WESTAMERICA BANCORPORATION

Previous wording

Westamerica Bancorporation and subsidiaries (collectively, the “Company”) reported net income of $35.5 million or $1.33 diluted earnings per common share (“EPS”) in the second quarter 2024 compared with net income of $40.2 million or $1.51 EPS in the second quarter 2023. The Company reported net income of $71.9 million or $2.69 EPS for the six months ended June 30, 2024. The Company reported net income of $80.7 million or $3.02 EPS for the six months ended June 30, 2023, including a $1.6 million reversal of provision for credit losses, which increased EPS $0.04.

Current wording

Westamerica Bancorporation and subsidiaries (collectively, the “Company”) reported net income of $35.1 million or $1.31 diluted earnings per common share (“EPS”) for the third quarter 2024 compared with net income of $41.6 million or $1.56 EPS for the third quarter of 2023. The third quarter 2024 results included a $202 thousand life insurance gain and a $1.4 million gain on sale of other assets equivalent to $0.04 EPS. The Company reported net income of $106.9 million or $4.01 EPS for the nine months ended September 30, 2024. 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.

Previous wording

The Federal Open Market Committee of the Federal Reserve Board (“FOMC”) adopted tightening monetary policy, including increasing the federal funds rate, beginning in March 2022 as a means to reduce inflation. Inflation has receded toward the FOMC’s inflation goal of 2 percent, although inflation has not yet reached 2 percent. The unemployment rate has recently increased. These economic conditions have caused market-based expectations for the FOMC to begin loosening monetary policy at some point in the third or fourth quarter of 2024, by reducing the federal funds rate. The interest rate paid on reserve balances at the Federal Reserve Bank was 5.40% as of June 30, 2024. The Bank maintains reserve balances at the Federal Reserve Bank; the amount that earns interest is identified as “interest-bearing cash”.

Current wording

The Federal Open Market Committee of the Federal Reserve Board (“FOMC”) reduced the federal funds rate in September 2024. Inflation has receded toward the FOMC’s inflation goal of 2 percent, although inflation has not yet reached 2 percent. The unemployment rate has recently increased but remains low. On September 18, 2024, in light of the progress on inflation and the balance of risks, the FOMC decided to reduce the federal funds rate by 0.5 percent to the range of 4.75 to 5 percent. The interest rate paid on reserve balances at the Federal Reserve Bank was 4.90% as of September 30, 2024. The Bank maintains reserve balances at the Federal Reserve Bank; the amount that earns interest is identified as “interest-bearing cash”.

Previous wording

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. The banking industry experienced significant volatility with several regional bank failures in the first half of 2023. Industrywide concerns remained related to liquidity, deposit outflows and unrealized losses on debt securities. These 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.

Current wording

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. The banking industry experienced significant volatility with several regional bank failures in the first half of 2023, creating industrywide concerns related to liquidity, deposit outflows and unrealized losses on debt securities. These events could adversely affect the Company’s funding of its operations. The extent of the impact on the Company’s results of operations, 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.

Previous wording

Net income for the second quarter 2024 decreased $4.8 million compared with the second quarter 2023 primarily due to decreased net interest and loan fee income. Net interest and loan fee income (FTE) decreased $6.2 million in the second quarter 2024 compared with the second quarter 2023 due to lower average balances of investment debt securities and loans, higher average balances of Bank Term Funding Program borrowings and higher rate on interest-bearing liabilities, partially offset by higher yield on interest-earning assets and higher average balances of interest-bearing cash. With $73 thousand of net loan recoveries in the second quarter 2024 and $1.6 million in nonperforming loans at June 30, 2024, the Company recorded no provision for credit losses based on the results of its current expected credit losses (“CECL”) model and Management’s estimate of credit losses over the remaining life of its loans. The Company provided no provision for credit losses in the second quarter 2023, based on Management’s estimate of credit losses over the remaining life of its loans and debt securities held to maturity. Second quarter 2024 noninterest income decreased compared with the second quarter 2023 primarily due to lower income from merchant processing services and ATM processing fees. Second quarter 2024 noninterest expense increased compared with the second quarter 2023 primarily due to higher salaries and benefits, partially offset by lower losses from unauthorized debit card use. The tax rate (FTE) was 26.8% for the second quarter 2024 and 27.0% for the second quarter 2023.

