WABC

WESTAMERICA BANCORPORATION FINANCIAL SUMMARY For the Three Months For the Six Months Ended June 30, 2026 2025 2026 2025 (In thousands, except per share data) Net Interest and Loan Fee Income (FTE) (1) $ 52,674 $ 54,562 $ 105,364 $ 110,952 (Reversal of) provision for Credit Losses - - (300 ) (550 ) Noninterest Income 10,294 10,315 19,901 20,636 Noninterest Expense 26,037 25,529 51,948 50,656 Income Before Income Taxes (FTE) (1) 36,931 39,348 73,617 81,482 Income Tax Provision (FTE) (1) 9,546 10,282 18,877 21,379 Net Income $ 27,385 $ 29,066 $ 54,740 $ 60,103 Average Common Shares Outstanding 23,306 25,889 23,804 26,263 Average Diluted Common Shares Outstanding 23,319 25,889 23,810 26,263 Common Shares Outstanding at Period End 23,002 25,587 Per Common Share: Basic Earnings $ 1.17 $ 1.12 $ 2.30 $ 2.29 Diluted Earnings 1.17 1.12 2.30 2.29 Book Value 37.09 36.03 Financial Ratios: Return on Assets 1.84 % 1.93 % 1.84 % 1.98 % Return on Common Equity 11.30 % 11.24 % 11.15 % 11.58 % Net Interest Margin (FTE) (1) 3.77 % 3.85 % 3.75 % 3.87 % Net Loan (Chargeoffs) to Average Loans (0.21 )% (0.07 )% (0.14 )% (0.12 )% Efficiency Ratio (2) 41.3 % 39.3 % 41.5 % 38.5 % Average Balances: Assets $ 5,967,886 $ 6,042,100 $ 6,001,208 $ 6,114,310 Loans 682,900 762,216 695,686 775,999 Debt Securities 4,555,235 4,222,076 4,505,132 4,301,267 Deposits 4,795,518 4,841,803 4,809,002 4,899,856 Shareholders' Equity 971,898 1,037,185 990,154 1,046,504 Period End Balances: Assets $ 5,805,061 $ 5,825,069 Loans 668,833 748,264 Debt Securities 4,447,024 4,060,889 Deposits 4,772,777 4,747,535 Shareholders' Equity 853,148 921,783 Capital Ratios at Period End: Total Risk Based Capital 23.16 % 23.44 % Tangible Equity to Tangible Assets 12.87 % 14.03 % Dividends Paid Per Common Share $ 0.48 $ 0.46 $ 0.94 $ 0.90 Common Dividend Payout Ratio 41 % 41 % 41 % 39 % The above financial summary has been derived from the Company's unaudited consolidated financial statements. This information should be read in conjunction with those statements, notes and the other information included elsewhere herein. Percentages under the heading "Financial Ratios" are annualized with the exception of the efficiency ratio. (1) Yields on securities and certain loans have been adjusted upward to an FTE basis in order to reflect the effect of income which is exempt from federal income taxation at the current statutory tax rate. (2) The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income on an FTE basis and noninterest income). -30- Financial Overview Westamerica Bancorporation and subsidiaries (collectively, the “Company”) reported net income of $27.4 million or $1.17 diluted earnings per common share (“EPS”) in the three months ended, June 30, 2026 compared with net income of $29.1 million or $1.12 EPS in the three months ended June 30, 2025. The Company reported net income of $54.7 million or $2.30 EPS for the six months ended June 30, 2026. The Company reported net income of $60.1 million or $2.29 EPS for the six months ended June 30, 2025. The Federal Open Market Committee of the Federal Reserve Board (“FOMC”) maintained the target federal funds rate range of 3.50 to 3.75 percent in June 2026 after a 0.25 percent cut in December 2025. The FOMC press release in June 2026 stated, “Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little. Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability.” The interest rate paid on reserve balances at the Federal Reserve Bank remained at 3.65 percent after a 0.25 percent cut in December 2025. The Bank maintains 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, the impacts of the war in the Middle East, 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. 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 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 the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 and Note 2 “Accounting Policies” to the unaudited consolidated financial statements in this Form 10-Q) are fundamental to understanding the Company’s results of operations and financial condition. [The remainder of this page intentionally left blank] -31- Net Income Following is a summary of the components of net income for the periods indicated: For the Three Months For the Six Months Ended June 30, 2026 2025 2026 2025 (In thousands, except per share data) Net interest and loan fee income $ 52,476 $ 54,278 $ 104,951 $ 110,373 FTE adjustment 198 284 413 579 Net interest and loan fee income (FTE) 52,674 54,562 105,364 110,952 (Reversal of) provision for credit losses - - (300 ) (550 ) Noninterest income 10,294 10,315 19,901 20,636 Noninterest expense 26,037 25,529 51,948 50,656 Income before taxes (FTE) 36,931 39,348 73,617 81,482 Income tax provision (FTE) 9,546 10,282 18,877 21,379 Net income $ 27,385 $ 29,066 $ 54,740 $ 60,103 Average diluted common shares 23,319 25,889 23,810 26,263 Diluted earnings per common share $ 1.17 $ 1.12 $ 2.30 $ 2.29 Average total assets $ 5,967,886 $ 6,042,100 $ 6,001,208 $ 6,114,310 Net income to average total assets (annualized) 1.84 % 1.93 % 1.84 % 1.98 % Net income to average common shareholders' equity (annualized) 11.30 % 11.24 % 11.15 % 11.58 % Net income for the three months ended June 30, 2026 decreased $1.7 million compared with the three months ended June 30, 2025 primarily due to lower net interest and loan fee income (FTE) and higher noninterest expense, partially offset by lower tax provision (FTE). Net interest and loan fee income (FTE) decreased $1.9 million in the three months ended June 30, 2026 compared with the three months ended June 30, 2025 primarily due to lower average balances of loans and interest-bearing cash and lower yield on interest-bearing cash, partially offset by higher average balances of investment securities. 