This Report on Form 10-K contains forward-looking statements about Westamerica Bancorporation for which it claims the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995.

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

These forward-looking statements are based on Management’s current knowledge and belief and include information concerning the Company’s possible or assumed future financial condition and results of operations. A number of factors, some of which are beyond the Company’s ability to predict or control, could cause future results to differ materially from those contemplated. These factors include but are not limited to (1) the length and severity of any difficulties in the global, national and California economies and the effects of government efforts to address those difficulties; (2) liquidity levels in capital markets; (3) fluctuations in asset prices including, but not limited to stocks, bonds, real estate, and commodities; (4) the effect of acquisitions and integration of acquired businesses; (5) economic uncertainty created by riots, terrorist threats and attacks on the United States, the actions taken in response, and the uncertain effect of these events on the local, regional and national economies; (6) changes in the interest rate ~~environment;~~environment and monetary policy; (7) changes in the regulatory environment; (8) competitive pressure in the banking industry; (9) operational risks including a failure or breach in data processing or security systems or those of third party vendors and other service providers, including as a result of cyber attacks or fraud; (10) volatility of interest rate sensitive loans, deposits and investments; (11) asset/liability management risks and liquidity risks; (12) the effect of climate change, natural disasters, including earthquakes, hurricanes, fire, flood, drought, and other disasters, on the uninsured value of the Company’s assets and of loan collateral, the financial condition of debtors and issuers of investment securities, the economic conditions affecting the Company’s market place, and commodities and asset values; (13) changes in the securities markets; (14) the duration and severity of the COVID-19 pandemic and governmental and customer responses to the pandemic; (15) inflation and ~~(15)~~(16) the outcome of contingencies, such as legal proceedings. However, the reader should not consider the above-mentioned factors to be a complete set of all potential risks or uncertainties.

Forward-looking statements speak only as of the date they are made. The Company undertakes no obligation to update any forward-looking statements in this report to reflect circumstances or events that occur after the date forward looking statements are made, except as may be required by law. The reader is directed to Part II – Item 1A “Risk Factors” of this report and other risk factors discussed elsewhere in this report, for further discussion of factors which could affect the Company's business and cause actual results to differ materially from those expressed in any forward-looking statement made in this report.

Westamerica Bancorporation (the “Company”) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended (“BHCA”). Its legal headquarters are located at 1108 Fifth Avenue, San Rafael, California 94901. Its principal administrative offices are located at 4550 Mangels Boulevard, Fairfield, California 94534, its telephone number is (707) 863-6000 and its website address is www.westamerica.com. The Company provides a full range of banking services to individual and commercial customers in Northern and Central California through its subsidiary bank, Westamerica Bank ~~(“WAB” or the~~(the “Bank”). The Bank is a California-chartered commercial bank whose deposit are insurance by the Federal Deposit Insurance Corporation (the “FDIC”) up to applicable limits. The principal communities served are located in Northern and Central California, from Mendocino, Lake and Nevada Counties in the north to Kern County in the south. The Company’s strategic focus is on the banking needs of small businesses. In addition, the Bank owns 100% of the capital stock of Community Banker Services Corporation (“CBSC”), a company engaged in providing the Company and its subsidiaries with data processing services and other support functions.

The Company was incorporated under the laws of the State of California in 1972 as “Independent Bankshares Corporation” pursuant to a plan of reorganization among three previously unaffiliated Northern California banks. The Company operated as a multi-bank holding company until mid-1983, at which time the then six subsidiary banks were merged into a single bank named Westamerica Bank and the name of the holding company was changed to Westamerica Bancorporation.

The Company acquired five banks within its immediate market area during the early to mid 1990’s. In April 1997, the Company acquired ValliCorp Holdings, Inc., parent company of ValliWide Bank, the largest independent bank holding company headquartered in Central California. Under the terms of all of the merger agreements, the Company issued shares of its common stock in exchange for all of the outstanding shares of the acquired institutions. The subsidiary banks acquired were merged with and into ~~WAB.~~the Bank. These six aforementioned business combinations were accounted for as poolings-of-interests.

During the period 2000 through 2005, the Company acquired three additional banks. These acquisitions were accounted for using the purchase accounting method.

On February 6, 2009, Westamerica Bank acquired the banking operations of County Bank (“County”) from the Federal Deposit Insurance Corporation (“FDIC”). On August 20, 2010, Westamerica Bank acquired assets and assumed liabilities of the former Sonoma Valley Bank (“Sonoma”) from the FDIC. The County and Sonoma acquired assets and assumed liabilities were measured at estimated fair values, as required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations.

At December 31, ~~2021,~~2022, the Company had consolidated assets of approximately ~~$7.5~~$7.0 billion, deposits of approximately ~~$6.4~~$6.2 billion and shareholders’ equity of approximately ~~$827~~$602 million.

The Company assesses and is careful to address potential health, safety, and environmental risks. The Company cares for the environment and works to mitigate pollution and the potential risks related to climate change by implementing practices such as recycling and reusing materials, and controlling energy usage.

The Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports as well as beneficial ownership reports on Forms 3, 4 and 5 are available through the SEC’s website (https://www.sec.gov). Such documents as well as the Company’s director, officer and employee Code of Conduct and Ethics are also available free of charge from the Company by request to:

The Company and its subsidiaries employed ~~640~~594 full-time equivalent staff ~~(or 534 full-time~~or 664 employees ~~and 169 part-term and on-call employees)~~ as of December 31, ~~2021.~~2022. The employees are not represented by a collective bargaining unit, and the Company believes its relationship with its employees is good.

The Company’s ability to attract and retain employees is a key to its success. Employees receive a comprehensive benefits package that includes paid time off, sick time, company contributions of up to 6% to qualified retirement plans, discretionary profit-sharing retirement plan contributions, and other health and wellness benefits including participation in Company paid or subsidized medical, dental, term-life, accidental death and dismemberment (AD&D), long-term disability, and employee assistance programs. Certain employees participate in one of the Company’s performance-based incentive programs, which may include additional bonus and incentive compensation, company contributions to supplemental retirement plans, and equity-based awards. Certain benefits are subject to eligibility, vesting, and performance requirements. Employee performance is measured at least quarterly and formal performance evaluations are conducted at least annually.

The Company’s code of ethics prohibits discrimination or harassment. The Company requires all employees to agree to the code of ethics and participate in harassment prevention training annually.

The following is not intended to be an exhaustive description of the statutes and regulations applicable to the Company’s or the Bank’s business. The description of statutory and regulatory provisions is qualified in its entirety by reference to the particular statutory or regulatory provisions. Moreover, major new legislation and other regulatory changes affecting the Company, the Bank, and the financial services industry in general have occurred in the last several years and can be expected to occur in the future. The nature, timing and impact of new and amended laws and regulations cannot be accurately predicted.

The Company is a bank holding company that is subject to the BHCA. The Company files reports with and is subject to examination and supervision by the Board of Governors of the Federal Reserve System (“FRB”). The FRB also has the authority to examine the Company’s subsidiaries. The Company is a bank holding company within the meaning of Section 3700 of the California Financial Code. As such, the Company and the Bank are subject to examination by, and may be required to file reports with, the Commissioner of the California Department of Financial Protection and Innovation (the “Commissioner”).

The FRB has significant supervisory and regulatory authority over the Company and its affiliates. Among other things, the FRB requires the Company to maintain certain levels of capital. See “Capital Standards.” The FRB also has the authority to take enforcement action against any bank holding company that commits any unsafe or unsound practice, or violates certain laws, regulations or conditions imposed in writing by the FRB. Under the BHCA, the Company is required to obtain the prior approval of the FRB before it acquires, merges or consolidates with any bank or bank holding company. Any company seeking to acquire control of or to merge or consolidate with the Company also would be required to obtain the prior approval of the FRB.

The Company is generally prohibited under the BHCA from acquiring ownership or control of more than 5% of any class of voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than banking, managing banks, or providing services to affiliates of the holding company. However, a bank holding company, with the approval of the FRB, may engage, or acquire the voting shares of companies engaged, in activities that the FRB has determined to be closely related to banking or managing or controlling banks. A bank holding company must demonstrate that the benefits to the public of the proposed activity will outweigh the possible adverse effects associated with such activity.

The FRB generally prohibits a bank holding company from declaring or paying a cash dividend that would impose undue pressure on the capital of subsidiary banks or would be funded only through borrowing or other arrangements which might adversely affect a bank holding company’s financial position. Under the FRB policy, a bank holding company should not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of earnings retention appears consistent with its capital needs, asset quality and overall financial condition. See the section entitled “Restrictions on Dividends and Other Distributions” for additional restrictions on the ability of the Company and the Bank to pay dividends.

Transactions between the Company and the Bank are restricted under the FRB’s Regulation W and Sections 23A and 23B of the Federal Reserve Act. In general, subject to certain specified exemptions, a bank or its subsidiaries are limited in their ability to engage in “covered transactions” with affiliates: (a) to an amount equal to 10% of the bank’s capital and surplus, in the case of covered transactions with any one affiliate; and (b) to an amount equal to 20% of the bank’s capital and surplus, in the case of covered transactions with all affiliates. The Company is considered to be an affiliate of the Bank. A “covered transaction” includes, among other things, a loan or extension of credit to an affiliate; a purchase of securities issued by an affiliate; a purchase of assets from an affiliate, with some exceptions; and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate.

Federal regulations governing bank holding companies and change in bank control (Regulation Y) provide for a streamlined and expedited review process for bank acquisition proposals submitted by well-run bank holding companies. These provisions of Regulation Y are subject to numerous qualifications, limitations and restrictions. In order for a bank holding company to qualify as “well-run,” both it and the insured depository institutions which it controls must meet the “well capitalized” and “well managed” criteria set forth in Regulation Y.

The Gramm-Leach-Bliley Act (the “GLBA”), or the Financial Services Act of 1999, repealed provisions of the Glass-Steagall Act, which had prohibited commercial banks and securities firms from affiliating with each other and engaging in each other’s businesses. Thus, many of the barriers prohibiting affiliations between commercial banks and securities firms have been eliminated.

The BHCA was also amended by the GLBA to allow new “financial holding companies” (“FHCs”) to offer banking, insurance, securities and other financial products to consumers. Specifically, the GLBA amended section 4 of the BHCA in order to provide for a framework for the engagement in new financial activities. A bank holding company (“BHC”) may elect to become an FHC if all its subsidiary depository institutions are well capitalized and well managed. If these requirements are met, a BHC may file a certification to that effect with the FRB and declare that it elects to become an FHC. After the certification and declaration is filed, the FHC may engage either de novo or through an acquisition in any activity that has been determined by the FRB to be financial in nature or incidental to such financial activity. BHCs may engage in financial activities without prior notice to the FRB if those activities qualify under the list of permissible activities in section 4(k) of the BHCA. However, notice must be given to the FRB within 30 days after an FHC has commenced one or more of the financial activities. The Company has not elected to become an FHC.

The Bank is a California state-chartered Federal Reserve member bank and its deposits are insured by the FDIC. The Bank is subject to regulation, supervision and regular examination by the California Department of Financial Protection and Innovation and the FRB. The regulations of these agencies affect most aspects of the Bank’s business and prescribe permissible types of loans and investments, the amount of required reserves, requirements for branch offices, the permissible scope of its activities and various other requirements.

In addition to federal banking law, the Bank is also subject to applicable provisions of California law. Under California law, the Bank is subject to various restrictions on, and requirements regarding, its operations and administration including the maintenance of branch offices and automated teller machines, capital requirements, deposits and borrowings, and investment and lending activities.

In addition, the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) imposes limitations on the activities and equity investments of state chartered, federally insured banks. FDICIA also prohibits a state bank from making an investment or engaging in any activity as a principal that is not permissible for a national bank, unless the Bank is adequately capitalized and the FDIC approves the investment or activity after determining that such investment or activity does not pose a significant risk to the deposit insurance fund.

On July 21, 2010, financial regulatory reform legislation entitled the "Dodd-Frank Wall Street Reform and Consumer Protection Act" (the "Dodd-Frank Act") was signed into law. The Dodd-Frank Act implemented far-reaching changes across the financial regulatory landscape, including provisions that, among other things:

Provisions in the legislation that affect the payment of interest on demand deposits and interchange fees may increase the costs associated with deposits as well as place limitations on certain revenues those deposits may generate.

The federal banking agencies have adopted pursuant the Dodd-Frank Act, which are risk-based capital adequacy guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banking organization’s operations for both transactions resulting in assets being recognized on the balance sheet as assets, and the extension of credit facilities such as letters of credit and recourse arrangements, which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. government securities, to 1250% for assets with relatively higher credit risk, such as certain securitizations. A banking organization’s risk-based capital ratios are obtained by dividing its qualifying capital by its total risk-adjusted assets and off balance sheet items.

The federal banking agencies take into consideration concentrations of credit risk and risks from nontraditional activities, as well as an institution’s ability to manage those risks, when determining the adequacy of an institution’s capital. This evaluation is made as a part of the institution’s regular safety and soundness examination. The federal banking agencies also consider interest rate risk (related to the interest rate sensitivity of an institution’s assets and liabilities, and its off balance sheet financial instruments) in the evaluation of a bank’s capital adequacy.

On July 2, 2013, the Federal Reserve Board approved a final rule that implements changes to the regulatory capital framework for all banking organizations over a transitional period 2015 through 2018. As of December 31, ~~2021,~~2022, the Company’s and the Bank’s respective regulatory capital ratios exceeded applicable regulatory minimum capital requirements. See Note 9 to the consolidated financial statements included in this Report for capital ratios of the Company and the Bank, compared to minimum capital requirements and for the Bank the standards for well capitalized depository institutions.

In November 2019, the federal banking regulators published final rules implementing community bank leverage ratio, which is a simplified measure of capital adequacy for certain banking organizations that have less than $10 billion in total consolidated assets. A qualifying community banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% is considered to have satisfied the generally applicable risk-based and leverage capital requirements and, if applicable, is considered to have met the “well capitalized” ratio requirements for purposes of its primary federal regulator’s prompt corrective action rules, discussed below. The Company does not have any immediate plans to elect to use the community bank leverage ratio framework but may make such an election in the future.

See the sections entitled “Capital Resources and Capital to Risk-Adjusted Assets” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information.

FDICIA requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios.

An institution that, based upon its capital levels, is classified as “well capitalized,” “adequately capitalized” or “undercapitalized” may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal banking agencies for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency.

FDICIA has implemented certain specific restrictions on transactions and required federal banking regulators to adopt overall safety and soundness standards for depository institutions related to internal control, loan underwriting and documentation, and asset growth. Among other things, FDICIA limits the interest rates paid on deposits by undercapitalized institutions, restricts the use of brokered deposits, limits the aggregate extensions of credit by a depository institution to an executive officer, director, principal shareholder or related interest, and reduces deposit insurance coverage for deposits offered by undercapitalized institutions for deposits by certain employee benefits accounts. The federal banking agencies may require an institution to submit an acceptable compliance plan as well as have the flexibility to pursue other more appropriate or effective courses of action given the specific circumstances and severity of an institution’s noncompliance with one or more standards.

Federal banking agencies require banks to maintain adequate valuation allowances for potential credit losses. The Company has an internal staff that continually reviews loan quality and reports to the Board of Directors. This analysis includes a detailed review of the classification and categorization of problem loans, assessment of the overall quality and collectability of the loan portfolio, consideration of loan loss experience, trends in problem loans, concentration of credit risk, and current economic conditions, particularly in the Bank’s market areas. Based on this analysis, Management, with the review and approval of the Board, determines the adequate level of allowance required. The allowance is allocated to different segments of the loan portfolio, but the entire allowance is available for the loan portfolio in its entirety.

The Company’s ability to pay dividends to its shareholders is subject to the restrictions set forth in the California General Corporation Law (“CGCL”). The CGCL provides that a corporation may make a distribution to its shareholders if (i) the corporation’s retained earnings equal or exceed the amount of the proposed distribution plus unpaid accrued dividends (if any) on securities with a dividend preference, or (ii) immediately after the dividend, the corporation’s total assets equal or exceed total liabilities plus unpaid accrued dividends (if any) on securities with a dividend preference.

The Company’s ability to pay dividends depends in part on the Bank’s ability to pay cash dividends to the Company. The power of the board of directors of an insured depository institution to declare a cash dividend or other distribution with respect to capital is subject to statutory and regulatory restrictions which limit the amount available for such distribution depending upon the earnings, financial condition and cash needs of the institution, as well as general business conditions. FDICIA prohibits insured depository institutions from paying management fees to any controlling persons or, with certain limited exceptions, making capital distributions, including dividends, if, after such transaction, the institution would be undercapitalized.

In addition to the restrictions imposed under federal law, banks chartered under California law generally may only pay cash dividends to the extent such payments do not exceed the lesser of retained earnings of the bank or the bank’s net income for its last three fiscal years (less any distributions to shareholders during this period). In the event a bank desires to pay cash dividends in excess of such amount, the bank may pay a cash dividend with the prior approval of the Commissioner in an amount not exceeding the greatest of the bank’s retained earnings, the bank’s net income for its last fiscal year or the bank’s net income for its current fiscal year.

The federal banking agencies also have the authority to prohibit a depository institution or its holding company from engaging in business practices which are considered to be unsafe or unsound, possibly including payment of dividends or other payments under certain circumstances even if such payments are not expressly prohibited by statute. The Federal Reserve Board has issued guidance indicating its expectations that a bank holding company will inform and consult with Federal Reserve supervisory staff sufficiently in advance of (i) declaring and paying a dividend that could raise safety and soundness concerns (e.g., declaring and paying a dividend that exceeds earnings for the period for which the dividend is being paid); (ii) redeeming or repurchasing regulatory capital instruments when the bank holding company is experiencing financial weaknesses; or (iii) redeeming or repurchasing common stock or perpetual preferred stock that would result in a net reduction as of the end of the quarter in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred.

Substantially all of the deposits of the Bank are insured up to applicable limits by the DIF of the FDIC and are subject to deposit insurance assessments to maintain the DIF. The FDIC utilizes a risk-based assessment system that imposes insurance premiums based upon a risk matrix that takes into account a bank's capital level, asset quality and supervisory rating.

In July 2010, Congress in the Dodd-Frank Act increased the minimum for the DIF reserve ratio, the ratio of the amount in the fund to insured deposits, from 1.15% to 1.35% and required that the ratio reach that level by September 30, 2020. Further, the Dodd-Frank Act made banks with $10 billion or more in assets responsible for the increase from 1.15% to 1.35%, among other provisions.

~~In August, 2016, the FDIC announced the DIF reserve ratio surpassed the 1.15% reserve ratio target, triggering three major changes:~~

In September 2018, the DIF reached 1.36%, exceeding the statutorily required minimum reserve ratio of 1.35% ahead of the September 30, 2020, deadline required under the Dodd-Frank Act. FDIC regulations provide for two changes to deposit insurance assessments upon reaching the minimum: (1) surcharges on insured depository institutions with total consolidated assets of $10 billion or more (large banks) will cease; and (2) small banks will receive assessment credits for the portion of their assessments that contributed to the growth in the reserve ratio from between 1.15% and 1.35%, to be applied when the reserve ratio is at or above 1.38%. In January 2019, the Bank, which meets the definition of a “small bank”, was advised by the FDIC its assessment credit to be applied when the reserve ratio is at or above 1.38% was $1.4 million. The Bank received notification from the FDIC during the third quarter 2019 that the reserve ratio exceeded 1.38%, and the FDIC applied the Bank’s assessment credits against the Bank’s second and third quarter 2019 deposit insurance premiums. The Company applied FDIC assessment credits against the Bank’s fourth quarter 2019 deposit insurance premiums and the remaining assessment credits against the Bank’s first quarter 2020 deposit insurance premiums. Extraordinary growth in insured deposits during the first and second quarters of 2020 caused the DIF reserve ratio to decline below the statutory minimum of 1.35%. The Federal Deposit Insurance Act (the “FDI Act”) requires that the FDIC’s Board of Directors adopt a restoration plan when the DIF reserve ratio falls below 1.35% or is expected to within 6 months. Under the FDI Act, the restoration plan must restore the reserve ratio to at least 1.35% within 8 years of establishing the Plan, absent extraordinary circumstances. The FDIC established the following Restoration Plan (the “Plan”) on September 15, 2020.

The Plan was amended in June 2022, to restore the DIF reserve ratio to at least 1.35% by September 30, 2028. On October 18, 2022 the FDIC adopted a final rule to increase initial base deposit insurance assessment rates for insured depository institutions by 2 basis points, beginning with the first quarterly assessment period of 2023. The increased assessment rate schedules will remain in effect unless and until the reserve ratio of the DIF meets or exceeds 2%. A significant increase in DIF insurance premiums would have an adverse effect on the operating expenses and results of operations of the Bank. The Company cannot provide any assurance as to the effect of any future changes in its deposit insurance premium rates.

While the FDIC is not Bank's primary federal regulator, as the insurer of the Bank's deposits, the FDIC is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order poses a serious risk to the DIF. The FDIC also has authority to initiate enforcement actions against any FDIC-insured institution after giving its primary federal regulator the opportunity to take such action, and may seek to terminate the deposit insurance if it determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition. Finally, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC.

On May 24, 2018, President Trump signed into law the first major financial services reform bill since the enactment of the Dodd-Frank Act. The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Relief Act”) modifies or eliminates certain requirements on community and regional banks and nonbank financial institutions. For instance, under the Relief Act and related rule making:

The Bank is subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act (“CRA”) activities. The CRA generally requires the federal banking agencies to evaluate the record of financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods. In addition to substantive penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other activities including merger applications. In ~~September 2020,~~May 2022, the ~~FRB~~federal banking agencies released for public comment ~~its~~ proposed rules to modernize CRA regulations. The Company continues to evaluate the impact of any changes to the CRA regulations.

The GLBA, in addition to the previously described changes in permissible nonbanking activities permitted to banks, BHCs and FHCs, also required the federal banking agencies, among other federal regulatory agencies, to adopt regulations governing the privacy of consumer financial information. The Bank is subject to the FRB’s regulations in this area. The federal bank regulatory agencies have established standards for safeguarding nonpublic personal information about customers that implement provisions of the GLBA (the “Guidelines”). Among other things, the Guidelines require each financial institution, under the supervision and ongoing oversight of its Board of Directors or an appropriate committee thereof, to develop, implement and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, to protect against any anticipated threats or hazards to the security or integrity of such information, and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.

The Bank Secrecy Act, as amended by the USA PATRIOT Act, gives the federal government powers to address money laundering and terrorist threats through enhanced domestic security measures, expanded surveillance powers and mandatory transaction reporting obligations. The Bank Secrecy Act and related regulations require financial institutions to report currency transactions that exceed certain thresholds and transactions determined to be suspicious, establish due diligence requirements for accounts and take certain steps to verify customer identification when accounts are opened. The Bank Secrecy Act also requires financial institutions to develop and maintain a program reasonably designed to ensure and monitor compliance with its requirements, to train employees to comply with and to test the effectiveness of the program. Any failure to meet the requirements of the Bank Secrecy Act can result in the imposition of substantial penalties and in adverse regulatory action against the offending bank.

The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the Bank Secrecy Act, was enacted in January 2021. The AMLA is a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for Bank Secrecy Act compliance; expands enforcement and investigative authority, including increasing available sanctions for certain Bank Secrecy Act violations and instituting Bank Secrecy Act whistleblower incentives and protections.

In November 2007, federal banking agencies together with the National Credit Union Administration and Federal Trade Commission adopted regulations under the Fair and Accurate Credit Transactions Act of 2003 to require financial institutions and other creditors to develop and implement a written identity theft prevention program to detect, prevent and mitigate identity theft in connection with certain new and existing accounts. Covered accounts generally include consumer accounts and other accounts that present a reasonably foreseeable risk of identity theft. Each institution’s program must include policies and procedures designed to: (i) identify indicators, or “red flags,” of possible risk of identity theft; (ii) detect the occurrence of red flags; (iii) respond appropriately to red flags that are detected; and (iv) ensure that the program is updated periodically as appropriate to address changing circumstances. The regulations include guidelines that each institution must consider and, to the extent appropriate, include in its program.

Changes to state laws and regulations (including changes in interpretation or enforcement) can affect the operating environment of BHCs and their subsidiaries in substantial and unpredictable ways. From time to time, various legislative and regulatory proposals are introduced. These proposals, if codified, may change banking statutes and regulations and the Company’s operating environment in substantial and unpredictable ways. If codified, these proposals could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions and other financial institutions. The Company cannot accurately predict whether those changes in laws and regulations will occur, and, if those changes occur, the ultimate effect they would have upon its financial condition or results of operations. It is likely, however, that the current level of enforcement and compliance-related activities of federal and state authorities will continue and potentially increase.

The Bank’s principal competitors for deposits and loans are major banks and smaller community banks, savings and loan associations and credit unions. To a lesser extent, competitors include thrift and loans, mortgage brokerage companies and insurance companies. Other institutions, such as brokerage houses, mutual fund companies, credit card companies, and certain retail establishments offer investment vehicles that also compete with banks for deposit business. Federal legislation in recent years has encouraged competition between different types of financial institutions and fostered new entrants into the financial services market.

Legislative changes, as well as technological and economic factors, can be expected to have an ongoing impact on competitive conditions within the financial services industry. While the future impact of regulatory and legislative changes cannot be predicted with certainty, the business of banking will remain highly competitive.

Readers and prospective investors in the Company’s securities should carefully consider the following risk factors as well as the other information contained or incorporated by reference in this Report.

The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties that Management is not aware of or focused on or that Management currently deems immaterial may also impair the Company’s business operations. This Report is qualified in its entirety by these risk factors.

If any of the following risks actually occur, the Company’s financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of the company’s securities could decline significantly, and investors could lose all or part of their investment in the Company’s common stock.