Current wording

Net income for the third quarter 2024 decreased $6.5 million compared with the third quarter 2023 primarily due to decreased net interest and loan fee income (FTE), partially offset by lower tax provision (FTE). Net interest and loan fee income (FTE) decreased $9.6 million in the third quarter 2024 compared with the third quarter 2023 due to lower average balances of investment debt securities and loans, higher average balances of Bank Term Funding Program borrowings and higher rate on interest-bearing liabilities, partially offset by higher yield on loans and higher average balances of interest-bearing cash. The Company recorded no provision for credit losses based on the results of its current expected credit losses (“CECL”) model and Management’s estimate of credit losses over the remaining life of its loans. The Company provided a $400 thousand provision for credit losses in the third quarter 2023, based on the results of its CECL model and Management’s estimate of credit losses over the remaining life of its loans and debt securities held to maturity. Third quarter 2024 noninterest income increased compared with the third quarter 2023 primarily due to a $1.4 million gain on sale of other assets, partially offset by lower income from merchant processing services. Third quarter 2024 noninterest expense increased compared with the third quarter 2023 primarily due to higher salaries and benefits expense related to annual merit increases and higher group health insurance costs for employees, partially offset by lower operating losses from limited partnership investments. The tax rate (FTE) was 27.1% for the third quarter 2024 and 27.4% for the third quarter 2023.

Previous wording

Net income for the six months ended June 30, 2024 decreased $8.8 million compared with the six months ended June 30, 2023 primarily due to decreased net interest and loan fee income. Net interest and loan fee income (FTE) decreased $9.6 million in the six months ended June 30, 2024 compared with the six months ended June 30, 2023 due to lower average balances of investment debt securities and loans, higher average balances of Bank Term Funding Program borrowings and higher rates on interest-bearing liabilities, partially offset by higher yield on interest-earning assets and higher average balances of interest-bearing cash. During the six months ended June 30, 2024, the Company provided $300 thousand for credit losses, which was recorded in the first quarter, based on the results of the CECL model and Management’s estimate of credit losses over the remaining life of its loans. The Company recorded a $1.6 million reversal of provision for credit losses in the six months ended June 30, 2023 as a result of a $2.2 million recovery on a previously charged off loan. Noninterest income for the six months ended June 30, 2024 decreased compared with the six months ended June 30, 2023 due to lower income from merchant processing services, ATM processing fees and debit card fees and because the six months ended June 30, 2023 included higher recoveries in excess of principal charged off on loans. Noninterest expense for the six months ended June 30, 2024 increased compared with the six months ended June 30, 2023 primarily due to annual merit increases and higher group health insurance costs for employees, partially offset by lower losses from unauthorized debit card use. The tax rate (FTE) was 26.8% for the six months ended June 30, 2024 and 27.0% for the six months ended June 30, 2023.** **

Current wording

Net income for the nine months ended September 30, 2024 decreased $15.4 million compared with the nine months ended September 30, 2023 primarily due to decreased net interest and loan fee income (FTE), partially offset by lower tax provision (FTE). Net interest and loan fee income (FTE) decreased $19.3 million in the nine months ended September 30, 2024 compared with the nine months ended September 30, 2023 due to lower average balances of investment debt securities and loans, higher average balances of Bank Term Funding Program borrowings and higher rates on interest-bearing liabilities, partially offset by higher yield on interest-earning assets and higher average balances of interest-bearing cash. During the nine months ended September 30, 2024, the Company provided $300 thousand for credit losses, which was recorded in the first quarter, based on the results of the CECL model and Management’s estimate of credit losses over the remaining life of its loans. The Company recorded a $1.2 million reversal of provision for credit losses, net of a $400 thousand provision in the nine months ended September 30, 2023 as a result of a $2.2 million recovery on a previously charged off loan in the first quarter 2023. Noninterest income for the nine months ended September 30, 2024 remained at the same level compared with the nine months ended September 30, 2023 primarily due to a $1.4 million gain on sale of other assets, offset by lower income from merchant processing services and ATM processing fees. Noninterest expense for the nine months ended September 30, 2024 increased compared with the nine months ended September 30, 2023 primarily due to higher salaries and benefits expense related to annual merit increases and higher group health insurance costs for employees, partially offset by decreases in losses from unauthorized debit card use, legal fees, operating losses from limited partnership investments and FDIC insurance assessments. The tax rate (FTE) was 26.9% for the nine months ended September 30, 2024 and 27.2% for the nine months ended September 30, 2023.** **

Previous wording

Net interest and loan fee income (FTE) decreased $6.2 million in the second quarter 2024 compared with the second quarter 2023 due to lower average balances of investment debt securities (down $421 million) and loans (down $89 million), higher average balances of Bank Term Funding Program borrowings (up $200 million) and higher rate on interest-bearing liabilities (up 0.63%), partially offset by higher yield on interest-earning assets (up 0.12%) and higher average balances of interest-bearing cash (up $198 million).