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, 2026 and in the three months ended June 30, 2025. Noninterest income for the three months ended June 30, 2026 was relatively equal compared with the three months ended June 30, 2025. Merchant processing services and trust fee income was higher in the three months ended June 30, 2026, partially offset by lower debit card fee income and the three months ended June 30, 2025 included bank owned life insurance gains. Noninterest expense for the three months ended June 30, 2026 increased compared with the three months ended June 30, 2025 primarily due to increases in salaries and related benefits, professional fees and estimated limited partnership operating losses. The tax rate (FTE) was 25.8% for the three months ended June 30, 2026 and 26.1% for the three months ended June 30, 2025. Net income for the six months ended June 30, 2026 decreased $5.4 million compared with the six months ended June 30, 2025 primarily due to lower net interest and loan fee income (FTE), lower noninterest income and higher noninterest expense, partially offset by lower tax provision (FTE). Net interest and loan fee income (FTE) decreased $5.6 million in the six months ended June 30, 2026 compared with the six months ended June 30, 2025 primarily due to lower average balances of loans, interest-bearing cash, and lower yield on investment securities and interest-bearing cash, partially offset by higher average balances of investment securities. Based on the results of its CECL model and Management’s estimate of credit losses over the remaining life of its loans, the Company recorded a $300 thousand reversal of provision for credit losses in the six months ended June 30, 2026, which was included in the first quarter of 2026. The Company recorded a $550 thousand reversal of provision for credit losses in the six months ended June 30, 2025, which was included in the first quarter of 2025. Noninterest income for the six months ended June 30, 2026 decreased compared with the six months ended June 30, 2025 primarily due to lower debit card fees, recognition of unrealized securities losses and the six months ended June 30, 2025 included bank owned life insurance gains, partially offset by higher merchant processing services and trust fee income. The decrease in noninterest income in the six months ended June 30, 2026 compared with the six months ended June 30, 2025 was partially offset by increases in merchant processing services and trust fees. Noninterest expense for the six months ended June 30, 2026 increased compared with the six months ended June 30, 2025 primarily due to higher salaries and related benefits, occupancy and equipment, outsourced data processing services, professional fees and estimated limited partnership operating losses, partially offset by lower courier service expense. The tax rate (FTE) was 25.6% for the six months ended June 30, 2026 and 26.2% for the six months ended June 30, 2025. -32- Net Interest and Loan Fee Income (FTE) The Company's primary source of revenue is net interest income, or the difference between interest income earned on loans and investment securities and interest expense paid on interest-bearing deposits and other borrowings. The following summarizes the components of the Company's net interest margin (FTE) for the periods indicated. For the Three Months For the Six Months Ended June 30, 2026 2025 2026 2025 ($ in thousands) Interest and loan fee income $ 55,797 $ 57,467 $ 111,567 $ 116,958 Interest expense 3,321 3,189 6,616 6,585 FTE adjustment 198 284 413 579 Net interest and loan fee income (FTE) $ 52,674 $ 54,562 $ 105,364 $ 110,952 Average earning assets $ 5,577,857 $ 5,652,443 $ 5,610,780 $ 5,723,246 Net interest margin (FTE) (annualized) 3.77 % 3.85 % 3.75 % 3.87 % Net interest and loan fee income (FTE) decreased $1.9 million in the three months ended June 30, 2026 compared with the three months ended June 30, 2025 primarily due to lower average balances of loans (down $79 million) and interest-bearing cash (down $329 million) and lower yield on interest-bearing cash (down 0.75%), partially offset by higher average balances of investment securities (up $333 million). Net interest and loan fee income (FTE) decreased $5.6 million in the six months ended June 30, 2026 compared with the six months ended June 30, 2025 primarily due to lower average balances of loans (down $80 million) and interest-bearing cash (down $236 million) and lower yield on investment securities (down 0.04%) and interest-bearing cash (down 0.75%), partially offset by higher average balances of investment securities (up $204 million). The annualized yield on earning assets (FTE) was 4.01% in the three months ended June 30, 2026 and 3.99% in the six months ended June 30, 2026 compared with 4.07% in the three months ended June 30, 2025 and 4.11% in the six months ended June 30, 2025. The annualized net interest margin (FTE) was 3.77% in the three months ended June 30, 2026 and 3.75% in the six months ended June 30, 2026 compared with 3.85% in the three months ended June 30, 2025 and 3.87% in the six months ended June 30, 2025. The Company’s annualized funding costs were 0.24% in the three and six months ended June 30, 2026 compared with 0.22% and 0.24% in the three and six months ended June 30, 2025, respectively. Noninterest bearing deposits represented 46% of average deposits in the six months ended June 30, 2026 and June 30, 2025. Average balances