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

The COVID-19 coronavirus pandemic caused escalating infections in the United States beginning in the first quarter of 2020 that continued through the fourth quarter of 2021 and may continue for some time. The spread of the outbreak has disrupted the United States economy including banking and other financial activity in the market areas in which the Company and the Bank operate.

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

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

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

In response to the pandemic, the United States federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") on March 27, 2020, providing an estimated $2 trillion fiscal stimulus to the United States economy. The CARES Act established the Paycheck Protection Program (PPP) with $350 billion to provide businesses with federally guaranteed loans to support payroll and certain operating expenses. The loans were guaranteed by the United States Small Business Administration (“SBA”) and funded through banks. During 2020 and the first six months of 2021, the Bank processed government guaranteed PPP loans which meaningfully increased interest-earning assets and related interest and fee income. PPP loans, net of deferred fees and costs, were $46 million at December 31, 2021.

On April 7, 2020, the U.S. banking agencies issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised). The statement describes accounting for COVID-19-related loan modifications, including clarifying the interaction between current accounting rules and the temporary relief provided by the CARES Act. The Bank continues to work with loan customers requesting deferral of loan payments due to economic weakness caused by the pandemic. At December 31, 2021, loans granted loan deferrals totaled $84 thousand, all of which were consumer automobile loans.

On December 27, 2020, the United States federal government enacted the Consolidated Appropriations Act, 2020 (CAA), which provided $900 billion in additional federal stimulus. Among other provisions, the CAA provided $284 billion for the PPP program and allowed businesses to apply for a second PPP loan.

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

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

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

There are no comparable recent events that provide guidance as to the effect the spread of the COVID-19 pandemic may have, and, as a result, the Company cannot accurately predict the full extent of the impacts on the Company’s business, operations or the economy as a whole. However, the effects could have a material impact on the Company’s results of operations and heighten many of the other risks factors described in this Report. Any one or a combination of the factors identified above, or other factors, could materially adversely affect the Company's business, financial condition, results of operations and prospects.

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

Declines in oil prices could negatively affect the financial results of industrial sector-based and energy sector-based corporate issuers of corporate bonds owned by the Company. The Company’s corporate debt securities include 14 issuers in industrial and energy sectors with aggregate amortized cost of $308.4 million and fair value of $315.8 million at December 31, 2021. These securities continue to be investment grade rated by a major rating agency.

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

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

~~Climate Change and the Transition to Renewable Energy and a Net Zero Emissions Economy Pose Operational, Commercial and Regulatory Risks.~~

Climate change may increase the frequency or severity of extreme weather events, and if the Bank is not adequately resilient to deal with acute climate events, its operations may be impacted. Extreme weather events could also impact the activities of its customers or third-party vendors. The physical commodities and assets underlying some of its markets or investments may also be impacted by climate change.

In addition, the transition to renewable energy and a net zero emissions economy involves changes to consumer and institutional preferences for energy consumption,and other products and services, and the possible failure of its services to facilitate the needs of customers during the transition to renewable energy and changes in customer preferences could adversely impact its business and revenues. Changing preferences could also have an adverse impact on the operations or financial condition of its customers, which could result in reduced revenues from those customers. The Bank is also subject to risks relating to new or heightened climate change-related regulations or legislation, which could impact its customers.

The risks associated with climate change and the transition to renewable energy and a net zero emissions economy continue to evolve rapidly, and climate change-related risks may change or increase over time.

The Company’s income and cash flow depend to a great extent on the difference between the interest earned on loans and investment securities and the interest paid on deposits and other borrowings, and the Company’s success in competing for loans and deposits. The Company cannot control or prevent changes in the level of interest rates which fluctuate in response to general economic conditions, the policies of various governmental and regulatory agencies, in particular, the FRB’s FOMC, and pricing practices of the Company’s competitors. Changes in monetary policy, including changes in interest rates, will influence the origination of loans, the purchase of investments, the generation of deposits and other borrowings, and the rates received on loans and investment securities and paid on deposits and other liabilities. The discussion in this Report under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset, Liability and Market Risk Management” and “- Liquidity and Funding” and “Item 7A Quantitative and Qualitative Disclosures About Market Risk” is incorporated by reference in this paragraph.

Capital market conditions, including interest rates, liquidity, investor confidence, bond issuer credit worthiness, perceived counter-party risk, the supply of and demand for financial instruments, the financial strength of market participants, and other factors can materially impact the value of the Company’s assets. An impairment in the value of the Company’s assets could result in asset write-downs, reducing the Company’s asset values, earnings, and equity.

The value of securities in the Company’s investment securities portfolio may be negatively affected by disruptions in securities markets.

The market for some of the investment securities held in the Company’s portfolio can be extremely volatile. Volatile market conditions may detrimentally affect the value of these securities, such as through reduced valuations due to the perception of heightened credit and liquidity risks. There can be no assurance that the declines in market value will not result in other than temporary impairments of these assets, which would lead to loss recognition that could have a material adverse effect on the Company’s net income and capital levels.

The weakness of other financial institutions could adversely affect the Company.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. The Company routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, and other institutional clients. Many of these transactions expose the Company to credit risk in the event of default of the Company’s counterparty or client. In addition, the Company’s credit risk may be increased when the collateral the Company holds cannot be realized or is liquidated at prices not sufficient to recover the full amount of the secured obligation. There is no assurance that any such losses would not materially and adversely affect the Company’s results of operations or earnings.

Shares of Company common stock eligible for future sale or grant of stock options and other equity awards could have a dilutive effect on the market for Company common stock and could adversely affect the market price.

The Articles of Incorporation of the Company authorize the issuance of 150 million shares of common stock (and two additional classes of 1 million shares each, denominated “Class B Common Stock” and “Preferred Stock”, respectively) of which approximately 26.9 million shares of common stock were outstanding at December 31, ~~2021.~~2022. Pursuant to its stock option plans, at December 31, ~~2021,~~2022, the Company had outstanding options for ~~793~~854 thousand shares of common stock, of which ~~446~~508 thousand were currently exercisable. As of December 31, ~~2021, 967~~2022, 856 thousand shares of Company common stock remained available for grants under the Company’s equity incentive plans. Sales of substantial amounts of Company common stock in the public market could adversely affect the market price of its common stock.

The Company’s payment of dividends on common stock could be eliminated or reduced.

Holders of the Company’s common stock are entitled to receive dividends only when, as, and if declared by the Company’s Board of Directors. The Company’s ability to pay dividends is limited by banking and corporate laws, and depends, among other things, on the Company’s regulatory capital levels and earnings prospectus, as well as the Bank’s ability to pay cash dividends to the Company. Although the Company has historically paid cash dividends on the Company’s common stock, the Company is not required to do so and the Company’s Board of Directors could reduce or eliminate the Company’s common stock dividend in the future.

The Company could repurchase shares of its common stock at price levels considered excessive.

The Company repurchases and retires its common stock in accordance with Board of Directors-approved share repurchase programs. At December 31, ~~2021,~~2022, 1.75 million shares remained available to repurchase under such plans. The Company has been active in repurchasing and retiring shares of its common stock when alternative uses of excess capital, such as acquisitions, have been limited. The Company could repurchase shares of its common stock at price levels considered excessive, thereby spending more cash on such repurchases as deemed reasonable and effectively retiring fewer shares than would be retired if repurchases were effected at lower prices.

Risks Related to the Nature and Geographical Location of the Company’s Business

The Company invests in loans that contain inherent credit risks that may cause the Company to incur losses.

The risk that borrowers may not pay interest or repay their loans as agreed is an inherent risk of the banking business. The Company strives to mitigate this risk by adhering to sound and proven underwriting practices, managed by experienced and knowledgeable credit professionals. Nonetheless, the Company may incur losses on loans that meet its underwriting criteria, and these losses may exceed the amounts set aside as reserves. The Company can provide no assurance that the credit quality of the loan portfolio will not deteriorate in the future and that such deterioration will not adversely affect the Company or its results of operations.

The Company’s operations are concentrated geographically in California, and poor economic conditions may cause the Company to incur losses.

Substantially all of the Company’s business is located in California. A portion of the loan portfolio of the Company is dependent on real estate. At December 31, ~~2021,~~2022, real estate served as the principal source of collateral with respect to approximately ~~53%~~54% of the Company’s loan portfolio. The Company’s financial condition and operating results will be subject to changes in economic conditions in California. ~~The California economy was severely affected by the recessionary period of 2008 to 2009.~~ Much of the California real estate market ~~experienced~~could experience a decline in values of varying degrees. This decline ~~had~~could have an adverse impact on the business of some of the Company’s borrowers and on the value of the collateral for many of the Company’s loans. Generally, the counties surrounding and near San Francisco Bay ~~recovered~~could recover more soundly from the ~~recent~~ recession than counties in the California “Central Valley,” from Sacramento in the north to Bakersfield in the south, where ~~man~~many of the Bank’s customers are located . Approximately ~~20%~~22% of the Company’s loans were to borrowers in the California “Central Valley” as of December 31, ~~2021.~~2022. Economic conditions in California’s diverse geographic markets can be vastly different and are subject to various uncertainties, including the condition of the construction and real estate sectors, the effect of drought on the agricultural sector and its infrastructure, and the California state and municipal governments’ budgetary and fiscal conditions. The Company can provide no assurance that conditions in any sector or geographic market of the California economy will not deteriorate in the future and that such deterioration will not adversely affect the Company.

The markets in which the Company operates are subject to the risk of earthquakes, fires, storms and other natural disasters.

All of the properties of the Company are located in California. Also, most of the real and personal properties which currently secure a majority of the Company’s loans are located in California. Further, the Company invests in securities issued by companies and municipalities operating throughout the United States, and in mortgage-backed securities collateralized by real property located throughout the United States. California and other regions of the United States are prone to earthquakes, brush and wildfires, flooding, drought and other natural disasters. In addition to possibly sustaining uninsured damage to its own properties, if there is a major earthquake, flood, drought, fire or other natural disaster, the Company faces the risk that many of its debtors may experience uninsured property losses, or sustained business or employment interruption and/or loss which may materially impair their ability to meet the terms of their debt obligations. A major earthquake, flood, prolonged drought, fire or other natural disaster in California or other regions of the United States could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.

Adverse changes in general business or economic conditions, including inflation, could have a material adverse effect on the Company’s financial condition and results of operations.

A sustained or continuing weakness or weakening in business and economic conditions generally or specifically in the principal markets in which the Company does business could have one or more of the following adverse impacts on the Company’s business:

The 2008 - 2009 financial crisis led to the failure or merger of a number of financial institutions. Financial institution failures can result in further losses as a consequence of defaults on securities issued by them and defaults under contracts entered into with such entities as counterparties. The failure of institutions with FDIC insured deposits can cause the DIF reserve ratio to decline, resulting in increased deposit insurance assessments on surviving FDIC insured institutions. Weak economic conditions can significantly weaken the strength and liquidity of financial institutions.

The Company’s financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, is highly dependent upon the business environment in the markets where the Company operates, in the State of California and in the United States as a whole. A favorable business environment is generally characterized by, among other factors, economic growth, healthy labor markets, efficient capital markets, low inflation, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by: declines in economic growth, high rates of unemployment, deflation, pandemics, declines in business activity or consumer, investor or business confidence; limitations on the availability of or increases in the cost of credit and capital; increases in inflation; natural disasters; or a combination of these or other factors.

Such business conditions could adversely affect the credit quality of the Company’s loans, the demand for loans, loan volumes and related revenue, securities valuations, amounts of deposits, availability of funding, results of operations and financial condition.

Restrictions on dividends and other distributions could limit amounts payable to the Company.

As a holding company, a substantial portion of the Company’s cash flow typically comes from dividends paid by the Bank. Various statutory provisions restrict the amount of dividends the Company’s subsidiaries can pay to the Company without regulatory approval. A reduction in subsidiary dividends paid to the Company could limit the capacity of the Company to pay dividends. In addition, if any of the Company’s subsidiaries were to liquidate, that subsidiary’s creditors will be entitled to receive distributions from the assets of that subsidiary to satisfy their claims against it before the Company, as a holder of an equity interest in the subsidiary, will be entitled to receive any of the assets of the subsidiary.

Adverse effects of changes in banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect the Company.

The Company is subject to significant federal and state regulation and supervision, which is primarily for the benefit and protection of the Company’s customers and not for the benefit of investors. In the past, the Company’s business has been materially affected by these regulations.

Laws, regulations or policies, including accounting standards and interpretations currently affecting the Company and the Company’s subsidiaries, may change at any time. Regulatory authorities may also change their interpretation of these statutes and regulations. Therefore, the Company’s business may be adversely affected by any future changes in laws, regulations, policies or interpretations or regulatory approaches to compliance and enforcement including future acts of terrorism, major U.S. corporate bankruptcies and reports of accounting irregularities at U.S. public companies.

Additionally, the Company’s business is affected significantly by the fiscal and monetary policies of the federal government and its agencies. The Company is particularly affected by the policies of the FRB, which regulates the supply of money and credit in the United States of America. Among the instruments of monetary policy available to the FRB are (a) conducting open market operations in U.S. government securities, (b) changing the discount rates of borrowings by depository institutions, (c) changing interest rates paid on balances financial institutions deposit with the FRB, and (d) imposing or changing reserve requirements against certain borrowings by banks and their affiliates. These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. The policies of the FRB may have a material effect on the Company’s business, results of operations and financial condition. Under long- standing policy of the FRB, a BHC is expected to act as a source of financial strength for its subsidiary banks. As a result of that policy, the Company may be required to commit financial and other resources to its subsidiary bank in circumstances where the Company might not otherwise do so.

Federal and state governments could pass legislation detrimental to the Company’s performance.

As an example, the Company could experience higher credit losses because of federal or state legislation or regulatory action that reduces the amount the Bank's borrowers are otherwise contractually required to pay under existing loan contracts. Also, the Company could experience higher credit losses because of federal or state legislation or regulatory action that limits or delays the Bank's ability to foreclose on property or other collateral or makes foreclosure less economically feasible. Federal, state and local governments could pass tax legislation causing the Company to pay higher levels of taxes.

The FDIC insures deposits at insured financial institutions up to certain limits. The FDIC charges insured financial institutions premiums to maintain the Deposit Insurance Fund. The FDIC may increase premium assessments to maintain adequate funding of the Deposit Insurance Fund.

The behavior of depositors in regard to the level of FDIC insurance could cause the Bank’s existing customers to reduce the amount of deposits held at the Bank, and could cause new customers to open deposit accounts at the Bank. The level and composition of the Bank's deposit portfolio directly impacts the Bank's funding cost and net interest margin.

The accuracy of the Company’s judgments and estimates about financial and accounting matters will impact operating results and financial condition.

The discussion under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in this Report and the information referred to in that discussion is incorporated by reference in this paragraph. The Company makes certain estimates and judgments in preparing its financial statements. For example, the Company maintains a reserve for potential loan defaults and non-performance. There is no precise method of predicting loans losses and determining the adequacy of the reserve requires the Company’s management to make a number of estimates and judgments. If the estimates or judgments prove to be incorrect, the Company could be required to increase its provisions for credit losses, which could reduce its income or could cause it to incur operating losses in the future. The Company also uses models to estimate the effects of changing interest rates, which are based on estimates and assumptions that may prove to be inaccurate, particularly in times of market stress or unforeseen circumstances. Therefore, the quality and accuracy of management’s estimates and judgments will have an impact on the Company’s operating results and financial condition.

The Company’s information systems may experience an interruption or breach in security.

The Company relies heavily on communications and information systems, including those of third party vendors and other service providers, to conduct its business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Company’s data processing, accounting, customer relationship management and other systems. Communication and information systems failures can result from a variety of risks including, but not limited to, events that are wholly or partially out of the Company’s control, such as telecommunication line integrity, weather, terrorist acts, natural disasters, accidental disasters, unauthorized breaches of security systems, energy delivery systems, cyber attacks, and other events. Although the Company devotes significant resources to maintain and regularly upgrade its systems and processes that are designed to protect the security of the Company’s computer systems, software, networks and other technology assets and the confidentiality, integrity and availability of information belonging to the Company and its customers, there is no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately corrected by the Company or its vendors. The occurrence of any such failures, interruptions or security breaches could damage the Company’s reputation, result in a loss of customer business, subject the Company to additional regulatory scrutiny, or expose the Company to litigation and possible financial liability, any of which could have a material adverse effect on the Company’s financial condition and results of operations.

The Company’s controls and procedures may fail or be circumvented.

Management regularly reviews and updates the Company’s internal control over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures. The Company maintains controls and procedures to mitigate against risks such as processing system failures and errors, and customer or employee fraud, and maintains insurance coverage for certain of these risks. Any system of controls and procedures, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Events could occur which are not prevented or detected by the Company’s internal controls or are not insured against or are in excess of the Company’s insurance limits or insurance underwriters’ financial capacity. Any failure or circumvention of the Company’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company’s business, results of operations and financial condition.

Climate change and the transition to renewable energy and a net zero emissions economy pose operational, commercial and regulatory risks.

Climate change may increase the frequency or severity of extreme weather events, and if the Company is not adequately resilient to deal with acute climate events, its operations may be impacted. Extreme weather events could also impact the activities of its customers or third-party vendors. The physical commodities and assets underlying some of its markets or investments may also be impacted by climate change.

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

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

The Company monitors the climate risks of our loan customers. Borrowers with real estate loan collateral located in flood zones must carry flood insurance under the loans’ terms. The Company has $21 million in loans to agricultural borrowers; Management continuously monitors these customers’ access to adequate water sources as well as their ability to sustain low crop yields without encountering financial hardship. The Company makes automobile loans; changes in consumer demand, or governmental laws or policies, regarding gasoline, electric and hybrid vehicles is not considered a risk 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.

In addition, the transition to renewable energy and a net zero emissions economy involves changes to consumer and institutional preferences for energy consumption, and other products and services, and the possible failure of its services to facilitate the needs of customers during the transition to renewable energy and changes in customer preferences could adversely impact its business and revenues. Changing preferences could also have an adverse impact on the operations or financial condition of its customers, which could result in reduced revenues from those customers. The Company is also subject to risks relating to new or heightened climate change-related regulations or legislation, which could impact its customers.

The continuing effects of the COVID-19 pandemic and its impact are highly unpredictable and could be significant, and could harm the Company’s business, financial condition, and operating results.

The Company’s business, operations and financial performance have been, and may continue to be, affected by the macroeconomic impacts resulting from COVID-19, and the Company’s financial results in future periods may differ significantly from the Company’s historical results. The extent to which the Company’s business will continue to be affected will depend on a variety of factors, many of which are outside of the Company’s control, including the persistence of the pandemic, the actions of governmental authorities, changes in customer preferences, impacts on economic activity, and the possibility of recession or continued financial market instability.

If the Company loses the services of any of our key management personnel, its business could suffer.

Our future success significantly depends on the continued service and performance of our key management personnel. Our senior management team has significant industry experience and would be difficult to replace. In particular, David L. Payne, our Chairman, President and Chief Executive Officer, has led the Company for over 30 years. Competition for these employees is intense and we may not be able to attract and retain key personnel. If we are unable to attract or retain appropriately qualified personnel, we may not be successful in originating loans and servicing our customers, which could have a materially adverse effect on our business, financial condition and results of operations.

The Company competes with many banks and other traditional, non-traditional, brick and mortar and online financial service providers.

Competition among providers of financial services in markets, particularly within California, is intense. The Company competes with other financial and bank holding companies, state and national commercial banks, savings and loan associations, consumer finance companies, credit unions, securities brokerages, insurance companies, mortgage banking companies, money market mutual funds, asset-based non-bank lenders, government sponsored or subsidized lenders and other financial services providers. Many of these competitors have substantially greater financial resources, lending limits and technological resources than the Company and are able to offer a broader range of products and services. Many competitors offer lower interest rates and more liberal loan terms that appeal to borrowers but adversely affect net interest margin and assurance of repayment. The Company is increasingly faced with competition in many of its products and services by non-bank providers who may have competitive advantages of size, access to potential customers and fewer regulatory requirements, such as “fintech” lenders. Failure to compete effectively for deposit, loan and other banking customers in any of the lines of business could cause the Company to lose market share, slow or reverse growth rate or suffer adverse effects on financial condition, results of operations or profitability.

The Company’s success depends to a significant extent upon its ability to attract, develop and retain experienced personnel in each of its lines of business and markets including managers in operational areas, compliance and other support areas to build and maintain the infrastructure and controls required to support continuing growth. Competition for the best people in the industry can be intense, and there is no assurance that the Company will continue to attract or retain talent or develop personnel. Factors that affect its ability to attract, develop and retain key employees include compensation and benefits programs, profitability, ability to establish appropriate succession plans for key talent, reputation for rewarding and promoting qualified employees and market competition for employees with certain skills, including information systems development and security. The cost of employee compensation is a significant portion of operating expenses and can materially impact results of operations or profitability, especially during periods of wage inflation. The unanticipated loss of the services of key personnel could have an adverse effect on the business.

The Company is subject to environmental liability risk associated with lending activities

A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or ability to sell the affected property. Environmental reviews of real property before initiating foreclosure actions may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our business, financial condition and results of operations.

~~Westamerica~~The Bank is engaged in the banking business through 7877 branch offices in 21 counties in Northern and Central California. ~~WAB~~The Bank believes all of its offices are constructed and equipped to meet prescribed security requirements.

The Company owns 28 banking office locations and one centralized administrative service center facility and leases 55 facilities. Most of the leases contain renewal options and provisions for rental increases, principally for changes in the cost of living index, and for changes in other operating costs such as property taxes and maintenance.

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

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock is traded on the NASDAQ Stock Market (“NASDAQ”) under the symbol “WABC”. As of January 31, ~~2022,~~2023, there were approximately ~~5,000~~4,800 shareholders of record of the Company’s common stock.

The Company has paid cash dividends on its common stock in every quarter since its formation in 1972. See Item 8, Financial Statements and Supplementary Data, Note 19 to the consolidated financial statements for recent quarterly dividend information. It is currently the intention of the Board of Directors of the Company to continue payment of cash dividends on a quarterly basis. There is no assurance, however, that any dividends will be paid since they are dependent upon earnings, cash balances, financial condition and capital requirements of the Company and its subsidiaries as well as policies of the FRB pursuant to the BHCA. See Item 1, “Business - Supervision and Regulation.”

The notes to the consolidated financial statements included in this Report contain additional information regarding the Company’s capital levels, capital structure, regulations affecting subsidiary bank dividends paid to the Company, the Company’s earnings, financial condition and cash flows, and cash dividends declared and paid on common stock.

The following chart compares the cumulative return on the Company’s stock during the ten years ended December 31, ~~2021~~2022 with the cumulative return on the S&P 500 composite stock index and NASDAQ’S Bank Index. The comparison assumes $100 invested in each on December 31, ~~2011~~2012 and reinvestment of all dividends.

The following chart compares the cumulative return on the Company’s stock during the five years ended December 31, ~~2021~~2022 with the cumulative return on the S&P 500 composite stock index and NASDAQ’S Bank Index. The comparison assumes $100 invested in each on December 31, ~~2016~~2017 and reinvestment of all dividends.

The table below sets forth the information with respect to purchases made by or on behalf of Westamerica Bancorporation or any “affiliated purchaser”, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of common stock during the quarter ended December 31, ~~2021~~2022 (in thousands, except per share data).

The Company repurchases shares of its common stock in the open market to optimize the Company’s use of equity capital and enhance shareholder value and with the intention of lessening the dilutive impact of issuing new shares under stock option plans, and other ongoing requirements. No shares were repurchased during the period from October 1, ~~2021~~2022 through December 31, ~~2021.~~2022. The current repurchase program was approved by the Board of Directors on July ~~22, 2021~~28, 2022 authorizing the purchase of up to 1,750 thousand shares of the Company’s common stock from time to time prior to September 1, ~~2022.~~2023.

The following financial information for the five years ended December 31, 2021 has been derived from the Company’s audited consolidated financial statements. This information should be read in conjunction with those statements, notes and other information included elsewhere herein.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following financial information for the five years ended December 31, 2022 has been derived from the Company’s audited consolidated financial statements. This information should be read in conjunction with those statements, notes and other information included elsewhere herein.

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

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

The following discussion addresses information pertaining to the financial condition and results of operations of Westamerica Bancorporation and subsidiaries (the “Company”) that may not be otherwise apparent from a review of the consolidated financial statements and related footnotes. It should be read in conjunction with those statements and notes found on pages 51 through 90, as well as with the other information presented throughout this Report.

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the banking industry. Application of these principles requires the Company to make certain estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain accounting policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment writedown or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available.

The most significant accounting policies followed by the Company are presented in Note 1 to the consolidated financial statements. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, Management has identified the allowance for credit losses on loans accounting to be a critical accounting estimate. The accounting for the ~~accounting area requiring~~allowance for credit losses on loans requires the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available. AThe methodology, significant inputs and assumptions for the allowance for credit losses on loans are discussed in the section “Allowance for Credit Losses on Loans” below. Additional discussion of the factors affecting accounting for the allowance for credit losses ~~and purchased~~on loans is included in the “Loan Portfolio Credit Risk” discussion below. ~~Certain amounts~~The Company’s allowance for credit losses on loans is established to provide for expected losses based on the available estimates at that point in ~~prior periods have been reclassified to conform to current presentation.~~time. Changes in economic conditions could significantly impact the estimated losses and could materially affect the Company’s operating results.

Westamerica Bancorporation and subsidiaries’ (collectively, the “Company”) reported net income of ~~$86.5~~$122.0 million or ~~$3.22~~$4.54 diluted earnings per common share (“EPS”) in 2022 compared with net income of $86.5 million or $3.22 EPS in 2021 ~~compared with~~and net income of $80.4 million or $2.98 ~~diluted earnings per common share~~EPS in 2020. 2022 results included a $1.2 million reconciling payment from a payments network and a $930 thousand life insurance gain equivalent to combined EPS of $0.07. 2021 results included “make-whole” interest income on corporate bonds redeemed prior to maturity of $2.8 million. 2020 results included a provision for credit losses of $4.3 million, which reduced EPS $0.11, representing Management’s estimate of additional reserves needed over the remaining life of its loans due to increased credit-risk from deteriorating economic conditions caused by the COVID-19 pandemic, and $3. 5 million gain on sales of a closed branch ~~building~~building.

