 ~~months of the modification date. A troubled debt restructuring is considered to be in default when payments are~~ 90 ~~days or more past due.~~

~~No loans on nonaccrual status were included in TDRs of $1,760 thousand at~~ ~~September 30, 2022~~ ~~and $1,965 thousand at~~ ~~December 31, 2021.~~2022.

A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. Loans that were considered collateral dependent at September 30, ~~2022~~2023 included the following: ~~six~~seven commercial real estate loans totaling ~~$9.0~~$8.8 million secured by real property, ~~$726~~one commercial loan with a balance of $600 thousand secured by business assets and $891 thousand of indirect consumer installment loans secured by personal ~~property, one commercial loan with a balance of $204 thousand secured by business assets, and one residential real estate loans totaling $62 thousand secured by real~~ property. There were no other collateral dependent loans at September 30, ~~2022.~~2023. Loans that were considered collateral dependent at December 31, ~~2021~~2022 included the following: five commercial real estate loans totaling ~~$8.4~~$8.1 million secured by real property, ~~$394~~and $625 thousand of indirect consumer installment loans secured by personal ~~property,~~ ~~one~~ ~~commercial loan with a balance of $57 thousand secured by business assets, and three residential real estate loans totaling $420 thousand secured by real~~ property. There were no other collateral dependent loans at December 31, ~~2021.~~2022.

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

	At September 30, 2022																			At September 30, 2023
															Line of																			Line of
															Credit																			Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized					Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2018		2019		2020		2021		2022		Term Loans		Cost Basis		Total			Prior		2019		2020		2021		2022		2023		Term Loans		Cost Basis		Total
	(In thousands)																			(In thousands)
Commercial loans by grade
Commercial loans by grade:																			Commercial loans by grade:
Pass	$	33,823	$	7,392	$	13,442	$	18,059	$	62,055	$	16,533	$	151,304	$	28,619	$	179,923		$	21,499	$	5,086	$	13,435	$	34,779	$	23,546	$	11,429	$	109,774	$	18,618	$	128,392
Substandard		24		15		-		-		-		204		243		250		493			12		2,525		-		2,835		-		600		5,972		1,211		7,183
Doubtful		-		-		-		-		-		-		-		-		-			-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-			-		-		-		-		-		-		-		-		-
Total	$	33,847	$	7,407	$	13,442	$	18,059	$	62,055	$	16,737	$	151,547	$	28,869	$	180,416		$	21,511	$	7,611	$	13,435	$	37,614	$	23,546	$	12,029	$	115,746	$	19,829	$	135,575

Current gross chargeoffs on commercial loans:																			Current gross chargeoffs on commercial loans:
Three months ended September 30, 2023																				$	-	$	-	$	3	$	135	$	-	$	-	$	138	$	124	$	262
Nine months ended September 30, 2023																					-		-		3		135		-		-		138		272		410

	At December 31, 2021																			At December 31, 2022
															Line of																			Line of
															Credit																			Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized					Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2017		2018		2019		2020		2021		Term Loans		Cost Basis		Total			Prior		2018		2019		2020		2021		2022		Term Loans		Cost Basis		Total
	(In thousands)																			(In thousands)
Commercial loans by grade
Commercial loans by grade:																			Commercial loans by grade:
Pass	$	34,784	$	3,999	$	8,690	$	16,919	$	30,694	$	98,799	$	193,885	$	38,825	$	232,710		$	23,891	$	5,549	$	12,557	$	17,293	$	53,928	$	23,966	$	137,184	$	31,856	$	169,040
Substandard		32		-		-		-		-		57		89		291		380			12		-		-		-		-		-		12		565		577
Doubtful		-		-		-		-		-		-		-		-		-			-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-			-		-		-		-		-		-		-		-		-
Total	$	34,816	$	3,999	$	8,690	$	16,919	$	30,694	$	98,856	$	193,974	$	39,116	$	233,090		$	23,903	$	5,549	$	12,557	$	17,293	$	53,928	$	23,966	$	137,196	$	32,421	$	169,617

	At September 30, 2022																			At September 30, 2023
															Line of																			Line of
															Credit																			Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized					Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2018		2019		2020		2021		2022		Term Loans		Cost Basis		Total			Prior		2019		2020		2021		2022		2023		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	$	155,099	$	59,294	$	74,660	$	74,703	$	73,851	$	42,869	$	480,476	$	-	$	480,476		$	183,073	$	69,055	$	70,037	$	69,569	$	51,476	$	39,329	$	482,539	$	-	$	482,539
Substandard		8,354		-		832		810		-		2,277		12,273		-		12,273			10,137		815		791		-		-		-		11,743		-		11,743
Doubtful		-		-		-		-		-		-		-		-		-			-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-			-		-		-		-		-		-		-		-		-
Total	$	163,453	$	59,294	$	75,492	$	75,513	$	73,851	$	45,146	$	492,749	$	-	$	492,749		$	193,210	$	69,870	$	70,828	$	69,569	$	51,476	$	39,329	$	494,282	$	-	$	494,282

Current gross chargeoffs on commercial real estate loans:																			Current gross chargeoffs on commercial real estate loans:
Three months ended September 30, 2023																				$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Nine months ended September 30, 2023																					-		-		-		-		-		-		-		-		-

[The remainder of this page intentionally left blank]

- 19-

	At December 31, 2022
															Line of
															Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2018		2019		2020		2021		2022		Term Loans		Cost Basis		Total
	(In thousands)
Commercial real estate loans by grade:
Pass	$	146,588	$	58,473	$	71,440	$	74,016	$	71,618	$	55,707	$	477,842	$	-	$	477,842
Substandard		8,083		-		2,112		806		-		2,264		13,265		-		13,265
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	154,671	$	58,473	$	73,552	$	74,822	$	71,618	$	57,971	$	491,107	$	-	$	491,107

	At September 30, 2023
															Line of
															Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2019		2020		2021		2022		2023		Term Loans		Cost Basis		Total
	(In thousands)
Residential real estate loans by grade:
Pass	$	10,943	$	-	$	-	$	-	$	-	$	-	$	10,943	$	-	$	10,943
Substandard		340		-		-		-		-		-		340		-		340
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	11,283	$	-	$	-	$	-	$	-	$	-	$	11,283	$	-	$	11,283

Current gross chargeoffs on residential real estate loans:
Three months ended September 30, 2023	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Nine months ended September 30, 2023		-		-		-		-		-		-		-		-		-

	At December 31, 2022
															Line of
															Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2018		2019		2020		2021		2022		Term Loans		Cost Basis		Total
	(In thousands)
Residential real estate loans by grade:
Pass	$	13,457	$	-	$	-	$	-	$	-	$	-	$	13,457	$	-	$	13,457
Substandard		377		-		-		-		-		-		377		-		377
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	13,834	$	-	$	-	$	-	$	-	$	-	$	13,834	$	-	$	13,834

	At September 30, 2023
															Line of
															Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2019		2020		2021		2022		2023		Term Loans		Cost Basis		Total
	(In thousands)
Construction loans by grade:
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	5,043	$	5,043
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	5,043	$	5,043

Current gross chargeoffs on construction loans:
Three months ended September 30, 2023	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Nine months ended September 30, 2023		-		-		-		-		-		-		-		-		-

	At December 31, 2022
															Line of
															Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2018		2019		2020		2021		2022		Term Loans		Cost Basis		Total
	(In thousands)
Construction loans by grade:
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	3,088	$	3,088
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	3,088	$	3,088

[The remainder of this page intentionally left blank]

- 20-

At December 31, 2021

Line of

Credit

Term Loans Amortized Cost Basis by Origination Year

Total

Amortized

Prior

2017

2018

2019

2020

2021

Term Loans

Cost Basis

Total

(In thousands)

Commercial real estate loans by grade

Pass
$ 116,181 $ 87,921 $ 78,200 $ 78,647 $ 83,642 $ 76,709 $ 521,300 $ - $ 521,300
Substandard
10,993 - - 2,016 823 129 13,961 - 13,961
Doubtful
- - - - - - - - -
Loss
- - - - - - - - -
Total
$ 127,174 $ 87,921 $ 78,200 $ 80,663 $ 84,465 $ 76,838 $ 535,261 $ - $ 535,261

At September 30, 2022

Line of

Credit

Term Loans Amortized Cost Basis by Origination Year

Total

Amortized

Prior

2018

2019

2020

2021

2022

Term Loans

Cost Basis

Total

(In thousands)

Residential real estate loans by grade

Pass
$ 13,669 $ - $ - $ - $ - $ - $ 13,669 $ - $ 13,669
Substandard
1,050 - - - - - 1,050 - 1,050
Doubtful
- - - - - - - - -
Loss
- - - - - - - - -
Total
$ 14,719 $ - $ - $ - $ - $ - $ 14,719 $ - $ 14,719

At December 31, 2021

Line of

Credit

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
$ 16,874 $ - $ - $ - $ - $ - $ 16,874 $ - $ 16,874
Substandard
1,259 - - - - - 1,259 - 1,259
Doubtful
- - - - - - - - -
Loss
- - - - - - - - -
Total
$ 18,133 $ - $ - $ - $ - $ - $ 18,133 $ - $ 18,133

At September 30, 2022

Line of

Credit

Term Loans Amortized Cost Basis by Origination Year

Total

Amortized

Prior

2018

2019

2020

2021

2022

Term Loans

Cost Basis

Total

(In thousands)

Construction loans by grade

Pass
$ - $ - $ - $ - $ - $ - $ - $ 2,635 $ 2,635
Substandard
- - - - - - - - -
Doubtful
- - - - - - - - -
Loss
- - - - - - - - -
Total
$ - $ - $ - $ - $ - $ - $ - $ 2,635 $ 2,635

At December 31, 2021

Line of

Credit

Term Loans Amortized Cost Basis by Origination Year

Total

Amortized

Prior

2017

2018

2019

2020

2021

Term Loans

Cost Basis

Total

(In thousands)

Construction loans by grade

Pass
$ - $ - $ - $ - $ - $ - $ - $ 48 $ 48
Substandard
- - - - - - - - -
Doubtful
- - - - - - - - -
Loss
- - - - - - - - -
Total
$ - $ - $ - $ - $ - $ - $ - $ 48 $ 48

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, 2022																			At September 30, 2023
															Line of																			Line of
															Credit																			Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized					Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2018		2019		2020		2021		2022		Term Loans		Cost Basis		Total			Prior		2019		2020		2021		2022		2023		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	$	8,034	$	15,870	$	25,405	$	40,262	$	84,632	$	88,962	$	263,165	$	19,789	$	282,954		$	8,841	$	14,395	$	25,746	$	56,758	$	77,347	$	31,708	$	214,795	$	17,763	$	232,558
30-59 days past due		131		368		446		700		1,386		685		3,716		23		3,739			235		280		331		2,006		1,736		399		4,987		27		5,014
60-89 days past due		15		41		67		317		331		219		990		-		990			14		12		114		512		382		84		1,118		7		1,125
Past due 90 days or more		31		63		134		99		174		253		754		15		769			27		39		76		423		175		172		912		44		956
Nonaccrual		-		-		-		-		-		-		-		62		62			-		-		-		-		-		-		-		14		14
Total	$	8,211	$	16,342	$	26,052	$	41,378	$	86,523	$	90,119	$	268,625	$	19,889	$	288,514		$	9,117	$	14,726	$	26,267	$	59,699	$	79,640	$	32,363	$	221,812	$	17,855	$	239,667

Current gross chargeoffs on consumer installment and other loans:																			Current gross chargeoffs on consumer installment and other loans:
Three months ended September 30, 2023																				$	43	$	18	$	209	$	618	$	672	$	177		1,737	$	90	$	1,827
Nine months ended September 30, 2023																					208		135		717		1,529		2,414		177		5,180		199		5,379

- 21-

At December 31, 2021

Line of

Credit

Term Loans Amortized Cost Basis by Origination Year

Total

Amortized

Prior

2017

2018

2019

2020

2021

Term Loans

Cost Basis

Total

(In thousands)

Consumer installment and other loans by delinquency and nonaccrual status

Current
$ 7,884 $ 10,162 $ 25,932 $ 37,999 $ 58,178 $ 113,899 $ 254,054 $ 22,739 $ 276,793
30-59 days past due
197 139 634 504 662 1,034 3,170 14 3,184
60-89 days past due
5 20 156 150 186 408 925 88 1,013
Past due 90 days or more
1 17 81 62 109 40 310 29 339
Nonaccrual
- - - - - - - 265 265
Total
$ 8,087 $ 10,338 $ 26,803 $ 38,715 $ 59,135 $ 115,381 $ 258,459 $ 23,135 $ 281,594

	At December 31, 2022
															Line of
															Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2018		2019		2020		2021		2022		Term Loans		Cost Basis		Total
	(In thousands)
Consumer installment and other loans by delinquency and nonaccrual status:
Current	$	6,017	$	13,147	$	22,330	$	35,783	$	76,126	$	99,414	$	252,817	$	20,430	$	273,247
30-59 days past due		117		268		572		1,014		1,709		1,359		5,039		62		5,101
60-89 days past due		42		65		67		275		635		750		1,834		16		1,850
Past due 90 days or more		3		20		16		61		284		241		625		3		628
Nonaccrual		-		-		-		-		-		-		-		16		16
Total	$	6,179	$	13,500	$	22,985	$	37,133	$	78,754	$	101,764	$	260,315	$	20,527	$	280,842

There were no loans held for sale at September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

The Company held no other real estate owned (OREO) at September 30, ~~2022~~2023 and December 31, ~~2021.~~2022. The amount of consumer mortgage loans outstanding secured by residential real estate properties for which formal foreclosure proceedings were in process was ~~$62~~$-0- thousand at September 30, ~~2022~~2023 and ~~$247 thousand at~~ December 31, ~~2021.~~2022.

Note 5: Concentration of Credit Risk

Under the California Financial Code, credit extended to any one person ~~owing to a commercial bank~~ at any one time shall not exceed the following ~~limitations as applicable to the Bank:~~limitations: (a) unsecured credits shall not exceed 15 percent of the sum of the ~~common stock outstanding and unimpaired, perpetual preferred stock outstanding and unimpaired, capital surplus, undivided profits, and~~Bank’s shareholders’ equity, allowance for ~~credit~~loan losses, ~~less intangible assets of the Bank,~~capital notes, and debentures, or (b) secured and unsecured credits in all shall not exceed 25 percent of the sum of the ~~common stock outstanding and unimpaired, perpetual preferred stock outstanding and unimpaired, capital surplus, undivided profits, and~~Bank’s shareholders’ equity, allowance for ~~credit~~loan losses, ~~less intangible assets of the Bank.~~capital notes, and debentures. At September 30, ~~2022,~~2023, the Bank did not have credit extended to any one entity exceeding these limits. At September 30, ~~2022,~~2023, the Bank had 2926 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 ~~$33,342~~$31,145 thousand and ~~$34,226~~$34,790 thousand at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The Company requires collateral on all real estate loans with loan-to-value ratios at origination generally no greater than 75% on commercial real estate loans and no greater than 80% on residential real estate loans. At September 30, ~~2022,~~2023, the Bank held corporate bonds in ~~120~~107 issuing entities that exceeded $5 million for each issuer.

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- 21-

Note 6: Other Assets and Other Liabilities

Other assets consisted of the following:

	At September 30,		At December 31,		At September 30,		At December 31,
	2022		2021		2023		2022
	(In thousands)				(In thousands)
Cost method equity investments:
Federal Reserve Bank stock ⁽¹⁾	$	14,069	$	14,069	$	14,069	$	11,743
Other investments		158		158		158		158
Total cost method equity investments		14,227		14,227		14,227		11,901
Life insurance cash surrender value		63,111		63,107		65,606		63,816
Net deferred tax asset		139,887		-		136,458		125,140
Right-of-use asset		16,576		17,980		18,593		15,746
Limited partnership investments		35,852		37,145		30,107		34,421
Interest receivable		49,506		35,521		55,597		53,558
Prepaid assets		4,476		4,757		4,447		4,894
Other assets		17,239		12,678		8,941		9,670
Total other assets	$	340,874	$	185,415	$	333,976	$	319,146

⁽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.