of checking and saving deposits accounted for 99% of average total deposits in the six months ended June 30, 2026 and 98% in the six months ended June 30, 2025. Net Interest Margin (FTE) The following summarizes the components of the Company's net interest margin (FTE) for the periods indicated. For the Three Months For the Six Months Ended June 30, 2026 2025 2026 2025 Yield on earning assets (FTE) 4.01 % 4.07 % 3.99 % 4.11 % Rate paid on interest-bearing liabilities 0.48 % 0.48 % 0.48 % 0.49 % Net interest spread (FTE) 3.53 % 3.59 % 3.51 % 3.62 % Impact of noninterest-bearing demand deposits 0.24 % 0.26 % 0.24 % 0.25 % Net interest margin (FTE) 3.77 % 3.85 % 3.75 % 3.87 % The Company’s yield on earning assets during the three and six months ended June 30, 2026 decreased compared with the three and six months ended June 30, 2025. The Company’s yield on earning assets has been primarily affected by collateralized loan obligations (CLOs), held in the debt securities available for sale portfolio, and interest-bearing cash. The volume of higher-yielding CLOs declined due to calls and principal paydowns. Newly purchased investment securities have lower yields compared with CLOs. 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 balance and yield of CLOs for the three and six months ended June 30, 2026 was $247 million yielding 5.61% and $298 million yielding 5.63%, respectively. The average balance and yield of CLOs for the three and six months ended June 30, 2025 was $793 million yielding 6.19% and $854 million yielding 6.25%, respectively. The average balance and yield of agency mortgage backed securities for the three and six months ended June 30, 2026 was $1,280 million yielding 4.74% and $1,171 million yielding 4.70%, respectively. The average balance and yield of agency mortgage backed securities for the three and six months ended June 30, 2025 was $325 million yielding 3.25% and $318 million yielding 3.15%, 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 balance of interest-bearing cash for the three and six months ended June 30, 2026 was $325 million yielding 3.65% and $395 million yielding 3.65%, respectively. The average balance and yield of interest-bearing cash for the three and six months ended June 30, 2025 was $654 million yielding 4.40% and $632 million yielding 4.40%, respectively. The Company has other earning assets with variable yields such as commercial loans and lines of credit, consumer lines of credit and adjustable rate residential real estate loans, which are included in “other taxable loans” in the following “Summary of Average Balances, Yields/Rates and Interest Differential.” [The remainder of this page intentionally left blank] -33- Summary of Average Balances, Yields/Rates and Interest Differential The following tables present information regarding the consolidated average assets, liabilities and shareholders’ equity, the amounts of interest income earned from average interest earning assets and the resulting yields, and the amounts of interest expense incurred on average interest-bearing liabilities and the resulting rates. Average loan balances include nonperforming loans. Interest income includes the reversal of previously accrued interest on loans placed on nonaccrual status during the period, proceeds from loans on nonaccrual status only to the extent cash payments have been received and applied as interest income, and accretion of purchased loan discounts. Yields, rates and interest margins are annualized. Yields on tax-exempt securities and loans have been adjusted upward to reflect the effect of income exempt from federal income taxation at the federal statutory tax rate of 21 percent. Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin For the Three Months Ended June 30, 2026 Interest Average Income/ Yields/ Balance Expense Rates ($ in thousands) Assets Investment securities: Taxable $ 4,505,894 $ 42,587 3.78 % Tax-exempt (1) 63,787 688 4.31 % Total investments (1) 4,569,681 43,275 3.78 % Loans: Taxable 657,908 9,453 5.76 % Tax-exempt (1) 24,992 266 4.26 % Total loans (1) 682,900 9,719 5.71 % Total interest-bearing cash 325,276 3,001 3.65 % Total interest-earning assets (1) 5,577,857 55,995 4.01 % Other assets 390,029 Total assets $ 5,967,886 Liabilities and shareholders' equity Noninterest-bearing demand $ 2,168,936 $ - - % Savings and interest-bearing transaction 2,561,749 3,069 0.48 % Time less than $100,000 42,498 31 0.29 % Time $100,000 or more 22,335 10 0.18 % Total interest-bearing deposits 2,626,582 3,110 0.48 % Securities sold under repurchase agreements 139,475 211 0.60 % Total interest-bearing liabilities 2,766,057 3,321 0.48 % Other liabilities 60,995 Shareholders' equity 971,898 Total liabilities and shareholders' equity $ 5,967,886 Net interest spread (1) (2) 3.53 % Net interest and fee income and interest margin (1) (3) $ 52,674 3.77 % (1) Amounts calculated on an FTE basis using the current statutory federal tax rate. (2) Net interest spread represents the average yield earned on interest-earning assets less the average rate incurred on interest-bearing liabilities. (3) Net interest margin is computed by calculating the difference between interest income and expense, divided by the average balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits. -34- Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin For the Three Months Ended June 30, 2025 Interest Average Income/ Yields/ Balance Expense Rates ($ in thousands) Assets Investment securities: Taxable $ 4,128,578 $ 38,847 3.75 % Tax-exempt (1) 107,725 1,040 3.86 % Total investments (1) 4,236,303 39,887 3.75 % Loans: Taxable 730,250 10,263 5.64 % Tax-exempt (1) 31,966 328 4.11 % Total loans (1) 762,216 10,591 5.57 % Total interest-bearing cash 653,924 7,273 4.40 % Total interest-earning assets (1) 5,652,443 57,751 4.07 % Other assets 389,657 Total assets $ 6,042,100 Liabilities and shareholders' equity Noninterest-bearing demand $ 2,245,077 $ - - % Savings and interest-bearing transaction 2,520,212 2,994 0.48 % Time less than $100,000 49,208 37 0.30 % Time $100,000 or more 27,306 14 0.21 % Total interest-bearing deposits 2,596,726 3,045 0.47 % Securities sold under repurchase agreements 96,779 144 0.60 % Total interest-bearing liabilities 2,693,505 3,189 0.48 % Other liabilities 66,333 Shareholders' equity 1,037,185 Total liabilities and shareholders' equity $ 6,042,100 Net interest spread (1) (2) 3.59 % Net interest and fee income and interest margin (1) (3) $ 54,562 3.85 % (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. [The remainder of this page intentionally left blank] -35- Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin For the Six Months Ended June 30, 2026 Interest Average Income/ Yields/ Balance Expense Rates ($ in thousands) Assets Investment securities: Taxable $ 4,449,911 $ 83,616 3.76 % Tax-exempt (1) 69,744 1,452 4.16 % Total investments (1) 4,519,655 85,068 3.76 % Loans: Taxable 669,857 19,113 5.75 % Tax-exempt (1) 25,829 542 4.24 % Total loans (1) 695,686 19,655 5.70 % Total interest-bearing cash 395,439 7,257 3.65 % Total interest-earning assets (1) 5,610,780 111,980 3.99 % Other assets 390,428 Total assets $ 6,001,208 Liabilities and shareholders' equity Noninterest-bearing demand $ 2,187,629 $ - - % Savings and interest-bearing transaction 2,555,272 6,116 0.48 % Time less than $100,000 43,068 62 0.29 % Time $100,000 or more 23,033 21 0.18 % Total interest-bearing deposits 2,621,373 6,199 0.48 % Securities sold under repurchase agreements 138,838 417 0.60 % Total interest-bearing liabilities 2,760,211 6,616 0.48 % Other liabilities 63,214 Shareholders' equity 990,154 Total liabilities and shareholders' equity $ 6,001,208 Net interest spread (1) (2) 3.51 % Net interest and fee income and interest margin (1) (3) $ 105,364 3.75 % (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. [The remainder of this page intentionally left blank] -36- Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin For the Six Months Ended June 30, 2025 Interest Average Income/ Yields/ Balance Expense Rates ($ in thousands) Assets Investment securities: Taxable $ 4,205,881 $ 80,127 3.80 % Tax-exempt (1) 109,613 2,099 3.83 % Total investments (1) 4,315,494 82,226 3.80 % Loans: Taxable 742,489 20,644 5.61 % Tax-exempt (1) 33,510 691 4.12 % Total loans (1) 775,999 21,335 5.54 % Total interest-bearing cash 631,753 13,976 4.40 % Total interest-earning assets (1) 5,723,246 117,537 4.11 % Other assets 391,064 Total assets $ 6,114,310 Liabilities and shareholders' equity Noninterest-bearing demand $ 2,268,936 $ - - % Savings and interest-bearing transaction 2,552,270 6,168 0.49 % Time less than $100,000 50,273 75 0.30 % Time $100,000 or more 28,377 31 0.22 % Total interest-bearing deposits 2,630,920 6,274 0.48 % Securities sold under repurchase agreements 100,670 311 0.62 % Total interest-bearing liabilities 2,731,590 6,585 0.49 % Other liabilities 67,280 Shareholders' equity 1,046,504 Total liabilities and shareholders' equity $ 6,114,310 Net interest spread (1) (2) 3.62 % Net interest and fee income and interest margin (1) (3) $ 110,952 3.87 % (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. [The remainder of this page intentionally left blank] -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 June 30, 2026 Compared with For the Three Months Ended June 30, 2025 Volume Yield/Rate Total (In thousands) Increase (decrease) in interest and loan fee income: Investment securities: Taxable $ 3,550 $ 190 $ 3,740 Tax-exempt (1) (424 ) 72 (352 ) Total investments (1) 3,126 262 3,388 Loans: Taxable (1,017 ) 207 (810 ) Tax-exempt (1) (72 ) 10 (62 ) Total loans (1) (1,089 ) 217 (872 ) Total interest-bearing cash (3,655 ) (617 ) (4,272 ) Total decrease in interest and loan fee income (1) (1,618 ) (138 ) (1,756 ) Increase (decrease) in interest expense: Deposits: Savings and interest-bearing transaction 49 26 75 Time less than $100,000 (5 ) (1 ) (6 ) Time $100,000 or more (3 ) (1 ) (4 ) Total interest-bearing deposits 41 24 65 Securities sold under repurchase agreements 67 - 67 Total increase in interest expense 108 24 132 Decrease in net interest and loan fee income (1) $ (1,726 ) $ (162 ) $ (1,888 ) (1) Amounts calculated on an FTE basis using the current statutory federal tax rate. [The remainder of this page intentionally left blank] -38- Summary of Changes in Interest Income and Expense For the Six Months Ended June 30, 2026 Compared with For the Six Months Ended June 30, 2025 Volume Yield/Rate Total (In thousands) Increase (decrease) in interest and loan fee income: Investment securities: Taxable $ 4,649 $ (1,160 ) $ 3,489 Tax-exempt (1) (763 ) 116 (647 ) Total investments (1) 3,886 (1,044 ) 2,842 Loans: Taxable (2,019 ) 488 (1,531 ) Tax-exempt (1) (163 ) 14 (149 ) Total loans (1) (2,182 ) 502 (1,680 ) Total interest-bearing cash (5,228 ) (1,491 ) (6,719 ) Total decrease in interest and loan fee income (1) (3,524 ) (2,033 ) (5,557 ) Increase (decrease) in interest expense: Deposits: Savings and interest-bearing transaction 7 (59 ) (52 ) Time less than $100,000 (11 ) (2 ) (13 ) Time $100,000 or more (5 ) (5 ) (10 ) Total interest-bearing deposits (9 ) (66 ) (75 ) Securities sold under repurchase agreements 124 (18 ) 106 Total increase (decrease) in interest expense 115 (84 ) 31 Decrease in net interest and loan fee income (1) $ (3,639 ) $ (1,949 ) $ (5,588 ) (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. 