The Company’s primary and wholly-owned subsidiary, Westamerica Bank (the “Bank”), continued to support its customers during the pandemic. The Bank originated $106 million in loans under the second round of the Paycheck Protection Program (“PPP”) during the first six months of 2021. PPP loans meaningfully increased interest-earning assets and related interest and fee income. The Bank continues to work with loan customers who requested deferral of loan payments due to economic weakness caused by the pandemic. At December 31, 2021, loans granted deferrals under the CARES Act included $84 thousand, all of which were consumer automobile loans.

In response to the ~~pandemic, the Federal Reserve has engaged significant~~high levels of ~~monetary policy to provide liquidity and credit facilities to the financial markets. On March 15, 2020,~~inflation during a period of tight employment conditions, the Federal Open Market Committee of the Federal Reserve Board (“FOMC”) has tightened monetary policy through reduced bond purchases and increases to the overnight federal funds interest rate. The FOMC started to increase the target federal funds rate in March 2022. A February 1, 2023 Federal Reserve press release stated, “Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation has eased somewhat but remains elevated. Russia’s war against Ukraine is causing tremendous human and economic hardship and is contributing to elevated global uncertainty. The Committee is highly attentive to inflation risks…The Committee anticipates that ongoing increases in the target range ~~for~~will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.” On February 1, 2023, the FOMC announced its decision to increase the target federal funds ~~rate~~ranging from 4.50% to ~~0 to 0.25 percent; relatedly, the FOMC reduced~~4.75% and the interest rate paid on ~~deposit balances to 0.10 percent effective March 16, 2020. Effective June 17, 2021, FOMC increased the interest rate paid on excess~~ reserve balances to ~~0.15%.~~4.65% effective February 2, 2023. The Bank maintains deposit balances at the Federal Reserve Bank; the amount that earns interest is identified ~~in the Company’s financial statements~~ as “interest-bearing cash”.

Management continues to evaluate the impacts of inflation, the Federal Reserve’s monetary policy, climate changes, the COVID-19 pandemic and the tensions in Ukraine on the Company’s business and its customers. The extent of the spread of the coronavirus and its ultimate containment are uncertain at this time. The effectiveness of the Federal Reserve Bank’s monetary policies and the federal government’s fiscal policies in stimulating the United States economy is uncertain at this time. Management expects the Company’s net interest margin and non-interest income to decline and credit-related losses to increase for an uncertain period given the decline in economic activity occurring due to the coronavirus. The amount of impact on the Company’s results of operations, cash flow liquidity, and financial ~~results is uncertain.~~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 ~~a relatively large portion of~~ municipal loans and securities that are federally tax exempt. The Company’s tax exempt loans and securities composition may not be similar to that of other banks, therefore in order to reflect the impact of the federally tax exempt loans and securities on the net interest margin and net interest income for comparability with other banks, the Company presents its net interest margin and net interest income on an FTE basis.

The Company’s significant accounting policies (see Note 1 “Summary of Significant Accounting Policies” to the Consolidated Financial Statements below) are fundamental to understanding the Company’s results of operations and financial condition. The Company adopted the following new accounting guidance:

FASB Accounting Standards Update (“~~ASU~~”(“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, was issued December 2019. The ASU is intended to simplify various aspects related to accounting for income taxes, eliminates certain exceptions to the general principles in ASC Topic 740 related to intra-period tax allocation, simplifies when companies recognize deferred taxes in an interim period, and clarifies certain aspects of the current guidance to promote consistent application. This guidance effective for public entities for fiscal years beginning after December 15, 2020, and for interim period within those fiscal years, with early adoption permitted. The Company adopted the ASU provisions on January 1, 2021 and the adoption of the ASU provisions did not have a significant impact on the Company’s consolidated financial statements.

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

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

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

Net income for 2022 increased $35.5 million compared with 2021. Net interest and loan fee income (FTE) increased $47.6 million in 2022 compared with 2021 due to higher average balances of investment debt securities and higher yield on interest-earning assets, partially offset by lower average balances of loans. The provision for credit losses was zero for 2022 and 2021, reflecting Management's estimate of credit losses over the remaining life of its loans and investment debt securities. Noninterest income in 2022 increased $1.8 million compared with 2021 primarily due to a $1.2 million reconciling payment from a payments network, a $930 thousand life insurance gain and higher fee income on deposit accounts. The increases in 2022 compared 2021 was partially offset by decreases in merchant processing service income and other noninterest income. Noninterest expense in 2022 increased $1.6 million compared with 2021. Limited partnership operating losses increased $3.1 million due to higher estimated operating losses on limited partnership investments in low-income housing and occupancy and equipment expense increased primarily due to software upgrades. The increase in 2022 compared with 2021 was partially offset by a decrease in salaries and related benefits resulting from attrition and lower professional fees. The effective tax rates (FTE) were 27.2% in 2022 compared with 27.7% in 2021.

Comparing 2021 with 2020, net income increased $6.1 million. Net interest and loan fee (FTE) income increased $6.5 million due to higher average balances of investments, higher average balances of interest-bearing cash and higher yield on PPP loans, partially offset by lower yield on investments, interest-earning cash and loans excluding PPP loans. Results for 2021 included “make-whole” interest income on corporate bonds redeemed prior to maturity of $2.8 million. The Company provided no provision for credit losses in 2021, reflecting Management's evaluation of credit risk over the remaining life of loans and bonds. Results for 2020 included a provision of credit losses of $4.3 million, representing Management’s estimate of additional reserves needed over the remaining life of its loans due to credit-risk from economic weakness caused by the COVID-19 pandemic. Noninterest income decreased $2.3 million in 2021 compared with 2020 primarily because 2020 included $3.5 million in gains on sales of a closed branch building and a $603 thousand recovery on previously charged off loans. Fee income from merchant card processing, debit cards and trust accounts increased in 2021 compared with 2020. In 2021 noninterest expense decreased $760 thousand compared with 2020 due to lower salaries and related benefits, partially offset by higher professional fees and other noninterest expense. The tax rate (FTE) was 27.7% for 2021 and 27.2% for 2020.

Net income remained at the same level in 2020 and 2019. Net interest and loan fee (FTE) income increased $6.3 million due to higher average balances of investments and average balances of $151 million of PPP loans, partially offset by lower yield on interest-bearing earning assets and lower average balances of other loans. Results for 2020 include a provision of credit losses of $4.3 million, representing Management estimate of additional reserves needed over the remaining life of its loans due to credit-risk from economic weakness caused by the COVID-19 pandemic. Noninterest income decreased $1.8 million compared with 2019 due to lower income from activity based fees due to reduced economic activity related to the COVID-19 pandemic. Additionally, the results for 2019 included a life insurance gain of $433 thousand. The decrease in noninterest income from 2019 to 2020 was partially offset by $3.5 million in gains on sales of a closed branch building in 2020. In 2020 noninterest expense decreased $420 thousand compared with 2019 due to lower salaries, occupancy and equipment expenses, and lower amortization of intangible assets, and because the results for 2019 included $553 thousand of loss contingency. The decrease was partially offset by higher FDIC assessments (included in “other noninterest expense”) in 2020 because FDIC assessments in 2019 were reduced by application of the Bank’s FDIC assessment credit described in Part 1, Item 1, “Premiums for Deposit Insurance and FDIC Regulation”. The effective tax rate (FTE) was 27.2% for 2020 compared with 26.8% for 2019.

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.

Net interest and loan fee income (FTE) increased $47.6 million in 2022 compared with 2021 due to higher average balances of investment securities (up $723 million) and higher yield on interest-earning assets (up 0.55%), partially offset by lower average balances of loans (down $197 million).

Net interest and loan fee income (FTE) increased $6.5 million in 2021 compared with 2020 due to higher average balances of investments (up $431 million), higher average balances of interest-bearing cash (up $486 million) and higher yield on PPP loans (up 0.71%), partially offset by lower yield on investments (down 0.20%), interest-earning cash (down 0.18%) and loans excluding PPP loans. Results for 2021 included “make-whole” interest income on corporate bonds redeemed prior to maturity of $2.8 million.

Net interest and loan fee income (FTE) increased $6.3 million in 2020 compared with 2019 due to higher average balances of investments (up $445 million) and average balances of $151 million of PPP loans, partially offset by lower yield on interest-bearing earning assets (down 0.20%) and lower average balances of other loans (down $74 million).

The net interest margin (FTE) was 3.17% in 2022, 2.62% in 2021 and 2.91% in ~~2020 and 3.11% in 2019.~~2020. The yield on earning assets (FTE) was 3.20% in 2022, 2.65% in 2021 and 2.94% in ~~2020 and 3.14% in 2019.~~2020. Market interest rates ~~declined~~increased in ~~2020~~2022 compared with ~~2019. Additionally, interest-bearing cash balances, which carry lower yield than loans~~2021 and ~~investments, made up a higher percentage of total earning assets in 2021 than in prior periods. (12.9% in 2021 compared with 6.4% in 2020 and 6.3% in 2019).~~2020.

The Company’s funding costs were 0.03% in 2022, 2021 ~~2020~~ and ~~2019.~~2020. Average balances of time deposits in ~~2021~~2022 declined ~~$11~~$13 million from ~~2020. Average~~2021 while average balances of ~~lower-cost~~ checking and savings deposits grew ~~16%~~6% from ~~2020~~2021 to ~~2021.~~2022. Average balances of checking and saving deposits accounted for ~~97.5%~~97.8% of average total deposits in ~~2021~~2022 compared with 97.5% in 2021 and 96.9% in ~~2020 and 96.2% in 2019.~~2020.

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

[The ~~remainder~~increase in the Company’s yield on earning assets has been generated primarily by collateralized loan obligations (CLOs), held in debt securities available for sale portfolio, and interest-bearing cash. The CLOs have interest coupons that change once every three months by the amount of ~~this page intentionally left blank]~~

change in the three-month LIBOR and SOFR base rates. The average balances and yields of CLOs for 2022 and 2021 was $1,567 million yielding 3.62% and $1,177 million yielding 2.02%, 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 and yields of interest-bearing cash for 2022 and 2021 was $691 million yielding 1.13% and $857 million yielding 0.13%, 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 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 reversal of previously accrued interest on loans placed on non-accrual status during the period and proceeds from loans on nonaccrual status only to the extent cash payments have been received and applied as interest income and accretion of purchased loan discounts. Yields 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

⁽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.

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

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

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.

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

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

The Company provided no provision for credit losses in 2022 and 2021 based on Management’s estimate of reserves needed over the remaining life of its loans and investments. The Company provided a provision for credit losses of $4.3 million recorded in 2020. The 2020 provision represented Management’s estimate of additional reserves needed over the remaining life of its loans and investments due to credit-risk from weakened economic conditions caused by the COVID-19 pandemic. The Company provided no provision for loan losses in 2019 based on Management’s evaluation of credit quality, the level of the provision for loan losses in 2019, and the adequacy of the allowance for loan losses at December 31, 2019. For further information regarding credit risk, net credit losses and the allowance for credit losses, see the “Loan Portfolio Credit Risk” and “Allowance for Credit Losses” sections of this Report.

Noninterest income in 2022 increased $1.8 million compared with 2021 primarily due to a $1.2 million reconciling payment from a payments network, a $930 thousand life insurance gain and higher fee income on deposit accounts. Higher fee income deposit accounts in 2022 compared with 2021 was primarily attributable to increased fee income from overdrawn deposit accounts. The increases in 2022 compared 2021 was partially offset by decreases in merchant processing service income and other noninterest income.

In 2021, noninterest income decreased $2.3 million compared with 2020 primarily because 2020 results included a $3.5 million gain on the sale of a closed branch building, a $603 thousand recovery in excess of previously charged off loan amounts, and higher service charges on deposit accounts. Decreases in 2021 results, compared with 2020, were partially offset by higher transaction volumes from merchant processing services and debit cards, and increases in trust fees.

In 2020, noninterest income decreased $1.8 million compared with 2019 due to lower income from activity based fees due to reduced economic activity related to the COVID-19 pandemic. Additionally, the results for 2019 included a life insurance gain of $433 thousand. The decrease was partially offset by a $3.5 million gain on the sale of a closed branch building in 2020.

Noninterest expense in 2022 increased $1.6 million compared with 2021. Limited partnership operating losses increased $3.1 million due to higher estimated operating losses on limited partnership investments in low-income housing. Occupancy and equipment expense in 2022 increased primarily due to computer software upgrades. The increase in 2022 compared with 2021 was partially offset by a decrease in salaries and related benefits resulting from attrition. Professional fees decreased in 2022 compared with 2021 due to lower legal fees.

In 2021, noninterest expense decreased $760 thousand compared with 2020. The decrease in salaries and related benefits in 2021 compared with 2020 was attributable to attrition. Occupancy and equipment expenses decreased due to lower depreciation expense. These decreases were partially offset by higher professional fees and other noninterest expense.

In 2020, noninterest expense decreased $420 thousand compared with 2019 due to lower salaries, occupancy and equipment expenses, and lower amortization of intangible assets, and because the results for 2019 included $553 thousand of loss contingency. The decrease was partially offset by higher FDIC assessments (included in “other noninterest expense”) in 2020 because FDIC assessments in 2019 were reduced by application of the Bank’s FDIC assessment credit described in Part 1, Item 1, “Premiums for Deposit Insurance and FDIC Regulation”.

The Company’s income tax provision (FTE) was $45.5 million in 2022 compared with $33.2 million in 2021 ~~compared with~~and $30.0 million in ~~2020 and $29.4 million in 2019.~~2020. The effective tax rates (FTE) were 27.2% in 2022 compared with 27.7% in 2021 ~~compared with~~and 27.2% in ~~2020 and 26.8% in 2019.~~

~~The higher effective tax rates (FTE) in 2021 and 2020 compared with 2019 are due~~2020. See Note 10 to ~~lower levels of tax-exempt interest income and stock compensation tax deductions in 2020. The tax provisions (FTE)~~the consolidated financial statements for 2021, 2020 and 2019 include tax benefits of $-0- thousand, $87 thousand and $435 thousand, respectively, for tax deductions from the exercise of employee stock options which exceed related compensation expenses recognized in the financial statements. In 2019, the Company decreased unrecognized tax benefits by $909 thousandadditional information related to ~~settlements with taxing authorities. The settlements incorporated amended tax returns for which the Company had recognized a deferred tax asset in the amount of $1,003 thousand.~~income taxes.

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

Management ~~managed~~manages the investment securities portfolio in response to anticipated changes in interest rates, and changes in deposit and loan volumes. The carrying value of the Company’s investment securities portfolio was $5.2 billion at December 31, 2022 and $4.9 billion at December 31, ~~2021 and $4.6 billion at December 31, 2020.~~2021. The following table lists debt securities in the Company’s portfolio by type as of the indicated dates. ~~The Company adopted ASU 2016-13 effective January 1, 2020.~~ Debt securities held to maturity ~~of $306,403 thousand at December 31, 2021 and $515,598 thousand at December 31, 2020,~~ are listed at amortized cost before related reserve for expected credit losses of $1 thousand at December 31, 2022 and $7 thousand ~~and $9 thousand, respectively.~~at December 31, 2021. Debt securities available for sale are listed at fair value.

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 December 31, ~~2021,~~2022, 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. ~~There have been no significant differences in the Company’s internal analyses compared with the ratings assigned by the third party credit rating agencies.~~

The Company had no marketable equity securities at December 31, ~~2021, December 31, 2020~~2022 and December 31, 2019. All of the marketable equity securities were sold with no gains or losses from the sale during the third quarter 2019. The market value of the marketable equity securities was $1,747 thousand at December 31, 2018. The Company recognized gross unrealized holding gains of $50 thousand in earnings in 2019.2021.

The following table shows the fair value carrying amount of the Company’s equity securities and debt securities available for sale as of the dates indicated:

The following table sets forth the relative maturities and contractual yields of the Company’s debt securities available for sale (stated at fair value) at December 31, ~~2021.~~2022. Yields on state and political subdivision securities have been calculated on a fully taxable equivalent basis using the current federal statutory rate. Mortgage-backed securities are shown separately because they are typically paid in monthly installments over a number of years.

The following table shows the amortized cost carrying amount and fair value before related reserve for expected credit losses of $1 thousand at December 31, 2022 and $7 thousand at December 31, 2021 and $9 thousand at December 31, 2020, of the Company’s debt securities held to maturity as of the dates indicated:

The following table sets forth the relative maturities and contractual yields of the Company’s debt securities held to maturity at December 31, ~~2021.~~2022. Yields on state and political subdivision securities have been calculated on a fully taxable equivalent basis using the current federal statutory rate. Mortgage-backed securities are shown separately because they are typically paid in monthly installments over a number of years.

[The ~~Company’s below investment grade corporate bond with a balance~~remainder of ~~$14.96 million at December 31, 2020 paid off in full at maturity in July 2021.~~this page intentionally left blank]

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

The following table summarizes total ~~consumer, cyclical~~corporate securities by ~~sub-sector:~~the location of the issuers’ headquarters; all the bonds are denominated in United States dollars:

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

The Company’s $20.5 million (fair value) in corporate bonds to issuers operating in the consumer cyclical – restaurant subsector represent bonds of one company which retails, roasts and provides its own brand of specialty coffee and other complementary products through retail locations worldwide and sells coffee through several distribution channels. The bonds mature in 2023. At December 31, 2021, the bonds were rated BBB and priced with an unrealized gain of $480 thousand.

The $98.7 million (fair value) in corporate bonds in the energy sector are issued by 4 issuers at December 31, 2021. The $217.1 million (fair value) in corporate bonds in the industrial sector are issued by 10 issuers at December 31, 2021.

~~The Company’s $1.4~~$1.6 billion (fair value) in collateralized loan obligations at December 31, ~~2021,~~2022, consist of investments in ~~157~~169 issues that are within the senior tranches of their respective fund securitization structures. ~~All of the Company’s~~The following table summarizes total collateralized loan ~~obligation investments are rated AAA or AA at December 31, 2021.~~obligations by credit rating:

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

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

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

At December 31, ~~2020, the Company’s investment securities portfolios included securities issued by 317 state~~2022 and ~~local government municipalities and agencies located within 40 states. The largest exposure to any one municipality or agency was $8.2 million (fair value) represented by six general obligation bonds.~~

At December 31, 2021, ~~and December 31, 2020,~~ the revenue bonds in the Company’s investment securities portfolios were issued by state and local government municipalities and agencies to fund public services such as water utility, sewer utility, recreational and school facilities, and general public and economic improvements. The revenue bonds were payable from 11 revenue sources at December 31, 2022 and 14 revenue sources at December 31, ~~2021 and 19 revenue sources at December 31, 2020.~~2021. The revenue sources that represent 5% or more individually of the total revenue bonds are summarized in the following tables.

See Note 2 to the consolidated financial statements for additional information related to the investment securities.

The Company originates loans with the intent to hold such assets until principal is repaid. Management follows written loan underwriting policies and procedures which are approved by the Bank’s Board of Directors. Loans are underwritten following approved underwriting standards and lending authorities within a formalized organizational structure. The Board of Directors also approves independent real estate appraisers to be used in obtaining estimated values for real property serving as loan collateral. Prevailing economic trends and conditions are also taken into consideration in loan underwriting practices.

All loan applications must be for clearly defined legitimate purposes with a determinable primary source of repayment, and as appropriate, secondary sources of repayment. All loans are supported by appropriate documentation such as current financial statements, tax returns, credit reports, collateral information, guarantor asset verification, title reports, appraisals, and other relevant documentation.

During 2020 and the first six months of 2021, the Bank processed customer PPP loan applications as established by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The United States Small Business Administration guarantees PPP loans; given this guarantee, the PPP loans are not considered to have default risk. PPP loans, net of deferred fees and costs, were $586 thousand at December 31, 2022 and $46 million at December 31, ~~2021 and $187 million at December 31, 2020.~~2021.

Commercial loans represent term loans used to acquire durable business assets or revolving lines of credit used to finance working capital. Underwriting practices evaluate each borrower’s cash flow as the principal source of loan repayment. Commercial loans are generally secured by the borrower’s business assets as a secondary source of repayment. Commercial loans are evaluated for credit-worthiness based on prior loan performance and borrower financial information including cash flow, borrower net worth and aggregate debt. PPP loans are included in commercial loans.

Commercial real estate loans represent term loans used to acquire or refinance real estate to be operated by the borrower in a commercial capacity. Underwriting practices evaluate each borrower’s global cash flow as the principal source of loan repayment, independent appraisal of value of the property, and other relevant factors. Commercial real estate loans are generally secured by a first lien on the property as a secondary source of repayment.

Real estate construction loans represent the financing of real estate development. Loan principal disbursements are controlled through the use of project budgets, and disbursements are approved based on construction progress, which is validated by project site inspections. A first lien on the real estate serves as collateral to secure the loan.

Residential real estate loans generally represent first lien mortgages used by the borrower to purchase or refinance a principal residence. For interest-rate risk purposes, the Company offers only fully-amortizing, adjustable-rate mortgages. In underwriting first lien mortgages, the Company evaluates each borrower’s ability to repay the loan, an independent appraisal of the value of the property, and other relevant factors. The Company does not offer riskier mortgage products, such as non-amortizing “interest-only” mortgages and “negative amortization” mortgages.

For loans secured by real estate, the Bank requires title insurance to insure the status of its lien and each borrower is obligated to insure the real estate collateral, naming the Company as loss payee, in an amount sufficient to repay the principal amount outstanding in the event of a property casualty loss.

Consumer installment and other loans are predominantly comprised of indirect automobile loans with underwriting based on credit history and scores, personal income, debt service capacity, and collateral values.

Loan volumes have declined due to payoffs and problem loan workout activities, particularly with purchased loans, and reduced volumes of loan originations. The Company did not take an aggressive posture relative to loan portfolio growth during the post-recession period of historically low interest rates. Management increased investment securities as loan volumes declined.

The following table shows the composition of the loan portfolio of the Company by type of loan and type of borrower, on the dates indicated:

The following table shows the maturity distribution and interest rate sensitivity of loans at December 31, ~~2021.~~2022. There were no loans with a remaining maturity of over fifteen years as of December 31, ~~2021.~~2022.

The Company issues formal commitments on lines of credit to well-established and financially responsible commercial enterprises. Such commitments can be either secured or unsecured and are typically in the form of revolving lines of credit for seasonal working capital needs. Occasionally, such commitments are in the form of letters of credit to facilitate the customers’ particular business transactions. Commitment fees are generally charged for commitments and letters of credit. Commitments on lines of credit and letters of credit typically mature within one year. For further information, see the accompanying notes to the consolidated financial statements.

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

During 2020 and the first six months of 2021, the Bank processed customer PPP loan applications pursuant to the CARES Act. The United States Small Business Administration guarantees PPP loans; given this guarantee, the PPP loans are not considered to have default risk and do not carry an allowance for credit losses. The outstanding balances of PPP loans, net of deferred fees and costs, were ~~$46 million~~$586 thousand at December 31, ~~2021.~~

On April 7, 2020, the U.S. banking agencies issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised). The statement describes accounting for COVID-19-related loan modifications, including clarifying the interaction between current accounting rules and the temporary relief provided by the CARES Act. The Bank has been actively working with consumer and commercial borrowers requesting deferral of loan payments, granting deferrals of principal and interest payments for 90 days. At December 31, 2021, loans granted loan deferrals totaled $84 thousand, all of which were consumer automobile loans.2022.

The preparation of the financial statements requires Management to estimate the amount of expected losses in the loan portfolio and establish an allowance for credit losses. The allowance for credit losses is maintained by assessing or reversing a provision for credit losses through the Company’s earnings. In estimating credit losses, Management must exercise judgment in evaluating information deemed relevant, such as financial information regarding individual borrowers, overall loss experience, the amount of past due, nonperforming and classified loans, recommendations of regulatory authorities, prevailing economic conditions and other information. The amount of ultimate losses on the loan portfolio can vary from the estimated amounts. Management follows a systematic methodology to estimate loss potential in an effort to reduce the differences between estimated and actual losses.

The Company closely monitors the markets in which it conducts its lending operations and follows a strategy to control exposure to loans with high credit risk. The Bank’s organization 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:

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”).

At December 31, ~~2021,~~2022, nonaccrual loans consisted of ~~five~~six loans with an average carrying value of ~~$138~~$24 thousand.

Management believes the overall credit quality of the loan portfolio is reasonably stable; however, classified and nonperforming assets could fluctuate from period to period. The performance of any individual loan can be affected by external factors such as the interest rate environment, economic conditions, pandemics, and collateral values or factors particular to the borrower. No assurance can be given that additional increases in nonaccrual and delinquent loans will not occur in the future.

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

Management segmented debt securities held to maturity, selected methods to estimate losses for each segment, and measured a loss estimate. Agency mortgage-backed securities were assigned no credit loss allowance due to the perceived backing of government sponsored entities. Corporate securities held to maturity were individually evaluated for expected credit loss by evaluating the issuer’s financial condition, profitability, cash flows, and credit ratings. At December 31, 2022, no credit loss allowance was assigned to corporate securities held to maturity. Municipal securities were evaluated for risk of default based on credit rating and remaining term to maturity using Moody’s risk of default factors; Moody’s loss upon default factors were applied to the assumed defaulted principal amounts to estimate the amount for credit loss allowance. ~~The adoption of the ASU resulted in establishment of allowance~~Allowance for credit losses related to debt securities held to maturity ~~of $16 thousand. It~~ was ~~reduced~~$1 thousand credit loss related to municipal securities at December 31, 2022 and $7 thousand at December 31, 2021, ~~and $9 thousand at December 31, 2020 to reflect~~reflecting the expected credit losses on debt securities held to maturity.