- 22-

The Company owns 211 thousand shares of Visa Inc. class B common stock which have transfer restrictions; the carrying value is $-0- thousand. Visa Inc. disclosed a revised conversion rate applicable to its class B common stock in its Form 8-K dated ~~July 6, 2022.~~October 2, 2023. 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, was reduced from ~~1.6181~~1.5902 to ~~1.6059~~1.5875 per share, effective as of ~~June 29, 2022.~~September 28, 2023. Visa Inc. class A common stock had a closing price of ~~$177.65~~$230.01 per share on September ~~30, 2022,~~29, 2023, the last day of stock market trading for the third quarter ~~2022.~~2023. 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 30, ~~2022,~~2023, these investments totaled ~~$35,852~~$30,107 thousand and ~~$25,017~~$16,138 thousand of this amount represents outstanding equity capital commitments that are included in other liabilities. At December 31, ~~2021,~~2022, these investments totaled ~~$37,145~~$34,421 thousand and ~~$26,485~~$22,647 thousand of this amount represents outstanding equity capital commitments that are included in other liabilities. At September 30, ~~2022,~~2023, the ~~$25,017~~$16,138 thousand of outstanding equity capital commitments are expected to be paid as follows: ~~$2,519~~$4,483 thousand in the remainder of ~~2022,~~ ~~$12,200 thousand in~~ 2023, ~~$9,169~~$10,499 thousand in 2024, ~~$244~~$359 thousand in 2025, ~~$128~~$59 thousand in 2026, ~~$207~~$190 thousand in 2027, and ~~$550~~$548 thousand in 2028 or thereafter.

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 Nine Months Ended
	September 30,								September 30,
	2022		2021		2022		2021		2023		2022		2023		2022
	(In thousands)								(In thousands)
Investment loss included in pre-tax income	$	1,431	$	620	$	4,293	$	1,820	$	1,440	$	1,431	$	4,314	$	4,293
Tax credits recognized in provision for income taxes		804		200		2,412		650		765		804		2,820		2,412

Other liabilities consisted of the following:

	At September 30,		At December 31,		At September 30,		At December 31,
	2022		2021		2023		2022
	(In thousands)				(In thousands)
Net deferred tax liability	$	-	$	2,501
Operating lease liability		16,576		17,980	$	18,593	$	15,746
Other liabilities		49,319		53,241		85,918		49,379
Total other liabilities	$	65,895	$	73,722	$	104,511	$	65,125

- 22-

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 30, ~~2022.~~2023.

As of September 30, ~~2022,~~2023, the Company’s lease liability and right-of-use asset were ~~$16,576~~$18,593 thousand. The weighted average remaining life of operating leases and weighted average discount rate used to determine operating lease liabilities were ~~3.8~~3.6 years and ~~1.79%~~2.78%, respectively, at September 30, ~~2022.~~2023. The Company did not have any material lease incentives, unamortized initial direct costs, prepaid lease expense, or accrued lease expense as of September 30, ~~2022.~~2023.

Total lease costs ~~during~~were $1,633 thousand and $4,949 thousand in the three and nine months ended September 30, 2023, respectively, and were recorded within occupancy and equipment expense. During the three and nine months ended September 30, 2022, total lease costs of $1,664 thousand and $4,934 ~~thousand, respectively, were recorded within occupancy and equipment expense. Total lease costs during the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2021,~~ ~~of $1,637 thousand and $4,949~~ thousand, respectively, were recorded within occupancy and equipment expense. The Company did not have any material short-term or variable ~~leases~~lease costs or sublease income during the nine months ended September 30, ~~2022~~2023 and September 30, ~~2021.~~ 2022.

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- 23-

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

	Minimum future lease payments			Minimum future lease payments
	At September 30,			At September 30,
	2022			2023
	(In thousands)			(In thousands)
The remainder of 2022	$	1,509
2023		5,687
The remainder of 2023				$	1,612
2024		4,110			5,914
2025		2,872			4,765
2026		1,307			3,095
2027					2,200
Thereafter		1,628			2,154
Total minimum lease payments		17,113			19,740
Less: discount		(537	)		(1,147	)
Present value of lease liability	$	16,576		$	18,593

Note 7: Goodwill and Identifiable Intangible Assets

The Company has recorded goodwill and other identifiable intangibles associated with purchase business combinations. Goodwill is not amortized, but is evaluated for impairment at least annually. The Company did not recognize impairment during the~~three~~ ~~and~~ nine months ended September 30, ~~2022~~2023 and year ended December 31, ~~2021.~~2022, as no triggering events occurred during such periods. Identifiable intangibles are amortized to their estimated residual values over their expected useful lives. Such lives and residual values are also periodically reassessed to determine if any amortization period adjustments are indicated. During the ~~three~~ ~~and~~ nine months ended September 30, ~~2022~~2023 and the year ended December 31, ~~2021~~2022, no such adjustments were recorded.

The carrying values of goodwill were:

At September 30, 2022

At December 31, 2021

(In thousands)

Goodwill
$ 121,673 $ 121,673

	At September 30, 2023		At December 31, 2022
	(In thousands)
Goodwill	$	121,673	$	121,673

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- 23-

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

At September 30, 2022

At December 31, 2021

Gross

Gross

Carrying

Accumulated

Carrying

Accumulated

Amount

Amortization

Amount

Amortization

(In thousands)

Core deposit intangibles
$ 56,808 $ (56,164 ) $ 56,808 $ (55,973 )

	At September 30, 2023					At December 31, 2022
	Gross					Gross
	Carrying		Accumulated			Carrying		Accumulated
	Amount		Amortization			Amount		Amortization
	(In thousands)
Core deposit intangibles	$	56,808	$	(56,404	)	$	56,808	$	(56,225	)

As of September 30, ~~2022,~~2023, 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, 2022 (actual)
$ 191
The remainder of 2022
61
2023
236
2024
222
2025
125

~~-24-~~

	Total
	Core
	Deposit
	Intangibles
	(In thousands)
For the nine months ended September 30, 2023 (actual)	$	179
The remainder of 2023		57
2024		222
2025		125

Note 8: Deposits and Borrowed Funds

The following table provides additional detail regarding deposits.

	Deposits				Deposits
	At September 30,		At December 31,		At September 30,		At December 31,
	2022		2021		2023		2022
	(In thousands)				(In thousands)
Noninterest-bearing	$	3,069,907	$	3,069,080	$	2,723,403	$	2,947,277
Interest-bearing:
Transaction		1,338,855		1,260,869		1,138,220		1,273,143
Savings		1,949,711		1,940,395		1,732,849		1,874,115
Time deposits less than $100 thousand		68,854		72,527		59,505		65,962
Time deposits $100 thousand through $250 thousand		45,315		47,666		33,400		42,733
Time deposits more than $250 thousand		22,614		23,419		11,636		22,060
Total deposits	$	6,495,256	$	6,413,956	$	5,699,013	$	6,225,290

Demand deposit overdrafts of ~~$871~~$699 thousand and ~~$611~~$995 thousand were included as loan balances at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Interest expense for aggregate time deposits with individual account balances in excess of $100 thousand was $26 thousand and $91 thousand for the three and nine months ended September 30, 2023, respectively, and $39 thousand and $120 thousand for the three and nine months ended September 30, 2022, ~~respectively, and $58 thousand and $204 thousand for the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2021,~~ respectively.

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

Repurchase Agreements (Sweep)
Accounted for as Secured Borrowings

Remaining Contractual Maturity of the Agreements

Overnight and Continuous

At September 30,

At December 31,

2022

2021

Repurchase agreements:

(In thousands)

Collateral securing borrowings:

Agency residential MBS
$ 30,862 $ 42,295
Corporate securities
197,812 254,005
Total collateral carrying value
$ 228,674 $ 296,300
Total short-term borrowed funds
$ 76,886 $ 146,246

	Repurchase Agreements (Sweep) Accounted for as Secured Borrowings
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous
	At September 30,		At December 31,
	2023		2022
Repurchase agreements:	(In thousands)
Collateral securing borrowings:
Agency residential MBS	$	25,725	$	30,108
Corporate securities		203,553		203,774
Total collateral carrying value	$	229,278	$	233,882
Total short-term borrowed funds	$	115,341	$	57,792

- 24-

At September 30, 2023, the Company had uncommitted lines of credit for overnight borrowings from correspondent banks totaling $100 million. Additionally, the Company had access to borrowing from the Federal Reserve up to $964 million based on the collateral pledged at September 30, 2023. There were no outstanding amounts under the above-mentioned borrowings at September 30, 2023. For the nine months ended September 30, 2023, the average balances of the above-mentioned borrowings were $-0- thousand. At September 30, 2023, the Company’s estimated unpledged debt securities collateral qualifying for Federal Reserve borrowing totaled $1,930,927 thousand.

Note 9:Fair Value Measurements

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

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

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

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

- 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 and U.S. government sponsored entities.

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

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

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

- 25-

Assets Recorded at Fair Value on a Recurring Basis

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

	At September 30, 2022								At September 30, 2023
	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 MBS	$	296,689	$	-	$	296,689	$	-	$	239,728	$	-	$	239,728	$	-
Securities of U.S. Government sponsored entities		272,525		-		272,525		-		279,364		-		279,364		-
Obligations of states and political subdivisions		80,987		-		80,987		-		69,639		-		69,639		-
Corporate securities		2,138,508		-		2,138,508		-		1,814,424		-		1,814,424		-
Collateralized loan obligations		1,587,622		-		1,587,622		-		1,503,078		-		1,503,078		-
Total debt securities available for sale	$	4,376,331	$	-	$	4,376,331	$	-	$	3,906,233	$	-	$	3,906,233	$	-

⁽¹⁾There were no transfers in to or out of level 3 during the nine months ended September 30, ~~2022.~~2023.

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- 26-

At December 31, 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⁾

(In thousands)

Debt securities available for sale:

Agency residential MBS
$ 411,726 $ - $ 411,726 $ -
Securities of U.S. Government entities
119 - 119 -
Obligations of states and political subdivisions
93,920 - 93,920 -
Corporate securities
2,746,735 - 2,746,735 -
Collateralized loan obligations
1,386,355 - 1,386,355 -
Total debt securities available for sale
$ 4,638,855 $ - $ 4,638,855 $ -

	At December 31, 2022
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3) ⁽¹⁾
	(In thousands)
Debt securities available for sale:
Agency residential MBS	$	286,048	$	-	$	286,048	$	-
Securities of U.S. Government sponsored entities		290,853		-		290,853		-
Obligations of states and political subdivisions		82,004		-		82,004		-
Corporate securities		2,099,955		-		2,099,955		-
Collateralized loan obligations		1,572,883		-		1,572,883		-
Total debt securities available for sale	$	4,331,743	$	-	$	4,331,743	$	-

⁽¹⁾There were no transfers in to or out of level 3 during the year ended December 31, ~~2021.~~2022.

Assets Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower-of-cost or fair-value accounting of individual assets. For assets measured at fair value on a nonrecurring basis that were recorded in the balance sheet at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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 Nine										For the Nine
									Months Ended										Months Ended
	At September 30, 2022								September 30, 2022		At September 30, 2023								September 30, 2023
	Carrying Value		Level 1		Level 2		Level 3		Total Losses		Carrying Value		Level 1		Level 2		Level 3		Total Losses
	(In thousands)										(In thousands)
Loans:
Commercial real estate	$	225	$	-	$	-	$	225	$	-	$	110	$	-	$	-	$	110	$	-
Total assets measured at fair value on a nonrecurring basis	$	225	$	-	$	-	$	225	$	-	$	110	$	-	$	-	$	110	$	-

For the

Year Ended

At December 31, 2021

December 31, 2021

Carrying Value

Level 1

Level 2

Level 3

Total Losses

(In thousands)

Loans:

Commercial real estate
$ 225 $ - $ - $ 225 $ -
Residential real estate
172 - - 172 -
Total assets measured at fair value on a nonrecurring basis
$ 397 $ - $ - $ 397 $ -

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- 26-

									For the
									Year Ended
	At December 31, 2022								December 31, 2022
	Carrying Value		Level 1		Level 2		Level 3		Total Losses
	(In thousands)
Loans:
Commercial real estate	$	225	$	-	$	-	$	225	$	-
Total assets measured at fair value on a nonrecurring basis	$	225	$	-	$	-	$	225	$	-

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. The unobservable inputs and qualitative information about the unobservable inputs are not presented as the inputs were not developed by the Company.

Disclosures about Fair Value of Financial Instruments

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

- 27-

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, 2022										At September 30, 2023
	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	$	413,665	$	413,665	$	413,665	$	-	$	-	$	420,550	$	420,550	$	420,550	$	-	$	-
Debt securities held to maturity		936,267		878,462		-		878,462		-		888,856		818,395		-		818,395		-
Loans		957,815		911,315		-		-		911,315		868,106		851,354		-		-		851,354

Financial Liabilities:
Deposits	$	6,495,256	$	6,494,193	$	-	$	6,358,473	$	135,720	$	5,699,013	$	5,698,126	$	-	$	5,594,472	$	103,654
Short-term borrowed funds		76,886		76,886		-		76,886		-		115,341		115,341		-		115,341		-

	At December 31, 2021										At December 31, 2022
	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	$	1,132,085	$	1,132,085	$	1,132,085	$	-	$	-	$	294,236	$	294,236	$	294,236	$	-	$	-
Debt securities held to maturity		306,396		312,562		-		312,562		-		915,913		873,511		-		873,511		-
Loans		1,044,612		1,059,072		-		-		1,059,072		938,204		905,720		-		-		905,720

Financial Liabilities:
Deposits	$	6,413,956	$	6,413,244	$	-	$	6,270,344	$	142,900	$	6,225,290	$	6,224,791	$	-	$	6,094,535	$	130,256
Short-term borrowed funds		146,246		146,246		-		146,246		-		57,792		57,792		-		57,792		-

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

- 27-

Note 10: Commitments and Contingent Liabilities

Loan commitments are agreements to lend to a customer provided there is no violation of any condition established in the agreement. Certain agreements provide the Company the right to cancel or reduce its obligations to lend to customers. The portions that are not unconditionally cancellable ~~unconditionally~~ by the Company aggregated ~~$33,342~~$30,195 thousand at September 30, 2023 and $31,889 thousand at December 31, 2022. 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 ~~$217,756~~$201,468 thousand at September 30, ~~2022~~2023 and ~~$233,850~~$202,696 thousand at December 31, ~~2021.~~2022. 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 ~~$1,878~~$2,106 thousand at September 30, ~~2022~~2023 and ~~$3,693~~$1,948 thousand at December 31, ~~2021.~~2022. Commitments for commercial and similar letters of credit totaled $95 thousand at September 30, ~~2022~~2023 and at December 31, ~~2021.~~2022. The Company had ~~$880~~$950 thousand in outstanding full recourse guarantees to a third party credit card company at September 30, ~~2022~~2023 and ~~$580 thousand~~ at December 31, ~~2021.~~2022. At September 30, ~~2022,~~2023, the Company had a reserve for unfunded commitments of $201 thousand for the above-mentioned loan commitments of ~~$33,342~~$30,195 thousand that are not unconditionally cancellable ~~unconditionally~~ by the Company. The Company’s reserve for unfunded commitments was $201 thousand at December 31, ~~2021.~~2022. The reserve for unfunded commitments is included in other liabilities.

- 28-

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

Note 11: Earnings Per Common Share

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

	For the Three Months				For the Nine Months				For the Three Months				For the Nine Months
	Ended September 30,								Ended September 30,
	2022		2021		2022		2021		2023		2022		2023		2022
	(In thousands, except per share data)								(In thousands, except per share data)
Net income applicable to common equity (numerator)	$	34,760	$	22,063	$	82,690	$	64,789	$	41,601	$	34,760	$	122,300	$	82,690
Basic earnings per common share
Weighted average number of common shares outstanding - basic (denominator)		26,906		26,866		26,889		26,851		26,648		26,906		26,718		26,889
Basic earnings per common share	$	1.29	$	0.82	$	3.08	$	2.41	$	1.56	$	1.29	$	4.58	$	3.08
Diluted earnings per common share
Weighted average number of common shares outstanding - basic		26,906		26,866		26,889		26,851		26,648		26,906		26,718		26,889
Add common stock equivalents for options		10		9		12		17		2		10		3		12
Weighted average number of common shares outstanding - diluted (denominator)		26,916		26,875		26,901		26,868		26,650		26,916		26,721		26,901
Diluted earnings per common share	$	1.29	$	0.82	$	3.07	$	2.41	$	1.56	$	1.29	$	4.58	$	3.07

For the three and nine months ended September 30, 2023, options to purchase 964 thousand and 991 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 months ended September 30, 2022, options to purchase 812 thousand and 809 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~~28 ~~and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2021,~~ ~~options to purchase 744 thousand and 618 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 Company’s common stock such that their inclusion would have had an anti-dilutive effect.