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 three and six months ended June 30, 2026 and June 30, 2025. The six months ended June 30, 2026 and June 30, 2025 included a $300 thousand reversal of provision for credit losses recorded in the three months ended June 30, 2026 and a $550 thousand reversal recorded in the three months ended June 30, 2025, respectively. 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. [The remainder of this page intentionally left blank] -39- Noninterest Income The following table summarizes the components of noninterest income for the periods indicated. For the Three Months For the Six Months Ended June 30, 2026 2025 2026 2025 (In thousands) Service charges on deposit accounts $ 3,380 $ 3,368 $ 6,712 $ 6,749 Merchant processing services 2,840 2,687 5,579 5,420 Debit card fees 1,462 1,664 2,786 3,245 Trust fees 965 867 1,892 1,766 ATM processing fees 484 482 934 945 Other service fees 445 450 853 879 Bank owned life insurance gains - 106 - 208 Unrealized gains (losses) on equity securities 36 - (211 ) - Other noninterest income 682 691 1,356 1,424 Total $ 10,294 $ 10,315 $ 19,901 $ 20,636 Noninterest income for the three months ended June 30, 2026 was relatively equal compared with the three months ended June 30, 2025. Merchant processing services and trust fee income was higher in the three months ended June 30, 2026, partially offset by lower debit card fee income and the three months ended June 30, 2025 included bank owned life insurance gains. Noninterest income for the six months ended June 30, 2026 decreased compared with the six months ended June 30, 2025 primarily due to lower debit card fee income, recognition of unrealized securities losses and the six months ended June 30, 2025 included bank owned life insurance gains, partially offset by higher merchant processing services and trust fee income. Noninterest Expense The following table summarizes the components of noninterest expense for the periods indicated. For the Three Months For the Six Months Ended June 30, 2026 2025 2026 2025 (In thousands) Salaries and related benefits $ 12,541 $ 12,303 $ 24,866 $ 24,429 Occupancy and equipment 5,209 5,154 10,636 10,192 Outsourced data processing services 2,781 2,709 5,569 5,406 Limited partnership operating losses 1,110 915 2,220 1,830 Courier service 660 687 1,122 1,375 Professional fees 765 386 1,499 781 Other noninterest expense 2,971 3,375 6,036 6,643 Total $ 26,037 $ 25,529 $ 51,948 $ 50,656 Noninterest expense for the three months ended June 30, 2026 increased compared with the three months ended June 30, 2025 primarily due to increases in salaries and related benefits, professional fees and estimated limited partnership operating losses. Noninterest expense for the six months ended June 30, 2026 increased compared with the six months ended June 30, 2025 primarily due to higher salaries and related benefits, occupancy and equipment, outsourced data processing services, professional fees and estimated limited partnership operating losses, partially offset by lower courier service expense. Provision for Income Tax The Company’s income tax provision (FTE) was $9.5 million for the three months ended June 30, 2026 and $18.9 million for the six months ended June 30, 2026 compared with $10.3 million for the three months ended June 30, 2025 and $21.4 million for the six months ended June 30, 2025. The effective tax rates (FTE) were 25.8% and 25.6%, for the three and six months ended June 30, 2026, respectively, compared with 26.1% and 26.2%, for the three and six months ended June 30, 2025, respectively. -40- 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 and banks. The Company had marketable equity securities held for trading at fair value of $255 thousand at June 30, 2026 and $466 thousand at December 31, 2025. The Company had no marketable equity securities not held for trading at June 30, 2026 and December 31, 2025. Management manages the investment debt 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 debt securities portfolio was $4.4 billion at June 30, 2026 and $4.3 billion at December 31, 2025. 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 $1 thousand at June 30, 2026 and December 31, 2025. Debt securities available for sale are listed at fair value. At June 30, 2026 At December 31, 2025 Carrying Value As a percent of total investment securities Carrying Value As a percent of total investment securities ($ in thousands) Securities of U.S. Government sponsored entities $ 296,531 7 % $ 302,412 7 % Agency residential mortgage-backed securities ("MBS") 205,888 5 % 228,080 5 % Agency commercial MBS 1,150,144 26 % 707,560 16 % Obligations of states and political subdivisions 56,270 1 % 79,319 2 % Corporate securities 2,529,889 56 % 2,546,324 60 % Collateralized loan obligations 208,302 5 % 424,614 10 % Total $ 4,447,024 100 % $ 4,288,309 100 % Debt securities available for sale $ 3,639,177 $ 3,468,734 Debt securities held to maturity 807,847 819,575 Total $ 4,447,024 $ 4,288,309 Management continually evaluates the Company’s investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability, liquidity, and the level of interest rate risk to which the Company is exposed. These evaluations may cause Management to change the level of funds the Company deploys into investment securities and change the composition of the Company’s investment securities portfolio. At June 30, 2026, substantially all of the Company’s