WESTAMERICA BANCORPORATION

Previous wording

Westamerica Bancorporation and subsidiaries (collectively, the “Company”) reported net income of $31.0 million or $1.16 diluted earnings per common share (“EPS”) in the three months ended March 31, 2025. First quarter 2025 results compare with net income of $36.4 million or $1.37 EPS for the three months ended March 31, 2024 and $31.7 million or $1.19 EPS for the three months ended December 31, 2024. The results in the three months ended March 31, 2025 included a $550 thousand reversal of provision for credit losses, which increased EPS $0.01.

Current wording

Westamerica Bancorporation and subsidiaries (collectively, the “Company”) reported net income of $29.1 million or $1.12 diluted earnings per common share (“EPS”) in the three months ended, June 30, 2025 compared with net income of $35.5 million or $1.33 EPS in three months ended June 30, 2024. The Company reported net income of $60.1 million or $2.29 EPS for the six months ended June 30, 2025, including a $550 thousand reversal of provision for credit losses, which increased EPS $0.01. The Company reported net income of $71.9 million or $2.69 EPS for the six months ended June 30, 2024.

Previous wording

The Federal Open Market Committee of the Federal Reserve Board (“FOMC”) reduced the federal funds rate by 0.25 percent to the range of 4.25 to 4.50 percent in December 2024 and maintained the same target range for the federal funds rate in March 2025. The FOMC press release in March stated, “Recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the long run. Uncertainty around the economic outlook has increased.” The interest rate paid on reserve balances at the Federal Reserve Bank was 4.40% as of March 31, 2025. 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 by 0.25 percent to the range of 4.25 to 4.50 percent in December 2024 and maintained the same target range for the federal funds rate through June 2025. The FOMC press release in June stated, “Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment remains low, and labor market conditions remain solid. Inflation remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the long run. Uncertainty around the economic outlook has diminished but remains elevated.” The interest rate paid on reserve balances at the Federal Reserve Bank was 4.40% as of June 30, 2025. 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, the impacts of tariffs, international trade tensions, and climate changes on the Company’s business. The banking industry could experience significant volatility as it did with several regional bank failures in 2023. Industrywide concerns could develop related to liquidity, deposit outflows and unrealized losses on investment debt securities. These recent events and concerns 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.

Current wording

Management continues to evaluate the impacts of inflation, the Federal Reserve’s monetary policy, the impacts of tariffs, international trade tensions, and climate changes on the Company’s business. The banking industry could experience significant volatility as it did with several regional bank failures in 2023. Industrywide concerns could develop related to liquidity, deposit outflows and unrealized losses on investment debt securities. These events and concerns 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.

Previous wording

The Company’s significant accounting policies (see Note 1, “Summary of Significant Accounting Policies,” to Financial Statements in the Company’s 2024 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. The Company adopted the following new accounting guidance:

Current wording

The Company’s significant accounting policies (see Note 1, “Summary of Significant Accounting Policies,” to Financial Statements in the Company’s 2024 Form 10-K and Note 2 “Accounting Policies” in this Form 10-Q) are fundamental to understanding the Company’s results of operations and financial condition. The Company adopted the following new accounting guidance:

Previous wording

Net income for the three months ended March 31, 2025 decreased $5.4 million compared with the three months ended March 31, 2024 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 $9.7 million in the three months ended March 31, 2025 compared with the three months ended March 31, 2024 due to lower average balances of investment debt securities and loans, lower yield on investment debt securities and interest-bearing cash, and higher rate on interest-bearing deposits, partially offset by higher average balances of interest-bearing cash and lower average balances of bank term funding program borrowings. The Company recorded a $550 thousand reversal of provision for credit losses in the three months ended March 31, 2025, 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 $300 thousand provision for credit losses in the three months ended March 31, 2024, 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. Noninterest income in the three months ended March 31, 2025 increased $224 thousand compared with the three months ended March 31, 2024 primarily due to higher income from merchant processing services, trust fees and a $102 thousand life insurance gain, partially offset by lower ATM processing fees. Noninterest expense in the three months ended March 31, 2025 decreased $972 thousand compared with the three months ended March 31, 2024 primarily due to lower salaries and benefits and lower estimated operating losses from limited partnership investments. The tax rate (FTE) was 26.3% for the three months ended March 31, 2025 and 26.9% for the three months ended March 31, 2024.