Current wording

Net interest and loan fee income (FTE) decreased $9.6 million in the three months ended September 30, 2024 compared with the three months ended September 30, 2023 due to lower average balances of investment debt securities (down $511 million) and loans (down $72 million), higher average balances of Bank Term Funding Program borrowings (up $167 million) and higher rate on interest-bearing liabilities (up 0.62%), partially offset by higher yield on loans (up 0.25%) and higher average balances of interest-bearing cash (up $207 million).

Previous wording

Net interest and loan fee income (FTE) decreased $9.6 million in the six months ended June 30, 2024 compared with the six months ended June 30, 2023 due to lower average balances of investment debt securities (down $435 million) and loans (down $90 million), higher average balances of Bank Term Funding Program borrowings (up $131 million) and higher rate on interest-bearing liabilities (up 0.49%), partially offset by higher yield on interest-earning assets (up 0.21%) and higher average balances of interest-bearing cash (up $98 million).

Current wording

Net interest and loan fee income (FTE) decreased $19.3 million in the nine months ended September 30, 2024 compared with the nine months ended September 30, 2023 due to lower average balances of investment debt securities (down $460 million) and loans (down $84 million), higher average balances of Bank Term Funding Program borrowings (up $143 million) and higher rates on interest-bearing liabilities (up 0.54%), partially offset by higher yield on interest-earning assets (up 0.12%) and higher average balances of interest-bearing cash (up $134 million).

Previous wording

The annualized net interest margin (FTE) was 4.15% in the second quarter 2024 and 4.23% in the six months ended June 30, 2024 compared with 4.34% in the second quarter 2023 and 4.26% in the six months ended June 30, 2023.

Current wording

The annualized net interest margin (FTE) was 4.08% in the third quarter 2024 and 4.18% in the nine months ended September 30, 2024 compared with 4.43% in the third quarter 2023 and 4.32% in the nine months ended September 30, 2023.

Previous wording

The Company’s funding costs were 0.35% in the second quarter 2024 compared with 0.04% in the second quarter 2023, and 0.27% in the six months ended June 30, 2024 and 0.03% in the six months ended June 30, 2023. Noninterest bearing deposits represented 47% of average deposits in the six months ended June 30, 2024 and the six months ended June 30, 2023. Higher-cost time deposits represented 2% of average deposits for both periods. Average balances of time deposits in the six months ended June 30, 2024 declined $31 million from the six months ended June 30, 2023. Average balances of checking and saving deposits accounted for 98% of average total deposits in the six months ended June 30, 2024 and the six months ended June 30, 2023.

Current wording

The Company’s annualized funding costs were 0.37% in the third quarter 2024 and 0.30% in the nine months ended September 30, 2024 compared with 0.07% in the third quarter 2023 and 0.04% in the nine months ended September 30, 2023. Noninterest bearing deposits represented 48% of average deposits in the nine months ended September 30, 2024 and the nine months ended September 30, 2023. Average balances of time deposits in the nine months ended September 30, 2024 declined $28 million from the nine months ended September 30, 2023. Average balances of checking and saving deposits accounted for 98% of average total deposits in the nine months ended September 30, 2024 and the nine months ended September 30, 2023.