investment securities were investment grade as rated by one or more major rating agencies. In addition to monitoring credit rating agency evaluations, Management performs its own evaluations regarding the credit worthiness of the issuer or the securitized assets underlying asset-backed securities. The Company’s procedures for evaluating investments in securities are in accordance with guidance issued by the Board of Governors of the Federal Reserve System, “Investing in Securities without Reliance on Nationally Recognized Statistical Rating Agencies” (SR 12-15) and other regulatory guidance. -41- The Company had corporate securities as shown below at the dates indicated: Corporate securities At June 30, 2026 At December 31, 2025 Amortized Fair Amortized Fair Cost Value Cost Value (In thousands) Debt securities available for sale $ 1,917,695 $ 1,796,083 $ 1,913,553 $ 1,804,080 Debt securities held to maturity 733,806 718,850 742,244 737,480 Total corporate securities $ 2,651,501 $ 2,514,933 $ 2,655,797 $ 2,541,560 The following table summarizes total corporate securities by credit rating: At June 30, 2026 At December 31, 2025 Fair value As a percent of total corporate securities Fair value As a percent of total corporate securities ($ in thousands) AA- $ 86,472 3 % $ 77,304 3 % A+ 268,081 11 % 272,496 11 % A 542,556 22 % 423,726 17 % A- 715,305 28 % 801,466 31 % BBB+ 598,547 24 % 624,557 25 % BBB 265,638 11 % 342,011 13 % BBB- 38,334 1 % - - % Total corporate securities $ 2,514,933 100 % $ 2,541,560 100 % The following table summarizes total corporate securities by the industry sector in which the issuing companies operate: At June 30, 2026 At December 31, 2025 Fair value As a percent of total corporate securities Fair value As a percent of total corporate securities ($ in thousands) Financial $ 1,491,230 59 % $ 1,448,196 57 % Utilities 286,485 12 % 288,995 11 % Industrial 210,256 8 % 214,154 8 % Consumer, Non-cyclical 163,676 7 % 174,853 7 % Communications 128,966 5 % 130,355 5 % Basic Materials 71,813 3 % 102,612 4 % Energy 71,250 3 % 71,815 3 % Technology 57,699 2 % 63,158 3 % Consumer, Cyclical 33,558 1 % 47,422 2 % Total corporate securities $ 2,514,933 100 % $ 2,541,560 100 % -42- The following table summarizes total corporate securities by the location of the issuers’ headquarters; all the corporate securities are denominated in United States dollars: At June 30, 2026 At December 31, 2025 Fair value As a percent of total corporate securities Fair value As a percent of total corporate securities ($ in thousands) United States of America $ 1,790,843 71 % $ 1,815,106 71 % Canada 211,144 8 % 203,940 8 % Japan 157,165 6 % 159,249 6 % United Kingdom 101,314 4 % 112,636 4 % France 80,235 3 % 80,668 3 % Switzerland 71,806 3 % 76,127 3 % Netherlands 37,151 2 % 37,660 2 % Australia 25,054 1 % 25,305 1 % Germany 23,337 1 % 13,658 1 % Belgium 16,884 1 % 17,211 1 % Total corporate securities $ 2,514,933 100 % $ 2,541,560 100 % 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 corporate securities are denominated in United States dollars: At June 30, 2026 At December 31, 2025 Fair value As a percent of total foreign corporate securities Fair value As a percent of total foreign corporate securities ($ in thousands) Financial $ 625,364 86 % $ 626,661 86 % Energy 33,322 5 % 33,540 5 % Basic Materials 25,054 4 % 25,305 4 % Consumer, Non-cyclical 16,884 2 % 17,211 2 % Consumer, Cyclical 13,489 2 % 13,658 2 % Utilities 9,977 1 % 10,079 1 % Total foreign corporate securities $ 724,090 100 % $ 726,454 100 % The Company’s $208 million (fair value) in collateralized loan obligations at June 30, 2026, consist of investments in 24 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 June 30, 2026 Amortized Fair Cost Value (In thousands) AAA $ 99,278 $ 99,302 AA 109,000 109,000 Total $ 208,278 $ 208,302 -43- The Company’s $425 million (fair value) in collateralized loan obligations at December 31, 2025, consist of investments in 41 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, 2025 Amortized Fair Cost Value (In thousands) AAA $ 156,335 $ 155,881 AA+/AA 269,130 268,733 Total $ 425,465 $ 424,614 See Note 3 “Debt Securities Available for Sale and Held to Maturity” to the unaudited consolidated financial statements in this Form 10-Q 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. 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 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. 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”). -44- Nonperforming Loans At June 30, At December 31, 2026 2025 (In thousands) Nonperforming nonaccrual loans $ 183 $ 768 Performing nonaccrual loans 342 706 Total nonaccrual loans 525 1,474 Accruing loans 90 or more days past due 283 340 Total nonperforming loans $ 808 $ 1,814 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 June 30, At December 31, 2026 2025 (In thousands) Allowance for credit losses on loans $ 10,790 $ 11,573 Allowance for credit losses on held to maturity debt securities 1 1 Total allowance for credit losses $ 10,791 $ 11,574 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. The Company has evaluated each issuer’s historical financial performance and ability to service debt payments throughout and following the 2008-2009 recession. The Company has an expectation that nonpayment of the amortized cost basis continues to be zero. At June 30, 2026, no credit loss allowance was assigned to corporate securities held to maturity based on evaluation of each individual issuer’s historical 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 $1 thousand related to municipal securities at June 30, 2026 and December 31, 2025, reflecting the expected credit losses on debt securities held to maturity. 