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

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

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

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

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

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

The following table summarizes the allowance for credit losses, chargeoffs and recoveries for the periods indicated. The allowance for loan losses for ~~2017,~~ 2018 and 2019 is shown under legacy GAAP.

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

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 is primarily determined by loan, borrower, or collateral type. Historical loss rates are determined for each pool. Loans that do not share risk characteristics with other loans in the pools are evaluated individually. See Note 1 to the consolidated financial statements for additional information.

The following table presents the allocation of the allowance for credit losses as of December 31 for the periods indicated. The allowance for loan losses for ~~2017,~~ 2018 and 2019 is shown under legacy GAAP.

Management considers the ~~$23.5~~$20.3 million allowance for credit losses on loans to be adequate as a reserve against current expected credit losses in the loan portfolio as of December 31, ~~2021.~~2022.

See Note 3 to the consolidated financial statements for additional information related to the loan portfolio, loan portfolio credit risk, and allowance for credit losses.

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.

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, financial losses could occur in the future.

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 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 ~~loans, investment securities, and~~ deposits and the level of interest rates earned on loans and investment securities and paid for deposits and other borrowings. The nature and impact of future changes in monetary policies are generally not predictable.

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

Management monitors the Company’s interest rate risk using a purchased simulation model, which is periodically ~~validated~~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 ~~both~~ a ~~static and~~ dynamic composition simulation and static simulation. Within the dynamic composition simulation, Management makes assumptions regarding the expected change in the volume of financial ~~instruments.~~instruments given the assumed change in market interest rates. Within the static ~~composition~~ simulation, cash flows are assumed redeployed into like financial instruments at prevailing rates and yields, except cash flows from PPP loans are reinvested into interest-bearing cash. ~~Within the dynamic composition simulation, Management makes assumptions regarding the expected change in the volume of financial instruments given the assumed change in market interest rates.~~ Both simulations are used to measure expected changes in net interest income assuming various levels of change in market interest rates.

The Company’s asset and liability position was ~~slightly~~ “asset sensitive” at December 31, ~~2021, depending~~2022, based on the interest rate assumptions applied to ~~each~~the simulation model. An “asset sensitive” position results in a ~~slightly~~ larger change in interest income than in interest expense resulting from application of assumed interest rate changes.

At December 31, ~~2021,~~2022, Management’s most recent measurements of estimated changes in net interest income were:

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.

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 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.

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 selling debt securities available-for-sale or borrowing in the wholesale markets.

In recent years, the Bank's deposit base has provided the majority of the Bank's funding requirements. This relatively stable and low-cost source of funds, along with shareholders' equity, provided 97% of funding for average total assets in the ~~year~~years ended December 31, ~~2021~~2022 and December 31, ~~2020.~~2021. The stability of the Bank’s funding from customer deposits is in part reliant on the confidence clients have in the Bank. The Bank places a very high priority in maintaining this confidence through conservative credit and capital management practices and by maintaining an appropriate level of liquidity.

Liquidity is further provided by assets such as balances held at the Federal Reserve Bank, investment securities, and amortizing loans. The Bank's investment securities portfolio provides a substantial secondary source of liquidity. The Bank held ~~$4.9~~$5.2 billion in total investment securities at December 31, ~~2021.~~2022. Under certain deposit, borrowing and other arrangements, the Bank must hold and pledge investment securities as collateral. At December 31, ~~2021,~~2022, such collateral requirements totaled approximately ~~$1.0~~$1.2 billion.

~~The Bank funded $249~~ At December 31, 2022, the Company had lines of credit for overnight borrowings from corresponding banks totaling $100 million. Additionally, the Company had access to borrowing from the Federal Reserve up to $225 million ~~in PPP loans in~~based on the ~~second quarter 2020 and $106 million in the first six months of 2021 by crediting loan proceeds to the borrower’s deposit accounts. PPP loans, net of deferred fees and costs, were $46 million~~collateral pledged at December 31, ~~2021. The Federal Reserve Board established~~2022. There were no outstanding amounts under the Paycheck Protection Program Liquidity Facility (“PPPLF”) to provide funding for eligible firms extending PPP loans. Under the PPPLF, the Bank must pledge PPP loans as collateral for PPPLF borrowings. Principal reductions on the pledged PPP loans must immediately result in principal reduction of the PPPLF borrowing. The Bank had no PPPLFabove-mentioned borrowings at December 31, ~~2021.~~2022.

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 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 Federal Reserve Bank reserve requirements, and investment securities based on regulatory risk-weighting guidelines. Based on the results of the most recent liquidity stress test, Management is satisfied with the liquidity condition of the Bank. However, no assurance can be given the Bank will not experience a period of reduced liquidity.

Management continually monitors the Bank’s cash levels. Loan demand from credit worthy borrowers will be dictated by economic and competitive conditions. The Bank aggressively solicits non-interest bearing demand deposits and money market checking deposits, which are the least sensitive to changes in interest rates. The growth of these deposit balances is subject to heightened competition, the success of the Bank's sales efforts, delivery of superior customer service, new regulations and market conditions. The Bank does not aggressively solicit higher-costing time deposits. Changes in interest rates, most notably rising interest rates or increased consumer spending, could impact deposit volumes. Depending on economic conditions, interest rate levels, liquidity management and a variety of other conditions, deposit growth may be used to fund loans or purchase investment securities. However, due to possible volatility in economic conditions, competition and political uncertainty, loan demand and levels of customer deposits are not certain. Shareholder dividends are expected to continue subject to the Board's discretion and continuing evaluation of capital levels, earnings, asset quality and other factors.

Westamerica Bancorporation ("Parent Company") is a separate entity apart from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Parent Company is responsible for the payment of dividends declared for its shareholders, and interest and principal on any outstanding debt. The Parent Company currently has no debt. Substantially all of the Parent Company's revenues are obtained from subsidiary dividends and service fees.

The Bank’s dividends paid to the Parent Company, proceeds from the exercise of stock options, and Parent Company cash balances provided adequate cash for the Parent Company to pay shareholder dividends of $45 million in the year ended December 31, 2022 and $44 million ~~each~~ in the year ended December 31, 2021 and ~~December 31, 2020 and~~ retire common stock in the amounts of ~~$232~~$218 thousand and ~~$16 million,~~$232 thousand, respectively. Payment of dividends to the Parent Company by the Bank is limited under California and Federal laws. The Company believes these regulatory dividend restrictions will not have an impact on the Parent Company's ability to meet its ongoing cash obligations.

The Company has historically generated high levels of earnings, which provide a means of accumulating capital. The Company's net income as a percentage of average shareholders' equity (“return on equity” or “ROE”) ~~has been~~was 15.2% for the year ended December 31, 2022 and 11.5% for the year ended December 31, ~~2021 and 11.3% for the year ended December 31, 2020.~~2021. The Company also raises capital as employees exercise stock options. Capital raised through the exercise of stock options was $2.3 million in the year ended December 31, 2022 and $3.0 million in the year ended December 31, ~~2021 and $2.8 million in the year ended December 31, 2020.~~2021.

The Company paid common dividends totaling $45 million in the year ended December 31, 2022 and $44 million ~~each~~ in the year ended December 31, 2021, ~~and December 31, 2020,~~ which represent dividends per common share of ~~$1.65~~$1.68 and ~~$1.64,~~$1.65, respectively. The Company's earnings have historically exceeded dividends paid to shareholders. The amount of earnings in excess of dividends provides the Company resources to finance growth and maintain appropriate levels of shareholders' equity. In the absence of profitable growth opportunities, the Company has at times repurchased and retired its common stock as another means to return capital to shareholders. The Company repurchased and retired 3 thousand shares valued at $218 thousand in the year ended December 31, 2022 and 4 thousand shares valued at $232 thousand in the year ended December 31, ~~2021 and 319 thousand shares valued at $16 million in the year ended December 31, 2020.~~2021.

The Company's primary capital resource is shareholders' equity, which was $602 million at December 31, 2022 compared with $827 million at December 31, ~~2021 compared with $845 million at December 31, 2020.~~2021. The Company's ratio of equity to total assets was 8.7% at December 31, 2022 and 11.1% at December 31, ~~2021 and 12.5% at December 31, 2020.~~2021.

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.

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.”

In June 2016, the Financial Accounting Standards Board issued an update to the accounting standards for credit losses known as the "Current Expected Credit Losses" (CECL) methodology, which replaced the existing incurred loss methodology for certain financial assets. The Company adopted the CECL methodology effective January 1, 2020, which involved an implementing accounting entry to retained earnings on a net-of-tax basis. The adoption of the CECL methodology did not have a material adverse day-one impact to capital ratios and the Company did not adopt the phase in regulatory capital relief. See Note 1 to consolidated financial statements, “Recently Adopted Accounting Standards” for more information on the CECL methodology.

PPP loans are zero percent risk weighted for regulatory capital purposes; average PPP loans of $69 million did not affect regulatory capital ratios. The changes in the Leverage ratio would have been insignificant for both the Company and the Bank without PPP loans. To the extent funding of PPP loans is through excess cash balances or PPPLF borrowings, the Leverage ratio is unaffected. However, PPP loans funded by increased non-PPPLF borrowings reduces the leverage ratio.

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

The Company primarily attracts deposits from local businesses and professionals, as well as through retail savings and checking accounts, and, to a more limited extent, certificates of deposit.

The following table summarizes the Company’s average daily amount of deposits and the rates paid for the periods indicated:

The Company’s strategy includes building the value of its deposit base by building balances of lower-costing deposits and avoiding reliance on higher-costing time deposits. Average balances of higher costing time deposits declined ~~16%~~15% to ~~$153~~$139 million from ~~2019~~2020 to ~~2021.~~2022. The Company’s average balances of checking and savings accounts represented ~~97%~~98% of average balances of total deposits in 2022 compared with 97% in 2021 and ~~2020 compared with 96% in 2019.~~

2020. Estimated uninsured deposits were $2.9 billion at December 31, 2022 and $3.1 billion at December 31, ~~2021 and $2.5 billion at December 31, 2020.~~2021.

Total time deposits were ~~$144~~$131 million and ~~$156~~$144 million at December 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The following table sets forth, by time remaining to maturity, the Company’s total domestic time deposits. The Company has no foreign time deposits.

The standard FDIC deposit insurance amount is $250,000 per depositor, for each account ownership category. The following table shows the time remaining to maturity of the Company’s time deposits with a balance greater than $250,000:

Further detail of federal funds purchased and other borrowed funds is as follows:

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

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

Management of Westamerica Bancorporation and subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, ~~2021.~~2022. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of Management and Directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2021~~2022 based upon criteria in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, Management determined that the Company’s internal control over financial reporting was effective as of December 31, ~~2021~~2022 based on the criteria in Internal Control - Integrated Framework (2013) issued by COSO.

The Company’s independent registered public accounting firm has issued an attestation report on the Company’s internal control over financial reporting. Their opinion and attestation on internal control over financial reporting appear on page 91.

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WESTAMERICA BANCORPORATION

CONSOLIDATED BALANCE SHEETS

At December 31,

2021

2020

(In thousands)

Assets:

Cash and due from banks
$ 1,132,085 $ 621,275
Debt securities available for sale
4,638,855 4,063,185
Debt securities held to maturity, net of allowance for credit losses of $7 at December 31, 2021 and $9 at December 31, 2020 (Fair value of $312,562 at December 31, 2021 and $529,678 at December 31, 2020)
306,396 515,589
Loans
1,068,126 1,256,243
Allowance for credit losses on loans
(23,514 ) (23,854 )
Loans, net of allowance for credit losses on loans
1,044,612 1,232,389
Premises and equipment, net
31,155 32,813
Identifiable intangibles, net
835 1,104
Goodwill
121,673 121,673
Other assets
185,415 159,903
Total Assets
$ 7,461,026 $ 6,747,931

Liabilities:

Noninterest-bearing deposits
$ 3,069,080 $ 2,725,177
Interest-bearing deposits
3,344,876 2,962,802
Total deposits
6,413,956 5,687,979
Short-term borrowed funds
146,246 102,545
Other liabilities
73,722 112,598
Total Liabilities
6,633,924 5,903,122

Contingencies (Note 12)

Shareholders' Equity:

Common stock (no par value), authorized - 150,000 shares Issued and outstanding: 26,866 at December 31, 2021 and 26,807 at December 31, 2020
471,008 466,006
Deferred compensation
35 35
Accumulated other comprehensive income
49,664 114,412
Retained earnings
306,395 264,356
Total Shareholders' Equity
827,102 844,809
Total Liabilities and Shareholders' Equity
$ 7,461,026 $ 6,747,931

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

WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS

~~- 51 -~~

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31,

2021

2020

2019

(In thousands, except per share data)

Interest and Loan Fee Income:

Loans
$ 57,558 $ 59,377 $ 58,153
Equity securities
458 419 392
Debt securities available for sale
105,420 91,343 74,147
Debt securities held to maturity
8,875 13,552 18,997
Interest-bearing cash
1,132 1,165 6,993
Total Interest and Loan Fee Income
173,443 165,856 158,682
Interest Expense:

Deposits
1,877 1,770 1,854
Short-term borrowed funds
78 53 34
Other borrowed funds
0 1 0
Total Interest Expense
1,955 1,824 1,888
Net Interest and Loan Fee Income
171,488 164,032 156,794
Provision for Credit Losses
0 4,300 0
Net Interest and Loan Fee Income After Provision For Credit Losses
171,488 159,732 156,794
Noninterest Income:

Service charges on deposit accounts
13,697 14,149 17,882
Merchant processing services
11,998 10,208 10,132
Debit card fees
6,859 6,181 6,357
Trust fees
3,311 3,012 2,963
ATM processing fees
2,280 2,273 2,776
Other service fees
1,884 1,837 2,255
Financial services commissions
356 372 392
Gains on sales of real property
0 3,536 0
Life insurance gains
0 0 433
Securities gains
34 71 217
Other noninterest income
2,926 3,998 4,001
Total Noninterest Income
43,345 45,637 47,408
Noninterest Expense:

Salaries and related benefits
48,011 50,749 51,054
Occupancy and equipment
19,139 19,637 20,240
Outsourced data processing services
9,601 9,426 9,471
Professional fees
3,253 2,423 2,465
Courier service
2,177 2,001 1,878
Loss contingency
0 0 553
Amortization of identifiable intangibles
269 287 538
Other noninterest expense
15,356 14,043 12,787
Total Noninterest Expense
97,806 98,566 98,986
Income Before Income Taxes
117,027 106,803 105,216
Provision for income taxes
30,518 26,390 24,827
Net Income
$ 86,509 $ 80,413 $ 80,389

Average Common Shares Outstanding
26,855 26,942 26,956
Diluted Average Common Shares Outstanding
26,870 26,960 27,006
Per Common Share Data:

Basic earnings
$ 3.22 $ 2.98 $ 2.98
Diluted earnings
3.22 2.98 2.98
Dividends paid
1.65 1.64 1.63

	At December 31,
	2022			2021
	(In thousands)
Assets:
Cash and due from banks	$	294,236		$	1,132,085
Debt securities available for sale		4,331,743			4,638,855
Debt securities held to maturity, net of allowance for credit losses of $1 at December 31, 2022 and $7 at December 31, 2021 (Fair value of $873,511 at December 31, 2022 and $312,562 at December 31, 2021)		915,913			306,396
Loans		958,488			1,068,126
Allowance for credit losses on loans		(20,284	)		(23,514	)
Loans, net of allowance for credit losses on loans		938,204			1,044,612
Premises and equipment, net		28,819			31,155
Identifiable intangibles, net		583			835
Goodwill		121,673			121,673
Other assets		319,146			185,415
Total Assets	$	6,950,317		$	7,461,026

Liabilities:
Noninterest-bearing deposits	$	2,947,277		$	3,069,080
Interest-bearing deposits		3,278,013			3,344,876
Total deposits		6,225,290			6,413,956
Short-term borrowed funds		57,792			146,246
Other liabilities		65,125			73,722
Total Liabilities		6,348,207			6,633,924

Contingencies (Note 12)

Shareholders' Equity:
Common stock (no par value), authorized - 150,000 shares Issued and outstanding: 26,913 at December 31, 2022 and 26,866 at December 31, 2021		475,086			471,008
Deferred compensation		35			35
Accumulated other comprehensive (loss) income		(256,105	)		49,664
Retained earnings		383,094			306,395
Total Shareholders' Equity		602,110			827,102
Total Liabilities and Shareholders' Equity	$	6,950,317		$	7,461,026

See accompanying notes to consolidated financial statements.

- 51 -

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF INCOME

	For the Years Ended December 31,
	2022		2021		2020
	(In thousands, except per share data)
Interest and Loan Fee Income:
Loans	$	49,682	$	57,558	$	59,377
Equity securities		537		458		419
Debt securities available for sale		144,646		105,420		91,343
Debt securities held to maturity		19,101		8,875		13,552
Interest-bearing cash		7,790		1,132		1,165
Total Interest and Loan Fee Income		221,756		173,443		165,856
Interest Expense:
Deposits		1,846		1,877		1,770
Short-term borrowed funds		79		78		53
Other borrowed funds		-		-		1
Total Interest Expense		1,925		1,955		1,824
Net Interest and Loan Fee Income		219,831		171,488		164,032
Provision for Credit Losses		-		-		4,300
Net Interest and Loan Fee Income After Provision For Credit Losses		219,831		171,488		159,732
Noninterest Income:
Service charges on deposit accounts		14,490		13,697		14,149
Merchant processing services		11,623		11,998		10,208
Debit card fees		7,879		6,859		6,181
Trust fees		3,216		3,311		3,012
ATM processing fees		2,160		2,280		2,273
Other service fees		1,808		1,884		1,837
Financial services commissions		417		356		372
Gains on sales of real property		-		-		3,536
Life insurance gains		930		-		-
Securities gains		-		34		71
Other noninterest income		2,598		2,926		3,998
Total Noninterest Income		45,121		43,345		45,637
Noninterest Expense:
Salaries and related benefits		46,125		48,011		50,749
Occupancy and equipment		19,884		19,139		19,637
Outsourced data processing services		9,684		9,601		9,426
Limited Partnership Operating Losses		5,724		2,620		2,440
Professional fees		2,628		3,253		2,423
Courier service		2,614		2,177		2,001
Other noninterest expense		12,702		13,005		11,890
Total Noninterest Expense		99,361		97,806		98,566
Income Before Income Taxes		165,591		117,027		106,803
Provision for income taxes		43,557		30,518		26,390
Net Income	$	122,034	$	86,509	$	80,413

Average Common Shares Outstanding		26,895		26,855		26,942
Diluted Average Common Shares Outstanding		26,907		26,870		26,960
Per Common Share Data:
Basic earnings	$	4.54	$	3.22	$	2.98
Diluted earnings		4.54		3.22		2.98
Dividends paid		1.68		1.65		1.64

See accompanying notes to consolidated financial statements.

- 52 -

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Years Ended December 31,

2021

2020

2019

(In thousands)

Net Income
$ 86,509 $ 80,413 $ 80,389
Other comprehensive income (loss):

Changes in net unrealized gains on debt securities available for sale
(91,891 ) 125,519 93,936
Deferred tax benefit (expense)
27,167 (37,108 ) (27,771 )
Reclassification of gains included in net income
(34 ) (71 ) (167 )
Deferred tax expense on gains included in net income
10 21 49
Changes in unrealized gains on debt securities available for sale, net of tax
(64,748 ) 88,361 66,047
Total Comprehensive Income
$ 21,761 $ 168,774 $ 146,436

	For the Years Ended December 31,
	2022			2021			2020
	(In thousands)
Net Income	$	122,034		$	86,509		$	80,413
Other comprehensive (loss) income:
Changes in net unrealized (losses) gains on debt securities available for sale		(434,107	)		(91,891	)		125,519
Deferred tax benefit (expense)		128,338			27,167			(37,108	)
Reclassification of gains included in net income		-			(34	)		(71	)
Deferred tax expense on gains included in net income		-			10			21
Changes in unrealized (losses) gains on debt securities available for sale, net of tax		(305,769	)		(64,748	)		88,361
Total Comprehensive (Loss) Income	$	(183,735	)	$	21,761		$	168,774

See accompanying notes to consolidated financial statements.

- 53 -

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
																												Accumulated
										Accumulated									Common									Other
	Common									Other									Shares			Common			Deferred			Comprehensive			Retained
	Shares			Common			Deferred			Comprehensive			Retained						Outstanding			Stock			Compensation			Income (Loss)			Earnings			Total
	Outstanding			Stock			Compensation			Income (Loss)			Earnings			Total			(In thousands, except per share data)
	(In thousands, except per share data)

Balance, December 31, 2018		26,730		$	448,351		$	1,395		$	(39,996	)	$	205,841		$	615,591
Cumulative effect of bond premium amortization adjustment, net of tax														(2,801	)		(2,801	)
Adjusted Balance, January 1, 2019		26,730			448,351			1,395			(39,996	)		203,040			612,790
Net income for the year 2019														80,389			80,389
Other comprehensive income											66,047						66,047
Shares issued from stock warrant exercise, net of repurchase		51			-												-
Exercise of stock options		269			13,699												13,699
Restricted stock activity		18			1,697			(624	)								1,073
Stock based compensation		-			1,744												1,744
Stock awarded to employees		2			105												105
Retirement of common stock		(8	)		(136	)								(352	)		(488	)
Dividends ($1.63 per share)														(43,942	)		(43,942	)
Balance, December 31, 2019		27,062			465,460			771			26,051			239,135			731,417			27,062		$	465,460		$	771		$	26,051		$	239,135		$	731,417
Adoption of ASU 2016-13														52			52															52			52
Adjusted Balance, January 1, 2020		27,062			465,460			771			26,051			239,187			731,469			27,062			465,460			771			26,051			239,187			731,469
Net income for the year 2020														80,413			80,413															80,413			80,413
Other comprehensive income											88,361						88,361												88,361						88,361
Exercise of stock options		52			2,838												2,838			52			2,838												2,838
Restricted stock activity		10			1,270			(736	)								534			10			1,270			(736	)								534
Stock based compensation		-			1,875												1,875			-			1,875												1,875
Stock awarded to employees		2			100												100			2			100												100
Retirement of common stock		(319	)		(5,537	)								(10,959	)		(16,496	)		(319	)		(5,537	)								(10,959	)		(16,496	)
Dividends ($1.64 per share)														(44,285	)		(44,285	)														(44,285	)		(44,285	)
Balance, December 31, 2020		26,807			466,006			35			114,412			264,356			844,809			26,807			466,006			35			114,412			264,356			844,809
Net income for the year 2021														86,509			86,509															86,509			86,509
Other comprehensive loss											(64,748	)					(64,748	)											(64,748	)					(64,748	)
Exercise of stock options		53			3,017												3,017			53			3,017												3,017
Restricted stock activity		9			526												526			9			526												526
Stock based compensation		-			1,419												1,419			-			1,419												1,419
Stock awarded to employees		1			106												106			1			106												106
Retirement of common stock		(4	)		(66	)								(166	)		(232	)		(4	)		(66	)								(166	)		(232	)
Dividends ($1.65 per share)														(44,304	)		(44,304	)														(44,304	)		(44,304	)
Balance, December 31, 2021		26,866		$	471,008		$	35		$	49,664		$	306,395		$	827,102			26,866			471,008			35			49,664			306,395			827,102
Net income for the year 2022																																122,034			122,034
Other comprehensive loss																													(305,769	)					(305,769	)
Exercise of stock options																				40			2,255												2,255
Restricted stock activity																				8			492												492
Stock based compensation																				-			1,309												1,309
Stock awarded to employees																				2			87												87
Retirement of common stock																				(3	)		(65	)								(153	)		(218	)
Dividends ($1.68 per share)																																(45,182	)		(45,182	)
Balance, December 31, 2022																				26,913		$	475,086		$	35		$	(256,105	)	$	383,094		$	602,110

See accompanying notes to consolidated financial statements.