Current wording

Net income for the three months ended June 30, 2025 decreased $6.4 million compared with the three months ended June 30, 2024 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 $9.5 million in the three months ended June 30, 2025 compared with the three months ended June 30, 2024 due to lower average balances of investment debt securities and loans, lower yield on investment debt securities and interest-bearing cash, and higher rate on interest-bearing deposits, partially offset by higher average balances of interest-bearing cash and lower average balances of bank term funding program borrowings. 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 three months ended June 30, 2025. 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 three months ended June 30, 2024. Noninterest income in the three months ended June 30, 2025 decreased $185 thousand compared with the three months ended June 30, 2024 primarily due to lower income from service charges on deposits accounts, ATM processing fees, merchant processing services and debit card fees, partially offset by higher income from trust fees and a $106 thousand bank owned life insurance gain. Noninterest expense in the three months ended June 30, 2025 decreased $601 thousand compared with the three months ended June 30, 2024 primarily due to lower salaries and benefits and lower estimated operating losses from limited partnership investments, partially offset by an increase in outsourced data processing services expense. The tax rate (FTE) was 26.1% for the three months ended June 30, 2025 and 26.8% for the three months ended June 30, 2024.

Previous wording

Net income for the three months ended March 31, 2025 decreased $663 thousand compared with the three months ended December 31, 2024 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 $2.9 million in the three months ended March 31, 2025 compared with the three months ended December 31, 2024 due to lower average balances of investment debt securities and loans, lower yield on investment debt securities and interest-bearing cash, partially offset by higher average balances of interest-bearing cash. The Company recorded a $550 thousand reversal of provision for credit losses in the three months ended March 31, 2025, based on the results of its 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 three months ended December 31, 2024, 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. Noninterest income in the three months ended March 31, 2025 decreased $312 thousand compared with the three months ended December 31, 2024 primarily due to lower income from debit card fees and service charges on deposit accounts, partially offset by a $102 thousand life insurance gain in the three months ended March 31, 2025. Debit card fees in the three months ended December 31, 2024 included annual incentives. Noninterest expense in the three months ended March 31, 2025 decreased $726 thousand compared with the three months ended December 31, 2024 primarily due to lower salaries and benefits due to fewer business days in the current period compared with the prior period, lower occupancy and equipment expense and lower estimated operating losses from limited partnership investments. The tax rate (FTE) was 26.3% for the three months ended March 31, 2025 and 28.0% for the three months ended December 31, 2024. The effective tax rates (FTE) in the three months ended December 31, 2024 was higher than the three months ended March 31, 2025 primarily due to a $305 thousand increase in book tax provision to reconcile the 2023 income tax provision to the filed 2023 tax returns.

Current wording

Net income for the six months ended June 30, 2025 decreased $11.8 million compared with six months ended June 30, 2024 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 $19.2 million in the six months ended June 30, 2025 compared with the six months ended June 30, 2024 due to lower average balances of investment debt securities and loans, lower yield on investment debt securities and interest-bearing cash, and higher rate on interest-bearing deposits, partially offset by higher average balances of interest-bearing cash and lower average balances of bank term funding program borrowings. During the six months ended June 30, 2025, the Company recorded a $550 thousand reversal of provision for credit losses, which was included in the first quarter of 2025, 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. During the six months ended June 30, 2024, the Company provided $300 thousand for credit losses, which was recorded in the first quarter of 2024, 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. Noninterest income in the six months ended June 30, 2025 increased $39 thousand compared with the six months ended June 30, 2024 primarily due to higher income from merchant processing services, trust fees and $208 thousand in bank owned life insurance gains, partially offset by lower income from service charges on deposit accounts and ATM processing fees. Noninterest expense in the six months ended June 30, 2025 decreased $1.6 million compared with the six months ended June 30, 2024 primarily due to lower salaries and benefits and lower estimated operating losses from limited partnership investments, partially offset by an increase in outsourced data processing services expense. The tax rate (FTE) was 26.2% for the six months ended June 30, 2025 and 26.8% for the six months ended June 30, 2024.