~~[The remainder of this page intentionally left blank]~~

~~-29-~~

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

WESTAMERICA BANCORPORATION

FINANCIAL SUMMARY

For the Three Months

For the Nine Months

Ended September 30,

2022

2021

2022

2021

(In thousands, except per share data)

Net Interest and Loan Fee Income (FTE)⁽¹⁾
$ 60,780 $ 43,952 $ 152,620 $ 131,034
Provision for Credit Losses
- - - -
Noninterest Income
11,818 11,282 34,658 32,503
Noninterest Expense
24,767 24,697 74,271 73,894
Income Before Income Taxes (FTE)⁽¹⁾
47,831 30,537 113,007 89,643
Income Tax Provision (FTE)⁽¹⁾
13,071 8,474 30,317 24,854
Net Income
$ 34,760 $ 22,063 $ 82,690 $ 64,789

Average Common Shares Outstanding
26,906 26,866 26,889 26,851
Average Diluted Common Shares Outstanding
26,916 26,875 26,901 26,868
Common Shares Outstanding at Period End
26,911 26,866

Per Common Share:

Basic Earnings
$ 1.29 $ 0.82 $ 3.08 $ 2.41
Diluted Earnings
1.29 0.82 3.07 2.41
Book Value
20.03 31.19

Financial Ratios:

Return on Assets
1.85 % 1.22 % 1.49 % 1.25 %
Return on Common Equity
17.08 % 11.58 % 13.98 % 11.62 %
Net Interest Margin (FTE)⁽¹⁾
3.44 % 2.60 % 2.90 % 2.67 %
Net Loan Losses (Recoveries) to Average Loans
0.44 % (0.05% ) 0.30 % 0.00 %
Efficiency Ratio⁽²⁾
34.1 % 44.7 % 39.7 % 45.2 %

Average Balances:

Assets
$ 7,472,304 $ 7,158,462 $ 7,433,140 $ 6,939,636
Loans
989,033 1,176,114 1,009,314 1,227,971
Investment Securities
5,552,588 4,615,540 5,172,003 4,484,084
Deposits
6,495,051 6,223,500 6,437,943 6,017,175
Shareholders' Equity
807,428 755,682 790,691 745,382

Period End Balances:

Assets
$ 7,177,025 $ 7,403,573
Loans
979,033 1,132,472
Investment Securities
5,312,605 4,958,819
Deposits
6,495,256 6,288,961
Shareholders' Equity
538,988 837,953

Capital Ratios at Period End:

Total Risk Based Capital
14.67 % 15.54 %
Tangible Equity to Tangible Assets
5.91 % 9.83 %

Dividends Paid Per Common Share
$ 0.42 $ 0.41 $ 1.26 $ 1.23
Common Dividend Payout Ratio
33 % 50 % 41 % 51 %

WESTAMERICA BANCORPORATION

FINANCIAL SUMMARY

	For the Three Months						For the Nine Months
	Ended September 30,
	2023			2022			2023			2022
	(In thousands, except per share data)
Net Interest and Loan Fee Income (FTE)⁽¹⁾	$	72,092		$	60,780		$	211,935		$	152,620
Provision (Reversal of Provision) for Credit Losses		400			-			(1,150	)		-
Noninterest Income:
Life Insurance Gains		278			923			278			923
Securities Losses		-			-			(125	)		-
Other Noninterest Income		11,003			10,895			32,377			33,735
Total Noninterest Income		11,281			11,818			32,530			34,658
Noninterest Expense		25,650			24,767			77,699			74,271
Income Before Income Taxes (FTE)⁽¹⁾		57,323			47,831			167,916			113,007
Income Tax Provision (FTE)⁽¹⁾		15,722			13,071			45,616			30,317
Net Income	$	41,601		$	34,760		$	122,300		$	82,690

Average Common Shares Outstanding		26,648			26,906			26,718			26,889
Average Diluted Common Shares Outstanding		26,650			26,916			26,721			26,901
Common Shares Outstanding at Period End		26,649			26,911

Per Common Share:
Basic Earnings	$	1.56		$	1.29		$	4.58		$	3.08
Diluted Earnings		1.56			1.29			4.58			3.07
Book Value		24.33			20.03

Financial Ratios:
Return on Assets		2.41	%		1.85	%		2.36	%		1.49	%
Return on Common Equity		18.29	%		17.08	%		18.59	%		13.98	%
Net Interest Margin (FTE)⁽¹⁾		4.43	%		3.44	%		4.32	%		2.90	%
Net Loan Losses to Average Loans		0.50	%		0.44	%		0.20	%		0.30	%
Efficiency Ratio⁽²⁾		30.8	%		34.1	%		31.8	%		39.7	%

Average Balances:
Assets	$	6,847,691		$	7,472,304		$	6,940,897		$	7,433,140
Loans		903,854			989,033			925,351			1,009,314
Investment Securities		5,247,118			5,552,588			5,385,986			5,172,003
Deposits		5,722,817			6,495,051			5,859,506			6,437,943
Shareholders' Equity		902,300			807,428			879,740			790,691

Period End Balances:
Assets	$	6,567,288		$	7,177,025
Loans		885,850			979,033
Investment Securities		4,795,090			5,312,605
Deposits		5,699,013			6,495,256
Shareholders' Equity		648,423			538,988

Capital Ratios at Period End:
Total Risk Based Capital		18.60	%		14.67	%
Tangible Equity to Tangible Assets		8.17	%		5.91	%

Dividends Paid Per Common Share	$	0.44		$	0.42		$	1.28		$	1.26
Common Dividend Payout Ratio		28	%		33	%		28	%		41	%

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

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

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

~~-30-~~

-29-

Financial Overview

Westamerica Bancorporation and subsidiaries (collectively, the “Company”) reported net income of ~~$34.8~~$41.6 million or ~~$1.29~~$1.56 diluted earnings per common share (“EPS”) in the third quarter 2023 compared with net income of $34.8 million or $1.29 EPS for the third quarter of ~~2022 and~~2022. The Company reported net income of $122.3 million or $4.58 EPS for the nine months ended September 30, 2023, including a $1.2 million reversal of provision for credit losses, net of a $400 thousand provision for credit losses in the third quarter 2023. Third quarter 2023 results also include a $278 thousand life insurance gain compared with a $923 thousand life insurance gain in the third quarter 2022. The Company reported net income of $82.7 million or $3.07 EPS for the nine months ended September 30, ~~2022. Third quarter~~ 2022, ~~results included~~including a $1.2 million reconciling payment from a payments network and a $923 thousand life insurance gain equivalent to EPS of $0.03. Results for 2022 compare with net income of $22.1 million or $0.82 EPS for the third quarter 2021 and net income of $64.8 million or $2.41 EPS for the nine months ended September 30, 2021. Results for 2021 include “make-whole” interest income on corporate bonds redeemed prior to maturity of $732 thousand for the third quarter 2021, which increased EPS $0.02, and $2.8 million for the first nine months of 2021, which increased EPS $0.07.gain.

~~In response to the high levels of inflation during a period of tight employment conditions, the~~The Federal Open Market Committee of the Federal Reserve Board (“FOMC”) has tightened monetary policy through ~~reduced bond purchases and~~ increases to the overnight federal funds interest ~~rate. The~~rate starting in March 2022. On November 1, 2023, the FOMC ~~started~~decided to ~~increase~~maintain the target range for the federal funds rate ~~in March 2022. A September 21, 2022~~to the range of 5.25% to 5.50%. The November 1, 2023 Federal Reserve press release stated, “Recent indicators ~~point to modest growth~~suggest that economic activity expanded at a strong pace in ~~spending and production.~~the third quarter. Job gains have ~~been robust~~moderated since earlier in ~~recent months,~~the year but remain strong, and the unemployment rate has remained low. Inflation remains ~~elevated, reflecting supply~~elevated. The U.S. banking system is sound and ~~demand imbalances related~~resilient. Tighter financial and credit conditions for households and businesses are likely to ~~the pandemic, higher food~~weigh on economic activity, hiring, and ~~energy prices, and broader price pressures. Russia’s war against Ukraine is causing tremendous human and economic hardship.~~inflation. The ~~war and related events are creating additional upward pressure on inflation and weighing on global economic activity.~~extent of these effects remains uncertain. The Committee isremains highly attentive to inflation ~~risks.” On September 21, 2022,~~risks… the ~~FOMC increased the target federal funds ranging from 3%~~Committee decided to ~~3.25% and “anticipates that ongoing increases in~~maintain the target range for the federal funds rate at 5.25% to 5.50%. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be ~~appropriate”~~appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments… The Committee would be prepared to adjust the stance of monetary policy as ~~it stated in~~appropriate if risks emerge that could impede the ~~press release.~~attainment of the Committee’s goals.” The ~~FOMC increased the~~ interest rate paid on reserve balances ~~to 3.15% effective September 22, 2022. On November 2, 2022,~~at the ~~FOMC announced its decision to increase the target federal funds ranging from 3.75% to 4% and the interest rate paid on reserve balances to 3.90% effective November 3, 2022.~~Federal Reserve Bank remained at 5.40%. The Bank maintains ~~deposit~~reserve balances at the Federal Reserve Bank; the amount that earns interest is identified as “interest-bearing cash”.

Management continues to evaluate the impacts of inflation, the Federal Reserve’s monetary policy and climate changes on the Company’s business and its customers. Recently, the banking industry experienced significant volatility with several regional bank failures in the first half of 2023. Industrywide concerns developed related to liquidity, deposit outflows and unrealized losses on debt securities. These recent events could adversely affect the Company’s funding of its operations. 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 uncertain and cannot be reasonably predicted.

The Company presents its net interest margin and net interest income on a fully taxable equivalent (“FTE”) basis using the current statutory federal tax rate. Management believes the FTE basis is valuable to the reader because the Company’s loan and investment securities portfolios contain ~~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 ~~2021~~2022 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 “Risk Factors” in Part I – Item 1A of~~The Company adopted the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 may cause actual future results to differ materially from the results discussed in this report on Form 10-Q. Management continues to evaluate the impacts of the COVID-19 pandemic, inflation, the Federal Reserve’s monetary policy, climate changes, the war in Ukraine on the Company’s business and its customers. 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.following new accounting guidance:

[FASB ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, issued March 2022, eliminates the recognition and measurement guidance for troubled debt restructurings and requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. This ASU also requires enhanced disclosure for loans that have been charged off. The ~~remainder of this page intentionally left blank]~~

ASU became effective January 1, 2023 under a prospective approach. The Company adopted the provisions to remove the recognition and measurement guidance for troubled debt restructurings and/or modify relevant disclosures in the “Loans” note to the unaudited consolidated financial statements. The requirement to include additional disclosures was adopted by the Company January 1, 2023. The additional disclosures did not affect the financial results upon adoption.

~~-31-~~

-30-

Net Income

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

For the Three Months

For the Nine Months

Ended September 30,

2022

2021

2022

2021

(In thousands, except per share data)

Net interest and loan fee income (FTE)
$ 60,780 $ 43,952 $ 152,620 $ 131,034
Provision for credit losses
- - - -
Noninterest income
11,818 11,282 34,658 32,503
Noninterest expense
24,767 24,697 74,271 73,894
Income before taxes (FTE)
47,831 30,537 113,007 89,643
Income tax provision (FTE)
13,071 8,474 30,317 24,854
Net income
$ 34,760 $ 22,063 $ 82,690 $ 64,789

Average diluted common shares
26,916 26,875 26,901 26,868
Diluted earnings per common share
$ 1.29 $ 0.82 $ 3.07 $ 2.41

Average total assets
$ 7,472,304 $ 7,158,462 $ 7,433,140 $ 6,939,636
Net income to average total assets (annualized)
1.85 % 1.22 % 1.49 % 1.25 %
Net income to average common shareholders' equity (annualized)
17.08 % 11.58 % 13.98 % 11.62 %

	For the Three Months						For the Nine Months
	Ended September 30,
	2023			2022			2023			2022
	(In thousands, except per share data)
Net interest and loan fee income (FTE)	$	72,092		$	60,780		$	211,935		$	152,620
Provision (Reversal of provision) for credit losses		400			-			(1,150	)		-
Noninterest income		11,281			11,818			32,530			34,658
Noninterest expense		25,650			24,767			77,699			74,271
Income before taxes (FTE)		57,323			47,831			167,916			113,007
Income tax provision (FTE)		15,722			13,071			45,616			30,317
Net income	$	41,601		$	34,760		$	122,300		$	82,690

Average diluted common shares		26,650			26,916			26,721			26,901
Diluted earnings per common share	$	1.56		$	1.29		$	4.58		$	3.07

Average total assets	$	6,847,691		$	7,472,304		$	6,940,897		$	7,433,140
Net income to average total assets (annualized)		2.41	%		1.85	%		2.36	%		1.49	%
Net income to average common shareholders' equity (annualized)		18.29	%		17.08	%		18.59	%		13.98	%

Net income for the third quarter ~~2022~~2023 increased ~~$12.7~~$6.8 million compared with the third quarter ~~2021.~~2022. Net interest and loan fee income (FTE) increased ~~$16.8~~$11.3 million in the third quarter ~~2022~~2023 compared with the third quarter ~~2021~~2022 due to higher ~~average balances of investment debt securities and higher~~ yield on ~~investment debt securities and interest-bearing cash,~~interest-earning assets, partially offset by lower average balances of ~~loans.~~interest-earning assets and higher rate on interest-bearing liabilities. The Company provided a $400 thousand provision for credit losses ~~was zero for~~in the third quarter ~~2022~~of 2023 and no provision for credit losses in the third quarter ~~2021, reflecting Management's~~of 2022, based on Management’s estimate of credit losses over the remaining life of its loans and ~~investment~~ debt ~~securities.~~securities held to maturity. Third quarter ~~2022~~2023 noninterest income ~~increased $536~~decreased $537 thousand ~~compared with third quarter 2021. Third quarter 2022 noninterest income included a $923 thousand life insurance gain. Third quarter 2022 noninterest expense remained at the same level~~ compared with the third quarter ~~2021.~~2022 primarily due to lower gains on life insurance. Third quarter 2023 noninterest expense increased $883 thousand compared with the third quarter 2022 primarily due to an increase in salaries and benefits and increased FDIC insurance assessments for all insured depository institutions. The tax rate (FTE) was 27.4% for the third quarter 2023 and 27.3% for the third quarter ~~2022 and 27.8% for the third quarter 2021.~~2022.

Net income for the nine months ended September 30, ~~2022~~2023 increased ~~$17.9~~$39.6 million compared with the nine months ended September 30, ~~2021.~~2022. Net interest and loan fee income (FTE) increased ~~$21.6~~$59.3 million in the nine months ended September 30, ~~2022~~2023 compared with ~~the~~ nine months ended September 30, ~~2021~~2022 due to higher yield on interest-earning assets and higher average balances of investment debt securities, ~~and higher yield on interest-earning assets,~~ partially offset by lower average balances of ~~loans.~~loans and interest-bearing cash and higher rate on interest-bearing liabilities. The Company recorded a $1.2 million reversal of provision for credit losses ~~was zero~~in the nine months ended September 30, 2023, reflecting a $2.2 million recovery on a previously charged off loan in the first quarter 2023. The Company provided no provision for credit losses in the nine months ended September 30, 2022, ~~and the nine months ended September 30, 2021, reflecting Management's~~based on Management’s estimate of credit losses over the remaining life of its loans and ~~investment~~ debt ~~securities.~~securities held to maturity. Noninterest income infor the nine months ended September 30, ~~2022 increased $2.2~~2023 decreased $2.1 million compared with the nine months ended September 30, ~~2021~~2022 primarily ~~due to~~because the nine months ended September 30, 2022 included a $1.2 million reconciling payment from a payments network ~~a $923 thousand life insurance gain~~ and higher ~~fee income~~gains on ~~deposit accounts.~~life insurance. Noninterest expense in the nine months ended September 30, ~~2022~~2023 increased ~~$377 thousand~~$3.4 million compared with the nine months ended September 30, 2022 primarily due to ~~higher estimated operating losses on limited partnership investments in low-income housing, partially offset by decreases~~increases in salaries and ~~related~~ benefits, ~~resulting from attrition~~occupancy and ~~lower~~equipment expenses, and increased FDIC insurance assessments for all insured depository institutions. Lower professional ~~fees.~~fees partially offset the increases in noninterest expense in the nine months ended September 30, 2023 compared with the same period in 2022. The tax rate (FTE) was 27.2% for the nine months ended September 30, 2023 and 26.8% for the nine months ended September 30, ~~2022 compared with 27.7% for the nine months ended September 30, 2021.~~2022.