- 54 -

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,									For the Years Ended December 31,
	*2021*			*2020*			*2019*			2022			2021			2020
Operating Activities:	(In thousands)									(In thousands)
Net income	$	86,509		$	80,413		$	80,389		$	122,034		$	86,509		$	80,413
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization/accretion		16,617			22,647			20,626			16,565			16,617			22,647
Provision for credit losses		0			4,300			0			-			-			4,300
Net amortization of deferred loan fees		(5,576	)		(4,442	)		(260	)		(1,704	)		(5,576	)		(4,442	)
Stock option compensation expense		1,419			1,875			1,744			1,309			1,419			1,875
Life insurance gains		0			0			(433	)		(930	)		-			-
Securities gains		(34	)		(71	)		(217	)		-			(34	)		(71	)
Gains on sales of premises and equipment		0			(3,536	)		0			-			-			(3,536	)
Gain on disposal of premises and equipment		0			(71	)		0			-			-			(71	)
Net changes in:
Interest income receivable		(2,499	)		(4,225	)		(2,963	)		(18,037	)		(2,499	)		(4,225	)
Net deferred tax liability		3,899			(246	)		3,662			697			3,899			(246	)
Other assets		(3,534	)		(3,528	)		(14,806	)		(2,415	)		(3,534	)		(3,528	)
Income taxes payable		(1,054	)		353			(1,733	)		3,020			(1,054	)		353
Interest expense payable		(72	)		(5	)		(9	)		(10	)		(72	)		(5	)
Other liabilities		(6,940	)		14,280			(5,298	)		(6,827	)		(6,940	)		14,280
Net Cash Provided by Operating Activities		88,735			107,744			80,702			113,702			88,735			107,744
Investing Activities:
Net repayments (disbursements) of loans		193,755			(126,682	)		79,396			108,107			193,755			(126,682	)
Proceeds from life insurance policies		0			0			1,273			3,041			-			-
Purchases of debt securities available for sale		(1,909,370	)		(2,102,983	)		(970,542	)		(636,228	)		(1,909,370	)		(2,102,983	)
Proceeds from sale/maturity/calls of debt securities available for sale		1,204,455			1,260,846			631,016			500,160			1,204,455			1,260,846
Purchases of debt securities held to maturity											(718,940	)		-			-
Proceeds from maturity/calls of debt securities held to maturity		206,400			218,164			238,450			111,059			206,400			218,164
Proceeds from sale of equity securities		0			0			1,797
Proceeds from redemption of Federal Reserve Bank stock											2,326			-			-
Purchases of premises and equipment		(1,324	)		(2,200	)		(3,994	)		(811	)		(1,324	)		(2,200	)
Proceeds from sale of premises and equipment		0			3,819			0			-			-			3,819
Proceeds from sale of foreclosed assets		0			114			307			-			-			114
Net Cash Used in Investing Activities		(306,084	)		(748,922	)		(22,297	)		(631,286	)		(306,084	)		(748,922	)
Financing Activities:
Net change in deposits		725,977			875,358			(54,218	)		(188,666	)		725,977			875,358
Net change in short-term borrowings		43,701			71,617			(20,319	)		(88,454	)		43,701			71,617
Exercise of stock options		3,017			2,838			13,699			2,255			3,017			2,838
Retirement of common stock		(232	)		(16,496	)		(488	)		(218	)		(232	)		(16,496	)
Common stock dividends paid		(44,304	)		(44,285	)		(43,942	)		(45,182	)		(44,304	)		(44,285	)
Net Cash Provided by (Used in) Financing Activities		728,159			889,032			(105,268	)
Net Cash (Used in) Provided by Financing Activities											(320,265	)		728,159			889,032
Net Change In Cash and Due from Banks		510,810			247,854			(46,863	)		(837,849	)		510,810			247,854
Cash and Due from Banks at Beginning of Period		621,275			373,421			420,284			1,132,085			621,275			373,421
Cash and Due from Banks at End of Period	$	1,132,085		$	621,275		$	373,421		$	294,236		$	1,132,085		$	621,275
Supplemental Cash Flow Disclosures:
Supplemental disclosure of noncash activities:
Right-of-use assets acquired in exchange for operating lease liabilities	$	5,105		$	7,697		$	23,587		$	3,533		$	5,105		$	7,697
Amount recognized upon initial adoption of ASU 2016-02		0			0			15,325
Securities purchases pending settlement		0			29,000			0			-			-			29,000
Supplemental disclosure of cash flow activities:
Cash paid for amounts included in operating lease liabilities		6,309			6,516			5,123			6,037			6,309			6,516
Interest paid for the period		2,027			1,830			1,898			1,935			2,027			1,830
Income tax payments for the period		27,673			26,462			24,491			39,840			27,673			26,462

Westamerica Bancorporation, a registered bank holding company (the “Company”), provides a full range of banking services to corporate and individual customers in Northern and Central California through its wholly-owned subsidiary bank, Westamerica Bank (the “Bank”). The Bank is subject to competition from both financial and nonfinancial institutions and to the regulations of certain agencies and undergoes periodic examinations by those regulatory authorities. All of the financial service operations are considered by management to be aggregated in 1one reportable operating segment.

The Company has evaluated events and transactions subsequent to the balance sheet date. Based on this evaluation, the Company is not aware of any events or transactions that occurred subsequent to the balance sheet date but prior to filing that would require recognition or disclosure in its consolidated financial statements. Certain amounts in prior periods have been reclassified to conform to the current presentation.

~~The COVID-~~19 ~~coronavirus pandemic caused escalating infections in the United States beginning in the~~ ~~first~~ ~~quarter of~~ ~~2020~~ ~~that continued through the~~ ~~fourth~~ ~~quarter of~~ ~~2021~~Certain risks, uncertainties and other factors may ~~continue for some time. The spread of~~cause actual future results to differ materially from the ~~outbreak has disrupted the United States economy including banking and other financial activity~~results discussed in ~~the market areas in which the Company and the Bank operate.~~

The Bank's deposits are exclusively sourced within California and its loans are primarily to borrowers domiciled within California. Demand for the Bank's products and services, such as loans and deposits,this report on Form 10-K. Recent events that could ~~be affected as a result of the decline in economic activity within the state.~~

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

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

~~In response to the pandemic, the United States federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") on~~ ~~March 27, 2020,~~ ~~providing an estimated~~ $2 ~~trillion fiscal stimulus to the United States economy. The CARES Act established the Paycheck Protection Program (PPP) with~~ ~~$350~~ billion to provide businesses with federally guaranteed loans to support payroll and certain operating expenses. The loans were guaranteed by the United States Small Business Administration (“SBA”) and funded through banks. During ~~2020~~ ~~and the~~ ~~first~~~~six~~ ~~months of~~ ~~2021,~~ the Bank processed government guaranteed PPP loans which meaningfully increased interest-earning assets and related interest and fee income. PPP loans, net of deferred fees and costs, were $46 million at ~~December 31, 2021.~~

On ~~April 7, 2020,~~ the U.S. banking agencies issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised). The statement describes accounting for COVID-19-related loan modifications, including clarifying the interaction between current accounting rules and the temporary relief provided by the CARES Act. The Bank continues to work with loan customers requesting deferral of loan payments due to economic weakness caused by the pandemic. At ~~December 31, 2021,~~ ~~loans granted loan deferrals totaled $84 thousand, all of which were consumer automobile loans.~~

On ~~December 27, 2020,~~ ~~the United States federal government enacted the Consolidated Appropriations Act,~~ ~~2020~~ ~~(CAA), which provided~~ ~~$900~~ ~~billion in additional federal stimulus. Among other provisions, the CAA provided~~ ~~$284~~ ~~billion for the PPP program and allowed businesses to apply for a~~ ~~second~~ ~~PPP loan.~~

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

~~There are~~ no ~~comparable recent events that provide guidance as to the effect the spread of~~Company’s operations include the COVID-19 pandemic, ~~may~~ ~~have,~~inflation and ~~as a result,~~ the ~~Company cannot accurately predict~~Federal Reserve’s monetary policy, climate changes and the ~~full~~war in Ukraine. Management continues to actively monitor their impact on the Company’s business. The extent of the ~~impacts on the Company’s business, operations or the economy as a whole. However, the effects could have a material~~ impact on the Company’s results of operations, cash flow liquidity, and ~~heighten many of~~financial performance, as well as the ~~other risks~~Company’s ability to execute near- and long-term business strategies and initiatives, will depend on numerous evolving factors ~~described in this Report.~~and future developments, which are highly uncertain and cannot be reasonably predicted. Any one or a combination of ~~the~~such risk factors, ~~identified above,~~ or other factors, could materially adversely affect the Company's business, financial condition, results of operations and prospects.

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The following is a summary of significant policies used in the preparation of the accompanying financial statements.

Accounting Estimates. Certain accounting policies underlying the preparation of these financial statements require Management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in fair value of an asset not carried on the financial statements at fair value warrants an impairment writedown or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. The allowance for credit losses accounting is an area requiring the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available. A discussion of the factors affecting the accounting for the allowance for credit losses on loans is included in the following “Loans” and “Allowance for Credit Losses” sections. Carrying assets and liabilities at fair value inherently results in financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third party sources, when available. The “Securities” section discusses the factors that may affect the valuation of the Company’s securities. Although the estimates contemplate current conditions actual results can change.

Principles of Consolidation. The consolidated financial statements include the accounts of the Company and all the Company’s subsidiaries. Significant intercompany transactions have been eliminated in consolidation. The Company does not maintain or conduct transactions with any unconsolidated special purpose entities.

Cash. Cash includes Due From Banks balances which are readily convertible to known amounts of cash and are generally 90 days or less from maturity at the time of initiation, presenting insignificant risk of changes in value due to interest rate changes.

Equity Securities. Equity securities consist of marketable equity securities and mutual funds which are recorded at fair value. Unrealized gains and losses are included in net income. There were 0no equity securities at December 31, ~~2021~~2022 and December 31, ~~2020.~~2021.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Nonrefundable fees and certain costs associated with originating or acquiring loans are deferred and amortized as an adjustment to interest income over the contractual loan lives. Upon prepayment, unamortized loan fees, net of costs, are immediately recognized in interest income. Other fees, including those collected upon principal prepayments, are included in interest income when received. Loans held for sale are identified upon origination and are reported at the lower of cost or market value on an aggregate loan basis.

Other Real Estate Owned. Other real estate owned is comprised of property acquired through foreclosure proceedings, acceptances of deeds-in-lieu of foreclosure and, if applicable, vacated bank properties. Losses recognized at the time of acquiring property in full or partial satisfaction of debt are charged against the allowance for credit losses. Other real estate owned is recorded at the fair value of the collateral, generally based upon an independent property appraisal, less estimated disposition costs. Losses incurred subsequent to acquisition due to any decline in annual independent property appraisals are recognized as noninterest expense. Routine holding costs, such as property taxes, insurance and maintenance, and losses from sales and dispositions, are recognized as noninterest expense.

Premises and Equipment. Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed substantially on the straight-line method over the estimated useful life of each type of asset. Estimated useful lives of premises and equipment range from 20 to 50 years and from 3 to 20 years, respectively. Leasehold improvements are amortized over the terms of the lease or their estimated useful life, whichever is shorter.

Revenue Recognition. The Company recognizes revenue as it is earned based on contractual terms, as transactions occur, or as services are provided and collectability is reasonably assured. In certain circumstances, noninterest income is reported net of associated expenses that are directly related to variable volume-based sales or revenue sharing arrangements or when the Company acts on an agency basis for others.

Life Insurance Cash Surrender Value. The Company has purchased life insurance policies on certain directors and officers as well as acquired such assets as part of the acquisition of other banks. Company owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. These assets are included in other assets on the consolidated balance sheets.

Intangible Assets. Intangible assets are comprised of goodwill, core deposit intangibles and other identifiable intangibles acquired in business combinations. Intangible assets with finite useful lives are amortized on an accelerated basis over their respective estimated useful lives not exceeding 15 years. Intangible assets with a finite useful life are reviewed at least annually for impairment. Any goodwill and any intangible asset acquired in a business combination determined to have an indefinite useful life is not amortized and is reviewed at least annually for impairment. If management determines, based on a qualitative review of events and circumstances, that it is more likely than not that the carrying value of the intangible asset will not be realized, an impairment test is performed to determine whether the asset’s fair value is less than the carrying amount of the asset.

Impairment of Long-Lived Assets. The Company reviews its long-lived and certain intangible assets for impairment whenever events or changes indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Income Taxes. The Company and its subsidiaries file consolidated tax returns. The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes, resulting in two components of income tax expense: current and deferred. Current income tax expense approximates taxes to be paid or refunded for the current period. The Company determines deferred income taxes using the balance sheet method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and recognizes enacted changes in tax rates and laws in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized subject to Management’s judgment that realization is more likely than not. A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize. The tax position is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement. Interest and penalties are recognized as a component of income tax expense.

Stock-based Compensation. The Company applies FASB ASC 718 – Compensation – Stock Compensation, to account for stock based awards granted to employees using the fair value method. The Company recognizes compensation expense for restricted performance share grants over the relevant attribution period. Restricted performance share grants have no exercise price, therefore, the intrinsic value is measured using an estimated per share price at the vesting date for each restricted performance share. The estimated per share price is adjusted during the attribution period to reflect actual stock price performance. The Company’s obligation for unvested outstanding restricted performance share grants is classified as a liability until the vesting date due to a cash settlement feature, at which time the issued shares become classified as shareholders’ equity.

Other. Securities and other property held by the Bank in a fiduciary or agency capacity are not included in the financial statements since such items are not assets of the Company or its subsidiaries.

In the year ended December 31, 2021, the Company adopted the following new accounting guidance:

FASB ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, was issued December 2019. The ASU is intended to simplify various aspects related to accounting for income taxes, eliminates certain exceptions to the general principles in ASC Topic 740 related to intra-period tax allocation, simplifies when companies recognize deferred taxes in an interim period, and clarifies certain aspects of the current guidance to promote consistent application. This guidance effective for public entities for fiscal years beginning after December 15, 2020, and for interim period within those fiscal years, with early adoption permitted. The Company adopted the ASU provisions on January 1, 2021 and the adoption of the ASU provisions did not have a significant impact on the Company’s consolidated financial statements.

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

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

FASB ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, was issued March 2020. The ASU provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. In December 2022, the FASB issued ASU 2022-06,Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” The ASU 2022-06 deferred the sunset date of ASU 2020-04 ~~is effective~~ ~~March 12, 2020~~ ~~through~~to December ~~31, 2022.~~2024. ~~An entity~~ ~~may~~ ~~elect to apply ASU~~ ~~2020~~-04 ~~for contract modifications as of~~ ~~January 1, 2020,~~ ~~or prospectively from a date within an interim period that includes or is subsequent to~~ ~~March 12, 2020,~~ ~~up to the date that the financial statements are available to be issued.~~ Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company does not expect any material impact on its consolidated financial statements since the Company has an insignificant number of financial instruments applicable to this ASU.

FASB ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, was issued March 2022. The ASU eliminates the recognition and measurement guidance for troubled debt restructurings and requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. This ASU also requires enhanced disclosure for loans that have been charged off. The ASU is effective in January 1, 2023 under a prospective approach. Adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

An analysis of the amortized cost and fair value by major categories of debt securities available for sale, which are carried at fair value with net unrealized gains (losses) reported on an after-tax basis as a component of accumulated other comprehensive income, and debt securities held to maturity, which are carried at amortized cost, before allowance for credit losses of $1 thousand at December 31, 2022 and $7 thousand at December 31, 2021, ~~and $9 thousand at~~ ~~December 31, 2020,~~ follows:

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

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

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

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

Based upon the ~~most recent~~ Company’s December 31, 2022 evaluation, the unrealized losses on ~~the Company’s~~ debt securities ~~available for sale~~ were ~~most likely~~ caused by market conditions for these types of ~~investments, particularly changes in~~securities. In the twelve months ended December 31, 2022, the market yields on five-year and ten-year Treasury notes increased 2.74% and 2.36%, respectively; these increasing risk-free interest rates ~~and/or~~have caused large declines in bond values generally. Additionally, market ~~bid-ask spreads.~~ rates for non-Treasury bonds are determined by the risk-free interest rate plus a risk premium spread; such spreads for investment grade, fixed rate, taxable corporate bonds increased 0.38% in the twelve months ended December 31, 2022, also broadly reducing corporate bond values. The Company continually monitors interest rate changes, risk premium spread changes, credit rating changes for issuers of bonds owned, collateralized loan obligations’ collateral levels, and corporate bond issuers’ common stock price changes. All collateralized loan obligations and corporate bonds were investment grade rated at December 31, 2022.

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

The Company evaluates held to maturity corporate securities individually, monitoring each issuer’s financial condition, profitability, cash flows and credit rating agency conclusions. The Company has an expectation that nonpayment of the ~~Company does~~ ~~not~~ ~~consider these debt securities~~amortized cost basis continues to ~~have credit related losses as of~~ ~~December 31, 2021.~~be zero.

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

As of December 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had debt securities pledged to secure public deposits and short-term borrowed funds of ~~$1,021,566~~$1,180,010 thousand and ~~$888,577~~$1,021,566 thousand, respectively.

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

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

The Company evaluates debt securities on a quarterly basis including changes in security ratings issued by rating agencies, changes in the financial condition of the issuer, and, for mortgage-backed and asset-backed securities, collateral levels, delinquency and loss information with respect to the underlying collateral, changes in the levels of subordination for the Company’s particular position within the repayment structure and remaining credit enhancement as compared to expected credit losses of the security. In addition to monitoring credit rating agency evaluations, Management performs its own evaluations regarding the credit worthiness of the issuer or the securitized assets underlying asset backed securities.

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

Agency mortgage-backed securities were assigned no credit loss allowance due to the perceived backing of government sponsored entities. Municipal securities were evaluated for risk of default based on credit rating and remaining term to maturity using Moody’s risk of default factors; Moody’s loss upon default factors were applied to the assumed defaulted principal amounts to estimate the amount for credit loss allowance. Corporate securities held to maturity were individually evaluated for expected credit loss by evaluating the issuer’s financial condition, profitability, cash flows, and credit ratings. At December 31, 2022, no credit loss allowance was assigned to corporate securities held to maturity.

The following table summarizes the amortized cost of debt securities held to maturity at December 31, ~~2021,~~2022, aggregated by credit rating:

There were no debt securities held to maturity on nonaccrual status or past due 30 days or more as of December 31, ~~2021.~~2022.

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

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

PPP loans are guaranteed by the Small Business Administration (“SBA”). PPP loan proceeds used for eligible payroll and certain other operating costs are eligible for forgiveness, with repayment of loan principal and accrued interest made by the SBA. Management does not expect credit losses on PPP loans. Therefore, there is no allowance for such loans. The following summarizes activity in the allowance for credit losses. ~~The allowance for loan losses is shown under legacy GAAP for~~ ~~2019.~~

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

There was 0no allowance for credit losses allocated to loans on nonaccrual status as of December 31, ~~2021~~2022 ~~and~~or December 31, ~~2020.~~2021. There were 0no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at December 31, ~~2021~~2022 ~~and~~or December 31, ~~2020.~~2021.

~~The following tables provide information on impaired loans during the year ended~~ ~~December 31, 2019:~~

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

During the year ended December 31, 2022, the Company did not modify any loans that were considered TDRs. During the year ended December 31, 2021, ~~and~~ ~~December 31, 2020,~~ the Company did not modify any loans that were considered TDRs for accounting purposes. Section 4013 of the CARES Act allowed certain loan modifications for borrowers impacted by the COVID-19 pandemic to be excluded from TDR accounting. This relief ended on January 1, 2022. During the year ended December 31, 2021,~~and~~ ~~December 31, 2020,~~ the Company modified loans under Section 4013 of the CARES Act, granting 90 day deferrals of principal and interest payments. As of December 31, 2021, loans deferred under the CARES Act that are not considered TDRs consisted of consumer loans totaling $84 thousand. ~~As of~~ ~~December 31, 2020,~~ ~~commercial real estate loans with deferred payments totaled $7.8 million, primarily for hospitality and retail properties. As of~~ ~~December 31, 2020,~~ ~~consumer and commercial loan deferrals were $2.5 million and $33 thousand, respectively.~~ There were no chargeoffs related to TDRs made during the ~~year~~years ended December 31, ~~2021~~2022 and December 31, ~~2020.~~2021. During the ~~year~~years ended December 31, ~~2021~~2022 and December 31, ~~2020,~~2021, 0no TDR loans defaulted within 12 months of the modification date. A TDR is considered to be in default when payments are 90 days or more past due.

~~TDRs of $1,965 thousand included 0~~No loans on nonaccrual status were included in TDRs of $1,752 thousand at December 31, 2022 and $1,965 thousand at December 31, 2021.~~TDRs of $6,221 thousand included a loan with a balance of $3,420 thousand on nonaccrual status at~~ ~~December 31, 2020;~~ ~~0 allowance for credit losses was allocated to this commercial real estate loan secured by real property.~~

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. ~~The following loans~~Loans that were considered collateral dependent at December 31, ~~2021:~~2022 5included the following: five commercial real estate loans totaling $8.1 million secured by real property, and $625 thousand of indirect consumer installment loans secured by personal property. There were no other collateral dependent loans at December 31, 2022. Loans that were considered collateral dependent at December 31, 2021 included the following: five commercial real estate loans totaling $8.4 million secured by real property, $394 thousand of indirect consumer installment loans secured by personal property, one commercial loan with a balance of $57 thousand secured by business assets, and 3three residential real estate loans totaling $420 thousand secured by real property. There were no other collateral dependent loans at December 31, 2021.~~The following loans were considered collateral dependent at~~ ~~December 31, 2020:~~ ~~5 commercial real estate loans totaling $11.1 million secured by real property, $446 thousand of indirect consumer installment loans secured by personal property and~~ ~~two~~ ~~residential real estate loans totaling $346 thousand secured by real property. There were~~ no ~~other collateral dependent loans at~~ ~~December 31, 2020.~~

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

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

There were 0no loans held for sale at December 31, ~~2021,~~2022 and December 31, ~~2020.~~2021.

The Company held 0no other real estate owned (OREO) at December 31, ~~2021~~2022 and December 31, ~~2020.~~2021. The amount of consumer mortgage loans outstanding secured by residential real estate properties for which formal foreclosure proceedings were in process was $-0- thousand at December 31, 2022 and $247 thousand at December 31, ~~2021~~ ~~and $346 thousand at~~ ~~December 31, 2020.~~2021.

Under the California Financial Code, credit extended to any one person owing to a commercial bank at any one time shall not exceed the following ~~limitations:~~limitations as applicable to the Bank: (a) unsecured ~~loans~~credits shall not exceed 15 percent of the sum of the ~~shareholders' equity,~~common stock outstanding and unimpaired, perpetual preferred stock outstanding and unimpaired, capital surplus, undivided profits, and allowance for credit losses ~~capital notes, and debentures~~less intangible assets of the ~~bank,~~Bank, or (b) secured and unsecured ~~loans~~credits in all shall not exceed 25 percent of the sum of the ~~shareholders' equity,~~common stock outstanding and unimpaired, perpetual preferred stock outstanding and unimpaired, capital surplus, undivided profits, and allowance for credit losses ~~capital notes, and debentures~~less intangible assets of the ~~bank.~~Bank. At December 31, ~~2021,~~2022, the Bank did not have credit extended to any one entity exceeding these limits. At December 31, ~~2021,~~2022, the Bank had 3327 lending relationships each with aggregate amounts of $5 million or more. The Company has significant credit arrangements that are secured by real estate collateral. In addition to real estate loans outstanding as disclosed in Note 3, the Company had loan commitments related to real estate loans of ~~$34,226~~$34,790 thousand and ~~$37,456~~$34,226 thousand at December 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The Company requires collateral on all real estate loans with loan-to-value ratios at origination generally no greater than 75% on commercial real estate loans and no greater than 80% on residential real estate loans. At December 31, ~~2021,~~2022, the Bank held corporate bonds in ~~112~~118 issuing entities that exceeded $5 million for each issuer.

Depreciation and amortization of premises and equipment included in noninterest expense amounted to $2,899 thousand in 2022,$2,978 thousand in 2021 and $3,683 thousand in ~~2020~~ ~~and $3,879 thousand in~~ ~~2019.~~2020.

The Company owns 211 thousand shares of Visa Inc. class B common stock which have transfer restrictions; the carrying value is $-0- thousand. On ~~January 28, 2022,~~ Visa Inc. disclosed a revised conversion rate applicable to its class B common stock in its ~~filed~~ Form 108~~-Q for the quarterly period ended~~-K dated ~~December 31, 2021.~~January 5, 2023. The conversion rate of class B common stock into class A common stock, which is unrestricted and trades actively on the New York Stock Exchange, was reduced from ~~1.6228~~1.6059 to ~~1.6181~~1.5991 per share, effective as of December 29, ~~2021.~~2022. Visa Inc. class A common stock had a closing price of ~~$216.71~~$207.76 per share on December ~~31, 2021,~~30, 2022, the last day of stock market trading for the fourth quarter ~~2021.~~2022. The ultimate value of the Company’s Visa Inc. class B shares is subject to the extent of Visa Inc.’s future litigation escrow fundings, the resulting conversion rate to class A common stock, and current and future trading restrictions on the class B common stock.

The Company invests in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for low-income housing tax credits. At December 31, 2022, these investments totaled $34,421 thousand and $22,647 thousand of this amount represents outstanding equity capital commitments that are included in other liabilities. At December 31, 2021, ~~this investment~~these investments totaled $37,145 thousand and $26,485 thousand of this amount represents outstanding equity capital commitments that are included in other liabilities. At December 31, ~~2020,~~ ~~this investment totaled $18,335 thousand and $12,202 thousand of this amount represents outstanding equity capital commitments that are included in other liabilities. At~~ ~~December 31, 2021,~~2022, the ~~$26,485~~$22,647 thousand of outstanding equity capital commitments are expected to be paid as ~~follows, $6,830 thousand in~~ ~~2022,~~ ~~$11,826~~follows: $10,992 thousand in 2023, ~~$6,769~~$10,499 thousand in 2024, ~~$241~~$359 thousand in 2025, ~~$125~~$59 thousand in 2026, ~~$203~~$190 thousand in 2027, and ~~$491~~$548 thousand in 2028 or thereafter.

The Company has entered into leases for most branch locations and certain other offices that were classified as operating leases primarily with original terms of five years. Certain lease arrangements contain extension options, which can be exercised at the Company’s option, for one or more additional five year terms. Unexercised extension options are not considered reasonably certain of exercise and have not been included in the lease term used to determine the lease liability or right-of-use asset. The Company did not have any finance leases as of December 31, ~~2021.~~2022.

As of December 31, ~~2021,~~2022, the Company’s lease liability and right-of-use asset were ~~$17,980~~$15,746 thousand. The weighted average remaining life of operating leases and weighted average discount rate used to determine operating lease liabilities were ~~4.2~~3.7 years and ~~1.67%~~1.87%, respectively, at December 31, ~~2021.~~2022. The Company did not have any material lease incentives, unamortized initial direct costs, prepaid lease expense, or accrued lease expense as of December 31, ~~2021.~~2022.

Total lease costs of $6,575 thousand, $6,581 thousand and $6,699 thousand, during the year ended December 31, 2022, December 31, 2021 and December 31, 2020, ~~of $6,581 thousand and $6,699 thousand,~~ respectively, were recorded within occupancy and equipment expense. The Company did not have any material short-term or variable leases costs or sublease income during the year ended December 31, 2022, December 31, 2021 and December 31, 2020.