Previous wording

Net interest and loan fee income (FTE) decreased $9.7 million in the three months ended March 31, 2025 compared with the three months ended March 31, 2024 due to lower average balances of investment debt securities (down $703 million) and loans (down $64 million), lower yield on investment debt securities (down 0.47%) and interest-bearing cash (down 1.00%), and higher rate on interest-bearing deposits (up 0.19%), partially offset by higher average balances of interest-bearing cash (up $442 million) and lower average balances of bank term funding program borrowings (down $63 million).

Current wording

Net interest and loan fee income (FTE) decreased $9.5 million in the three months ended June 30, 2025 compared with the three months ended June 30, 2024 due to lower average balances of investment debt securities (down $708 million) and loans (down $76 million), lower yield on investment debt securities (down 0.52%) and interest-bearing cash (down 1.00%), and higher rate on interest-bearing deposits (up 0.11%), partially offset by higher average balances of interest-bearing cash (up $291 million) and lower average balances of bank term funding program borrowings (down $200 million).

Previous wording

Net interest and loan fee income (FTE) decreased $2.9 million in the three months ended March 31, 2025 compared with the three months ended December 31, 2024 due to lower average balances of investment debt securities (down $162 million) and loans (down $32 million), lower yield on investment debt securities (down 0.14%) and interest-bearing cash (down 0.30%), partially offset by higher average balances of interest-bearing cash (up $138 million).

Current wording

Net interest and loan fee income (FTE) decreased $19.2 million in the six months ended June 30, 2025 compared with the six months ended June 30, 2024 due to lower average balances of investment debt securities (down $706 million) and loans (down $70 million), lower yield on investment debt securities (down 0.50%) and interest-bearing cash (down 1.00%), and higher rate on interest-bearing deposits (up 0.15%), partially offset by higher average balances of interest-bearing cash (up $366 million) and lower average balances of bank term funding program borrowings (down $131 million).

Previous wording

The annualized net interest margin (FTE) was 3.90% in the three months ended March 31, 2025, 4.30% in the three months ended March 31, 2024 and 4.01% in the three months ended December 31, 2024.

Current wording

The annualized net interest margin (FTE) was 3.85% in the three months ended June 30, 2025 and 3.87% in the six months ended June 30, 2025 compared with 4.15% in the three months ended June 30, 2024 and 4.23% in the six months ended June 30, 2024.

Previous wording

The Company’s annualized funding costs were 0.24% in the three months ended March 31, 2025, 0.20% in the three months ended March 31, 2024 and 0.24% in the three months ended December 31, 2024. Noninterest bearing deposits represented 46% of average deposits in the three months ended March 31, 2025, and 47% in both the three months ended March 31, 2024 and December 31, 2024. Average balances of checking and saving deposits accounted for 98% of average total deposits in each of the three months ended March 31, 2025, March 31, 2024 and December 31, 2024.

Current wording

The Company’s funding costs were 0.22% in the three months ended June 30, 2025 and 0.24% in the six months ended June 30, 2025 compared with 0.35% in the three months ended June 30, 2024 and 0.27% in the six months ended June 30, 2024. Noninterest bearing deposits represented 46% of average deposits in the six months ended June 30, 2025 and 47% in the six months ended June 30, 2024. Average balances of checking and saving deposits accounted for 98% of average total deposits in the six months ended June 30, 2025 and June 30, 2024.

Previous wording

The Company’s yield on earning assets during the three months ended March 31, 2025 decreased compared with the three months ended March 31, 2024 and December 31, 2024. 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 March 31, 2025 was $916 million yielding 6.30%. The average balances and yields of CLOs was $1,461 million yielding 7.23% for the three months ended March 31, 2024 and $1,037 million yielding 6.67% for the three months ended December 31, 2024. 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 ended March 31, 2025 were $609 million yielding 4.40%. The average balance and yields of interest-bearing cash were $167 million yielding 5.40% for the three months ended March 31, 2024 and $471 million yielding 4.70% for the three months ended December 31, 2024, 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.”