[The remainder of this page intentionally left blank]

~~-32-~~-31-

Net Interest and Loan Fee Income (FTE)

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

	For the Three Months						For the Nine Months						For the Three Months						For the Nine Months
	Ended September 30,												Ended September 30,
	2022			2021			2022			2021			2023			2022			2023			2022
	($ in thousands)												($ in thousands)
Interest and loan fee income	$	60,802		$	43,810		$	152,558		$	130,402		$	72,848		$	60,802		$	212,961		$	152,558
FTE adjustment		465			634			1,512			2,083			377			465			1,185			1,512
Interest expense		487			492			1,450			1,451			1,133			487			2,211			1,450
Net interest and loan fee income (FTE)	$	60,780		$	43,952		$	152,620		$	131,034		$	72,092		$	60,780		$	211,935		$	152,620

��
Average earning assets	$	7,041,313		$	6,754,281		$	7,013,627		$	6,535,949		$	6,438,411		$	7,041,313		$	6,519,448		$	7,013,627
Net interest margin (FTE) (annualized)		3.44	%		2.60	%		2.90	%		2.67	%		4.43	%		3.44	%		4.32	%		2.90	%

Net interest and loan fee income (FTE) increased ~~$16.8~~$11.3 million in the third quarter ~~2022~~2023 compared with the third quarter ~~2021~~2022 due to higher ~~average balances of investment securities (up $937 million) and higher~~ yield on ~~investment debt securities~~interest-earning assets (up ~~0.80%) and interest-bearing cash (up 2.00%~~1.03%), partially offset by lower average balances of ~~loans~~interest-earning assets (down ~~$187~~$603 million) and higher rate on interest-bearing liabilities (up 0.09%).

Net interest and loan fee income (FTE) increased ~~$21.6~~$59.3 million in the nine months ended September 30, ~~2022~~2023 compared with ~~the~~ nine months ended September 30, ~~2021~~2022 due to ~~higher average balances of investment securities (up $688 million) and~~ higher yield on interest-earning assets (up ~~0.23%~~1.43%) and higher average balances of investment debt securities (up $214 million), partially offset by lower average balances of loans (down ~~$219~~$84 million) and interest-bearing cash (down $624 million) and higher rate on interest-bearing liabilities (up 0.04%).

The annualized net interest margin (FTE) was 4.43% in the third quarter 2023 and 4.32% in the nine months ended September 30, 2023 compared with 3.44% in the third quarter 2022 and 2.90% in the first nine months of ~~2022 compared with 2.60%~~2022.

The Company’s annualized funding costs were 0.07% in the third quarter ~~2021 and 2.67% in the first nine months of 2021.~~

~~The Company’s funding costs were~~2023 compared with 0.03% in the third quarter 2022, and ~~2021 and~~0.04% in the ~~first~~ nine months ended September 30, 2023 and 0.03% in the nine months ended September 30, 2022. Noninterest bearing deposits represented 47% of average deposits in the nine months ended September 30, 2023 and 47% in the nine months ended September 30, 2022, ~~and 2021.~~while higher-cost time deposits represented 2% for both periods. Average balances of time deposits in the ~~first~~ nine months ~~of 2022~~ended September 30, 2023 declined ~~$13~~$20 million from the ~~first~~ nine months ~~of 2021.~~ended September 30, 2022. Average balances of checking and saving deposits ~~increased $434 million~~accounted for 97.9% of average total deposits in the ~~first~~ nine months ~~of 2022~~ended September 30, 2023 compared with ~~the first nine months of 2021. Average balances of those checking and saving deposits accounted for~~ 97.8% of average total deposits in the first nine months of ~~2022 compared with 97.4% of average total~~2022. The customer deposits inand shareholders’ equity fully funded the ~~first~~Company’s interest earning assets for the nine months ~~of 2021.~~ended September 30, 2023 and September 30, 2022: there was no borrowing from the Federal Reserve Bank or correspondent banks.

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 Nine Months						For the Three Months						For the Nine Months
	Ended September 30,												Ended September 30,
	2022			2021			2022			2021			2023			2022			2023			2022

Yield on earning assets (FTE)		3.47	%		2.63	%		2.93	%		2.70	%		4.50	%		3.47	%		4.36	%		2.93	%
Rate paid on interest-bearing liabilities		0.05	%		0.06	%		0.05	%		0.06	%		0.14	%		0.05	%		0.09	%		0.05	%
Net interest spread (FTE)		3.42	%		2.57	%		2.88	%		2.64	%		4.36	%		3.42	%		4.27	%		2.88	%
Impact of noninterest-bearing demand deposits		0.02	%		0.03	%		0.02	%		0.03	%		0.07	%		0.02	%		0.05	%		0.02	%
Net interest margin (FTE)		3.44	%		2.60	%		2.90	%		2.67	%		4.43	%		3.44	%		4.32	%		2.90	%

-32-

The increase in the Company’s yield on earning assets has been generated primarily by collateralized loan obligations (CLOs), held in debt securities available for sale portfolio, and interest-bearing cash. The CLOs have interest coupons that change once every three months by the amount of change in the three-month ~~LIBOR and~~ SOFR base ~~rates.~~rate. The average balances and yields of CLOs for the three months ended September 30, 2023 was $1,531 million yielding 7.16% and $1,554 million yielding 6.77% for the nine months ended September 30, 2023. The average balances and yields of CLOs for the three months ended September 30, 2022 was $1,601 million yielding 4.00% and $1,559 million yielding 2.87%~~, respectively. The average balances and yields of CLOs~~ for the ~~three months and~~ nine months ended September 30, ~~2021 was $1,148 million yielding 1.92% and $1,119 million yielding 2.06.%, respectively.~~2022. The interest-bearing cash yield changes by the amount of change in the overnight federal funds rate on the effective date declared by the FOMC. The average balance and yields of interest-bearing cash for the ~~three months~~third quarter 2023 and nine months ended September 30, ~~2022 was $500~~2023 were $287 million yielding ~~2.15%~~5.35% and ~~$832~~$208 million yielding ~~0.86%~~5.06%, respectively. The average balance and yields of interest-bearing cash for the ~~three months~~third quarter 2022 and nine months ended September 30, ~~2021 was $963~~2022 were $500 million yielding ~~0.15%~~2.15% and ~~$824~~$832 million yielding ~~0.12%~~0.83%, respectively. The Company has other earning assets with variable yields such as commercial loans and lines of credit, consumer lines of credit and adjustable rate residential real estate loans, which are included in “other taxable loans” in the following “Summary of Average Balances, Yields/Rates and Interest Differential.”

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Summary of Average Balances, Yields/Rates and Interest Differential

The following tables present information regarding the consolidated average assets, liabilities and shareholders’ equity, the amounts of interest income earned from average interest earning assets and the resulting yields, and the amounts of interest expense incurred on average interest-bearing liabilities and the resulting rates. Average loan balances include nonperforming loans. Interest income includes the reversal of previously accrued interest on loans placed on ~~non-accrual~~nonaccrual status during the period, proceeds from loans on nonaccrual status only to the extent cash payments have been received and applied as interest income, and accretion of purchased loan discounts. Yields, rates and interest margins are annualized. Yields on tax-exempt securities and loans have been adjusted upward to reflect the effect of income exempt from federal income taxation at the federal statutory tax rate of 21 percent.

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

For the Three Months Ended September 30, 2022

Interest

Average

Income/

Yields/

Balance

Expense

Rates

($ in thousands)

Assets

Investment securities:

Taxable
$ 5,356,955 $ 44,461 3.32 %
Tax-exempt ⁽¹⁾
195,633 1,766 3.61 %
Total investments ⁽¹⁾
5,552,588 46,227 3.33 %
Loans:

Taxable

Paycheck Protection Program ("PPP") loans
10,453 533 20.24 %
Other taxable
932,840 11,332 4.82 %
Total taxable
943,293 11,865 4.99 %
Tax-exempt ⁽¹⁾
45,740 433 3.76 %
Total loans ⁽¹⁾
989,033 12,298 4.93 %
Total interest-bearing cash
499,692 2,742 2.15 %
Total Interest-earning assets ⁽¹⁾
7,041,313 61,267 3.47 %
Other assets
430,991
Total assets
$ 7,472,304

Liabilities and shareholders' equity

Noninterest-bearing demand
$ 3,058,662 $ - - %
Savings and interest-bearing transaction
3,297,585 384 0.05 %
Time less than $100,000
76,790 47 0.24 %
Time $100,000 or more
62,014 39 0.25 %
Total interest-bearing deposits
3,436,389 470 0.05 %
Short-term borrowed funds
83,694 17 0.08 %
Total interest-bearing liabilities
3,520,083 487 0.05 %
Other liabilities
86,131
Shareholders' equity
807,428
Total liabilities and shareholders' equity
$ 7,472,304
Net interest spread ^{(1) (2)}
3.42 %
Net interest and fee income and interest margin ^{(1) (3)}
$ 60,780 3.44 %

	For the Three Months Ended September 30, 2023
			Interest
	Average		Income/		Yields/
	Balance		Expense		Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	5,093,715	$	55,911		4.39	%
Tax-exempt ⁽¹⁾		153,403		1,369		3.57	%
Total investments ⁽¹⁾		5,247,118		57,280		4.32	%
Loans:
Taxable		860,371		11,580		5.34	%
Tax-exempt ⁽¹⁾		43,483		436		3.98	%
Total loans ⁽¹⁾		903,854		12,016		5.27	%
Total interest-bearing cash		287,439		3,929		5.35	%
Total interest-earning assets ⁽¹⁾		6,438,411		73,225		4.50	%
Other assets		409,280
Total assets	$	6,847,691

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,721,358	$	-		-	%
Savings and interest-bearing transaction		2,891,477		1,017		0.14	%
Time less than $100,000		66,909		52		0.31	%
Time $100,000 or more		43,073		26		0.24	%
Total interest-bearing deposits		3,001,459		1,095		0.14	%
Short-term borrowed funds		117,173		38		0.13	%
Total interest-bearing liabilities		3,118,632		1,133		0.14	%
Other liabilities		105,401
Shareholders' equity		902,300
Total liabilities and shareholders' equity	$	6,847,691
Net interest spread ^{(1) (2)}						4.36	%
Net interest and fee income and interest margin ^{(1) (3)}			$	72,092		4.43	%

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

⁽²⁾ Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities.

⁽³⁾ Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits.

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

	For the Three Months Ended September 30, 2021							For the Three Months Ended September 30, 2022
			Interest							Interest
	Average		Income/		Yields/			Average		Income/		Yields/
	Balance		Expense		Rates			Balance		Expense		Rates
	($ in thousands)							($ in thousands)
Assets
Investment securities:
Taxable	$	4,322,464	$	26,674		2.47	%	$	5,356,955	$	44,461		3.32	%
Tax-exempt ⁽¹⁾		293,076		2,508		3.42	%		195,633		1,766		3.61	%
Total investments ⁽¹⁾		4,615,540		29,182		2.53	%		5,552,588		46,227		3.33	%
Loans:
Taxable									943,293		11,865		4.99	%
PPP loans		144,641		1,865		5.12	%
Other taxable		981,074		12,534		5.07	%
Total taxable		1,125,715		14,399		5.08	%
Tax-exempt ⁽¹⁾		50,399		494		3.89	%		45,740		433		3.76	%
Total loans ⁽¹⁾		1,176,114		14,893		5.02	%		989,033		12,298		4.93	%
Total interest-bearing cash		962,627		369		0.15	%		499,692		2,742		2.15	%
Total Interest-earning assets ⁽¹⁾		6,754,281		44,444		2.63	%		7,041,313		61,267		3.47	%
Other assets		404,181							430,991
Total assets	$	7,158,462						$	7,472,304

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,960,207	$	-		-	%	$	3,058,662	$	-		-	%
Savings and interest-bearing transaction		3,111,068		373		0.05	%		3,297,585		384		0.05	%
Time less than $100,000		83,414		42		0.20	%		76,790		47		0.24	%
Time $100,000 or more		68,811		58		0.33	%		62,014		39		0.25	%
Total interest-bearing deposits		3,263,293		473		0.06	%		3,436,389		470		0.05	%
Short-term borrowed funds		107,547		19		0.07	%		83,694		17		0.08	%
Total interest-bearing liabilities		3,370,840		492		0.06	%		3,520,083		487		0.05	%
Other liabilities		71,733							86,131
Shareholders' equity		755,682							807,428
Total liabilities and shareholders' equity	$	7,158,462						$	7,472,304
Net interest spread ^{(1) (2)}						2.57	%						3.42	%
Net interest and fee income and interest margin ^{(1) (3)}			$	43,952		2.60	%			$	60,780		3.44	%

⁽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.

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

	For the Nine Months Ended September 30, 2023
			Interest
	Average		Income/		Yields/
	Balance		Expense		Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	5,223,319	$	166,031		4.24	%
Tax-exempt ⁽¹⁾		162,667		4,347		3.56	%
Total investments ⁽¹⁾		5,385,986		170,378		4.20	%
Loans:
Taxable		880,711		34,470		5.23	%
Tax-exempt ⁽¹⁾		44,640		1,317		3.94	%
Total loans ⁽¹⁾		925,351		35,787		5.17	%
Total interest-bearing cash		208,111		7,981		5.06	%
Total interest-earning assets ⁽¹⁾		6,519,448		214,146		4.36	%
Other assets		421,449
Total assets	$	6,940,897

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,774,282	$	-		-	%
Savings and interest-bearing transaction		2,964,442		1,891		0.09	%
Time less than $100,000		69,301		153		0.30	%
Time $100,000 or more		51,481		91		0.24	%
Total interest-bearing deposits		3,085,224		2,135		0.09	%
Short-term borrowed funds		97,510		76		0.10	%
Total interest-bearing liabilities		3,182,734		2,211		0.09	%
Other liabilities		104,141
Shareholders' equity		879,740
Total liabilities and shareholders' equity	$	6,940,897
Net interest spread ^{(1) (2)}						4.27	%
Net interest and fee income and interest margin ^{(1) (3)}			$	211,935		4.32	%

⁽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.