Previous wording

The Company’s yield on earning assets during the second quarter 2024 and the six months ended June 30, 2024 increased compared with the second quarter 2023 and the six months ended June 30, 2023.The Company’s yield on earning assets has been primarily affected 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 SOFR base rate. The average balances and yields of CLOs for the three months ended June 30, 2024 was $1,347 million yielding 7.23% and $1,404 million yielding 7.23% for the six months ended June 30, 2024. The average balances and yields of CLOs for the three months ended June 30, 2023 was $1,555 million yielding 6.81% and $1,566 million yielding 6.57% for the six months ended June 30, 2023. 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 second quarter 2024 and six months ended June 30, 2024 were $363 million yielding 5.40% and $265 million yielding 5.40%, respectively. The average balance and yields of interest-bearing cash for the second quarter 2023 and six months ended June 30, 2023 were $165 million yielding 5.06% and $168 million yielding 4.80%, 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.” The rate paid on interest-bearing liabilities increased in the six months ended June 30, 2024 compared with the six months ended June 30, 2023 primarily due to competitive deposit pricing and higher volume on Bank Term Funding Program borrowings.

Current wording

The Company’s yield on earning assets during the three months ended September 30, 2024 decreased compared with the three months ended September 30, 2023 primarily affected by collateralized loan obligations (CLOs), held in debt securities available for sale portfolio. The Company’s yield on earning assets during the nine months ended September 30, 2024 increased compared with the same period in 2023 primarily affected by CLOs and interest-bearing cash. The CLOs have interest coupons that change once every three months by the amount of change in the three-month SOFR base rate. The average balances and yields of CLOs for the three and nine months ended September 30, 2024 were $1,166 million yielding 7.20% and $1,324 million yielding 7.22%, respectively. The average balances and yields of CLOs for the three and nine months ended September 30, 2023 were $1,531 million yielding 7.16% and $1,554 million yielding 6.77%, respectively. The interest-bearing cash yield changes by the amount of change in the overnight federal funds rate on the effective date declared by the FOMC. The average balances and yields of interest-bearing cash for the three and nine months ended September 30, 2024 were $495 million yielding 5.35% and $342 million yielding 5.37%, respectively. The average balance and yields of interest-bearing cash for the three and nine months ended September 30, 2023 were $287 million yielding 5.35% and $208 million yielding 5.06%, 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.” The rate paid on interest-bearing liabilities increased in the three and nine months ended September 30, 2024 compared with the three and nine months ended September 30, 2023 primarily due to competitive financial product pricing and higher volume on Bank Term Funding Program borrowings.

Previous wording

With $73 thousand of net loan recoveries in the second quarter 2024 and $1.6 million in nonperforming loans at June 30, 2024, the Company provided no provision for credit losses in the second quarter of 2024 based on Management’s estimate of credit losses over the remaining life of its loans and debt securities held to maturity. During the six months ended June 30, 2024, the Company provided $300 thousand for credit losses, which was recorded in the first quarter, 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 provided no provision for credit losses in the second quarter of 2023, based on Management’s estimate of credit losses over the remaining life of its loans and debt securities held to maturity. The Company recorded a $1.6 million reversal of provision for credit losses in the six months ended June 30, 2023 as a result of a $2.2 million recovery on a previously charged off loan. 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.

Current wording

The Company provided no provision for credit losses in the third quarter of 2024 based on Management’s estimate of credit losses over the remaining life of its loans and debt securities held to maturity. During the nine months ended September 30, 2024, the Company provided $300 thousand for credit losses, which was recorded in the first quarter, 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 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. 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.

Previous wording

Second quarter 2024 noninterest expense increased $291 thousand compared with the second quarter 2023. Salaries and benefits increased in the second quarter 2024 compared with the second quarter 2023 primarily due to annual merit increases and higher group health insurance costs for employees. Other noninterest expense decreased in the second quarter 2024 compared with the second quarter 2023 primarily because the prior period included higher losses from unauthorized debit card use.

Current wording

Third quarter 2024 noninterest expense increased $659 thousand compared with the third quarter 2023. Salaries and benefits increased in the third quarter 2024 compared with the third quarter 2023 primarily due to annual merit increases and higher group health insurance costs for employees. The increase was partially offset by lower operating losses from limited partnership investments in the third quarter 2024 compared with the third quarter 2023.

Previous wording

The Company’s income tax provision (FTE) was $13.0 million for the second quarter 2024 and $26.4 million for the six months ended June 30, 2024 compared with $14.9 million for the second quarter 2023 and $29.9 million for the six months ended June 30, 2023. The effective tax rates (FTE) were 26.8% for the second quarter 2024 and the six months ended June 30, 2024 compared with 27.0% for the second quarter 2023 and the six months ended June 30, 2023.