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

See Note 10 to the consolidated financial statements for additional information related to the net deferred tax liability.

The Company has recorded goodwill and other identifiable intangibles associated with purchase business combinations. Goodwill is not amortized, but is evaluated for impairment at least annually. The Company did not recognize impairment during the year ended December 31, ~~2021~~2022 and December 31, ~~2020.~~2021. Identifiable intangibles are amortized to their estimated residual values over their expected useful lives. Such lives and residual values are also periodically reassessed to determine if any amortization period adjustments are indicated. During the year ended December 31, ~~2021~~2022 and December 31, ~~2020,~~2021 0no such adjustments were recorded.

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

As of December 31, ~~2021,~~2022, the current period and estimated future amortization expense for identifiable intangible assets, to be fully amortized in 2025, was:

Demand deposit overdrafts of ~~$611~~$995 thousand and ~~$682~~$611 thousand were included as loan balances at December 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Interest expense for aggregate time deposits with individual account balances in excess of $100 thousand was $156 thousand in 2022,$265 thousand in 2021 and $319 thousand in ~~2020~~ ~~and $326 thousand in~~ ~~2019.~~2020.

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

At December 31, 2022, the Company had lines of credit for overnight borrowings from corresponding banks totaling $100 million. Additionally, the Company had access to borrowing from the Federal Reserve up to $225 million based on the collateral pledged at December 31, 2022. There were no outstanding amounts under the above-mentioned borrowings at December 31, 2022.

The Company grants stock options and restricted performance shares to employees in exchange for employee services, pursuant to the shareholder-approved 2019 Omnibus Equity Incentive Plan. Prior to shareholder approval of the 2019 Omnibus Equity Incentive Plan on April 25, 2019, the Company granted stock options and restricted performance shares under its 1995 Stock Option Plan, which was last amended and restated in 2012. Nonqualified stock option grants (“NQSO”) are granted with an exercise price equal to the fair market value of the related common stock on the grant date. NQSO generally become exercisable in equal annual installments over a three-year period with each installment vesting on the anniversary date of the grant. Each NQSO has a maximum ten-year term. A restricted performance share grant becomes vested after three years of being awarded, provided the Company has attained its performance goals for such three-year period.

The following table summarizes information about stock options granted under the ~~Plan~~Plans as of December 31, ~~2021.~~2022. The intrinsic value is calculated as the difference between the market value as of December 31, ~~2021~~2022 and the exercise price of the shares. The market value as of December ~~31, 2021~~30, 2022, the last day of stock market trading for the fourth quarter 2022,was ~~$57.73~~$59.01 as reported by the NASDAQ Global Select Market:

Options Outstanding

Options Exercisable

At December 31, 2021

For the Year Ended December 31, 2021

At December 31, 2021

For the Year Ended December 31, 2021

Range of Exercise Price

Number Outstanding

Aggregate Intrinsic Value

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price

Number Exercisable

Aggregate Intrinsic Value

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price

(In thousands)

(Years)

(In thousands)

(Years)

400 -455 34 $ 527 3.8 $ 42 34 $ 527 3.8 $ 42
45 - 50 0 0 - 0 0 0 - 0
50 - 55 15 67 2.1 53 15 67 2.1 53
55 - 60 260 161 7.8 57 83 46 5.1 57
60 - 65 316 6.6 62 258 6.5 62
65 - 70 168 0 8.1 66 56 0 8 66
400 -700 793 $ 755 7.1 60 446 $ 640 6.1 60

				Options Outstanding								Options Exercisable
				At December 31, 2022						For the Year Ended December 31, 2022		At December 31, 2022						For the Year Ended December 31, 2022
Range of Exercise Price				Number Outstanding		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price
				(In thousands)				(Years)				(In thousands)				(Years)
$	40	-	45		32	$	527		2.8	$	42		32	$	527		2.8	$	42
	45	-	50		-		-		-		-		-		-		-		-
	50	-	55		6		33		1.1		53		6		33		1.1		53
	55	-	60		416		515		7.9		58		117		220		5.8		57
	60	-	65		258		-		5.6		62		258		-		5.6		62
	65	-	70		142		-		7.1		66		95		-		7.1		66
$	40	-	70		854	$	1,075		6.8		60		508	$	780		5.7		61

The Company applies the Roll-Geske option pricing model (Modified Roll) to determine grant date fair value of stock option grants. This model modifies the Black-Scholes Model to take into account dividends and American options. During the year ended December 31, ~~2021,~~2022, ~~2020~~2021 and ~~2019,~~2020, the Company granted 229 thousand, 193 thousand ~~184 thousand~~ and ~~250~~184 thousand stock options, respectively. The following weighted average assumptions were used in the option pricing to value stock options granted in the periods indicated:

	For the Years Ended December 31,									For the Years Ended December 31,
	2021			2020			2019			2022			2021			2020
Expected volatility ⁽¹⁾		20	%		20	%		20	%		19	%		20	%		20	%
Expected life in years ⁽²⁾		4.7			3.5			4.7			4.6			4.7			3.5
Risk-free interest rate ⁽³⁾		0.46	%		1.52	%		2.67	%		1.73	%		0.46	%		1.52	%
Expected dividend yield		2.79	%		2.59	%		2.55	%		3.02	%		2.79	%		2.59	%
Fair value per award	$	7.50		$	8.64		$	10.19		$	7.90		$	7.50		$	8.64

⁽¹⁾	Measured using daily price changes of Company’s stock over respective expected term of the option and the implied volatility derived from the market prices of the Company’s stock and traded options.

⁽²⁾	~~The number of years that the Company estimates that the options will be outstanding prior to exercise.~~

⁽³⁾

⁽¹⁾ Measured using daily price changes of Company’s stock over respective expected term of the option and the implied volatility derived from the market prices of the Company’s stock and traded options.

⁽²⁾ The number of years that the Company estimates that the options will be outstanding prior to exercise.

⁽³⁾The risk-free rate over the expected life based on the US Treasury yield curve in effect at the time of the grant.

Employee stock option grants are being expensed by the Company over the grants’ three year vesting period. The Company issues new shares upon the exercise of options. The number of shares authorized to be issued for options at December 31, ~~2021~~2022 is ~~967~~856 thousand.

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- 76 -

A summary of option activity during the year ended December 31, ~~2021~~2022 is presented below:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
	(In thousands)					(Years)		(In thousands)					(Years)
Outstanding at January 1, 2021		693		$	61.25
Outstanding at January 1, 2022									793		$	60.48
Granted		193			57.08				229			58.51
Exercised		(53	)		56.82				(40	)		56.03
Forfeited or expired		(40	)		62.14				(128	)		61.46
Outstanding at December 31, 2021		793			60.48		7.1
Exercisable at December 31, 2021		446			60.07		6.1
Outstanding at December 31, 2022									854			60.02		6.8
Exercisable at December 31, 2022									508			60.60		5.7

A summary of the Company’s nonvested option activity during the year ended December 31, ~~2021~~2022 is presented below:

	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
	(In thousands)					(In thousands)
Nonvested at January 1, 2021		373		$	9.39
Nonvested at January 1, 2022							347		$	8.31
Granted		193			7.50		229			7.90
Vested		(185	)		9.61		(168	)		8.76
Forfeited		(34	)		8.42		(62	)		7.98
Nonvested at December 31, 2021		347		$	8.31
Nonvested at December 31, 2022							346		$	7.88

The estimated grant date fair value for options granted under the Company’s stock option plan during the twelve months ended December 31, ~~2021,~~2022, ~~2020~~2021 and ~~2019~~2020 was $7.90, $7.50 ~~$8.64~~ and ~~$10.19~~$8.64 per share, respectively. The total remaining unrecognized compensation cost related to nonvested awards as of December 31, ~~2021~~2022 is ~~$2,494~~$2,164 thousand and the weighted average period over which the cost is expected to be recognized is ~~1.8~~1.7 years.

The total intrinsic value of options exercised during the ~~twelve~~ ~~months~~year ended December 31, ~~2021,~~2022, ~~2020~~2021 and ~~2019~~2020 was $165 thousand, $454 thousand ~~$693 thousand~~ and ~~$3,398~~$693 thousand, respectively. The total fair value of Restricted Performance Shares (“RPSs”) that vested during the ~~twelve~~ ~~months~~year ended December 31, ~~2021,~~2022, ~~2020~~2021 and ~~2019~~2020 was $492 thousand, $527 thousand ~~$534 thousand~~ and ~~$1,073~~$534 thousand, respectively. The total fair value of options vested during the year ended ~~twelve~~December 31, 2022, 2021 ~~months~~and 2020 was $1,464 thousand, $1,783 thousand and $1,735 thousand, respectively. During the year ended December 31, 2022, 40 thousand shares were issued due to the exercise of nonqualified stock options resulting in a tax deduction less than the related share based compensation expense by $143 thousand. The lesser deduction in 2022 resulted in a $30 thousand increase in tax provision. During the year ended December 31, 2021, ~~2020~~ ~~and~~ ~~2019~~ ~~was $1,783 thousand, $1,735 thousand and $1,980 thousand, respectively. During the~~ ~~twelve~~ ~~months of~~ ~~2021,~~53 thousand shares were issued due to the exercise of nonqualified stock options resulting in a tax deduction equal to the related share based compensation expense. During the year ended ~~twelve~~December 31, 2020, ~~months of~~ ~~2020,~~52 thousand shares were issued due to the exercise of nonqualified stock options resulting in a tax deduction exceeding related share based compensation by $295 thousand. ~~During the~~ ~~twelve~~ ~~months of~~ ~~2019,~~ ~~516 thousand shares were issued due to the exercise of nonqualified stock options resulting in a tax deduction exceeding related share based compensation by $1,485 thousand.~~ The excess deductions resulting from the exercise of nonqualified stock options reduced the income tax provision by $-0- thousand in 2021 and $87 thousand in ~~2020~~ ~~and $435 thousand in~~ ~~2019.~~2020.

A summary of the status of the Company’s restricted performance shares as of December 31, ~~2021~~2022 and ~~2020~~2021 and changes during the ~~twelve~~ ~~months~~years ended on those dates, follows:

	2021			2020			2022			2021
	(In thousands)						(In thousands)
Outstanding at January 1,		28			27			30			28
Granted		13			10			12			13
Issued upon vesting		(9	)		(9	)		(8	)		(9	)
Forfeited		(2	)		0			(3	)		(2	)
Outstanding at December 31,		30			28			31			30

- 77 -

As of December 31, ~~2021~~2022 and ~~2020,~~2021, the restricted performance shares had a weighted-average contractual life of ~~1.4~~1.2 years and ~~1.3~~1.4 years, respectively. The compensation cost that was charged against income for the Company’s restricted performance shares granted was $525 thousand, $610 thousand ~~$533 thousand~~ and ~~$758~~$533 thousand for the year ended December 31, ~~2021,~~2022, ~~2020~~2021 and ~~2019,~~2020, respectively. There were 0no stock appreciation rights or incentive stock options granted in the year ended December 31, 2022, 2021and 2020.

- 77 -

On ~~February 13, 2009,~~ ~~the Company issued a warrant to purchase 246,640 shares of the Company’s common stock at an exercise price of $50.92 per share. The warrants~~ ~~may~~ be exercised in a manner wherein the Company withholds shares of common stock issuable upon exercise of the warrant equal in value to the aggregate exercise price, in which case the warrant holder would ~~not~~ ~~deliver cash for the aggregate exercise price and the Company would issue a number of shares equal to the intrinsic value on the exercise date. On~~ ~~January 29, 2019,~~ ~~the warrants were exercised in a cashless transaction resulting in the issuance of 50,788 shares of the Company’s common stock.~~

The Company repurchases and retires its common stock in accordance with Board of Directors approved share repurchase programs. At December 31, ~~2021,~~2022, 1,750 thousand shares remained available to repurchase under such plans.

~~Shareholders have~~The Company’s articles of incorporation authorized 2two additional classes of stock of one million shares each, to be denominated “Class B Common Stock” and “Preferred Stock,” respectively, in addition to the 150 million shares of common stock presently authorized. At December 31, ~~2021,~~2022, 0no shares of Class B Common Stock or Preferred Stock were outstanding.

Note 9: Regulatory Capital

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory action. The Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) require the Company to maintain a capital conservation buffer of 2.5% above the adequately capitalized risk-based capital ratios to avoid restrictions on dividends and equity repurchases and other payments such as discretionary bonuses to executive officers. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of December 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company and Bank met all capital adequacy requirements to which they are subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end ~~2021~~2022 and ~~2020,~~2021, the ~~most recent regulatory notifications categorized~~Bank met the ~~Bank as~~capital requirements to be well capitalized under the regulatory framework for prompt corrective action. ~~There~~Management believes that there are no conditions or events ~~since~~ that ~~notification that management believes have changed~~would change the institution’s ~~category.~~category since December 31, 2022.

The capital ratios for the Company and the Bank as of the dates indicated are presented in the table below. For Common Equity Tier 1 Capital, Tier 1 Capital and Total Capital, the required percentages for capital adequacy purposes include the 2.5% capital conservation buffer.

	At December 31, 2022					Required for Capital Adequacy Purposes					To Be Well-capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	($ in thousands)
Common Equity Tier 1 Capital
Company	$	736,414		15.22	%	$	338,748		7.00	%		N/A		N/A
Bank		592,804		12.37	%		335,351		7.00	%	$	311,397		6.50	%
Tier 1 Capital
Company		736,414		15.22	%		411,337		8.50	%		N/A		N/A
Bank		592,804		12.37	%		407,212		8.50	%		383,258		8.00	%
Total Capital
Company		756,900		15.64	%		508,123		10.50	%		N/A		N/A
Bank		619,290		12.93	%		503,026		10.50	%		479,073		10.00	%
Leverage Ratio ⁽¹⁾
Company		736,414		10.18	%		289,259		4.00	%		N/A		N/A
Bank		592,804		8.26	%		287,229		4.00	%		359,036		5.00	%

⁽¹⁾ The leverage ratio consists of Tier 1capital divided by the most recent quarterly average total assets, excluding certain intangible assets.

- 78 -

	At December 31, 2021					Required for Capital Adequacy Purposes					To Be Well-capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	($ in thousands)
Common Equity Tier 1 Capital
Company	$	653,026		14.93	%	$	306,277		7.00	%		N/A		N/A
Bank		540,538		12.48	%		303,111		7.00	%	$	281,460		6.50	%
Tier 1 Capital
Company		653,026		14.93	%		371,908		8.50	%		N/A		N/A
Bank		540,538		12.48	%		368,063		8.50	%		346,412		8.00	%
Total Capital
Company		676,749		15.47	%		459,416		10.50	%		N/A		N/A
Bank		570,260		13.17	%		454,666		10.50	%		433,016		10.00	%
Leverage Ratio ⁽¹⁾
Company		653,026		9.06	%		288,423		4.00	%		N/A		N/A
Bank		540,538		7.55	%		286,432		4.00	%		358,040		5.00	%

⁽¹⁾	⁽¹⁾The leverage ratio consists of Tier 1capital divided by the most recent quarterly average total assets, excluding certain intangible assets.

- 78 -

At December 31, 2020

Required
for Capital
Adequacy Purposes

To Be Well-capitalized
Under Prompt Corrective
Action Regulations

Amount

Ratio

Amount

Ratio

Amount

Ratio

($ in thousands)

Common Equity Tier 1 Capital

Company
$ 604,833 16.04 % $ 263,903 7.00 % N/A N/A
Bank
484,270 13.00 % 260,755 7.00 % $ 242,130 6.50 %
Tier 1 Capital

Company
604,833 16.04 % 320,454 8.50 % N/A N/A
Bank
484,270 13.00 % 316,632 8.50 % 298,006 8.00 %
Total Capital

Company
628,797 16.68 % 395,855 10.50 % N/A N/A
Bank
514,234 13.80 % 391,133 10.50 % 372,508 10.00 %
Leverage Ratio ⁽¹⁾

Company
604,833 9.40 % 257,488 4.00 % N/A N/A
Bank
484,270 7.58 % 255,560 4.00 % 319,451 5.00 %

⁽¹⁾	~~The leverage ratio consists of Tier~~ ~~1capital~~ ~~divided by the most recent quarterly average total assets, excluding certain intangible assets.~~

Note 10: Income Taxes

Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the amounts reported in the financial statements of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Amounts for the current year are based upon estimates and assumptions as of the date of these financial statements and could vary significantly from amounts shown on the tax returns as filed. Net deferred tax assets are included with other assets in the consolidated balance sheets.

The components of the net deferred tax liability ~~are~~is as follows:

	At December 31,						At December 31,
	2021			2020			2022		2021
	(In thousands)						(In thousands)
Deferred tax asset
Allowance for credit losses	$	6,852		$	6,789		$	5,858	$	6,852
Unrealized losses on securities available for sale								107,493		-
State franchise taxes		2,518			2,262			3,805		2,518
Deferred compensation		4,524			4,789			4,091		4,524
Purchased assets and assumed liabilities		475			552			229		475
Post-retirement benefits		445			480			405		445
Employee benefit accruals		2,792			2,353			3,096		2,792
VISA Class B shares		348			284			507		348
Limited partnership investments		0			1,066
Impaired capital assets		2,673			2,429			-		2,673
Accrued liabilities		748			416			840		748
Premises and equipment		1,001			585			1,193		1,001
Lease liability		5,263			5,513			4,548		5,263
Other		103			800			99		103
Sub total deferred tax asset		27,742			28,318			132,164		27,742
Tax valuation		(1,776	)		0			-		(1,776	)
Total deferred tax asset		25,966			28,318			132,164		25,966
Deferred tax liability
Net deferred loan fees		196			106			193		196
Securities available for sale		20,845			48,021
Unrealized gains on securities available for sale								-		20,845
Right-of-use asset		5,263			5,513			4,548		5,263
Intangible assets		459			456			453		459
Limited partnership investments		1,704			0			1,830		1,704
Total deferred tax liability		28,467			54,096			7,024		28,467
Net deferred tax liability	$	(2,501	)	$	(25,778	)
Net deferred tax asset (liability)							$	125,140	$	(2,501	)

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At December 31, 2021, ~~and~~ ~~December 31, 2020,~~ the Company had $2,673 thousand ~~and $2,429 thousand, respectively,~~ deferred tax asset related to California capital loss carryforwards, which will expire if unutilized within five years of the year incurred. At December 31, 2021, ~~and~~ ~~December 31, 2020,~~ a valuation allowance recorded for the portion of the tax benefit that was expected to expire was $1,776 ~~thousand~~thousand. At December 31, 2022, the California capital loss carryforwards and ~~$-0-, respectively.~~related valuation allowance were zero due to expiration in 2022.

The provision for federal and state income taxes consists of amounts currently payable and amounts deferred as follows:

	For the Years Ended December 31,									For the Years Ended December 31,
	2021			2020			2019			2022			2021			2020
	(In thousands)									(In thousands)
Current income tax expense:
Federal	$	15,299		$	15,982		$	11,570		$	26,785		$	15,299		$	15,982
State		11,320			10,654			9,595			16,075			11,320			10,654
Total current		26,619			26,636			21,165			42,860			26,619			26,636
Deferred income tax expense (benefit):
Deferred income tax (benefit) expense:
Federal		1,281			(538	)		2,411			(1,349	)		1,281			(538	)
State		842			292			982			2,046			842			292
Total deferred		2,123			(246	)		3,393			697			2,123			(246	)
Change in valuation reserve:
Provision for income taxes
Federal		(472	)		0			(71	)		-			(472	)		-
State		2,248			0			340			-			2,248			-
Total change in valuation reserve		1,776			0			269			-			1,776			-
Provision for income taxes	$	30,518		$	26,390		$	24,827		$	43,557		$	30,518		$	26,390

The provision for income taxes differs from the provision computed by applying the statutory federal income tax rate to income before taxes, as follows:

	For the Years Ended December 31,									For the Years Ended December 31,
	2021			2020			2019			2022			2021			2020
	(In thousands)									(In thousands)
Federal income taxes due at statutory rate	$	24,576		$	22,429		$	22,095		$	34,774		$	24,576		$	22,429
Additions (reductions) in income taxes resulting from:
Interest on state and municipal securities and loans not taxable for federal income tax purposes		(2,070	)		(2,808	)		(3,584	)		(1,484	)		(2,070	)		(2,808	)
State franchise taxes, net of federal income tax benefit		9,757			8,647			8,625			14,315			9,757			8,647
Change in valuation reserve		1,776			0			269			-			1,776			-
Stock compensation deduction in excess of book expense		0			(62	)		(312	)
Stock compensation deduction less than (in excess of) book expense											30			-			(62	)
Tax credits		(2,621	)		(1,061	)		(1,040	)		(3,439	)		(2,621	)		(1,061	)
Dividend received deduction		(48	)		(44	)		(38	)		(56	)		(48	)		(44	)
Cash value life insurance		(389	)		(383	)		(464	)		(421	)		(389	)		(383	)
Other		(463	)		(328	)		(724	)		(162	)		(463	)		(328	)
Provision for income taxes	$	30,518		$	26,390		$	24,827		$	43,557		$	30,518		$	26,390

At December 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had 0no uncertain tax positions related to previous years’ tax returns which were under examination.

The Company classifies interest and penalties as a component of the provision for income taxes. For tax years 2022,2021 and 2020, 0no interest or penalties were recognized as a component of the provision for income taxes. At December 31, ~~2021,~~2022, the tax years ended December 31, ~~2020,~~2021, ~~2019~~2020 and ~~2018~~2019 remain subject to examination by the Internal Revenue Service and the tax years ended December 31, 2021, 2020,2019 and 2018 ~~and~~ ~~2017~~ remain subject to examination by the California Franchise Tax Board.

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Note 11: Fair Value Measurements

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

- 80 -

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

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

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

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

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

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

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

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Assets Recorded at Fair Value on a Recurring Basis

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

	At December 31, 2021								At December 31, 2022
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3) ⁽¹⁾		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3) ⁽¹⁾
	(In thousands)								(In thousands)
Debt securities available for sale
Agency residential mortgage-backed securities (MBS)	$	411,726	$	0	$	411,726	$	0
Securities of U.S. Government entities		119		0		119		0
Debt securities available for sale:
Agency residential MBS									$	286,048	$	-	$	286,048	$	-
Securities of U.S. Government sponsored entities										290,853		-		290,853		-
Obligations of states and political subdivisions		93,920		0		93,920		0		82,004		-		82,004		-
Corporate securities		2,746,735		0		2,746,735		0		2,099,955		-		2,099,955		-
Collateralized loan obligations		1,386,355		0		1,386,355		0		1,572,883		-		1,572,883		-
Total debt securities available for sale	$	4,638,855	$	0	$	4,638,855	$	0	$	4,331,743	$	-	$	4,331,743	$	-

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

	At December 31, 2021
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3) ⁽¹⁾
	(In thousands)
Debt securities available for sale:
Agency residential MBS	$	411,726	$	-	$	411,726	$	-
Securities of U.S. Government entities		119		-		119		-
Obligations of states and political subdivisions		93,920		-		93,920		-
Corporate securities		2,746,735		-		2,746,735		-
Collateralized loan obligations		1,386,355		-		1,386,355		-
Total debt securities available for sale	$	4,638,855	$	-	$	4,638,855	$	-

⁽¹⁾

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

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At December 31, 2020

Fair Value

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3) ⁽¹⁾

(In thousands)

Debt securities available for sale

Agency residential MBS
$ 652,952 $ 0 $ 652,952 $ 0
Securities of U.S. Government entities
154 0 154 0
Obligations of states and political subdivisions
111,010 0 111,010 0
Corporate securities
2,117,978 0 2,117,978 0
Commercial paper
24,990 0 24,990 0
Collateralized loan obligations
1,156,101 0 1,156,101 0
Total debt securities available for sale
$ 4,063,185 $ 0 $ 4,063,185 $ 0

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

Assets Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower-of-cost or fair-value accounting of individual assets. For assets measured at fair value on a nonrecurring basis that were recorded in the balance sheet at December 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the following tables provide the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets at period end.

For the

Year Ended

At December 31, 2021

December 31, 2021

Carrying Value

Level 1

Level 2

Level 3

Total Losses

(In thousands)

Loans:

Commercial real estate
$ 225 $ 0 $ 0 $ 225 $ 0
Residential real estate
172 0 0 172 0
Total assets measured at fair value on a nonrecurring basis
$ 397 $ 0 $ 0 $ 397 $ 0

									For the										For the
									Year Ended										Year Ended
	At December 31, 2020								December 31, 2020		At December 31, 2022								December 31, 2022
	Carrying Value		Level 1		Level 2		Level 3		Total Losses		Carrying Value		Level 1		Level 2		Level 3		Total Losses
	(In thousands)										(In thousands)
Loans:
Commercial	$	5,270	$	0	$	0	$	5,270	$	0
Commercial real estate		3,710		0		0		3,710		0	$	225	$	-	$	-	$	225	$	-
Residential real estate		181		0		0		181		0
Total assets measured at fair value on a nonrecurring basis	$	9,161	$	0	$	0	$	9,161	$	0	$	225	$	-	$	-	$	225	$	-

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									For the
									Year Ended
	At December 31, 2021								December 31, 2021
	Carrying Value		Level 1		Level 2		Level 3		Total Losses
	(In thousands)
Loans:
Commercial real estate	$	225	$	-	$	-	$	225	$	-
Residential real estate		172		-		-		172		-
Total assets measured at fair value on a nonrecurring basis	$	397	$	-	$	-	$	397	$	-

Level 3 – Valuation is based upon present value of expected future cash flows, independent market prices, estimated liquidation values of loan collateral or appraised value of the collateral as determined by third-party independent appraisers, less 10% for selling costs, generally. The unobservable inputs and qualitative information about the unobservable inputs are not presented as the inputs were not developed by the Company.