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~~-35-~~-36-

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

For the Nine Months Ended September 30, 2022

Interest

Average

Income/

Yields/

Balance

Expense

Rates

($ in thousands)

Assets

Investment securities:

Taxable
$ 4,951,926 $ 105,286 2.83 %
Tax-exempt ⁽¹⁾
220,077 5,799 3.51 %
Total investments ⁽¹⁾
5,172,003 111,085 2.86 %
Loans:

Taxable

PPP loans
22,347 2,027 12.13 %
Other taxable
940,209 34,392 4.89 %
Total taxable
962,556 36,419 5.06 %
Tax-exempt ⁽¹⁾
46,758 1,343 3.84 %
Total loans ⁽¹⁾
1,009,314 37,762 5.00 %
Total interest-bearing cash
832,310 5,223 0.83 %
Total Interest-earning assets ⁽¹⁾
7,013,627 154,070 2.93 %
Other assets
419,513
Total assets
$ 7,433,140

Liabilities and shareholders' equity

Noninterest-bearing demand
$ 3,020,892 $ - - %
Savings and interest-bearing transaction
3,275,781 1,134 0.05 %
Time less than $100,000
77,952 129 0.22 %
Time $100,000 or more
63,318 120 0.25 %
Total interest-bearing deposits
3,417,051 1,383 0.05 %
Short-term borrowed funds
121,310 67 0.07 %
Total interest-bearing liabilities
3,538,361 1,450 0.05 %
Other liabilities
83,196
Shareholders' equity
790,691
Total liabilities and shareholders' equity
$ 7,433,140
Net interest spread ^{(1) (2)}
2.88 %
Net interest and fee income and interest margin ^{(1) (3)}
$ 152,620 2.90 %

	For the Nine Months Ended September 30, 2022
			Interest
	Average		Income/		Yields/
	Balance		Expense		Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	4,951,926	$	105,286		2.83	%
Tax-exempt ⁽¹⁾		220,077		5,799		3.51	%
Total investments ⁽¹⁾		5,172,003		111,085		2.86	%
Loans:
Taxable		962,556		36,419		5.06	%
Tax-exempt ⁽¹⁾		46,758		1,343		3.84	%
Total loans ⁽¹⁾		1,009,314		37,762		5.00	%
Total interest-bearing cash		832,310		5,223		0.83	%
Total Interest-earning assets ⁽¹⁾		7,013,627		154,070		2.93	%
Other assets		419,513
Total assets	$	7,433,140

Liabilities and shareholders' equity
Noninterest-bearing demand	$	3,020,892	$	-		-	%
Savings and interest-bearing transaction		3,275,781		1,134		0.05	%
Time less than $100,000		77,952		129		0.22	%
Time $100,000 or more		63,318		120		0.25	%
Total interest-bearing deposits		3,417,051		1,383		0.05	%
Short-term borrowed funds		121,310		67		0.07	%
Total interest-bearing liabilities		3,538,361		1,450		0.05	%
Other liabilities		83,196
Shareholders' equity		790,691
Total liabilities and shareholders' equity	$	7,433,140
Net interest spread ^{(1) (2)}						2.88	%
Net interest and fee income and interest margin ^{(1) (3)}			$	152,620		2.90	%

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

⁽²⁾ Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities.

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~~-36-~~

-37-

For the Nine Months Ended September 30, 2021

Interest

Average

Income/

Yields/

Balance

Expense

Rates

($ in thousands)

Assets

Investment securities:

Taxable
$ 4,154,211 $ 78,564 2.52 %
Tax-exempt ⁽¹⁾
329,873 8,410 3.40 %
Total investments ⁽¹⁾
4,484,084 86,974 2.59 %
Loans:

Taxable

PPP loans
180,214 6,431 4.77 %
Other taxable
996,584 36,833 4.94 %
Total taxable
1,176,798 43,264 4.92 %
Tax-exempt ⁽¹⁾
51,173 1,481 3.87 %
Total loans ⁽¹⁾
1,227,971 44,745 4.87 %
Total interest-bearing cash
823,894 766 0.12 %
Total Interest-earning assets ⁽¹⁾
6,535,949 132,485 2.70 %
Other assets
403,687
Total assets
$ 6,939,636

Liabilities and shareholders' equity

Noninterest-bearing demand
$ 2,854,936 $ - - %
Savings and interest-bearing transaction
3,007,473 1,068 0.05 %
Time less than $100,000
84,508 126 0.20 %
Time $100,000 or more
70,258 204 0.39 %
Total interest-bearing deposits
3,162,239 1,398 0.06 %
Short-term borrowed funds
105,001 53 0.07 %
Other borrowed funds
71 - 0.35 %
Total interest-bearing liabilities
3,267,311 1,451 0.06 %
Other liabilities
72,007
Shareholders' equity
745,382
Total liabilities and shareholders' equity
$ 6,939,636
Net interest spread ^{(1) (2)}
2.64 %
Net interest and fee income and interest margin ^{(1) (3)}
$ 131,034 2.67 %

⁽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.~~

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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, 2022									For the Three Months Ended September 30, 2023
	Compared with									Compared with
	For the Three Months Ended September 30, 2021									For the Three Months Ended September 30, 2022
	Volume			Yield/Rate			Total			Volume			Yield/Rate			Total
	(In thousands)									(In thousands)
Increase (decrease) in interest and loan fee income:
(Decrease) increase in interest and loan fee income:
Investment securities:
Taxable	$	6,384		$	11,403		$	17,787		$	(2,185	)	$	13,635		$	11,450
Tax-exempt ⁽¹⁾		(834	)		92			(742	)		(381	)		(16	)		(397	)
Total investments ⁽¹⁾		5,550			11,495			17,045			(2,566	)		13,619			11,053
Loans:
Taxable:
PPP loans		(1,730	)		398			(1,332	)
Other		(604	)		(598	)		(1,202	)
Total taxable		(2,334	)		(200	)		(2,534	)
Taxable											(1,043	)		758			(285	)
Tax-exempt ⁽¹⁾		(45	)		(16	)		(61	)		(21	)		24			3
Total loans ⁽¹⁾		(2,379	)		(216	)		(2,595	)		(1,064	)		782			(282	)
Total interest-bearing cash		(177	)		2,550			2,373			(1,165	)		2,352			1,187
Total increase in interest and loan fee income ⁽¹⁾		2,994			13,829			16,823
Increase (decrease) in interest expense:
Total (decrease) increase in interest and loan fee income ⁽¹⁾											(4,795	)		16,753			11,958
(Decrease) increase in interest expense:
Deposits:
Savings and interest-bearing transaction		22			(11	)		11			(47	)		680			633
Time less than $100,000		(3	)		8			5			(6	)		11			5
Time $100,000 or more		(6	)		(13	)		(19	)		(12	)		(1	)		(13	)
Total interest-bearing deposits		13			(16	)		(3	)		(65	)		690			625
Short-term borrowed funds		(4	)		2			(2	)		7			14			21
Total increase (decrease) in interest expense		9			(14	)		(5	)
Increase in net interest and loan fee income ⁽¹⁾	$	2,985		$	13,843		$	16,828
Total (decrease) increase in interest expense											(58	)		704			646
(Decrease) increase in net interest and loan fee income ⁽¹⁾										$	(4,737	)	$	16,049		$	11,312

⁽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 Nine Months Ended September 30, 2022

Compared with

For the Nine Months Ended September 30, 2021

Volume

Yield/Rate

Total

(In thousands)

Increase (decrease) in interest and loan fee income:

Investment securities:

Taxable
$ 15,086 $ 11,636 $ 26,722
Tax-exempt ⁽¹⁾
(2,799 ) 188 (2,611 )
Total investments ⁽¹⁾
12,287 11,824 24,111
Loans:

Taxable:

PPP loans
(5,634 ) 1,230 (4,404 )
Other
(2,084 ) (357 ) (2,441 )
Total taxable
(7,718 ) 873 (6,845 )
Tax-exempt ⁽¹⁾
(128 ) (10 ) (138 )
Total loans ⁽¹⁾
(7,846 ) 863 (6,983 )
Total interest-bearing cash
8 4,449 4,457
Total increase in interest and loan fee income ⁽¹⁾
4,449 17,136 21,585
Increase (decrease) in interest expense:

Deposits:

Savings and interest-bearing transaction
95 (29 ) 66
Time less than $100,000
(10 ) 13 3
Time $100,000 or more
(20 ) (64 ) (84 )
Total interest-bearing deposits
65 (80 ) (15 )
Short-term borrowed funds
8 6 14
Total increase (decrease) in interest expense
73 (74 ) (1 )
Increase in net interest and loan fee income ⁽¹⁾
$ 4,376 $ 17,210 $ 21,586

⁽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 Nine Months Ended September 30, 2023
	Compared with
	For the Nine Months Ended September 30, 2022
	Volume			Yield/Rate			Total
	(In thousands)
Increase (decrease) in interest and loan fee income:
Investment securities:
Taxable	$	5,770		$	54,975		$	60,745
Tax-exempt ⁽¹⁾		(1,513	)		61			(1,452	)
Total investments ⁽¹⁾		4,257			55,036			59,293
Loans:
Taxable		(3,097	)		1,148			(1,949	)
Tax-exempt ⁽¹⁾		(61	)		35			(26	)
Total loans ⁽¹⁾		(3,158	)		1,183			(1,975	)
Total interest-bearing cash		(3,917	)		6,675			2,758
Total (decrease) increase in interest and loan fee income ⁽¹⁾		(2,818	)		62,894			60,076
(Decrease) increase in interest expense:
Deposits:
Savings and interest-bearing transaction		(108	)		865			757
Time less than $100,000		(14	)		38			24
Time $100,000 or more		(22	)		(7	)		(29	)
Total interest-bearing deposits		(144	)		896			752
Short-term borrowed funds		(13	)		22			9
Total (decrease) increase in interest expense		(157	)		918			761
(Decrease) increase in net interest and loan fee income ⁽¹⁾	$	(2,661	)	$	61,976		$	59,315

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

Provision for Credit Losses

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

The Company provided a $400 thousand provision for credit losses in the third quarter of 2023, based on the results of the CECL model and Management’s estimate of credit losses over the remaining life of its loans and debt securities held to maturity. The Company recorded a $1.2 million reversal of provision for credit losses in the nine months ended September 30, 2023 which reflected a $2.2 million recovery on a previously charged off loan in the first quarter 2023. The Company provided no provision for credit losses in the third quarter ~~and first nine months~~ of 2022 and ~~the third quarter and first~~ nine months ~~of 2021,~~ended September 30, 2022, based on Management’s estimate of credit losses over the remaining life of its loans and debt securities held to maturity. 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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-39-

Noninterest Income

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

	For the Three Months				For the Nine Months				For the Three Months				For the Nine Months
	Ended September 30,								Ended September 30,
	2022		2021		2022		2021		2023		2022		2023			2022
	(In thousands)								(In thousands)

Service charges on deposit accounts	$	3,737	$	3,578	$	11,006	$	10,117	$	3,705	$	3,737	$	10,629		$	11,006
Merchant processing services		2,925		3,159		8,922		8,998		2,911		2,925		8,417			8,922
Debit card fees		1,594		1,740		6,175		5,132		1,717		1,594		5,118			6,175
Trust fees		810		839		2,462		2,467		783		810		2,358			2,462
ATM processing fees		594		573		1,514		1,792		640		594		1,996			1,514
Other service fees		463		475		1,392		1,435		463		463		1,320			1,392
Financial services commissions		79		95		314		260		78		79		270			314
Life insurance gains		923		-		923		-		278		923		278			923
Securities gains		-		-		-		34
Securities losses										-		-		(125	)		-
Other noninterest income		693		823		1,950		2,268		706		693		2,269			1,950
Total	$	11,818	$	11,282	$	34,658	$	32,503	$	11,281	$	11,818	$	32,530		$	34,658

Third quarter ~~2022~~2023 noninterest income ~~increased $536~~decreased $537 thousand ~~compared with third quarter 2021. Third quarter 2022 included a $923 thousand life insurance gain. Service charges on deposit accounts increased~~ compared with the third quarter ~~2021~~2022 primarily due to lower gains on life insurance. Debit card fees increased in the third quarter 2023 compared with the third quarter 2022 primarily due to higher fee income from overdrawn accounts. The increase in third quarter 2022 compared with third quarter 2021 was partially offset by decreases in merchant processing services and debit card fees resulting from lower transaction volumes.

~~First~~Noninterest income for the nine months ~~of 2022 noninterest income increased $2.2~~ended September 30, 2023 decreased $2.1 million compared with the ~~first~~ nine months ~~of 2021~~ended September 30, 2022 primarily due to lower gains on life insurance and because debit card fees in the nine months ended September 30, 2022 included a $1.2 million reconciling payment from a payments ~~network, a $923 thousand life insurance gain~~network. Merchant processing service fees decreased in the nine months ended September 30, 2023 compared with the nine months ended September 30, 2022 primarily due to lower transaction volumes and ~~higher~~increased lower-margin transactions. Service charges on deposit accounts decreased in the nine months ended September 30, 2023 compared with the nine months ended September 30, 2022 primarily due to lower fee income on analyzed deposit accounts. ~~The increases~~ATM processing fee income increased in the ~~first~~ nine months ~~of 2022~~ended September 30, 2023 compared with the ~~first~~ nine months ~~of 2021 was~~ended September 30, 2022 and partially offset ~~by a decrease~~the decreases in ~~ATM processing~~the other components of noninterest income. Other noninterest income in the nine months ended September 30, 2023 included higher recoveries of interest and fees ~~resulting from lower transaction volumes.~~on previously charged off loans compared with nine months ended September 30, 2022.

Noninterest Expense

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

For the Three Months

For the Nine Months

Ended September 30,

2022

2021

2022

2021

(In thousands)

Salaries and related benefits
$ 11,311 $ 11,813 $ 34,643 $ 36,575
Occupancy and equipment
5,064 4,759 14,666 14,447
Outsourced data processing services
2,434 2,429 7,294 7,244
Limited partnership operating losses
1,431 620 4,293 1,820
Professional fees
582 724 2,054 2,496
Courier service
671 534 1,914 1,605
Other noninterest expense
3,274 3,818 9,407 9,707
Total
$ 24,767 $ 24,697 $ 74,271 $ 73,894

Third quarter 2022 noninterest expense remained at the same level compared with the third quarter 2021. Limited partnership operating losses increased $811 thousand in the third quarter 2022 compared with the third quarter 2021 due to higher estimated operating losses on limited partnership investments in low-income housing. Occupancy and equipment expense increased primarily due to software upgrades and branch closure. The increase in the third quarter 2022 compared with the third quarter 2021 was partially offset by a decrease in salaries and related benefits resulting from attrition.

First nine months of 2022 noninterest expense increased $377 thousand compared with the first nine months of 2021. Limited partnership operating losses increased $2.5 million due to higher estimated operating losses on limited partnership investments in low-income housing. The increase in the first nine months of 2022 compared with the first nine months of 2021 was partially offset by a decrease in salaries and related benefits resulting from attrition. Professional fees decreased in the first nine months of 2022 compared with the first nine months of 2021 due to lower legal fees.

	For the Three Months				For the Nine Months
	Ended September 30,
	2023		2022		2023		2022
	(In thousands)

Salaries and related benefits	$	11,820	$	11,311	$	35,715	$	34,643
Occupancy and equipment		5,065		5,064		15,562		14,666
Outsourced data processing services		2,473		2,434		7,405		7,294
Limited partnership operating losses		1,440		1,431		4,314		4,293
Professional fees		401		582		1,362		2,054
Courier service		745		671		1,971		1,914
Other noninterest expense		3,706		3,274		11,370		9,407
Total	$	25,650	$	24,767	$	77,699	$	74,271

-40-

Third quarter 2023 noninterest expense increased $883 thousand compared with the third quarter 2022. Salaries and benefits increased in the third quarter 2023 compared with the third quarter 2022 due to increased staff, annual merit increases and higher group health insurance costs for the employees. Other noninterest expense increased in the third quarter 2023 compared with third quarter 2022 primarily due to higher FDIC insurance assessments for all insured depository institutions. Professional fees decreased in the third quarter 2023 compared with the third quarter 2022 primarily due to lower legal fees.

Noninterest expense in the nine months ended September 30, 2023 increased $3.4 million compared with the nine months ended September 30, 2022. Salaries and benefits increased in the nine months ended September 30, 2023 compared with the nine months ended September 30, 2022 due to increased staff, annual merit increases and higher group health insurance costs for the employees. Occupancy and equipment expenses increased in the nine months ended September 30, 2023 compared with the nine months ended September 30, 2022 primarily due to increases in repair and maintenance. Other noninterest expense increased in the nine months ended September 30, 2023 compared with the nine months ended September 30, 2022 primarily due to higher FDIC insurance assessments for all insured depository institutions and losses on unauthorized transactions of customer debit and ATM cards. Professional fees decreased in the nine months ended September 30, 2023 compared with the nine months ended September 30, 2022 primarily due to lower legal fees.