Current wording

The Company’s income tax provision (FTE) was $13.0 million for the third quarter 2024 and $39.4 million for the nine months ended September 30, 2024 compared with $15.7 million for the third quarter 2023 and $45.6 million for the nine months ended September 30, 2023. The effective tax rates (FTE) were 27.1% for the third quarter 2024 and 26.9% for the nine months ended September 30, 2024 compared with 27.4% for the third quarter 2023 and 27.2% for the nine months ended September 30, 2023.

Previous wording

The Company maintains an investment securities portfolio consisting of securities issued by U.S. Treasury securities, 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 June 30, 2024 and December 31, 2023.

Current wording

The Company maintains an investment securities portfolio consisting of securities issued by U.S. Treasury, 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, 2024 and December 31, 2023.

Previous wording

Management manages the investment securities portfolio in response to anticipated changes in interest rates, and changes in deposit and loan volumes. The carrying value of the Company’s investment securities portfolio was $4.6 billion at June 30, 2024 and $4.9 billion at December 31, 2023. The following table lists debt securities in the Company’s portfolio by type as of the dates indicated. Debt securities held to maturity are listed at amortized cost before related reserve for expected credit losses of $1 thousand at June 30, 2024 and December 31, 2023. Debt securities available for sale are listed at fair value.

Current wording

Management manages the investment securities portfolio in response to anticipated changes in interest rates, and changes in deposit and loan volumes. The carrying value of the Company’s investment securities portfolio was $4.4 billion at September 30, 2024 and $4.9 billion at December 31, 2023. The following table lists debt securities in the Company’s portfolio by type as of the dates indicated. Debt securities held to maturity are listed at amortized cost before related reserve for expected credit losses of $1 thousand at September 30, 2024 and December 31, 2023. Debt securities available for sale are listed at fair value.

Previous wording

The Company’s $1.3 billion (fair value) in collateralized loan obligations at June 30, 2024, consist of investments in 120 issues that are within the senior tranches of their respective fund securitization structures. The following table summarizes total collateralized loan obligations by credit rating:

Current wording

The Company’s $1.1 billion (fair value) in collateralized loan obligations at September 30, 2024, consist of investments in 102 issues that are within the senior tranches of their respective fund securitization structures. The following table summarizes total collateralized loan obligations by credit rating:

Previous wording

At June 30, 2024, nonaccrual loans consisted of three loans including the addition of a commercial real estate loan with a carrying value of $766 thousand. Its collateral value exceeds the loan balance.

Current wording

At September 30, 2024, nonaccrual loans consisted of two loans.

Previous wording

Management considers the $16.0 million allowance for credit losses on loans to be adequate as a reserve against current expected credit losses in the loan portfolio as of June 30, 2024.

Current wording

Management considers the $15.3 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, 2024.

Previous wording

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.

Current wording

None of the Company’s physical locations are located near sea level, and only a limited number of branches are located in flood zones. The Company and its critical vendors maintain property and casualty insurance, and maintain and regularly test disaster recovery plans, which include redundant operational locations and power sources. The Company’s operations do not use a significant amount of water in producing its products and services.

Previous wording

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 June 30, 2024, the Company had $6 million in loans to agricultural borrowers; Management continuously monitors these customers’ access to adequate water sources as well as their ability to sustain low crop yields and volatile commodity prices without encountering financial hardship. The Company makes automobile loans; changes in consumer demand, or governmental laws or policies, regarding gasoline, electric and hybrid vehicles are not considered to be material risks to the Company’s automobile lending practices.

Current wording

The Company monitors the climate risks of its loan customers. Borrowers with real estate loan collateral located in flood zones must carry flood insurance under the loans’ terms. At September 30, 2024, the Company had $6 million in loans to agricultural borrowers; Management continuously monitors these customers’ access to adequate water sources as well as their ability to sustain low crop yields and volatile commodity prices without encountering financial hardship. The Company makes automobile loans; changes in consumer demand, or governmental laws or policies, regarding gasoline, electric and hybrid vehicles are not considered to be material risks to the Company’s automobile lending practices. The Company considers climate risk in its underwriting of corporate bonds, and avoids purchasing bonds of issuers, which, in Management’s judgement, have elevated climate risk.