Disclosures about Fair Value of Financial Instruments

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

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

	At December 31, 2021										At December 31, 2022
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2 )		Significant Unobservable Inputs (Level 3 )		Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2 )		Significant Unobservable Inputs (Level 3 )
Financial Assets:	(In thousands)										(In thousands)
Cash and due from banks	$	1,132,085	$	1,132,085	$	1,132,085	$	0	$	0	$	294,236	$	294,236	$	294,236	$	-	$	-
Debt securities held to maturity		306,396		312,562		0		312,562		0		915,913		873,511		-		873,511		-
Loans		1,044,612		1,059,072		0		0		1,059,072		938,204		905,720		-		-		905,720

Financial Liabilities:
Deposits	$	6,413,956	$	6,413,244	$	0	$	6,270,344	$	142,900	$	6,225,290	$	6,224,791	$	-	$	6,094,535	$	130,256
Short-term borrowed funds		146,246		146,246		0		146,246		0		57,792		57,792		-		57,792		-

	At December 31, 2020										At December 31, 2021
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2 )		Significant Unobservable Inputs (Level 3 )		Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2 )		Significant Unobservable Inputs (Level 3 )
Financial Assets:	(In thousands)										(In thousands)
Cash and due from banks	$	621,275	$	621,275	$	621,275	$	0	$	0	$	1,132,085	$	1,132,085	$	1,132,085	$	-	$	-
Debt securities held to maturity		515,589		529,678		0		529,678		0		306,396		312,562		-		312,562		-
Loans		1,232,389		1,290,938		0		0		1,290,938		1,044,612		1,059,072		-		-		1,059,072

Financial Liabilities:
Deposits	$	5,687,979	$	5,688,049	$	0	$	5,531,590	$	156,459	$	6,413,956	$	6,413,244	$	-	$	6,270,344	$	142,900
Short-term borrowed funds		102,545		102,545		0		102,545		0		146,246		146,246		-		146,246		-

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

Note 12: Commitments and Contingent Liabilities

Loan commitments are agreements to lend to a customer provided there is no violation of any condition established in the agreement. Certain agreements provide the Company the right to cancel or reduce its obligations to lend to customers. The portions that are not unconditionally cancellable ~~unconditionally~~ by the Company aggregated ~~$34,226~~$31,889 thousand at December 31, ~~2021.~~2022. Commitments generally have fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future funding requirements. Loan commitments are subject to the Company’s normal credit policies and collateral requirements. Unfunded loan commitments were $202,696 thousand at December 31, 2022 and $233,850 thousand at December 31, ~~2021~~ ~~and $277,878 thousand at~~ ~~December 31, 2020.~~2021. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. Standby letters of credit are primarily issued to support customers’ short-term financing requirements and must meet the Company’s normal credit policies and collateral requirements. Financial and performance standby letters of credit outstanding totaled $1,948 thousand at December 31, 2022 and $3,693 thousand at December 31, ~~2021~~ ~~and $2,357 thousand at~~ ~~December 31, 2020.~~2021. Commitments for commercial and similar letters of credit totaled $95 thousand at December 31, ~~2021~~2022 and ~~there were 0 such outstanding commitments at~~ December 31, ~~2020.~~2021. The Company had ~~$580~~$950 thousand in outstanding full recourse guarantees to a 3third^rd party credit card company at December 31, ~~2021~~2022 and $580 thousand at December 31, ~~2020.~~2021. At December 31, ~~2021,~~2022, the Company had a reserve for unfunded commitments of $201 thousand for the above-mentioned loan commitments of ~~$34,226~~$31,889 thousand that are not unconditionally cancellable ~~unconditionally~~ by the Company. The Company’s reserve for unfunded commitments was ~~$101~~$201 thousand at December 31, ~~2020.~~2021. The reserve for unfunded commitments is ~~included in other liabilities.~~

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~~The Company determined that it will be obligated to provide refunds of revenue recognized in years prior to~~ ~~2018~~ ~~to some customers. The Company initially estimated the probable amount of these obligations to be $5,542 thousand and accrued a liability for such amount in~~ ~~2017;~~ ~~based on additional information received in the~~ ~~second~~ ~~quarter~~ ~~2019,~~ ~~the Company increased such liability to $5,843 thousand by recognizing an expense of $301 thousand. The Company paid $452 thousand and $4,410 thousand during the year ended~~ ~~December 31, 2021~~ ~~and~~ ~~December 31, 2020,~~ ~~respectively, to customers eligible for refunds. The remaining accrued obligations at~~ ~~December 31, 2021~~ ~~totaled $981 thousand,~~ included in other liabilities.

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

Note 13: Retirement Benefit Plans

The Company sponsors a qualified defined contribution Deferred Profit-Sharing Plan covering substantially all of its salaried employees with one or more years of service. The costs charged to noninterest expense related to discretionary Company contributions to the Deferred Profit-Sharing Plan were $1,030 thousand in 2022,$1,028 thousand in 2021 and $917 thousand in ~~2020~~ ~~and $1,000 thousand in~~ ~~2019.~~2020.

The Company also sponsors a qualified defined contribution Tax Deferred Savings/Retirement Plan (ESOP) covering salaried employees who become eligible to participate upon completion of a 90-day introductory period. The Tax Deferred Savings/ Retirement Plan (ESOP) allows employees to defer, on a pretax or after-tax basis, a portion of their salaries as contributions to this Plan. Participants may invest in several funds, including one fund that invests primarily in Westamerica Bancorporation common stock. The Company funds contributions to match participating employees’ contributions, subject to certain limits. The matching contributions charged to compensation expense were $921 thousand in 2022,$972 thousand in 2021 and $995 thousand in ~~2020~~ ~~and $986 thousand in~~ ~~2019.~~2020.

The Company offers a continuation of group insurance coverage to eligible employees electing early retirement, for the period from the date of retirement until age 65. For eligible employees the Company pays a portion of these early retirees’ group insurance premiums. The Company also reimburses a portion of Medicare Part B premiums for all qualifying retirees over age 65 and, if eligible, their spouses. Eligibility for post-retirement medical benefits is based on age and years of service, and restricted to employees hired prior to February 1, 2006 who elect early retirement prior to January 1, ~~2021.~~2023. The Company uses an actuarial-based accrual method of accounting for post-retirement benefits. The Company used a December 31 measurement date for determining post-retirement medical benefit calculations.

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The following tables set forth the net periodic post-retirement benefit cost and the change in the benefit obligation for the year ended December 31 and the funded status of the post-retirement benefit plan as of December 31:

Net Periodic Benefit Cost

	At December 31,									At December 31,
	2021			2020			2019			2022			2021			2020
	(In thousands)									(In thousands)
Service benefit	$	(15	)	$	(35	)	$	(57	)	$	(19	)	$	(15	)	$	(35	)
Interest cost		30			52			72			38			30			52
Net periodic cost	$	15		$	17		$	15		$	19		$	15		$	17

- 84 -

Obligation and Funded Status

	At December 31,									At December 31,
	2021			2020			2019			2022			2021			2020
Change in benefit obligation	(In thousands)									(In thousands)
Benefit obligation at beginning of year	$	1,654		$	1,782		$	1,913		$	1,527		$	1,654		$	1,782
Service benefit		(15	)		(35	)		(57	)	$	(19	)		(15	)		(35	)
Interest cost		30			52			72			38			30			52
Benefits paid		(142	)		(145	)		(146	)		(145	)		(142	)		(145	)
Benefit obligation at end of year	$	1,527		$	1,654		$	1,782		$	1,401		$	1,527		$	1,654
Accumulated post-retirement benefit obligation attributable to:
Retirees	$	1,527		$	1,654		$	1,782		$	1,401		$	1,527		$	1,654
Other		0			0			0			-			-			-
Total	$	1,527		$	1,654		$	1,782		$	1,401		$	1,527		$	1,654
Fair value of plan assets		0			0			0			-			-			-
Accumulated post-retirement benefit obligation in excess of plan assets	$	1,527		$	1,654		$	1,782		$	1,401		$	1,527		$	1,654

Additional Information

Assumptions

	At December 31,									At December 31,
	2021			2020			2019			2022			2021			2020

Weighted-average assumptions used to determine benefit obligations
Discount rate		2.46	%		1.80	%		2.90	%		5.01	%		2.46	%		1.80	%
Weighted-average assumptions used to determine net periodic benefit cost
Discount rate		1.80	%		2.90	%		3.76	%		2.46	%		1.80	%		2.90	%

The above discount rate is based on the expected return of a portfolio of Corporate Aa debt, the term of which approximates the term of the benefit obligations. The Company reserves the right to terminate or alter post-employment health benefits. Post-retirement medical benefits are currently fixed amounts without provision for future increases; as a result, the assumed annual average rate of inflation used to measure the expected cost of benefits covered by this program is zero percent for 2022 and beyond.

	Estimated future benefit payments		Estimated future benefit payments
	(In thousands)		(In thousands)
2022	$	143
2023		143	$	144
2024		142		144
2025		142		144
2026		135		141
Years 2027-2031		534
2027				132
Years 2028-2032				522

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- 85 -

Note 14: Related Party Transactions

Certain of the Directors, executive officers and their associates have had banking transactions with subsidiaries of the Company in the ordinary course of business. The table below reflects information concerning loans to certain directors and executive officers and/or family members during ~~2021~~2022 and ~~2020:~~2021:

	2021			2020			2022			2021
	($ in thousands)						($ in thousands)

Balance at January 1,	$	499		$	533		$	454		$	499
Originations		0			0			-			-
Principal reductions		(45	)		(34	)	$	(54	)		(45	)
Balance at December 31,	$	454		$	499		$	400		$	454
Percent of total loans outstanding.		0.04	%		0.04	%		0.04	%		0.04	%

Note 15: Regulatory Matters

Payment of dividends to the Company by the Bank is limited under regulations for state chartered banks. The amount that can be paid in any calendar year, without prior approval from regulatory agencies, cannot exceed the net profits (as defined) for the preceding three calendar years less dividends paid. The Company consistently has paid quarterly dividends to its shareholders since its formation in 1972.

Note 16: Other Comprehensive Income (loss)

The components of other comprehensive income (loss) and other related tax effects were:

2021

Before tax

Tax effect

Net of tax

(In thousands)

Debt securities available for sale:

Changes in net unrealized gains arising during the year
$ (91,891 ) $ 27,167 $ (64,724 )
Reclassification of gains included in net income
(34 ) 10 (24 )
Other comprehensive income
$ (91,925 ) $ 27,177 $ (64,748 )

	2022
	Before tax			Tax effect		Net of tax
	(In thousands)
Debt securities available for sale:
Changes in net unrealized losses/gains arising during the year	$	(434,107	)	$	128,338	$	(305,769	)
Other comprehensive loss	$	(434,107	)	$	128,338	$	(305,769	)

	2021
	Before tax			Tax effect		Net of tax
	(In thousands)
Debt securities available for sale:
Changes in net unrealized gains arising during the year	$	(91,891	)	$	27,167	$	(64,724	)
Reclassification of gains included in net income		(34	)		10		(24	)
Other comprehensive loss	$	(91,925	)	$	27,177	$	(64,748	)

	2020
	Before tax			Tax effect			Net of tax
	(In thousands)
Debt securities available for sale:
Changes in net unrealized gains arising during the year	$	125,519		$	(37,108	)	$	88,411
Reclassification of gains included in net income		(71	)		21			(50	)
Other comprehensive income	$	125,448		$	(37,087	)	$	88,361

2019

Before tax

Tax effect

Net of tax

(In thousands)

Debt securities available for sale:

Changes in net unrealized gains arising during the year
$ 93,936 $ (27,771 ) $ 66,165
Reclassification of gains included in net income
(167 ) 49 (118 )
Other comprehensive income
$ 93,769 $ (27,722 ) $ 66,047

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- 86 -

Accumulated other comprehensive income (loss) balances were:

	Accumulated Other Comprehensive (Loss) Income			Accumulated Other Comprehensive Income (Loss)
	(In thousands)			(In thousands)
Balance, December 31, 2018	$	(39,996	)
Changes in unrealized (losses) gains on debt securities available for sale, net of tax		66,047
Balance, December 31, 2019		26,051		$	26,051
Changes in unrealized gains on debt securities available for sale, net of tax		88,361			88,361
Balance, December 31, 2020		114,412			114,412
Changes in unrealized gains on debt securities available for sale, net of tax		(64,748	)		(64,748	)
Balance, December 31, 2021	$	49,664			49,664
Changes in unrealized losses/gains on debt securities available for sale, net of tax					(305,769	)
Balance, December 31, 2022				$	(256,105	)

Note 17: Earnings Per Common Share

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

	For the Years Ended December 31,						For the Years Ended December 31,
	2021		2020		2019		2022		2021		2020
	(In thousands, except per share data)						(In thousands, except per share data)
Net income (numerator)	$	86,509	$	80,413	$	80,389	$	122,034	$	86,509	$	80,413
Basic earnings per common share
Weighted average number of common shares outstanding - basic (denominator)		26,855		26,942		26,956		26,895		26,855		26,942
Basic earnings per common share	$	3.22	$	2.98	$	2.98	$	4.54	$	3.22	$	2.98
Diluted earnings per common share
Weighted average number of common shares outstanding - basic		26,855		26,942		26,956		26,895		26,855		26,942
Add common stock equivalents for options		15		18		50		12		15		18
Weighted average number of common shares outstanding - diluted (denominator)		26,870		26,960		27,006		26,907		26,870		26,960
Diluted earnings per common share	$	3.22	$	2.98	$	2.98	$	4.54	$	3.22	$	2.98

For the years ended December 31, ~~2021,~~2022, ~~2020~~2021 and ~~2019,~~2020, options to purchase 787 thousand, 649 thousand ~~577 thousand~~ and ~~382~~577 thousand shares of common stock, respectively, were outstanding but not included in the computation of diluted earnings per common share because the option exercise price exceeded the fair value of the stock such that their inclusion would have had an anti-dilutive effect.

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87 -

Note 18: Westamerica Bancorporation (Parent Company Only Condensed Financial Information)

Statements of Income and Comprehensive Income

	For the Years Ended December 31,								For the Years Ended December 31,
	2021			2020			2019		2022			2021			2020
	(In thousands)								(In thousands)
Dividends from subsidiaries	$	29,279		$	10,783		$	80,067	$	70,267		$	29,279		$	10,783
Interest income		44			56			54		49			44			56
Other income		11,608			11,438			8,778		11,386			11,608			11,438
Total income		40,931			22,277			88,899		81,702			40,931			22,277
Salaries and benefits		6,612			7,107			6,978		5,832			6,612			7,107
Other expense		2,279			2,206			3,729		2,609			2,279			2,206
Total expense		8,891			9,313			10,707		8,441			8,891			9,313
Income before taxes and equity in undistributed income of subsidiaries		32,040			12,964			78,192		73,261			32,040			12,964
Income tax (expense) benefit		(645	)		(454	)		636
Income tax expense										(881	)		(645	)		(454	)
Earnings of subsidiaries greater than subsidiary dividends		55,114			67,903			1,561		49,654			55,114			67,903
Net income		86,509			80,413			80,389		122,034			86,509			80,413
Other comprehensive (loss) income, net of tax		(64,748	)		88,361			66,047		(305,769	)		(64,748	)		88,361
Comprehensive income	$	21,761		$	168,774		$	146,436
Comprehensive (loss) income									$	(183,735	)	$	21,761		$	168,774

Balance Sheets

At December 31,

2021

2020

(In thousands)

Assets

Cash
$ 69,943 $ 78,364
Investment in Westamerica Bank
720,614 730,248
Investment in non-bank subsidiaries
454 455
Premises and equipment, net
9,968 10,459
Accounts receivable from Westamerica Bank
224 257
Other assets
42,026 40,852
Total assets
$ 843,229 $ 860,635
Liabilities

Accounts payable to Westamerica Bank
$ 62 $ 29
Other liabilities
16,065 15,797
Total liabilities
16,127 15,826
Shareholders' equity
827,102 844,809
Total liabilities and shareholders' equity
$ 843,229 $ 860,635

	At December 31,
	2022		2021
	(In thousands)
Assets
Cash	$	99,478	$	69,943
Investment in Westamerica Bank		464,500		720,614
Investment in non-bank subsidiaries		453		454
Premises and equipment, net		9,411		9,968
Accounts receivable from Westamerica Bank		245		224
Other assets		44,831		42,026
Total assets	$	618,918	$	843,229
Liabilities
Accounts payable to Westamerica Bank	$	40	$	62
Other liabilities		16,768		16,065
Total liabilities		16,808		16,127
Shareholders' equity		602,110		827,102
Total liabilities and shareholders' equity	$	618,918	$	843,229

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- 88 -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of

Westamerica Bancorporation

San Rafael, California

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Westamerica Bancorporation (the "Company") as of December 31, ~~2021~~2022 and ~~2020,~~2021, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, ~~2021,~~2022, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, ~~2021,~~2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, ~~2021~~2022 and ~~2020,~~2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, ~~2021~~2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2021,~~2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

~~Change in Accounting Principle~~

As discussed in Note 1 to the financial statements, the Company changed its method of accounting for credit losses effective January 1, 2020 due to the adoption of Financial Accounting Standard Board (FASB) Accounting Standards Codification No. 326, Financial Instruments – Credit Losses (ASC 326). The Company adopted the new credit loss standard using the modified retrospective method provided in ASC 326 such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

��

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

(Continued)

- 91 -

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses on Loans – Reasonable and Supportable Forecasts - Refer to Notes 1 and 3 to the financial statements

The allowance for credit losses on loans is an accounting estimate of expected credit losses over the estimated life of ~~financial assets carried at amortized cost and off-balance-sheet credit exposures.~~loans. ASC 326, Financial Instruments – Credit Losses, requires a financial asset (or a group of financial assets), including the Company's loan portfolio, measured at amortized cost, to be presented at the net amount expected to be collected. The allowance for credit losses on loans as of December 31, ~~2021~~2022 was ~~$23,514,000.~~$20,284,000.

The Company estimates the amount of expected losses over the life of its existing loan portfolio and establishes an allowance for credit losses. Loans that share common risk characteristics are segregated into pools based on those characteristics. Historical loss rates are determined for each pool. Historical loss rates are adjusted for estimated losses based on current conditions and management’s reasonable and supportable forecasts of economic trends over a forecast horizon of up to two years. Significant management judgments are required in the development and application of reasonable and supportable forecasts.

We identified the development and application of reasonable and supportable forecasts as a critical audit matter because of the significant auditor judgment and audit effort to evaluate the subject judgments made by management, including the need to involve more experienced audit personnel.

The primary procedures we performed to address this critical audit matter included:

●

Testing the effectiveness of controls over the ~~development and~~ application of reasonable and supportable forecasts, including controls addressing:

The ~~conceptual design of the~~ reasonable and supportable forecasts methodology,

Significant judgments and assumptions in the reasonable and supportable forecasts methodology, including the selection and application of economic variables,

The accuracy of the reasonable and supportable forecasts calculation, including the completeness, accuracy and relevance of underlying data.

(Continued)

- 92 -

●

Substantively testing management’s process for the ~~development and~~ application of reasonable and supportable forecasts, including:

Evaluation of the ~~conceptual design of the~~ reasonable and supportable forecasts methodology,

Evaluation of significant judgments and assumptions in the reasonable and supportable forecasts methodology, including the selection and application of economic variables,

Evaluation of the accuracy of the reasonable and supportable forecasts calculation, including the completeness, accuracy and relevance of underlying data.

/s/ Crowe LLP

Crowe LLP

We have served as the Company's auditor since 2015.

Sacramento, California

February ~~25, 2022~~

28, 2023

- 93 -

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, as of December 31, ~~2021.~~2022.

Based upon their evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported as and when required and that such information is communicated to the Company’s management, including the principal executive officer and the principal financial officer, to allow for timely decisions regarding required disclosures. The evaluation did not identify any change in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Management’s Report on Internal Control Over Financial Reporting and the attestation Report of Independent Registered Public Accounting Firm are found on pages 50 and 91, respectively.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE

The information required by this Item 10 of this Annual Report on Form 10-K is incorporated by reference from the information contained in the Company’s Proxy Statement for its ~~2022~~2023 Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A of the Exchange Act.

The Company has adopted a Code of Ethics (as defined in Item 406 of Regulation S-K of the Securities Act of 1933) that is applicable to its senior financial officers including its chief executive officer, chief financial officer, and principal accounting officer.

The information required by this Item 11 of this Annual Report on Form 10-K is incorporated by reference from the information contained in the Company’s Proxy Statement for its ~~2022~~2023 Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A of the Exchange Act.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item 12 of this Annual Report on Form 10-K is incorporated by reference from the information contained in the Company’s Proxy Statement for its ~~2022~~2023 Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A of the Exchange Act.

The following table summarizes the status of the Company’s equity compensation plans as of December 31, ~~2021:~~2022:

ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this Item 13 of this Annual Report on Form 10-K is incorporated by reference from the information contained in the Company’s Proxy Statement for its ~~2022~~2023 Annual Meeting of Shareholders, which will be filed pursuant to Regulation 14A of the Exchange Act.

The information required by this Item 14 of this Annual Report on Form 10-K is incorporated by reference from the information contained in the Company’s Proxy Statement for its ~~2022~~2023 Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A of the Exchange Act.

The exhibits listed above are available through the SEC’s website (https://www.sec.gov). Alternatively, the Company will furnish to shareholders a copy of any exhibit listed above, but not contained herein, upon written request to the Office of the Corporate Secretary A-2M, Westamerica Bancorporation, P.O. Box 1200, Suisun City, California 94585-1200, and payment to the Company of $.25 per page.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

California	94-2156203
(State or Other Jurisdiction	(I.R.S. Employer
of Incorporation or Organization)	Identification Number)

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

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

	• ●	The FDIC will monitor deposit balance trends, potential losses, and other factors that affect the reserve ratio;
	•●	The FDIC will maintain the current schedule of assessment rates for all insured depository institutions; and
	•●	At least semiannually, the FDIC will update its analysis and projections for the DIF and, if necessary, recommend any modifications to the Plan, such as increasing assessment rates.

	•●	banks that have less than $10 billion in total consolidated assets and total trading assets and trading liabilities of less than five percent of total consolidated assets are exempt from Section 619 of the Dodd-Frank Act, known as the “Volcker Rule”, which prohibits “proprietary trading” and the ownership or sponsorship of private equity or hedge funds that are referred to as “covered funds”; and
	•●	a new “community bank leverage ratio” was adopted, which is applicable to certain banks and bank holding companies with total assets of less than $10 billion (as described above under “Capital Requirements”).