Provision for Income Tax

The Company’s income tax provision (FTE) was $15.7 million for the third quarter 2023 and $45.6 million for the nine months ended September 30, 2023 compared with $13.1 million for the third quarter 2022 and $30.3 million for the nine months ended September 30, ~~2022 compared with $8.5 million~~2022. The effective tax rates (FTE) were 27.4% for the third quarter ~~2021~~2023 and ~~$24.9 million~~27.2% for the nine months ended September 30, ~~2021. The effective tax rates (FTE) were~~2023 compared with 27.3% for the third quarter 2022 and 26.8% for the nine months ended September 30, ~~2022 compared with 27.8% for the third quarter 2021 and 27.7% for the nine months ended September 30, 2021.~~2022.

Investment Securities Portfolio

The Company maintains an investment securities portfolio consisting of securities issued by U.S. Government sponsored entities, state and political subdivisions, corporations, collateralized loan obligations and agency mortgage-backed securities. The Company had no marketable equity securities at September 30, 2023 and December 31, 2022.

Management manages the investment securities portfolio in response to anticipated changes in interest rates, and changes in deposit and loan volumes. The carrying value of the Company’s investment securities portfolio was ~~$5.3~~$4.8 billion at September 30, ~~2022~~2023 and ~~$4.9~~$5.2 billion at December 31, ~~2021.~~2022. The following table lists debt securities in the Company’s portfolio by type as of the ~~indicated dates.~~dates indicated. Debt securities held to maturity are listed at amortized cost before related reserve for expected credit losses of ~~$7 thousand.~~$1 thousand at September 30, 2023 and December 31, 2022. Debt securities available for sale are listed at fair value.

	At September 30, 2022					At December 31, 2021					At September 30, 2023					At December 31, 2022
	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)										($ in thousands)
Securities of U.S. Government sponsored entities	$	272,525		5	%	$	-		-	%	$	279,364		6	%	$	290,853		6	%
Agency mortgage-backed securities		409,060		8	%		559,358		11	%
Agency residential mortgage-backed securities ("MBS")												324,075		7	%		390,900		7	%
Obligations of states and political subdivisions		184,736		3	%		251,933		5	%		147,198		3	%		171,212		3	%
Corporate securities		2,858,662		54	%		2,746,735		56	%		2,541,375		53	%		2,821,809		54	%
Collateralized loan obligations		1,587,622		30	%		1,386,355		28	%		1,503,078		31	%		1,572,883		30	%
Other		-		-	%		877		-	%
Total	$	5,312,605		100	%	$	4,945,258		100	%	$	4,795,090		100	%	$	5,247,657		100	%

Debt securities available for sale	$	4,376,331				$	4,638,855				$	3,906,233				$	4,331,743
Debt securities held to maturity		936,274					306,403					888,857					915,914
Total	$	5,312,605				$	4,945,258				$	4,795,090				$	5,247,657

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.

-41-

At September 30, ~~2022,~~2023, substantially all of the Company’s investment securities were investment grade as rated by one or more major rating ~~agencies.~~agency. In addition to monitoring credit rating agency evaluations, Management performs its own evaluations regarding the credit worthiness of the issuer or the securitized assets underlying asset-backed securities. The Company’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.

The ~~Company had no marketable equity~~following table summarizes the amortized cost of debt securities held to maturity at September 30, ~~2022 and December 31, 2021.~~2023, aggregated by credit rating:

~~-41-~~

	Credit Risk Profile by Credit Rating
	At September 30, 2023
	AAA/AA/A		BBB+		Not Rated		Total
	(In thousands)
Agency residential MBS	$	83,863	$	-	$	484	$	84,347
Obligations of states and political subdivisions		77,379		-		180		77,559
Corporate securities		505,421		221,530		-		726,951
Total	$	666,663	$	221,530	$	664	$	888,857

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

	Corporate securities								Corporate securities
	At September 30, 2022				At December 31, 2021				At September 30, 2023				At December 31, 2022
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value		Cost		Value
	(In thousands)								(In thousands)
Debt securities available for sale	$	2,491,591	$	2,138,508	$	2,692,792	$	2,746,735	$	2,134,535	$	1,814,424	$	2,406,566	$	2,099,955
Debt securities held to maturity		720,154		672,225		-		-		726,951		666,549		721,854		687,406
Total corporate securities	$	3,211,745	$	2,810,733	$	2,692,792	$	2,746,735	$	2,861,486	$	2,480,973	$	3,128,420	$	2,787,361

The following table summarizes total corporate securities by credit rating:

	At September 30, 2022					At December 31, 2021					At September 30, 2023					At December 31, 2022
	Fair value		As a percent of total corporate securities			Fair value		As a percent of total corporate securities			Fair value		As a percent of total corporate securities			Fair value		As a percent of total corporate securities
	($ in thousands)										($ in thousands)
AAA	$	20,603		1	%	$	21,400		1	%	$	-		-	%	$	20,667		1	%
AA+		19,781		1	%		20,479		1	%		-		-	%		19,840		1	%
AA		19,180		1	%		19,781		1	%		-		-	%		19,234		1	%
AA-		138,053		5	%		105,373		4	%		68,324		3	%		110,552		4	%
A+		250,287		9	%		128,325		5	%		235,646		9	%		255,381		9	%
A		510,487		18	%		539,062		19	%		362,091		14	%		503,437		18	%
A-		706,198		25	%		628,089		23	%		784,259		32	%		695,865		25	%
BBB+		775,597		27	%		797,860		29	%		707,790		29	%		821,102		29	%
BBB		370,547		13	%		474,648		17	%		322,863		13	%		304,957		11	%
BBB-		-		-	%		11,718		-	%		-		-	%		36,326		1	%
Total Corporate securities	$	2,810,733		100	%	$	2,746,735		100	%
Total corporate securities											$	2,480,973		100	%	$	2,787,361		100	%

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

At September 30, 2022

At December 31, 2021

Fair value

As a percent of total corporate securities

Fair value

As a percent of total corporate securities

($ in thousands)

Financial
$ 1,547,479 55 % $ 1,421,317 52 %
Utilities
292,981 10 % 208,522 7 %
Industrial
243,052 9 % 217,065 8 %
Consumer, Non-cyclical
169,174 6 % 271,069 10 %
Communications
169,143 6 % 161,537 6 %
Technology
105,247 4 % 127,853 5 %
Consumer, Cyclical
102,715 4 % 125,686 4 %
Basic Materials
96,276 3 % 114,964 4 %
Energy
84,666 3 % 98,722 4 %
Total Corporate securities
$ 2,810,733 100 % $ 2,746,735 100 %

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-42-

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

	At September 30, 2023					At December 31, 2022
	Fair value		As a percent of total corporate securities			Fair value		As a percent of total corporate securities
	($ in thousands)
Financial	$	1,436,503		58	%	$	1,539,361		55	%
Utilities		262,148		11	%		285,016		10	%
Industrial		202,117		8	%		237,554		9	%
Consumer, Non-cyclical		160,735		6	%		173,736		6	%
Communications		151,816		6	%		162,270		6	%
Basic Materials		97,123		4	%		98,072		3	%
Energy		65,891		3	%		86,431		3	%
Technology		60,665		2	%		101,255		4	%
Consumer, Cyclical		43,975		2	%		103,666		4	%
Total corporate securities	$	2,480,973		100	%	$	2,787,361		100	%

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

	At September 30, 2022					At September 30, 2023					At December 31, 2022
	Fair value		As a percent of total corporate securities			Fair value		As a percent of total corporate securities			Fair value		As a percent of total corporate securities
	($ in thousands)					($ in thousands)
United States of America	$	2,040,206		73	%	$	1,720,693		69	%	$	1,997,328		72	%
Canada		188,287		7	%		184,151		7	%		192,475		7	%
United Kingdom		167,188		6	%		157,270		6	%		171,819		6	%
Japan		156,900		5	%		153,681		6	%		161,804		6	%
Switzerland		86,565		3	%		89,717		4	%		86,396		3	%
France		84,914		3	%		87,227		4	%		87,781		3	%
Netherlands		31,641		1	%		32,647		1	%		33,216		1	%
Australia		23,025		1	%		23,580		1	%		23,870		1	%
Belgium		19,919		1	%		19,820		1	%		20,243		1	%
Germany		12,088		-	%		12,187		1	%		12,429		-	%
Total Corporate securities	$	2,810,733		100	%
Total corporate securities						$	2,480,973		100	%	$	2,787,361		100	%

The following table summarizes the above corporate securities with issuer’s headquarters located outside of the United States of America by the industry sector in which the issuing companies operate; all the bonds are denominated in United States dollars:

	At September 30, 2023					At December 31, 2022
	Fair value		As a percent of total foreign corporate securities			Fair value		As a percent of total foreign corporate securities
	($ in thousands)
Financial	$	665,173		87	%	$	680,956		86	%
Energy		30,174		4	%		30,600		4	%
Basic materials		23,580		3	%		23,870		3	%
Consumer, Non-cyclical		19,820		3	%		32,684		4	%
Consumer, Cyclical		12,187		2	%		12,429		2	%
Utilities		9,346		1	%		9,494		1	%
Total foreign corporate securities	$	760,280		100	%	$	790,033		100	%

-43-

The Company’s ~~$1.6~~$1.5 billion (fair value) in collateralized loan obligations at September 30, ~~2022,~~2023, consist of investments in ~~148~~143 issues that are within the senior tranches of their respective fund securitization structures. The following table summarizes total collateralized loan obligations by credit rating:

	At September 30, 2022				At September 30, 2023
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In thousands)				(In thousands)
AAA	$	568,760	$	566,603	$	545,632	$	540,315
AA		1,027,970		1,021,019		980,037		962,763
Total	$	1,596,730	$	1,587,622	$	1,525,669	$	1,503,078

The Company’s $1.6 billion (fair value) in collateralized loan obligations at December 31, 2022, consist of investments in 169 issues that are within the senior tranches of their respective fund securitization structures. The following table summarizes total collateralized loan obligations by credit rating:

	At December 31, 2022
	Amortized		Fair
	Cost		Value
	(In thousands)
AAA	$	559,239	$	553,673
AA		1,028,087		1,019,210
Total	$	1,587,326	$	1,572,883

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~~-43-~~

-44-

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

At September 30, 2023, the Company’s investment securities portfolios included securities issued by 129 state and local government municipalities and agencies located within 31 states. The largest exposure to any one municipality or agency was $4.7 million (fair value) represented by two general obligation bonds.

	At September 30, 2023
	Amortized		Fair
	Cost		Value
	(In thousands)
Obligations of states and political subdivisions:
General obligation bonds:
California	$	23,806	$	23,191
Washington		11,362		10,989
Texas		8,162		7,777
Massachusetts		8,123		7,752
Michigan		7,067		6,763
Minnesota		6,626		6,468
Other (21 states)		53,353		50,543
Total general obligation bonds	$	118,499	$	113,483

Revenue bonds:
California	$	10,425	$	10,043
Kentucky		5,059		4,972
Virginia		3,659		3,487
Colorado		3,156		3,085
Washington		2,070		2,041
Utah		1,930		1,922
Other (7 states)		6,375		6,212
Total revenue bonds	$	32,674	$	31,762
Total obligations of states and political subdivisions	$	151,173	$	145,245

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-45-

At December 31, 2022, the Company’s investment securities portfolios included securities issued by ~~153~~142 state and local government municipalities and agencies located within 32 states. The largest exposure to any one municipality or agency was $4.8 million (fair value) represented by three general obligation bonds.

At September 30, 2022

Amortized

Fair

Cost

Value

(In thousands)

Obligations of states and political subdivisions:

General obligation bonds:

California
$ 35,819 $ 35,075
Washington
13,362 13,063
Texas
8,594 8,201
Massachusetts
8,459 8,096
Ohio
8,036 7,672
Other (23 states)
68,999 66,256
Total general obligation bonds
$ 143,269 $ 138,363

Revenue bonds:

California
$ 14,161 $ 13,704
Kentucky
7,609 7,499
Colorado
6,156 6,077
Virginia
3,692 3,530
Washington
2,360 2,347
Florida
2,344 2,345
Other (8 states)
9,336 9,246
Total revenue bonds
45,658 44,748
Total obligations of states and political subdivisions
$ 188,927 $ 183,111

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~~-44-~~

At December 31, 2021, the Company’s investment securities portfolios included securities issued by 197 state and local government municipalities and agencies located within 33 states. The largest exposure to any one municipality or agency was $7.4 million (fair value) represented by five general obligation bonds.

	At December 31, 2021				At December 31, 2022
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In thousands)				(In thousands)
Obligations of states and political subdivisions:
General obligation bonds:
California	$	48,332	$	49,829	$	34,621	$	34,252
Washington		13,460		13,924		11,445		11,332
Texas		11,653		12,024		8,561		8,405
Other (27 states)		110,722		114,132
Massachusetts						8,214		8,073
Michigan						7,126		7,017
Other (23 states)						63,818		62,679
Total general obligation bonds	$	184,167	$	189,909	$	133,785	$	131,758

Revenue bonds:
California	$	14,912	$	15,208	$	13,917	$	13,620
Kentucky		8,846		9,093		7,605		7,556
Virginia		7,576		7,809		3,684		3,618
Colorado		6,158		6,241		3,155		3,124
Indiana		5,747		5,821
Other (12 states)		20,714		20,934
Washington						2,070		2,068
Other (8 states)						9,016		9,003
Total revenue bonds		63,953		65,106	$	39,447	$	38,989
Total obligations of states and political subdivisions	$	248,120	$	255,015	$	173,232	$	170,747

At September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the revenue bonds in the Company’s investment securities portfolios were issued by state and local government municipalities and agencies to fund public services such as water utility, sewer utility, recreational and school facilities, and general public and economic improvements. The revenue bonds were payable from 1211 revenue sources at September 30, ~~2022~~2023 and ~~14 revenue sources at~~ December 31, ~~2021.~~2022. The revenue sources that represent 5% or more individually of the total revenue bonds are summarized in the following tables.

	At September 30, 2022				At September 30, 2023
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In thousands)				(In thousands)
Revenue bonds by revenue source:
Water	$	7,548	$	7,545	$	5,023	$	4,956
Sales tax		6,185		6,170
Lease (renewal)		5,734		5,624
Sewer		5,536		5,385		4,853		4,698
Lease (appropriation)		4,558		4,465		4,554		4,469
Special Assessment						3,695		3,359
Lease (renewal)						3,044		2,972
Lease (abatement)		3,942		3,922		2,863		2,843
Special Assessment		4,080		3,673
Other (5 sources)		8,075		7,964
Sales tax						2,185		2,150
Lease (non-terminable)						1,930		1,898
Appropriations						1,982		1,880
Other (2 sources)						2,545		2,537
Total revenue bonds by revenue source	$	45,658	$	44,748	$	32,674	$	31,762

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~~-45-~~-46-

	At December 31, 2021				At December 31, 2022
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In thousands)				(In thousands)
Revenue bonds by revenue source:
Water	$	10,123	$	10,222	$	6,105	$	6,115
Lease (renewal)						5,590		5,536
Sewer		8,525		8,828		5,523		5,480
Sales tax		8,203		8,304
Lease (renewal)		6,969		7,175
Lease (abatement)		6,922		7,010
Lease (appropriation)		4,564		4,618		4,556		4,518
Special Assessment		4,080		4,197		4,080		3,788
Intergovernmental Agreement		3,860		3,926
Other (6 sources)		10,707		10,826
Lease (abatement)						3,702		3,694
Sales tax						3,185		3,187
Other (4 sources)						6,706		6,671
Total revenue bonds by revenue source	$	63,953	$	65,106	$	39,447	$	38,989

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 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.

During 2020 and the first six months of 2021, the Bank processed customer PPP loan applications pursuant to the CARES Act. The United States Small Business Administration guarantees PPP loans; given this guarantee, the PPP loans are not considered to have default risk and do not carry an allowance for credit losses. The outstanding balances of PPP loans, net of deferred fees and costs, were $6.1 million at September 30, 2022.

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 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 loss experience, the amount of past due, nonperforming and classified loans, recommendations of regulatory authorities, prevailing economic conditions and other information. The amount of ultimate losses on the loan portfolio can vary from the estimated amounts. Management follows a systematic methodology to estimate loss potential in an effort to reduce the differences between estimated and actual losses.

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

●

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

●

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

~~-46-~~

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”).