Current wording

The Company’s yield on earning assets during the three months and six months ended June 30, 2025 decreased compared with the three months and six months ended June 30, 2024. 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, 2025 was $793 million yielding 6.19% and $854 million yielding 6.25% for the six months ended June 30, 2025. The average balances and yields of CLOs were $1,347 million yielding 7.23% for the three months ended June 30, 2024 and $1,404 million yielding 7.23% for the six months ended June 30, 2024. 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 and six months ended June 30, 2025 were $654 million yielding 4.40% and $632 million yielding 4.40%, respectively. The average balance and yields of interest-bearing cash for the three months and six months ended June 30, 2024 were $363 million yielding 5.40% and $265 million yielding 5.40%, 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.”

Previous wording

The Company recorded a $550 thousand reversal of provision for credit losses in the first quarter of 2025 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 $300 thousand provision for credit losses in the first quarter of 2024, 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. 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

Based on 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 2025 and during the six months ended June 30, 2025, the Company recorded a $550 thousand reversal of provision for credit losses, which was included in the first quarter of 2025. 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 and during the six months ended June 30, 2024, the Company provided $300 thousand for credit losses, which was recorded in the first quarter of 2024. 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

Noninterest income in the three months ended March 31, 2025 increased $224 thousand compared with the three months ended March 31, 2024 primarily due to higher income from merchant processing services, trust fees and a $102 thousand life insurance gain, partially offset by lower ATM processing fees.

Current wording

Noninterest income for the six months ended June 30, 2025 increased $39 thousand compared with the six months ended June 30, 2024 primarily due to higher income from merchant processing services, trust fees and $208 thousand in bank owned life insurance gains, partially offset by lower income from service charges on deposit accounts and ATM processing fees.

Previous wording

The Company’s $822 million (fair value) in collateralized loan obligations at March 31, 2025, consist of investments in 82 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 $780 million (fair value) in collateralized loan obligations at June 30, 2025, consist of investments in 77 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

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 are 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.

Current wording

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 are 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 “Accounting Policies” to the unaudited consolidated financial statements for additional information.

Previous wording

Management considers the $13.9 million allowance for credit losses on loans to be adequate as a reserve against current expected credit losses in the loan portfolio as of March 31, 2025.

Current wording

Management considers the $13.8 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, 2025.

Previous 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 March 31, 2025, the Company had $2 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.

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 June 30, 2025, the Company had $13 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

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 97% of funding for average total assets for the three months ended March 31, 2025 and 96% for the year ended December 31, 2024. 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 97% of funding for average total assets for the six months ended June 30, 2025 and 96% for the year ended December 31, 2024. 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 $4,874 million at March 31, 2025 and $5,012 million at December 31, 2024. Total time deposits were $78 million at March 31, 2025 and $82 million at December 31, 2024. The Company has no foreign time deposits. FDIC deposit insurance is $250,000 per depositor, for each account ownership category. At March 31, 2025, estimated federally uninsured total deposits and time deposits were $2,359 million and $4 million, respectively.

Current wording

Total deposits were $4,748 million at June 30, 2025 and $5,012 million at December 31, 2024. Total time deposits were $73 million at June 30, 2025 and $82 million at December 31, 2024. The Company has no foreign time deposits. FDIC deposit insurance is $250,000 per depositor, for each account ownership category. At June 30, 2025, estimated federally uninsured total deposits and time deposits were $2,273 million and $4 million, respectively.