Previous wording

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

Current wording

Management monitors the Company’s interest rate risk using a 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 exposure to interest rate risk using a dynamic composition simulation and static composition simulation. Within the dynamic composition simulation, interest rate changes are assumed to occur over time and Management makes assumptions regarding the expected change in the volume of financial instruments given the assumed change in market interest rates. Within the static composition simulation, interest rate changes are assumed to occur immediately and cash flows are assumed redeployed into like financial instruments at prevailing rates and yields. Both simulations are used to measure expected changes in net interest income assuming various levels of change in market interest rates.

Previous wording

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.

Current wording

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 in accordance with generally accepted accounting principles.

Previous wording

In recent years, the Bank's deposit base has provided the majority of the Bank's funding requirements. This low-cost source of funds, along with shareholders' equity, provided 96% of funding for average total assets in the six months ended June 30, 2024 and 97% for the year ended December 31, 2023, respectively. The Bank’s funding from customer deposits is in part reliant on the confidence clients have in the Bank. The Bank places a very high priority in maintaining this confidence through conservative credit risk and capital management practices and by maintaining an appropriate level of liquidity.

Current wording

In recent years, the Bank's deposit base has provided the majority of the Bank's funding requirements. This low-cost source of funds, along with shareholders' equity, provided 95% of funding for average total assets in the nine months ended September 30, 2024 and 97% for the year ended December 31, 2023, respectively. The Bank’s funding from customer deposits is in part reliant on the confidence clients have in the Bank. The Bank places a very high priority in maintaining this confidence through conservative credit risk and capital management practices and by maintaining an appropriate level of liquidity.

Previous wording

Total deposits were $5,131 million at June 30, 2024 and $5,474 million at December 31, 2023. Total time deposits were $89 million at June 30, 2024 and $97 million at December 31, 2023. The Company has no foreign time deposits. The standard FDIC deposit insurance amount is $250,000 per depositor, for each account ownership category. At June 30, 2024, estimated federally uninsured total deposits and time deposits were $2,441 million and $4 million, respectively.

Current wording

Total deposits were $5,065 million at September 30, 2024 and $5,474 million at December 31, 2023. Total time deposits were $86 million at September 30, 2024 and $97 million at December 31, 2023. 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, 2024, estimated federally uninsured total deposits and time deposits were $2,482 million and $5 million, respectively.

Previous wording

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 and keeping 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 decline in Westamerica Bank deposits during 2023 and the six months ended June 30, 2024 was 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. Management believes this deferment of tax payment deadlines impacted deposit totals in the fourth quarter 2023 as customers paid their federal and California tax obligations. Total deposits declined $342,827 thousand from December 31, 2023 to June 30, 2024 due to competitive deposit pricing.

Current wording

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 and keeping 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 decline in Westamerica Bank deposits during 2023 and the nine months ended September 30, 2024 was 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. Management believes this deferment of tax payment deadlines impacted deposit totals in the fourth quarter 2023 as customers paid their federal and California tax obligations. Total deposits declined $409,217 thousand from December 31, 2023 to September 30, 2024 due to competitive financial product pricing.

Previous wording

Liquidity is further provided by assets such as balances held at the Federal Reserve Bank, and principal and interest payments from debt securities and loans. At June 30, 2024, the Company had $486,124 thousand in cash balances. During the twelve months ending June 30, 2025, the Company expects to receive $309,000 thousand in principal payments from its debt securities. If additional operational liquidity is required, the Company can pledge debt securities as collateral for borrowing purposes; at June 30, 2024, the Company’s debt securities which qualify as collateral for borrowing totaled $3,693,459 thousand. In the ordinary course of business, the Company pledges debt securities as collateral for certain depository customers; at June 30, 2024, the Company had pledged $759,338 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 June 30, 2024, the Company had pledged $1,067,510 thousand in debt securities at the Federal Reserve Bank. During the six months ended June 30, 2024, the Company’s average borrowings from the Federal Reserve Bank and other correspondent banks were $131,291 thousand and $-0- thousand, respectively, and at June 30, 2024, the Company’s borrowings from the Federal Reserve Bank and other correspondent banks were $200,000 thousand and $-0- thousand, respectively. At June 30, 2024, the Company had access to borrowing from the Federal Reserve up to $867,510 thousand based on collateral pledged at June 30, 2024. At June 30, 2024, the Company’s estimated unpledged collateral qualifying debt securities totaled $1,462,966 thousand based on the Federal Reserve Bank borrowing programs. The Federal Reserve’s Bank Term Funding Program ceased making new loans on March 11, 2024. Debt securities eligible as collateral are shown at market value unless noted otherwise:

Current wording

Liquidity is further provided by assets such as balances held at the Federal Reserve Bank, and principal and interest payments from debt securities and loans. At September 30, 2024, the Company had $502,945 thousand in cash balances. During the twelve months ending September 30, 2025, the Company expects to receive $321,000 thousand in principal payments from its debt securities. If additional operational liquidity is required, the Company can pledge debt securities as collateral for borrowing purposes; at September 30, 2024, the Company’s debt securities which qualify as collateral for borrowing totaled $3,696,256 thousand. In the ordinary course of business, the Company pledges debt securities as collateral for certain depository customers; at September 30, 2024, the Company had pledged $764,404 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, 2024, the Company had pledged $815,919 thousand in debt securities at the Federal Reserve Bank. During the nine months ended September 30, 2024, the Company’s average borrowings from the Federal Reserve Bank and other correspondent banks were $143,412 thousand and $-0- thousand, respectively, and at September 30, 2024, the Company had no borrowings from the Federal Reserve Bank or other correspondent banks. At September 30, 2024, the Company had access to borrowing from the Federal Reserve up to $815,919 thousand based on collateral pledged at September 30, 2024. At September 30, 2024, the Company’s estimated unpledged collateral qualifying debt securities totaled $1,663,673 thousand. Debt securities eligible as collateral are shown at market value unless noted otherwise:

Previous wording

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 $23 million in the six months ended June 30, 2024 and $46 million in the year ended December 31, 2023 and retire common stock in the amounts of $210 thousand in the six months ended June 30, 2024 and $14 million in the year ended December 31, 2023. Payment of dividends to the Parent Company by the Bank is limited under California and Federal laws. The Company believes these regulatory dividend restrictions will not impact Parent Company's ability to meet its ongoing cash obligations. Parent Company’s cash balance was $202 million at June 30, 2024 and $155 million at December 31, 2023.

Current wording

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 $35 million in the nine months ended September 30, 2024 and $46 million in the year ended December 31, 2023 and retire common stock in the amounts of $210 thousand in the nine months ended September 30, 2024 and $14 million in the year ended December 31, 2023. Payment of dividends to the Parent Company by the Bank is limited under California and Federal laws. The Company believes these regulatory dividend restrictions will not impact Parent Company's ability to meet its ongoing cash obligations. The Parent Company’s cash balance was $231 million at September 30, 2024 and $155 million at December 31, 2023.

Previous wording

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 annualized 14.8% for the six months ended June 30, 2024 and 18.1% for the year ended December 31, 2023. The Company also raises capital as employees exercise stock options. Capital raised through the exercise of stock options was $203 thousand in the six months ended June 30, 2024 and $950 thousand in the year ended December 31, 2023.

Current wording

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 annualized 14.4% for the nine months ended September 30, 2024 and 18.1% for the year ended December 31, 2023. The Company also raises capital as employees exercise stock options. Capital raised through the exercise of stock options was $298 thousand in the nine months ended September 30, 2024 and $950 thousand in the year ended December 31, 2023.

Previous wording

The Company paid common dividends totaling $23 million in the six months ended June 30, 2024 and $46 million in the year ended December 31, 2023, which represent dividends per common share of $0.88 and $1.72, 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 4 thousand shares valued at $210 thousand in the six months ended June 30, 2024 and 274 thousand shares valued at $14 million in the year ended December 31, 2023.

Current wording

The Company paid common dividends totaling $35 million in the nine months ended September 30, 2024 and $46 million in the year ended December 31, 2023, which represent dividends per common share of $1.32 and $1.72, 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 s4 thousand shares valued at $210 thousand in the nine months ended September 30, 2024 and 274 thousand shares valued at $14 million in the year ended December 31, 2023.

Previous wording

The Company's primary capital resource is shareholders' equity, which was $816 million at June 30, 2024 compared with $773 million at December 31, 2023. The Company's ratio of equity to total assets was 12.92% at June 30, 2024 and 12.14% at December 31, 2023.

Current wording

The Company's primary capital resource is shareholders' equity, which was $909 million at September 30, 2024 compared with $773 million at December 31, 2023. The Company's ratio of equity to total assets was 14.75% at September 30, 2024 and 12.14% at December 31, 2023.