-47-

Nonperforming Loans

	At September 30,				At December 31,		At September 30,				At December 31,
	2022		2021		2021		2023		2022		2022
	(In thousands)						(In thousands)

Nonperforming nonaccrual loans	$	131	$	801	$	265	$	205	$	131	$	146
Performing nonaccrual loans		66		436		427		4		66		-
Total nonaccrual loans		197		1,237		692		209		197		146
Accruing loans 90 or more days past due		769		537		339		1,029		769		628
Total nonperforming loans	$	966	$	1,774	$	1,031	$	1,238	$	966	$	774

At September 30, ~~2022,~~2023, nonaccrual loans consisted of ~~six~~four loans with ~~a total~~an average carrying value of ~~$197~~$52 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

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

At September 30,

At December 31,

2022

2021

(In thousands)

Allowance for Credit Losses on Loans
$ 21,218 $ 23,514
Allowance for Credit Losses on Held to Maturity Debt Securities
7 7
Total Allowance for Credit Losses
$ 21,225 $ 23,521

Allowance for unfunded credit commitments
$ 201 $ 201

	At September 30,		At December 31,
	2023		2022
	(In thousands)

Allowance for credit losses on loans	$	17,744	$	20,284
Allowance for credit losses on held to maturity debt securities		1		1
Total allowance for credit losses	$	17,745	$	20,285

Allowance for unfunded credit commitments	$	201	$	201

Allowance for Credit Losses on Debt Securities Held to Maturity

Management segmented debt securities held to maturity, selected methods to estimate losses for each segment, and measured a loss estimate. Agency mortgage-backed securities were assigned no credit loss allowance due to the perceived backing of government sponsored entities. Corporate securities held to maturity were individually evaluated for expected credit loss by evaluating the issuer’s financial condition, profitability, cash flows, and credit ratings. At September 30, ~~2022,~~2023, no credit loss allowance was assigned to corporate securities held to ~~maturity.~~maturity based on evaluation of each individual issuer’s financial performance throughout full business cycles. Municipal securities were evaluated for risk of default based on credit rating and remaining term to maturity using Moody’s risk of default factors; Moody’s loss upon default factors were applied to the assumed defaulted principal amounts to estimate the amount for credit loss allowance. Allowance for credit losses related to debt securities held to maturity was $7$1 thousand ~~credit loss~~ related to municipal securities at September 30, ~~2022~~2023 and at December 31, ~~2021,~~2022, reflecting the expected credit losses on debt securities held to maturity.

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~~-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 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.

-48-

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

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

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

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-49-

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

	For the Three Months						For the Nine Months						For the Three Months						For the Nine Months
	Ended September 30,												Ended September 30,
	2022			2021			2022			2021			2023			2022			2023			2022
	($ in thousands)												($ in thousands)
Analysis of the Allowance for Credit Losses
Analysis of the allowance for credit losses
Balance, beginning of period	$	22,313		$	23,737		$	23,514		$	23,854		$	18,480		$	22,313		$	20,284		$	23,514
Provision for credit losses		-			2			-			2
Provision (reversal of provision) for credit losses														400			-			(1,150	)		-
Loans charged off
Commercial		-			(56	)		(20	)		(56	)		(262	)		-			(410	)		(20	)
Consumer installment and other		(1,917	)		(916	)		(4,522	)		(2,176	)		(1,827	)		(1,917	)		(5,379	)		(4,522	)
Total chargeoffs		(1,917	)		(972	)		(4,542	)		(2,232	)		(2,089	)		(1,917	)		(5,789	)		(4,542	)
Recoveries of loans previously charged off
Commercial		72			80			335			168			10			72			2,194			335
Commercial real estate		14			705			46			729			15			14			45			46
Consumer installment and other		736			330			1,865			1,361			928			736			2,160			1,865
Total recoveries		822			1,115			2,246			2,258			953			822			4,399			2,246
Net loan (losses) recoveries		(1,095	)		143			(2,296	)		26
Net loan losses														(1,136	)		(1,095	)		(1,390	)		(2,296	)
Balance, end of period	$	21,218		$	23,882		$	21,218		$	23,882		$	17,744		$	21,218		$	17,744		$	21,218

Net loan losses (recoveries) as a percentage of average total loans (annualized)		0.44	%		(0.05%	)		0.30	%		0.00	%
Net loan losses as a percentage of average total loans (annualized)														0.50	%		0.44	%		0.20	%		0.30	%

Selected financial data: (At the dates indicated)
	At September 30,						At December 31,
	2023			2022			2022
	($ in thousands)
Loans	$	885,850		$	979,033		$	958,488
Nonaccrual loans		209			197			146
Allowance for credit losses as a percentage of loans		2.00	%		2.17	%		2.12	%
Nonaccrual loans as a percentage of loans		0.02	%		0.02	%		0.02	%
Allowance for credit losses to nonaccrual loans		8489.95	%		10770.56	%		13893.15	%

The following table summarizes net (chargeoffs) recoveries and the ratio of net charge-offs (recoveries) to average loans for the periods indicated:

	For the Three Months Ended								For the Nine Months Ended
	September 30, 2023
						As a Percentage								As a Percentage
				Average		of Net Chargeoffs						Average		of Net (Recoveries)
	Net (Chargeoffs)			Loan		(Recoveries)			Net Recoveries			Loan		Chargeoffs
	Recoveries			Balances		to Average Loans			(Chargeoffs)			Balances		to Average Loans
	($ in thousands)

Commercial	$	(252	)	$	146,478		0.17	%	$	1,784		$	154,078		(1.16	)%
Commercial real estate		15			493,072		-	%		45			492,702		(0.01	)%
Construction		-			4,953		-	%		-			4,126		-	%
Residential real estate		-			11,703		-	%		-			12,593		-	%
Consumer and other installment		(899	)		247,648		0.36	%		(3,219	)		261,852		1.23	%
Total	$	(1,136	)	$	903,854		0.13	%	$	(1,390	)	$	925,351		0.15	%

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-50-

	For the Three Months Ended								For the Nine Months Ended
	September 30, 2022
						As a percentage								As a percentage
				Average		of Net chargeoffs						Average		of Net chargeoffs
	Net (chargeoffs)			Loan		(recoveries)			Net (chargeoffs)			Loan		(recoveries)
	Recoveries			Balances		to Average loans			Recoveries			Balances		to Average loans
	($ in thousands)

Commercial	$	72		$	187,941		(0.04	)%	$	315		$	198,950		(0.16	)%
Commercial real estate		14			494,717		-	%		46			508,812		(0.01	)%
Construction		-			2,384		-	%		-			1,256		-	%
Residential real estate		-			15,144		-	%		-			16,157		-	%
Consumer and other installment		(1,181	)		288,847		0.41	%		(2,657	)		284,139		0.94	%
Total	$	(1,095	)	$	989,033		0.11	%	$	(2,296	)	$	1,009,314		0.23	%

The Company's allowance for credit losses on loans is maintained at a level considered adequate to provide for expected losses based on historical loss rates adjusted for current and expected conditions over a forecast period. These include conditions unique to individual borrowers, as well as overall loan loss experience, the amount of past due, nonperforming and classified loans, recommendations of regulatory authorities, prevailing and forecasted economic conditions, or credit protection agreements and other factors. Loans that share common risk characteristics are segregated into pools based on common characteristics, which isare 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

For the Three Months Ended September 30, 2022

Consumer

Commercial

Residential

Installment

Commercial

Real Estate

Construction

Real Estate

and Other

Total

(In thousands)

Allowance for credit losses:

Balance at beginning of period
$ 6,536 $ 5,916 $ 96 $ 35 $ 9,730 $ 22,313
(Reversal) provision
(164 ) 14 32 - 118 -
Chargeoffs
- - - - (1,917 ) (1,917 )
Recoveries
72 14 - - 736 822
Total allowance for credit losses
$ 6,444 $ 5,944 $ 128 $ 35 $ 8,667 $ 21,218

	Allowance for Credit Losses																	Allowance for Credit Losses
	For the Nine Months Ended September 30, 2022																	For the Three Months Ended September 30, 2023
												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	$	6,966		$	6,529		$	2	$	45		$	9,972		$	23,514		$	4,764		$	6,083		$	202	$	32		$	7,399		$	18,480
(Reversal) provision		(837	)		(631	)		126		(10	)		1,352			-			(345	)		(194	)		40		(6	)		905			400
Chargeoffs		(20	)		-			-		-			(4,522	)		(4,542	)		(262	)		-			-		-			(1,827	)		(2,089	)
Recoveries		335			46			-		-			1,865			2,246			10			15			-		-			928			953
Total allowance for credit losses	$	6,444		$	5,944		$	128	$	35		$	8,667		$	21,218		$	4,167		$	5,904		$	242	$	26		$	7,405		$	17,744

~~-48-~~

	Allowance for Credit Losses
	For the Nine Months Ended September 30, 2023
												Consumer
				Commercial					Residential			Installment
	Commercial			Real Estate			Construction		Real Estate			and Other			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	6,138		$	5,888		$	150	$	32		$	8,076		$	20,284
(Reversal) provision		(3,755	)		(29	)		92		(6	)		2,548			(1,150	)
Chargeoffs		(410	)		-			-		-			(5,379	)		(5,789	)
Recoveries		2,194			45			-		-			2,160			4,399
Total allowance for credit losses	$	4,167		$	5,904		$	242	$	26		$	7,405		$	17,744

Management considers the ~~$21.2~~$17.7 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 30, ~~2022.~~2023.

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.

Climate-Related Financial Risk

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

None of the Company’s physical locations are located near sea level, and only a limited number of branches are located in flood zones. Our principal electricity supplier reports a Power Content Label of 100% greenhouse gas free using the California Energy Commission’s methodology. Our principal information technology vendor’s goal is to achieve 100 percent carbon neutrality for Scope 1 and 2 greenhouse gas emissions by 2025. The Company and its critical vendors maintain property and casualty insurance, and maintain and regularly test disaster recovery plans, which include redundant operational locations and power sources. The Company’s operations do not use a significant amount of water in producing our products and services.

-51-

The Company monitors the climate risks of our loan customers. Borrowers with real estate loan collateral located in flood zones must carry flood insurance under the loans’ terms. At September 30, 2023, the Company had $19 million in loans to agricultural borrowers; Management continuously monitors these customers’ access to adequate water sources as well as their ability to sustain low crop yields without encountering financial hardship. The Company makes automobile loans; changes in consumer demand, or governmental laws or policies, regarding gasoline, electric and hybrid vehicles are not considered to be material risks to the Company’s automobile lending practices.

The Company considers climate risk in its underwriting of corporate bonds, and avoids purchasing bonds of issuers, which, in Management’s judgement, have elevated climate risk.

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

Asset/Liability and Market Risk Management

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

Interest Rate Risk

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

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

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

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

The Company’s asset and liability position was generally “asset sensitive” at September 30, ~~2022,~~2023, based on the interest rate assumptions applied to the simulation model. An “asset sensitive” position results in a larger change in interest income than in interest expense resulting from application of assumed interest rate changes. However, in the dynamic simulation, an assumed decline in interest rates is expected to result in improved deposit balances funding higher earning asset levels. Further, in the dynamic simulation, no change in interest rates is expected to result in a decline in net interest income as asset yields remain stable and deposit costs rise as the Bank negotiates deposit rates with customers in the current environment.

-52-

At September 30, ~~2022,~~2023, Management’s most recent measurements of estimated changes in net interest income were:

~~Dynamic Simulation (balance sheet composition changes):~~
~~Assumed Change in Interest Rates Over 1 Year~~	~~+1.00%~~	~~+2.00%~~
~~First Year Change in Net Interest Income~~	~~+3.3%~~	~~+6.5%~~

~~Static Simulation (balance sheet composition unchanged):~~
~~Assumed Immediate Change in Interest Rates~~	~~+1.00%~~	~~+2.00%~~
~~First Year Change in Net Interest Income~~	~~+7.8%~~	~~+15.0%~~

Dynamic simulation (balance sheet composition changes):
Assumed change in interest rates over 1 year	-2.00	%	-1.00	%	0.00	%	+1.00	%	+2.00	%
First year change in net interest income	-1.1	%	+1.4	%	-0.8	%	+1.5	%	+2.9	%

~~-49-~~

Static simulation (balance sheet composition unchanged):
Assumed immediate change in interest rates	-2.00	%	-1.00	%	0.00	%	+1.00	%	+2.00	%
First year change in net interest income	-12.0	%	-5.4	%	0.0	%	+6.3	%	+12.2	%

Simulation estimates depend on, and will change with, the size and mix of the actual and projected composition of financial instruments at the time of each simulation. Assumptions made in the simulation may not materialize and unanticipated events and circumstances may occur. In addition, the simulation does not take into account any future ~~actions.~~actions Management may undertake to mitigate the impact of interest rate changes, loan prepayment estimates and spread relationships, which may change regularly.

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

Market Risk - Equity Markets

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

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

Market Risk - Other

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

Liquidity and Funding

The objective of liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund the Bank's operations and meet obligations and other commitments on a timely basis and at a reasonable cost. The Bank achieves this objective through the selection of asset and liability maturity mixes that it believes best meet its needs. The Bank's liquidity position is enhanced by its ability to raise additional funds as needed by borrowing from correspondent banks or in the wholesale markets, or by selling debt securities ~~available-for-sale or borrowing in the wholesale markets.~~available for sale.

In recent years, the Bank's deposit base has provided the majority of the Bank's funding requirements. This relatively stable and low-cost source of funds, along with shareholders' equity, provided 97% of funding for average total assets in the nine months ended September 30, ~~2022~~2023 and 97% in the year ended December 31, ~~2021.~~2022. The stability of the Bank’s funding from customer deposits is in part reliant on the confidence clients have in the Bank. The Bank places a very high priority in maintaining this confidence through conservative credit and capital management practices and by maintaining an appropriate level of liquidity.

Total deposits were $5,699 million at September 30, 2023 and $6,225 million at December 31, 2022. Total time deposits were $105 million at September 30, 2023 and $131 million at December 31, 2022. The Company has no foreign time deposits. The standard FDIC deposit insurance amount is $250,000 per depositor, for each account ownership category. At September 30, 2023, estimated federally uninsured deposits and time deposits were $2,671 million and $12 million, respectively. Estimated federally uninsured time deposits included $650 thousand in deposits by public entities that are secured by the Company’s debt securities as collateral.

-53-

Banking industry deposits, including for Westamerica Bank, grew rapidly in 2020 and 2021 due to the injection of fiscal stimulus into the United States economy, including Paycheck Protection Program loans, and an easing of Federal Reserve monetary policy, both in response to the COVID pandemic. Federal Reserve monetary policy easing included reduction in the federal funds rate to a range of 0.00% to 0.25% and net purchases of Treasury securities and agency mortgage-backed securities, which increase the money supply and aggregate bank deposits. Subsequently, inflation rose considerably while employment conditions remained strong. In 2022 and 2023, the Federal Reserve’s monetary policy reversed to tightening, in an effort to reduce inflation. The monetary policy tightening included increasing the federal funds rate to a range of 5.25% to 5.50% and net reductions of Treasury securities and agency mortgage-backed securities, which reduce the money supply and aggregate bank deposits. Westamerica Bank’s deposit totals are subject to both the fiscal policies of the United States government and monetary policies of the Federal Reserve; the 2023 decline in Westamerica Bank deposits is influenced by these fiscal and monetary policies. In addition, the Internal Revenue Service (“IRS”) declared every county in which Westamerica Bank operates as Natural Disaster Areas due to 2022-2023 winter storms; the IRS and California Franchise Tax Board extended the 2022 tax filing deadline and 2023 tax installment payment due dates to November 16, 2023. Westamerica Bank management expects this deferment of tax payment deadlines will impact deposit totals in the fourth quarter 2023 as customers pay their federal and California tax obligations.