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. 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. -45- The allowance for credit losses is established through provisions for credit losses charged to income. Losses on loans are charged to the allowance for credit losses when all or a portion of the recorded amount of a loan is deemed to be uncollectible. Recoveries of loans previously charged off are credited to the allowance when realized. The Company’s allowance for credit losses is maintained at a level considered adequate to provide for expected losses based on historical loss rates adjusted for current and expected conditions over a forecast period. These include conditions unique to individual borrowers, as well as overall credit loss experience, the amount of past due, nonperforming and classified loans, recommendations of regulatory authorities, prevailing economic conditions, or credit protection agreements and other factors. Loans that share common risk characteristics are segregated into pools based on common characteristics, which is primarily determined by loan, borrower, or collateral type. Historical loss rates are determined for each pool. For consumer installment loans, primarily secured by automobiles, historical loss rates are determined using a vintage methodology, which tracks losses based on period of origination. For commercial, construction, and commercial real estate, historical loss rates are determined using an open pool methodology where losses are tracked over time for all loans included in the pool at the historical measurement date. Historical loss rates are adjusted for factors that are not reflected in the historical loss rates that are attributable to national or local economic or industry trends which have occurred but have not yet been recognized in past loan charge-off history, estimated losses based on management’s reasonable and supportable expectation of economic trends over a forecast horizon of up to two years, and other factors that impact credit loss expectations that are not reflected in the historical loss rates. Other factors include, but are not limited to, the effectiveness of the Company’s loan review system, adequacy of lending Management and staff, loan policies and procedures, problem loan trends, and concentrations of credit. At the end of the two-year forecast period loss rates revert immediately to the historical loss rates. The results of this analysis are applied to the amortized cost of the loans included within each pool. Loans that do not share risk characteristics with other loans in the pools are evaluated individually. A loan is considered ‘collateral-dependent’ when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. A credit loss reserve for collateral-dependent loans is established at the difference between the amortized cost basis in the loan and the fair value of the underlying collateral adjusted for costs to sell. For other individually evaluated loans that are not collateral dependent, a credit loss reserve is established at the difference between the amortized cost basis in the loan and the present value of expected future cash flows discounted at the loan’s effective interest rate. The impact of an expected 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. 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. -46- The following table summarizes the allowance for credit losses, chargeoffs and recoveries for the periods indicated. For the Three Months For the Six Months Ended June 30, 2026 2025 2026 2025 ($ in thousands) Analysis of the allowance for credit losses Balance, beginning of period $ 11,151 $ 13,914 $ 11,573 $ 14,780 Reversal of provision for credit losses - - (300 ) (550 ) Loans charged off Commercial (108 ) (28 ) (108 ) (38 ) Commercial real estate - - - (191 ) Consumer installment and other (747 ) (924 ) (1,538 ) (2,449 ) Total chargeoffs (855 ) (952 ) (1,646 ) (2,678 ) Recoveries of loans previously charged off Commercial 12 9 92 274 Commercial real estate 19 14 38 27 Consumer installment and other 463 802 1,033 1,934 Total recoveries 494 825 1,163 2,235 Net loan chargeoffs (361 ) (127 ) (483 ) (443 ) Balance, end of period $ 10,790 $ 13,787 $ 10,790 $ 13,787 Net loan (chargeoffs) as a percentage of average total loans (annualized) (0.21 )% (0.07 )% (0.14 )% (0.12 )% 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 in this Form 10-Q for additional information. Allowance for Credit Losses For the Three Months Ended June 30, 2026 Consumer Commercial Residential Installment Commercial Real Estate Real Estate and Other Total (In thousands) Allowance for credit losses: Balance at beginning of period $ 3,447 $ 5,821 $ 24 $ 1,859 $ 11,151 (Reversal) provision (159 ) (166 ) 1 324 - Chargeoffs (108 ) - - (747 ) (855 ) Recoveries 12 19 - 463 494 Total allowance for credit losses $ 3,192 $ 5,674 $ 25 $ 1,899 $ 10,790 Allowance for Credit Losses For the Six Months Ended June 30, 2026 Consumer Commercial Residential Installment Commercial Real Estate Real Estate and Other Total (In thousands) Allowance for credit losses: Balance at beginning of period $ 4,048 $ 6,109 $ 22 $ 1,394 $ 11,573 (Reversal) provision (840 ) (473 ) 3 1,010 (300 ) Chargeoffs (108 ) - - (1,538 ) (1,646 ) Recoveries 92 38 - 1,033 1,163 Total allowance for credit losses $ 3,192 $ 5,674 $ 25 $ 1,899 $ 10,790 Management considers the $10.8 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, 2026. See Note 4 “Loans and Allowance for Credit Losses” to the unaudited consolidated financial statements in this Form 10-Q for additional information related to the loan portfolio, loan portfolio credit risk and allowance for credit losses on loans. -47- 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. 