	Page
PART I
Item 1	Business	2
Item 1A	Risk Factors	109
Item 1B	Unresolved Staff Comments	16
Item 2	Properties	16
Item 3	Legal Proceedings	16
Item 4	Mine Safety Disclosures	16
PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	1716
Item 6 [Reserved]	~~Selected Financial Data~~18	20
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2119
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	49
Item 8	Financial Statements and Supplementary Data	49
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	94
Item 9A	Controls and Procedures	94
Item 9B	Other Information	94
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	94
PART III
Item 10	Directors, Executive Officers and Corporate Governance	94
Item 11	Executive Compensation	94
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	95
Item 13	Certain Relationships, Related Transactions and Director Independence	95
Item 14	Principal Accountant Fees and Services	95
PART IV
Item 15	Exhibits, Financial Statement Schedules	95
Item 16 Form 10-K Summary	97
Signatures	98

	December 31,
	2011		2012		2013		2014		2015		2016
Westamerica Bancorporation (WABC)	$	100.00	$	100.23	$	137.08	$	122.75	$	121.03	$	167.97
S&P 500 (SPX)		100.00		115.80		153.22		174.01		176.34		197.39
NASDAQ Bank Index (CBNK)		100.00		118.23		167.68		175.82		191.19		263.47

	December 31,
	2017		2018		2019		2020		2021
Westamerica Bancorporation (WABC)	$	163.51	$	156.98	$	196.09	$	164.54	$	176.74
S&P 500 (SPX)		240.40		229.75		301.84		357.60		460.07
NASDAQ Bank Index (CBNK)		277.52		232.25		288.47		266.79		381.08

	~~2021~~2022
Period	(a) Total Number of shares Purchased		(b) Average Price Paid per Share		(c) Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
	(In thousands, except exercise price)
October 1 through October 31		-	$	-		-		1,750
November 1 through November 30		-		-		-		1,750
December 1 through December 31		-		-		-		1,750
Total		-	$	-		-		1,750

WESTAMERICA BANCORPORATION
FINANCIAL SUMMARY

	For the Years Ended December 31,
	2021			2020			2019			2018			2017
	(In thousands, except per share data and ratios)
Interest and loan fee income	$	173,443		$	165,856		$	158,682		$	151,723		$	138,312
Interest expense		1,955			1,824			1,888			1,959			1,900
Net interest and loan fee income		171,488			164,032			156,794			149,764			136,412
Provision (reversal) for credit losses		-			4,300			-			-			(1,900	)
Noninterest income:
Gains on sales of property		-			3,536			-			216			332
Securities gains (losses)		34			71			217			(52	)		7,955
Other noninterest income		43,311			42,030			47,191			47,985			48,341
Total noninterest income		43,345			45,637			47,408			48,149			56,628
Noninterest expense:
Loss contingency		-			-			553			3,500			5,542
Other noninterest expense		97,806			98,566			98,433			103,416			102,226
Total noninterest expense		97,806			98,566			98,986			106,916			107,768
Income before income taxes		117,027			106,803			105,216			90,997			87,172
Income tax provision		30,518			26,390			24,827			19,433			37,147
Net income	$	86,509		$	80,413		$	80,389		$	71,564		$	50,025

Average common shares outstanding		26,855			26,942			26,956			26,649			26,291
Average diluted common shares outstanding		26,870			26,960			27,006			26,756			26,419
Common shares outstanding at December 31,		26,866			26,807			27,062			26,730			26,425

Per common share:
Basic earnings	$	3.22		$	2.98		$	2.98		$	2.69		$	1.90
Diluted earnings		3.22			2.98			2.98			2.67			1.89
Book value at December 31,		30.79			31.51			27.03			23.03			22.34

Financial ratios:
Return on assets		1.23	%		1.30	%		1.44	%		1.27	%		0.92	%
Return on common equity		11.52	%		11.30	%		11.90	%		11.35	%		8.39	%
Net interest margin (FTE)⁽¹⁾		2.62	%		2.91	%		3.11	%		2.98	%		2.95	%
Net loan losses to average loans		0.03	%		0.16	%		0.16	%		0.14	%		0.08	%
Efficiency ratio⁽²⁾		45.0	%		46.2	%		47.4	%		52.5	%		52.5	%
Equity to assets		11.09	%		12.52	%		13.02	%		11.05	%		10.71	%

Period end balances:
Assets	$	7,461,026		$	6,747,931		$	5,619,555		$	5,568,526		$	5,513,046
Loans		1,068,126			1,256,243			1,126,664			1,207,202			1,287,982
Allowance for credit losses		23,514			23,854			19,484			21,351			23,009
Investment securities		4,945,258			4,578,783			3,816,918			3,641,026			3,352,371
Deposits		6,413,956			5,687,979			4,812,621			4,866,839			4,827,613
Identifiable intangible assets and goodwill		122,508			122,777			123,064			123,602			125,523
Short-term borrowed funds		146,246			102,545			30,928			51,247			58,471
Shareholders' equity		827,102			844,809			731,417			615,591			590,239

Capital ratios at period end:
Total risk based capital		15.47	%		16.68	%		16.83	%		17.03	%		16.17	%
Tangible equity to tangible assets		9.60	%		10.90	%		11.07	%		9.04	%		8.63	%

Dividends paid per common share	$	1.65		$	1.64		$	1.63		$	1.60		$	1.57
Common dividend payout ratio		51	%		55	%		55	%		60	%		83	%

	For the Year Ended December 31, 2021
			Interest
	Average		Income/		Yields/
	Balance		Expense		Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	4,267,522	$	106,329		2.49	%
Tax-exempt ⁽¹⁾		312,946		10,677		3.41	%
Total investments ⁽¹⁾		4,580,468		117,006		2.55	%
Loans:
Taxable:
PPP loans		152,149		7,639		5.02	%
Other		992,454		48,376		4.87	%
Total taxable		1,144,603		56,015		4.89	%
Tax-exempt ⁽¹⁾		50,532		1,953		3.87	%
Total loans ⁽¹⁾		1,195,135		57,968		4.85	%
Total interest-bearing cash		857,029		1,132		0.13	%
Total Interest-earning assets ⁽¹⁾		6,632,632		176,106		2.65	%
Other assets		406,652
Total assets	$	7,039,284

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,897,244	$	-		-	%
Savings and interest-bearing transaction		3,050,859		1,445		0.05	%
Time less than $100,000		83,580		167		0.20	%
Time $100,000 or more		69,165		265		0.38	%
Total interest-bearing deposits		3,203,604		1,877		0.06	%
Securities sold under agreements to repurchase		114,266		78		0.07	%
Federal Funds purchased		1		-		0.87	%
Other borrowed funds		53		-		0.35	%
Total interest-bearing liabilities		3,317,924		1,955		0.06	%
Other liabilities		73,447
Shareholders' equity		750,669
Total liabilities and shareholders' equity	$	7,039,284
Net interest spread ^{(1) (2)}						2.59	%
Net interest and fee income and interest margin ^{(1) (3)}			$	174,151		2.62	%

	For the Year Ended December 31, 2020
			Interest
	Average		Income/		Yields/
	Balance		Expense		Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	3,689,769	$	93,163		2.52	%
Tax-exempt ⁽¹⁾		460,191		15,395		3.35	%
Total investments ⁽¹⁾		4,149,960		108,558		2.62	%
Loans:
Taxable:
PPP loans		151,320		6,516		4.31	%
Other		1,039,724		51,336		4.94	%
Total taxable		1,191,044		57,852		4.86	%
Tax-exempt ⁽¹⁾		48,100		1,931		4.01	%
Total loans ⁽¹⁾		1,239,144		59,783		4.82	%
Total interest-bearing cash		371,444		1,165		0.31	%
Total Interest-earning assets ⁽¹⁾		5,760,548		169,506		2.94	%
Other assets		413,922
Total assets	$	6,174,470

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,538,819	$	-		-	%
Savings and interest-bearing transaction		2,603,476		1,258		0.05	%
Time less than $100,000		91,519		193		0.21	%
Time $100,000 or more		72,363		319		0.44	%
Total interest-bearing deposits		2,767,358		1,770		0.06	%
Securities sold under agreements to repurchase		80,455		53		0.07	%
Federal funds purchased		1		-		0.88	%
Other borrowed funds		174		1		0.35	%
Total interest-bearing liabilities		2,847,988		1,824		0.06	%
Other liabilities		76,109
Shareholders' equity		711,554
Total liabilities and shareholders' equity	$	6,174,470
Net interest spread ^{(1) (2)}						2.88	%
Net interest and fee income and interest margin ^{(1) (3)}			$	167,682		2.91	%

	For the Year Ended December 31, 2019
			Interest
	Average		Income/		Yields/
	Balance		Expense		Rates
	($ in thousands)
Assets
Investment securities:
Taxable	$	3,089,099	$	77,800		2.52	%
Tax-exempt ⁽¹⁾		615,665		19,923		3.24	%
Total investments ⁽¹⁾		3,704,764		97,723		2.64	%
Loans:
Taxable		1,112,250		56,550		5.08	%
Tax-exempt ⁽¹⁾		49,529		2,028		4.10	%
Total loans ⁽¹⁾		1,161,779		58,578		5.04	%
Total interest bearing cash		324,733		6,993		2.15	%
Total interest-earning assets⁽¹⁾		5,191,276		163,294		3.14	%
Other assets		405,833
Total assets	$	5,597,109

Liabilities and shareholders' equity
Noninterest-bearing demand	$	2,222,876	$	-		-	%
Savings and interest-bearing transaction		2,396,604		1,274		0.05	%
Time less than $100,000		103,399		254		0.25	%
Time $100,000 or more		78,925		326		0.41	%
Total interest-bearing deposits		2,578,928		1,854		0.07	%
Securities sold under agreements to repurchase		51,441		34		0.07	%
Federal funds purchased		1		-		1.98	%
Total interest-bearing liabilities		2,630,370		1,888		0.07	%
Other liabilities		68,351
Shareholders' equity		675,512
Total liabilities and shareholders' equity	$	5,597,109
Net interest spread ^{(1) (2)}						3.07	%
Net interest and fee income and interest margin ^{(1) (3)}			$	161,406		3.11	%

	For the Year Ended December 31, 2021									For the Year Ended December 31, 2022
	Compared with									Compared with
	For the Year Ended December 31, 2020									For the Year Ended December 31, 2021
	Volume			Yield/Rate			Total			Volume			Yield/Rate			Total
	(In thousands)									(In thousands)
Increase (decrease) in interest and loan fee income:
Investment securities:
Taxable	$	14,588		$	(1,422	)	$	13,166		$	20,590		$	31,546		$	52,136
Tax-exempt ⁽¹⁾		(4,926	)		208			(4,718	)		(3,522	)		235			(3,287	)
Total investments ⁽¹⁾		9,662			(1,214	)		8,448			17,068			31,781			48,849
Loans:
Taxable:
PPP loans		42			1,081			1,123			(18,610	)		13,406			(5,204	)
Other		(2,334	)		(626	)		(2,960	)		(2,854	)		317			(2,537	)
Total taxable		(2,292	)		455			(1,837	)		(21,464	)		13,723			(7,741	)
Tax-exempt ⁽¹⁾		98			(76	)		22			(158	)		(14	)		(172	)
Total loans ⁽¹⁾		(2,194	)		379			(1,815	)		(21,622	)		13,709			(7,913	)
Total interest-bearing cash		1,523			(1,556	)		(33	)		(219	)		6,877			6,658
Total increase (decrease) in interest and loan fee income ⁽¹⁾		8,991			(2,391	)		6,600
Total (decrease) increase in interest and loan fee income ⁽¹⁾											(4,773	)		52,367			47,594
Increase (decrease) in interest expense:
Deposits:
Savings and interest-bearing transaction		216			(29	)		187			98			(33	)		65
Time less than $100,000		(17	)		(9	)		(26	)		(13	)		26			13
Time $100,000 or more		(14	)		(40	)		(54	)		(26	)		(83	)		(109	)
Total interest-bearing deposits		185			(78	)		107			59			(90	)		(31	)
Securities sold under agreements to repurchase		22			3			25			(3	)		4			1
Other borrowed funds		(1	)		-			(1	)
Total increase (decrease) in interest expense		206			(75	)		131			56			(86	)		(30	)
Increase (decrease) in net interest and loan fee income ⁽¹⁾	$	8,785		$	(2,316	)	$	6,469
(Decrease) increase in net interest and loan fee income ⁽¹⁾										$	(4,829	)	$	52,453		$	47,624

	At December 31, 2021
	Within one year			After one but within five years			After five but within ten years			After ten years			Mortgage- backed			Total
	($ in thousands)
Securities of U.S. Government entities	$	-		$	119		$	-		$	-		$	-		$	119
Interest rate		-	%		2.59	%		-	%		-	%		-	%		2.59	%
Obligations of states and political subdivisions		3,576			35,705			54,639			-			-			93,920
Interest rate		4.10	%		3.41	%		2.92	%		-	%		-	%		3.07	%
Corporate securities		305,681			697,595			1,528,846			214,613			-			2,746,735
Interest rate		2.61	%		3.24	%		2.62	%		2.36	%		-	%		2.72	%
Collaterized loan obligations		-			4,638			763,757			617,960			-			1,386,355
Interest rate		-	%		2.12	%		1.76	%		1.83	%		-	%		1.79	%
Subtotal		309,257			738,057			2,347,242			832,573			-			4,227,129
Interest rate		2.63	%		3.24	%		2.35	%		1.97	%		-	%		2.42	%
MBS		-			-			-			-			411,726			411,726
Interest rate		-	%		-	%		-	%		-	%		1.86	%		1.86	%
Total	$	309,257		$	738,057		$	2,347,242		$	832,573		$	411,726		$	4,638,855
Interest rate		2.63	%		3.24	%		2.35	%		1.97	%		1.86	%		2.37	%

	At December 31, 2021
	Market value
	($ in thousands)
Hotels	$	-
Restaurants		20,478
Department Stores		-
Casinos		-
Airlines		-
Other		105,208
Total Consumer, Cyclical	$	125,686

	At December 31, 2022
	Fair value		As a percent of total corporate securities
	($ in thousands)
United States of America	$	1,997,328		72	%
Canada		192,475		7	%
United Kingdom		171,819		6	%
Japan		161,804		6	%
France		87,781		3	%
Switzerland		86,396		3	%
Netherlands		33,216		1	%
Australia		23,870		1	%
Belgium		20,243		1	%
Germany		12,429		-	%
Total corporate securities	$	2,787,361		100	%

	At December 31, 2022
	Fair value		As a percent of total foreign corporate securities
	($ in thousands)
Financial	$	680,956		86	%
Consumer, Non-cyclical		32,684		4	%
Energy		30,600		4	%
Basic Materials		23,870		3	%
Consumer, Cyclical		12,429		2	%
Utilities		9,494		1	%
Total foreign corporate securities	$	790,033		100	%

	At December 31, 2021
	Amortized		Fair
	Cost		Value
	(In thousands)
Energy	$	95,380	$	98,722
Industrial		213,017		217,065
Total	$	308,397	$	315,787


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

Nonperforming Assets
	At December 31,										At December 31,
	2021		2020		2019		2018		2017		2022		2021		2020		2019		2018
	(In thousands)										(In thousands)

Nonperforming nonaccrual loans	$	265	$	526	$	659	$	998	$	1,641	$	146	$	265	$	526	$	659	$	998
Performing nonaccrual loans		427		3,803		3,781		3,870		4,285		-		427		3,803		3,781		3,870
Total nonaccrual loans		692		4,329		4,440		4,868		5,926		146		692		4,329		4,440		4,868
Accruing loans 90 or more days past due		339		450		440		551		531		628		339		450		440		551
Total nonperforming loans		1,031		4,779		4,880		5,419		6,457		774		1,031		4,779		4,880		5,419
Other real estate owned		-		-		43		350		1,426		-		-		-		43		350
Total nonperforming assets	$	1,031	$	4,779	$	4,923	$	5,769	$	7,883	$	774	$	1,031	$	4,779	$	4,923	$	5,769

	At and For the Years Ended December 31,															At and For the Years Ended December 31,
	2021			2020			2019			2018			2017			2022			2021			2020			2019			2018
	($ in thousands)															($ in thousands)
Analysis of the Allowance for Credit Losses
Balance, end of prior period	$	23,854		$	19,484		$	21,351		$	23,009		$	25,954		$	23,514		$	23,854		$	19,484		$	21,351		$	23,009
Adoption of ASU 2016-13		-			2,017			-			-			-			-			-			2,017			-			-
Balance, beginning of period		23,854			21,501			21,351			23,009			25,954			23,514			23,854			21,501			21,351			23,009
Provision for (reversal of) credit losses on loans		2			4,307			-			-			(1,900	)		6			2			4,307			-			-
Loans charged off:
Commercial		(56	)		(236	)		(97	)		(513	)		(961	)		(20	)		(56	)		(236	)		(97	)		(513	)
Commercial real estate		-			-			-			(240	)		-			-			-			-			-			(240	)
Consumer and other installment		(3,192	)		(3,963	)		(4,473	)		(4,124	)		(4,957	)		(6,205	)		(3,192	)		(3,963	)		(4,473	)		(4,124	)
Total chargeoffs		(3,248	)		(4,199	)		(4,570	)		(4,877	)		(5,918	)		(6,225	)		(3,248	)		(4,199	)		(4,570	)		(4,877	)
Recoveries of loans previously charged off:
Commercial		228			351			768			1,447			762			376			228			351			768			1,447
Commercial real estate		743			49			196			-			88			62			743			49			196			-
Construction		-			-			-			-			1,899
Consumer and other installment		1,935			1,845			1,739			1,772			2,124			2,551			1,935			1,845			1,739			1,772
Total recoveries		2,906			2,245			2,703			3,219			4,873			2,989			2,906			2,245			2,703			3,219
Net loan losses		(342	)		(1,954	)		(1,867	)		(1,658	)		(1,045	)		(3,236	)		(342	)		(1,954	)		(1,867	)		(1,658	)
Balance, end of period	$	23,514		$	23,854		$	19,484		$	21,351		$	23,009		$	20,284		$	23,514		$	23,854		$	19,484		$	21,351

Net loan losses as a percentage of average loans		0.03	%		0.16	%		0.16	%		0.14	%		0.08	%		0.32	%		0.03	%		0.16	%		0.16	%		0.14	%

Selected financial data:
Loans	$	1,068,126		$	1,256,243		$	1,126,664		$	1,207,202		$	1,287,982		$	958,488		$	1,068,126		$	1,256,243		$	1,126,664		$	1,207,202
Nonaccrual loans		692			4,329			4,440			4,868			5,926			146			692			4,329			4,440			4,868
Allowance for credit losses as a percentage of loans		2.20	%		1.90	%		1.73	%		1.77	%		1.79	%		2.12	%		2.20	%		1.90	%		1.73	%		1.77	%
Nonaccrual loans as a percentage of loans		0.06	%		0.34	%		0.39	%		0.40	%		0.46	%		0.02	%		0.06	%		0.34	%		0.39	%		0.40	%
Allowance for credit losses to nonaccrual loans		3397.98	%		551.03	%		438.83	%		438.60	%		388.27	%		13893.15	%		3397.98	%		551.03	%		438.83	%		438.60	%

	Allowance for Credit Losses
	For the Year Ended December 31, 2021
												Consumer
				Commercial					Residential			Installment
	Commercial			Real Estate		Construction			Real Estate			and Other			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	9,205		$	5,660	$	6		$	47		$	8,936		$	23,854
(Reversal) provision		(2,411	)		126		(4	)		(2	)		2,293			2
Chargeoffs		(56	)		-		-			-			(3,192	)		(3,248	)
Recoveries		228			743		-			-			1,935			2,906
Total allowance for credit losses	$	6,966		$	6,529	$	2		$	45		$	9,972		$	23,514

	Allowance for Credit Losses
	For the Year Ended Decmber 31, 2022
												Consumer
				Commercial					Residential			Installment
	Commercial			Real Estate			Construction		Real Estate			and Other			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	6,966		$	6,529		$	2	$	45		$	9,972		$	23,514
(Reversal) provision		(1,184	)		(703	)		148		(13	)		1,758			6
Chargeoffs		(20	)		-			-		-			(6,205	)		(6,225	)
Recoveries		376			62			-		-			2,551			2,989
Total allowance for credit losses	$	6,138		$	5,888		$	150	$	32		$	8,076		$	20,284

~~Static Simulation (balance sheet composition unchanged):~~
~~Assumed Immediate Parallel Shift in Interest Rates~~		~~+1.00%~~
~~First Year Change in Net Interest Income~~		~~+13.2%~~

~~Dynamic Simulation (balance sheet composition changes):~~
~~Assumed Change in Interest Rates Over 1 Year~~		~~+1.00%~~
~~First Year Change in Net Interest Income~~		~~+7.9%~~

Dynamic Simulation (balance sheet composition changes):
Assumed Change in Interest Rates Over 1 Year	-1.00	%	1.00	%	2.00	%
First Year Change in Net Interest Income	0.30	%	2.70	%	5.10	%

Static Simulation (balance sheet composition unchanged):
Assumed Immediate Change in Interest Rates	-1.00	%	1.00	%	2.00	%
First Year Change in Net Interest Income	-7.60	%	6.70	%	12.90	%

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

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

	Page
Management’s Report on Internal Control Over Financial Reporting	50
Consolidated Balance Sheets as of December 31, ~~2021~~2022 and ~~2020~~2021	51
Consolidated Statements of Income for the years ended December 31, 2022, 2021 ~~2020~~ and ~~2019~~2020	52
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022, 2021 ~~2020~~ and ~~2019~~2020	53
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2022, 2021 ~~2020~~ and ~~2019~~2020	54
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 ~~2020~~ and ~~2019~~2020	55
Notes to the Consolidated Financial Statements	56
Report of Independent Registered Public Accounting Firm (PCAOB ID 173)	91

WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS

	At December 31,
	2021			2020
	(In thousands)
Assets:
Cash and due from banks	$	1,132,085		$	621,275
Debt securities available for sale		4,638,855			4,063,185
Debt securities held to maturity, net of allowance for credit losses of $7 at December 31, 2021 and $9 at December 31, 2020 (Fair value of $312,562 at December 31, 2021 and $529,678 at December 31, 2020)		306,396			515,589
Loans		1,068,126			1,256,243
Allowance for credit losses on loans		(23,514	)		(23,854	)
Loans, net of allowance for credit losses on loans		1,044,612			1,232,389
Premises and equipment, net		31,155			32,813
Identifiable intangibles, net		835			1,104
Goodwill		121,673			121,673
Other assets		185,415			159,903
Total Assets	$	7,461,026		$	6,747,931

Liabilities:
Noninterest-bearing deposits	$	3,069,080		$	2,725,177
Interest-bearing deposits		3,344,876			2,962,802
Total deposits		6,413,956			5,687,979
Short-term borrowed funds		146,246			102,545
Other liabilities		73,722			112,598
Total Liabilities		6,633,924			5,903,122

Contingencies (Note 12)

Shareholders' Equity:
Common stock (no par value), authorized - 150,000 shares Issued and outstanding: 26,866 at December 31, 2021 and 26,807 at December 31, 2020		471,008			466,006
Deferred compensation		35			35
Accumulated other comprehensive income		49,664			114,412
Retained earnings		306,395			264,356
Total Shareholders' Equity		827,102			844,809
Total Liabilities and Shareholders' Equity	$	7,461,026		$	6,747,931

WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME

	For the Years Ended December 31,
	2021		2020		2019
	(In thousands, except per share data)
Interest and Loan Fee Income:
Loans	$	57,558	$	59,377	$	58,153
Equity securities		458		419		392
Debt securities available for sale		105,420		91,343		74,147
Debt securities held to maturity		8,875		13,552		18,997
Interest-bearing cash		1,132		1,165		6,993
Total Interest and Loan Fee Income		173,443		165,856		158,682
Interest Expense:
Deposits		1,877		1,770		1,854
Short-term borrowed funds		78		53		34
Other borrowed funds		0		1		0
Total Interest Expense		1,955		1,824		1,888
Net Interest and Loan Fee Income		171,488		164,032		156,794
Provision for Credit Losses		0		4,300		0
Net Interest and Loan Fee Income After Provision For Credit Losses		171,488		159,732		156,794
Noninterest Income:
Service charges on deposit accounts		13,697		14,149		17,882
Merchant processing services		11,998		10,208		10,132
Debit card fees		6,859		6,181		6,357
Trust fees		3,311		3,012		2,963
ATM processing fees		2,280		2,273		2,776
Other service fees		1,884		1,837		2,255
Financial services commissions		356		372		392
Gains on sales of real property		0		3,536		0
Life insurance gains		0		0		433
Securities gains		34		71		217
Other noninterest income		2,926		3,998		4,001
Total Noninterest Income		43,345		45,637		47,408
Noninterest Expense:
Salaries and related benefits		48,011		50,749		51,054
Occupancy and equipment		19,139		19,637		20,240
Outsourced data processing services		9,601		9,426		9,471
Professional fees		3,253		2,423		2,465
Courier service		2,177		2,001		1,878
Loss contingency		0		0		553
Amortization of identifiable intangibles		269		287		538
Other noninterest expense		15,356		14,043		12,787
Total Noninterest Expense		97,806		98,566		98,986
Income Before Income Taxes		117,027		106,803		105,216
Provision for income taxes		30,518		26,390		24,827
Net Income	$	86,509	$	80,413	$	80,389

Average Common Shares Outstanding		26,855		26,942		26,956
Diluted Average Common Shares Outstanding		26,870		26,960		27,006
Per Common Share Data:
Basic earnings	$	3.22	$	2.98	$	2.98
Diluted earnings		3.22		2.98		2.98
Dividends paid		1.65		1.64		1.63

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

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

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

	At December 31, 2021									At December 31, 2022
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(In thousands)									(In thousands)
Debt securities available for sale
Agency residential mortgage-backed securities ("MBS")	$	399,997	$	11,766	$	(37	)	$	411,726	$	311,089	$	4	$	(25,045	)	$	286,048
Securities of U.S. Government entities		119		0		0			119
Securities of U.S. Government sponsored entities											306,336		3		(15,486	)		290,853
Obligations of states and political subdivisions		90,107		3,842		(29	)		93,920		84,024		59		(2,079	)		82,004
Corporate securities		2,692,792		63,573		(9,630	)		2,746,735		2,406,566		1,032		(307,643	)		2,099,955
Collateralized loan obligations		1,385,331		1,743		(719	)		1,386,355		1,587,326		527		(14,970	)		1,572,883
Total debt securities available for sale		4,568,346		80,924		(10,415	)		4,638,855		4,695,341		1,625		(365,223	)		4,331,743
Debt securities held to maturity
Agency residential MBS		147,632		3,112		(18	)		150,726		104,852		13		(7,503	)		97,362
Non-agency residential MBS		758		2		(19	)		741
Obligations of states and political subdivisions		158,013		3,082		0			161,095		89,208		73		(538	)		88,743
Corporate securities											721,854		-		(34,448	)		687,406
Total debt securities held to maturity		306,403		6,196		(37	)		312,562		915,914		86		(42,489	)		873,511
Total	$	4,874,749	$	87,120	$	(10,452	)	$	4,951,417	$	5,611,255	$	1,711	$	(407,712	)	$	5,205,254

	At December 31, 2021								At December 31, 2022
	Debt Securities Available				Debt Securities Held				Debt Securities Available				Debt Securities Held
	for Sale				to Maturity				for Sale				to Maturity
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value		Cost		Value
	(In thousands)								(In thousands)
Maturity in years:
1 year or less	$	306,333	$	309,257	$	15,836	$	15,941	$	251,578	$	250,317	$	12,676	$	12,659
Over 1 to 5 years		707,062		738,057		125,001		127,539		584,707		554,596		161,653		158,409
Over 5 to 10 years		2,320,559		2,347,242		17,176		17,615		2,869,559		2,570,159		636,733		605,081
Over 10 years		834,395		832,573		0		0		678,408		670,623		-		-
Subtotal		4,168,349		4,227,129		158,013		161,095		4,384,252		4,045,695		811,062		776,149
MBS		399,997		411,726		148,390		151,467		311,089		286,048		104,852		97,362
Total	$	4,568,346	$	4,638,855	$	306,403	$	312,562	$	4,695,341	$	4,331,743	$	915,914	$	873,511

	Debt Securities Available for Sale
	At December 31, 2021
	No. of		Less than 12 months					No. of		12 months or longer					No. of		Total
	Investment				Unrealized			Investment				Unrealized			Investment				Unrealized
	Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses
	($ in thousands)
Agency residential MBS		7	$	8,900	$	(37	)		2	$	47	$	0			9	$	8,947	$	(37	)
Securities of U.S. Government entities		0		0		0			1		119		0			1		119		0
Obligations of states and political subdivisions		6		2,859		(27	)		2		669		(2	)		8		3,528		(29	)
Corporate securities		56		691,555		(9,630	)		0		0		0			56		691,555		(9,630	)
Collateralized loan obligations		19		208,199		(521	)		8		51,523		(198	)		27		259,722		(719	)
Total		88	$	911,513	$	(10,215	)		13	$	52,358	$	(200	)		101	$	963,871	$	(10,415	)