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

	At September 30, 2023
	(In thousands)
Three months or less	$	7,272
Over three through six months		2,291
Over six through twelve months		1,155
Over twelve months		918
Total	$	11,636

Liquidity is further provided by assets such as balances held at the Federal Reserve Bank, investment securities, and amortizing loans. ~~The Bank's investment~~At September 30, 2023, the Company had $420,550 thousand in cash balances. During the twelve months ending September 30, 2024, the Company expects to receive $257,000 thousand in principal payments from its debt securities. If additional operational liquidity is required, the Company can pledge debt securities ~~portfolio provides a substantial secondary source of liquidity. The Bank held $5.3 billion in total investment securities~~as collateral for borrowing purposes; at September 30, ~~2022. Under~~2023, the Company’s debt securities which qualify as collateral for borrowing totaled $3,810,723 thousand. In the ordinary course of business, the Company pledges debt securities as collateral for certain ~~deposit,~~depository customers; at September 30, 2023, the Company had pledged $680,735 thousand in debt securities for depository customers. In the ordinary course of business, the Company pledges debt securities as collateral for borrowing from the Federal Reserve Bank; at September 30, 2023, the Company had pledged $964,139 thousand in debt securities at the Federal Reserve Bank. During the nine months ended September 30, 2023, the Company’s average borrowings from the Federal Reserve Bank and other ~~arrangements,~~correspondent banks were $-0- thousand, respectively, and at September 30, 2023, the Company’s borrowings from the Federal Reserve Bank ~~must hold~~ and ~~pledge investment securities as collateral.~~other correspondent banks were $-0- thousand. At September 30, ~~2022, such~~2023, the Company’s estimated unpledged collateral ~~requirements~~qualifying debt securities totaled ~~approximately $1.0 billion.~~$1,930,927 thousand based on the Federal Reserve Bank borrowing programs. Debt securities eligible as collateral are shown at market value unless otherwise noted:

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-54-

	At September 30, 2023
	(in thousands)
Debt Securities Eligible as Collateral:
Corporate Securities	$	2,480,972
Collateralized Loan Obligations rated AAA		540,315
Obligations of States and Political Subdivisions		145,246
Agency Mortgage Backed Securities		317,357
Securities of U.S. Government Sponsored Entities (Par Value)		326,833
Total Debt Securities Eligible as Collateral	$	3,810,723

Debt Securities Pledged as Collateral:
Deposits by Public Entities	$	(680,735	)
Short-term Borrowed Funds (Deposit Sweep)		(229,278	)
Other		(5,644	)
Total Debt Securities Pledged as Collateral	$	(915,657	)

Debt Securities Pledged at the Federal Reserve Bank	$	(964,139	)

Estimated Debt Securities Available to Pledge	$	1,930,927

Liquidity risk can result from the mismatching of asset and liability cash flows, or from disruptions in the financial markets. The Bank performs liquidity stress tests on a periodic basis to evaluate the sustainability of its liquidity. Under the stress testing, the Bank assumes outflows of funds increase beyond expected levels. Measurement of such heightened outflows considers the composition of the Bank’s deposit base, including any concentration of deposits, non-deposit funding such as short-term borrowings, and unfunded lending commitments. The composition of the Bank’s deposits is considered including the broad industry and geographic diversification in the Bank’s market area. The Bank evaluates its stock of highly liquid assets to meet the assumed higher levels of outflows. Highly liquid assets include cash and amounts due from other banks from daily transaction settlements, reduced by branch cash needs and any Federal Reserve Bank reserve requirements, and investment securities based on regulatory risk-weighting guidelines. Based on the results of the most recent liquidity stress test, Management is satisfied with the liquidity condition of the Bank. However, no assurance can be given the Bank will not experience a period of reduced liquidity.

~~-50-~~

Management continually monitors the Bank’s cash levels. Loan demand from credit worthy borrowers will be dictated by economic and competitive conditions. The Bank aggressively solicits non-interest bearing demand deposits and money market checking deposits, which are the least sensitive to changes in interest rates. The growth of these deposit balances is subject to heightened competition, the success of the Bank's sales efforts, delivery of superior customer service, new regulations and market conditions. The Bank does not aggressively solicit higher-costing time deposits. Changes in interest rates, most notably rising 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 $34 million in the nine months ended September 30, ~~2022~~2023 and ~~$44~~$45 million in the year ended December 31, ~~2021~~2022 and retire common stock in the amounts of ~~$218 thousand~~$14 million and ~~$232~~$218 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. The Parent Company’s cash balance was $126 million at September 30, 2023 and $99 million at December 31, 2022.

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-55-

Capital Resources

The Company has historically generated high levels of earnings, which provide a means of accumulating capital. The Company's net income as a percentage of average shareholders' equity (“return on equity” or “ROE”) was ~~14.0%~~annualized 18.6% for the nine months ended September 30, ~~2022~~2023 and ~~11.5%~~15.2% for the year ended December 31, ~~2021.~~2022. The Company also raises capital as employees exercise stock options. Capital raised through the exercise of stock options was ~~$2.2 million in the nine months ended September 30, 2022 and $3.0~~$2.3 million in the year ended December 31, ~~2021.~~2022.

The Company paid common dividends totaling $34 million in the nine months ended September 30, ~~2022~~2023 and ~~$44~~$45 million in the year ended December 31, ~~2021,~~2022, which represent dividends per common share of ~~$1.26~~$1.28 and ~~$1.65,~~$1.68, respectively. The Company's earnings have historically exceeded dividends paid to shareholders. The amount of earnings in excess of dividends provides the Company resources to finance growth and maintain appropriate levels of shareholders' equity. In the absence of profitable growth opportunities, the Company has at times repurchased and retired its common stock as another means to return capital to shareholders. The Company repurchased and retired 274 thousand shares valued at $14 million in the nine months ended September 30, 2023 and 3 thousand shares valued at $218 thousand in the ~~nine months ended September 30, 2022 and 4 thousand shares valued at $232 thousand in the~~ year ended December 31, ~~2021.~~2022.

The Company's primary capital resource is shareholders' equity, which was ~~$539~~$648 million at September 30, ~~2022~~2023 compared with ~~$827~~$602 million at December 31, ~~2021.~~2022. The Company's ratio of equity to total assets was ~~7.5%~~9.9% at September 30, ~~2022~~2023 and ~~11.1%~~8.7% at December 31, ~~2021.~~2022.

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

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~~-51-~~

Capital to Risk-Adjusted Assets

The capital ratios for the Company and the Bank under current regulatory capital standards are presented in the tables below, on the dates indicated. For Common Equity Tier I Capital, Tier 1 Capital and Total Capital, the minimum percentage required for regulatory capital adequacy purposes include a 2.5% “capital conservation buffer.”

										To Be												To Be
										Well-capitalized												Well-capitalized
							Required for			Under Prompt									Required for			Under Prompt
	At September 30, 2022						Capital Adequacy			Corrective Action			At September 30, 2023						Capital Adequacy			Corrective Action
	Company			Bank			Purposes			Regulations (Bank)			Company			Bank			Purposes			Regulations (Bank)

Common Equity Tier I Capital		14.24	%		11.26	%		7.00	%		6.50	%		18.20	%		14.57	%		7.00	%		6.50	%
Tier I Capital		14.24	%		11.26	%		8.50	%		8.00	%		18.20	%		14.57	%		8.50	%		8.00	%
Total Capital		14.67	%		11.82	%		10.50	%		10.00	%		18.60	%		15.12	%		10.50	%		10.00	%
Leverage Ratio		9.60	%		7.56	%		4.00	%		5.00	%		12.08	%		9.63	%		4.00	%		5.00	%

-56-

										To Be												To Be
										Well-capitalized												Well-capitalized
							Required for			Under Prompt									Required for			Under Prompt
	At December 31, 2021						Capital Adequacy			Corrective Action			At December 31, 2022						Capital Adequacy			Corrective Action
	Company			Bank			Purposes			Regulations (Bank)			Company			Bank			Purposes			Regulations (Bank)

Common Equity Tier I Capital		14.93	%		12.48	%		7.00	%		6.50	%		15.22	%		12.37	%		7.00	%		6.50	%
Tier I Capital		14.93	%		12.48	%		8.50	%		8.00	%		15.22	%		12.37	%		8.50	%		8.00	%
Total Capital		15.47	%		13.17	%		10.50	%		10.00	%		15.64	%		12.93	%		10.50	%		10.00	%
Leverage Ratio		9.06	%		7.55	%		4.00	%		5.00	%		10.18	%		8.26	%		4.00	%		5.00	%

The Company and the Bank routinely project capital levels by analyzing forecasted earnings, credit quality, shareholder dividends, asset volumes, share repurchase activity, stock option exercise proceeds, and other factors. Based on current capital projections, the Bank expects to maintain regulatory capital levels in excess of the minimum required to be considered well-capitalized under the prompt corrective action framework. The Company expects to continue paying quarterly dividends to shareholders. No assurance can be given that changes in capital management plans will not occur.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

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

Operational risk is the risk to current or projected financial condition and resilience arising from inadequate or failed internal processes or systems, people (including human errors or misconduct), or adverse external events, including the risk of loss resulting from breaches in data security. Operational risk can also include the risk of loss due to failures by third parties with which the Company does business.

During the second quarter 2023, the Company was notified that there may have been a compromise of a specific set of files processed by a third party vendor that could have affected a limited number of customers. This incident did not occur on a Company system and the Company does not use the software that may have been compromised. The Company has implemented data security safeguards with its third party vendors designed to quickly identify and contain improper access to sensitive information. The Company notified the affected customers as required by law. As of September 30, 2023, to the Company’s knowledge, there is no indication that any information has been subject to misuse as a result of the incident.

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 30, ~~2022.~~2023.

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 30, ~~2022~~2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~-52-~~-57-

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 for the year ended December 31, ~~2021~~2022 includes detailed disclosure about the risks faced by the Company’s ~~business;~~business. The following risk factors supplement, and should be read in conjunction with, the risk factors described in the Company’s Annual Report on Form 10-K.

Recent negative developments affecting the banking industry, such as bank failures, may have a material adverse effect on the Company.

The banking industry continued to experience significant volatility with recent multiple bank failures. Industrywide concerns have developed related to liquidity, deposit outflows and unrealized losses on investment debt securities. While the Company cannot predict with certainty whether or how these developments may affect the banking industry, the Company faces the risks ~~have~~of increased FDIC deposit insurance premium expenses; increased regulation or supervisory scrutiny; and decreased confidence in banks among depositors and investors, any of which could, adversely affect the trading price of the Company’s common stock or its ability to effectively fund its operations. Any one or a combination of such risk factors, or other factors, could materially adversely affect the Company's business, financial condition, results of operations and prospects.

The Company could realize losses if it were required to sell securities in its held-to-maturity securities portfolio to meet liquidity needs.

As a result of increases in interest rates over the last year, the market value of previously issued government and other debt securities has declined significantly, resulting in unrealized losses in the held-to-maturity portion of the Company’s securities portfolios. While the Company does not ~~materially changed since~~currently expect or intend to sell these securities, if the ~~Form 10-K was filed.~~Company were required to sell such securities to meet liquidity needs, it may incur losses, which could impair the Company’s capital financial condition and results of operations. Further, while the Company has taken actions to maximize its funding sources, there is no guarantee that such funding sources will be available or sufficient in the event of sudden liquidity needs.

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 30, ~~2022.~~2023.

	~~2022~~2023
Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
	(In thousands, except price paid)
July 1 through July 31		-	$	-		-		1,750
August 1 through August 31		-		-		-		1,750
September 1 through September 30		-		-		-		1,750
Total		-	$	-		-		1,750

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 equity incentive plans, and other ongoing requirements.

No shares were repurchased during the period from July 1, ~~2022~~2023 through September 30, ~~2022.~~2023. A share repurchase program was approved by the Board of Directors on July 22, 2021 authorizing the purchase of up to 1,750 thousand shares of the Company’s common stock from time to time prior to September 1, 2022. The Board of Directors approved and adopted a replacement program on July 28, 2022 authorizing the purchase of up to 1,750 thousand shares of the Company’s common stock from time to time prior to September 1, 2023. A replacement program was approved by the Board of Directors on July 27, 2023 authorizing the purchase of up to 1,750 thousand shares of the Company’s common stock from time to time prior to September 1, 2024.

~~-53-~~-58-

Item 3. Defaults upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None~~Rule 10b5-1 Trading Plans

During the quarter ended September 30, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408 of Regulation S-K.

Item 6. Exhibits

Exhibit No.		Description of Exhibit

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

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

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

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

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

Exhibit 101.SCH		Inline XBRL Taxonomy Extension Schema Document

Exhibit 101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

Exhibit 101.DEF		Inline XBRL Taxonomy Extension Definitions Linkbase Document

Exhibit 101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

Exhibit 101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 104.		The Cover page of Westamerica Bancorporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2022,~~2023, formatted in Inline XBRL (contained in Exhibit 101)

[The remainder of this page intentionally left blank]

~~-54-~~

-59-

SIGNATURES

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

WESTAMERICA BANCORPORATION

(Registrant)

/s/ John “Robert” Thorson

John “Robert” Thorson

Senior Vice President and Chief Financial Officer

(Principal Financial and Chief Accounting Officer)

Date: November 8, 2023

~~/s/ Jesse Leavitt~~

~~Jesse Leavitt~~

~~Senior Vice President and Chief Financial Officer~~

~~(Principal Financial and Chief Accounting Officer)~~

~~Date: November 8, 2022~~

~~-55-~~-60-

		Page
Forward Looking Statements		3
PART I - FINANCIAL INFORMATION		4
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	3029
Item 3	Quantitative and Qualitative Disclosures about Market Risk	5257
Item 4	Controls and Procedures	5257
PART II - OTHER INFORMATION
Item 1	Legal Proceedings	5358
Item 1A	Risk Factors	5358
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	5358
Item 3	Defaults upon Senior Securities	5459
Item 4	Mine Safety Disclosures	5459
Item 5	Other Information	5459
Item 6	Exhibits	5459
Signatures		5560

WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

	For the Nine Months
	Ended September 30,
	*2022*			*2021*
	(In thousands)
Operating Activities:
Net income	$	82,690		$	64,789
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		13,736			11,748
Provision for credit losses		-			-
Net amortization of deferred loan fees		(1,445	)		(4,671	)
Stock option compensation expense		1,017			1,100
Life insurance gains		(923	)		-
Securities gains		-			(34	)
Net changes in:
Interest income receivable		(13,985	)		(282	)
Other assets		(5,317	)		(13,255	)
Income taxes payable		3,055			4,580
Net deferred tax asset		510			(3,109	)
Interest expense payable		21			(8	)
Other liabilities		(7,476	)		10,272
Net Cash Provided by Operating Activities		71,883			71,130
Investing Activities:
Net repayments of loans		88,242			128,791
Purchases of debt securities available for sale		(619,601	)		(1,593,799	)
Purchases of debt securities held to maturity		(718,940	)		-
Proceeds from maturity/calls of debt securities available for sale		391,548			1,040,179
Proceeds from maturity/calls of debt securities held to maturity		89,246			157,221
Purchases of premises and equipment		(812	)		(1,052	)
Net Cash Used in Investing Activities		(770,317	)		(268,660	)
Financing Activities:
Net change in deposits		81,300			600,982
Net change in short-term borrowings		(69,360	)		16,557
Exercise of stock options		2,171			3,017
Retirement of common stock		(218	)		(232	)
Common stock dividends paid		(33,879	)		(33,021	)
Net Cash (Used in) Provided by Financing Activities		(19,986	)		587,303
Net Change In Cash and Due from Banks		(718,420	)		389,773
Cash and Due from Banks at Beginning of Period		1,132,085			621,275
Cash and Due from Banks at End of Period	$	413,665		$	1,011,048

Supplemental Cash Flow Disclosures:
Supplemental disclosure of non cash activities:
Right-of-use assets acquired in exchange for operating lease liabilities	$	2,925		$	4,972
Securities purchases pending settlement		-			81,618
Supplemental disclosure of cash flow activities:
Cash paid for amounts included in operating lease liabilities		4,553			4,791
Interest paid for the period		1,429			1,459
Income tax payments for the period		25,240			21,300

	Troubled Debt Restructurings
	At September 30, 2022
							Period-End
							Individual
	Number of		Pre-Modification		Period-End		Credit Loss
	Contracts		Carrying Value		Carrying Value		Allowance
	($ in thousands)
Commercial real estate		2	$	2,785	$	1,760	$	-
Total		2	$	2,785	$	1,760	$	-