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. 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, 2026, 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. 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 licensed third party 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. -48- The Company’s asset and liability position was generally “asset sensitive” at June 30, 2026, 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. At June 30, 2026, Management’s most recent measurements of estimated changes in net interest income were: Dynamic Simulation (1) Static Simulation (2) Change in Interest Rates First Year Change in Net Interest Income + 2.0% + 1.5% + 6.5% + 1.0% + 0.9% + 3.3% 0.0% - 0.6% 0.0% - 1.0% - 1.8% - 3.8% - 2.0% - 4.2% - 7.3% (1) Balance sheet composition changes; Assumed change in interest rates over 1 year (2) Balance sheet composition unchanged; Assumed immediate change in interest rates 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 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. -49- 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, 2026 and the year ended December 31, 2025. 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. Total deposits were $4,773 million at June 30, 2026 and $4,840 million at December 31, 2025. Total time deposits were $62 million at June 30, 2026 and $67 million at December 31, 2025. The Company has no foreign time deposits. FDIC deposit insurance is $250,000 per depositor, for each account ownership category. At June 30, 2026, estimated federally uninsured total deposits and time deposits were $2,368 million and $3 million, respectively. The following table shows the time remaining to maturity of the Company’s estimated amounts of uninsured time deposits with a balance greater than $250,000 per depositor per category: At June 30, 2026 (In thousands) Three months or less $ 1,491 Over three through six months 1,856 Over six through twelve months 1 Over twelve months 85 Total $ 3,433 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, 2026, the Company had $301,934 thousand in cash balances. During the twelve months ending June 30, 2027, the Company expects to receive $386,000 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, 2026, the Company had access to borrowing from the Federal Reserve Bank up to $761,326 thousand based on collateral pledged at June 30, 2026. Additionally, the Company had access to a $60,000 thousand line of credit with a correspondent bank at June 30, 2026. 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 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. 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 or elevated 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, any 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 had no debt at June 30, 2026. Substantially all of the Parent Company's revenues are obtained from subsidiary dividends and service fees. -50- 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 $23 million for the six months ended June 30, 2026 and $47 million for the year ended December 31, 2025 and retire common stock in the amounts of $93 million in the six months ended June 30, 2026 and $104 million in the year ended December 31, 2025. 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 the Parent Company's ability to meet its ongoing cash obligations. The Parent Company’s cash balance was $210 million at June 30, 2026 and $268 million at December 31, 2025. 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 11.1% for the six months ended June 30, 2026 and 11.2% for the year ended December 31, 2025. The Company also raises capital as employees exercise stock options. The Company raised $6 million through the exercise of stock options in the six months ended June 30, 2026 and $376 thousand in the year ended December 31, 2025. The Company paid cash dividends on its common stock totaling $23 million in the six months ended June 30, 2026 and $47 million in the year ended December 31, 2025, which represent dividends per common share of $0.94 and $1.82, 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 approximately 2 million shares valued at $93 million in the six months ended June 30, 2026 and 2 million shares valued at $104 million in the year ended December 31, 2025. The Company's primary capital resource is shareholders' equity, which was $853 million at June 30, 2026 compared with $934 million at December 31, 2025. The Company's ratio of equity to total assets was 14.70% at June 30, 2026 and 15.66% at December 31, 2025. 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. 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 Well-capitalized Required for Under Prompt At June 30, 2026 Capital Adequacy Corrective Action Company Bank Purposes Regulations (Bank) Common Equity Tier I Capital 22.86 % 16.23 % 7.00 % 6.50 % Tier I Capital 22.86 % 16.23 % 8.50 % 8.00 % Total Capital 23.16 % 16.69 % 10.50 % 10.00 % Leverage Ratio 14.53 % 10.27 % 4.00 % 5.00 % -51- To Be Well-capitalized Required for Under Prompt At December 31, 2025 Capital Adequacy Corrective Action Company Bank Purposes Regulations (Bank) Common Equity Tier I Capital 22.75 % 15.14 % 7.00 % 6.50 % Tier I Capital 22.75 % 15.14 % 8.50 % 8.00 % Total Capital 23.05 % 15.59 % 10.50 % 10.00 % Leverage Ratio 15.22 % 10.09 % 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.