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 March 31, 2025, the Company had $727,336 thousand in cash balances. During the twelve months ending March 31, 2026, the Company expects to receive $265,000 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 March 31, 2025, the Company’s debt securities which qualify as collateral for borrowing totaled $3,498,151 thousand. In the ordinary course of business, the Company pledges debt securities as collateral for certain depository customers; at March 31, 2025, the Company had pledged $713,752 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 March 31, 2025, the Company had pledged $724,966 thousand in debt securities at the Federal Reserve Bank. During the three months ended March 31, 2025, the Company’s average borrowings from the Federal Reserve Bank and other correspondent banks were $-0- thousand, respectively, and at March 31, 2025, the Company had no borrowings from the Federal Reserve Bank or other correspondent banks. At March 31, 2025, the Company had access to borrowing from the Federal Reserve up to $724,966 thousand based on collateral pledged at March 31, 2025. At March 31, 2025, the Company’s estimated unpledged collateral qualifying debt securities totaled $1,615,433 thousand. 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 June 30, 2025, the Company had $626,437 thousand in cash balances. During the twelve months ending June 30, 2026, the Company expects to receive $288,000 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, 2025, the Company’s debt securities which qualify as collateral for borrowing totaled $3,522,823 thousand. In the ordinary course of business, the Company pledges debt securities as collateral for certain depository customers; at June 30, 2025, the Company had pledged $715,788 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, 2025, the Company had pledged $703,398 thousand in debt securities at the Federal Reserve Bank. During the three months ended June 30, 2025, the Company’s average borrowings from the Federal Reserve Bank and other correspondent banks were $-0- thousand, respectively, and at June 30, 2025, the Company had no borrowings from the Federal Reserve Bank or other correspondent banks. At June 30, 2025, the Company had access to borrowing from the Federal Reserve Bank up to $703,398 thousand based on collateral pledged at June 30, 2025. At June 30, 2025, the Company’s estimated unpledged collateral qualifying debt securities totaled $1,683,788 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 and Parent Company cash balances provided adequate cash for the Parent Company to pay shareholder dividends of $12 million in the three months ended March 31, 2025 and $47 million in the year ended December 31, 2024 and retire common stock in the amounts of $18 million in the three months ended March 31, 2025 and $210 thousand in the year ended December 31, 2024. 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 $275 million at March 31, 2025 and $263 million at December 31, 2024.

Current wording

The Bank’s dividends paid to the Parent Company and Parent Company cash balances provided adequate cash for the Parent Company to pay shareholder dividends of $24 million in the six months ended June 30, 2025 and $47 million in the year ended December 31, 2024 and retire common stock in the amounts of $57 million in the six months ended June 30, 2025 and $210 thousand in the year ended December 31, 2024. 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 $262 million at June 30, 2025 and $263 million at December 31, 2024.

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 11.9% (annualized) for the three months ended March 31, 2025 and 13.8% for the year ended December 31, 2024. The Company also raises capital as employees exercise stock options. Capital was not raised through the exercise of stock options in the three months ended March 31, 2025 while $1.5 million was raised through the exercise of stock options in the year ended December 31, 2024.

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 11.6% (annualized) for the six months ended June 30, 2025 and 13.8% for the year ended December 31, 2024. The Company also raises capital as employees exercise stock options. Capital was not raised through the exercise of stock options in the six months ended June 30, 2025 while $1.5 million was raised through the exercise of stock options in the year ended December 31, 2024.

Previous wording

The Company paid common dividends totaling $12 million in the three months ended March 31, 2025 and $47 million in the year ended December 31, 2024, which represent dividends per common share of $0.44 and $1.76, 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 retired 361 thousand shares valued at $18 million in the three months ended March 31, 2025 and 4 thousand shares valued at $210 thousand in the year ended December 31, 2024.

Current wording

The Company paid common dividends totaling $24 million in the six months ended June 30, 2025 and $47 million in the year ended December 31, 2024, which represent dividends per common share of $0.90 and $1.76, 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 retired 1.1 million shares valued at $57 million in the six months ended June 30, 2025 and 4 thousand shares valued at $210 thousand in the year ended December 31, 2024.

Previous wording

The Company's primary capital resource is shareholders' equity, which was $923 million at March 31, 2025 compared with $890 million at December 31, 2024. The Company's ratio of equity to total assets was 15.47% at March 31, 2025 and 14.65% at December 31, 2024.

Current wording

The Company's primary capital resource is shareholders' equity, which was $922 million at June 30, 2025 compared with $890 million at December 31, 2024. The Company's ratio of equity to total assets was 15.82% at June 30, 2025 and 14.65% at December 31, 2024.

Previous wording

The Cmpany 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.

Current wording

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.